Bangladesh has seen robust growth in terms of export and import the past two decades. Our export basket, however, is dominated by only a handful of items.
A large bulk of our export is product from the labour-intensive garments sector, and our comparative advantage in this sector is mainly due to the fact that we have an abundant supply of cheap, unskilled labour.
The apex garments trade body, the BGMEA, is forecasting that Bangladesh will be able to export about $50 billion worth of clothing by 2021.
In theory, this is possible, but it would be difficult to achieve this goal without the intervention of the government in the foreign trade sector.
Bangladesh, as a least developed country (LDC), gets preferential market access to some countries and trading blocs, like the EU, China, and Canada -- but the country does not have any free trade agreements with any of these countries.
Seeing how the country might soon shed off its LDC status, it will also risk losing said preferential access to the aforementioned countries. While, at the same time, competitors of Bangladeshi exports are aggressively forming trade partnerships with different countries.
For example, Vietnam is a major competitor of Bangladesh when it comes to RMG, and the nation is not only a member of ASEAN -- a free trade bloc -- but it also has free trade agreements with the EU, and will soon be signing one with the US and Japan (through TPP).
That means that Vietnamese products will be sold to those countries tariff-free, while Bangladeshi products will face tariffs in the coming years.
Vietnam isn’t an exception here; other countries are also moving forward with signing and ratifying free trade agreements, which will make Bangladeshi products more expensive in the coming years.
This can be one of the reasons why the country has failed to attract large amounts of FDI, even though it has been providing a lot of incentives to foreign investors.
What can Bangladesh do? Wages have already hit rock bottom. It will take a lot of time to develop skills and other industries which could buffer our small nation against such negative external shocks.
On the production side, there is little that Bangladesh can do in the short run. The only viable thing that the government can do is increase the market access of Bangladeshi products -- which can be done by aggressively making trade deals with important trading partners of Bangladesh.
At present, Bangladesh does not have any meaningful free trade agreements (FTA) with any country. SAFTA is the only significant FTA that has been ratified. Some others, like that with D-8 countries, have not been ratified.
The main buyers of Bangladeshi products are the US and EU, and so, Bangladesh should look into signing free trade deals with those countries.
The country should also look into the possibility of signing FTAs with Canada, Australia, and various Latin American nations.
FTAs with countries that sell different raw material to Bangladesh, like oil, cotton, and yarn should be considered heavily as well.
Some industries in Bangladesh may suffer because of FTAs, but they will at least guarantee that our main exports have duty-free access to major markets, both in the short term and the medium term.
Greater market access will also encourage FDI in Bangladesh, as the country is yet to have a large and prosperous domestic market.
It will also give us some time to develop other industries so that we can export products that require skilled labour and capital in the long run.
Trade experts, the BGMEA, and the government should actively look into which countries Bangladesh can make trade pacts with, and the government should start looking into signing and ratifying said trade agreements.
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