Trade Regime in Post-Cancun Perspective

Trade Regime in Post-Cancun Perspective

Compiled from the speech of one of the

Former Presidents, FBCCI

In the Doha Declaration, the Ministers had set for themselves three tasks for the Cancun Ministerial – ‘to take stock of progress in the negotiations under the Doha Development Agenda (DDA), provide any necessary political guidance, and take decisions as necessary’. Had the Cancun Ministerial been successful, it would have significantly contributed to strengthening the multilateral trading system. However, this did not happen.

The Cancun Ministerial concluded without any substantive decisions. Negotiating positions of Cancun delegates were uncompromising. The developed countries incessantly yearned for negotiations on Singapore issues, i.e., competition, investment, trade facilitation and transparency in government procurement whereas the developing ones insisted for negotiations on other issues, mainly agriculture.

Yet, the developed member countries did not leave any stone unturned to address their concerns during the Ministerial. They started the Green Room process (where few influential countries meet to sort out their differences). However, even after the start of the Green Room process, nothing could be achieved.

The failure of the Cancun Ministerial brings to the forefront three questions: What will happen to the DDA? How would future trade liberalization be carried out; and What would be the WTO’s structure?

The failure of the Cancun Ministerial is being viewed as a threat to the current global trading order. Given the lack of multilateral consensus, many member countries, particularly the US, are already making a shift to bilateral and regional agreements. In fact, a fresh spurt of bilateralism and regionalism has already flowed in. Despite the fact that the effect of Regional Trading Arrangements (RTAs) and Preferential Trading Arrangements (PTAs) on trade liberalization has been an issue of contention for long, the 1990s has seen the signing of maximum number of RTAs.

This shows that the setting up of the WTO hardly deterred the setting up of new RTAs and Free Trade Arrangement (FTA). And after the Cancun failure, as mentioned above, more countries are intending to divert their negotiating energies into RTAs. The US undoubtedly will push ahead and start new FTA talks with Colombia, Thailand and other countries. These talks were being considered before the Cancun Ministerial but are being given greater priority in the backdrop of the Cancun failure.

In Asia too, countries are likely to engage more aggressively in negotiating FTAs. China is negotiating an FTA with the South-East Asian countries, which Japan and India are trying to emulate. Long-delayed trade talks between Japan and South Korea have been announced. Both are also pursuing other FTAs, though agriculture remains a stumbling block. However, if China proposes moving forward with a North-East Asia FTA, it will be hard for South Korea and Japan to resist. For now, an FTA involving East Asia’s “big three” is a long-term vision, not a negotiating initiative—but that could change quickly if the WTO process remains stalled. Of importance to South Asia are South Asian Free Trade Area (SAFTA), Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation (BIMST-EC) FTA, Kunming Initiative and South Asian Sub-Regional Economic Cooperation (SASEC) consisting of Bangladesh, India, Bhutan and Nepal (BIBN).

On several occasions in OIC Summits and Conferences held in different countries, the idea of formation of Islamic Common Market was mooted. This is a welcome proposal as the main objective of such Common Market would be deepening economic cooperation by enhancing trade and investment. But up to now we have talked only about good intentions. Formation of an Islamic Common Market requires political will and commitment of public and private organs of member state. Also, the member states should demonstrate their firm commitment for collective use of resources and for collective negotiating position with international bodies like WTO. In particular, it is also necessary to set up mechanism for monitoring and to evolve methods of conciliation by and between the economies of member-states of the OIC without further delay.

Trade Regime in Post-Cancun Perspective

What Next for South Asia:

The failure of the Cancun Ministerial has thrown a number of challenges to Asian developing and least developed countries. One of the most significant challenges is to decide which ‘ism’ for trade liberalization – unilateral, bilateral, regional or multilateral – they should embrace. For South Asia, it is indeed a daunting task to find the right answer.

The Present World Economic Scenario and Our Options :

A war strategist always makes a Racky of the war field to take advantage of his location and also to plug in the weakness. We should decide on our course of action by analyzing the prevailing business environment. The present-day world has undergone radical changes as:

• End of cold war has resulted in reduced military spending on conventional military wares creating market for only highly specialized wares. This means a monopoly for a few states.
• Due to development of global citizenship enormous market has been created for high quality products carrying high-tech definitions. This process is making the rich richer and the poor poorer.
• Developing countries and LDCs are competing each other for production of goods that require comparatively low and easily accessible technology for production.
• Emergence of WTO out of GATT has created problems for developing countries through introduction of trade barriers (TBs), non-trade barriers (NTBs), intellectual property rights (IPRs), sanitary & Phyto-sanitary requirements. All these requirements cause additional cost to the low margin products of LDCs.

• The service sector has become increasingly sophisticated and capital intensive. Therefore, banking, insurance, shipping have become monopoly of developed countries. Because of concentration of capital, FDI has become dearer. On top of it FDI has taken the place of ODA. So, the developed countries are taking upper hand in negotiations.
• Though division of labor has been shifted to some extent, free movement of labor as demanded by LDCs is yet a far cry.
• With this pale background the developing countries and LDCs are going to face the total integration and end of preference by the next year.

Trade Regime in Post-Cancun Perspective

The Options:

With this backdrop, for practical reasons most of the developing countries and LDCs have tilted to three options:

1. Promote trade within the WTO framework complying regulations as far as possible and negotiate for greater cut in the liberalized market by expanding export base and infrastructure facilities.
2. Promoting bilateral trade; and

• Entering Regional Trading Arrangements (RTAs).

The most powerful tool for promotion of bilateral and regional trade is Free Trade Arrangement (FTA). Under this arrangement specially in South Asia following techniques are adopted:

1. Tariff reduction on mutually traded sensitive list of items.
2. Harmonization of standard and documentation.
3. Removal of tariff barriers and non-tariff barriers.
4. Liberal application of sanitary and Phyto-sanitary regulations; and
5. Defining rules of origin for extra-regional trade.

3. The FTA Matrix :

But the matrix of FTA is not as easy as it sounds. The benefit of FTA is again bound to be tilted to stronger economy within the region. The LDCs in the region may not reap the benefit simply because they have comparatively smaller export base. The stronger country within the region successfully replicates the comparative and geographical advantages of the weaker economy, which indirectly means import restriction without a broader export base. Weaker economies are unlikely to be benefited out of RTAs.

Apart from the stage of development among the member countries in an economic bloc, geographical contiguity is another factor. An economic bloc having members scattered in different parts of the world may not enjoy the benefit as cost of transportation would be higher. When we are thinking of bilateral trade between Bangladesh and Malaysia and also working together as members of any proposed bloc, we must take into account these complex matrixes.

It is apparent that investment and services are more effective vehicles than trade for forming a successful regional and economic bloc. Potentialities of these vehicles should be analyzed and applied prudentially. For example, with Malaysian investment we shall be able to expand our capacity in textile, IT, jute, electronics sectors. Malaysia itself development out of Japan and Singapore invested.

I feel happy to announce that from FBCCI we have already requested our Prime Minister for Bangladesh to take a lead in formation of a Mini-Common Market of OIC countries consisting of Bangladesh – Brunei- Indonesia-Malaysia and Maldives.

Trade Regime in Post-Cancun Perspective

Future of Bangladesh:

Bangladesh-Malaysia bilateral trade:

Bangladesh-Malaysia relationship is founded on common cultural links, traditions, and Islamic bounds of fraternity. We have a growing bi-lateral relationship between the two brotherly countries. We recall with gratitude valuable contributions made by Malaysia to Bangladesh economy by way of providing employment to a large number of Bangladeshi manpower as well as by foreign direct investment.  But in 2003, Malaysia employed only 28 Bangladeshi workers and the workers’ remittance was US $ 41.41 million. We, the members of business community in Bangladesh believe that there are enormous possibilities for further promoting our bilateral cooperation through expansion of trade and investment.

To promote private sector cooperation between two countries, an Agreement on Economic and Commercial Cooperation between FBCCI and the National Chamber of Commerce and Industry of Malaysia (NCCIM) was signed in Dhaka on 13th February 1993. Thereafter many trade and investment delegations were exchanged between the two apex organizations.

The state of bilateral trade between Bangladesh and Malaysia is far little than its potentialities and so is investment and services. The trade balance between Bangladesh and Malaysia is always in favor of Malaysia and the export volume of Bangladesh is very small. In 1990-91 Bangladesh exported only US$ 1.59 million to Malaysia and imported US $ 31.64 million. In 2003-04, Bangladesh export was only US $ 8.65 million while import from Malaysia was US $ 255.81 million.

On investment area, I would now like to mention about the investment facilities and incentives currently available to foreign investors in Bangladesh. To attract Foreign Direct Investment, the Government of Bangladesh has offered most liberal package of investment facilities and incentives, which are: tax holiday, accelerated depreciation, concessionary duty on imported capital machinery, incentives to Non-Resident Bangladeshis (NRBs), etc.

The Export Processing Zones with necessary infrastructural facilities offer very attractive incentives. Export Processing Zones in Chittagong and Dhaka provide necessary fiscal, non-fiscal and infrastructure facilities for export-oriented enterprises. Four more Export Processing Zones in Mongla, Ishurdi, Comilla and Syedpur (Nilphamari) are under implementation. EPZ in the Private Sector is also encouraged including necessary infrastructure facilities.

The major potential sectors including “Thrust Sectors” identified by the Bangladesh Government, which offer probable choices for investment are Textiles, RMG and Knitwear, Energy (Power Generation and Transmission), Natural Gas-based Industries Telecommunication, Fisheries, Agro-based Industries, Electronics, Computer Software Development and Data Entry, Leather and Leather Goods, Truism, Light Industries.

Besides, there are other potential areas for investment in Bangladesh, such as: light engineering, ceramic, dairy farming & dairy products, poultry farming & poultry products, jute goods, paper and pulp, cement, sheet and plate glass, etc. The government also welcomes investments in the development of port facilities and industrial parks.

Malaysian investors may fully take advantage of such facilities and incentives. They can come forward to invest directly under 100% ownership or in joint-venture industries in areas like telecommunications, power generation, electronics, tires and tubes, leather and leather products, fish processing and fish canning, palm oil refinery, cement and clinker grinding, soda ash plant, and other chemical plants and gas-based industry. The Malaysian investors can utilize, more of the facilities available in Export Processing Zones for setting up industries for export. There are already four Malaysian companies having a good package of industries in EPZ areas of Dhaka and Chittagong. Bangladesh offers incentives for investment in the areas like construction, medical treatment, Halal meat, etc.

With this perspective I request the leaders of two countries to adopt a very realistic Action Plan for greater economic interaction.

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