The proposed free-trade agreement (FTA) will benefit Beijing more than Dhaka as imports from the former are likely to increase further because of tariff waivers unless there are guarantee provisos with regard to striking a balance in the two-way trade.
Conversely, Bangladesh exports to China are unlikely to increase because of stricter Rules of Origin (RoO) on the Chinese market that made it hard for Bangladeshi manufacturers to maximize their business share.
China provides duty-free market access for major products of Bangladesh under its Generalised System of Preferences (GSP) for least-developed countries under WTO rules, Bangladesh has yet to reap much from the facility due to stringent RoO provisions that demand higher value addition to the exportable.
Currently, the level of RoO or local value addition is set at 40 per cent for getting duty-free market facility in China. It means Bangladeshi clothes or other exports should have at least 40 per cent local contents.
“Despite having duty-free access to the Chinese market, Bangladesh is yet to boost its exports there due to a higher requirement of local contents,” said Khondaker Golam Moazzem, additional research director of local think-tank Center for Policy Dialogue (CPD).
“If China relaxes the rules of origin, Bangladesh would be able to export much to the Chinese market,” said the economist, who rather put emphasis on Preferential Trade Agreement (PTA) with China-the rapidly-emerging global economic superpower.
PTA is a trade pact between countries that also provides preferential access to certain products from the participating countries.
According to experts, granting duty-free market access to China, under the new rules, is likely to affect government revenue as China is the topmost import source of Bangladesh and hence a strong contributor to overall customs revenue.
They suggested further studies to assess how it may impact the country’s budgetary position
According to Export Promotion Bureau (EPB) statistics, Bangladesh imported goods worth about $7.550 billion from China in the last fiscal (2013-14) while its export proceeds amounted to $746 million during the period, leaving a yawning trade gap in favour of China.
China has proposed to sign FTA with Bangladesh to promote trade and business between the two countries and thereby reduce the trade imbalance. Chinese Foreign Minister Wang Yi made the proposal last week during his visit to Dhaka and talks with his Bangladesh counterpart Abul Hassan Mahmood Ali.
China is also agreed to develop an ‘industrialized zone’ in Bangladesh and construct multimodal tunnel under the Karnaphuli River in Chittagong which will help facilitate the proposed rail and road connectivity along Chittagong-Cox’s Bazar-Myanmar-Kunming route.
China is country’s largest source of import and the major imports are raw materials and intermediates for the textile and garment industry. And these items already have duty-free access into the Bangladeshi market.
According to sources, the prospective FTA could then have little impact on garment manufacturers. “If the agreement opened up borders to Chinese textile and garment products, the domestic producers could face increased competition,” the economist said.
Experts are also of the opinion that tariff concessions, to be provided under FTA, would not help Bangladesh make inroads into the Chinese market unless they relax the conditions of Rules of Origin and make it simple, flexible and at par with other countries with which China has preferential trading arrangements.
“Bangladesh, having a narrow production base, will not be benefited much from the FTA unless there are some safeguards to protect the country’s interests,” said another economist, Dr Ahsan H. Mansur.
Dr Mansur, who is Executive Director of Policy Research Institute (PRI), prefers some sort of preferential agreements for this purpose.
According to experts, a contentious issue during FTA negotiations may arise due to the fact that both China and Bangladesh are efficient producers of textiles and garments. Entrenched lobbies may provide pressures against liberalising tariffs in these sectors.
The FTA, economists also apprehend, might have some adverse impacts on local industries and invite cheap Chinese products which are already reigning supreme on the local market.
Shops and stores in Dhaka, Chittagong and some even outlying cities sell everything: electronic goods, household appliances, motorcycles, garments, medicines and fake DVDs and bizarre toys.
They, however, welcome Chinese and joint-venture investment in manufacturing sector, especially in RMG, telecom and light engineering.
Sharing China’s advanced experience and expertise in agricultural production, manufacturing, sci-tech and mechanics might help elevate the country’s economy, they said.
Despite the disadvantages, they think, there is still scope for enhancing export of both traditional and non-traditional products if RoO is made flexible and preferential market access extended to other products.
Above all, they predict that the FTA would further consolidate and enhance the bilateral economic cooperation in terms of trade and business, investment and services.
Meanwhile, the country’s garment industry welcomed the Chinese offer, saying it could boost exports to the world’s second-largest economy that vies for the first position.
Bangladesh is the world’s second-largest garment exporter after China. “This FTA offer from China is a huge development,” said Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association which represents 4,500 textile factories.
“Its domestic garment market is worth over $300bn so one can imagine the kind of market access we have if Dhaka signs an FTA with Beijing,” he said.
Dr Ahsan H. Mansur, however, pointed out that it will also not benefit the country much as apparel products from Bangladesh have already got duty-free market access to China under the WTO rules.
Courtesy: The Financial Express