Bangladesh is likely to face a severe blow to its foreign trade, as its competitor country Vietnam signed a free-trade agreement (FTA) with the European Union (EU) on Sunday, analysts said on Tuesday.
The EU signed the free-trade deal with Vietnam on June 30, paving the way for tariff reduction on 99 per cent of goods, traded between the bloc and the Southeast Asian country.
After a long three-and-a-half years of negotiation, the agreement was signed in Hanoi between EU Trade Commissioner Cecilia Malmstrom and Vietnam’s Minister of Industry and Trade Tran Tuan Anh.
The trade deal of the EU, the first of its kind with a developing country in Asia, will be effective after approval of the European Parliament.
Local trade analysts said Bangladesh will face a serious blow, as its strong trade opponent Vietnam signed the FTA with the EU.
They said the challenges for Bangladesh will swell further when it will graduate as a developing nation after 2024. Bangladesh, as a least developed country (LDC), now gets “zero tariff” facility in exporting its products to Europe under the Generalised System of Preferences (GSP) .
Europe is the largest destination of Bangladesh’s garment export, as it made a shipment of US$ 19.63 billion in 11 months (July-May) of the last fiscal year (FY), 2018-19.
Currently, Vietnam as a developing nation exports its products to the EU market, paying nearly 8-9 per cent tax.
Trade analyst Dr. Zaidi Sattar told the FE: “Vietnam is already a strong competitor of Bangladesh in the EU market. If it gets zero tariff facility under the FTA, Bangladesh will lose market share in its largest export destination.”
“In addition, when Bangladesh will graduate as a developing nation in 2024, its GSP facility will be eliminated and will have to pay tax to enter the EU market,” added Dr. Sattar, also Chairman of the Policy Research Institute (PRI), Bangladesh.
Another trade analyst Professor Mustafizur Rahman said: “It (Vietnam’s FTA signing) is not good news for us. The country’s readymade garment export may face setback.”
Bangladesh will face more troubles when it will have to pay tariff for sending its products to the EU market after graduating as a developing nation in 2024, said Mr. Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD).
Besides, Vietnam will get more Foreign Direct Investment (FDI) from the EU nations following signing of the FTA. It will directly and indirectly affect Bangladesh’s trade with the European countries, he added.
In addition, Vietnam will also emerge as a big competitor of Bangladesh in its other existing and prospective markets, including the US, Canada, Australia, Japan, Mexico, and New Zealand as the Trans-Pacific Partnership (TPP) member, when the deal will be effective, he opined.
Local RMG businessmen also expressed their grave concern following signing of the EU-Vietnam FTA deal.
Anwar-Ul-Alam Chowdhury (Parvez), Former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said Bangladesh will be in a fix after the EU-Vietnam FTA deal comes into effect.
“Currently, the EU is the largest RMG export destination of Bangladesh. If Vietnam, the country’s one of the main competitors, gets zero tariff facility to the EU, Bangladesh’s market share will shrink.”
“In terms of capacity, Vietnam’s RMG industry is more developed than Bangladesh’s, as it has only 7-8 days lead time in export compared with Bangladesh’s nearly 22 days,” Mr. Parvez noted.
“Besides, Vietnam will be able to offer competitive prices for its products, like Bangladesh, when its current tariff of nearly 8-9 per cent for exporting goods to the EU markets will be withdrawn. In this case, Bangladesh can lose its market.”
He also sought policy and fiscal supports from the government to develop capacity of the local RMG industry further.
The EU is Vietnam’s second largest export market after the US, with its main exports including garment and footwear products. In 2018, Vietnam exported goods and services worth $42.5 billion to the EU, while the value of its imports from the region reached $13.8 billion, official data showed.
The Vietnamese government claimed that the FTA will boost the EU exports to Vietnam by 15.28 per cent, and those from Vietnam to the EU by 20.0 per cent by 2020.