ISFTA: Lessons for Bangladesh

Abstract

Global financial crisis has offered many lessons for the developing economies. Regional trade network in South Asia is weak compared to many other regional trading blocs of the world. It is the size of the domestic markets that matter especially at the time of crisis. Trade theorist Michael Porter pioneered that the competitive advantage of nations is created and sustained through a highly localized process: the nature of home market demand for industry’s product or service. In the aftermath of the financial crisis, countries need to expand the size of its domestic market with more regional economic integration. Economic integration does provide the solution to enhance and enlarge the size of the domestic markets; like in case of the European Union (EU), economies associated with EU operate as a domestic market. Similar benefits can be attributed in the case of bilateral Free Trade Agreements (FTAs) in South Asian Association for Regional Cooperation (SAARC) region or at the level of South Asian Free Trade Area (SAFTA). This will assist and facilitate economies to recover by means of engaging themselves in regional trading agreements. The recent Revised Sensitive Lists under SAFTA (Phase II) announced on January 1, 2012, by India, Sri Lanka, and Bangladesh is examined here with a special attention to the India-Sri Lanka Free Trade Agreement (ISFTA). In the current context of ongoing negotiations on Bangladesh-Sri Lanka and Indo-Bangladesh bilateral FTA, paper advocates for the gains in reducing sensitive list because it gives fresh impetus in terms of providing new technology, expansion of the international markets, and new opportunities for investment. The local business entrepreneurs in Bangladesh raise the fear of losing local industry and agro-activities, but Bangladesh may also realize the intra-SAARC trade, differently. Instead of trade competition, Bangladesh may look for intra-industry/intra-business compliments as is evident in the case of ISFTA. Sensitive lists are one of the prime reasons for the slow speed of SAFTA and other respective bilateral FTAs. The prime hypothesis of this paper is around the argument that the bilateral FTAs in South Asia are going to move SAFTA ahead which leads to more trade and investment even in the post-financial crisis-damaged markets. The paper adds new dimension in the field of South Asian economic integration through examining how boosting trade and investment are linked with the bilateral FTA. It may also pave the ways for Bangladesh to enter into bilateral FTAs with India and Sri Lanka.