Supply chains slowly returning to normal: WTO
Although global trade has been thoroughly battered by the ongoing coronavirus pandemic, the World Trade Organisation (WTO) believes the worst could be over as supply chains are slowly returning to normal due to rising demand.
International trade fell sharply in the first half of the year as the Covid-19 outbreak upended economies all over the world.
However, thanks to government initiatives aimed at curbing the spread of coronavirus, WTO economists believe that even though international trade volumes will register a steep decline in 2020, the situation will probably not reach the worst-case scenario projected in April.
The amount of merchandise traded internationally shrank by 3 per cent year-on-year in the first quarter of the ongoing fiscal year, according to statistics published in a WTO statement on Tuesday.
Initial estimates for the second quarter—which coincided with the countrywide lockdown measures that affected a large share of the global population—indicate a year‑on‑year drop of around 18.5 per cent.
Historically speaking, these significant declines may be some of the worst the country has ever seen but it could have been much worse, the WTO statement said.
On April 20, the WTO released its annual trade forecast and, in light of the uncertainty on the pandemic's severity and economic impact, the organisation presented two conclusions.
The first was an optimistic scenario where international trade in 2020 would contract by only 13 per cent. The second situation outlined a more pessimistic scenario where trade would fall by 32 per cent.
As things stand, international trade would need to grow by only 2.5 per cent per quarter for the remainder of the year in order to make the optimistic projection a reality.
However, trade expansion could still fall short of the projection if similar issues, such as a second wave of Covid‑19 infections, weak economic growth or widespread recourse to trade restrictions befall the globe.
"The fall in trade we are now seeing is historically large, in fact, it could be the steepest on record. But there is an important silver lining here: it could have been much worse," said Roberto Azevêdo, WTO director general.
"This is genuinely positive news but we cannot afford to be complacent," he added.
"While true that global grade is rebounding a bit, it is happening very slowly, said Ahsan H Mansur, executive director of the Policy Research Institute (PRI).
Garment factories in Bangladesh are currently running at 55 per cent of their full production capacity in an effort to reduce operational costs amid decreased sales.
This capacity could increase to 70 or 80 per cent by October-December.
"So, we cannot say that global trade will return to its previous position soon. It will take time," Mansur said.
Bangladesh will face more challenges when recovering from the coronavirus fallout, allowing Vietnam to outperform Bangladesh in international trade as the country is in an advantageous position, the economist added.
Mansur also once again suggested that the government should quickly implement the stimulus packages so that local firms can benefit from funding.
Bangladesh recently retained its title of being the second largest exporter of apparel products worldwide. In 2018, the country held around 6.4 per cent of the total market share, exporting about $34 billion in apparel products, the WTO data said.
Arshad Jamal Dipu, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that the country has the capacity to retain its second-place spot for the next eight years.
"I am confident that Bangladesh has the strength as we have invested a lot of money in this sector over the last four decades," Dipu told The Daily Star over phone.
It is also expected that the European Union (EU) will extend its zero-duty benefits for Bangladeshi garment products.
"We will soon negotiate with the EU for duty privileges. I hope the EU accepts our plea as we have already been affected severely by the Covid-19 outbreak," Dipu added.
Bangladesh's apparel exports to the EU have enjoyed zero duty benefits ever since 1973 under the EU's generous trade scheme, 'Everything But Arms (EBA)', meant for Least Developed Countries (LDCs).
However, these benefits will be discontinued after 2027, when the Bangladesh graduates from the LDC category.
Officially, Bangladesh will be registered as a developed country in 2024 but will be granted three additional years to prepare for the change in category.
Therefore, Bangladesh will either have to secure GSP Plus status or an extension of the current EBA to enjoy duty free benefits with the EU, where 64 per cent or $34 billion in garment items are exported annually.
"We will appeal to the EU for an extension of the current EBA for at least another eight years as we have been badly impacted by COVID-19," Dipu said.
Bangladesh's apparel items do not get tax free access to the US market, the country's main export destination, as the American government does not provide duty free benefits for garment items from any country other than a few African nations under the African Growth and Opportunity Act (AGOA).
As a result, garment exporters face up to 15.62 per cent duty on apparel items shipped to the US even though the country allows zero duty benefits for 97 per cent of the other products produced by LDCs.
Bangladesh's garment exports to the US amount to more than $6 billion annually.