Trade deal with Japan will boost Bangladesh's post-LDC success
The Bangladeshi government recently took a significant step by commencing negotiations for an Economic Partnership Agreement (EPA) with Japan. This agreement aims to ensure continued zero-duty entry of Bangladeshi products to Japan after Bangladesh graduates from the least developed country (LDC) status. An Economic Partnership Agreement will be essential to maintain duty-free access to the Japanese market once Bangladesh transitions from an LDC. The agreement will also facilitate joint efforts by Japan and Bangladesh to access the global market through trade and investment cooperation.
Securing the EPA with Japan would ensure Bangladesh retains duty-free access to the Japanese market even after graduating to developing country status in 2026. A joint study on the EPA was conducted with Japan, with three rounds of meetings held in April, July, and September last year. These meetings identified seventeen key sectors for cooperation. Subsequently, in December, both governments released and approved the joint study report.
By proactively commencing negotiations for the EPA, Bangladesh seeks to ensure uninterrupted trade benefits. This will bolster its export-oriented economy and preserve its competitive advantage in the global marketplace. Overall, this decision represents a significant milestone in Bangladesh's economic journey. It exemplifies the nation's resolve to navigate the intricacies of international trade dynamics and secure advantageous terms that will yield long-term economic benefits.
Underscoring the EPA's criticality, Senior Commerce Secretary Tapan Kanti Ghosh emphasised that Bangladesh would face import duties exceeding 18 percent on exported goods after 2026 without the agreement, and stressed the urgency and significance of securing this agreement to protect Bangladesh's economic well-being.
For the first time, there will be an Economic Partnership Agreement with a country with a major economy, concluded before 2026. The EPA will encompass a broad scope, including trade and customs matters, services export, investment, trade facilitation, and intellectual property. It will address the concerns of Japanese investors, fostering a more favourable environment for foreign investment and industrial growth. The agreement promises mutual economic benefits for both Bangladesh and Japan, further strengthening bilateral trade and investment ties.
Currently, Bangladesh enjoys duty-free and quota-free access for its exports to developed and developing countries. However, this preferential treatment is set to expire in 2026. If Bangladesh can enter the global value chain through Japanese investment, it can be a game-changer in product diversification and economic prosperity. Japanese ambassador Iwama Kiminori said the EPA will expand trade by reducing tariffs and improving the business environment. In addition to attracting investment, it will play a role in diversifying Bangladesh's products. He also commented that Bangladesh could use the knowledge from the EPA negotiations with Japan to negotiate such agreements with other countries.
The Bangladeshi economy has seen a significant rise in Japanese investment. The number of Japanese companies operating in Bangladesh has tripled over the past decade, with over 315 currently active. According to a JETRO report, 71 percent of these firms are eager to expand their operations within the next two years, viewing Bangladesh as a promising investment destination. Japan is also the fifth-largest source of Bangladesh's merchandise imports, valued at over $2 billion. Notably, Bangladesh has witnessed a surge in Japanese demand for its textiles and garments, with exports of ready-made garments (RMG) to Japan nearly doubling in the last decade.
It is worth mentioning that Japan is the fourth largest economy in the world and an important trading partner of Bangladesh. In the last fiscal year, 2022-23, Bangladesh imported goods worth $203 million from Japan. In the same fiscal year, Bangladesh exported goods worth $190 million to the country. In this connection, the strategic partnership will steer to negotiate an early possibility of signing a bilateral Economic Partnership Agreement (EPA), which may position Bangladesh to avoid the erosion of 97.9 percent Duty-Free Quota Free (DFQF) access of Bangladeshi products to the Japanese market during the post-LDC era.
Bangladesh is set to graduate from least developed country (LDC) status in 2026, with aspirations to achieve developed nation status by 2041 through "Vision 2041." Japan remains a steadfast partner in Bangladesh's development journey, having provided long-standing friendship, significant bilateral donor support, and foreign investment. Recently, there has been a surge in collaboration between the two nations, marked by a strengthening of business and investment partnerships, as well as diplomatic ties. This presents a perfect opportunity for Bangladesh and Japan to capitalise on these new developments and further solidify their relationship. Signing the Economic Partnership Agreement (EPA) now would be a strategic step towards this goal, fostering deeper bilateral trade and investment cooperation.
Anik Dey is a postgraduate from Department of Finance, University of Dhaka.
Views expressed in this article are the author's own.
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