Home ›› 20 Mar 2022 ›› Editorial
The Bangladesh economy, with a trade intensity of over 33 per cent is considerably open. Trade intensity is expressed as the sum of export earnings plus import payments as a percentage of GDP. The implication is that at least 30 percent of the performance of the major macroeconomic variables such as level of employment, GDP growth, and consumer price index of the Bangladesh economy depends critically on the external environment, mainly on the policies pursued by the trading partners through the transmission mechanism. Bangladesh would gain the status of a developing country from the LDCs status in 2026. As a developing country, the economy would lose many privileges such as Duty-Free Quota Free [DFQF] access, GSP facilities, Trade-Related Aspects of Intellectual Property rights [TRIPs] that could have adverse effects on overall market access. The government is working on strategies to circumvent the graduation problem in this sector so that the economy can cope with the uncertainty in international business.
Bangladesh trade partners include both developed and developing countries mainly from Asia, North America, and Europe. At present, 12 countries account for over 85 percent of Bangladesh’s total exports and two neighboring countries, and only two countries China and India perennially constitute 40 percent of imports. Currently, the six major trade partners [in value terms] both exports and imports are China, India, the United States, Japan, Germany, and Canada. However, there is a year- to- year variation in weightage among countries; for example, among the major trading partners in 2015 were Singapore, the United Kingdom, Turkey, and Hong Kong, constituting on an average of 5 percent in value term with both exports earnings and import payments along with China, United States and India constituting over 30 percent of the weightage. When we look into the historical pattern of bilateral trade with trading partners, a few things characterize the trade asymmetry that may not be sustainable after graduation. The first is the sustainability of trade surplus with the United States and a few countries of the EU, such as Germany and France.
On the other hand, Bangladesh endures a continuous trade deficit with two neighboring countries, China and India, constituting over 20 percent of the trade weightage. The trade deficit with China and India is paid through the trade surplus we enjoy in other continents. The strategy should narrow the deficit with regional trade arrangements through trade creation such as the multiple free trade agreements or through joining the regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) Agreement. RCEP is an adjunct of ten members of ASEAN, but RCEP now is represented by 15 Asia- pacific nations, including Vietnam, Australia, New Zealand, South Korea, and Myanmar. This is considered as an alternative arrangement of the Trans-Pacific Partnership [TPP] now in a dying state after the withdrawal of the United States by President Donald Trump in 2016. Engineered by China in 2012, RCEP now represents over 30 percent of global GDP and would be a viable block with heterogeneous country configuration. The experience of Bangladesh with other trade agreements such as BIMSTEC Free Trade Area, APTA [Asia -Pacific Trade Agreement], and SAFTA are not encouraging when we calibrate the achievement as a percentage of the total volume of trade with these blocks against the total volume of trade of each country with the rest of the world.
The decision of Bangladesh to join RCEP would pave the way for trade creation and trade diversion with a positive impact as there are countries in the block with both complementarities and competitiveness. The GSP facilities may not be tenable after graduation so as a member of RCEP, Bangladesh would be able to enjoy the benefits of market access through DFQF to stay eligible for duty-free trade facilities. It is also time-consuming to initiate free trade agreements on a bilateral basis and also to design a mutually agreed product list for consideration of DFQF access. Indeed, the package deal entitles a country unified system access to many big markets; the economies of many of these countries exhibit complementarities by nature. Bilateral free trade agreements often utterly fail in trade creation when the duty-free list in many cases constitutes commodities bereft of any export potentialities. We may consider bilateral trade with India where about 70 products enjoy duty-free access but did not bid hope of reducing the trade deficit. Only recently, the export earnings exceeded the USD 1 billion mark with India but still with an increasing trade deficit. Bangladesh currently holds the fourth position in India’s export list.
The duty-free market access in Japan, New Zealand, and Australia by Bangladesh as a member in the block would be essential to get the competitive edge as a few countries would enjoy the benefit of DFQF in the market access. Consider the case of Japan. Bangladesh now enjoys DFQF in many exportable but after 2026 the tariff on readymade garments may be in the range of 8 to 13 percent. The inter-industry trade with this trio could result in substantial trade creation. Otherwise the product from competing countries such as Vietnam and Myanmar could result in trade diversion in many of our major exportables. Bangladesh enjoys excellent diplomatic ties with this trio and could explore alternative foreign direct investment and technology transfer in export diversification. Like Bangladesh, China is New Zealand’s largest trading partner, with two-way trade exceeding over USD 22 billion. However, the trade balance is positive for New Zealand to the extent of USD 5 billion because of the diversification of exports mainly in farm products. Bangladesh should emphasize export diversification and one of the best alternatives in export diversification is in processing agricultural products where value addition should be optimal. Bangladesh also could form a Free Trade Agreement with another trio; Malaysia, Indonesia, and Singapore with whom Bangladesh enjoys excellent diplomatic relations.
Two countries, Pakistan and Sri Lanka could not cope with the changed environment after the graduation episode when the privileges as LDCs were withdrawn. Currently, at least 70 percent of the export earnings of Bangladesh is leveraged through the LDC status and we expect that with the current state of the drive, Bangladesh could weather the ordeal in years ahead.
The writer is the Treasurer and a Professor at the School of Business and Economics, United International University. He can be contacted at obaidur@ eco.uiu.ac.bd.
