Seminar on: BangladeshPakistan FTA: Reaping Mutual Benefits

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Seminar onBangladesh-Pakistan FTA Reaping
Mutual Benefits
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• Keynote Speech
• Presented by
• Saifuzzaman Chowdhury
• President
• Chittagong Chamber of Commerce Industry

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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.
• Contd

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• 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 others
  different interests is much more easy to handle.
• As a result, both the country can early harvest
  their economic complementarities and competitive
  advantages.
• Contd

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• 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

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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.

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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.
• Contd

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• 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.

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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
• Contd

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• - 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 others
  competitive advantages
• - Scope to attaining greater collective
  bargaining power at regional and international
  trade negotiation

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General Benefits of Bangladesh-Pakistan FTA

• - Greater market access of each others 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
  others comparative advantages
• Contd

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• - 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 others needs
• - Better exploitation of each others economic
  complementarities and thus infuse dynamism and
  impetus to holistic economic development effort

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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.
• Contd

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• - 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.

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Bilateral trade and economic relations between
Bangladesh and Pakistan
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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 Bangladeshs 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.

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Major Export Import Items
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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
• Contd

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• - Lack of exchange of frequent private sector
  delegations
• - Failure to participate in each others 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 others prospects and
  competitive edge

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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 (SD) 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.

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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.
• Contd

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• 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 others trade fairs
  and holding single country exhibitions.
• Contd

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•  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.
•  

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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.
• Contd 

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•  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.

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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.
•  Contd

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• Recognition of Special and Deferential Treatment
  for Bangladesh Pakistan should recognize the LDC
  status of Bangladesh and provide the Special and
  Deferential (SD) 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.
• Contd 

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• 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.
• Contd

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• 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 Bangladeshs 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.
• Contd

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• 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.
• Contd

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• 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.
• Contd

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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
  
• Contd

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• - 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.

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• Thank you