Bangladesh's exports to the EU are likely to be affected if the proposed India-EU free trade agreement (FTA) is signed and apparel items are included in the deal, said an official of the commerce ministry of Bangladesh.
Both India and the EU are hopeful of closing the deal by the year-end as negotiations that began in 2007 already reached the final stage.
The agreement was scheduled to be signed last month, but it could not happen due to protests by Indian farm and manufacturing sectors.
Media reports said India and the European Union are looking at reaching a bilateral trade of $200 billion by 2013, up from $107 billion now. The EU accounts for 14 percent of India's foreign trade.
Bangladesh's exports to the EU will be affected if both India and EU include garment items in the agreement, because apparel is Bangladesh's main export and the EU is its largest destination, said the official, asking not to be named.
“We have not conducted any study on the possible impacts. But, the commerce ministry has already asked the Bangladesh mission in Geneva to follow the progress of the proposed deal so we can take steps to keep the Bangladeshi exports unhurt,” he said.
Bangladesh has little to do if the agreement is inked because the matter is absolutely bilateral, he said.
Still, Bangladesh has something to worry about as the EU is its largest trading partner, while India has the same exportable items and competes in the same market, he added.
Even in fiscal 2010-11, Bangladesh's total exports to the EU were more than $10.51 billion of which 90 percent came from garments.
The FTA aims at cutting tariffs by up to 90 percent on goods and services. “But, it is difficult to say now the extent of losses Bangladesh will face due to the proposed deal until it is signed,” he said.
“Bangladesh's garment sector will be affected if India and the EU include the apparel items in the agreement,” the official said.
Also, Bangladesh still can negotiate with the EU so the deal covers only goods, he added.
But, generally, an FTA is signed on three sectors -- services, investment and exports of goods, he added.
The EU, as an economic bloc, is India's largest trade partner. In 2010, the EU imported goods worth 33.2 billion euros from India and exported products worth 34.7 billion euros. Exports of services to India stood at 9.8 billion euros and imports from India totalled 8.1 billion euros, according to media reports.
Bangladesh will face a stiff competition in the EU if the proposed deal includes the apparel items, said Shafiul Islam Mohiuddin, president of Bangladesh Garment Manufacturers and Exporters Association.
“It will be a huge challenge for Bangladesh, as India is also strong in apparel items,” he said.
Moreover, India will also enjoy the benefit of lead-time because India has a strong textile sector, he added.
Mustafizur Rahman, executive director of Centre for Policy Dialogue, said there is a possibility of bad impact on the apparel sector of Bangladesh if the FTA is signed because India also produces almost same kind of garments and the country will enjoy preferential duty.
If, India, as a developing country, enjoys zero duty in the EU, Bangladesh, being a least developed country, will be affected to some extent, although at present Bangladesh is quite competitive and strong in the EU, he said.
Currently, Bangladesh enjoys zero duty benefit in the EU under "Everything but Arms" scheme. If the FTA is signed, India too will enjoy such benefit in the EU as the duties will come down to zero in phases, said the CPD researcher.
“Bangladesh should enhance productivity, improve infrastructures and develop skilled manpower so we can offset the impact of the agreement because we have the zero duty benefit due to relaxed Rules of Origin in the EU,” he said.
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