Economy of Bangladesh

Preparing to face up to TPP fallout

Preparing to face up to TPP fallout

Md. Joynal Abdin[1]

The Financial Express on November 07, 2015

The Trans-Paciific Partnership (TPP) deal was finalised on October 05, 2015 by 12 member- states to promote economic growth, job creation, innovation, productivity, competitiveness, and living standards, reduction of poverty, transparency, good governance, labour and environmental protection among them. Member-countries of the TPP are Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam. It has the mechanism to lower trade barriers such as tariffs and establish a dispute settlement platform. Cambodia, the Philippines, Thailand, Indonesia, Taiwan and South Korea have intended to join the newly-formed partnership.

The TPP is set to offer comprehensive market access for its member-states within the bloc. It will eliminate or reduce tariff and non-tariff barriers substantially in all trades in goods and services and cover the full spectrum of trade, including goods and services and investment. It will also facilitate  development of production and supply chains, and seamless trade, enhancing efficiency and supporting their goal of creating jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening up of domestic markets.

The TPP is expected to promote innovation, productivity, and competitiveness by addressing new issues, including development of digital economy, and state-owned enterprises in the global economy. It includes new elements seeking to ensure that economies at all levels of development and businesses of all sizes benefit from trade. It includes commitments to help small and medium enterprises (SMEs).

The agreement makes specific commitments to develop trade capacity building, to ensure that all parties are able to meet the commitments made in the agreement and to take the full advantage of its benefits. It could be a platform for regional economic integration of the member-states.

The TPP includes both buyer countries and competitors of Bangladesh’s international trade. The USA, Australia, Canada, Mexico, Japan and Singapore are the destinations or would be major destinations of Bangladesh’s exports. On the other hand, Vietnam, Peru, Malaysia and Brunei are our export competitors in these markets. There are debates in Bangladesh about possible impact of the TPP on the country’s trade and investment. Businesses and a few experts say the TPP could emerge as a threat to the country’s exports to the member-countries. If our competitors like Vietnam, Taiwan, Malaysia etc. get duty-free access, then Bangladesh will lose its existing competitiveness. On the other hand, the Commerce Minister said the  TPP will not be a problem because we have got duty-free access to some countries and others are already charging duty on our export. However, it will take time to observe the effects of the TPP on Bangladesh’s trade and investment.  But then Bangladesh needs to take precautionary steps to ward off adverse effects of the TPP. If there is a negative impact, we must prepare ourselves to face the situation. One possible solution could be to join the TPP and become a stakeholder of the game. The second option is to sign bilateral free trade agreements with export destinations or at least with most of them.

Currently, Bangladesh’s existing relationship with the US and its allies is not at a satisfactory level. As a result, we may not get back Generalised System of Preferences (GSP) facility and their support in many international negotiations. If the situation remains like this for a long period, it will create new complexity for the country in the international arena.

From 2005 to 2011, Bangladesh exported goods worth about US$ 35,000 million to the TPP member-states and imported products valued at $32,000 million. This means Bangladesh enjoys trade surplus with the TPP countries.

Table -1: Bangladesh’s International Trade with TPPA Countries (in thousand USD)
Year 2005 2006 2007 2008 2009 2010 2011 Total
Export to 3,361,106 3,875,583 4,300,684 4,627,771 5,056,653 6,326,533 7,385,472 34,933,802
Import from 2,478,059 2,843,675 3,226,063 4,234,316 5,197,427 6,504,267 7,403,837 31,887,644
Trade Balance 883,047 1,031,908 1,074,621 393,455 -140,774 -177,734 -18,365 3,046,158

     Source: ITC Trade Map; Cited on November 4, 2015

Now, we would like to have a look at the items Bangladesh used to export to the TPP countries and import from them. From the Table – 2, we observed that Bangladesh’s top ten export items to the TPP countries are readymade garments, both knit and woven items, frozen food, leather goods and vegetables etc.

Table – 2: Bangladesh’s Top Ten Export Items to TPPA Countries
Ranking HS Chapter Items
1 ’62 Articles of apparel, accessories, not knit or crochet
2 ’61 Articles of apparel, accessories, knit or crochet
3 ’63 Other made textile articles, sets, worn clothing etc.
4 ’03 Fish, crustaceans, molluscs, aquatic invertebrates nes
5 ’64 Footwear, gaiters and the like, parts thereof
6 ’27 Mineral fuels, oils, distillation products, etc
7 ’58 Special woven or tufted fabric, lace, tapestry etc
8 ’53 Vegetable textile fibres nes, paper yarn, woven fabric
9 ’65 Headgear and parts thereof
10 ’84 Machinery, nuclear reactors, boilers, etc

                                 Source: ITC Trade Map; Cited on November 4, 2015

If we look at the import items from the TPP countries, then we can easily observe that Bangladesh mainly imports capital machinery and raw materials of various sectors including garments from there.

Table – 3: Bangladesh’s Top Ten Import Items from the TPPA Countries
Ranking HS Chapter Imported Items
1 ’27 Mineral fuels, oils, distillation products, etc
2 ’84 Machinery, nuclear reactors, boilers, etc
3 ’52 Cotton
4 ’72 Iron and steel
5 ’89 Ships, boats and other floating structures
6 ’85 Electrical, electronic equipment
7 ’10 Cereals
8 ’15 Animal,vegetable fats and oils, cleavage products, etc
9 ’88 Aircraft, spacecraft, and parts thereof
10 ’39 Plastics and articles thereof

                                   Source: ITC Trade Map; Cited on November 4, 2015

In view of the above position, Bangladesh should actively try to join the TPP as a member-country or sign bilateral free trade accords with them to minimise adverse effects of the partnership on the country’s foreign trade. Otherwise, our export earnings, remittances and investment could be adversely affected by the TPP. If our export earnings and remittance inflow fall drastically, then an economic downturn may not be controlled within the shortest period.

[1] Mr. Md. Joynal Abdin is a Deputy Manager at SME Foundation, Dhaka, Bangladesh. Email: mdjoynal@gmail.com

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