As per eminent trade economist of Bangladesh Dr. Mohammad Abdur Razzaque,China is all set to become one-third of the global economy in terms of purchasing power parity by 2050.
Purchasing power parity is the measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries’ currencies.
The biggest trade partner as it is, the Red Dragon holds a lot of significance for Bangladesh in terms of increasing its footprints there, more so if one takes into account the size of China’s apparel market, which was approximately around US $ 330 billion (as of 2019), and second only to that of USA (market size of approximately US $ 345 billion) even if a study suggests, if suppliers in Bangladesh can grab an additional 1 per cent share of the Chinese market by 2030, the former’s exports to China can grow to US $ 25 billion.
The Chinese Government deciding to offer duty-free access to 97 per cent of goods from Bangladesh effective 1st July 2020 — the decision came following meeting between Bangladesh Prime Minister Sheikh Hasina and Chinese President Xi Jinping to deliberate on ways to upgrade bilateral relations during the COVID-19 pandemic— for sure opened up new avenues for Bangladesh.
With this announcement, a total of 8,256 Bangladeshi products came under the 97 per cent of products that have been exempted from tariff even as around 3,095 Bangladeshi products continued to enjoy duty-free access to Chinese market under the Asia-Pacific Trade Agreement (APTA).
Major gains elude Bangladesh!
Although the Chinese Government offered duty-free market access to 97 per cent of Bangladeshi products to China, it apparently failed to benefit much the garment industry of the country as more than one-third of Bangladesh’s total apparel exports to China was said to be out of the duty-free benefit coverage still.
An analysis carried out earlier by the Bangladesh’s apex garment makers’ body, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) found this.
In financial year 2018-19, Bangladesh’s total RMG export to China was US $ 507 million, of which US $ 308.4 million worth apparel items was under duty-free facility, which effectively meant, US $ 198 million apparel export was under duty, explained the then BGMEA President Dr. Rubana Huq, who added after China offered duty-free market access to 97 per cent of products, products worth US $ 20 million out of the US $ 198 million have been included in the duty-free scheme.
Apparel exports worth US $ 178 million still remained out of duty-free benefit, on which Bangladesh paid 6-12 per cent tax, which accounted for Bangladesh’s 33 to 38 per cent of total exports to China, further explained Rubana to give a clear picture of the existing scenario even as she expressed apprehensions on the revised rules of origin for 40 per cent value addition set by China so as to enjoy duty-free market access.
It would be rather difficult for apparel manufacturers to comply with, felt the then BGMEA chair.
New products to boost overall exports
China, which is the largest economy in Asia, recently decided to include 383 new ‘Made in Bangladesh’ products to the zero-treatment list.
With this, the total number of products to enjoy duty holiday went up to 8,930, touching 98 per cent from the earlier 97.
Bangladesh Commerce Secretary Tapan Kanti Ghosh confirmed the same even as reports suggest that to bring this extra facility into effect, Bangladesh and China will sign a letter of exchange soon.
The Chinese Ambassador to Bangladesh Li Jiming has already signed the document on behalf of his Government even as Bangladesh’s Commerce Ministry has started deliberations to culminate the signing process.
“We have got a new list of products granted duty-free access to the Chinese market from the Chinese embassy,” said Additional Secretary to the Commerce Ministry, Noor Md Mahbubul Haq, adding the concerned department is analysing the harmonised system codes of products in the list, written in Chinese.
They cannot name the products right now hence, added Mahbubul Haq while some reports suggested leather and leather goods are included in chapter 46 of the HS code list.
Earlier, six of such products were given the duty-free facility.
“99 per cent of export products, including all apparel items, have been covered under the 97 per cent duty-free facility provided by China. But some items of leather and leather goods were left out,” claimed Dr Mostafa Abid Khan, former member of Bangladesh Tariff and Trade Commission, adding Bangladesh will now get 100 per cent benefit if these are included in the list.
Businesses, nevertheless, are of the opinion opportunities to increase exports of readymade garments remain high as ever even if Bangladesh is definitely set to gain from the latest Chinese move in terms of overall exports.
“The cost of manufacturing (garments) in Bangladesh is lower than China…China tending to produce high-value products, Bangladesh’s apparel exports to the former are likely to increase in the coming days,” expressed former BGMEA President Shafiul Islam Mohiuddin while Senior Vice-President of the Bangladesh-China Chamber of Commerce and Industry ATM Azizul Akil, on his part said, “China is now not only the world’s largest exporter, but also at the top in terms of imports. Therefore, if we can increase our capacity, Bangladesh will be able to fetch billions of dollars cashing in on the duty-free facility provided by China.”
Economists are also optimistic that such a scenario would help Bangladesh to bring in some parity in the other lopsided sided balance of trade, tilted heavily in favour of China.
As a single country, Bangladesh imports the most from China even as according to the Bangladesh’s central bank (Bangladesh Bank), Bangladesh’s imports from China in FY ’21 amounted to about US $ 13 billion, which is one-fourth of the country’s import expenditure while at the same time it exported US $ 681 million worth of goods, up by 13.42 per cent over the preceding year.
In July-December of the current fiscal year, Bangladesh’s exports to China — the major export items included woven garments, knitwear, home textiles, leather and leather products, footwear, jute and jute products — amounted to US $ 357 million.
FTA in scheme of things…
With Bangladesh all set for the much-awaited LDC transition, many favoured inking a Free Trade Agreement (FTA) with China, which they felt would also give a boost to apparel exports.
“Although some progress has been made for signing an FTA with China, still we need to put a lot of efforts to conclude the negotiation and materialise the prospect of the FTA. I believe this will help Bangladesh…,” opined Commerce Minister Tipu Munshi earlier even as economists observed FTA is crucial not only to help Bangladesh absorb the LDC transition shock but also reduce the mammoth trade gap that exists.
A case in point is Cambodia, whose exports to China rose by 39 per cent to US $ 1,510 million last year as China and Cambodia implemented their new FTA even as figures from the Cambodian Ministry of Commerce showed the bilateral trade reached US $ 11,144 million last year, a year-on-year (Y-o-Y) rise of 37.28 per cent.
Bearing in mind the benefits, Bangladesh would do well to follow up and finalise the FTAwith China as soon as possible to not only take the mutual trade ties to next level but also give that much-needed fillip to apparel shipments, in the process.
