15 December 2015

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

ACJ Cl

Structure of todays 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

Bangladeshs RTAs

Regional Trade Agreements and Bangladesh

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.

Regional Trade Agreements and Bangladesh

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

Regional Trade Agreements and Bangladesh

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

Regional Trade Agreements and Bangladesh

Types of RTAs .contd.

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

Regional Trade Agreements and Bangladesh

Types of RTAs .contd.

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

Regional Trade Agreements and Bangladesh

Types of RTAs .contd.

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
Regional Trade Agreements and Bangladesh

Types of RTAs .contd.

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

Regional Trade Agreements and Bangladesh

10

WTO Regulations and RTAs

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 nonmembers.
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.
Regional Trade Agreements and Bangladesh

11

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.
Regional Trade Agreements and Bangladesh

12

WTO Regulations and RTAscontd.

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.

Regional Trade Agreements and Bangladesh

13

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.

Regional Trade Agreements and Bangladesh

14

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.
Regional Trade Agreements and Bangladesh

15

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.

Regional Trade Agreements and Bangladesh

16

WTO Regulations and RTAs

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.
Regional Trade Agreements and Bangladesh

17

Trend In RTAs globally

Regional Trade Agreements and Bangladesh

18

Trend In RTAs as per WTO agreement

Particulars

Enabling
clause

GATS
GATT
Art. V Art. XXIV

Grand
total

Customs Union

10

18

Customs Union - Accession

Economic Integration
Agreement
Economic Integration
Agreement - Accession
Free Trade Agreement
Free Trade Agreement Accession
Partial Scope Agreement
Partial Scope Agreement Accession
Grand total

126

126

13

219

232

14

14

37

Regional Trade Agreements and Bangladesh

131

238

406

19

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)

Regional Trade Agreements and Bangladesh

20

RTAs' main trends and characteristics

RTAs by partners

Regional Trade Agreements and Bangladesh

21

RTAs' main trends and characteristics

RTAs by type of agreements

Regional Trade Agreements and Bangladesh

22

RTAs' main trends and characteristics

Regional Trade Agreements and Bangladesh

23

RTAs' main trends and characteristics

Regional Trade Agreements and Bangladesh

Regional Comprehensive Economic

Partnership (RCEP)

24

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.

Regional Trade Agreements and Bangladesh

Regional Comprehensive Economic

Partnership (RCEP)
Country Groups:
ASEAN
Brunei Darussalam
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
Sub-Total
ASEAN Plus Three
China
Japan
South Korea
Sub-Total
Other Partners
India
Australia
New Zealand

RCEP Total
World total
% of world total

25

Export
(million USD), 2013
11,447.19
9,248.13
182,551.75
3,097.78
228,515.73
10,705.99
53,978.26
410,249.67
228,527.44
140,082.91
1,278,404.85

Import
(million USD), 2013
3,612.44
9,227.43
186,628.63
6,196.58
206,250.86
18,415.93
65,097.36
373,015.74
2,50,708.23
145,266.91
1,264,420.10

International Trade
(million USD), 2013
15,059.62
18,475.56
369,180.38
9,294.36
434,766.59
29,121.92
119,075.62
783,265.41
479,235.67
285,349.82
2,542,824.95

2,209,007.28
715,097.24
559,618.56
3,483,723.08

1,949,992.31
833,166.06
515,572.97
3,298,731.34

4,158,999.59
1,548,263.31
1,075,191.53
6,782,454.43

336,611.38
252,155.11
39,206.36

466,045.56
232,481.27
39,221.55

802,656.94
484,636.38
78,427.90

5,390,100.78
17,974,395.14
30%

Regional Trade Agreements and Bangladesh

5,300,899.82
18,702,567.7
28%

10,691,000.60
36,676,962.84
29%

26

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

Regional Trade Agreements and Bangladesh

27

Trans Pacific Partnership Agreement (TPP)

TPP countries
Australia
Brunei Darussalam
Canada
Chile
Japan
Malaysia
Mexico
New Zealand
Peru
Singapore
United States
Vietnam

Export
(million USD), 2013
252,155.11
11,447.19
456,395.28
77,367.26
715,097.24
228,515.73
380,122.81
39,206.36
41,871.69
410,249.67
1,578,001.36
140,082.91

Import
(million USD), 2013
232,481.27
3,612.44
461,799.51
79,616.35
833,166.06
206,250.86
381,210.15
39,221.55
43,357.30
373,015.74
2,328,328.63
145,266.91

International Trade
(million USD), 2013
484,636.38
15,059.62
918,194.79
156,983.62
1,548,263.31
434,766.59
761,332.96
78,427.90
85,228.98
783,265.41
3,906,330.00
285,349.82

TPP total
World total
% of world total

4,330,512.61
17,974,395.14
24.09%

5,127,326.76
18,702,567.70
27.42%

9,457,839.37
36,676,962.84
25.79%

Regional Trade Agreements and Bangladesh

28

Bangladeshs 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)

Regional Trade Agreements and Bangladesh

29

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.

Regional Trade Agreements and Bangladesh

Bengal Initiative for Multi-Sectoral Technical

and Economic Cooperation (BIMS-TEC)

30

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]

Regional Trade Agreements and Bangladesh

Bengal Initiative for Multi-Sectoral Technical

and Economic Cooperation (BIMS-TEC)

31

In 1998, 6 priority sectors to cover cooperation were identified:

1.
2.
3.
4.
5.
6.

Trade and Investment, led by Bangladesh

Transport and Communication, led by India
Energy, led by Myanmar
Tourism, led by India
Technology, led by Sri Lanka
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
Regional Trade Agreements and Bangladesh

Bengal Initiative for Multi-Sectoral Technical

and Economic Cooperation (BIMS-TEC)

32

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.
Regional Trade Agreements and Bangladesh

South Asia Preferential Trade Agreement

(SAPTA)

33

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.
Regional Trade Agreements and Bangladesh

34

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)
Bangladeshs 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
Regional Trade Agreements and Bangladesh

35

Direction of SAFTA Intra-regional Trade

Table: Intra-regional Trade in South Asia in 2014

177582
53466
304
2181823
10
1247
0
73173

24
21146
0
6433181
8802
32
253976
0

Total exports
Total intra-regional
imports
Total Imports

Regional imports as
% of countrys total
imports

Regional export as
% of countrys
total export

0
14212
4782
4405078
0
0
1157
4824

Total export

0
0
0
139835
0
12
5838
88632

Sri Lanka

220129
461964
383000
0
4061
547310
481204
610294

Pakistan

0
2949
0
749000
0
3379
0
12

Nepal

Maldives

1820
0
22985
6579875
409
20044
494037
89849

India

0
4977
0
443055
0
0
2221769
159

Bhutan

Bangladesh

To
Afghanistan
Bangladesh
Bhutan*
India
Maldives
Nepal
Pakistan
Sri Lanka

Afghanistan

From

Total Intraregional
Export

(In 000 US$)

399555
558713
411072
20931847
13282
572023
3457981
866943

659410
30199025
555000
317733218
191716
919640
27052102
10923239

61
2
74
7
7
62
13
8

27211415

388233348

2669960

7209019

755340

2707963

234317

4430052

2487604

6717160

27211415

7990761

45610279

1040000

460512283

1700454

8486418

58945173

20537789

60482315
7

33

16

73

14

52

33

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 .

Regional Trade Agreements and Bangladesh

36

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.

Regional Trade Agreements and Bangladesh

Characteristics of SAFTA intra-regional

trade contd.

37

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
Regional Trade Agreements and Bangladesh

38

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 havent
fulfilled it yet.

Regional Trade Agreements and Bangladesh

Thank you !

ACJ Cl