China’s duty-free access to 97 per cent of Bangladeshi products could not perhaps have come at a better time. Owing to COVID-19, the readymade garment sector was struggling with its faltering exports in the major export destinations while also dealing with large-scale order cancellations from global buyers, when came in this offer from the Chinese Government.
Considering the size of China’s apparel market, which is approximately around US $ 330 billion (as of 2019), and second only to that of USA (market size of approximately US $ 345 billion), it was felt that the decision of the Chinese Government to offer zero-tariff facility to 97 per cent of items imported from Bangladesh, effective from 1 July, would do a world of good to salvage the falling apparel exports, subsequent to the global outbreak of the pandemic.
“China used to provide us duty-free access for 60 per cent items of all the tariff lines under its LDC scheme through World Trade Organisation (WTO) notification, and I think this has been extended to 98 per cent since the formalities were going on for quite some time,” maintained Dr. Rubana Huq, President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) then, adding, “Though apparently the duty-free and quota-free facility is more beneficial for us at this moment than Asia Pacific Trade Agreement (APTA) with respect to product coverage and tariff cut, but when we will lose LDC status we will have to go for APTA.”
Welcoming the Chinese move, the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) President Sheikh Fazle Fahim said Bangladesh should focus on value chain sector-based support through fiscal, non-fiscal, tariff and applicable incentives across agriculture, manufacturing and service sectors to maintain export growth strategy.
“Product access in the Chinese market is welcomed in this humanitarian global crisis. We are in consultation with the Government, stakeholders of 97 per cent product list to maximise export opportunities of the 5,100 plus products, mitigate any challenges in execution and look into the 3 per cent that still has barriers and will be engaged from FBCCI with our counterparts in China, as we are sure Government to Government engagements will continue on policy supports as the new opportunities yielded because of that,” maintained Sheikh Fazle Fahim.
Now, a couple of months down the line, let’s find out what has been the implication of the same — China’s duty-free access to 97 per cent of Bangladeshi products — and how far has Bangladesh benefitted from this Chinese move?
Prior to the trade facilities being granted, the country would enjoy the similar privileges for only 60 per cent of its products under the APTA arrangement, where Bangladesh is a founding member. However, after the duty-free trade facility declaration by the Chinese – on 16 June 2020 – China announced the duty-free export facilities for 97 per cent of its tariff line, and with the announcement, a total of 8,256 Bangladeshi items are now eligible for zero-duty facilities in the Chinese market – there was anticipation that Bangladesh’s exports to China would witness a sharp rise.
However, data shows rather the contrary! As per the Export Promotion Bureau (EPB) figures, Bangladesh’s exports to China stood at US $ 110 million during the July-August period of FY21, down by 16.66 per cent compared to the same period last year.
Now, if economists and exporters are to be believed, this is partly due to lack of a diversified products basket, while lack of clarity amongst exporters about the new product list has further added to the issue.
It may be mentioned here that apparel products along with rawhides and leather products, live and frozen fish and crabs, jute and jute products and plastic products constitute the major exportable items to China from Bangladesh.
Although China is one of the export destinations of Bangladeshi apparel items, mainly cotton-based, the export volume has been rather insignificant compared to that of the European Union (EU) countries and the United States. In 2009, Bangladesh’s total export to Chinese market under the APTA preference scheme was US $ 140.72 million, of which apparels accounted for only US $ 19.79 million as against China’s total imports of apparels worth US $ 1,651.75 million. Further data from the country’s EPB shows Bangladesh exported garment items worth US $ 391.60 million to China in fiscal 2016-17, and it remained almost the same in fiscal 2017-18.
“Exports under the new duty-free access package became effective from 1 July and the exporters are getting the benefits out of the fresh trade privilege,” Md. Abdur Rahim Khan, Joint Secretary (Export Wing), told the media, while adding that since there was a language barrier, it would take some time to reap the benefits.
However, to make the most of this trade facility, experts suggest diversifying the product basket.
“Bangladesh will enjoy duty-free market access facilities for 60 per cent of its products, but exports to China did not increase as much as expected. This was because of the lack of a diversified product basket,” underlined Khondaker Golam Moazzem, Research Director, Centre for Policy Dialogue (CPD).
As per the EPB data, out of US $ 110 million export earnings during the July-August period of the current fiscal year, US $ 59 million or about 54 per cent came from garments, while processed leather contributed nearly US $ 7 million to the total exports in the same period.
“In tapping the opportunity of duty-free market access, we must develop products that have been included in the new list. Besides, focus should be given on the previous list as well,” Khondaker Golam Moazzem commented.
Established in 1993 by Rehman Sobhan, its Founder Chairman, with the support from leading civil society institutions in Bangladesh, the Centre for Policy Dialogue or CPD is an independent thinktank with local roots and global outreach that focuses on frontier issues which are critical to the development process of Bangladesh, South Asia and LDCs in the present context, and those that are expected to shape and influence the country’s development prospects from the medium-term perspective. Its current programme portfolio includes research activities, holding of dialogues, publication and dissemination and networking-related initiatives, through which CPD strives to enhance national capacity for economy-wide policy analyses, foster regional co-operation and addresses issues which relate to Bangladesh’s effective integration into the process of regionalisation and globalisation.
Meanwhile, even if exports to China were yet to take off on the expected lines, the Bangladesh cabinet has given a go ahead to a bilateral trade deal with Bhutan. The preferential trade agreement with Bhutan, experts feel, could give a boost to exports in these trying times.
Bangladesh exported more than US $ 300,000 worth of garment items to Bhutan at 30 per cent duty, stated Dr. Rubana Huq, while adding, “We see opportunities everywhere, especially when it is within our South Asian region.”
Once the trade agreement is signed, Bangladesh will enjoy duty benefits on the shipment of garments and clothing accessories, jackets and blazers, plywood, particle boards, mineral and carbonated water, green tea, orange juice, pineapple juice and guava juice, etc.
“We have started a new journey by approving the PTA with Bhutan,” said Commerce Minister Tipu Munshi after the Cabinet approved the agreement, adding, “I am hopeful of signing more free trade agreements and PTAs with some other potential trading partner countries within the next few years.”
Meanwhile, MA Razzaque, Research Director at the Policy Research Institute of Bangladesh, said Bhutan is important both as a trading partner and as a strategic partner, while Shams Mahmud, President, Dhaka Chamber of Commerce and Industry (DCCI), said the Bhutanese market might be smaller compared to its South Asian peers, but it still is an important one. He also suggested the Bangladesh Government should strike deals with countries in Africa and Latin America so that local manufacturers do not face any lean period in exports.
Policy Research Institute of Bangladesh or PRI is a private, non-profit, non-partisan research organisation dedicated to promoting a greater understanding of the Bangladesh economy, its key policy challenges, domestically, and in a rapidly integrating global marketplace and committed to undertaking and disseminating unbiased policy-oriented economic research amongst public policymakers, business professionals, and the academic community. The DCCI, on the other hand, established in 1958 under the companies Act 1913, is the largest and most vibrant business chamber in Bangladesh, the main objective of which is to promote private sector enterprises and businesses with advocacy, awareness and policy inputs to the Government.
So, even though Bhutan can chip in to help improve Bangladesh’s exports, considering the size of the Chinese domestic market and its population of around 140 crore people, if Bangladesh can make strong inroads into China, the overall export volume including that of readymade garment items is bound to increase significantly in the days to come. Hope the country heeds to the experts and diversifies its export offerings with an eye to the duty-free market access to China to make the most of it.