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Opportunities and challenges for Bangladesh

Published: Sunday, Oct 18, 2015


Posted : 18 Oct, 2015 00:00:00



WTO Least Developed Country Services Waiver

Opportunities and challenges for Bangladesh

Rumana Islam

The World Trade Organisation’s (WTO) least developed country (LDC) services waiver emerged from the decisions of the eighth WTO Ministerial in 2011 in Geneva. The following Bali Ministerial Conference in 2013 ratified the waiver through a road map to speed up the implementation and operationalisation of the waiver. The objective of the services waiver, by moving beyond the WTO Most Favoured Nation (MFN) clause, is to promote LDC services trade through preferential access to markets in developing and developed countries in modes and sectors of services export interest to LDCs. The waiver also allows for other non-market access preferences, in line with the authorization of the Council for Trade in Services (CTS). In addition, developed and developing countries are supposed to indicate sectors and modes of supply where they intend to provide preferential treatment to the LDCs.

Opportunities and challenges for Bangladesh

“Diagnosing the potential for trade in services is a necessity in least developed countries, especially looking at possible niche sectors which offer opportunities for diversification” said Ratnakar  Adhikari of WTO. This brief report explores the dynamics and effectiveness of the waiver on LDC services trade with special focus on the challenges and opportunities for Bangladesh.

The General Agreement on Trade in Services (GATS) identifies services trade according to the following four modes, as outlined in Table 1.The services waiver aims at service trade facilitation, especially Mode 4, by opening up WTO members’ markets to the LDC suppliers. Currently, the LDCs’ share of global commercial services export is 0.7 per cent in 2013, despite a 13 per cent growth rate in the sector. This highlights the necessity of the services waiver to promote the LDCs’ services exports with the view to expanding their market overseas as well as enhancing domestic growth.

Opportunities and challenges for Bangladesh

An analysis of services trade balance for 10 LDCs, including, among others, Bangladesh shows that overall deficit is US$5.034 billion (bn) in 2013. Only three countries, Cambodia (US$1.73 bn), Afghanistan (US$8.45 bn), and Nepal (US$2.05 bn) have positive service trade balance. Bangladesh, with a negative balance ofUS$3,444.6million (m), leads the group of countries facing services trade deficit, followed by Congo (US$2,729 m) and Liberia (US$739 m). Burundi has the lowest services trade deficit at US$103 m. Bangladesh’s deficit in services trade balance at 2.0 per cent of gross domestic product (GDP) contrasts with a surplus of about 1.0 per cent of GDP in its current account of Balance-of-Payments (BoP).

However, the LDCs as a group records a surplus in the tourism sector reflecting tourism as their main services export (Figure 1). Transport and communications record the second largest surplus after tourism. In this respect, the waiver is in place to open doors for the LDCs to participate in the international market of services as service exporters beyond tourism.

Opportunities and challenges for Bangladesh

BANGLADESH: Bangladesh has long been suffering from a services trade deficit in its balance of BoP as depicted in Figure 2. There has been deepening of the services trade deficit since 1998 from US$ 0.37 bn to US$ 4.10 bn in fiscal year (FY) 2013-14. The country’s services exports and imports include transportations, travel, telecommunication, computer, and information services, business services and government services.

The LDC services waiver provides Bangladesh the potential to expand its services export to other sectors of interest such as tourism, Information Technology (IT)-Business Process Outsourcing (BPO), nursing and labour services. Nevertheless, there are opportunities and challenges in each of these sectors which have to be overcome in order for Bangladesh to correct its history of service sector deficits.

Opportunities and challenges for Bangladesh

TOURISM PROSPECTS FOR BANGLADESH: Bangladesh still remains at the nascent stage of harnessing tourism services as a scope for expanding the economic contribution of this sector.  Aside from being a services export component in the BoP, tourism activities have forward and backward linkages’ unleashing a lot of derived demand. The tourism sector generates employment through the purchase of local goods and services.

Bangladesh has been blessed with natural beauty, boasting the world’s largest natural beach as well as the largest mangrove forest. Despite this the tourism sector falls behind its potential. In FY13 tourism export accounted for an estimated 2.2 percent of GDP at US$5.0 billion which is only 10 per cent of the global average of US$55 billion. Bangladesh would require investment and upgradation of services in tourism to untap its latent potential as well as achieve higher economic growth.

IT-BPO: Bangladesh been ranked among the top 30 software services outsourcing destinations, with a shift from low-value added tasks such as website development and graphics design to middle-value software and application development as well as higher-end engineering and product development services. The IT market in Bangladesh has matured by means of growing tele-density, rising internet penetration, falling bandwidth costs, and a growing market for telecom services. However, challenges remain due to a lack of scale economies which prevents entrepreneurs from securing large contracts. It should also be noted that Bangladesh’s negative image due to Intellectual Property Rights (IPR) protection deters services exports in this sector.

NURSING: There is a surge in global demand for nurses arising from demographic changes, ageing population, a surge in chronic diseases, and physician shortages in primary care. Bangladesh’s key interest in export of nursing services is especially to the USA and UK markets. However, the current nurse-to-doctor ratio is 0.4 in Bangladesh, whereas international standards dictate that there should be three nurses per doctor. Internal constraints include lack of proper training, lack of appropriate skill sets and the need to update training curricula and the quality of teaching. In addition, external barriers are non-recognition of qualification, language barriers, and prohibitive licensing requirements, along with meeting the minimum skill requirement such as fluency in English, bedside manners, and the ability to handle modern medical equipment.

LABOUR SERVICES: Remittance plays a major role in Bangladesh’s economic growth, stability and poverty alleviation. There is a lack of targeted strategies which has in turn resulted in problems such as inadequate training and orientation of migrant workers and growing competition from other labour-exporting countries. Awareness of labour rights in the importing country and non-adherence by employers to the terms and conditions of employment is a serious problem. As a result, foreign employers often treat Bangladeshi expatriate labour poorly.

CONCLUSION AND POLICY RECOMMENDATIONS: The LDC community should assess their own export interests and approach the WTO with proposals to expedite the benefits of the LDC services waiver. In order to claim the benefits of the LDC services waiver in the sectors of Bangladesh’s interest, policy measures have to be enacted to augment reform in relevant areas to meet the minimum standard of global services export. In the case of standard and quality not being met, as per the waiver, these countries are not obliged to open their markets for our services and service suppliers.

To enhance competitiveness and export promotion in the IT-BPO sector, Bangladesh needs to focus on creating a supportive domestic business environment which includes a steady supply of power, trained human capital, focus on marketing and networking activities, and stronger enforcement of the Intellectual Property Rights (IPR).

The nursing sector will require a strategically planned approach with a focus on capacity creation to meet domestic as well as export demands with a change in teaching methods and curriculum. The private sector should be included in providing qualifications and adapting international standards to improve the quality of skills.

In the case of export of labour services, government should provide legal and safe channels for migrant labour services’ export including the basic set-up for training, institutional arrangement for remittance flow and saving instrument, soft loans for travel and finally the protection of the rights of its workers.

Bangladesh’s comparative advantage lies in Mode 4 of services export including nursing and labour services. These sectors require crucial attention for Bangladesh to secure the benefits of the waiver. With these reforms in place, the WTO’s LDC services waiver holds the key for Bangladesh to open doors for product and market diversification beyond its primary export of Readymade Garments.

[Rumana Islam is an Economist at Policy Research Institute (PRI). ruemiime@gmail.com.]