Trade is an important component of the economy of Bangladesh.
The trade and economic liberalisation agenda were set by the Structural Adjustment Programme (SAP) initiative of the IMF and the World Bank in the late 1980s. Since then, Bangladesh has adopted an economic liberalisation strategy in line with global economic trends.
Trade liberalisation on a minimal scale, financial liberalisation, and RMG export enabled the private sector-backed trade growth in Bangladesh. The US and European high street companies largely helped us create a breakthrough in trade, as they turned to low-cost manufacturing hubs in the country.
Until the end of the last fiscal year, the international trade of the country as a ratio of GDP reached around 29 percent, and export trade reached around 13.53 percent of GDP, marking a positive correlation between trade growth and GDP growth.
The 7th five-year plan and other perspective plans of the country underscored export-oriented economic growth through export-oriented industrialisation, based on the consistent track record of export growth. RMG earnings created huge aspirations and based on it, $50 billion was projected in RMG export earnings by 2021, which was revised later as it was hard to achieve in the context of the industry.
International trade is linked to both foreign and local investments. If trade growth is good, it encourages foreign investment. Investment was low in the country despite a growing trend in export-oriented manufacturing. FDI was recorded at 26 percent lower last year.
However, Bangladesh has many challenges in international trade, including tariff and non-tariff issues. Tariff issues include the fact that different countries often change trade policy and strategy, and non-tariff challenges are eternal issues in the context of our country, which incrementally restrict the import, sometimes countervailing duty on the excuse of dumping.
The national budget is a major policy document of yearly economic development plan and hints at some policies and strategic indications for growth in trade regime in Bangladesh. The national budget of FY21 retained some conventional measures like cash incentives in some export-oriented products, which are appreciable moves.
Alongside the budget, the stimulus package pertaining to the ongoing pandemic also provided some protective measures, including low-cost revolving fund, salary support fund, EDF limit hike, and low CRR for off-shore financing.
These were incorporated into the monetary policy but the monetary policy of FY21 has not indicated any new recourse in trade development. But effective and timely policy, and process and cooperation moves considering the pandemic and removal of the long-standing issues are required to improve international trade.
The conventional challenges of our trade are limited air, sea and land port infrastructure for handling, storage, logistics, limited market and product diversification, higher tariff in the US market, higher cross-border compliance time and cost, and policy mismatch and non-compliance of WTO rules for LDCs by developed countries. The pandemic enfeebled our current trade.
According to WTO, world trade is expected to fall by 13% to 32%, and other projections indicated further fall in 2021 and 2022. UNCTAD projected $5.26 trillion in global trade loss in 2020, and the hardest hit are automobile and petroleum products.
In export trade of Bangladesh, almost all key sectors, RMG, leather and agro-processing, and chemical and ceramic products marked negative growth, except a very slight growth in pharmaceutical and jute products.
Our merchandise export recorded $33.67 billion, and import $49.98 billion, till the end of this fiscal year, and export was 16.93 percent less than the previous fiscal year due to pandemic adversities. The huge trade fall in the world warns us to put some protective measures for tackling further trade loss.
Covid-19 meanwhile devastated the supply chain system of almost all heavyweight industrial and developed countries and that has created some cascading effects on our export potential. In the US, export fell by 20.5 percent and import fell by 16.7 percent till June 2020, and in the EU, the decline was projected to be a maximum of 16 percent.
In this unprecedented time, Bangladesh needs to formulate and adopt some strategies to rehabilitate its trade. In this connection, UNCTAD encouraged all countries to keep trade barriers as much low as possible and follow amicable strategies for shared trade regime recovery balancing live and livelihoods, and emphasised on common agreement on life-saving pharmaceutical products and food for the interim period.
In view of the above, some measures may be adjusted to overcome trade deficit in the country, address the immediate trade challenges and secure sustainable trade regime in the long run. We are required to adopt some necessary regulatory and process restructuring inside the country, and some dynamic trade and economic diplomacy beyond the border and across the regional markets.
The conservative trade policy and limited liberalisation do not help Bangladesh earn a large pie in the global trade market. Since economic diplomacy is a priority of the government, we must utilise it for our economic betterment.
Alongside, some other strategic issues need to be addressed in terms of international cooperation and Covid-19 implication recovery. Since the US does not allow flexible opportunities for Bangladesh in tariff and the EU market GSP plus is conditional, we must engage our continued geo-political and strategic cooperation in these avenues for trade growth. Taking the current state of the economy into account, the following strategic endeavours can be recommended:
- The WTO recommended flexible application of Trade Related Intellectual Property (TRIPS) and other trade measures like limiting the countervailing measures and anti-dumping for the interim time to facilitate access to affordable life-saving medicines to safeguard the humankind. An interim ministerial session can be held to keep the restrictions at the minimum to keep the trade flow of the country moving. According to the WTO, pandemic introduced export restrictions in 80 countries through restrictive protection protocol in ports which need to be relaxed for the time being.
- Lead time and higher costs for weak modus operandi in trade process, as Chattogram sea port, land port and airport have traditional infrastructural limitations in terms of drafting, berth, storage, container handling, logistics facility and hinterland transport connectivity, which need to be improved as per regional standards. The slowdown in port operation process adds cost and time inefficiency, making trade non-competitive to some extent. Private port, deep seaport for frequent vessel traffic management and clearance process are critical.
- Restore GSP facility from the US and extend the GSP facility of the EU beyond economic graduation. The US ceased our GSP facility for no good reason while at the same time the GSP facility continued for other countries. Bangladesh is a proven and useful trade partner of the US. The US needs to restore the GSP as the preferential trade treatment given to almost all LDCs.
- Economic diplomacy needs to be extended for specific GSP benefits even after LDC graduation. The Hong Kong round of WTO in 2005 had the decision of DFQF facility for all LDCs which still has not been implemented by most of the developed countries. So, diplomacy from the foreign ministry should continue with the developed countries for consideration.
- Regional agreements like FTA or PTA with single country and small regional economic union can be approached. Bangladesh is yet to sign any FTA though long-held discussions continued with Sri Lanka and Malaysia. Bhutan, Nepal and Indonesia are in discussion for signing PTA with Bangladesh. But these need to be moved forward and implemented soon. We must follow a principle of signing FTA with countries having import reliance on Bangladesh, and PTA with countries having import dependence on our low-priced import. Any bilateral FTA can be a learning case in international trade for further prospect in open trade.
- TICFA has not been implemented yet since the memorandum of understanding, and needs to be implemented. It may bring in new investment in promising avenues like 4IR technologies, structured industrial zones, and leather and other promising sector which can be exported to the US market or other US export destinations. But some unforeseen bottlenecks have held back the progress of its implementation. TICFA can be an ideal platform to negotiate our pending bilateral trade and economic interests.
- Preferential treatment as per the Bali agreement of the WTO for LDCs, including Bangladesh, for service trade growth. Our service trade is around $13 billion and its growth can be compounded if the definition, extent and features of service by UNCTAD and the WTO can be streamlined and made uniform through affiliation of Foreign Affiliates trade in Services Statistics (FATS) for better service trade record. Our service sector export growth is very lower against the service sector to GDP contribution, and the potential can be harnessed.
- The WTO LDC forum can demand refraining from imposing export prohibitions by developed countries on medical goods and food. Pandemic-affected developed countries tend to put protection measures to safeguard their local industries which may create negative impacts on our economy. In this regard, the WTO needs to intervene to shield the interest of 36 LDCs, including Bangladesh.
- Bangladesh is strategically important in this region with geographical advantage with some ASEAN neighbouring countries, and it maintains harmonious relation with regional peers. The economies of ASEAN are emerging. So, this could be a potential target for trade and investment attraction. We need to accelerate the diplomacy to become an observer of ASEAN bloc, and later can be the full member for easy trade access to this huge economic bloc.
- Expedite the negotiation for BIG-B initiative and One Belt One Road (OBOR) initiative implementation for regional economic integration and connectivity to exploit trade market. In this regard, regional cooperation needs priority, keeping political and other differences aside.
- The Comprehensive Economic Partnership Agreement (CEPA) process was agreed upon but this needs to be a win-win with lowered trade gap, as India already exports worth almost $10 billion to Bangladesh. SAFTA has been a dead horse since ages due to disagreement on country-wise sensitive and non-sensitive products' list, which leads to potential export restrictions from LDCs in SAARC states. Streamlining of the sensitive and non-sensitive list need to be ensured with the guidance of the WTO to make SAFTA functional. SAFTA ministerial meetings are not taking place since long. Due to regional political discord and non-cooperation, the list of product restriction, unilateral tariff and para-tariff imposition issues are soaring without amicable solution. We need to work out whether bilateral CEPA or broad-based SAFTA will be beneficial for us.
- Out of 54 foreign trade missions of Bangladesh, only five failed and the rest achieved the target but still trade growth is negative. Trade and commercial missions should be given a larger target with new product market development through economic diplomacy. Since trade missions are the ambassador of our country, they are required to diligently and strategically promote our traditional and new export items for higher export growth.
- Nationwide export-oriented industry should have some contingency resistant industrial operation protocol in association with the WHO and the ILO for quicker functioning of our export-oriented industrial operation to have our trade resurge.
Bangladesh has meanwhile met the three criteria of economic graduation into a developing country, though the developing country status is subject to successful passing in the next two triennial review of the UNCDP. The ongoing economic slowdown may hamper the sustenance of performance in the next round of review and even the WTO has expressed its concerns.
If this pandemic persists longer, Bangladesh may think of deferral of review considering post-graduation preparedness and consequences. Thus, the shift and turnaround in international trade of Bangladesh can happen.
Bangladesh is nearly approaching the trade-led economic growth regime. In this regard, our combined and planned course of actions need to be engaged with different terms to exploit our international trade opportunities in the years to come.
Our pro-business government needs to create some term-plan of actions to deal all eternal trade challenges, and tap into trade scopes for ensuring meaningful trade liberalisation and economic growth. The vision of a developed economy upholding the spirit of economic emancipation of Sonar Bangla is marching forward, and diverse and backward industry-led international trade growth is vital for translation of our much-desired economic transformation.
AKM Asaduzzaman Patwary is Additional Secretary, R&D Dept, DCCI.