The signing of Regional Comprehensive Economic Partnership (RCEP) on November 15 involving the ASEAN and some other Asia Pacific countries including China, Japan, South Korea, Australia and New Zealand has caused excitement in the policy debates in Bangladesh.
Given that it's the world's largest trade bloc, covering 30 percent of World's GDP and nearly 2.2 billion people in the Asia and Pacific region, the Ministry of Commerce has formed a committee - as reported in the media on November 24 - to assess the impacts of RCEP on Bangladesh's export trade.
Participation of countries in international trade has had far-reaching consequences in the last seventy years. Global GDP has increased manifold, poverty reduced substantially, technological innovations surged, and people of the world experienced higher level of prosperity and livelihood.
The same is true for Bangladesh. Because of increased participation in the international trade of goods and services in the last four decades; Bangladesh has developed its much vaunted garments sector and exports of millions of manpower across the world, which have facilitated acceleration of its GDP, development of its industries, reduction of its balance of payment risks, substantial reduction of poverty and generation of employment.
The modern phase of international trade started after the damaging beggar-thy-neighbour policy adopted by leading economies and the scar of Great Depression in the1930s.
After much political wrangling between the US and British counterparts over a rule-based trade framework after the World War II, countries started trade negotiations under General Agreement on Trade and Tariff (GATT) in 1947, which was translated into World Trade Organisation (WTO) in 1995, with enhanced legal and institutional power and capacity.
The enlargement of WTO and emergence of developing countries on the global stage in the last four decades have made further negotiations on multilateral trade precarious.
After successful eight rounds of trade negotiations since the formation of GATT in 1947, diverse and competing interests of different countries, especially between developed and developing countries, had brought the Doha round trade negotiations (started in 2001) to a standstill. Developed and developing countries could not reach an agreement on trade matters of agricultural products. As countries could not settle their differences, the negotiation was deferred up to 2006. Finally, the negotiation was declared dead in 2015 by WTO members.
In the face of protracted and unsuccessful multilateral negotiations mostly under the Doha round for almost two decades, countries started to give much focus on regional and bilateral free trade agreements. In the last two decades, there have been a flurry of regional and bilateral free trade Agreements (FTAs) across the world.
According to WTO database, as of September 20, 2020, 306 Regional Trade Agreements (RTAs) have been initiated across the world, including the US-led (North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP) (although the Trump Administration withdrew itself from TPP), RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
By now, many countries have initiated and joined regional trade blocs and FTAs in every region and continent.
There has been a policy deficiency in Bangladesh in this new reality. Over the years, the country could not make much progress in joining regional trade blocs and forging FTAs with its most important economic partners, although these issues have been around for around two decades.
Its competitors like Vietnam and even South Asian counties like India, Pakistan and Sri Lanka have initiated or signed FTAs with their trading partners.
There have been two initiatives under the frameworks of South Asian Free Trade Agreement (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and some efforts have been made to have an FTA with Turkey; but, these initiatives have not got final shape. An FTA wing has been working at the Ministry of Commerce.
Bangladesh seems to be complacent on the special and differential treatment it has been enjoying under multilateral trade framework, especially the facilities given to least developed countries (LDCs) by the Generalised System of Preferences (GSP).
As Bangladesh is going to graduate from LDC status in 2024, this preferential treatment would wither away. Moreover, its main export rival – Vietnam - has already signed an FTA with the European Union (EU). So, once Bangladesh has graduated from LDC status, the country would not get preferential treatment in many markets, including EU, and has to face stiff competition from its rivals.
Through the formation of a committee under the leadership of the Ministry of Commerce to assess RECP, Bangladesh has lately understood the reality. But, the issues of RTAs and FTAs are very complex. It involves matters like trade creation and diversion (out-compete of a cheapest product in a non-partner country) effects, short term and long term effects, value chain, rent seeking and political economy of import substitution industries, policies for the attainment of product diversification, productivity development, economics of scale, technology transfer and foreign direct investments, intellectual property rights etc.
All these matters entail rigorous analysis and research, institutional development and necessary policy measures. To what extent the country will cope with this new reality of international trade will depend on how effective the policy initiatives the country undertakes in these areas in the coming years.
Md Waheed Alam studied International Political Economy at Nanyang Technological University, Singapore. The writer can be reached at [email protected].
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.