Bangladesh goes for preferential and free trade agreements to continue enjoying duty-free export facilities even after graduating from LDC status
Dhaka switching to PTAs, FTAs to survive post GSP period
- Bangladesh-Bhutan preferential trade agreement signing likely this September
- 10 Bangladeshi products will get duty-free access to Bhutanese market under the PTA
- Dhaka will provide Thimphu with duty-free access for 16 products
- Dozen other agreements are in the pipeline; deal signing with Japan, Indonesia & Nepal likely this year
- Commerce ministry officials said Bangladesh will benefit from those agreements
- In FY2019-20, Bangladesh's exports to Japan stood at $120cr, $5.14cr to Indonesia, $4.6cr to Nepal, and $43 lakh to Bhutan.
Bangladesh is set to enter the era of bilateral duty-free trade agreements this month by signing a preferential trade agreement (PTA) with its South Asian neighbour Bhutan.
Dhaka is also looking to sign free trade agreements (FTA) with Japan, Indonesia and Nepal later this year.
The Ministry of Commerce has launched the initiatives to continue enjoying the existing duty-free export facilities even after Bangladesh's graduation from the status of a least developed country (LDC) to that of a developing one.
Bangladesh currently has no FTA or PTA with any country. The government did not feel the need for such agreements as the country, being an LDC, has been enjoying the generalised system of preferences (GSP) facility in other markets.
But the facility might be cancelled in 2024 after the country's graduation to a developing one. Therefore, the Ministry of Commerce is now emphasising such agreements as Dhaka is assessing bilateral free trade agreements with at least a dozen countries.
Commerce Secretary Jafar Uddin told The Business Standard that the draft PTA with Bhutan – the first country which recognised Bangladesh in 1971 – has been sent for cabinet approval.
"We are also working with the aim of signing agreements with Japan, Indonesia and Nepal this year," said the commerce secretary, adding that the draft of the agreement to be signed with Kathmandu has almost been finalised.
Mentioning Japan – the largest export destination for Bangladeshi products in Asia – as a very important market for Bangladesh in Asia, Jafar said, "We have requested Tokyo to continue the duty-free access for Bangladeshi products even after Bangladesh's graduation to a developing country."
The commerce secretary also mentioned that the Japanese ambassador to Bangladesh has assured Dhaka that Bangladesh would continue enjoying the GSP facility in the Japanese market. Towards that end, Tokyo has proposed to Dhaka the need for signing a PTA or FTA, he added.
"Giving priority to the proposal, we are working to complete a deal with Japan this year," he added.
Officials of the commerce ministry said the signing of FTAs or PTAs might appear to be disadvantageous for Bangladesh, but close assessments showed that Bangladesh will in reality benefit from such agreements.
"The agreements will enable us to have access to duty-free markets after losing the GSP facility in 2024," they observed.
The officials were positive about getting the nod of the cabinet on the PTA to be signed with Bhutan. Under the agreement, 10 Bangladeshi products, including readymade garments, will get duty-free access to the Bhutanese market, while 16 Bhutanese items will get duty-free facility to the Bangladeshi market.
The two neighbouring countries will later be able to add more items to the duty-free list.
The Bangladeshi products which will be covered under the PTA are babies' garments and clothing accessories, men's trousers and shorts, men's jackets and blazers, plywood, particle boards, mineral and carbonated water, green tea, orange juice, pineapple juice and guava juice.
On the other hand, the Bhutanese products that will get duty-free access to the Bangladeshi market are milk, natural honey, wheat or meslin flour, homogenized preparations of jams, fruit jellies, marmalades, food preparations of soybeans, mineral water and carbonated water, wheat bran, quartzite, cement clinkers, portland cement, soap, wooden particle boards, ferrosilicon, iron bars and rods or non-alloy steel and wooden furniture.
Commerce ministry officials said 18 Bhutanese products currently enjoy duty-free access to Bangladesh's market under a special trade agreement. Under it, Bhutan allows duty-free access for 90 Bangladeshi products, including cosmetics and readymade garments.
PTAs, FTAs are the need of the hour
Anwar-Ul-Alam Chowdhury Parvez, former president of the Bangladesh Garment Manufacturers and Exporters Association, stressed the importance of signing bilateral and multilateral trade agreements for Bangladesh.
"If the existing trade facilities are withdrawn after the country's graduation to the status of a developing country, duty-free exports to different countries can be continued under these agreements," he said.
"In the changing world trade situation, different countries are getting involved in bilateral FTAs or regional and multilateral trade agreements. Bangladesh also will have to move ahead aggressively to sign FTAs with countries where long-term export and investment will be profitable," continued Parvez.
Dr Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, told The Business Standard that Bangladesh, as a least developed country, has so far enjoyed unilateral trade benefits. As such, bilateral FTAs and PTAs had not been required.
However, now it has become urgent to sign FTAs with different countries, he said.
He said the commercial significance of the PTAs with Bhutan and Nepal is not very high, as Bangladesh's exports to these two countries are low.
"However, the inking of agreements with these two countries will help to measure Bangladesh's negotiating capacity and identify the problems in the implementation of such agreements. This will ease negotiations with Japan, Indonesia or any other big country in order to reach such agreements in future," he argued.
In the case of FTAs, Bangladesh needs to focus not only on the export of goods but also on the export of services, he maintained.
"There is a huge potential for manpower export to Japan. At the same time, there is an opportunity to get huge investment from the country. A comprehensive trade and investment agreement can be signed with Japan by including these issues," added Golam Moazzem.
Work on to sign more trade agreements
Commerce ministry officials said plans are afoot to sign an FTA with the USA as Washington has suspended its GSP facilities for Bangladesh. After the feasibility study, the Bangladesh Trade and Tariff Commission submitted a report to the commerce ministry in this regard. The ministry is currently reviewing it.
The commerce ministry is also working with various countries, including Thailand, Malaysia, Sri Lanka, Nigeria, Mali, Uzbekistan, Jordan and Turkey to sign FTAs or PTAs.
Although Vietnam – the country's close competitor in apparel export – has signed an FTA with the European Union (EU), Bangladesh is not interested in making such an approach now. It believes that the EU may revoke Bangladesh's GSP plus facility after its graduation to a developing country in 2024, but the EU's standard GSP facility to Bangladesh is more likely to continue.
A Memorandum of Understanding (MoU) on a joint feasibility study on Bangladesh-China free trade was signed in 2016 during Chinese President Xi Jinping's visit to Dhaka. Later, China proposed signing an FTA with Bangladesh, but Dhaka has been careful about going ahead with the suggestion.
Bangladesh imports a huge variety of products from China, with the consignments bringing in a whopping Tk30,000 crore in import duties. Moreover, the government is exploring the potentials of local industries, especially on the issue of whether they can compete with Chinese giants in a duty-free market.