ON Monday, the cabinet approved the draft Ticfa -- even though the process started more than two decades back, the inter-ministerial meeting on Trade and Investment Framework Agreement (TIFA) began only a decade ago. However, the entire process had been stalled due to criticism, particularly from civil society and development activists.
Perhaps the timing of the approval speaks volumes.
From the strategic point of view, this agreement will bring Bangladesh-US relations to a new height. Even though Bangladesh recently conducted a few bilateral partnership dialogues with the US, there is still no formal mechanism for discussions on issues pertaining to trade and investment.
Once signed by the two countries, this agreement is expected to provide a formal space between the countries on increasing trade and investment relationships. Currently, the American Chamber of Commerce in Bangladesh and Bangladesh Chamber of Commerce US are involved in protecting business interest of the two countries, where state parties are not involved in addressing bilateral trade and investment matter.
Currently, the US is one of the largest trading partners of Bangladesh, from which the latter enjoys a huge trade surplus. In the fiscal year 2011-12 the bilateral trade volume was $5.8 billion with the second-highest position with a trade surplus of $4.4 billion. At the end of this fiscal year, as the data of the last eleven months show, it would be Bangladesh's third largest trading partner because of high import from India.
Nevertheless, both India and the US are likely to remain close in terms of trade volume with an estimated trade of slightly more than $6 billion. From July 2012 to May 2013 Bangladesh exported about $4.5 billion of RMG items to the US, of which woven garments accounted for $3.5 billion. As the US is the largest export destination country, especially for RMG products, it is of utmost importance to secure this market to finance large trade deficit with the two giants, China and India.
The two recent major tragedies, Tazreen and Rana Plaza, that posed a big question mark over GSP facility in the US market seem to be in the background for now because of approval of Ticfa. However, the ruling party in the US is insufficiently empowered to influence decision on whether GSP will continue. But optimists would, for the time being, conclude that it would send a positive message to the US policymakers that Bangladesh is at least ready to resolve all trade related matters under a 'formal' framework.
As per the latest Bangladesh Bank survey report, FDI from the US was in 7th position with $25.6 million in January-June 2012. Majority of the FDI came in the gas and petroleum sectors ($13.5 million) followed by banking ($8.9 million). However, the US had the second-highest position with $696.7 million at end-June 2012 if we consider FDI.
The gas and petroleum sectors again received the highest FDI ($521.68 million) followed by banking sector ($123.6 million). FDI from the US is traditionally seen to be important for developing our energy sector even though it received critical attention of many local scholars and development activists.
In the latest bidding of offshore natural gas blocks, very few international oil companies participated -- Conoco-Phillips is one of them. Bangladesh's public investment in surveying and drilling offshore gas field is considered to be economically unviable because of lack of technical ability and high uncertainty with such a huge investment.
Conversely, although the government does not allow direct investment from the country to the US, a formal government-to-government bilateral framework agreement on investment promotion and protection would help derive maximum benefit out of the US FDI in Bangladesh.
Apart from these apparent benefits, there are apprehensions regarding intellectual property rights (IPR), environmental standards, non-tariff barriers and governance issues, particularly corruption and bribery. Some of these are not very difficult to address gradually.
The major problem is the enforcement of Trade-Related Intellectual Property Rights (TRIPS), which would have detrimental impact on the ICT and pharmaceuticals industries among others. As per the published reports on Ticfa, one party will guarantee the protection of another's IPR.
Even though WTO has extended the relaxation of trade related IPR for countries like Bangladesh up to June 2021, there is a caveat for the ICT sector in Bangladesh where piracy is still a big issue.
On the other hand, Bangladesh does not have much to lose in the US as we can see from the statistics of the country's patent application. Another area of apprehension is linking environment with trade and investment, because it would be difficult for Bangladesh to address externality and adopt carbon tax, environmental tariff, etc., as per the standard set by the US.
The issues of labour standard, decent workplace and safety are being gradually addressed by the government and being adopted fairly by the firms in EPZs; the government of Bangladesh has just initiated a labour law that includes major compliance issues. But still there are many export oriented firms in which the issues are rarely taken into consideration.
Furthermore, measures to reciprocally eliminate non-tariff barriers and reduce tariff are difficult to adopt because of greater national economic interests.
Above all, there is a need for political consensus about national ownership of such an important agreement, which is largely missing in Bangladesh. Given this backdrop, the chance of deriving benefit out of such an agreement is meagre for Bangladesh, given the fact that the country is yet to work on these critical issues.
News reports reveal that the US government will consider reducing the existing high duty on Bangladesh's exports to its market. Besides saving GSP, Bangladesh must initiate preparations in the areas of tariff and non-tariff barriers through rigorous policy analysis since the government has approved the draft agreement.
It will not be an easy task for the government departments concerned to tackle the issues related to labour standards, safety, environmental standards and intellectual property since no work has been started to prepare a feasible work plan and a pragmatic timeline for them.
Thus, to derive maximum benefits from Ticfa, the government should immediately form a task force including scholars, professionals and civil society members in the relevant field. It is also very important to commence national dialogue through all means -- print and electronic media, seminars and symposiums, and scholarly deliberations -- so that a national consensus can be developed regarding this extremely sensitive agreement.
The writer is an economist and Senior Research Fellow at BIISS, Dhaka.