The potential benefits of Bangladesh joining the Regional Comprehensive Economic Partnership (RCEP) prior to its LDC graduation.
The idea of the Regional Comprehensive Economic Partnership (RCEP) was born in 2012, and it gained traction in 2017 when the United States exited the Trans-Pacific Partnership (TPP), later called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The initiative was given a boost by the US-China trade war, which had already pushed the region’s economy to its lowest point in five years before COVID-19 erupted. When leaders of 16 states concluded RCEP discussions in Bangkok in November 2019, India was on board, and the treaty was scheduled to be signed formally in 2020. India later withdrew due to unresolved issues.
Bangladesh has agreed to join the RCEP, in order to continue to be eligible for duty-free trade in the marketplaces of almost one-third of the world’s economies after graduating to a developing nation in 2026. A senior ministry official informed that the commerce ministry would send a formal proposal to the RCEP headquarters, reflecting the country’s interest in joining the bloc. With the trading alliance of 15 economies, including China and Japan, entering into force at the beginning of 2022, Bangladesh’s exports to the RCEP nations will not face much difficulty until 2026, when the country’s duty-free access to these two major markets will end.
Furthermore, if Bangladesh does not join the RCEP or sign separate free trade agreements with those countries by 2026, it will lose its competitive edge in apparel export destinations, particularly China and Japan, while its competitor Vietnam, as an RCEP signatory, will enjoy duty-free access there once the agreement takes effect. According to ministry officials, Bangladesh may lose market share to Vietnam in this manner.
On November 15, 2020, the 15 countries – China, Japan, South Korea, Australia, and New Zealand; and 10 members of the Association of Southeast Asian Nations (ASEAN) – Brunei, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia, and the Philippines – signed the world’s largest free trade agreement, covering 2.2 billion people and a combined GDP of USD 26.2 trillion. The agreement intends to decrease tariffs, open up services trade, and encourage investment in order to assist emerging economies in catching up with the rest of the world. The RCEP is anticipated to help companies save time and money by allowing them to export a product anywhere within the bloc without having to meet separate regulations for each country.
The RCEP agreement would enter into force in 60 days if three-fifths of the 15 signatories – six ASEAN nations and three non-ASEAN countries – ratify it in their respective parliaments. Domestically, Japan, Singapore, and Thailand have already accepted the RCEP accord. The trading coalition was scheduled to begin operations in January of the following year.
Bangladesh had remained silent during the whole negotiation process for the formation of the world’s largest trading bloc at the time. Later, experts predicted that the China-led RCEP would force Bangladesh to lose trade gains and have difficulty attracting foreign direct investment. They proposed that Bangladesh strive to join or at least sign an agreement with the RCEP to protect its economy after transitioning to a developing country. Bangladesh’s trade ministry organised a nine-member committee to analyse any potential negative impact of the RCEP on the country’s exports less than a week after the trading bloc was formed last year. The group was also tasked with determining what advantages Bangladesh would receive if it entered the free trade zone.
The RCEP is anticipated to help companies save time and money by allowing them to export a product anywhere within the bloc without having to meet separate regulations for each country.
According to the committee, ten ASEAN member nations have already implemented duty-free trade agreements among themselves. China and Japan, two of the remaining six members, are crucial markets for Bangladesh since they offer duty-free access. Bangladesh has minimal exports to four other nations, including Australia and New Zealand. As a result, the trade ministry believes that the RCEP will not present immediate problems for Bangladesh. Planning ahead might in fact become beneficial as exports and foreign direct investment are expected to suffer as Bangladesh transitions to a developing economy.
No substantial work has been done so far to determine the potential obstacles that Bangladesh’s exports may face as a result of the RCEP or the benefits that the nation would receive if it joined the trade alliance. A complete analysis of such topics is required before making a formal proposal to join the RCEP. It is imperative to both quantitatively and qualitatively determine the mutual benefits between Bangladesh and its trade partners. Furthermore, the analyses are necessary to make detailed action plans so that we may obtain further funds.
Bangladesh is currently a member of three international economic alliances – the Developing Eight (D8), the Asia-Pacific Trade Agreement (APTA), and the South Asian Free Trade Area (SAFTA). Entering into RCEP is an optimistic sign for developing a positive relationship between Bangladesh and other countries. China currently has about 500 companies registered with the Bangladesh Investment Development Authority (BIDA), and Japan has over 340 companies registered with the BIDA. Furthermore, both China and Japan want to increase investment in Bangladesh because the latter offers investment opportunities for stable GDP growth and a strategic geographical location (‘Triangle of Growth’, and as a bridge to India, China and other ASEAN markets). Plus, there will also be liberal investment policies in almost all sectors, as well as a massive domestic market of 170 million people, low production costs due to a young and skilled labour force, an average age of 28 and 62% of the population under 35, openness to foreign investment (100% foreign investment is allowed), attractive tax and non-tax incentives and subsidies, and 5 to 10 years for designated priority sectors or up to 10 years for Economic Zones.
All of these issues necessitate China and Japan maintaining amicable and constructive relations with Bangladesh. Both countries stand to gain significantly by modifying and expanding these investment relationships. Furthermore, Bangladesh can contribute to the development of a strategic business connection between Japan and China. The two countries’ partnership will have a long-term influence on Bangladesh’s economic development as well, as over time their investment returns from Bangladesh are expected to grow. The relationship between these two countries affects not just their economies, but also the stability of other Asian countries. If the three countries work together, Japan’s quality brand, China’s highly skilled professionals, and Bangladesh’s cost competitiveness through talented young workers and strong political commitment to promote the sector can all support any industry in Bangladesh.
Bangladesh’s accession to the RCEP agreement is a significant and courageous decision to join the region’s determination to keep markets open, strengthen regional economic integration and rules-based multilateral trading system, and eventually contribute to global reconstruction efforts. The RCEP fosters new business and job prospects while also bolstering the cross-border economy and SMEs in the regional industrial cluster.
It is worth noting that Bangladesh will benefit from some of the RCEP agreement’s absolute advantages. These include benefits to post-LDC countries, competitive advantages in the garment industry through reduced production costs, technology transfer, increased FDI, access to the world’s largest e-commerce market, and multiple Free Trade Agreements (FTA) under one RCEP agreement (no need to sign separate FTAs with other RCEP members). As a result, Bangladesh should negotiate its inclusion in the RCEP in order to achieve real integration of its large manufacturing capability.