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BD’s FTA with EU unlikely

The Financial Express | 28 October 2022

BD’s FTA with EU unlikely

European Union (EU) Envoy in Bangladesh Charles Whiteley ruled out the possibility of signing a free-trade agreement (FTA) between the bloc and Bangladesh.

The EU ambassador also hinted that the transition period after the LDC graduation might not be extended.

He made the remarks while speaking at a dissemination event on "Strengthening Bangladesh-EU Trade and Economic Cooperation: Issues and Policy Priorities" - on Thursday.

Research and Policy Integration for Development (RAPID) and FES Bangladesh jointly organised the event at a city hotel to share the findings of a study that looks into issues and policy options for a renewed and transformed trade and economic partnership with the EU.

Economic Relations Division (ERD) Secretary Sharifa Khan was present as the chief guest, while RAPID Chairman and renowned trade economist Dr M A Razzaque made the keynote presentation. RAPID Executive Director M Abu Eusuf, and FES Bangladesh Resident Representative Felix Kolbitz made opening remarks.

Bangladesh is scheduled to graduate from the LDC status in November 2026, and then, it would lose the duty benefit in the EU market. The EU allows a three-year transition period for the LDC graduated countries, so that they can enjoy the similar duty benefit and prepare for the changes in the duty regime.

Bangladesh would continue to enjoy the current market access in the EU until 2029, while there are long discussions on different platforms on extending the transition period for three more years as well as signing FTA between the EU and Bangladesh for duty benefits.

Speaking about the FTA signing, Mr Whiteley said it is not going to happen, because of the degree of complexity, the wide range in nature, the development states, and the status about trade relations with Bangladesh.

"The trade relation is yet to reach a stage where it would be of genuine interest from the EU side to negotiate FTA."

He also said the EU’s FTA with Vietnam is expected to bring down tariffs in different areas, and it would also provide massive benefits to European businesses, including those in the service sector.

The EU envoy hoped that the bilateral trade relations between the EU and Bangladesh would become more balanced and wide-ranging.

He noted that it is on the Bangladesh side to have a clinical assessment on how to make it easier for the EU states to do business here.

Citing a Spanish company, Mr Whiteley said they are quite frustrated about how their companies are treated here.

"When you have the mentality among the members of the European parliament, it means we have bigger hurdles to clear when we talk about making life easier for Bangladesh in the EU market."

Many European parliamentarians think that since Bangladesh would no longer remain an LDC after 2026, there is no question of treating the country as an LDC.

"They also think that the three-year transition period is long enough for the businesses and the government of Bangladesh to adjust to the realities of not being an LDC."

Since Bangladesh would not automatically qualify for the duty-free, quota-free market access in the EU, he suggested that the entire focus - politically, financially and economically - has to be on the GSP Plus.

Regarding the EU-proposed safeguard measures, he said, "Bangladesh’s voice is being heard in the European parliament, and I was reassured that there is good awareness and sympathy on the EU side about the impacts this could have on Bangladesh."

The EU envoy suggested trade diversification and added, "More needs to be done on the policy level by the government in Bangladesh to encourage diversification."

The ERD secretary said the FTA (with the EU) would not be needed, if tariffs come down in line with the Doha Round - the latest round of trade negotiations among the WTO members.

She said they have requested the WTO for extension of the transition period for a total of six years.

Ms Khan raised question why tariffs on garment products are so high globally, and whether or not it is to put the RMG industries of mostly the poor countries under pressure.

She requested the EU ambassador to ask their brands and retailers to follow a single code of conduct as well as to consider the proposed safeguard measures, as local RMG sector might face up to 12 per cent duty even Bangladesh gets GSP Plus.

The ERD secretary sought the EU’s support to find out the missing links between local and international markets of diversified export products, like leather, plastic, pharmaceuticals, etc.

Presenting the study findings, Dr Razzaque said Bangladesh’s combined exports to the EU and the UK expanded rapidly from US$2.5 billion in 2000-01 to $25 billion in 2021-22 - mainly because of the EU duty facility under the ’Everything but Arms’.

"Bangladesh has additional apparel export potentials of $18 billion, as the country realises just around 60 per cent of export potential."

Terming the EU an indispensable trade and development partner, he said over the past five years, the cumulative ODA from the EU institutions and countries amounted to $2.3 billion, which was around 10 per cent of all ODA disbursements during the same period. Between 2017 and 2021, the net FDI flow from EU countries was $3.5 billion.

Bangladesh’s dependence on the EU trade preference is now set to come to terms with other major developments that would require a profound transformation of the current trade and cooperation regime.

The RAPID chairman outlined some reasons for this, including the LDC graduation, other countries’ trade agreements with the EU, the EU Green Deal and its carbon border adjustment mechanism (CBAM), and environmental, social and governance (ESG) compliance.

The EU’s tariffs on apparel imports from Vietnam would be cut to zero per cent in seven years, while Bangladesh could face up to 12 per cent from zero per cent, he noted.

He suggested developing a longer-term strategy and action plan for strengthening Bangladesh-EU relations.

His other recommendations included establishing a domestic carbon market, improving firm-level competitiveness, sustainable production practices, attracting more foreign investment, addressing high cost of doing business, and enhancing connectivity and trade facilitation.

Explaining different measures of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), its director Vidiya Amrit Khan called for a unified code of conduct, to be followed by buyers, as there is an ’audit fatigue’.

A small factory, having 10 to 15 lines, has to pay $20,000 to $30,000 annually for different audits, and the money that should be spent for workers’ welfare gets diverted to these audits, she noted.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Vice President Fazlee Shamim Ehsan, said they are not much afraid of tariff, as they are on the right track.

He also said they are not getting fair prices of apparel products from global buyers despite making huge investment in green factories.

 source: The Financial Express