China last year declared zero-duty for 97 per cent of the Bangladeshi imports — the concession flowed from China’s duty-free, quota-free (DFQF) programme for the Least Developed Countries (LDC) and became effective from 1st July — which was widely welcomed in Bangladesh.
It may be mentioned here that China is the biggest trading partner of Bangladesh and is the foremost source of imports. In 2019, the trade between the two countries was US $ 18 billion and the imports from China commanded the lion’s share even as the trade is heavily in favour of China.
So, given the large disproportionality in trade, Bangladesh has been urging China to take measures to reduce the trade imbalance and, in 2015, China granted duty-free access to 3,095 Bangladeshi products to its markets while the present declaration is an addition to the prevailing facilities. Bangladesh has also been enjoying preferential tariff facilities as a member of Asia Pacific Trade Agreement, originally known as Bangkok Agreement signed in 1975, which was rechristened to its present name in 2005 even as China had instituted the duty-free quota privileges for the LDCs in 2010, and 24 countries were given this benefit initially while in 2015, Bangladesh was partially given this facility.
Meanwhile, even if the Chinese Government has offered duty-free market access to 97 per cent of Bangladeshi products to China, that apparently has not proved much beneficial to the garment industry of the country as more than one-third of Bangladesh’s total apparel exports to China is still out of duty-free benefit coverage.
This was underlined in an analysis being carried out by Bangladesh’s apex garment makers’ body, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) earlier.
Speaking to the media, the then President of BGMEA, Dr. Rubana Huq, reportedly maintained that 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 means, US $ 198 million apparel export was under duty.
Further, after the latest duty-free offer from China, products worth US $ 20 million out of the
US $ 198 million would be included in the duty-free scheme, explained Rubana then while adding apparel exports worth US $ 178 million still remained out of duty-free benefit, on which Bangladesh paid 6-12 per cent tax, and which accounted for Bangladesh’s 33 to 38 per cent of total exports to China.
Rubana also reportedly expressed her apprehension on the revised rules of origin for 40 per cent value addition as set by China so as to enjoy duty-free market access, which the BGMEA President felt would be rather difficult for apparel manufacturers to comply with.
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 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 Rubana 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.”
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 became eligible for zero-duty facilities in the Chinese market – and there was anticipation that Bangladesh’s exports to China would witness a sharp rise. However, as per the Export Promotion Bureau (EPB) figures, Bangladesh’s exports to China stood at US $ 110 million during the July-August period of FY ’21, 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 and, 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.
However, as per a recent study, Bangladesh’s exports to China, the world’s second biggest economy, can grow to US $ 25 billion if local suppliers manage to grab an additional 1 per cent share of the Chinese market by 2030 even if Bangladesh’s share of exports to the Chinese market is currently 0.05 per cent, equivalent to a bit above US $ 1 billion in a year.
Bangladesh has the opportunity to increase its exports to China as since July last year, the Chinese Government approved duty-free facility for 97 per cent of products from Bangladesh, which is a big advantage for the country, the study said.
However, experts harp on signing a comprehensive bilateral Free Trade Agreement (FTA) with China as it would have a positive impact on Bangladesh’s exports to Chinese market even as they underscored the need for taking full advantage of the DFQF access of Bangladeshi products to Chinese market.
“Although some progress have been made for signing an FTA with China, but 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 to face the LDC graduation challenges,” opined Commerce Minister Tipu Munshi while addressing a seminar, before going on to add that the trade balance of between the two countries is now heavily in favour of China as out of around US $ 12.09 billion bilateral trade in FY ’20, Bangladesh’s export to China only accounted for US $ 0.60 billion while imports from China totalled a mammoth US $ 11.49 billion even as he highlighted that as part of its unilateral market access schemes for LDCs, China has allowed duty-free access to Bangladesh for 97 per cent of its tariff lines and under this initiative, 8,256 Bangladeshi products enjoy zero tariff facility for exports in this market.
“I strongly believe that by fully utilising this DFQF facility, the trade imbalance can be reduced to a greater extent,” said the Commerce Minister further even as the Chinese Ambassador to Dhaka Li Jiming turning to the issue of signing FTA, maintained that it was high time to really consider an FTA combined with an Investment deal between China and Bangladesh while adding that although there is a huge trade imbalance, but there would be more exports from Bangladesh to China in the coming days.
Meanwhile, eminent trade economist Dr. Mohammad Abdur Razzaque underlined that Bangladeshi knitwear and jute products in particular are poised to take advantage from the DFQF market access in China even as he underlined that by 2050, China would be one-third of the global economy in terms of purchasing power parity and by that time the imports of China would increase further where lies a huge potentiality for Bangladesh even as he highlighted the need to establish a full-fledged FTA with China, to wind up on a positive note.