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FTA with India and Malaysia
The Financial Express (2010)
  • Nusrate Aziz
Bangladesh, according to newspaper reports, may soon sign free trade agreements (FTAs) with India and Malaysia. A 'core group', comprising experts from the Bangladesh Bank, National Revenue Board, Tariff Commission, and different commercial organizations and headed by the managing director of the Bangladesh Foreign Trade Institute, evaluated all aspects of the agreements and then submitted their report. The report suggests signing bilateral FTA with India, Nepal and Malaysia. The main purpose of this initiative is to reduce our bilateral trade deficit with India and Malaysia. Bilateral free trade area can take place between two countries, between a country and a trade bloc or between a country and an informal group of countries. Here we are discussing about bilateral FTA between two countries. In the present-day world, there are many signed FTAs and operating FTAs. Many FTAs are just signed but not operarting such as Chile-Colombia (2006), Chile-Peru (2006), South Korea-United States (2007), European Union-South Korea (2009), Malaysia-New Zealand (2009). The South Asian Free Trade Area (SAFTA) is one such agreement which was signed on 6 January 2004 but has still now remained an ineffective treaty. Here lies my first concern about the proposed bilateral FTAs Bangladesh is planning to sign. Secondly, we have to realise the myth and reality about the impact of FTA. Reducing trade deficit has always been the key target of Bangladesh's trade and exchange rate policies. As mentioned earlier, the principal objective of the proposed FTAs is to reduce our trade deficit with India and Malaysia. However, FTA is not a one-sided agreement which would simultaneously increase Bangladesh's export and reduce import. In fact, in a bilateral FTA, both parties have to accept the terms of the treaty. Each party will be able to export more of its comparatively advantageous products. Hence, before signing the treaty, Bangladesh needs to list and prioritise products which are to its advantage. Then the country needs to critically analyse the potential import from its FTA partner. To reduce trade deficit, the expected increase in export must be greater than expected increase in import. It is not unlikely that import can overweigh the export of Bangladesh after FTA. As a result, trade deficit will increase rather than decrease. If reducing trade deficit is the key objective of Bangladesh, then, in such a situation, FTA would be detrimental to the interest of the country. In general, the goals and objectives of FTA are manifolds. First, FTA increases trade between member countries. Secondly, it helps reducing prices of products which increases consumers' welfare of respective countries. Finally, it improves political relationship between countries. However, FTA has another dimension for a developing country like Bangladesh. In one of my studies (Aziz, 2010; forthcoming) I have found that trade openness significantly affects Bangladesh's imports trade. On the other hand, impact of trade liberalisation is rather sluggish on export trade of the country. Bilateral trade trends of Bangladesh with India and Malaysia (see, Figure) and my instinct suggest that after FTA, trade deficit with India and Malaysia will not fall (if it does not increase). Nevertheless, I am not against the proposed FTAs with India, Malaysia and Nepal for many reasons. First, FTA will help increase trade of Bangladesh. Secondly, Bilateral FTAs will reduce the prices of traded goods and services. As a result, the consumers of respective countries will be better off in terms of welfare. Thirdly, it may reduce the rate of inflation which has been one of the main concerns for Bangladesh. Finally, these treaties will improve the political relationship between the countries.
Publication Date
Fall October 14, 2010
Citation Information
Nusrate Aziz. "FTA with India and Malaysia" The Financial Express Vol. 18 Iss. 55 (2010)
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