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9. RTAs and Bangladesh
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ACJ Cl
Presented by:
Dr. Md. Mozibur Rahman Course : EIB 534/532: Bangladesh in International Business
EMBA Program Department of International Business
Faculty of Business Studies University of Dhaka
15 December 2015
2
Regional Trade Agreements and Bangladesh
Structure of today’s presentation
What is Regional Trade Agreement (RTA)?
Types of RTAs
WTO Regulations and RTAs
Effects of formation of RTAs
Trend of RTAs
RECP and TPP
Bangladesh’s RTAs
3
Regional Trade Agreements and Bangladesh
What is Regional Trade Agreement (RTA)?
Regional economic integration refers to efforts to
promote free and fair trade on a regional basis.
Regionalism is described as actions by governments to
liberalize or facilitate trade on a regional basis,
sometimes through free-trade areas or customs unions.
This is also called Economic Integration and explains
how economy can integrate.
4
Regional Trade Agreements and Bangladesh
Types of RTAs
Based on the degree of integration, RTAs can be classified
into five stages:
1. Preferential Trade Agreement
2. Free Trade Agreement
3. Customs Union
4. Common Market
5. Economic Union
5
Regional Trade Agreements and Bangladesh
Types of RTAs …….contd.
Preferential Trade Agreement:
Two or more countries form a preferential trade
agreement when they reduce their respective duties
on imports of all goods from each other. The member
countries retain their original tariffs against the
outside world.
e.g. Commonwealth Preference System, establishes
in 1932 by Great Britain and its commonwealth
associates
6
Regional Trade Agreements and Bangladesh
Types of RTAs …….contd.
Free Trade Agreement:
Two or more countries form a free trade area/
association, when they abolish all import duties on
their mutual trade in all goods but retain their original
tariffs against the rest of the world.
e.g. European Free trade area, establishes in 1960
7
Regional Trade Agreements and Bangladesh
Types of RTAs …….contd.
Customs Union:
Two or more countries form a customs union when they
abolish all import duties on their mutual trade in all goods
and in addition, adopt a common external tariff schedule on
all imports from the rest of the world.
A customs union is also a free-trade area because trade
among the member countries is free.
But a free trade area need not to be a custom union because
a free-trade area need not to have a common external
tariff.
e.g. European community (EC), est. in 1834
8
Regional Trade Agreements and Bangladesh
Types of RTAs …….contd.
Common Market :
Two or more countries form a common market when they form a
common market when they form a customs union and, in addition,
allow free movement of all factors of production among them.
The common market countries abolish all trade restrictions on
their mutual trade and also establish a common external tariff, as
a customs union.
A common market is also a customs union (and free trade area).
A customs union need not to be a common market, because the
latter allows free movement of all factors of production (labor and
capital) among the common market countries
e.g. The European community became a common market since
1992
9
Regional Trade Agreements and Bangladesh
Types of RTAs …….contd.
Economic Union:
Two or more countries form an economic union when
they form a common market and in addition, proceed
to unify their fiscal, monetary, and socioeconomic
policies.
An economic union is the most complete form of
economic integration.
e.g. Benelux, establishes in 1960 by Belgium, the
Netherlands and Luxembourg
10
Regional Trade Agreements and Bangladesh
WTO Regulations and RTAs
Formation of RTAs is allowed under three WTO rules
1. Rules on free trade areas (FTAs) and customs unions (CUs)
(Art. XXIV)- allow discrimination in favour of members against non-
members.
Common external tariff for non member.
2. Enabling Clause (1979), Unilateral Preference granted by
developed to developing countries- Designed in 1979 (Tokyo Round) to allow lower thresholds for
liberalisation in agreements between “lesser developed
countries” and to legalise preference systems of Developed
Countries
3. A waiver- Members can agree to waive any rule that they agree to
waive.
11
Regional Trade Agreements and Bangladesh
WTO Regulations and RTAs ……contd.
Art. XXIV, GATT
1. Formation of a custom union or FTA means “the
substitution of a single customs territory for two or more
customs territories.”
2. “Duties and other restrictive regulations of commerce are
eliminated with respect to substantially all the trade
between the constituent territories of the union or at
least with respect to substantially all the trade in
products originating in such territories.”
3. Tariff setting, if any incase of PTA, does not exceed MFN
Tariffs.
12
Regional Trade Agreements and Bangladesh
WTO Regulations and RTAs……contd.
Art.V, GATS
1. Liberalization preferentially in Services among members.
2. Member countries can form PTAs in services provided that
they have a substantial sectoral coverage.
3. Absence or elimination of substantially all discrimination
between or among the parties through elimination of
existing discriminatory measures, and/or prohibition of
new or more discriminatory measures.
13
Regional Trade Agreements and Bangladesh
Static Economic Effects of Integration
Trade Creation:
The formation of a custom union, such as the European
Community, normally shifts the national locus of
production of some commodities. When the shift in the
national locus of production of a certain commodity is such
as to create some new trade, known as trade creation.
Domestic products are replaced by more competitive regional
products; and
Welfare increasing for consumers as they consume goods at low
price.
14
Regional Trade Agreements and Bangladesh
Static Economic Effects of Integration… contd.
Trade Diversion:
When the shift in the national locus of production is such
as to merely divert some old trade from one country to
another, known as trade diversion. Products which were
formerly imported from the rest of the world/efficient
suppliers are now imported from regional producers as
their production costs are lower than those of the rest of
the world plus customs duty.
Higher producer surplus of the regional suppliers and
Welfare decreasing for consumers as it supports inefficient
production.
15
Regional Trade Agreements and Bangladesh
Dynamic Economic Effects of Integration
Increased specialisation due to concentration on comparative
advantages.
Economies of scale due to enlarged market.
Enhanced efficiency of resource allocation due to increased
competition; consumer benefits.
Technology transfer, innovation and learning effects.
Option to reap more FDI.
Advanced relevance in bi- and multilateral trade
negotiations.
Increased security and stability in the region.
Enhanced Welfare of consumers in the region.
16
Regional Trade Agreements and Bangladesh
WTO Regulations and RTAs
Multilateralism is the best option of efficient trade and
production.
There is fierce debate over whether regionalism is
(un)supportive of multilateralism- RTA creates or diverts trade.
RTA builds blocks for multilateral policy by providing a more
effective catalyst for liberalisation than WTO
RTAs also stumbles blocks by creating new vested interests
opposing multilateral reform.
These debates are relevant to Bangladesh because:
Bangladesh is a member of regional integration schemes (e.g.
SAFTA and APTA);
It receives trade preferences (e.g. EBA in the EU);
It might enter into FTA negotiations with developing or
developed countries.
17
Regional Trade Agreements and Bangladesh
Trend In RTAs globally
18
Regional Trade Agreements and Bangladesh
Trend In RTAs as per WTO agreement
Particulars Enabling
clause
GATS
Art. V
GATT
Art. XXIV
Grand
total
Customs Union 8 10 18
Customs Union - Accession 1 7 8
Economic Integration
Agreement 126 126
Economic Integration
Agreement - Accession 5 5
Free Trade Agreement 13 219 232
Free Trade Agreement -
Accession 0 2 2
Partial Scope Agreement 14 14
Partial Scope Agreement -
Accession 1 1
Grand total 37 131 238 406
19
Regional Trade Agreements and Bangladesh
RTAs' main trends and characteristics
One can divide three types of regional integration
frameworks based on partners:
1. North-North integration (e.g. EU, EFTA);
2. South-South integration (e.g. MERCOSUR, COMESA,
ASEAN);
3. North-South integration (e.g. NAFTA, APEC, EPA)
20
Regional Trade Agreements and Bangladesh
RTAs' main trends and characteristics
RTAs by partners
21
Regional Trade Agreements and Bangladesh
RTAs' main trends and characteristics
RTAs by type of agreements
22
Regional Trade Agreements and Bangladesh
RTAs' main trends and characteristics
23
Regional Trade Agreements and Bangladesh
RTAs' main trends and characteristics
24
Regional Trade Agreements and Bangladesh
Regional Comprehensive Economic
Partnership (RCEP)
Major Countries-ASEAN Countries + Australia, China,
India, Japan, Korea Rep. of and New Zealand.
Coverage-Trade in goods, trade in services, investment,
economic and technical cooperation, intellectual
property, competition, legal and institutional matters,
and other issues.
Negotiation Concluded by 2015.
The RCEP will be consistent with the WTO, including
GATT Article XXIV and GATS Article V.
25
Regional Trade Agreements and Bangladesh
Regional Comprehensive Economic
Partnership (RCEP)
Country Groups: ASEAN
Export (million USD), 2013
Import (million USD), 2013
International Trade (million USD), 2013
Brunei Darussalam 11,447.19 3,612.44 15,059.62 Cambodia 9,248.13 9,227.43 18,475.56 Indonesia 182,551.75 186,628.63 369,180.38 Laos 3,097.78 6,196.58 9,294.36 Malaysia 228,515.73 206,250.86 434,766.59 Myanmar 10,705.99 18,415.93 29,121.92 Philippines 53,978.26 65,097.36 119,075.62 Singapore 410,249.67 373,015.74 783,265.41 Thailand 228,527.44 2,50,708.23 479,235.67 Vietnam 140,082.91 145,266.91 285,349.82 Sub-Total 1,278,404.85 1,264,420.10 2,542,824.95 ASEAN Plus Three China 2,209,007.28 1,949,992.31 4,158,999.59 Japan 715,097.24 833,166.06 1,548,263.31 South Korea 559,618.56 515,572.97 1,075,191.53 Sub-Total 3,483,723.08 3,298,731.34 6,782,454.43 Other Partners India 336,611.38 466,045.56 802,656.94 Australia 252,155.11 232,481.27 484,636.38 New Zealand 39,206.36 39,221.55 78,427.90
RCEP Total 5,390,100.78 5,300,899.82 10,691,000.60 World total 17,974,395.14 18,702,567.7 36,676,962.84 % of world total 30% 28% 29%
26
Regional Trade Agreements and Bangladesh
Trans Pacific Partnership Agreement (TPP)
The Trans-Pacific Strategic Economic Partnership was
conceived by Singapore.
Trans-Pacific Strategic Economic Partnership (P-4) was
concluded in 2006 and in 2008 US joined TPP.
Countries-Australia, Brunei, Canada, Chile, Japan,
Malaysia, Mexico, New Zealand, Peru, Singapore,
Vietnam, US
27
Regional Trade Agreements and Bangladesh
Trans Pacific Partnership Agreement (TPP)
TPP countries Export
(million USD), 2013
Import
(million USD), 2013
International Trade
(million USD), 2013
Australia 252,155.11 232,481.27 484,636.38
Brunei Darussalam 11,447.19 3,612.44 15,059.62
Canada 456,395.28 461,799.51 918,194.79
Chile 77,367.26 79,616.35 156,983.62
Japan 715,097.24 833,166.06 1,548,263.31
Malaysia 228,515.73 206,250.86 434,766.59
Mexico 380,122.81 381,210.15 761,332.96
New Zealand 39,206.36 39,221.55 78,427.90
Peru 41,871.69 43,357.30 85,228.98
Singapore 410,249.67 373,015.74 783,265.41
United States 1,578,001.36 2,328,328.63 3,906,330.00
Vietnam 140,082.91 145,266.91 285,349.82
TPP total 4,330,512.61 5,127,326.76 9,457,839.37
World total 17,974,395.14 18,702,567.70 36,676,962.84
% of world total 24.09% 27.42% 25.79%
28
Regional Trade Agreements and Bangladesh
Bangladesh’s involvement in RTAs
4 regional PTAs
Asia Pacific Trade Agreement (APTA)
SAARC Preferential Trading Arrangement (SAPTA)
Trade Preferential System among the Countries of OIC (TPS-OIC)
Preferential Trading Arrangement among Developing-8 Countries (D-8 PTA)
1 bilateral PTA
Preferential agreement Between Bangladesh and Iran
2 FTAs
South Asian Free Trade area (SAFTA)
Bay of Bengal Initiatives for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC FTA)
29
Regional Trade Agreements and Bangladesh
Asia Pacific Trade Agreement (APTA)
APTA is the oldest preferential trade agreement in the
region.
Bangladesh, India, Lao PDR, Korea and Sri Lanka are its
founding members, with China acceding to the Bangkok
Agreement in 2001.
The intra-regional trade among the APTA members are
boosting consistently over the years, specially after the
accession of China.
30
Regional Trade Agreements and Bangladesh
Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation (BIMS-TEC)
Framework Agreement on the Bay of Bengal Initiative for
Multi-Sectorial Technical and Economic Cooperation (BIMSTEC)
Free Trade Area.
7 Member Countries: Bangladesh, Bhutan, India, Myanmar,
Nepal, Sri Lanka & Thailand.
Previously known as BIST-EC. The new name is "Bay of Bengal
Initiative for Multi-Sectoral Technical and Economic
Cooperation" given at the First Summit in 2004. In the same
year a FTA was proposed, but has not been signed yet.
Status : Signed in 2004 [Under negotiation since 2004]
31
Regional Trade Agreements and Bangladesh
Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation (BIMS-TEC)
In 1998, 6 priority sectors to cover cooperation were identified: 1. Trade and Investment, led by Bangladesh
2. Transport and Communication, led by India
3. Energy, led by Myanmar
4. Tourism, led by India
5. Technology, led by Sri Lanka
6. Fisheries, led by Thailand
In 2005, another 7 priority sectors and responsibilities were
identified: 8. Agriculture, led by Myanmar
9. Public Health, led by Thailand
10. Poverty Alleviation, led by Nepal
11. Counter-Terrorism and Transnational Crime, led by India
12. Environment and Natural Disaster Management, led by India
13. Culture, led by Bhutan
14. People to People contact, led by Thailand
32
Regional Trade Agreements and Bangladesh
Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation (BIMS-TEC)
BIMS-TEC Framework Agreement incl. a Free Trade Agreement (FTA)
agreed in 2004 – to be established by 2012.
Areas covered by the BIMS-TEC FTA:
Trade in Goods:
fast track (10% tariff lines) and normal track liberalisation/normal
track reduction, SDT to LDCs.
Negative list, subject to ‘maximum ceiling’ with flexibilities for
LDCs.
Trade in services: ‘substantial’ liberalisation to be discussed
(positive list approach).
Other issues: investment promotion/protection, cooperation on
customs, trade facilitation by mutual recognition agreements.
33
Regional Trade Agreements and Bangladesh
South Asia Preferential Trade Agreement
(SAPTA)
To make greater integration of export-import business
among the SAARC leaders reached to an agreement to
establish an institutional frame ‘South Asia Preferential
Trade Agreement (SAPTA)’ in 1993.
Major objective of this preferential trade agreement are-
Trade expansion among the member countries;
Formulation of a long term perspective on trade
liberalizing program;
Removal of trade & non-trade barrier;
Reduction of illegal trade among the member
countries.
34
Regional Trade Agreements and Bangladesh
South Asian Free Trade Area (SAFTA)
Established in 2006 (following SAPTA, 1993), FTA to be established by
2013/16 (LDCs)
India, (Pakistan), Sri Lanka:
2002-07:reduce average import duties to 20%;
2007-12: reduce import duties gradually to zero (2013 for Sri
Lanka)
Bangladesh, Bhutan, Maldives:
Reduce average import duties to 5% by 2016
Sensitive list remains; comprehensive RoO requirements
Bangladesh has reduced its tariffs by about 30% (Dec. 2011)
Bangladesh’s exports to SAFTA account for about 3%; imports for
about 17% (mainly from India)
TIS commitments to be negotiated; preferential market access for
LDCs foreseen
35
Regional Trade Agreements and Bangladesh
Direction of SAFTA Intra-regional Trade
Table: Intra-regional Trade in South Asia in 2014
(In ‘000 US$)
From
To Afg
han
ista
n
Ban
gla
des
h
Bh
uta
n
Ind
ia
Mal
div
es
Nep
al
Pak
ista
n
Sri
Lan
ka
To
tal I
ntr
areg
ion
al
Exp
ort
To
tal e
xpo
rt
Reg
ion
al e
xpo
rt a
s
% o
f co
un
try’
s
tota
l exp
ort
Afghanistan 0 1820 0 220129 0 0 177582 24 399555 659410 61
Bangladesh 4977 0 2949 461964 0 14212 53466 21146 558713 30199025 2
Bhutan* 0 22985 0 383000 0 4782 304 0 411072 555000 74
India 443055 6579875 749000 0 139835 4405078 2181823 6433181 20931847 317733218 7
Maldives 0 409 0 4061 0 0 10 8802 13282 191716 7
Nepal 0 20044 3379 547310 12 0 1247 32 572023 919640 62
Pakistan 2221769 494037 0 481204 5838 1157 0 253976 3457981 27052102 13
Sri Lanka 159 89849 12 610294 88632 4824 73173 0 866943 10923239 8
Total exports 27211415 388233348 7
Total intra-regional
imports 2669960 7209019 755340 2707963 234317 4430052 2487604 6717160 27211415
Total Imports 7990761 45610279 1040000 460512283 1700454 8486418 58945173 20537789 60482315
7
Regional imports as
% of country’s total
imports
33 16 73 1 14 52 4 33 4
Source: IMF, Direction of Trade Statistics (DOTS). *The data for Bhutan is mirror data from ITC and http://stat.wto.org/CountryProfile/WSDBCountryPFView. aspx?Language=E&Country=BT .
36
Regional Trade Agreements and Bangladesh
Characteristics of SAFTA intra-regional trade
Low level of intra-regional trade, growing from 4.2% in 1990 to 5.5%
in 2008.
India dominates intra-regional trade because it is the largest and
most diversified economy.
General export pattern of SAFTA countries: Limited product diversity
(concentrated on textiles and garments) concentrated to few
markets; low capacities.
NTBs and poor trade infrastructure are very important barriers:
South Asia is the most restricted region in the world (WBG, 2008)
high trade costs.
Political animosity and security threats hamper intra-regional trade.
37
Regional Trade Agreements and Bangladesh
Characteristics of SAFTA intra-regional
trade… contd.
Some products are almost exclusively traded intra-regionally:
Pakistan: 86% of milk and dairy exports to SAFTA; 50% of wheat
exports to Bangladesh;
Sri Lanka: 80% of oil seed exports to Pakistan; 85% of vegetable
oils to India; 65% of dairy exports to SAFTA;
SAFTA not yet fully implemented: India has bilateral FTAs with
Bangladesh, Pakistan, and Sri Lanka, but not for all product and still
applies high tariffs for other imports; NTBs and trade distorting
subsidies remain problems – particularly for net importers like
Bangladesh
High level of informal trade that are estimated to exceed formal
trade levels: e.g. India/Nepal; Afghanistan/Pakistan
Reduced tariffs and NTBs would reduce informal trade levels and
consumer prices
38
Regional Trade Agreements and Bangladesh
Causes for Slow Pace of SAFTA
Most of the countries are yet to formulate the policy to
reduce tariffs and there is no timeline to do it
The meeting of SAFTA ministerial and expert council did
not held as per agreement;
Implementation of SAFTA prerequisites to member
countries for simplifying and harmonizing standards,
customs clearance, transit facilities etc.
According to SAFTA, signatories would allow free trade of
4200 items approximately; many members haven’t
fulfilled it yet.
ACJ Cl
Thank you !