New trade bloc will hurt Bangladesh’s export competitiveness, investment flow: analysts

The competitors will have an edge over Bangladesh in exports and FDI flow after they joined the world’s biggest trade bloc led by China, economists and analysts fear.

They believe the new challenges will intensify once Bangladesh graduates from the Least Developed Country bracket and becomes a developing nation after 2024. 

“We will lose the duty-free access to these countries, especially Japan, China and South Korea. But our competitors Myanmar, Cambodia and Vietnam will still have the zero-duty facilities because they are members of the new bloc,” pointed out Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue.

The 15 Asia-Pacific economies in the Regional Comprehensive Economic Partnership or RCEP, signed on the sidelines of a summit of the Association of Southeast Asian Nations or ASEAN, include the 10 members of ASEAN plus Japan, South Korea, Australia and New Zealand.

It aims in coming years to progressively lower tariffs across many areas, address tensions in the South China Sea and tackle plans for a post-pandemic economic recovery in a region where US-China rivalry has been rising.

RCEP will account for 30 percent of the global economy and 30 percent of the global population. It is expected to reach 2.2 billion consumers.

The new free trade zone will be bigger than both the US-Mexico-Canada Agreement and the European Union.

Selim Raihan, the executive director of South Asian Network on Economic Modeling or SANEM, said Bangladesh should be worried because Vietnam, one of the biggest competitors of Bangladesh in the global clothing industry, and other ASEAN countries will get trade facilities in China, Japan and Korea.

Workers wearing face masks sew garment at a factory in Dhaka's Mirpur amid the coronavirus outbreak. Photo: Asif Mahmud Ove

The United States is absent from both RCEP and the successor to the Barack Obama-led Trans-Pacific Partnership or TPP, leaving the world's biggest economy out of two trade groups that span the fastest-growing region on earth. The US exited TPP during the presidency of Donald Trump.

India also pulled out of RCEP talks in November last year fearing, but ASEAN leaders said the door remained open for it to join.

The competitors of Bangladesh in the RECP will also become more attractive destinations for foreign investors, according to Prof Mustafizur.

“Even a US investor will want duty-free access to China by investing in Myanmar and so, they will lose interest in Bangladesh,” he said.

Selim said China, Japan, South Korea and Australia will prioritise the other RECP countries for investment.

WHAT BANGLADESH CAN DO

The analysts have suggested making a strategy to tackle the hit.

Prof Mustafizur thinks that Bangladesh should prioritise a trade pact between the countries in the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation or BIMSTEC.

It can enter the markets of Myanmar and Thailand through the pact, but it will be a short-term solution, the CPD researcher said.

A mid-term strategy can be joining a bigger RCEP or strike a bilateral deal with the bloc, he said.

In that case, Bangladesh will have to focus more on increasing the quality of products and raise standards of labour, copyright, ecommerce and other relevant things.

“And we must keep in mind that we will also have to give them access. We will need to be prepared for that,” Prof Mustafizur said.     

President-elect Joe Biden may take the US back into the TPP, the international media suggested. It will give Vietnam duty-free access to the American market as well.

Vietnam also has free trade agreement with the European Union. If the EU doesn’t renew the facilities for Bangladesh in 2027 and Vietnam retains the facilities, Bangladesh will need to pay 12 percent duty to export goods to the EU countries while Vietnam will still enjoy zero-duty access.

Selim said Bangladesh should actively show interest in joining RECP and other trade blocs.

“This always happens to us. We react when something happens. We need to be pro-active,” he added.