WTO and Its Impact on Bangladesh
In today’s world, trade barrier still remains as a big hurdle to achieve globalization and get its advantages. And the only possible way to remove this hurdle is to liberate trade among countries. With this purpose, countries in the world gathered under the umbrella of WTO (world trade organization) to eliminate economic disparity of the rich and poor countries, to create discipline in the world trade system, and to work as a forum to resolve the disputes of international trade.
Although it is true that, Due to absence of unity of purpose in the member countries, the purpose of WTO has been facing severe obstacles. After the establishment of WTO, though the growth of world trade has increased, the share of the LDCs has been decreasing. As a result, countries are debating over terms of trade, and new issues like labor standard, environmental norms, textile, agricultural and investment policy, and tariff reduction within the charter of WTO. Nevertheless, it is expected that one day WTO would be able to liberate trade among countries.
World trade organization (WTO)
WTO is actually the modern form of former GATT (General Agreement On Tariff And Trade). It was created on January 1, 1995 according to the final act of multinational negotiation of Uruguay round. Basically, it was established to bridge the gulf in economic disparity of the rich and poor countries, to create discipline in the world trade system, and to work as a forum to resolve the disputes of international trade.
The WTO or former GATT started a process of trade liberation with a view to contributing to global economic growth and developments. These were to be done through factor price equalization and economization of global cost of Production. Perfect factor of production mobility had also departed in the WTO by the process of systematic transfer of resources between developing and developed countries.
WTO and Bangladesh
As a least developed country (LDC), Bangladesh is largely affected by rules and regulations set by the WTO. External factors such as export, import, remittances, and foreign aid have always played important roles to Bangladesh’s economy, though the relative importance of various external factors has changed over time. Therefore, Bangladesh must be cautious about the process of trade liberation started by the WTO.
As an LDC, Bangladesh enjoys many advantages, because since Uruguay round, LDCs are recognized as unable to make substantial reduction in tariffs. for industrialized sectors, they are bound to reduce only a token amount of tariff on very limited number of items. And in agricultural sector, they are not required to reduce tariff. However, LDCs, along with other countries are required to bind their tariffs. Most LDCs have given bindings at a rate significantly higher than the existing rates.
In addition, Bangladesh needs to care about WTO for other reasons too. Bangladesh has to face many problems for WTO regulations known as marginalization. The dominance of ready-made garments (RMG) in our exports was largely attributed to a GATT effort in the form of GSP. The WTO persuasions under the banner of international standardization (like ISO 9001 etc) consider too many factory specific and environmental issues.
WTO Hongkong summit
The sixth WTO Conference Ministerial in hongkong summit was actually a continuation of Doha development agenda where trade issues like quota free access, agricultural and other subsidy were to be discussed. In the summit, among the developing countries, G-20 succeeded in withstanding the pressure of the developed countries, and extract substantial dividends from Hong Kong. It is obvious that the advanced developing countries such as Brazil, China, India, and South Africa will continue to exert formidable influence in the upcoming negotiations. While LDCs as a group received a limited market access deal. Some progress has been achieved in the areas of export subsidy in cotton, and in a few cases of special and differential treatment. Some promises have been made on “Aid for Trade”.
Campaigners for poverty reduction say the draft agreement issued on 18 December was unacceptable and reflected rich countries’ interests far more than those of poorer developing countries. However, others viewed the draft as a semi-success for LDCs. The countries joined the ministerial expecting settlement of three main issues: duty- and quota-free access for exports from all 49 LDCs; aid for trade; and support for African cotton producers.
Major issues at WTO hongkong summit
The major issues at the WTO hongkong summit are shortly described below-
On the issue of export subsidies, an end date for all export subsidies in agriculture by 2013 has been agreed, including “parallel” elimination of subsidies in government-supported export credit, food aid, and state-sanctioned exporting enterprises. Disciplines will be negotiated on all export measures whose effects are equivalent to subsidies. Under the proposal, the EU will eliminate export subsidies, with “a substantive part” of the cuts made in the first half of an implementation period starting from 2008. However, the elimination of export subsidies has limited value considering the fact that the share of export subsidies is only 3.5 percent of the overall agricultural support provided by the EU.
With elimination agreed, discussions on some other headings have progressed well, particularly on export credit. Food aid and exporting state trading enterprises remain more difficult. Still, it is not clear what the practical impact of this change will be. An end to all export subsidies would actually harm developing nations in aggregate, because many of them are net food importers, according to an analysis by the World Bank.
Quota free access:
Member countries, which are not in a position to provide duty-free and quota-free market access, shall provide market access for at least 97 percent of products originating from LDCs by 2008 or no later than the start of the implementation period. It is not yet clear how agricultural commodities will be selected for the exclusion list comprising 3 percent of the tariff lines. This will depend on outcomes of further negotiations to be held in Geneva by April 2006.
The member countries of the WTO, like the USA, Canada, Japan, Australia, New Zealand, and those of the European Union, appeared to have gained much from the conference. They did not agree with the proposal of LDCs to withdraw subsidy from farm sector, which virtually remains the major controller of trade on farm products. Countries in Asia and Africa are found buying rice and wheat and other edible items from the USA and the European Union at prices fixed by exporters. Some exporters have for years extended food aid to poor countries for keeping them dependent on aid givers. The efforts of the LDCs to augment their production in different sectors remain unrewarding. Farmers and owners of factories like garment industries fail to earn enough to meet the cost of production with the sale of their products at home and abroad.
Domestic support in agriculture:
This accounts for just 10 per cent of global commerce but is of huge importance to the economies of developing countries. They are resisting concessions in other areas until rules are made fairer in the agricultural sector. On the issue of domestic support, it was agreed that there would be three bands for tariff reductions in Final Bound total AMS; in the overall cut in trade-distorting domestic support, there would be higher linear cuts in higher bands. However, the level of cuts would be decided later. 
For cotton, the elimination of subsidies accelerated to the end of 2006. In addition, cotton exports from least-developed countries will be allowed into developed countries without duty or quotas from the start of the period for implementing the new agriculture agreement. Rich countries will phase out export subsidies for cotton but there is no agreement on a date for reducing domestic subsidies for US farmers. Ministers have also agreed to aim to cut trade-distorting domestic subsidies on cotton by more than would normally apply under the new agreement, and to do so more quickly.
Fisheries subsidies may lead to over capacity, over fishing, and finally to exhaustion of fisheries resources. This was noted at the Ministerial Conference. The Ministerial calls for identification of subsidies and prohibition of harmful subsidies. The Declaration pointed out that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the negotiations since fisheries is an important sector for livelihood and food security in these countries.
It was agreed that a non-linear Swiss-type formula, with multiple coefficients, would be used for the purpose of tariff cuts. Developing countries appear to have withstood their position in terms of undertaking lower commitments in NAMA.
Although LDCs are not expected to take any reduction commitments under NAMA, any reduction in the MFN tariffs on industrial goods by the developed and developing countries is expected to lead to significant preference erosion for Bangladesh and other LDCs. Besides, LDCs are also expected to bind a substantial number of industrial tariffs.
In some of the developed countries, under S&D provisions, LDCs will get duty-free access for all their industrial goods. However, in some others the share of goods will be 97 percent, and it is apprehended that many industrial goods of export interest to LDCs would be included in the ‘exclusion list’. Accordingly, items such as Bangladesh’s apparels will have to enter markets of some developed countries, most notably that of the USA, with MFN duties.
On the issue of Food Aid, it was agreed that disciplines on in-kind food aid, monetization and re-exports would be made so that there was no loophole for continuing export subsidization. The disciplines on export credits, export credit guarantees or insurance programmes, exporting state trading enterprises and food aid will be completed by 30 April 2006 as part of the modalities. 
Implication on Bangladesh
Bangladesh’s primary offensive interest in the context of Hong Kong was MARKET ACCESS in the areas industrial goods, services and agricultural commodities. Secondary priorities had been in improving the Special and Differential Treatment (S&DT) provisions, reducing trade distortion in cotton, ensuring food aid discipline, identifying and prohibiting harmful fisheries subsidies, and increasing real assistance for trade related supply-side capacities.
Bangladesh’s ambition for market access was justified; but a number of factors contributed to the non-realization of this ambition. Therefore, Bangladesh’s ambitions from the Ministerial remain largely frustrated, as it did not get meaningful market access, with no significant progress in other areas including Mode – 4. 
The decision in the Hong Kong conference has therefore put the LDCs like Bangladesh in an era of uncertainty vis-à-vis their production and marketing of finished garments and other products like shrimps, fruits and vegetables.
Outcome for Bangladesh:
The sixth World Trade Organization (WTO) ministerial meet in Hong Kong has come to a close with little real progress on the important issues that dominated the negotiations and with less significant advantage for Bangladesh. The Ministerial Declaration provides for a number of opportunities to Bangladesh. These include such areas as market access (DF-QF market access for all products in many developed countries and up to 97 per cent of tariff lines in some countries), waivers in TRIMS, extension in TRIPS and LDC modalities in GATS.
Bangladesh at Hong Kong gained quota and duty free access for 97 per cent of its present and probable export goods. But it has not achieved any duty and quota free access for its main exports products like RMG, leather and leather goods as they falls in the 3.0 % negative list where concessions for duty and quota free access would not apply.
Thus, Bangladesh has lost the opportunity to market advantageously the few products for which it has a good manufacturing base in the country and in exporting of which it already enjoys some competitiveness.
Position of Bangladesh:
This gain for 97% categories of products is actually of no use, because Most of the goods under these 97 per cent categories are like airplanes or computers. Bangladesh, at present, is a net importer of these goods. There is no likelihood of Bangladesh’s turning into an exporter of these products even in the near future. Thus, the assurance of duty-free and quota free export of such products from Bangladesh may sound nice on the face of it but is really devoid of any practical value for this country right away.
Again, if we view this gain from a different viewpoint, than it may seem benefiting. Because, although Bangladesh may not currently produce most of these 97% products competitively, but many of these products can be produced competitively at some point of time in the future to take the advantage of the duty and quota free access. Therefore, our exporters and govt. agencies should identify these products as soon as possible. Also, since the new tariff lines on these products will be effective from 2008, our exporters can use this interim period to build up the capacity to export the products to developed countries to gain the most from the duty and quota free offer.
RMG sector of Bangladesh:
Textiles and clothing trade is a vital part of the world economy with many nations heavily dependent on the sector for foreign exchange earnings and employment generation. Today textiles and clothing trade accounts for nearly 6% of total world exports. It was valued at US$ 342 billion in 2001. The textiles and clothing sector is central to the economies of many developing countries like Bangladesh. They now account for 50% of all textile exports and 70% of all clothing exports.
Many of the LDCs and small developing countries have built a huge dependency on the sector, which often accounts for more than 90% of industrial exports and more than 50% of total employment. For example, textiles and clothing accounted for 84% of Bangladesh’s total exports in 2000. The figure for Pakistan was 72% and for Mauritius 69%.
In 2000, textiles and clothing accounted for 95% of all Bangladesh’s industrial goods exports. The figures for Laos were 93%, for Cambodia 83%, for Pakistan 73%, for Sri Lanka 71%, for Nepal 61%, for Turkey 38% and for India 30%.It is a vital and often nearly sole source of industrial employment in many developing countries. The sector employs 1.8 million workers in Bangladesh, 1.4 million in Pakistan and 250,000 in Sri Lanka. In India alone, there are 58,000 different garment factories.
The importance of this sector in our economy can be easily understood from the following export data:
TABLE 1: Changing Structure of Export of Bangladesh: 1980/81-1999/00
(In Million US $ and %)
|Leather & leather goods||57||8.0||136||7.9||195||3.4||211.4||2.8|
|Other Mfd. goods||63||8.9||78||4.5||375||6.5||973.2||12.8|
Share refers to % share in total exports.
A detailed strategy for the future of the textiles and clothing industries must be urgently discussed and agreed in order to prepare for the future as our RMG products are excluded from quota and duty free access in world markets.
Such a strategy must include action on both the trade and industrial policy fronts.
On the trade front this should include:
- Measures designed to help emerging and struggling industries, adjust to meet the threat posed by dominant producers such as China, and including clear restraints on such dominant producers;
- The promotion of trade based on respect for international labor standards through rewards and sanctions-based mechanisms;
- The inclusion of labor standards conditionalities in all bi-lateral and multi-lateral trade agreements.
On the industrial policy front, all countries with a significant textiles and clothing sector should adopt and implement a detailed development strategy for the industries.
Such a strategy should provide for intervention in areas such as:
• Respect for international labor standards;
• Worker development especially for women;
• Skills enhancement;
• Technology diffusion;
• Improved management;
• Enhanced quality;
• Market development both internally and externally.
In short, production of and trade in textiles and clothing cannot continue only to serve the interests of multi-national merchandisers and retailers in a handful of consuming nations. Instead, any strategy for the future must ensure that the benefits of production are fairly shared, where the workers involved can afford to become consumers, thus oiling the mechanisms for sustainable development.
Fisheries are an important source of income and employment for a large section of poor people and play an important role in poverty reduction in Bangladesh. Therefore, Bangladesh should play an active role to include the provision of special and differential treatment in the fisheries subsidies negotiation, so that it retains flexibility to develop her fisheries sector.
Agenda For The Future
Raising National Capacities:
At the end of the day Bangladesh has to competently fight for its national trade interests. What is necessary in such cases, apart from technical preparation, is political steadfastness, familiarity with the WTO process, effective political outreach, and the nerve to withstand pressure. Regrettably, Bangladesh was not sufficiently endowed with all those.
Export diversification should have always been a top priority for Bangladesh. Given the overwhelming dependence of Bangladesh on one product, apparels and clothing, the possibility of textiles being excluded from preferential market access opportunities reinforces the need for identifying new products, which are to be promoted through appropriate trade and investment strategies.
Revisiting Export Strategies:
Bangladesh also needs to revisit its export promotion strategies from another perspective. Bangladesh has quite often tried to promote its exports through tariff concessions. In the light of the Hong Kong Declaration, as well as MFN liberalizations in general under the NAMA and Agriculture negotiations, this possibility is getting increasingly thin. Bangladesh now needs to put more emphasis on acquiring competitive advantage through efficiency gains in the area of trade supportive infrastructure (port, electricity, telecommunications) as well as overall economic governance
The access to markets in developed economies:
Bangladesh would like lowest possible tariff for its exports to the EU, the United States, Japan and other developed countries. In obtaining a low tariff, the critical question is the origin of the product. The rules for determining the origin of the product for assessing duties depends on the contribution to the value of the product made by domestic factors of production in Bangladesh. The duty rates available in the EU, Canada, and Australia are already essentially zero so long as the domestic contribution to product value is high enough.
The market emphasis should be on reducing costs by at least 25 per cent through-
- Development of better infrastructure
- Better management of trade flows
- Higher productivity in the factories
- More efficient use of energy and
- Rationalization of interest rates.
Costs should also be reduced by increased investment in backward and forward linkage industries in the textile and apparel sector.
The government and the industry need to settle down and tackle the actions necessary to raise competitiveness. The following eight points should be covered to ensure competitiveness:
1. Improving the port efficiency.
2. Improve Customs management of imports for processing into exports.
3. Ensuring Supply of low cost energy.
4. Raise factory productivity
5. Adequate financing in backward and forward linkages
6. Creation of Skilled Manpower
7. Labor productivity
8. Knowledge of the section
These eight areas all offer opportunities to lower costs, raise productivity and improve competitiveness.
Equal chance to compete:
Right now Bangladesh is a victim of predatory pricing policies of other low-income countries. If Pakistan, India, and China have low, subsidized interest rates for their textile sectors, not justified by the depth of the capital market, what is Bangladesh to do? If other countries intervene to subsidize their exports, what is Bangladesh to do? For Bangladesh, the real predators are not the developed nations but the large underdeveloped countries that have no scruples about using trade policy to further their industries. Interest rates for the textile sector in India are far lower than in Bangladesh; far lower than justified. What is Bangladesh to do? This is the real question of trade policy that is not faced squarely. This issue should be on the table for discussion.
Bangladesh’s industrial development is now pinned between predatory practices of Pakistan, India and China on the one hand and donor insistence on open markets and reduction of subsidies on the other. This is the area of trade policy is where real work and analysis is needed.
Steps taken by the government
Commerce minister Altaf Hossain Chowdhury said Bangladesh has asked the WTO to help prepare a list of products, which will fall under the 3 percent exclusion list and will not enjoy duty free and quota free market access under the Hong Kong offer.
He said it is important to target our export promotion focusing on products, which will fall within the positive list. The commerce minister said the country would definitely benefit some ways from the 97 per cent duty free market access offer that comprise some 11,300 products. Japan has already promised that it will not include Bangladesh’s textile in the three per cent sensitive list. The country was also getting duty-free and quota-free market access to the European Union under the Everything But Arms policy. (EBAs).
The minister said Bangladesh fought for the 100% zero tariff coverage for all exports originating from all the LDCs but parties like the USA, the EU, and some others did not agree to move beyond 97 per cent products, agreeing its enforcement by 2008. They said the remaining 3 per cent coverage would be achieved progressively, however, without committing to a timeline.
To protect the gains at Hong Kong, though it looks very tricky and limited, the minister said Bangladesh had immediately tabled a proposal for working out a list of products that will find place in the 3 % exclusion basket. The reason behind it is that Bangladesh should be aware of the exclusion list to concentrate on developing new export products that can enjoy duty free access. The commerce minister said the WTO has accepted the Bangladesh proposal and the list would be worked out in Geneva before the end of 2006.
The ministry has also started working to identify possible new exports including apparel items that may enjoy duty free access to the USA and other destinations. It is important to diversify the country’s export basket in line with Hong Kong offers, commerce secretary Faruq Ahmad Siddiqui said. He said Bangladesh fought back moves to exclude it from the LDCs package as a highly advanced LDC only five years from being a developing nation.
From the WTO Hong Kong summit, Bangladesh gained quota and duty free access for 97 per cent of its present and probable export goods. But it has not achieved any duty and quota free access for its main exports products like RMG, leather and leather goods as they falls in the 3.0 % negative list where concessions for duty and quota free access would not apply.Thus, Bangladesh has lost the opportunity to market advantageously the few products for which it has a good manufacturing base in the country and in exporting of which it already enjoys some competitiveness.So, now Bangladesh needs to reinvigorate its negotiating capacities during the last lap of the Doha Round. The country definitely needs to revisit its trade promotion and industrialization strategies in the light of the Hong Kong outcomes.
In order to realize the full potential of the HK Declaration, Bangladesh will need to devote more time, resources, and energy over the next year. Otherwise, there is a high and real possibility that Bangladesh may turn out to be a net loser from the final deals of the Doha Round. Considering all aspects of the WTO hongkong summit Bangladesh needs to diversify its export items to reap benefit out of the WTO offers.
As a member of the LDC community Bangladesh will have to augment its campaign and obtain support from other members as well. To withdraw duty and quota-free access to garment products of Bangladesh should be resolved with bilateral negotiations without loss of time. Although Bangladesh has been in a disadvantageous stage, if steps are taken properly, then it may recover the market opportunities and market position.