The Independent, Saturday February 25 2006
SAARC countries signing bilateral, multilateral FTAs one after another
Bangladesh yet to expand product base to reap benefit
The South Asian economies including Bangladesh are becoming more and more regional trade-prone and they are going for bilateral free trade agreements (FTAs) alongside regional arrangements like South Asian Free Trade Area (SAFTA).
Though the trade pacts are creating more market opportunities, economic analysts see a slim possibility for Bangladesh to reap benefit out of them, as the country is yet to expand its product base.
Venting frustration over multilateral arrangements of WTO or SAARC most of the countries in the region individually have been going for bilateral FTAs with other countries and groupings, both within the region as well as outside.
The countries have signed at least five bilateral FTAs in last four years to create scope for easy access of their products to neighbouring markets.
Six more FTAs are in the offing in the region for which cross-country negotiations are going on. Bangladesh and Pakistan have already decided to finalise a bilateral free trade agreement by September this year.
India has signed FTAs with Nepal, Sri Lanka and Thailand. The country has also signed a comprehensive economic cooperation agreement (CECA) with Singapore in April 2003 and a draft FTA with BIMSTEC in February 2004. Now it is pursuing an FTA with Bangladesh and ASEAN. Pakistan has also signed FTA with Sri Lanka.
Negotiations to sign bilateral FTAs between Bangladesh-Sri Lanka, Bangladesh-India, Sri Lanka-Maldives and even India-Pakistan are going on.
Implementation of the preferential trade agreement SAPTA in 10 years, in terms of tariff liberalisation, was lethargic mainly because of the adoption of the product-by-product approach.
But, after the India-Nepal and India-Sri Lanka, Pakistan-Srilanka FTAs became operational, there has been a substantial increase in bilateral trade and investment in joint ventures.
From July 1, 2006 two major FTAs-one SAFTA and another Bay of Bengal Initiative for Multi Sectoral Technical and Economic Co-operation (BIMSTEC)-would come into effect.
The aim of SAFTA and other bilateral agreements is to bring down customs duty, promote cross-border investment and, more crucially, formalise the unofficial trade that is taking place through third countries and surreptitious channels.
The complete elimination of tariffs under SAFTA could increase intra-regional trade - currently around $6 billion - by 1.6 times from existing levels.
This trend toward the creation of FTAs in South Asia is at least partly due to the recent slowing down of multilateral cooperation, such as the WTO process, it is observed.
Economists and the business community in Bangladesh, however, hail the bilateral trade pacts as they see those as complementary to SAFTA and WTO.
"Any bilateral FTA should be SAFTA plus when a regional agreement should be WTO plus," said Professor Mustafizur Rahman, Research Director of Centre for Policy Dialogue (CPD).
He said, "The bilateral process feeds into the regional process, and a regional process feeds into the multilateral one; they are mutually reinforcing paradigms, and not exclusive of one another. If problems are being faced on the bilateral front, one should concentrate on the other fronts."
The president of Bangladesh Chambers of Commerce and Industries Mir Nasir said, "We can solved the problems in bilateral discussions more easily. More products can be set aside from sensitive list in a bilateral agreement and thus export list can be increased."
But the free trade pacts that aim to kickstart development will not go a long way to benefit Bangladesh, for the country’s export base is very narrow, they observe.
The fact remains that unless and until Bangladesh improves its capacity to export more at competitive prices, there would be little scope for it to benefit from either bilateral or multilateral free trade arrangements.
"The country should first acquire the much-needed comparative advantage before entering into bilateral free trade agreements, particularly with countries that have enormous capacity to export at competitive prices," economists suggest.
Bangladesh, India, Pakistan, Sri Lanka, Nepal, Bhutan and Maldives currently export pretty much the same types of goods. The region’s biggest players compete to export textiles, garments and agricultural commodities like tea, coffee and sugar.
Intra-regional trade forms a paltry 5 per cent of the total trade by SAARC nations which is worth a mere $3bn a year. By contrast, European Union (EU) members do 60 per cent of their trade with each other.
SAARC’s bigger players look to the United States - which takes nearly a quarter of all exports from India, Bangladesh and Sri Lanka - and EU. They trade with the rest of the world more readily than with each other.