Need For More FTAs

Tariff debate also risks new export market, FTA appears to be a solution perfect.

Bangladesh and the USA have started final round of negotiations to ink a deal on tariff. Reciprocal tariff on Bangladeshi items have already declined to 20% from 35%. There is room for further reduction. I think it will be within 10% and 15% range. If further tariff reduction really happens, Bangladesh may get a significant share of US apparel market.

Bangladesh has already increased cotton and LNG import from the USA. Previous year Bangladesh imported $600 million worth of US cotton. This year that cotton import [from the USA] has reached more than $200 million in two months and we still have 10 months to go. But the EU market ,where half of our apparel export goes, is offering a tough competition. All the exemption of duties will be gone if Bangladesh is graduated from the LDC countries. In addition, the UK and India signed Free Trade Agreement (FTA), which is heralding boost in Indian export and investment in the UK. In this backdrop, both export earnings and remittances may shrink. There is more! As US dollar becomes weaker and the Euro getting appreciated , the total export of the Eurozone may shrink, casting shadow over their apparel import from Bangladesh.

Bangladesh's emerging apparel export market may bring bad news too. Bangladesh's apparel export to Russia has crossed $1 billion mark long ago. Russian apparel market is estimated to be $32 billion. India's growing ties with the Russia says the country may get a big chunk of this Russian apparel market, mitigating the loss of US export market resulting from the US punitive tariff. Furthermore, India has access to cheap Russian oil. And its processed petroleum export to the Netherlands and the UAE almost doubled in one year. Cheap Russian oil and weakened Rupee(which registers fall in recent weeks) mean its export items will be more competitive in years down the line. Relationship between China and India thawed recently. It may further boost bilateral trade between the two countries. In addition, diplomatic relationship between Canada and India resumed. Canada is a major destination of Bangladeshi apparel export. China's weak consumer spending,fall in industrial production and troubled real estate market mean Bangladesh's export to China may not see dramatic improvement in the next one or two year. So latest development indicates that there may be significant market share gain to the US market but there are serious challenges in Bangladesh's traditional destinations like UK and Canada and emerging destinations like Russia and China.

Another challenge lies in revenue generation. The main theme of this tariff debate is about narrowing down the trade deficit/surplus. In doing so, Bangladesh has to lower tariff so that more American goods & services enter the country. Previously Bangladesh got huge import duty [revenue] from LNG ,Soybean, cotton etc. As these items are coming from the USA in large amount, there is a loss in tariff revenue. If it is not compensated from other sources,then this loss in tariff revenue will stay and complicate the budget deficit. Two quick solutions are to impose tax on remittances and export and to depreciate Taka even more. Both are likely to augment tariff revenue. NBR can also aim 500000 shops scattered across the country. Most of them lack proper documentation of transaction and very frequently ownership of these shops gets changed,contributing nothing to govt coffer. NBR remains in the dark about the volume of transaction and owners of these shops. Similarly, a large sum of money originated from Dhaka's footpath/mobile vendors [falls into hands of vested quarters every year]. A study put the figure between Tk 15 -20 billion. Often it falls into wrong hands. I argued here several times that if NBR mops up part of the money by issuing special [tax] certificates worth Tk 500/1000 for 6 months/1 year then it will give them some sort of legitimacy and ensure that part of the money collected from them enters govt coffer.

But these are tiny drops to fill the growing budget deficits. We have to wait to see whether gains of reciprocal tariffs outweigh the losses. Best approach is to go for Free Trade Agreement with some major trading partners. Indonesia is a trillion dollar economy. We have almost finalized a preferential trade agreement (PTA) with them. We have to revive it. Similarly if we have FTA with Thailand, Malaysia, Brunei,Myanmar,Sri Lanka and Bhutan in the neighborhood ,then we will get cheap coal, palm oil,rice,aluminum, locomotive, oil, tea from these countries .It will keep the inflation low at one hand , and on the other our apparel,light engineering and agro products export will augment manifolds. To consolidate our apparel export, we need to ink FTA with South Korea,UK, Canada,Japan,Brazil and Australia. This will increase our export market share,remittances and FDI. In post WTO world where multiple trading systems and blocs [are becoming a reality], it seems more and more FTAs could secure export and FDI.

What Does Wild Fall Of Taka Portend?

Wild fall of Taka causing worries,
Most blame goes to deferred LCs.
Before and after election year,
Gathers abroad illicit capital sheer.

The rapid fall of Taka against major currencies has become headlines recently.Central Bank is selling dollar at Tk 86.70.However, at the exchange market US dollar is selling at TK 93. This rapid depreciation of Taka has been reported to be caused by rising commodity prices,settlement of deferred Letter of Credits, lack of foreign tourists, and rising trade deficit¹.

Government even issued notice banning unnecessary travel of the bureaucrats. But I think bureaucrats’ visit abroad and lack of tourists are poor reasons attributed to wild fall of Taka.The two represent a miniscule part of demand for dollar. The ban came at a time when a minister and her relatives’ visit to another country drew lot of flak in the press. Later, minister claimed that she paid her own expenses and never relied on public money for meeting the expenses. So govt's ban is a diversion to pass the blame to others.

Unease of the govt is compounded by falling remittances, which earlier offset trade deficit and made a current account surplus. In addition, medium and long term debt commitment has also increased, but as percentage of export earnings it is still below 25%(as per my calculation).Along with Occidental multilateral institutions, which are more generous towards Bangladesh, Russian and Chinese credit repayments do not pose serious problem for the moment. Loan repayments of Russian credit line would start from 2023 and some social media put the annual payment somewhere between $565 million. The Ban on Russia and Russian decision to repay the credit in local currency would not cause pressure on US dollar demand. However, such ban could increase dollar demand if US dollar payment could take place in disguise of legitimate international trade via other friendly countries. It is hard to trace such trade payment, so it is better not to embark on such speculation.

So the single reason stands out among others is the deferred LC payment. Most of the LCs opened for importing capital machinery, raw-materials,cooking oil and grains².Rising commodity prices also raised the import expenditure and it is causing the depreciation of Taka. Now here comes another point that we are missing. 2022 is the year before the election scheduled to be held in 2023. Years before and after the election generally witness illicit financial outflow through trade misinvoice. Bout of skirmishes and deteriorating law and order sow panic and lack of trust on domestic system among some quarters. Panic mongers work as sales executive of places where illicit capital finds safe sanctuary.

In an embarrassing report in 2017,Global Financial Integrity (GFI) revealed worrying accounts of illicit financial flow from Bangladesh between 2009 and 2015 with an average flow of $ 8.8 billion. The mismatches between declared value of goods on the invoices and true value of goods were reported to be $5.2 billion in 2008, $6.9 billion in 2010,$8.8 billion in 2011,$7.65 billion in 2012,$9.35 billion in 2013 and $11.92 billion in 2015 ³.As US places sanctions on some personnel of law enforcement agencies for violating human rights, many are under spell of panic. In addition, retribution in politics looms large. Political situation in neighboring countries makes that threat more credible. So exists there a perfect ground for clandestine capital flight through trade anomalies.

However, Canada postponed its residency permit through purchase of flat for two years. But our RMG items are being regularly exported to Canada. And recently one Canadian minister expressed desire to export cooking oil to Bangladesh. So ample means are there to channel out the money.Moreover, Turkey recently opened 2nd-home program like Malaysia. UAE is also running similar campaign.

Two or three quarters later a picture may emerge about the volume of illicit flow. As it happened in the past, this speculation---illegal money transfer through trade data anomalies---may have some roots and may be a reason for depreciation of Taka that is widely ignored.

This depreciation of Taka will work as instrument to curb further import as import is going to be costly. Meanwhile, govt is going to receive another $250 million of ADB’s budget support pretty soon,as reported by the press. Hopefully, Taka will be hovering over some fixed figure for sometimes after that.

Notes And References:

1 “ Dollarer Bazar Osthir,Oshosti(Volatile Dollar Market, Causing Unease)”,Sanaullah Sakib,Daily Prothom Alo(page-1),May 12,2022.

2 “Bank O Khola Bazar E Dollarer Damer Parthokya 8 Taka Chhariyechhey( Difference Between Dollar Exchange Rate At Bank And That Prevails In Market Crosses Taka 8)”,Sanaullah Sakib, Daily Prothom Alo(page-01),May 13,2022.

3 “Bangladesh Lost $50 Billion To Trade Related Illicit Financial Flows In Six Years: Report”,bdnews24.com,December 17, 2021.

La Semaine Dernière A Mes Yeux

(04 mars --- 11mars)

Selon un reportage, incendie a ravagé 300 toits de chaume à Ukhia,Cox's Bazar. 20 personnes ont été brûlées. Un enfant a été tué.

Selon un reportage, cadavres de 4 membres de Mogh Liberation Party ont été trouvé au bord du fleuve à Roangchhari,Bandarban. Le groupe était responsible d’avoir abdiqué un dirigeant de Jana Sanghati Samiti. Il y a une éruption de violence dans les premiers deux mois de 2022 à Roangchhari et Ruma,situé à la proximité de la frontière Bangla-Birmanie.

Selon un reportage, une société sri lankaise a détenu toutes les actions de première marque de supershop bangladais. Tous les deux n'ont pas divulgué le montant dans lequel la marque a été vendue. Tous les deux n’ont pas divulgué le montant dans lequel la marque a été vendue.