Bangladesh in RCEP: How can it benefit us?

Illustration: TBS

Being one of the fastest-growing economies in the world, Bangladesh is paving its way towards becoming the next Asian Tiger. It is expected to be the 25th largest economy in the world by 2035, according to the Bangladesh Investment Development Authority (BIDA). 

Since Bangladesh is going to graduate from Least Developed Country (LDC) status by 2026, joining the world's largest free trading block known as the Regional Comprehensive Economic Partnership (RCEP) has become imperative to accelerate the resilient track record of its growth dynamics. 

The RCEP free trade agreement was formed, including 10 member countries of the Association of Southeast Asian Nations (ASEAN) and five Free Trade Agreement (FTA) partners of ASEAN. Signed in November 2020, RCEP aims to eliminate 90% of tariffs in trade between member nations within 20 years. The member nations cumulatively accommodate a third of the world's population and account for a third of the global GDP. 

The prospect of joining such a large group of emerging economies will open the doors to ample opportunities for Bangladesh in terms of expanding trade volume and attracting foreign direct investment (FDI) from the eminent growing economies of the world.

Currently, the major export destinations for Bangladesh are the European Union, the United Kingdom, the United States, and Canada, from where it receives GSP facilities, and it is supposed to avail of this facility until LDC graduation in 2026. Under the ASEAN Free Trade Area (AFTA), Bangladesh received duty-free access to trading more than 60% of commodities with China, along with 30% local value addition. 

Coming out of AFTA, it made a bilateral trade deal with China to get duty-free access on almost 98% of products with 40% local value addition. After LDC graduation, Preferential Trade Agreements (PTAs) and Free Trade Agreements (FTAs) will be necessary for Bangladesh to persist in its competitiveness in the international market. 

At present, Bangladesh achieved the highest export earnings worth $2 billion to Japan and $700 million with China in the Asian belt. Though Bangladesh will continue receiving duty-free access from the EU until 2029 and from Australia until 2033, it will lose this facility from the member countries of ASEAN after graduating from least-developed country status. Therefore, moving forward towards the path of export market diversification is indispensable for Bangladesh. 

Moreover, developed economies like the European Union and US markets tend to grow at a slower pace as these markets have already achieved an optimal level of growth. On the contrary, emerging economies like ASEAN countries are growing rapidly, and within the next 20 years, these economies will remain at the centre of the global economy. Joining RCEP can play a crucial role in creating opportunities for developing countries like Bangladesh.

Sri Lanka and Hong Kong have already applied for membership in this largest FTA. Bangladesh has started to conduct inter-ministerial meetings and discussions analysing all the benefits and shortcomings associated with the case of gaining membership in RCEP. 

According to a study conducted by the Bangladesh Trade and Tariff Commission run under the Ministry of Commerce (MOC) in 2022, becoming a member of RCEP will enable Bangladesh to increase its export earnings by $5 billion, which will accelerate a 70% increase in exports. Moreover, for the removal of GSP facilities with LDC graduation, Bangladesh will be faced with a decrease in $7 billion in export earnings. Under this instance, RCEP will work as a getaway towards maintaining the trade balance for Bangladesh.

What benefits will Bangladesh receive from joining RCEP?

By becoming a member of the world's biggest free trading block, Bangladesh will be able to trade under a unified system and gain access to a large market. Vietnam, being the greatest ready-made garments (RMG) export competitor of Bangladesh, will continue to have duty-free access as a member of RCEP. In contrast, Bangladesh will lose international market share by not joining RCEP, according to the Ministry of Commerce of Bangladesh. 

Having a comparative advantage in the apparel industry, joining the RCEP would help Bangladesh tap into both the Chinese and Japanese markets and strengthen its position as the top apparel exporter. 

In addition to this, 90% of merchandise trade is projected to have a zero-tariff facility in RCEP. This deal will also reduce non-tariff barriers such as subsidies, customs delays and other technical barriers. 

Suppose Bangladesh does not join RCEP. In that case, it will require pursuing bilateral trading agreements with the member countries of RCEP, which is associated with complex and time-consuming negotiations that have a low probability of coming out as successful trade agreements.

Apart from this, according to a report of November 2021 in The Diplomat, Bangladesh will receive a $3 billion valuation within 2024 in its e-commerce industry and, in turn, gain access to the largest e-commerce marketplace in South Asia. It is predicted that Bangladesh will have a stronger supply chain in the e-commerce industry as it will be able to ensure production at a comparatively lower cost than the other member nations of RCEP.

At present, Bangladesh is attracting FDI inflow to its economy, which is only 1% of its GDP and one of the lowest across Asia. So, becoming a member of RCEP will create a huge opportunity to attract foreign direct investment (FDI) to Bangladesh, as RCEP member states are the top investors in the world. Moreover, the rest of the world can manufacture goods in Bangladesh and access export benefits from RCEP member countries. 

Numerous industries in China and other countries can be relocated to Bangladesh, and it can be transformed into a prime manufacturing hub with huge opportunities, leading to Bangladesh becoming the major manufacturing destination in South Asia. Besides, local manufacturers of member countries of RCEP will pay keen attention to improving the quality of goods to maintain their competitiveness in the international market.

Geopolitically, it might be a smart decision for Bangladesh. Even though China is a major player in RCEP, the presence of US allies South Korea, Japan and Australia balances the narrative. Therefore, in contrast to bilateral deals with specific nations, RCEP would help Bangladesh reap the benefits of both sides in the geopolitical spectrum and continue to remain neutral. India, one of the early advocates of RCEP, had opted out of RCEP negotiations because of a possible influx of Chinese products. 

Having similar export baskets, seeing Bangladesh join and rise as a competitor in South Asia might pressure India into joining RCEP. Such a move would establish Bangladesh as a regional player and help leverage more negotiations.

Major Challenges for Bangladesh

It remains to be seen how prepared Bangladesh's economy is for integration into the RCEP. Due to zero tariffs, the government cannot protect local industries against better products from abroad. This is a double-edged sword. Local companies, with funding from RCEP nations, will have competition to improve their products. However, Bangladesh must upskill its population. 

If such can be done, Bangladesh can gain an advantage in exporting human capital to member RCEP nations. The remittance gained may increase the foreign currency reserve. If high-skill migration does happen, there can be technological transfer to Bangladesh through expert human capital. Thus, RCEP would enable multinational companies to persist within member nations.

The production rate and efficiency of workers must be increased so that customers rely on domestic products. Creating a sense of nationalism and 'owning the nation's products' among the citizens may persuade people to choose domestic products. 

Vietnam, Laos and Cambodia have economic structures similar to Bangladesh's. As long as Bangladesh can keep improving its human capital, a cheaper economic structure will lead to industries choosing Bangladesh as a popular manufacturing hub in South Asia. Despite losing a significant amount of import and export tariff revenue, Bangladesh is expected to have an increase in exports of 17% and in GDP of 26%, according to a study conducted by the Bangladesh Trade and Tariff Commission.

To recapitulate, among other regional FTAs Bangladesh is a part of, RCEP will bring exorbitantly high economic growth in terms of trade expansion. Under the South Asian Free Trade Agreement (SAFTA), Bangladesh could derive fewer benefits as South Asian countries have a similar export basket across this region. Entering into RCEP will enable Bangladesh to have smooth pathways on its journey towards becoming one of the fastest-growing economies in the next few decades.

Tamanna Tabassum is a Lecturer at the University of Liberal Arts Bangladesh (ULAB)  and a Mentor at the Economic Policy and Jobs Network, Youth Policy Forum.

Azmaeen Muhammad Nibras is a Foreign Policy Associate at the Youth Policy Forum.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.