Economic partnership with Japan to integrate Bangladesh into global value chain

A proposed Bangladesh-Japan Economic Partnership Agreement (EPA), with its draft covering 17 sectors including trade in goods, customs procedures, trade facilitation, investment, electronic commerce, among others, is expected to aid Bangladesh integrate into the global value chain.

Unveiling the draft at a press conference at the Secretariat on Wednesday, Senior Secretary Tapan Kanti Ghosh of the commerce ministry said, "As a result of this agreement, Bangladesh will be easily included in the global value chain. At the same time investment, and trade will increase."

Japanese Ambassador to Dhaka Iwama Kiminori, speaking at the press conference, said the agreement will facilitate the two countries' development.

Bangladesh and Japan have decided to enter into an EPA by December 2025 with the goal of boosting commerce and investment. The two countries have already completed a joint feasibility study on the matter.

The 17 sectors that were outlined in the draft EPA encompass trade in goods, incorporating trade remedies, rules of origin, customs procedures and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, trade in services, investment, electronic commerce, government procurement, intellectual property, competition/subsidies/state-owned enterprises, improvement of the business environment, labour, environment, transparency, cooperation, and dispute settlement.

Iwama Kiminori emphasised its potential to foster development in both countries, anticipating enhanced cooperation across various fields, including business investment.

The ambassador also emphasised that the EPA would be a mutually beneficial arrangement for both countries.

As per a Ministry of Commerce notification, on 12 December, the two nations released a joint declaration affirming the commencement of a joint feasibility study. The decision to elevate the bilateral relationship to a strategic partnership was made during the Prime Minister Sheikh Hasina's visit to Japan on 25-28 April.

The joint study group report meticulously assessed the current status in diverse sectors of both countries, and its completion involved active participation from government, private sector, academia, and business representatives.

According to Bangladesh Bank data, Bangladesh's imports from Japan amounted to about $1.85 billion in the fiscal 2018-19. They slightly declined in FY20 due to the global outbreak of Covid-19, but turned upward again after FY21, reaching about $2.43 billion in FY22.

One of the characteristics of the bilateral trade structure between Bangladesh and Japan is that imports from Japan to Bangladesh are mainly industrial products such as steel, machinery, and automobiles, while imports from Bangladesh to Japan are mainly textiles and textile articles.

According to the Bangladesh Bank, in FY22, Japan stood Bangladesh's 12th largest trading partner in exports with a share of 2.3% and 7th largest trading partner in imports with a share of 3.2% share.

Bangladesh will graduate from the LDC status in November 2026 and will no longer be eligible for preferential tariffs. This could have a significant impact on bilateral trade. In addition, Bangladesh is negotiating FTAs with some countries in anticipation of LDC graduation, and Japanese companies have voiced concerns that trade with Japan will be affected if FTAs with other countries such as China, South Korea, India, and ASEAN are concluded ahead of Japan.

Trade in services is also an important issue. Total exports in services from Bangladesh to Japan have tripled over the past decade. The possible Japan-Bangladesh EPA is expected to increase bilateral trade in services.

Current situation of bilateral investment

Foreign direct investment flow to Bangladesh has increased over the past decade, reaching its highest ever at $3.7 billion in 2019 and $3.44 billion in 2022, a 72% increase over the previous year and double the amount 10 years ago. On the other hand, the ratio of outward direct investment to GDP has remained below 1%, and improvement of the investment environment by the government of Bangladesh is expected to further promote investment.

The direct investment from Japan to Bangladesh in FY2022 is the largest ever recorded at $122.72 million which was $49.87 million in FY21. The FDI stock from Japan in December 2022 was $675.69 million. In addition, the number of Japanese companies operating in Bangladesh has tripled over the past decade to 302 in 2022. Further expansion of investment in Bangladesh from Japanese companies is expected through the Bangladesh Special Economic Zone, which partially opened in December 2022 with the cooperation of Japan, the Public-Private Joint Economic Dialogue, and the Bangladesh-Japan joint Public Private Partnership Platform.