India's FTA with Europe to erode Bangladesh exports
From left, GM Quader, commerce minister; Rokia Afzal Rahman, president of Metropolitan Chamber of Commerce and Industry; and Fazlul Hoque, president of Bangladesh Employers' Federation, attend a discussion on the imminent India-EU FTA, organised by the MCCI and Bangladesh Foreign Trade Institute, in the capital yesterday. Photo: Star
The imminent bilateral free trade agreement (FTA) between India and European Union (EU) is likely to hurt Bangladesh's exports, trade analysts and a leading chamber said yesterday.
The negotiations -- that started in June 2007 -- are being fast-tracked, with the chief negotiators of India and EU due to meet next week in Brussels ahead of the ministerial level talks in April, according to media reports.
A free trade agreement, essentially, eliminates tariffs, import quotas and preference on most (if not all) goods and services traded between the two parties.
The magnitude of the effects of this agreement on a third party such as Bangladesh, however, depends on the importance of either of the markets to the third party: the larger the importance, the bigger the impact.
The EU is the single largest market for Bangladesh's exports, accounting for 57 percent, or $13.7 billion, of 2011's export earnings.
The deal will pave the way for Indian companies to expand their market into EU, while allowing EU access to India's 1.2 billion customers.
"Bangladesh's exports to the EU are likely to be affected if the proposed India-EU free trade agreement is signed and apparel items are included in the deal," said Rokia Afzal Rahman, president of Metropolitan Chamber of Commerce and Industry (MCCI).
According to a study by Bangladesh Foreign Trade Institute (BFTI), the country stands to lose as much as 15 percent or $1.3-1.5 billion in value of the EU market following the deal.
The country's apparel and shrimp exports, which enjoy duty-free entry to Europe, are likely to bear the major brunt of the deal, said Tofayel Ahmmad, research associate of BFTI.
The EU will cut tariffs for Indian exports from the present average of 12 percent, which will increase India's competitive edge over Bangladesh, he said.
Ahmmad suggested the government informs the EU about the negative impact on Bangladesh, while seeking exclusion of apparel items from the deal.
“There will be erosion of profitability due to loss of a portion of the EU market,” said Md Mozibur Rahman, chief executive officer of BFTI.
Although Bangladesh has comparative advantage over India in terms of labour, the deal is still poised to become a medium- to long-term threat for Bangladesh, said Fazlul Hoque, president of Bangladesh Employers' Federation.
“Because India has everything, from raw materials to machinery,” said Hoque, while stressing the need for improvement in the country's productivity.
Rokia Rahman, too, said India has significant supply-side advantage over most other developing economies, meaning Indian suppliers can substantially increase their exports to the EU.
"The likely trade diversion in EU may result in reduced imports from other developing and least developed countries (LDC) -- and increased imports from India.”
However, Khondaker Golam Moazzem, additional director research of Centre for Policy Dialogue, said it is yet not clear to what extent Bangladesh would be affected.
One reason, he cited, is the emerging shift in production in India from low-cost to high-value products.
Commerce Minister GM Quader said it is too early to be concerned.
"We must be able to compete -- we will not remain a LDC forever and enjoy the benefits of cheap labour. We aim to march forward to the mid-income status."
The comments came at a discussion on the issue organised by MCCI and BFTI at the MCCI office.