Multilateral and Regional Trade Agreements: Options for Bangladesh

We analyze several trade liberalization scenarios for Bangladesh. Multilateral agreements in the framework of the WTO are compared with regional agreements in the framework of SAFTA. The paper argues that the imminent completion of the Agreement on Textile and Clothing (ATC) leads to a welfare loss for Bangladesh. Bangladesh’s textile and wearing apparel industries have by now free access to the EU, its most important export market. A further multilateral trade liberalization of trade in these products erodes the Bangladeshi position vis-à-vis its competitors. A simulation of the WTO proposals tabled by the EU and the USA shows that there is little reason to expect that the Doha Round will mitigate the situation for the Bangladesh garment industry. However, in terms of prospects for the garment sector, the EU proposal compares favourably to the USA proposal because it entails zero tariffs from imports from LDCs and it allows Bangladesh to protect its own industry. Due to unbalanced trade relations to its neighbour’s countries also the regional trade liberalization of the South Asian Free Trade Association (SAFTA) is not favourable. For the analysis we introduced economies of scale into the general equilibrium model of the Global Trade Analysis Project (GTAP).