Bilateral FTAs a way forward for a graduating LDC?

FOCUS:

Bangladesh – Sri Lanka Free Trade Agreement (FTA)

Presentation to High Level Meeting on achieving sustainable Graduation for LDCs

30 November 2017

Amb. Riaz Hamidullah

Bangladesh High Commissioner to Sri Lanka

… Outline

• Bilateral FTAs? •NOT the ‘panacea’ => rather, a way forward to curve ‘greater economic space’ in creative ways

•‘FREE’ Trade Agreement (just Trade in ‘Goods’?)

• case in Point: Bangladesh-Sri Lanka economic relations •Rather, ‘Comprehensive Economic Partnership’ (CEPA) /

‘Comprehensive Economic Cooperation’ (CECA) => a marriage between two Economies – in parts!

• Trade in SERVICE is the new battleground!

• forging ‘strategic partnership’ between sectors and industries i.e. in Apparel sector, IT/ITES, Logistics and Trans-shipment

• Way forward 2

… Introduction: FTA

• “LDC Graduation Strategy is essentially Development Strategy”.

• ‘International Support Measures’:

• to decline ? Static?

• Progressively, an LDC (e.g. Bangladesh) economy has to have greater connectivity – productivity – innovation.

• In the backdrop of ‘slow’ (or, moribund?) global multilateral and regional multilateral trade in terms of further trade expansion (i.e. market access), opting for Bilateral FTA is a ‘cautiously considered’ and ‘transformative’ pathway to expand economic space.

• much less a tariff-reducing exercise e.g. customs tariff is /has fallen so much within bilateral-regional-global arrangements.

• “….the game will be played more based on productivity than based on factors”

3

… Introduction: FTA

• To secure:

expanded access to each other's markets

+ increase each country's economic growth

+ people’s well-being

+ curve cost, time advantage through networking, partnerships

• FTAs to further reduce tariff + para tariff + non-tariff barriers Bangladesh and SL

• Look at:

• the existing industries and sectors

• the industries and sectors that may hold potential / are emerging

4

… Introduction: FTA

• Lets get it right….

• Objective of a FTA is NOT to minimize Balance in Trade,

but to work out ‘WIN – WIN’ situation for producers and consumers in both countries

• Bilateral FTA is also address behind-the-border barriers that impede the flow of Goods and Services between the two countries + facilitate investment + enhance wider economic partnerships + address other issues e.g. Intellectual Property, E-commerce, etc.

5

… Introduction: Why do we need bilateral FTAs? • Exporters prefer FTAs to MTAs because they get preferential treatment over non-FTA member country competitors.

- e.g. ASEAN has an FTA with India but not with Canada. ASEAN's custom duty on leather shoes is 20% but under ASEAN – India FTA it reduced duties to zero. Assuming other costs being equal, an Indian exporter, because of this duty preference, will be more competitive than a Canadian exporter of shoes.

- Secondly, FTAs may also protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs.

• Possibility of increased FDA from outside the FTA

- e.g. 2 countries, A and B having an FTA. Country A has high tariff and large domestic market. The firms based in country C may decide to invest in country A to cater to A's domestic market. However, once A and B sign an FTA and B offers better business environment, C may decide to locate its plant in B to supply its products to A.

6

… Recent Trends in Bangladesh-Sri Lanka Economic Relations

BD – SL FTA is also to draw on wider policy framework (i.e. MoUs) concluded on …

• Economic Partnership

• Comprehensive Partnership between (Investment Promotion Agencies)

• Central Banks

• Comprehensive Cooperation in Agriculture

• Comprehensive Cooperation in Digital Technology and related industry

• Skill Development (Pharmaceuticals & Medical Devices; Nurses Trg.)

• Maritime Connectivity : Logistic services, trans-shipment!

•Mobility (of people)….

Institutional framework …

• Foreign Office Consultations (FOC)

• Joint Economic Commission (JEC)

• Joint Working Group on Trade

• Joint Business Council + Chambers of Commerce

… Recent Trends in Bangladesh-Sri Lanka Economic Relations

Possible partnerships ?

Spur investment, new forms of partnertship

High-end Apparel and Textiles: • Strategic collaboration between Bangladeshi and SL Apparel!

• Maritime Logistics, Ship-building • e.g. SL is emerging as multi-dimensional maritime hub with prospective capacity of 35 million TEUs (Bangladesh capacity of 2.6 million TEUs)

•Finance • e.g. taking foothold in a low-cost, competitive hub between Dubai and Singapore ! • upcoming Colombo International Financial Centre

•Agro-Business • vast potential : within global supply chains and value chain

• Pharmaceuticals • Investment either way!

• ICT, Digital Technology, related knowledge industry •BASIS – SLASSCOM => to tap into regional and global ICT value chains! • e.g. IFS in Bangladesh

… Bilateral Economic Relations: Trade in figure

*Up to April 2017;

Source: Statistics Development, Bangladesh Bank

Year Exports to Sri Lanka Imports from Sri Lanka Total trade (both ways) Balance

2011-’12 42.6 32.4 75.0 (+) 10.2

2012-’13 23.7 39.8 63.5 (-) 16.1

2013-’14 26.8 66.7 93.5 (-) 39.9

2014-’15 23.9 43.5 67.4 (-) 19.6

2015-’16 30.4 45.0 75.4 (-) 14.6

2016-’17* 36.6 42.3 78.9 (-) 5.7

Value in million USD

… Bilateral Economic Relations: Export Composition

Key exportables from Bangladesh to Sri Lanka:

• Chemicals

• Heavy machineries including iron and steel

• Electrical machineries and equipment

• Edible vegetable and rhizomes

• Bicycle parts

• Jute and jute products

• Garments and Knitwear

• Pharmaceuticals

done by High Commission, based on trend analysis of BD exports to SL since 2011-’12

… Bilateral Economic Relations: Exports

Chemicals 34%

Agro-products 5% Heavy machineries

45%

Jute + Jute goods 4%

RMG + Knitwear 5%

Others 7%

Bangladesh export to Sri Lanka: 2016-’17

Chemicals

Agro-products

Heavy machineries

Jute and Jute goods

Garments and Knitweare

Others

… Bilateral Economic Relations: Import Composition

Key importables from Sri Lanka to Bangladesh …

• Cotton

• Woven and knitted fabrics

• Apparel accessories

• Chemicals

• Minerals

• Organicals: Enzymes, soaps, oil, etc.

• Tea and coffee

• Paper products

done by High Commission, based on trend analysis of BD imports from SL since 2011-’12

… Bilateral Economic Relations: Imports

Cotton and fibers 16%

Minerals 12%

Enzymes and other organicals 10%

Apparel accessories 17%

Plastics articles 5%

Rubber and filaments 7%

Electrical machineries 9%

Others 24%

Bangladesh's import from Sri Lanka 2016-’17

Cotton and fibers

Minerals

Enzymes and other organicals

Apparel accessories

Plastics articles

Rubber and filaments

Electrical machineries

Others

… Bilateral Economic Relations: Future Exportables

Products with good prospects for export from Bangladesh:

• Pharmaceuticals

• Plastic products

• Agro-based products

• Iron and steel

• Electronics and electrical parts

• Home appliances

• Bicycles, television, refrigerators, etc.

• Certain varieties of RMGs

• Inland fishes

… Bilateral Economic Relations: Investment Cooperation

Why Bangladesh ?

Competitive Services

IT & ITES, BPOs Logistics, Health

Skills Education,

Training, HR development

Infrastructure Communication, Energy, Power,

Ports, Economic Zones

Manufacturing Competitive

Manufacturing supporting global

value chains

all modes of Investments

100% FDI

Joint Ventures

Partnerships

PPPs

Non-equity modes (Technology transfer, licensing Franchising, Contracting, etc.)

Foreign Lending

… Bilateral Economic Relations: Investment Cooperation

Almost all sectors are open to SL investors:

Reserved Sectors

1.Arms & ammunitions

2.Nuclear Power

3.Security printing and

minting

4.Afforestation and

Mechanize Extraction

within the boundary of

reserved forest.

Agri-business & Food processing

Agro-based & agro-

processing

Jute & Jute goods

Flower cultivation

Commercial plantation

Horticulture

Silkworm &Silk Industry

Furniture

Handicrafts

Integrated shrimp cultivation

Frozen Food

Textile & Clothing

Home Textiles

Textiles industry

Readymade garments industry

High value added RMG

ICT & Electronics

ICT and ITES

Computer software & ICT goods

Electronics

Light engineering incl.

automobiles

Energy & Infrastructure

Power

Ports and Logistics

Economic Zones

Oil and gas

Tourism

Transport Infrastructure

Pharmaceuticals

Herbal medicines

Plastics Ceramics

Leather & leather goods

Textile Dye & chemicals

Basic chemicals

Pharma & Chemicals

Health care

Footwear

Cosmetics and toiletries

Jewelry and diamond cutting polishing

Healthcare & Others

… Bilateral Economic Relations: Investment Cooperation

Few regulated sectors are also open:

• Exploration - extraction- -

supply: other mineral

resources

• Large-scale infrastructural

project (e.g. flyover,

elevated expressway,

monorail, economic zone,

inland container depot/

container freight station)

• Crude oil refinery

(recycling/refining of lube

oil used as fuel)

• Medium and large industry

using natural

• Fishing in Deep Sea

• Bank/non-Bank Financial

Institutions (pvt sector)

• Insurance /re-insurfance

/Takaful (pvt sector)

• Power and energy:

generation - supply -

distribution (pvt sector)

• Hydro-carbon:

exploration -extraction -

supply

• Coal: exploration -

extraction - supply

• Gas/condescend and

other minerals (as raw

material)

• Telecom Service

(mobile/cellular and land

phone)

• Satellite channel

• Cargo/passenger vessels

• Sea bound ship transport

• Sea-port/deep sea-port

• VOIP/IP telephone

• Industries using heavy

minerals accumulated

from sea beach

… Bilateral Economic Relations: Investment Cooperation

Growing business case : - vertical horizontal

- investment on mutually beneficial partnership (along regional and global supply chains)

And indeed …

• High-level business dialogue

• 45 Sri Lankan companies: investment close to USD 300 million

• Most investments in: RMG, energy, banking, packaging, consumer

goods, agriculture

•BEPZA hosts SL investment worth USD 120 million+

… Bilateral Economic Relations: Connectivity

With OBOR and BCIM: - the connectivity landscape is changing

… Bilateral Economic Relations: Connectivity

Sri Lanka is a key important node in Indian Ocean (and Bay/Bengal)…

… Bilateral Economic Relations: Connectivity

Sri Lanka as a “hub” in Asia-Pacific: Prime Minister Ranil Wickremasinghe’s vision

• geo-economics of location – in Indian Ocean:

- straddling Western and Eastern Asia

• Ports: logistics – trans-shipment – related services in Asia

- Colombo Port alone has 14 million TEU capacity

- five Ports to have over 30 million TEUs

• vital southern-most point of mainland Asia

- connecting economic belt and maritime silk road

• “Nautical corridor” (between East and West:

- maritime economy, resources, trading

- nearly 2/3 global oil transportation path ..

… Why Sri Lanka?

Should Bangladesh look at Sri Lanka?

… Why Sri Lanka?

Should Bangladesh look at Sri Lanka?

Interested to get economics right!

•Location: Colombo is ideally suited for cargo trans-shipment to the West (US east coast, Canada, Europe, Mediterranean, West Asia, African ports)

• Colombo can save almost half a day per journey vis a vis Singapore for West-bound trade

… Way forward

Road map:

Activity Proposed time frame

Bangladesh

Agreed time frame

Sri Lanka

a. Stage I: Track 1.5 (Joint Study)

Bangladesh to propose a zero draft of the ToR Terms of Reference (ToR) of the Joint Study-

20th August 2017

Fourth week of August

2017

End August 2017

fourth week of September 2017

Formation of respective experts /members to the Joint Study Team 3rd week of August Second week of October 2017

Initiation/launching of the Joint Study 1st September 2017 End- October 2017

Initiation of the Joint Study: ten (10) weeks Completion of the Joint Study

Mid-October 2017 Mid -January 2018

Finalization of the conclusions/observations by the Joint Study Team

15th November 2017 End February 2018

Submission of the agreed outcome (conclusions/observations) of the Joint Study to both Governments

30th November 2017 March 2018

b. Stage II: Track 1.0 (Inter-government negotiation)

Depending on the joint consideration of the recommendations/observations of the Joint Study by respective Governments

(1-31) December 2017 Mid-March 2018

Initiation of Finalization of composition of respective Country Team FTA negotiation

Mid-December 2017 April 2018

Discussion on the elements of the FTA, Negotiation Committee and the schedule (number of rounds of negotiation, venue, areas to be covered, etc.) of FTA negotiation

First week of January 2018 May 2018

Consideration of the first/zero draft of the FTA

Completion by; submission of the finalized draft text of the FTA to

the Governments:;

End- March 2018

Early April 2018

End of 2018

… Way forward

Formation of Bangladesh Team (a reflection from the Bangladesh High Commission, Colombo):

• The following three Teams may form the Bangladesh Team:

• a. Advisory/Core team:

• Function: This team will provide macro strategic guidance and appropriate mandate to other two teams. It will guide in gaining rapid approval or bringing consensus among the stakeholders on issues that require so. It will identify the general economic interests and issues pertaining to the Bilateral FTA.

• Composition: The team may be formed by the Executive Chairman, BIDA; Commerce Secretary; Foreign Secretary; Chairman, National Board of Revenue; Chairman, Tariff Commission and Representatives from the PMO, BIDS, Bangladesh Bank.

• Representatives from nationally and globally reputed think tanks, Chamber Reps (MCCI, FBCCI, DCCI) should also be included in the Advisory/Core team.

… Way forward

b. Negotiation team:

c. Research team:

• Six research groups under the following thematic areas may comprise the Research Team:

• Trade in goods: Existing trade portfolios of Bangladesh and Sri Lanka, Tariff line analysis, Analysis of regional FTA's, Identification of Bangladeshi goods with comparative advantage, Defensive Interests (negative list), etc.

• Trade in services: Mapping the Bangladesh Service Sector, Value Stream Mapping of leading service sectors, Analyzing comparative advantages of both countries, Cooperation in Logistics, ICT, Education, Health, Hospitality, Corporate Management, Banking, etc.

• Domestic support: Analysis of domestic support measures: Tariff, para-tariff and non- tariff barriers;

- As a whole

- Sector-wise

… Way forward

c. Research team:

• This team will also would look into offensive and defensive Interests: Trade promotion, investment promotion, business creation, Food security, Poverty alleviation, Energy security, Critical infrastructures, etc.

• Policy harmonization: Mapping the Bangladesh Service Sector, Value Stream Mapping of leading service sectors, Analyzing comparative advantages of both countries, Cooperation in Logistics, ICT, Education, Health, Hospitality, Corporate Management, Banking, etc.

• Value chain mapping: Leading global and regional value chains, Bangladesh in these major regional and global value chains, Sri Lanka in major value chains, Bangladesh as springboard for Sri Lankan value chain, Sri Lanka as hub, Trilateral or Multilateral potentials if BD-SL joins together.

• Looking at future: Fourth Industrial Revolution, New Businesses, Promoting Bangladeshi mega-corporations (Trade-Service- Capital-Investment all in one), Beyond apparel, Beyond goods, Pharmaceuticals, Software, Electronics, Heavy Machineries, etc.

… Way forward

• Research teams need to draw upon members from GoB, Resource person from Industry Associations, Resource person from Academia, representatives from Civil Society, individual experts, etc.

• Each group may have one coordinator or two as co-coordinators.

• They will mainly feed the Core Group and take guidance from the core group.

• However, during the negotiation, they must also in constant conversation with the Negotiating Group and be able to quickly respond to the need of the negotiating group, including articulation of reasons and arguments.

• Groups will work in parallel.

• After 8 weeks, reconciliation among all groups will be held in early December in Dhaka through a one-day long workshop.

… Way forward

… Way forward

• Areas where research groups may focus: indicative (not exhaustive):

a. Broad areas:

… Way forward

• Areas where research groups may focus:

• Indicative list, not exhaustive –

b. Bangladesh Economy:

… Way forward Sectors: (indicative only)

• High-end apparel, textiles: Co-lead: BGMEA, BKMEA, BTMEA

• Pharmaceuticals: Co-lead: BAPI, Square Hospital, Beximco Pharma, Square Pharma, Incepta Pharmaceuticals

• ICT: Co-lead: BASIS, Aamra, Bd Jobs/Habibullah Karim

• Energy: Co-lead: Summit Group

• Tourism, hospitality: Tiger Tours

• Agro, Processed food: Co-lead PRAN

• Ship & Boat building: Western Marine

• Logistics: Expo Lanka

• Finance: Bangladesh Bank

• Plastics: PRAN RFL, Bengal Plastics

• Electronics: Energypac, Walton

• Leather: Apex

• Infrastructure: Abdul Monem Group

• Cosmetics and Toiletries: Square

• Precious metal

• Fisheries

… Way forward

Three key question to consider in looking at each sector:

… Conclusion 3 Cs

•Confidence

•Comfort

•Collaboration

For Bangladesh

•Higher safety margin

•Lowering risk

•Prospect of becoming a regional manufacturing – distribution hub

•Securing robust presence in value-additive Global Supply Chains

Take away …

Vertical attributes of Sri Lanka combines with horizontal attributes of Bangladesh

=> products and services have potential to be of high quality with economies of scale

THANK YOU

35