Bangladesh prepares to sign its maiden FTA

Dhaka,  Thu,  21 September 2017
Published : 17 Jul 2017, 19:16:53

Bangladesh prepares to sign its maiden FTA

For Bangladesh, one critical aspect of the proposed FTA is that it will be a test case for the country in dealing with free trade. From negotiations to implementation, this FTA will be a guideline for Bangladesh to strike more FTAs with different trading partners, writes Asjadul Kibria
Bangladesh prepares to sign its maiden FTA
Bangladesh is finally going to sign its first Bilateral Free Trade Agreement (BFTA). It will be with Sri Lanka and is likely to be inked within this year. Both countries agreed to do so during the visit of the Sri Lankan President Maithripala Sirisena to Dhaka last week.

Currently, bilateral trade between the two countries is very small-- around $100 million with trade balance tilted to the island economy. The two countries are also members of three regional trade agreements. These are: South Asian Free Trade Area (SAFTA), Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) FTA and Asia Pacific Free Trade Agreement (APTA). Both counties are also partners in South Asian Sub-regional Economic Cooperation (SASEC) -- a sub-regional arrangement backed by the Asian Development Bank (ADB).

While regional arrangements are yet to boost the bilateral trade flow, BFTA has been considered as a better option for long. More than a decade ago, the two countries agreed in principle to explore the possibility of singing a BFTA. But, things didn't move forward for several reasons.  

In fact, Bangladesh is yet to sign any FTA with any of its trading partners. It was in 2003 when India formally proposed Bangladesh to sign a BFTA. In the next years, series of studies have been done to examine the pros and cons of the proposed Indo-Bangla BFTA. In 2008, decision was taken to start negotiation with India, Nepal and Bhutan for signing three BFTAs. But, the process got stalled as Bangladesh later decided to rely on regional free trade arrangements.

So, what fuels the latest decision to sign BFTA with Sri Lanka? Several factors are actually there and those need to be looked into.  

The basic presumption of any BFTA is not necessarily to reduce the exiting trade deficit between the countries, but to enhance trade. This has to be on a `win-win' situation so that the manufactures as well as consumers of the member countries are benefited in the long run. So, the primary objective of the proposed BFTA is to enhance the very low volume of existing bilateral trade between Bangladesh and Sri Lanka. Bangladesh's current exports to Sri Lanka include ready-made garments, jute and jute goods, leather products, pharmaceuticals and many more. No single product dominates export. On the other hand, import from the island economy is dominated by textile, chemicals, mineral products, rubbers and plastics.

Sri Lanka has already BFTAs with India, Pakistan, Iran, Egypt, Singapore and Israel. It is also contemplating FTA with China. The Indo-Lanka BFTA was signed in December 1999. Thus, the island economy has a good experience to deal with  large economies on bilateral trade for almost two decades.

For Bangladesh, one critical aspect of the proposed FTA is that it will be a test case for the country in dealing with free trade. From negotiations to implementation, this FTA will be a guideline for Bangladesh to strike more FTAs with different trading partners. Once implemented, it will take four to five years to understand the real cost and benefit of the FTA.

The size of Bangladesh economy is almost three times larger than that of Sri Lanka. The World Bank has ranked Bangladesh as the 44th largest economy in terms of nominal Gross Domestic Product (GDP) while the ranking for Sri Lanka is 65th.  Bangladesh's merchandise trade is more than twice the size of Sri Lanka's - around $76 billion compared to $30 billion.

Bangladesh can learn many things from Indo-Lanka FTA. The deal helped to enhance Indo-Lanka bilateral trade as well as export of the island economy to the world's sixth largest economy (in terms of nominal GDP). Though Lanka's trade gap with India increased six times in 16 years (2000-2015), its export to India jumped 11 times during the period. This, in large part, has been possible due to reduced or duty-free treatment to a number of India's primary and intermediate products for import into Sri Lanka, to be manufactured in Sri Lanka and eventually re-exported to India. This resulted in enhanced export from Sri Lanka, and import/export ratio with India came down to 6.6 in 2015 from 10.8 in 2000.

So, some thorough exercise is required to find out the most potential export items of both countries as well as analyse the pros and cons the proposed BFTA. Previous experiences showed that in most of the cases Bangladesh couldn't provide any sufficient offer list against the request of the partner countries.  Thus, the products the partner country is requesting for tariff-free access is critical. Tariff-free import of some of those products may get resistance from the domestic manufacturers. Loss of revenue may be another factor for not accepting the request. Moreover, what Bangladesh is going to offer as tariff-free products has to be attractive enough to be acceptable to Sri Lanka. Thus, matching the request and offer lists is very important for signing the deal. Without adequate preparation, Bangladesh can't move ahead.  

The main means of transporting goods between Bangladesh and Sri Lanka is sea-route. The Chittagong-Colombo sea-route is quite active. Around 20 per cent of the cargos in this route carry goods of bilateral trade. The rest 80 per cent is destined for Europe and North America and take transit in Colombo. Currently, around 25 per cent of the total international cargo is being routed through Colombo while 47 per cent is routed through Singapore and the rest 28 per cent through Port Klang and Port of Tanjung Pelepas. Colombo port offers lower charges. So, it is significantly time and cost-saving to use Colombo port which is also trying to attract more major shipping liners to operate mother vessels through the port. BFTA, once operational to the benefit of both countries, is expected to increase cargo movement in this route.

Coastal shipping arrangement between the two countries is also in the discussion. Although no agreement has been signed, both countries signed a memorandum of understanding (MoU) on shipping during the visit of the Sri Lankan president.

 Bangladesh actually needs to explore and utilise the BFTA as a stepping stone for a comprehensive economic partnership with the island economy in near future. The export market in the island economy is small. So, only FTA can't bring any long-term economic gain.
Editor : A.H.M Moazzem Hossain
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