Bangladesh has decided to join the world's largest trading bloc, the Regional Comprehensive Economic Partnership (RCEP), in principle as the move is expected to unlock numerous trade and investment benefits for the country.
The decision came at an inter-ministerial meeting held at the Ministry of Commerce yesterday. Participants however have laid emphasis on improving competitiveness to gain from the block before official joining.
Senior Commerce Secretary Tapan Kanti Ghosh presided over the meeting while Additional Secretary Noor Md Mahbubul Haq and senior officials of different ministries and organisations including Commerce Ministry, Finance Ministry, Agriculture Ministry, Ministry of Law, Justice and Parliamentary Affairs, Bangladesh Bank, and National Board of Revenue (NBR), were present on the occasion.
Most of the participants in the meeting gave their opinion in favour of joining the RCEP. A study report reviewing the pros and cons of joining the bloc was presented at the meeting. The report made positive recommendations for joining the RCEP.
Bangladesh has to be well prepared for the transition to a developing country by 2026. After attaining developing country status, Bangladesh would lose several trade benefits from its global partners. Experts have been calling for regional and bilateral free trade agreements to absorb post-graduation challenges.
Last year, the Bangladesh Trade and Tariff Commission (BTTC) carried out a comprehensive feasibility study on the proposal to join RCEP, which comprises 15 major trading blocs led by China. During this stage, the study thoroughly examined the various conditions and weighed the pros and cons associated with such a move.
As per the regulations of the RCEP, any country is eligible to seek membership in the bloc starting 18 months after the initiation of their joining process. Consequently, interested countries can submit their applications for RCEP membership from June 2023 onwards.
A senior official of the commerce ministry said that Bangladesh is preparing to join this large alliance. Since the inter-ministerial meeting has come up with a positive opinion. Application will be made at the end of all the processes.
The ministry is already formally reviewing the commitments that Bangladesh needs to fulfil in order to join the World Bank. As a part of this, the ministry has analysed Bangladesh with the countries of the same level of economy. Especially, accession to RCEP including analysis of flexibilities allowed to Laos, Cambodia, Myanmar and Vietnam advantages and disadvantages of acceding to RCEP.
The tariff commission has examined the pros and cons of joining the RCEP in its study. If Bangladesh becomes a member of the RCEP, its exports to the global market are projected to surge by 17.37 per cent, exceeding $5 billion.
However, a significant portion of this export growth will be driven by the ready-made garment industry, leading to an estimated 18 per cent increase in demand for both skilled and unskilled workers in this sector. Overall, joining the RCEP is expected to boost the country's GDP by 0.23 per cent.
Furthermore, the report indicated that industrial production in sectors other than the ready-made garment industry might experience a decline. Additionally, Bangladesh's income from import duties is expected to decrease. While consumers are poised to benefit from the country's inclusion in the RCEP, producers may face challenges and potential setbacks.
On November 15, 2020, the 15 countries – China, Japan, South Korea, Australia and New Zealand; 10 members of the Association of Southeast Asian Nations (Asean): Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines – have signed RCEP, the world's largest free trade agreement that covers 2.2 billion people with a combined GDP of $26.2 trillion.
Speaking to The Business Post, Commerce Ministry’s Joint Secretary Md Abdus Samad Al Azad said, “By becoming a part of the RCEP, Bangladesh stands to gain duty-free privileges, reciprocated by the member countries. This move may initially lead to a decrease in short-term revenue income. Nevertheless, in the long run, the country is expected to reap enhanced revenue benefits.
However, before joining the RCEP, comprehensive preparations are necessary, including capacity building in specific sectors. This association should foster export diversification and necessitates mutual recognition and standardization measures. One promising outcome of joining this bloc is the potential increase in export-oriented investments.”
As the inclusion of countries like Japan and Australia in the bloc, there is a valuable opportunity for gradual capacity building. Likewise, countries like Cambodia and Laos also present potential prospects. However, it is crucial to acknowledge that preparations need to commence immediately in order to seize these opportunities effectively, he added.
Sources said that joining the RCEP will increase the global import of Bangladesh by 14.46 per cent. This liberalization of trade regime will affect many domestic industries. Those industries will no longer be protected as they are now. Imported goods can take some places especially in textiles, leather goods, transport equipment, metal products, paper, light engineering, chemicals, pharmaceuticals and manufacturing sectors.
Among the 15 countries of RCEP, Bangladesh gets duty-free export facility to Australia, Japan, New Zealand, China, South Korea and Thailand. After transitioning from LDC in 2026, Bangladesh will lose this advantage in these countries. Joining RCEP will continue to provide export benefits to these markets. On the other hand, there will also be benefits of increasing manpower exports and increasing remittances.
Based on the data from the 2020-21 fiscal year, RCEP countries contributed significantly to Bangladesh's economic activities, constituting 43.92 per cent of total imports, 55.33 per cent of tax revenue, and 58.56 per cent of customs duties.
Within the 15 RCEP countries, China accounted for a substantial 45 per cent of Bangladesh's total imports and 44 per cent of its revenue. Joining this bloc entails the risk of losing a substantial portion of customs duties.
Furthermore, even after the LDC status is passed, additional duty losses might occur. It is imperative to begin preparations now to bolster the capacity for duty-free trade.