Bilateral Free Trade Agreement · Business Environment · Economy of Bangladesh · Regional Free Trade Area · Regionalism · SAARC · WTO

Devising strategies to face non-tariff barriers

Devising strategies to face non-tariff barriers

Md. Joynal Abdin

The Financial Express on May 7, 2014

Bangladesh is a promising economic powerhouse in South Asia. The Goldman Sachs investment bank and economist Jim O’Neill in its ‘Brics and Beyond’ report identified 11 countries having high potential of becoming the world’s largest economies in the 21st century are known as Next-11 (N-11) countries. Bangladesh is one of the N-11 along with Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea, and Vietnam. Another world leader in asset management, investment banking, private banking, treasury and securities services, and commercial banking JPMorgan has gone a step ahead to mark Bangladesh as a frontier market worth further investigation. These are the JPMorgan Frontier Five. Other Frontier Five countries with Bangladesh are Vietnam, Nigeria, Kazakhstan, and Kenya.  

All this forecasting will be worthless if we could not prove our potentials in practice. If all the countries of the lists fail, then the failure will be the report writer’s but when all other countries can achieve their targets and Bangladesh does fail then it would be our national failure and shame for the whole nation. We have a few challenges towards our target like political instability/ destructive politics, complex trade regime, uncongenial entrepreneurial environment, inefficient bureaucracy, shortage of industrial utility and infrastructure, traditional banking system, poor performing capital market and isolated international trade relations in the age of bilateral, regional and multilateral free trade regime. With all these challenges in mind, till now we have scope to be a middle income country by 2021 as per the present government’s set target in ‘Vision – 2021’. All these challenges have to be addressed carefully with patriotism as politicians, bureaucrats, entrepreneurs and other stakeholders.  

For quick and sustainable industrialisation of Bangladesh, we need multidimensional drives like establishment and promotion of local manufacturing base (through sustainable SME or cluster development approach), in-house capacity building in producing world class/international standard products and services, increasing export by exploring new export markets with a diversified export basket (through increasing number of exportable products and exploring more export destinations).  

Enlarging local manufacturing base is possible through sustainable SME development or industrialisation through cluster development approach. There are about 6 million SMEs in Bangladesh and 177 SME Clusters throughout the country. These clusters, heterogeneous in nature, relate to handicrafts and miscellaneous sectors, agro-processing/agri-business/plantation, light engineering and metal working, knitwear and readymade garments, fashion-rich effects, wear and consumers goods, leather making and leather goods, handloom and specialised textiles, healthcare and diagnostics, plastics and other synthetics, electronics and electrical appliances and educational services. These clusters are located at 51 out of 64 districts of Bangladesh. So if these 177 clusters are developed, a balanced development will take place throughout the country. Bangladesh will go one step ahead of industrialisation. Secondly, we have to look into the standard of our products and services to get acceptance of local and foreign buyers. The government can ease complexity of getting local standard certification of a product from BSTI and facilitate achievement of international standard certification to increase acceptance of Bangladeshi products abroad. Thirdly, there are about 261 free trade agreements (FTA) signed/or in process around the world. Among those, 113 FTAs are signed and in effect, 22 FTAs signed but not yet in effect, negotiations for 62 FTAs launched, 13 framework agreements signed and another 51 FTAs are proposed/under consultation and study.  

In South Asia, India has signed the highest numbers of FTAs (34), followed by Pakistan (27) and Sri Lanka (8). Bangladesh has membership only in 6 FTAs. Among those only two i.e. APTA and SAFTA are in effect. Probably, Bangladesh is one of the countries in this region having the least number of bilateral FTAs i.e. zero in effect even in negotiation stage. It will take time to conclude multilateral trade negotiations as well as regional dealings to be in effect. Bilateral FTA is the shortest possible way to ensure market access, gain investment, technical knowledge etc. But Bangladesh is underperforming in this mode of trade negotiation. If this trend continues for next decade, it may make us isolated in the international trade regime.  

With signing of FTAs, Bangladesh needs to identify non-tariff measures existing in partner countries. For example, India is our largest neighbour; it is one of the world’s largest economies 9th in nominal GDP and 3rd in Purchasing Power Parity. India, with the second largest population in the world, is the largest economy in the SAARC region. It is the 9th exporter and 10th importer in world trade. India is the largest or the second largest (after China) trading partner for all other SAARC countries. It has 73 per cent share of all intra-SAARC exports, but registers only 13 per cent intra-SAARC exports. This means India used to export far more to SAARC states than it used to import.  

India declared a favourable trade regime to SAARC LDCs since November 2011. But the neighbours including Bangladesh remain sceptical about trading with it due to its vast array of procedural fluctuations and arbitrary interpretations of regulatory regime. For example, Bangladesh used to export (sometimes deemed export) women’s garments to Nepal through India. The Indian authority was charging 5 per cent surcharge for it. But while it got to know that the trend is rising, it used to revise the rate and started to charge 12 per cent surcharge for the same (as alleged by a few exporters from Syedpur jute garment cluster). Non-payment or delay in making payment by Indian importers is another problem to increase Bangladeshi export to India. The Indian authority is so far reluctant in addressing and solving such issues.  

Import of beef and of products containing beef in any form is prohibited by the Indian authority. But there are about 162.5 million Muslims in India. It could be a very large market for Bangladeshi halal food exporters. We are missing this opportunity to export halal food to the large number of Indian buyers.  

With Federal levies and duties, various states of India are free to impose different categories of duties that act as state-level para-tariffs and are often discriminatory for imported products. Such state-level para-tariffs cannot be brought under bilateral government level negotiations and are left unaddressed. Various kinds of packaging, labelling, certifications, and conformity assessments, or other restrictions that fall under technical barriers to trade (TBT) in Category B of the UNCTAD classification have been found for about 228 product categories for India. Most of these products belong to machinery, equipment, and chemicals for industrial use, processed food items, and household and consumer products.  

For example, jute hessian bags usually used for transporting bulk items such as, sugar, fertilisers, grains, etc., if imported, need to be labelled with the words, ‘Made in [name of the country]’ in significantly large fonts. In this case, the country is Bangladesh since there is no other country in the region that exports jute bags to India. Writing ‘made in Bangladesh’ may sound the product packaged by the jute bag is made by Bangladesh. It may be the cause of non-popularity of those goods in the Indian market.  

Absence of storage facilities in India, registration hassles for exporting medicines, obtaining licenses from the Indian standard and testing agency, non-acceptance of standard certificates or test reports issued by the Bangladeshi testing authorities are the other major causes of minimum Bangladeshi export to India. In case of vegetable and other perishable item export to India, the Indian authority prescribes collection of standard certification from a certain far-off location and by postal service which is time consuming and the item may perish by this time. Due to these non-tariff measures, Bangladeshi exporters are not able to utilise the facility provided by the Indian authority for SAARC LDCs.  

It is not that only India has non-tariff measures while importing from Bangladesh. Almost all other SAARC countries have different types of non-tariff measures to restrict exports from its neighbours. For example, currently 137 Indian imports are allowed to enter Pakistan only through Wagah border. Selected products, such as tea, gemstones, etc. are subject to prior approval for prequalification by respective product-specific sectoral regulatory bodies (Tea Board, for example) before export into Sri Lanka.  

As a result, intra-SAARC trade in not increasing up to a satisfactory level after almost a decade of the SAFTA in effect. Therefore, the Bangladesh government needs to go for bilateral FTA negotiations and address non-tariff measures to sign effective FTA with neighbouring as well as prospective trade partners, especially export destinations. Thus, Bangladesh can ensure market access of its products in the upcoming free trade regime.

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