Post-Brexit trade with UK seems to rest on promises

Policymakers and businesses seem to rest assured with the commitments made by British officials in the run-up to the Brexit that the United Kingdom will continue trade privileges entitled to Bangladesh under European Union's special scheme.

They do not see any problem, at least for this year, as the UK's trade arrangements with the EU will remain effective until transition period of Brexit, as "British exit" from the EU is nicknamed, ends on December 2020.

After that, what will happen to Bangladesh's trade relations with the UK, second largest partner in Europe and third in the world? Will a bilateral trade deal be needed to ensure the same duty-free access to British market as prescribed by the EU's "Everything but arms" (EBA) scheme for LDCs?

What will be trade relation with the UK after Bangladesh's graduation from least developed country status in 2024? The EU is expected to offer duty-free access for three more years to 2027. Can Bangladesh expect the same from the UK?

These are questions coming in minds of businesspeople and trade analysts.    
  
After a series of political wranglings for three years, the UK finally left the European club on January 31, 2020. Its trade relation with the rest of Europe will be guided by a new deal from the next year and the British government is working on the terms to safeguard its economy and businesses from possible negative impacts.  

With less than 11 months in hand, the British businesses have also started countdown as the government has asked companies to get their documents ready to comply with European customs rules applicable in post-Brexit days.
 
In spite of that, Businesses in Bangladesh seem not be in any hurry as they believe the government will put things straight in consultation with British authorities before the Brexit transition period ends in December.

Trade officials also seemed to be in a "wait and see" mode as they said they were waiting for reports from Bangladesh's missions in London and Geneva to work out what to do to secure privileged market access to the UK in post-Brexit days.

However, analysts alerted the government to the need for massive homework to keep the country's trade unharmed after the UK quits EU much earlier in 2018.

In a policy paper in November 2018, local think tank Centre for Policy Dialogue examined the terms of Brexit and their likely fallouts on Bangladesh's trade and economic relations with the UK. It forecast that Bangladesh's exports, remittances, FDI and aid could be significantly affected by Brexit.

If duties were imposed, British importers would have to pay an additional amount $366.2 million for 20 major Bangladeshi items, making those products costlier for Britons, said the paper, analysing the trade data of 2017-18 fiscal year. 

The likely additional import duty payment by UK importers is estimated to be equivalent to 11.7 per cent of UK's total import payments in case of Bangladesh.

UK's departure from EU will also make it difficult Bangladesh's trade with other European countries.

Many EU importers tend to import through the UK for onward shipment to the other EU countries, taking advantage of the EU-wide free trade area (duty-free market access under the EU Customs Union). These exports are also likely to be affected, depending on the terms of Brexit to be negotiated in the coming days, the paper pointed out.
 
If more stringent standards are imposed by the UK after the separation, for example with regard to Intellectual Property Rights (IPR) or Sanitary and Phytosanitary (SPS) measures applicable under the trading specifications of the UK, Bangladesh's exports to the UK might be negatively affected, said the paper.

Similar warnings were also aired by another study by Stevens and Kennan back in 2016. It said: if the UK adopts the MFN regime similar to that of the EU Customs Union, Bangladesh will be the country which will be the hardest hit among all the countries which receive 'better-than-MFN' market access facilities from the EU. 

The CPD policy paper, titled "BREXIT and Bangladesh: An Exploratory Study on Likely Economic Implications", said: If the UK does not offer any preferential market access to the LDCs, and in case LDCs such as Bangladesh have to face MFN (Most Favoured Nation) duties, there is likely to be serious loss of export competitiveness for these LDCs.
 
Hopes built on promises

UK officials have been indicating for years trade with Dhaka will follow regular rules until Brexit. But it should think of post-Brexit trade in terms of bilateral deals.

In an official release in 2017, the UK government announced its commitments that "around 48 countries, from Bangladesh to Sierra Leone, will continue to benefit from duty-free exports into the UK on all goods other than arms, known as 'everything but arms'." 

However, bilateral trade is guided by strict rules. The UK is not obliged to obey EU trade arrangements from January 1, 2021. So new arrangements have to be in place if Bangladesh wants to enjoy EBA-like privileges from the UK.

Bilateral trade relation needed 

Such repeated assurances may only be realised if Bangladesh is prepared to hold effective negotiations for the new arrangements as a graduating LDC, or as a part of the Commonwealth cohort, the CPD policy paper said.

"Bangladesh should start thinking about building a bilateral relationship with the UK on a new foundation in the backdrop of the Brexit referendum," it had said, listing market access conditions, Rules of Origin, Intellectual Property Rights, SPS standards, technical barriers to trade (TBTs) among the issues that may need to be negotiated anew. 

The UK-Bangladesh trade channel is also used by Bangladeshi exporters and UK importers to send goods onward to other European countries. The future dynamics of this practice will depend on how the EU-UK trade deal is negotiated. 

It had suggested that the government set up a task force to study the possible impacts of Brexit on the Bangladesh economy, and to design appropriate strategies to cope with the new situation.

"Bangladesh can negotiate with the UK unilaterally, or as a leading member of the LDCs," Prof Mustafizur Rahman, who co-authored the policy paper, told The Business Standard.

"We also need to keep in mind we are graduating from LDC, and to negotiate for EBA-like privileges from the UK," he said.

The UK has to sign deals separately with countries including Bangladesh for external trade once it ceases to be an EU member.

Even after Bangladesh's expected graduation from the LDC status by 2024, the country will receive market access to the EU under the EBA till 2027. UK may come up with a preferential scheme for the LDCs such as the EU GSP+, Prof Mustafizur Rahman said. We have to negotiate to make sure that such preferential treatment is not burdened with tough terms, he added.

Is the government thinking anything about it?

Trade officials could not say anything specific about Bangladesh's stance in future trade negotiation with the UK. In their brief comments, they claimed that they were well aware of the developments and officials in London and Geneva missions are on alert and in talks. 

Commerce Secretary Dr Zafar Ahmed told The Business Standard Bangladesh is taking preparation to get facilities from the UK government after the implementation of Brexit. 

"We have already started our work on this issue aiming to get more benefits from the UK market," said Sharifa Khan, additional secretary (FTA), Ministry of Commerce. 

The ministry has sent a letter to the commercial wing of Bangladesh mission in the UK, asking for their opinion within a week, how Bangladesh can get extra facility from Brexit compared with existing benefits under EBA in the EU markets, she added. 

"We also sent another letter to the Bangladesh Foreign Trade Institute (BFTI) seeking a possibility report on the UK Market as well as their suggestions" said Sharifa Khan.

BFTI chief executive officer Ali Ahmed said Bangladesh needs to sign separate deal with UK for doing business with the kingdom from 2021. Two years back UK officials at a meeting told our minister and other officials that they were willing to sign separate trade deal with Bangladesh, he said. 

We have to think whether we should start working for a bilateral free trade agreement, or have the UK on board in a sort of multilateral arrangements along with other European countries, he said, referring to Bangladesh's trade arrangements with EU.

"We are looking to create some new opportunities as per commitment of UK government, beside the existing duty-free exports into the UK on all goods Under 'everything but arms' (EBA),"
said Dr Mostafa Abid Khan, member of Bangladesh Tariff Commission.

Commerce ministry officials said Bangladesh tariff commission already discussed with Bangladesh mission at World Trade Organization (WTO) in Geneva to take preparation to negotiate with the UK government for extending the time from existing three years for achieving LDC graduation as well as for softened Generalised Scheme of Preferences (GSP) plus conditions. 

Businesses not worried, at least for now 

Business leaders do not see any immediate problem.

"No big problem is likely right now, at least for this year, as British officials have already said the trade privileges will be there," said Fazlul Hoque, former president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). 

"This doesn't mean that our government will sit idle. We hope the government won't take it lightly," the business leader said. 

Bangladesh needs to decide whether it will go for an FTA with the UK or any other arrangements keeping in mind the country's graduation in 2024, he added.

If Brexit hurts the British economy, it will be a real trouble for us, he warned.

Bangladesh Chamber of Industries president Anwar-ul Alam Chowdhury Parvez also referred to the UK promises, and aid, "We still have this year in hand. Countries like ours need bilateral trade deals with the UK to enjoy trade privileges," he felt.