Stakeholders, experts suggest selective FTA deals

Government move towards trade liberalization evokes caution from domestic producers who suggest signing free-trade agreement (FTA) selectively with guardrails for local manufacturing industries.

Two dozen FTAs are under negotiation with the Bangladesh government, including the Economic Partnership Agreement (EPA) with Japan and Comprehensive Economic Partnership Agreement (CEPA) with India.

Industry-insiders and economists have pointed out several challenges over striking across-the-board FTA for all products as some local manufacturing industries, including steel, cement, pharmaceuticals, and agriculture, have developed capacity to meet domestic consumption needs as well as generated huge employment.

Manufacturers say Bangladesh would be transformed into a trading country if the government allows duty-free benefits under FTA on some products.

Alihussain Akberali, Chairman of BSRM Group, says first the government must check the authenticity of GDP data and other economic parameters to make a decision on FTA and LDC graduation.

“Taking out sensitive sectors like steel, cement, pharmaceuticals, and agriculture from FTA scope strategically is important,” he adds about prudence in going for free trade.

Given the higher cost of doing businesses with infrastructural deficiencies, Bangladesh is not in an advantageous position compared to its other competitors, he points out to underscore need for safeguards.

Commerce adviser of the current interim government SK Basir Uddin acknowledges the concern as “very valid” and assures of engaging in discussion with all stakeholders who are raising alarm.

“Through stakeholder engagement, we will prepare an appropriate agenda for us to navigate these FTAs by protecting national interests,” he says.

On the proposed EPA with Japan, a developed economy of Asia, he notes that it is a test case for Bangladesh and Dhaka is taking it very seriously.

In the post-LDC-graduation period, FTAs could “safeguard our industry”, he adds.

“There would be a give-and-take situation in FTAS. In this process, we have to analyze sensitively what will be consequences of those deals,” he says about discretion over such trade deals.

However, local manufacturers have said the government should urgently study the FTA of China with India and Pakistan and the fallouts.

The local manufacturers in Pakistan have collapsed as floodgates opened to Chinese goods with market access at pared-down duty of just 5.0 per cent. In the case of India, it has set up minimum import prices on Chinese goods to support the local industries, they cite as two variables.

“Our cost of doing business, taxation policy, and logistics facility have not enabled local manufactures to compete with the finished import goods from other countries,” he has said.

Many other variables need to be affirmed, achieved and literally concurred for the country prior to opening up, he added.

“The government is not understanding beyond the subject and acting in a selfish way,” deplores the businessman.

If the government is determined to sign FTA, they must exclude some sectors as only apparel exports would get the benefit of FTAs.

Real impact analysis with professional bodies with intensive stakeholder consultation is needed before signing FTAs, he added, recommending deferment of graduation.

Economists, however, say though signing FTA is crucial for Bangladesh, but it must have to negotiate cautiously to keep local industries alive.

Chairman of Research and Policy Integration for Development (RAPID) Dr MA Razzaque thinks some labour-intensive sectors may need a longer transition period in trade negotiations.

However, there will be distinct differences between signing FTAs with developed and developing countries.

“It would be difficult to seek sector-specific privilege in FTA with developed countries such as Japan, EU, US as ‘substantially all-trade cover’ is the principle,” he says.

For developed countries, around 90 per cent of tariff lines must be covered with a limited scope to seek traffic privileges. In that case, Dr Razzaque suggests, Bangladesh can seek a longer transition period with a nominal tariff rationalization for some sectors.

He, however, sounds positive on this score in trade advances. All countries have offensive and defensive interests while signing FTAs as some countries having local manufacturing strengths on some particular products may not want tariff rationisation which could be applied as vice-versa for Bangladesh, too.

In case of developing countries, FTA can be subject to negotiating skills where Bangladesh can choose the sectors as there is no such obligation on 90-percent trade coverage under World Trade Organisation rules.

“Negotiating skills would determine how we safeguard the sectors vulnerable for FTA,”

Iqbal Chowdhury, Chief Executive Officer of Lafargeholcim Bangladesh, has said local cement manufacturers have developed capacity to meet domestic demand and export to only seven-sister states of India.

“In case of FTA signed and import duty waived on finished cement, cheap imports would affect the local manufacturing industries,” he added.

Steel and cement have overcapacity in production so FTA negotiation should take out the sectors, he suggests.

Bangladesh would benefit from FTA with the countries having export scope, he said.

“The areas where local manufacturing industries have developed capacity might face a blow if cheap imports of those goods are allowed.”

Former president of Dhaka Chamber of Commerce and Industry (DCCI) Rizwan Rahman says Bangladesh needs to ensure a competitive market through trade liberalization which has a multiplier impact.

“Signing FTA would help local industries to import raw materials at lower cost and will help lower the manufacturing cost,” he says about spinoffs from trade deals.

However, he also echoes the need for safe-guarding some local manufacturing industries which have developed capacity to meet domestic demand.

The standard rate of Rules of Origin is 50 per cent from any sourcing country to get duty-free and quota-free preference. The rate of ROO is important in FTA negotiation between two countries to determine it is 50 per cent or above.

There are several impacts of higher ROO, including making FTA unilateral, limiting export potential and export growth in counterpart.

“From Bangladesh, only readymade garments, agro-processed products, jute goods have higher value addition of minimum 60 per cent and above and other export sectors do not have high value-addition scope with strong backward linkage,” he says.

For this, higher ROO clauses imposed by other FTA partners may be unfriendly for a balanced FTA deal.

Source: The Financial Express | 06 December 2024 | Author: Doulot Akter Mala