Bangladesh holding free trade talks with 11 countries

Bangladesh is discussing free trade agreements with 11 countries, Prime Minister Sheikh Hasina said in an exclusive interview, as the South Asian country seeks new means to promote exports once preferential tariff exemptions expire in three years.

The prime minister spoke with Nikkei Asia at her official residence in Dhaka ahead of a visit to Japan — her first in four years — that starts next Tuesday. During the trip, Hasina and Japanese Prime Minister Fumio Kishida are expected to agree to upgrade bilateral ties to a “strategic comprehensive partnership.” This comes as Japan ramps up infrastructure investment in the strategically situated country on the shores of the Indian Ocean, countering China’s Belt and Road Initiative.

Hasina said Bangladesh will be facing a “very different situation” once it completes the transition out of “Least Developed Country” status — a United Nations classification that exempts the poorest nations from tariffs on exports to developed countries.

The nation of around 170 million people has met the criteria for graduating and will lose the privileges in 2026. “Therefore we have taken the initiative” to pursue a range of trade deals, Hasina said. “We want to sign these FTAs so that we can increase our business and trade. At present, with 11 countries, we are discussing.”

Bangladesh currently has limited trade agreements with other developing countries, but no FTAs. Hasina did not name the potential new partners but they are expected to include India, China and Japan. Dhaka and Tokyo began joint studies on an FTA at the end of last year.

Bangladesh is the world’s second-largest exporter of garments after China. These products account for 80% of its exports, however, making diversification a priority. Hasina pointed to food processing and digital equipment as promising areas. She also highlighted the resources of the Bay of Bengal, including fisheries.

“Now we want to explore how we can use [the bay] for our economic development,” she said.

Meanwhile, major powers see the bay and Bangladesh in particular as increasingly important from a strategic standpoint. Washington, New Delhi and Beijing are all keen to expand their influence in the country. Hasina, for her part, expressed a commitment to neutral diplomacy.

“Our priority is how we can develop our country,” she said. “For our development, I believe that we should have a good relationship with every country.”

Ties with Japan have been instrumental to the development story so far, Hasina stressed.

In September 2014, then-Prime Minister Shinzo Abe pledged 600 billion yen ($4.4 billion at the current rate) worth of financial assistance over four to five years. Yen loans over the next seven years far exceeded the promised amount, totaling 1.65 trillion yen.

With Japan’s assistance, Bangladesh at the end of 2022 opened its first metro rail line as well as its first industrial park with infrastructure up to international standards. A new terminal under construction at Dhaka’s international airport is also expected to be run by a Japanese consortium. In addition, in the Matarbari district in the south, Japan is leading and funding the development of Bangladesh’s first deep-sea port.

“For infrastructure development, for economic cooperation, Japan has been very cooperative and supportive to Bangladesh,” Hasina said during the interview.

For Japan, there are at least two big considerations that make Bangladesh so attractive.

The first is growth. Thanks to a combination of garment exports and remittances from Bangladeshi nationals working overseas, the country in recent years has typically posted gross domestic product growth in the 6% to 7% range. It even logged a positive result for the year through June 2021, during the height of the COVID-19 pandemic.

The World Bank forecasts the growth rate for the current fiscal year also will be relatively strong, at 5.2%. Some argue that the nation has replaced troubled neighbor Myanmar as “Asia’s last economic frontier.”

Then there is the country’s position as a potential China buffer, not only due to geography but also history.

When Bangladesh broke away from Pakistan in 1971, China backed the latter, objecting to the nascent state’s independence and membership in the U.N. In contrast, Japan was among the first to establish diplomatic relations with Bangladesh.

Although Chinese investment and loans to Bangladesh have increased in recent years, Hasina and her Awami League — the ruling party founded by her father, Mujibur Rahman, the first president of Bangladesh — appear wary.

The port at Matarbari is a case in point. Dhaka moved forward with a Japanese proposal rather than building a Chinese-backed port just down the road.

Japan has made little secret of its hopes for Bangladesh as a linchpin of a “free and open Indo-Pacific” — a euphemism for efforts to stave off Chinese hegemony. Kishida’s government recently unveiled a plan to build a South Asian industrial value chain by using Matarbari Port, scheduled to open in 2027, as a gateway to the Bay of Bengal for India’s landlocked northeastern states.

As Hasina put it, investors in Bangladesh “can have access to other countries also.”

In addition, Japan envisions Bangladesh as one of four potential recipients in the first year of its new Official Security Assistance (OSA) program, under which military equipment will be provided to friendly countries for free.

Of course, Bangladesh is not without its problems.

In January, Dhaka secured $4.7 billion in assistance from the International Monetary Fund to cope with shrinking foreign reserves amid rising import costs. Yet, at $32.2 billion, its official reserves in January were still enough for five months of imports, while external debt remained at about 20% of GDP. Since both figures were outside the danger zone for developing countries — three months and 60% — the IMF’s support can be viewed as precautionary.

There are also concerns about the state of democracy under Hasina’s Awami League, which is often accused of suppressing the opposition and media. The U.S. has expressed concern about human rights in Bangladesh and did not invite the country to the Democracy Summit the Joe Biden administration launched in 2021 and held again last month.

Hasina, who has always denied allegations of authoritarianism, insisted she is “here to protect democracy.”

Bangladesh has experienced repeated political interventions by its army. Hasina’s father was assassinated in a coup in 1975. Asked about building trust with the military, she emphasized the importance of showing them the fruits of economic growth. The army recognizes “the progress I made for them,” she said.

Right now, the actions of a military beyond its borders are straining Bangladesh. The country hosts one of the world’s largest refugee settlements in Cox’s Bazar, with around 1 million people — mainly Rohingya Muslims — who fled violent persecution by the army in Myanmar. Dhaka says this is a burden it cannot afford.

“Now, all the support we used to receive from the outside world, it is actually declining,” Hasina said. She called for cooperation in creating an environment for the safe and early return of the refugees to Myanmar, though that may be a remote prospect under the military regime that seized power there in early 2021.