'No more wasting time on GSP': FBCCI stresses FTA with USA

Illustration: TBS

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has recommended that the government start talks on a free trade agreement (FTA) with the United States – a key export destination for the country – immediately instead of wasting time negotiating for a restoration of generalised system of preferences (GSP) privileges there.

The country's apex trade body thinks that Bangladesh also needs to initiate discussions on bilateral FTAs ​​with the United Kingdom and Canada soon. 

And since the rest of the export destination countries are members of one or another regional trade bloc, FTAs with them can be discussed with the respective trade blocs rather than going for bilateral talks, it adds. 

This will create scope for Bangladesh to reach FTAs with almost all of its major export destinations, observes the federation.

Bangladesh has no other option but to enter into comprehensive free trade agreements in goods, services and also investment with major regional trade and economic blocs along with bilateral and reciprocal FTAs with the US, Canada and the UK, covering over 95% of the global market in order to effectively deal with the predictable post-LDC graduation challenges, the FBCCI says.

The apex trade body, putting forward a set of recommendations on retaining market access beyond 2026, made a number of proposals for the government and the private sector to overcome the looming challenges in its report sent to the Ministry of Foreign Affairs and the Ministry of Commerce on 3 July.

Bangladesh will have to face the challenging task of exporting on the most favoured nation (MFN) tariff rates after graduating from LDC (least developed countries) status in 2026 as unilateral GSP schemes currently provided by 85% of the country's export destinations will be terminated, observed the federation.

The country will remain eligible for duty-free access only to the European Union market under the EBA (everything but arms) initiative that will be extended for three more years under the present terms, it added. 

The FBCCI thinks that to retain its market access, Bangladesh should consider some essential elements for the its strategic policy, such as strategic target mapping, extension of terms of unilateral duty-free quota-free (DFQF) market access, GSPs, and free trade agreements – Safta and Apta – during the 2026-2029 period.

FBCCI adviser Manzur Ahmed told The Business Standard that the FBCCI has developed the action plan for the government after analysing the merits and demerits of FTAs with different countries and trade blocs, he said, adding, "This is a doctor's prescription for the facilitation of Bangladesh's foreign trade, the government may accept it."

Economists, however, have said that while the FBCCI's views on bilateral FTAs ​​with three countries, including the US, and FTAs ​​with other countries under regional trade blocs is reasonable, executing its recommended action plan will not be that easy.

Mohammad Abdur Razzaque, international trade specialist and chairman of Research and Policy Integration for Development (RAPID), told TBS that it would be difficult to reach an FTA with the US because Bangladesh must comply with certain conditions, relating to various issues such as labour rights and copyrights, areas where Bangladesh is still lagging behind.

He, however, stressed the need for formulating strategies and initiating discussions quickly in this regard. 

He said that priority should be given to FTAs with the US, Canada, EU, China, Japan, and India rather than trying to sign FTAs with many countries together. 

"Once Bangladesh graduates from LDC status in 2026, it will have duty-free export facilities to the EU market for the next three years, but not to Canada, Japan, China and India. Then Bangladeshi products have to enter the Canadian market by paying 18% duty."

But FBCCI Adviser Manzur Ahmed, who is also engaged in the preparation of the report, thinks that since a number of countries, including Kenya, Vietnam and India, have made remarkable progress in negotiating FTAs with the US, with Kenya and the US making a joint template already, Bangladesh can follow these models and move ahead with talks with the US. 

He said similar talks should be held with Canada.

United States

The US is the largest export market for Bangladesh. In fiscal 2020-21, Bangladesh's trade volume with the country was $9.24 billion, of which imports accounted for $2.27 billion and exports $6. 6.97 billion.

Data on bilateral trade between the two countries for the just-concluded fiscal 2021-22 have not yet been obtained. The Export Promotion Bureau (EPB), however, says that Bangladesh's exports to the US during the period were about $10.5 billion, which is 50% higher when compared to the previous year.

Bangladesh currently enjoys duty-free access to exports under GSP or any other mechanism in almost all major export markets, including the EU, the UK and Canada. However, the US market has not offered any duty-free access to Bangladeshi products since 2013. Prior to 2013, some of the country's main export products, except ready-made garments, enjoyed duty-free access to the US, which accounted for less than 1% of total exports. But that facility too was suspended over labour rights issues after the Rana Plaza collapse in 2013.

Despite this, the export of Bangladeshi garments to the US market is on the rise.

About an FTA with the US, the FBCCI in its report "Market access 2022-2026 and beyond" says non-reciprocal trade deals such as GSP and multilateral, regional arrangements have been excluded from the US trade agenda and accordingly the US only prefers to make bilateral reciprocal trade deals. 

Bangladesh should therefore, without wasting time on GSP or WTO, immediately take up a proactive initiative in establishing a bilateral FTA with the United States of America following the example of Kenya, Vietnam, India and other countries. 

The report further says the terms of the FTA in goods, services and investment with the US should be without prejudice to the rights and obligations under the WTO agreement and respective international rights and obligations as agreed in the Bangladesh-US Trade and Investment Cooperation Forum Agreement (Ticfa). 

RCEP 

Imagine the rewards of unfettered access to 2.5 billion people, 15 countries and a $12.7 trillion market. That is what the China-led Regional Comprehensive Economic Partnership (RCEP), the largest economic bloc in the world, has on offer.

If it sounds too good to be true, it probably is, at least at this point in time.

While in a survey the Bangladesh Trade and Tariff Commission (BTTC) recommended Bangladesh join the bloc, its wording regarding the accession had some warnings embedded.

The BTTC said, "The government may express its positive stand regarding the accession of Bangladesh to RCEP considering all the issues, concerns and keeping in view the issue-wise stakeholder consultation and recognising that domestic rules and regulations may require to be changed in some cases, if the situation arises."

The concerns and changes in domestic rules are indeed issues that require further scrutiny.

What's also important is the lion's share of any export growth would be for the apparel sector with others losing out.

GCC

The Gulf Cooperation Council (GCC) is a political and economic union of Arab states, including the United Arab Emirates (UAE), Saudi Arabia, Qatar, Oman, Kuwait and Bahrain.

According to the International Trade Centre data, in 2020, the UAE sourced about $4.40 billion worth of apparel items from global markets, Saudi Arabia $3.01 billion, Kuwait $1.13 billion, Qatar $660 million, Oman $608 million and Bahrain $274 million.

Bangladesh now exports only $367.49 million worth of goods to this region, as per EPB data.

EAEU

Bangladesh has expressed interest in signing an FTA with the Eurasian Economic Union (EAEU), a Russian-led Eastern European economic union comprising Belarus, Kazakhstan, Armenia and Kyrgyzstan, to explore the export potential of various products, including knitwear.

The commerce ministry has requested the foreign ministry to make a formal proposal to the Eurasian Economic Commission (EEC) regarding the signing of the FTA.

Countries belonging to the European Union, one of the largest economic blocs in the world, had a foreign trade volume of $7,311 billion in 2020. The gross domestic product of the countries is $1,634 trillion.

Bangladesh does not get duty free facilities in Eurasian markets, which have huge potential for Bangladesh's export products. Bangladesh's exports to these countries have increased significantly over the past decade and the amount stands around $500 million.

According to the Export Promotion Bureau, Bangladesh's exports to the EU during July-December of the current financial year amounted to $382 million which was $677 in the previous fiscal year. And in 2019-20, Bangladesh exported goods worth $498 million to EAEU.

Mercosur

Bangladesh has shown interest in signing an FTA with Mercosur, an economic and political bloc of the big economies of South America consisting of Argentina, Brazil, Paraguay and Uruguay.

Highlighting Bangladesh's strength as the second largest RMG producer and world-class pharmaceutical manufacturer, Bangladesh Ambassador to Brazil Sadia Faizunnesa has sought Brazil President Jair Bolsonaro's support in negotiating an FTA with Mercosur.

Safta

The South Asian Free Trade Area (Safta) is a 2004 agreement that created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka with the vision of enhancing economic cooperation and integration among them.