When Bangladesh loses duty-free facilities after graduating to a middle-income nation, its future trade benefits are likely to become dependent on bilateral trade agreements.
To prepare for this scenario, Bangladesh has already reached a decision over signing bilateral free trade agreements (FTAs) with Bhutan and Thailand – after a series of discussions with both countries over nearly two decades.
Fresh talks to sign FTAs with 17 other countries, including the United States, Turkey, China, India, Pakistan, Saudi Arabia and Malaysia are also in the pipeline. Furthermore, bilateral Preferential Trade Agreements (PTAs) with Nepal, Indonesia, India and Myanmar are also on the cards to protect and boost Bangladesh's trade interests.
As Bangladesh is likely to lose duty-free facilities once it graduates to a middle-income country, there are no alternatives but to sign such agreements, said Dr Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue.
"Before signing an FTA with a country, the government must thoroughly analyse the present state of Bangladeshi products in that particular country's market, and how much demand for the products can increase there," he added.
Bangladesh and Thailand decided to sign the agreement at the 5th Joint Trade Committee meeting on January 8 this year, although discussions first began in 2000.
Thailand has completed its feasibility study to assess how the FTA is going to affect its domestic manufacturing sector and the product market. Meanwhile, Bangladesh has yet to complete its feasibility study.
Bangladesh has completed feasibility studies in Bhutan, Malaysia and Sri Lanka.
FTAs are designed to minimise trade barriers between two or more countries that seek to help protect local markets and industries.
As per the 2010 Bilateral Free Trade Agreement Policy, it is mandatory to conduct a feasibility study prior to signing a free trade agreement with a country.
Thailand stands 15th in terms of the bilateral trade value, while Bhutan does not place in the top 20.
The bilateral trade between Bangladesh and Thailand was Tk8,285 crore in the fiscal year 2018-2019. Bangladesh imported goods amounting to a Tk8,046 crore value and exported a total of goods worth just Tk239 crore.
Some major import items from Thailand are: plastic pellets, chemical products, textiles, steel, tapioca products, air conditioners, cosmetics, automobiles, and car parts.
When it comes to inking an FTA with Bhutan, all formalities, including a feasibility study, have been completed – and both the neighbouring countries are going to strike a deal this year. They are likely to hold a commerce secretary-level meeting on January 28 this year, in Bhutan, to this end.
Meanwhile, trade with Bhutan was worth Tk458 crore in the last fiscal year while exports were worth Tk38 crore.
Bangladesh primarily imported spices and fruits – like oranges and apples – from Bhutan in the last fiscal year.
Bangladesh exports garments, scientific and medical gear, fresh and frozen aquatic animals, plus machinery and parts to both countries.
If both countries sign the FTAs, a new window of opportunity will open up for Bangladeshi products, said Khandakar Aminur Rahman, member (customs and international trade agreements) of the National Board of Revenue.
"The trade among Bangladesh, Bhutan and Thailand will expand. Our readymade garments and medicine will get new export destinations," he added.
Md Abdus Samad Al Azad, joint secretary (FTA Cell), said Bangladesh has almost finalised the FTA with Bhutan and the feasibility study for the FTA with Thailand is underway. The FTA Cell has also continued discussions with European, Eurasian and Latin American countries for free trade agreements.
Although Thailand and Bhutan do not have major stakes in Bangladesh's import-export trade, the government is going to sign FTAs with the countries to create new markets – and attract other countries such as India, China and the United States to follow suit.
China is Bangladesh's single-largest trading partner – in terms of both import and export values.
In the fiscal year 2018-19, Bangladesh's imports from China were Tk1,14,594 crore, while exports totalled Tk6,982 crore, according to Bangladesh Bank data.
Bilateral trade with the United States and India was Tk72,690 crore and Tk72,074 crore, respectively, in the last fiscal year.
Bangladesh has trade relations with 198 countries according to the commerce ministry and the tariff commission. The country has a trade gap with 71 of the countries.
To reduce the trade deficit, the government has taken the initiative to sign FTAs and preferential trade agreements with many countries.
Trade experts said Bangladesh can develop bilateral trade relations by signing the FTAs. However, their effectiveness and sustainability will depend on how skilfully Bangladesh can negotiate to protect its interests during a bilateral discussion prior to signing an FTA. The efficiency of local entrepreneurs is also crucial.
Chief Executive Officer of the Bangladesh Foreign Trade Institute Ali Ahmed also stressed the need for multilateral trade arrangements – including FTAs – to overcome the shocks of probable export losses, particularly in the European market, after Bangladesh's graduation from LDC in 2024.
"We have to try very hard, in earnest, to sign as many free trade agreements as possible to keep our market size open," he told The Business Standard.
He suggested that Bangladesh consider signing FTAs with the US, Canada, India, China, and the European Union.
"The process takes years. But, we can apply. We have already lost a few years."
Bangladesh has initiated fresh talks to sign FTAs with: Argentina, Brazil, Paraguay, Uruguay, Sri Lanka, Vietnam, the United States, Turkey, Palestine, China, India, Pakistan, Saudi Arabia and Malaysia.
Initiatives Taken To Sign Other Agreements
Bangladesh has taken the initiative to ink a few more trade deals – other than the FTA – to face the post-LDC graduation challenges.
The preferential trade agreement (PTA) is one of them. The PTA is a trading bloc that gives preferential access to certain products from participating countries. This is done by reducing, not abolishing, tariffs.
Bangladesh has made much progress towards signing PTAs with Nepal and Indonesia. The agreements with them will be signed by this year through negotiation, said sources at the commerce ministry.
Discussions are underway with India and Myanmar too.
Under the SAARC Preferential Trade Arrangements (SAPTA), member countries maintain a sensitive list. The listed products do not enjoy tariff concessions. The government has been working to reduce the number of sensitive products to as few as possible from the existing 987 and increase the number of duty-free products in member countries from 4,648 to 10,677.
Additionally, the government has also signed trade agreements such as the: Saarc Agreement on Trade in Services, the Trade Preferential System among OIC Countries, the Preferential Trade Agreement among Developing-8 (D-8) member states, plus the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC FTA).
Abdus Samad of the FTA Cell said there is no alternative but to access the markets of different countries – with low duty or duty-free facilities – through FTAs.
The government has been assessing whether it is possible to benefit economically from the signing of a free trade agreement. It has also been considering the opinions of stakeholders, he said.
Further, the government is considering signing bilateral trade deals, he added.