Mr Commerce Minister, US will go back to TPP -The Asian Age

Sad news has been announced by the spokesperson of US White House for Commerce Minister Tofail Ahmed. President Donald Trump has told top economic advisors to look at the possibility of re-entering a massive Pacific trade deal disclosed by White House spokesperson.

On 25 October 2015, the Daily Ittefaq reported that Commerce Minister Tofail Ahmed said the Trans-Pacific Partnership (TPP) agreement would not affect RMG sector of Bangladesh. Again in contrast the Minister said in the meet the press on 23rdDecember, 2016 -"I must congratulate him (US President Trump). We'll be loser once TPP is implemented." Bangladesh is fortunate that President Trump withdraw USA from TPP with a Presidential order on 23rd January, 2017.

Bangladesh's export trade will be affected after implementation of the TPP pact since garment products cover 80 percent of the total exports to TPP member countries. Bangladesh may also lose the third and fourth largest export markets in Canada and Japan. Not only Garments, export of frozen fish, pharmaceuticals and agricultural products might be hit hard. Some imports might also become costlier challenging for Bangladesh following the pact. The pact might take at least two years to be implemented. Not only RMG will be affected but non-RMG exports of Bangladesh will also be affected.

Vietnam is a member of the TPP agreement and a competitor of Bangladesh. The market share of Vietnam would increase further at the expense of other countries like China, India, Bangladesh and Sri Lanka. TPP can impact the entire trade supply chain of the sector. Vietnam, Peru, Malaysia, Brunei are our export competitors in the above mentioned export markets. Bangladesh may lose this market because to Vietnam, Peru, Malaysia, Brunei, India and Vietnam will be in better position in future. Currently, Vietnam is at a comparative disadvantage in the RMG world mainly due to its higher cost of production and greater labor cost.

The pact has easy origin facility for member countries. The "yarn forward" rule of origin requires that textile and apparel products should be made using yarns and fabrics from a TPP country to qualify for the benefits of the agreement.

This would ensure that non?qualifying textiles and apparel from non?TPP countries do not enjoy the benefits reserved for TPP countries. According to the RoO, the members will have to collect raw materials and intermediate products from among themselves. The rules of origin (RoO) applied for the member-nations of the bloc are somewhat problematic for them as well as create an opportunity of FDI and local investment in backward linkage industries.

By eliminating these existing tariffs, the TPP would create significant new incentives to shift production of goods intended for sale in the U.S. market away from other countries and to TPP nations whose products would newly have duty-free access to the United States. According to the Vietnam Investment Review, "a new wave of foreign investments in the spinning, weaving, and dyeing sectors has been kicked off, since investors can see the profits they can gain from the TPP." Trade journals report that foreign manufacturers have invested more than $1 billion in Vietnam's textile and apparel sector in anticipation of a TPP agreement.

According to Saigon Times, textile and garment manufacturers based in Japan, Hong Kong, South Korea, Taiwan, Austria, and Australia are also setting up new production or have expanded current production in Vietnam. Indian companies can benefit by establishing capacities in Vietnam and taking benefit from TPP. China has already begun investing in Vietnam to benefit from TPP.

Bangladesh has been able to retain its edge in the sourcing world in spite of the higher tariff (Vietnam pays 8.38 percent in contrast to 15.61 percent for Bangladesh) for a short transition period, but it is expected that TPP, once it is fully implemented, will trigger some trade diversion from Bangladesh to Vietnam.  

Experts are concerned over the TPP agreement. At a Bangladesh Development Conference at Harvard University, many international observers voiced their concern that due to tariff preferences and technology transfers following TPP, Vietnam is likely to overtake Bangladesh as the second largest RMG exporter in global trade by 2024. A researcher observed that if TPP adopts the flexible rule of origin on sourcing, it could boost its share of the growing market from 4 percent to 11 percent by taking over share of Bangladesh.

A quantitative analysis conducted at the University of Rhode Island's Department of Textiles, Fashion Merchandising and Design, revealed that TPP would "considerably improve" Vietnam's price competitiveness in apparel production by removing tariff rates on textile imports from Japan that average 9.7 percent. Moreover, Japan's production of textiles matches very well with the textiles and Vietnam needs for its apparel exports to the United States. Vietnam is much ahead of Bangladesh in terms of investment, compliance and the environment affairs. Vietnam is also much higher on the global competitive index, so it might grab Bangladesh's share there.

India is not member of TPP and planning to set up production plants in Vietnam to take advantage of TPP i. e. yarn forward rule of origin. Moreover, Vietnamese government provides tax holidays, import duty exemption, concession on land lease charges, electricity, among other things for Indian investors. Indian government has also launched US$ 300 million line of credit for establishing capacities in Vietnam. The flexible ROO requirements would also likely result in gains for Korea and Japan as member of TPP, the primary suppliers of textiles to Vietnam's apparel industry.

Moreover, India is going to sign FTA with USA and European Union. India will be capable to get duty free export of garments products to both USA and European Union market. European Union FTA would benefit India over both China and Vietnam. India is also considering FTA with Australia and Canada. India can participate in other regional FTAs including Regional Comprehensive Economic Partnership (RCEP).

On the other hand, 10 ASEAN's countries and Australia, China, India, Japan, South Korea and New Zealand are trying to sign Regional Comprehensive Economic Partnership (RCEP) agreement. These two blocks control 67 percent world trade. Contracting states of TPP control 40 percent of total trade and contracting states of RCEP control 27 percent of total trade.

Vietnam and India are preparing to sign free trade agreement with European Union. India is also trying to reach free trade agreement with USA. Bangladesh is one of the main export nations in USA and European Union market. By creating these blocks and providing duty-free-export facility to India and Vietnam in USA and European Union market will make threat to Bangladesh export sector. Because of TPP and RCEP, India is going to sign FTA with USA and European Union. India will be capable to get duty free export of garments products to both USA and European Union market.

Bangladesh relies on customs duty and deduction of VAT and Income tax as port of entry due to weak and corrupt taxation policy. The customs duty is about 30 percent of the "income" of National Board of Revenue (NBR).  This is the easiest method of collection of tax and has control over the economic activities. This control over economic activities is roots of corruption.

NBR set the policy of collecting advance income tax, customs duty and VAT at sources. At present the advance tax is about 70 percent and only rest 30 percent collected afterward with due assessment. Bangladesh should come out of the policy of "easy earning" of tax at import stage. The nation is suffering due to easy going practice of administration.

The Ministry of Commerce use to 'regulate' Bangladesh Tariff Commission. It has only two out puts of their study on possible free trade proposals of either revenue of loss of government or insignificant benefit for Bangladesh. There is a possible directed study to recommend against FTA. Their final recommendation was always not to sign FTA. According to the Asian Development Bank, from 2000 onwards, nearly 100 new FTAs have been signed in Asia alone.

Bangladesh should bring down custom tariff of basic raw materials to zero percent and withdraw the bond license facility so that all possible industries in the country may produce all possible goods at competitive price and go to global market. This is not an innovative method but a widely practices and proven method of go for global for economic development. No country in the world suffered 'revenue losses' due to customs tax liberalization rather benefited of higher revenue income.

The political leadership is in right directions. We have observed sincere desire of our present Commerce Minister Mr Tofail Ahmed to sign FTA/PTA with Sri Lanka and Thailand has been slowed down by different ministries and departments. The vision of political leadership should be honored by the administration.

Bangladesh has one possible solution to joint TPP and become stakeholder of the game under TPP Plus option. Bangladesh should try to join Regional Comprehensive Economic Partnership (RCEP). Bangladesh should immediately go for free trade agreement with USA and EU the largest buyers from Bangladesh. We should also immediately sign FTA with China and India, the major sources of raw materials of export products.


The writer is a legal [email protected]