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China-Bangladesh FTA--an overview

M S Siddiqui | Published: March 15, 2019 21:04:31


China has signed and implemented 16 Free Trade Agreements (FTAs) with its trade and investment partners including the Association of Southeast Asian Nations (ASEAN), Singapore, Pakistan, Maldives, Georgia, New Zealand, Chile, Peru, Costa Rica, Iceland, Switzerland, Hong Kong, Macao, South Korea, and Australia. It also signed Closer Economic Partnership Arrangement (CEPA)-- synonymous to FTA, in 2003 with the separate customs territories of Hong Kong and Macao under the "One Country, Two Systems" principle, in order to enhance economic cooperation as well as to promote trade exchange between the mainland, Hong Kong and Macao. In addition, 24 more FTAs between China and her trading partners are currently being negotiated.

The two South Asian countries, Pakistan and Maldives, have signed FTAs with China.  On December 7, 2017, Maldives signed an FTA with China. The China-Maldives FTA includes trade in goods, trade in services, investment and economic and technical cooperation with particular emphasis on liberalisation as well as facilitation of bilateral trade and investment. It also aims to strengthen practical cooperation between the two sides. On the other hand, Pakistan and China reached FTA in November 2006. It came into force in July 2007.

Bangladesh is enjoying preferential treatment from China under the APTA (Asia-Pacific Trade Agreement) and China's initiation of unilateral tariff liberalisation for least developed countries. Bangladesh has been enjoying duty benefits for 60 per cent or 83 products in the Chinese market. Bangladesh mainly imports machineries, cotton, consumer products and chemical products from China, while it exports jute, jute products, readymade garments and processed leather to China.

China formally proposed an FTA with Bangladesh in 2014. The Memorandum of Understanding (MoU) was signed in 2016 between the two countries. Now the FTA feasibility study is 'underway'. After completing all formalities, Bangladesh will sign the FTA with China. But Bangladesh is also pursuing China to improve trade facility and export apparel items more while seeking duty-free market access in China.

Market for foreign goods and services has been expanding in China as the country is slowly transforming into a consumption-driven, service-based economy. Bangladeshi exports to China are limited to leather, cotton textiles, fish, etc. The FTA with China will boost the number of Bangladeshi exports to China significantly, help create new industries and firms, and generate millions of jobs. The import of lower-priced goods from China will also be beneficial for consumers as well as manufacturers. Since China is gradually becoming a consumption-based economy, there will be greater demand for services. This can help Bangladesh earn more foreign currency. Bangladeshi industry and service sectors associated with agro-food, leather and textile, manpower and natural resources are expected to be among the biggest beneficiaries from an FTA with China.

The present cooperation between the two countries is aimed at increasing economic exchange and trade, building key projects in areas such as infrastructure, energy, electricity, transportation, information, telecom and agriculture, and strengthening practical cooperation under the BCIM Economic Corridor between Bangladesh, China, India and Myanmar. China now is the biggest trading partner of Bangladesh. But China reportedly does not want trade surpluses as its trading goal. In the future, China will import more competitive goods from Bangladesh. The signing of a free trade agreement between China and Bangladesh will provide the latter with more preferential goods, services and investments access to China.

Bangladesh's focus on FTA may include trade in investment, goods and services and movement of natural persons. Within the negotiation of trade in goods, a number of issues are to be taken into account which include tariffs, effective mechanism for removal of non-tariff barriers (NTBs), rules of origin, customs cooperation, safeguard measures, dispute settlement mechanism and institutional mechanism to oversee the implementation of the agreements.

Experts in Bangladesh and other countries are also in favour of an FTA between Bangladesh and China and also some other countries. In a theoretical study by the Centre for Policy Dialogue (CPD), an analysis was carried out to identify possible 'natural partners' for forming FTA with Bangladesh. CPD observed that countries being 'natural partners' for bilateral trade depends on mutual interest from both sides. Analysis shows that for Bangladesh, potential FTA partners could be Argentina, Brazil, Chile, China, Chinese Taipei, Malaysia, Mexico, Korea, Russia, South Africa and Ukraine.

In a 2017-study by CUTS, an Indian think tank, it has been observed that India, China and Bangladesh do not have any common products in the list of their top ten exporting products and, also, the degree of commonality and competition is very low. But the study mentioned that India should worry about this proposed FTA between Bangladesh and China. India's traditional ties with Bangladesh may be at stake from this agreement because its share of trade in Bangladesh may be captured by China sooner or later. Additionally, in future China's import demand of textiles and other products, most of which Bangladesh is exporting largely, may be further met by Bangladesh and, hence, the demand for Indian products of the same category in the Chinese market may decline. As a remedial measure, India should strengthen its trade relations with Bangladesh by strengthening its trade and investment promotion in the country. Bangladesh and India already have an FTA through the South Asia Free Trade Agreement (SAFTA).

For Bangladesh, an FTA with China represents a golden opportunity, giving her access to the world's third-largest economy after the European Union and the United States. It will also help level the playing field for Bangladeshi businesses vis-à-vis their Pakistani, Maldivian, Chilean, Costa Rican and Peruvian competitors.

Of course, there is a geopolitical equation and challenges will come from the US and India regarding the FTA between Bangladesh and China. India may consider the FTA between China and Bangladesh as the Chinese assertion in her backyard and a Chinese penetration into her sphere of influence in South Asia. On the other hand, the US may consider the FTA as the geostrategic obstacle in containing China at the Bay of Bengal and Indian Ocean region.

Bangladesh, perhaps, is the only country in the world with its present size and level of the economy which could not sign a single bilateral FTA till now. For this, its arguments are loss of revenue and absence of protection for local industries.

The argument that signing FTA with China or any other bigger economy will undermine the interest of local industries in Bangladesh is an age-old argument that bears no merit. Had this argument still been correct, no FTA would have been signed anywhere in the world.

Bangladesh should not expect any more duty-free and quota-free access to the markets of advanced economies for its exports. These types of facilities will now have to be negotiated with willing partners like China. A free trade accord with China, or any other country including India having strong trade ties with Bangladesh, will ensure that facility. Bangladesh should also look for FTA with USA and EU in order to compete with countries in Asia and Africa in these two markets.

 

M S Siddiqui is a legal economist.

mssiddiqui2035@gmail.com

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