Bangladesh-China FTA: Facts and issues

Sultana Yesmin | Published: November 25, 2018 20:45:05 | Updated: November 28, 2018 20:27:45

A free trade agreement (FTA) comprises a set of rules between two or more countries with a particular focus on economic benefits and trade facilitation between or among agreed parties. FTA, generally legally binding for signatory parties, includes the elimination of trade barriers that impede the flow of goods, services, labour and capital between signatory parties. FTA also covers simplification of the practices of import, export, transit and transhipment, increased market access for goods and services, facilitation of transparent, flexible rules of origin etc.

Free Trade Agreements (FTAs) are perceived as a significant platform for implementing China's opening up to the outside world. It also attempts to facilitate China's integration into global economy through strengthening its economic ties with other economies. To date, China has signed and implemented 16 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 is to be noted that the Closer Economic Partnership Arrangement (CEPA)-- synonymous to FTA-- has been signed in 2003 by the Central Government of China 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 promote trade exchange between the mainland and Hong Kong as well as Macao. In addition, 24 more FTAs between China and her trading partners are under construction through negotiations.

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

Now, it is important to examine the status or progress of Bangladesh-China FTA that has been a subject of a lot of discussions. If we take a look back, Chinese Foreign Minister, Wang Yi, during his visit to Dhaka from December 27 to 29, 2014 proposed for the negotiations on Bangladesh-China FTA with a particular emphasis on decreasing Bangladesh's trade imbalance with China. The bilateral talks on FTA further came into attention to the policymakers during the Chinese President Xi Jinping's two-day landmark visit in Bangladesh on 14-15 October, 2016. Following the visit, the two sides inked a memorandum of understanding (MoU) on the establishment of China-Bangladesh FTA in order to promote balanced development of their bilateral trade ties. In this regard, both countries have formed joint feasibility study on the possibility on inking an FTA, though the bilateral studies have come up with little progress.

As far as the free trade is concerned, there are two schools of thoughts that assess the prospects and challenges of Bangladesh-China free trade. One of them explains free trade between Bangladesh and China as huge opportunities for both sides. Experts in this school perceive that free trade can reduce Bangladesh-China trade gap through diversifying export products as well as significantly boosting Bangladesh's exports to China. Therefore, signing of FTA with China can provide trade facilitation as well as easy access to Chinese markets with the speedy flow of preferential goods and services access to China.

Investment is one of the significant aspects of FTA that will boost the possibility of increasing Chinese investment in Bangladesh. It may generate job opportunities through building new industries and firms. Large number of investments can be drawn from signing FTA with China if trade deals are practical and reasonable. Therefore, experts also hope that Bangladesh's initiatives of signing FTAs with several countries China, Bhutan, Thailand, Turkey, India, Malaysia, Sri Lanka and Nepal can boost trade and investment ties with these countries. Hence, following China's increasing demand, Bangladeshi sectors associated with agro-food, leather and textile, manpower and natural resources can be benefited from FTA with China. In addition, consumers as well as manufacturers will also be benefited due to the import of lower-priced goods from China. For this reason, consumer purchasing power will be increased following the availability of resources or products decreasing the inflation rate.

Experts in favour of FTA also argue that rather than the level of economy, the pattern of bilateral relation matters a lot in free trade as FTAs are generally signed among big trading partners. As China is Bangladesh's largest trading partner, signing of FTA can promote two-way trade. Trade analysts, in this regard, raise the issue of Bangladesh's not signing FTA with any country. Experts say, as a result, Bangladesh will lose its competitive advantage to other countries especially with its largest trading as well as business partners.

On the other hand, according to FTA pessimists, the free flow of Chinese goods into Bangladeshi markets through the elimination of import tariffs and duty-free market access will cost huge revenue loss for Bangladesh. Therefore, Bangladesh's insignificant trade performance with China is also one of the major issues of concern to the policymakers in the event of   unrestricted flow of Chinese products to Bangladeshi markets.

Arguments against free trade also point out the impacts of Bangladesh-China free trade on specific domestic industries. Trade analysts and economists, alike, fear that without protectionist measures local industries may be affected causing disruption to domestic industrial growth.

However, given the pros and cons, policymakers have come up with some recommendations regarding Bangladesh-China FTA mentioned below:

Experts suggest that feasibility studies need to be conducted properly from both sides in order to analyse the probable request list and offer list of goods and services as well as to address the issues of concern for Bangladesh, such as, revenue loss, adverse impacts on local industries, as well as bilateral trade deficit etc.

It is pertinent to mention that in view of Bangladesh's graduation from LDC status, expectedly in 2024 along with three-year transition in 2027 as well as its prosperous economic growth,  the country will lose its preferential duty facilities in all its exports provided by various developed and developing countries. The country will also have to face additional tariffs on its exports because of its graduation. It is thus crucially important to strengthen Bangladesh's economic capacity, diversify its export basket, develop infrastructure, and increase its export performance.

It is to be mentioned that with the rise of new FTAs and regional trade agreements (RTAs), Bangladesh is losing its competitive advantage in international markets, especially with her trading partners in the Asian region, including China. For example, many products coming from other Asian countries including Pakistan in Chinese markets are comparatively competitive than Bangladeshi products while Bangladesh could easily capture those advantages with both reasonable prices and quality. However, Bangladesh needs to strengthen its export performance with China so that the former can be benefited once the free trade is signed with the latter.

Bangladesh thus needs to engage in negotiations with China in order to pursue its long-term economic gains from FTA with her largest trading partner. Through the negotiation process Bangladesh can explore how best to attain the gains from free trade while averting the risk of economic losses.

Sultana Yesmin is a Ph.D Candidate, School of Politics and International Studies (SPIS), Central China Normal University, Hubei, China.


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