The government has finalised a draft of a preferential trade agreement (PTA) to be signed between Bangladesh and Bhutan within the next month.
The commerce ministry will place the final draft of the proposed agreement at the cabinet meeting, to be held tomorrow, for final approval, Commerce Secretary Jafar Uddin told The Daily Star over phone yesterday.
If the deal goes through, it would be the first formal PTA for Bangladesh with any country.
The signing of the PTA with Bhutan indicates that Bangladesh is pro-active in trade negotiation, said MA Razzaque, research director of the Policy Research Institute (PRI).
The signing of PTA with Bhutan has dual significance, including a historical legacy, as both members of the South Asian Association for Regional Cooperation (Saarc) have trade links between the two, he said.
In June, the ministry sent the terms and conditions of the PTA to the law ministry for vetting.
"With the cabinet's go-ahead, we can sign the deal anytime time soon, preferably within a month after the completion of all formalities," the commerce secretary also said. Commerce ministers of the two nations will sign on behalf of their respective countries.
Under PTAs, some select goods enjoy duty benefits whereas under free trade agreements or FTAs, almost all do.
The rapid increase in PTAs has been a prominent feature of international trade policy in recent times.
PTAs constitute an exception to the general most-favoured nation (MFN) provision of the World Trade Organisation (WTO), where all WTO members impose on each other the same non-discriminatory tariff.
All WTO members, sans Mongolia, have signed at least one PTA. The interest in negotiating PTAs appears to have sustained despite the global economic crisis, the WTO also said.
Bhutan agreed to provide duty benefits on the export of 100 different Bangladeshi goods, including garments, processed agricultural goods and electronics.
On the other hand, 34 Bhutanese products, including fruits, will enjoy the same benefit in Bangladesh.
Being members of Saarc, trade between Bangladesh and Bhutan is on the rise as both countries have demand for each other's products.
Trade between Bangladesh and Bhutan, which amounted to $26.52 million in fiscal 2012-13, reached $57.90 million in fiscal 2018-19, according to data from the commerce ministry.
Currently Bangladesh has been negotiating with few other countries to finalise FTAs in order to enjoy duty free benefits even after its graduation from the least developed country (LDC) category, Uddin said.
For instance, a joint study is going on to sign the proposed Comprehensive Economic Partnership Agreement (CEPA) between Bangladesh and India.
Bangladesh needs to sign a CEPA with some countries as only signing the PTAs or FTAs will not work, he added.
The CEPA is a comprehensive partnership between the two countries, which also includes investment, whereas the PTAs and FTAs cover tariff issues.
So, the signing of a CEPA between Bangladesh and India can ensure more trade and investment between the two neighbours, he said.
"However, we can say in details about the CEPA after the completion of the joint study, which is going on between the two countries," Uddin also said.
Bangladesh will have to sign different trade pacts like FTAs, PTAs and CEPA with the potential trading countries or trading blocs for enjoying the trade benefits after its graduation to a developing country.
"We have to be active in signing the FTAs and PTAs for our own interest. It is a good signal that we are pro-active about PTA and FTA," Razzaque of PRI said.
Bangladesh should also sign FTAs with the vital trading partners or trading blocs like ASEAN and EU so that the country is greatly benefited after its graduation, which will eliminate the guaranteed duty privileges for the country, he said.
For instance, Bangladesh can start negotiation with the Association of South East Asian Nations (ASEAN) so that the country can grab more market share within the Asian region, he said.
If it is not possible to enter the league of ASEAN, the signing of FTA with a single member of the ASEAN can also be highly beneficial for Bangladesh, he said.
For example, if an FTA can be signed with Malaysia or Indonesia, Bangladesh would be able to enjoy greater duty benefit of the ASEAN through its member country, he said. "However, we have to understand whether we are ready to open up our economy or not through the signing of the FTAs or CEPA or PTA."
Currently, Bangladesh has no FTA with any of the country although the government has long been trying to sign such deals.
As per the country's previous economic development records, the UN Committee for Development Policy (UN CDP) is scheduled to complete the final round of assessment of Bangladesh's LDC graduation in 2021.
If the UN CDP finds Bangladesh's assessment positive, the country will graduate to a developing country in 2024.
Once the country is graduated, all the tariff benefits will be lifted for the county. Only, the EU will allow the tariff benefit to Bangladesh for another three years as a grace period.
That means, Bangladesh will enjoy the zero-duty benefit to the EU until 2027, but in other countries the tariff benefits will be withdrawn from 2024.
Currently, Bangladesh as an LDC, enjoys zero-duty benefits, preferential trade benefits and regional trade benefits on exports to 38 countries, including 28 EU countries.
Also, in the USA, Bangladesh enjoys zero-duty benefit for 97 per cent of its products. But unfortunately, Bangladesh's main export items, including garment, are not included in the package.
As a result, Bangladeshi exporters have to face 15.62 per cent duty on export of apparel items to US markets. Nevertheless, the US is the single largest export destination for the country.
Bangladesh will face competition in the EU market after graduation as Vietnam has already signed an FTA with the European Union.
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.
Bangladesh's export will decline by 5.7 per cent annually if the Everything but Arms (EBA) is not extended and local exporters will have to face an 8.7 percent duty to the EU.
So, there is a possibility of losing more than $2 billion worth of export business annually after graduation, according to UN body.