Bangladesh should sign comprehensive trade deals with key partners

Bangladesh needs to sign comprehensive trade agreements with its major partners in order to retain preferential access to key international markets after graduating from the least developed country (LDC) status, according to experts.

Only the EU will provide a three-year grace period, during which Bangladeshi exports will enjoy duty-free access to the market, following the country's graduation in 2024.

Therefore, the signing of preferential trade agreements (PTAs) or free trade agreements (FTAs) with other developed nations might ease the burden of export taxes to some extent, they said.

Although the process of signing PTAs with Bhutan and Nepal is already underway, Bangladesh needs to sign such agreements with higher-income countries like the EU, the USA and Canada.

"It is good that Bangladesh started the process of signing PTAs," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD).

"However, we have to sign agreements with our major trading partners like the EU, Association of South East Asian Nations (ASEAN), the US and Canada as the trading preference will erode after graduation," Rahman told The Daily Star over phone.

In most cases, Bangladesh should look to sign Comprehensive Economic Partnership Agreements (CEPA), which not only cover duty, but also investment, logistics, services and other important issues.

The country should begin trade negotiations immediately in order to secure the zero-duty benefit after graduation, he added.

Bangladesh currently enjoys zero-duty benefits, preferential trade benefits and regional trade benefits on exports to 38 countries, including 28 in the EU, thanks to its LDC status.

After the country graduates though, it will have to fulfil the reciprocity clause.

This means Bangladesh will have to provide some trade benefits to its trading partners, and so, this should be negotiated now, Rahman said.

Some 74 per cent of Bangladesh's export earnings come under preferential trade as an LDC. Of that percentage, 64 per cent comes from the EU and 10 per cent from Japan, Canada and other developed countries.

The government should also increase its revenue generation from internal sources as the signing of trade agreements will erode tax collection.

Bangladesh currently earns about $2 billion annually as tax on imported goods worth $17 billion from China, while logging $800 million in taxes from $8 billion worth of imports from India.

And since these are major sources of income for the government, it does not feel the need to encourage the signing of FTAs. Bangladesh also needs to strengthen its laws on intellectual property rights, labour, banking and insurance in order to enjoy the real benefits of the CEPA, the trade analyst and noted economist added.

Mohammad Abdul Momen, a professor of the Institute of Business Administration (IBA) at the University of Dhaka, echoed the same.

The signing of FTAs or PTAs with high-income nations is always beneficial, said Momen, also a director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

"We also need to increase our export basket," he added.

MA Razzaque, research director of the Policy Research Institute, said regional markets are important and therefore, signing PTAs with Bhutan and Nepal is a timely initiative.

However, the value these markets bring is no match for major export destinations like the EU, Canada and Japan.

"We need to engage with Australia, Canada and others to request an additional transition period after graduation, following the example of the EU," Razzaque said.

Besides, Bangladesh must negotiate with India to get the same treatment as the Maldives. Under SAFTA Article 12, the Maldives was allowed to have the same market access benefits as an LDC after graduating in 2011.

To address this issue, a high-powered trade representative or negotiator's office should be formed to launch proactive trade engagements with major trade partners.

Securing an FTA can take anywhere between seven to ten years but the country has not started any such negotiation.

Imagine a situation in 2027, when Vietnam will have duty-free access to the EU and Bangladesh will have to pay 9.5 percent tariff, Razzaque added.

However, Commerce Secretary Md Jafar Uddin said Bangladesh is currently in negotiations with 11 countries and two major trade blocs either to sign PTAs or FTAs.

A joint study is also ongoing over signing a proposed CEPA between Bangladesh and India.