Bangladesh, China to finalise FTA feasibility study soon

Bangladesh and China have exchanged a draft feasibility study report on signing a free trade agreement (FTA) between the two countries.

A joint working group will meet in Dhaka soon to expedite the finalisation of the feasibility study, said officials concerned.

The two countries exchanged the report at a ceremony held at the Ministry of Commerce in Dhaka today (28 March). Chinese Ambassador to Bangladesh Yao Wen and Commerce Secretary Tapan Kanti Ghosh attended the programme.

Speaking at the programme, the commerce secretary said China is a promising area for the expansion of Bangladesh's trade as it is the world's second-largest economy and a significant commercial partner for it.

There is potential for the development of Bangladesh-China relations not only in terms of goods but also in services and investment, he said.

"With this in mind, both countries have taken the initiative to sign a bilateral free trade agreement primarily aimed at enhancing trade and investment between Bangladesh and China."

As part of this initiative, during a visit of the Chinese president to Bangladesh on 14-15 October 2016, a memorandum of understanding was signed to explore the possibility of a bilateral FTA, the commerce secretary mentioned.

Tapan Kanti said as a follow-up step towards the implementation of the signed MoU, the joint working group was formed to oversee the assessment of potentialities in both countries. In this context, the inaugural meeting of the working group on the assessment of potentialities about the Bangladesh-China potential free trade agreement was held in Beijing, the capital of China, on 20-21 June 2018, he said.

In line with this continuity, the group responsible for overseeing the assessment of potentialities has prepared and presented the feasibility study report, said the commerce secretary.

"Although progress has not been made on this issue due to the Covid-19 pandemic, both countries independently prepared their respective parts of the joint potential assessment report."

Referring to the exchange of the draft feasibility study report, Bangladesh-China Chamber of Commerce and Industry Secretary General Al Mamun Mridha told TBS, "Chinese investment is increasing in Bangladesh. Without the option of signing the FTA, obtaining significant investment from China is not feasible."

Moreover, along with the increase in Chinese investment, Bangladesh's exports will also rise in the country, he said. Ensuring duty-free access to China post-LDC graduation leaves no alternative to signing the FTA, Mamun added.

"It takes many years to complete FTA negotiations. Bangladesh still has about two and a half years before its graduation. Therefore, it would be beneficial for Bangladesh to initiate FTA negotiations with potential export and investment partners sooner rather than later," said Mamun.

According to Bangladesh Bank data, in the fiscal 2022-23, Bangladesh imported goods worth $17.82 billion from China, making it the largest source of imports for the country. However, according to data from Chinese customs, the amount is reportedly over $25 billion as stated in several events by the Chinese Embassy in Dhaka.

On the other hand, according to Export Promotion Bureau data, Bangladesh's exports to China were $683 million in FY23. Although the country provides duty-free access to 98% of products, Bangladesh's exports to China are not increasing.

Similar deals with other countries

Ahead of LDC graduation, Bangladesh has initiated efforts to sign FTAs and PTAs (preferential trade agreements) with various countries and regions. Before graduation, the commerce ministry pursued initiatives to sign FTAs with Japan, Canada, India, China, South Korea, and Australia.

Commerce ministry officials said formal negotiations have commenced towards signing a comprehensive economic partnership agreement with India and an economic partnership agreement with Japan. Consequently, they believe there is a higher likelihood of signing FTAs with these two countries before signing an FTA with China.

According to the latest commerce ministry data, 12 countries and regions, including the EU, account for 91.31% of Bangladesh's total exports.

Of them, all but two countries – the US and the UAE – currently provide the Generalised System of Preferences, or GSP, to Bangladesh.

Bangladesh will continue to enjoy the GSP facility in the EU, Turkey, and the UK until 2029. Around 56% of Bangladesh's exports were made to these three markets.

But, the special duty-free trade facility in the remaining seven major export destinations — India, Japan, Canada, Australia, China, Russia, and South Korea — which account for 17% of Bangladesh's total exports will expire once the country graduates to the group of developing nations in 2026.

Both China and India are the major sources of Bangladesh's imports as these two countries cater for more than 40% of Bangladesh's total imports.

The majority of import goods, sourced from these countries, are intermediate and capital goods.  

Nevertheless, revenue collected from imports from China and India accounts for a significant portion of the country's total tax revenue, amounting to Tk32,632 crore, which is 43.7% of total import stage revenue, in the last fiscal.

Commerce ministry officials said a reduction in the landed cost of intermediate and capital goods through duty reduction under FTAs with China and India may accelerate economic activities in Bangladesh. On the other hand, such an arrangement will increase competitive pressure on domestic industry and lead to revenue loss from imports