Bangladesh to lose 12% of its exports to RCEP: UNCTAD

Bangladesh will lose 12 per cent of its exports to the members of Regional Comprehensive Economic Partnership (RCEP) as lower tariffs would bolster trade between the partner states, and redirect it into the member countries from non-members.

The United Nations Conference on Trade and Development (UNCTAD) made the estimate in its latest report titled “A new centre of gravity: The regional comprehensive economic partnership and its trade effects” released on December 15.

With the representation of 15 countries, the RCEP -- the world’s largest trading bloc in economic size -- is set to become a new centre of gravity for global trade which will come into force from January 2022. The agreement encompasses several areas of cooperation, with tariff concessions being a central principle, which will eliminate 90 per cent of tariffs within the bloc.

The intra RCEP-trade had already been about $ 2.3 trillion in 2019.

Analysis shows that RCEP tariff concessions would further boost the intraregional exports of the newly formed alliance by nearly 2 per cent, approximately $ 42 billion.

This is the result of two forces: trade creation, as lower tariffs would stimulate trade between members by nearly $17 billion; and trade diversion, since lower tariffs within RCEP would redirect trade away from non-members to members, equivalent to nearly $ 25 billion, said the report.

Probable impacts on Bangladesh’s exports

The tariff concessions among RCEP members would divert trade from non-member to member economies. The magnitude of these effects for non-members is related to the exposure of each non-member economy to the RCEP area.

“The export losses to be faced by the countries such as Bangladesh, Pakistan and Sri Lanka are more significant when measured in percentage terms. In the case of Bangladesh, it is expected that about 12 per cent of its export to RCEP would be diverted to favour RCEP members,” the UN organisation prognosis states.

Bangladesh to face export diversion worth $ 468 million

According to the Export Promotion Bureau (EPB) data, Bangladesh exported goods worth $ 3.90 billion in Fiscal Year 2020-21. In line with the projection of UNCTAD, Bangladesh will lose exports of $ 468 million in case of trade benefits accrued to the RCEP members.

Of the RCEP members, Japan, China, Korea, Australia, Malaysia, Singapore, New Zealand are very crucial for Bangladesh for both import and exports.

On the other hand, other members such as Thailand, Indonesia, Vietnam and Myanmar are emerging export destinations for Bangladesh.

In FY21, Bangladesh exported goods worth $ 1.18 billion to Japan followed by China $ 681 million, Korea $ 399 million, Australia $ 834 million, Malaysia $ 307 million, Singapore $ 117 million, New Zealand $ 104 million, Vietnam $ 61 million, Indonesia $ 68 million, Philippines $ 75 million, Thailand $ 39 million and Myanmar $ 31 million.

How to evade export diversion

RCEP is set to become the world’s largest trading bloc with prominence in global trade. So, it is time for Bangladesh to engage with the bloc for sustaining its export growth and trade.

“RCEP is a big economic bloc and it maters a lot to us. In preferential trade agreement, we get duty benefits on a few products. A country offers trade benefits on only those products, bringing benefits to it,” Rizwan Rahman, president of Dhaka Chamber of Commerce and Industry, told The Business Post.

In averting the probable impact on exports, the Ministry of Commerce should think about signing agreement and try to join the RCEP in no time, suggested Rizwan.

“It is directly linked with our market diversification and LDC graduation. So, we have to improve our negotiation skills,” he pointed out.

“Trade diversion from non-member countries is expected as there are trade preferences among the member countries. The first and foremost step should be expediting the process of getting membership,” said Zahid Hussain, former lead economist of the World Bank, Dhaka.

“It will make our graduation from LDC smoother if we can have membership. So, trade agreement with the bloc can be another option.”

The seasoned economist argued that it is not the case of exports only, the RCEP is also very crucial for Bangladesh for foreign direct investment, technology sharing and structural transformations.

“Considering all these benefits, we cannot but join it.”

Md Abdus Samad Al Azad, Joint Secretary (FTA-2) of Commerce Ministry told The Business Post that the ministry was studying the merits and demerits of the RCEP agreement and prospects of Bangladesh’s joining with trade pact.

What is RCEP?

The concept of RCEP was planned in 2012 while a deal on it was signed in 2015. This free trade agreement includes 15 East Asian and Pacific Nations of different economic sizes and stages of development, representing around 30 per cent of world GDP.

RCEP members include China, Japan, South Korea, Australia, New Zealand and 10 members of the Association of South East Asian Nations (ASEAN): Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and the Philippines.

Trade among RCEP economies

The RCEP economies are already well integrated with one another. In 2019, Intra-RCEP trade represented about 50 per cent of the total trade of RCEP members, reaching nearly $ 2.3 trillion, or 13 per cent of global trade in goods.

Trade Effects

Overall, RCEP tariff concessions are expected to increase trade within RCEP member countries by nearly $ 42 billion, equivalent to almost 2 per cent. Most of the effects would be driven by the diversion of trade amounting to some $ 25 billion from non-member countries. Trade creation due to lower tariffs would contribute about $ 17 billion.

Who to gain more

Japan would benefit the most from RCEP tariff concessions, largely because of trade diversion effects. Its exports are expected to rise by about $ 20 billion, an increase equivalent to about 5.5 per cent relative to Japan’s exports to RCEP members in 2019.

Substantial positive effects are also found for the exports of most other economies, including Australia, China, the Republic of Korea, and New Zealand.

On the other hand, RCEP tariff concessions will result in lower exports for Cambodia, Indonesia, Philippines and Viet Nam.

The reason for this is the negative trade diversion effects as some exports of these economies are expected to be diverted to the advantage of other RCEP members because of the differences in the magnitude of tariff concessions.

Despite many exceptions exercised by member countries in liberalising their agricultural sectors, the effects on this sector should be relevant.

Agricultural trade is expected to see gains of about $ 10 billion, equivalent to an increase of 7 per cent. Most of this gain is expected to come from trade diversion effects from non-member countries.