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Bangladesh postpones joining China-led RCEP, other blocs

The Financial Express - 13 October 2023

Bangladesh postpones joining China-led RCEP, other blocs

Bangladesh will not join the Regional Comprehensive Economic Partnership (RCEP), world’s largest regional free-trade bloc led by China, or any other grouping before the forthcoming general election.

"We have decided not to join RCEP or any international platform before the next elections," Foreign Minister Dr AK Abdul Momen told The Financial Express on Thursday.

However, in August this year, an inter-ministerial meeting recommended joining the trade bloc, which encompasses nearly a third of the globe’s population and gross domestic product, as an assessment suggested that joining would increase Bangladesh’s exports to the global market by more than 17.37 per cent.

The foreign minister also acknowledged the potential gains, as he said Bangladesh would automatically gain preferential trade access to many countries if it joined the RCEP.

"But we are not joining the platform right now," he said, adding that decisions in this regard will be finalised after the elections, due around this yearend.

Bangladesh first expressed interest in joining the grouping in 2022. Prior to that, the country had not shown any inclination to join the bloc as it focused on safeguarding its revenue from imports.

Besides, none of the would-be RCEP signatories had invited Bangladesh to join their ranks before the bloc’s launch in November 2020.

In 2020, China initiated the RCEP as a free-trade agreement among the 10 Association of Southeast Asian Nations (ASEAN) states and Australia, India, Japan, South Korea and New Zealand.

The RCEP deal, which took effect in January 2022, is considered a comprehensive Free Trade Agreement (FTA) involving ten member-states of the Association of Southeast Asian Nations and its five FTA partners.

The ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, while its FTA partners are Australia, China, Japan, New Zealand and Korea.

Neighbouring India was initially in RCEP talks, but it eventually backed out.

Earlier this year, Bangladesh conducted a thorough examination and evaluation of joining the trade bloc based on commitments fulfilled by Vietnam-a member of the bloc and also a key export competitor of Bangladesh.

In August, the commerce ministry reiterated its intention to join the RCEP in a bid to address post-LDC-graduation challenges after gathering feedback from experts and stakeholders.

Currently, Bangladesh benefits from preferential market access to many of the RCEP countries, either through Preferential Trade Agreements (PTA) or through Generalized System of Preferences (GSP) facilities.

After graduating from Least Developed Country (LDC) status in 2026, duty-free access will no longer be available except for reciprocal general preferences under the Asia-Pacific Trade Agreement (APTA).

In such a scenario, sustaining the consistent progress achieved by Bangladesh in bilateral export trade with some of the RCEP countries, as well as seizing opportunities in potential RCEP destinations, will be a significant challenge.

According to the commerce ministry, Bangladesh’s commercial and strategic importance will receive a substantial boost in the regional and international environment if Bangladesh becomes a member of the bloc.

An assessment by the Bangladesh Trade and Tariff Commission in 2022 indicated that Bangladesh’s trade with RCEP-member countries is predominantly focused on goods.

It noted that Bangladesh’s exports could increase by 17 per cent and gross domestic product (GDP) could rise by 0.26 per cent if a free-trade agreement is signed with the bloc members.

The RCEP bloc comprises around 30 per cent of the global GDP and about a third of the world’s population. This economic cooperation forum spans the Asia-Pacific realm, covering 2.3 billion people and accounting for US$ 25.8 trillion or roughly 30 per cent of global GDP.

Besides, it accounts for $12.7 trillion or over a quarter of global trade in goods and services, and 31 per cent of global foreign direct investment (FDI) inflows.

In FY21, Bangladesh exported goods worth $3.9 billion and imported goods worth $24.5 billion. At the same time, the services export was $1.8 billion and imports were worth $2.6 billion.

The Trade and Tariff Commission study notes the RCEP includes some of the major export destinations as well as major import sources of Bangladesh. "Considering the bilateral-trade scenario, RCEP remains more as an important partner from the Bangladesh perspective."

Imports from RCEP contribute around 43.92 per cent of the total global imports by Bangladesh, 55.33 per cent of the total tax-revenue and 58.56 per cent of total revenue from customs duty collected under home consumption, as of FY21.

Thus, the probable accession of Bangladesh to RCEP may, however, have a negative impact on revenue generation from customs duty. Since some major import sources of Bangladesh like China, Japan, Thailand, South Korea, Indonesia, Malaysia and Australia are involved with RCEP, there is a threat of losing a certain amount of revenue from these countries, according to the study.

More than 68 per cent of total merchandise exports to RCEP are under the apparel-product category. The top twenty export items to RCEP mostly consist of apparel products, and these twenty products constitute 64 per cent of the total exportable.

The study found that the average most-favoured nation (MFN) tariffs for Bangladesh have been comparatively higher than those of the RCEP members.

It says the probable increase in imports along with a comparatively protective regime of Bangladesh estimated a probable high revenue loss for Bangladesh compared to that of the RCEP.

"However, as estimated trade creation would likely be higher than the trade-diversion effect for Bangladesh, it may generate additional revenue from other duties and charges, if not reduced due to a possible accession in RCEP," the study mentions.

The Trade and Tariff Commission recommended that the government may express its positive stance regarding the accession of Bangladesh to RCEP through weighing all the pros and cons. In that case, domestic rules and regulations may need to be changed in some cases, if a situation arises.

 source: The Financial Express