9. RTAs and Bangladesh

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

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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.

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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

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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

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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

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Trend In RTAs globally

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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

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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)

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RTAs by partners

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RTAs by type of agreements

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23



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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.

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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%

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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

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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%

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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)

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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.

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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]

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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

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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.

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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.

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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

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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 .

http://stat.wto.org/CountryProfile/WSDBCountryPFView

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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.

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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

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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 !

Documents

9. RTAs and Bangladesh