President donald trump and fate of bangladesh economy

Sunday, January 29, 2017 http://daiilyasianage.co om/news/465 500/presiden nt-donald-trum mp-and-fate---of-bangladeesh-economy

Presiident Donald D d Trum mp and fate off Banglladesh h econ nomy M S Sidd diqui On Sunda ay 25 Octobeer 2015, The Daily D Ittefaq reports that the Commerrce Minister Tofail T Ahmed d said that the Trans-Pa acific Partnerrship (TPP) agreement a wo ould not affeect the Readyy Made Garm ment (RMG) seector of Bang gladesh.

In contra ast, the Minisster said on 23 2 Decemberr 2016, "I mu ust congratula ate him (Tru ump). We'll be loser oncee TPP is implemented." Bangladesh B iss fortunate th hat Trump withdrew w USA A from TPP with w a Presidenttial order on 23 January 2017.

2 Let us see s the reactiion of Housee of Represen ntatives and Congress.

The US, Australia, A Can nada, Japan,, Malaysia, Mexico, M Peru, Vietnam, Ch hile, Brunei, Singapore an nd New Zealland are the members m of the t TPP. Thee TPP was sup pposed to covver 40% of th he global economy. It is purporrted to creatin ng a Pacific economic e blo oc with reducced trade barrriers to the fllow of 'agreed d-upon' good ds and servicees and with new n standard ds and rules for f investmen nt, environm ment, and laborr.

Currentlyy, Bangladesh h has tariff-frree access to most of the TPP T memberr markets under its Least Developeed Country (L LDC) status, with w the exceeption of the US, which su uspended its trade benefiits under thee Generalized d System of Preferences P (GSP) in Junee 2013.

Bangladeesh's export trrade will be affected a afterr implementa ation of the TPP T pact sincce garment products cover 80% of o the total ex xports to TPP P member cou untries.

Bangladeesh may also lose the thirrd and fourth h largest expo ort markets in n Canada and d Japan.

Garment,, frozen fish, pharmaceutticals and agrricultural pro oducts might be hit hard. Beside, somee imports might m also beecome costlieer and challen nging for Ban ngladesh following the pa act. The pact might tak ke at least two o years to be implementeed. Not only RMG R but also o non-RMG exports e of Bangladeesh will also be b affected.

Vietnam is i a member of the TPP agreement a an nd a competittor of Bangla adesh. The market share of o Vietnam would w increa ase further att the expensee of other cou untries like China, C India, Bangladesh B a and Sri Lanka a. TPP can aff ffect the entirre trade supp ply chain of th he sector.

Vietnam, Peru, Malayysia, and Brun nei are our export compeetitors in the above mentioned export markets. Bangladesh may lose thiss market because Peru, Malaysia, M Brunei, India an nd Vietnam will w be in better position p in fu uture. Curren ntly, Vietnam m is comparattively disadvvantaged in th he RMG worlld mainly du ue to its high her productio on and labor cost. c

The pact has easy origin facility for member countries. The 'yarn forward' rule of origin requires that textile and apparel products should be made using yarns and fabrics from a TPP country to qualify for the benefits of the agreement.

This would ensure that non?qualifying textiles and apparel from non?TPP countries do not enjoy the benefits reserved for TPP countries. According to the Rules of Origin (RoO) the members will have to collect raw materials and intermediate products from among themselves. The RoO applied for the member-nations of the bloc are somewhat problematic for them and it creates an opportunity of FDI and local investment in backward linkage industries.

India is not a member of the TPP and planning to set up production plants in Vietnam to take advantage of TPP i. e. yarn forward rule of origin. Moreover, Vietnamese government provides tax holidays, import duty exemption, concession on land lease charges, electricity, among other things for Indian investors.

Indian government has also launched $300 million line of credit for establishing capacities in Vietnam. The flexible RoO requirements would also likely result in gains for Korea and Japan as member of TPP, the primary suppliers of textiles to Vietnam's apparel industry.

By eliminating these existing tariffs, the TPP would create significant new incentives to shift production of goods intended for sale in the US market away from other countries and to TPP nations, whose products would newly have duty-free access to the US. According to the Vietnam Investment Review, "a new wave of foreign investments in the spinning, weaving, and dyeing sectors has been kicked off, since investors can see the profits they can gain from the TPP." Trade journals report that foreign manufacturers have invested more than $1 billion in Vietnam's textile and apparel sector in anticipation of a TPP agreement.

According to Saigon Times, textile and garment manufacturers based in Japan, Hong Kong, South Korea, Taiwan, Austria, and Australia are also setting up new production or have expanded current production in Vietnam. Indian companies can get benefit by establishing capacities in Vietnam and taking benefit from the TPP. China has already begun investing in Vietnam.

India is going to sign Free Trade Agreement (FTA) with USA and the European Union. India will be capable of getting duty free export of garment products to both USA and the European Union market. FTA would benefit India over both China and Vietnam. India is also considering FTA with Australia and Canada. India can participate in other regional FTAs including Regional Comprehensive Economic Partnership (RCEP).

Bangladesh has been able to retain its edge in the sourcing world in spite of the higher tariff (Vietnam pays 8.38% in contrast to 15.61% for Bangladesh) for a short transition period, but it is expected that TPP, once it is fully implemented, will trigger some trade diversion from Bangladesh to Vietnam.

At a Bangladesh Development Conference at Harvard University, many international observers voiced their concern that due to tariff preferences and technology transfers following TPP, Vietnam is likely to overtake Bangladesh as the second largest RMG exporter in global trade by 2024.

A researcher observed that if TPP adopts the flexible rule of origin on sourcing, as favored by Vietnam, it could boost its share of the growing market from 4% to 1%, while Bangladesh's share remains almost stagnant in the 7-8% range.

A quantitative analysis conducted at the University of Rhode Island's Department of Textiles, Fashion Merchandising and Design, revealed that TPP would 'considerably improve' Vietnam's price

competitiveness in apparel production by removing tariff rates on textile imports from Japan that average 9.7%.

Moreover, Japan's production of textiles matches very well with the textiles and Vietnam needs for its apparel exports to the US. Vietnam is much ahead of Bangladesh in terms of investment, compliance and environment affairs. Vietnam is also much higher on the global competitive index, so it might grab Bangladesh's share there.

On the other hand, 10 ASEAN's countries with Australia, China, India, Japan, South Korea and New Zealand are trying to sign Regional Comprehensive Economic Partnership (RCEP) agreement.

These two blocks control 67% world trade. Contracting states of TPP control 40% of total trade and contracting states of RCEP control 27% of total trade. Vietnam and India are preparing to sign free trade agreement with the European Union. India is also trying to reach free trade agreement with the US. Bangladesh is one of the main export nations in USA and European Union market.

By creating these blocks and providing duty-free-export facility to India and Vietnam in USA and European Union market will make threat to Bangladesh export sector. Because of TPP and RCEP, Bangladesh may also lose the third and fourth largest export markets in Canada and Japan.

Bangladesh mainly exports garment products to USA and European Union market. These exporting garment produce cover 80% of total garment exports.

Once the TPP is finalized, other countries can enter the region as TPP plus. One possible solution could be to joint TPPA and become stakeholder of the game. Bangladesh should liberalise its tariff structure as some other countries have the opportunity to join the TPP in the near future. The average tariff of Bangladesh is 55 percent, which is too high for openness of the country's business.

The second option is to sign bilateral free trade agreement with the export destinations or at least with most of them. Bangladesh relies on customs duty and deduction of VAT and Income tax as port of entry due to weak and corrupt taxation policy.

The customs duty is about 30% of the income of National Board of Revenue. Bangladesh authority is hardly interested to join any free trade block and not willing to sign bilateral free trade agreement.

Bangladesh import significantly from some TPP countries such as Singapore and Japan and shall have impact on so-called revenue income from import.

Moreover, Bangladesh will have to upgrade to a developing country by 2025 and the time is very short to prepare for withdrawal of duty benefits on exports. Under the TPP framework, Bangladesh will get free market access to the US, but to achieve the goal, it needs to improve standards in some areas such as labor standard, regulation, environmental protection etc. Bangladesh needs to reform its law and rule and improve capacity to a desired level to go for free trade agreement.

We should not rely on the uncertain decision of the US President Donald Trump. We should give up narrow idea of loss of revenue of NBR and should build capacity go for bi-lateral, regional and interregional trade block in order to survive in the free trade regime.

The writer is a legal economist

Â