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Seminar on: Bangladesh-Pakistan FTA: Reaping Mutual Benefits. Keynote Speech Presented by: Saifuzzaman Chowdhury President Chittagong Chamber of Commerce & Industry. Background of Bilateral FTA .
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Keynote Speech • Presented by: Saifuzzaman Chowdhury President Chittagong Chamber of Commerce & Industry
Background of Bilateral FTA • Against the backdrop of global change-over in both political and economic arena, every country, is now busily engaged to pursue supportive and pragmatic policy interventions and strategy to attain the cherished goal of viable development. • In fact, in order to ensure durable national progress and security, every country is or ought to be very active to harness even an iota of opportunity and make a half chance full chance. • But attainment of this objective, is often impossible for an individual country without the collaborative help and collective effort of other country. Cont’d
Multilateral, plurilateral or regional agreements and cooperation can yield best result in this regard. But very often, negotiations on multilateral, plurilateral or regional basis are of complexed nature and time consuming. It requires harmonization of divergent and conflicting interests and synthesizing of varying demands of many countries. On the other hand, negotiation between two countries and accommodating each other’s different interests is much more easy to handle. As a result, both the country can early harvest their economic complementarities and competitive advantages. Cont’d
Bilateral accord for economic and other cooperation also helps both the countries to achieve competitive gains over other countries. This realization of reaping early benefits, is now encouraging many countries of the world to enter into bilateral pact. Signing of Free Trade Area (FTA) Agreement at bilateral level, is therefore on surge, in recent time, in international arena. The impasse and looming difficulties in WTO trade talks are also fanning the ideas of entering into bilateral FTA Agreement:
FTA and RTA (Regional Trade Agreement) under WTO: • WTO Members are allowed to depart from the principle of non-discrimination defined in Article I of GATT, Article II of GATS, and elsewhere to enter into FTAs and RTAs under specific conditions which are spelled out in three sets of WTO rules: • i.Paragraphs 4 to 10 of Article XXIV of GATT provide for the formation and operation of customs unions and free-trade areas covering trade in goods; • ii.The so-called Enabling Clause refers to preferential trade arrangements in trade in goods between developing country Members; and • iii. Article V of GATS governs the conclusion of RTAs in the area of trade in services.
Examples and purview of RTAs and FTAs: ·According to ICC, more than 200 RTAs and FTAs are currently in force which is likely to rise over the years. ·Few examples of such RTA Agreements include NAFTA, ASEAN, COMESA, SAFTA, EC etc. · Bilateral FTA includes the Japan-Singapore, US-Singapore, US-Australia, Turkey-Preferential treatment for Bosnia-Herzegovina and the EC-ACP Partnership Agreement etc. These agreements are aimed at giving the member countries preferential access over others. Cont’d
· In December 1998 India and Sri Lanka signed a free trade agreement, with India agreeing to phase out of tariffs on a wide range of Sri Lankan goods within 3 years, while Sri Lanka agreed to remove tariffs on Indian goods over eight years. · Other FTAs, such as those being negotiated by the USA, are much more comprehensive and cover other issues including services and investment. These agreements usually take existing WTO agreements as their benchmark. They often strive to go further than what is set out in the WTO rules.
Rationale of Bangladesh-Pakistan FTA: - Cultural homogeneity & mutual acquaintance - Same historical tradition - Economic complementarities - Huge market of about 300 million people - Similar social structure and family bondage - Homogenous consumer behaviour and buying pattern - Scope to maintain almost similar distribution system and selling strategy Cont’d
- Almost symmetric economic development state - Similarity in life style and standard of living - Existence of agreement for avoidance of double taxation (DTT) - Huge scopes to exploit each other’s competitive advantages - Scope to attaining greater collective bargaining power at regional and international trade negotiation
General Benefits of Bangladesh-Pakistan FTA: - Greater market access of each other’s products - Attainment of more economies of scale with no or minimum adaptation in existing technology and production pattern - More FDI attraction in both the countries - Promotion of bilateral investment to tap each other’s comparative advantages Cont’d
- Facilitation of joint venture as well as technology transfer and knowledge sharing - Greater consumer satisfaction with low price index - Scope of greater collaboration at the time of each other’s needs - Better exploitation of each other’s economic complementarities and thus infuse dynamism and impetus to holistic economic development effort
Most Conspicuous Benefits of Bangladesh-Pakistan FTA: - Bangladesh has been granted duty and quota free market access by EU, Norway, Canada, Japan, Australia and New Zealand and also preferential market access by many other developed and higher developing countries. Pakistani entrepreneurs can easily exploit this opportunity by availing of the sops to be granted under FTA. - Bangladesh can use Pakistan as a Springboard for the markets of Afghanistan, Central Asia, Iran and Gulf countries. Cont’d
- Bangladesh enjoys a strategically advantageous geographic location linking SAARC and ASEAN at the middle for all mode of transportation viz. road, rail, air and sea. Pakistani entrepreneurs can easily avail of this opportunity by exploiting preferential advantage to be granted under FTA. - Both the countries can exploit their economic complementarities. For example Bangladesh has huge domestic and overseas apparel markets and Pakistan has good raw material supply source, technology and strong backward linkage in textile fabrics, which can be good combination for collective growth of both the economies. There are also other fields for such mutually beneficial cooperation.
Bilateral trade and economic relations between Bangladesh and Pakistan:
Other Economic Relations - FDI from Pakistan to Bangladesh registered with BOI goes to the tune of about 90 million US dollar - 4 Pakistani companies are currently operating in Bangladesh’s EPZs - Altogether more than 50 Pakistani companies are operating in Bangladesh - Pakistan has offered Bangladesh duty free access of raw jute and upto 15000 metric ton of Tea per annum. - Bangladesh has also submitted a list of 73 items under nine categories to Pakistan for providing duty free access.
Deterrents to bilateral trade and economic cooperation: - Perceived political uncertainties of both the countries - Lack of direct shipping links between Bangladesh and Pakistan - Absence of cargo flights and lack of enough passenger flights - Lack of frequent interaction and exchange of required information between the private sector of both the countries • Cont’d
- Lack of exchange of frequent private sector delegations - Failure to participate in each other’s trade fairs - Absence of required cooperation at Government level of both the countries - Myopic views of the business community of both the countries on each other’s prospects and competitive edge
History of Bangladesh-Pakistan FTA: · Both the countries in a meeting at Foreign Minister level on July, 2003 at Islamabad agreed to enter into a FTA Agreement. · A first formal meeting on the proposed FTA was held in Dhaka on December, 2003 at Joint Secretary level. But no headway could be made in the meeting due to the significant difference between the two countries on Special and Differential (S&D) Treatment issue. · During the visit of Prime Minister Begum Khaleda Zia to Pakistan on 13th February, 2006, both the countries agreed to finalize the FTA Agreement by September, 2006.
Supporting Factors and Incidences of proposed FTA: · After the proposal, private sector representatives of both the countries, argued for rapid signing of FTA, taking into account the asymmetric development state of either country. · With the mounting pressure from private sector, Government of both the countries also became very active to expedite their economic cooperation. · As a result, the 8th meeting of the Bangladesh-Pakistan JEC was held on September, 2005 in Dhaka after 6 years. · The JEC meeting worked out a common strategy to raise both way trade to one billion dollar by 2007. Cont’d
· The JEC meeting also signed an agreement to form a Joint Working Group which would look into the progress of following strategy:- i.Establishing direct shipping links between Bangladesh and Pakistan ii.Exchange of private sector delegations iii.Enhancing air flights of both passenger and cargo iv.Participation in each other’s trade fairs and holding single country exhibitions. • Cont’d
·Other Common concerns identified in the JEC Meeting:- i.Finding areas for joint venture initiatives ii.Strengthening and expanding technical cooperation iii.Exploring the possibility of investment in tourism and allied projects iv.Enhancing cooperation in fisheries and livestock v.Creating a Joint Fund to undertake investment-promotion activities and linkages among export processing agencies of the two countries. The meeting of the JEC and its decision was aimed at facilitating the signing of FTA Agreement between Bangladesh and Pakistan.
4 MOUs signed between Bangladesh and Pakistan: · During the recent visit of Prime Minister Begum Khaleda Zia to Pakistan, 4 MOUs was signed between Bangladesh and Pakistan in a bid to accelerate the signing of FTA Agreement: i.Cooperation in Agriculture ii.Cooperation in Tourism iii.Cooperation in export Promotion and iv.Cooperation in product standardization and quality assurance. Cont’d
·Pakistan Agricultural Research Council and Bangladesh Agricultural Research Council entered into the MOU in the farm sector cooperation. · The MOU on tourism was signed by Bangladesh Foreign Minister Mr. M. Morshed Khan and Pakistan Tourism Minister Mr. Syed GG Jamal. · The 3rd MOU on export promotion, was signed by Foreign Minister Mr. M. Morshed Khan & Pak Commerce Minister Mr. Humayun Akhter Khan. · The fourth one between Pakistan Standards and Quality Control Authority (PSQCA) and Bangladesh Standards and Testing Institution (BSTI) in the field of standardization and quality assurance was signed by Foreign Minister Mr. M. Morshed Khan and Pak Science and IT Minister Mr. Nouraiz Shakoor. · All these agreements are to facilitate the signing of FTA Agreement between Bangladesh and Pakistan.
Salient Features of the proposed FTA: Early Harvest Approach: Both Bangladesh and Pakistan can implement an Early Harvest Programme to deliver benefits to the private sectors ahead of FTA and to provide impetus for early conclusion of FTA negotiation. · Under this programme Pakistan should grant immediate duty free access to 73 Bangladeshi products under 9 categories as requested for. The products include jute & jute goods, pharmaceuticals, plastic products, porcelain, melamine and readymade garments. · Pakistan can also provide a list of products under this programme. Cont’d
Recognition of Special and Deferential Treatment for Bangladesh: Pakistan should recognize the LDC status of Bangladesh and provide the Special and Deferential (S&D) Treatment to it. As an LDC, Bangladesh is the legitimate claimer of the facility. Tariff reduction schedule: Under SAFTA Agreement, Pakistan is to reduce their tariff to 0-5% for Bangladeshi products within 3 years beginning from the date of coming into the force of the Agreement. Under the bilateral FTA, Pakistan should reduce its tariff to 0-5% for Bangladesh with effect from coming into force of this bilateral FTA Agreement. On the other hand, as an LDC, Bangladesh should be allowed to comply with its obligations as same as under SAFTA. Cont’d
Sensitive List: FTA between Bangladesh and Pakistan should be more liberal and cooperative than SAFTA. So, any items of interest of Bangladesh, must be excluded from the sensitive list. At the same time, Bangladesh should be allowed to maintain a wider negative list. Any products already under preferential treatment should not be included in the sensitive or negative list. Rules of Origin: Rules of Origin under the proposed FTA, should be more flexible and liberal than that of SAFTA/SAPTA. It should be based on simple value addition criteria and not on Heading or Sub-Heading change criteria or combination of both of them. To getting preferential access to Pakistan market, value addition for Bangladeshi products should be 25% as the percentage is 30% in SAPTA/SAFTA. A derogation in value addition criteria for RMG and other labour incentive goods of Bangladesh should be allowed and it would be not more than 20%. Cont’d
Recognition of Testing Institutes and Laboratories for Conformity Assessment: Conformity assessment certificates on technical regulations and product standards, to be issued by the respective designated national agencies, should be accepted until mutual recognition Agreement is reached between the two countries. Non-acceptability of conformity assessment certificates of any product, if and when arise, should be resolved by mutual cooperation and discussion without restricting the flow of trade. Imposition of Restrictive Measures: Exports from Bangladesh should be exempted from antidumping, countervailing and safeguard measures on non-reciprocal basis until Bangladesh’s export share reaches more than 10% and the combined LDC share reaches more than 25% of the total market share of Pakistan for that particular product. Cont’d
Settlement of Disputes: All disputes relating to any transaction should be referred for settlement to an arbitration body to be mutually agreed upon by both the countries, unless both parties agree to settle the dispute in any other peaceful manner. Negotiations on trade in services and investment: Trade in Services and investments should be expedited by negotiations between the two countries on the basis of respective offers and requests on preferential basis taking into cognizance of the varying development state of both the countries. Cont’d
Formation of a joint trade facilitating Committee: · A joint trade facilitating committee should be set up consisting of the officials of the concerned agencies and representatives from the private sector to identify and remove trade barriers and facilitate mutual trade and investment. · The recommendations of the joint trade facilitating committee made from time to time should be the basis for regulatory framework and trade policy formulation between the two countries. Cont’d
Areas for joint efforts to reap benefits of FTA: - Harmonization of H.S. Codes of both the countries. - Simplification and harmonization of customs procedure. - Recognition of certifying and testing institutes of both the countries. - Establishment of direct shipping and air links Cont’d
- Establishment of an active network of Government and private sector agencies related to trade and economy. - Building up a strong interaction and exchange of business information between the businessmen of both the countries. - Making the Government functionaries responsive to the needs and problems of the private sector of both the countries.
