The newly-formed world’s largest trading bloc has emerged as a new challenge for Bangladesh’s competitiveness in the global market
The readymade garment sector accounts for 85% of Bangladesh's total exports but Vietnam, its main rival in the global apparel market, appears to be edging out Bangladesh in recent times.
Over the past two decades, the competitor country has forged many trade deals to avail competitive advantages to outperform its rivals such as Bangladesh in the world of exports, raising concerns among local RMG entrepreneurs over sustaining its current position.
The newly-formed world's largest trading bloc – comprising 15 Asia and Pacific economies backed by China – has emerged as a new challenge for Bangladesh's competitiveness in the global market.
On Sunday, the 15 countries, also including Australia, New Zealand and 10 members of the Association of Southeast Asian Nations (Asean), inked the Regional Comprehensive Economic Partnership (RCEP) deal, which covers 2.2 billion people with a combined GDP of $26.2 trillion.
The deal aims to lower tariffs, open up trade in services and promote investment to help emerging economies catch up with the rest of the world. Specifically, the RCEP is expected to help reduce costs and time for companies by allowing them to export a product anywhere within the bloc – without meeting separate requirements for each country.
Experts say the pact of the global economy's 30% will put Bangladesh against a new challenge. The country will fall into tariff barriers after moving out of the group of least developed countries.
On other hand, Bangladesh's competitors like Vietnam will enjoy duty-free benefits under various deals. So, the country will stay far behind the rivals, they opine.
Ahsan H Mansur, executive director of the Policy Research Institute, said "We are now having facilities as an LDC country in China, Korea, Australia and other big markets. Vietnam will get more access to those markets as part of the trading bloc. The country will also get a big advantage in souring raw materials."
The apparel export will now face more challenges in the global market. The post-LDC time will pose even tougher competition, he added.
Bangladesh exports the highest $1.2 billion to Japan among the countries that signed the RCEP deal, while it sends goods amounting to $680 million to Australia. Bangladesh as a least developed country is now getting duty-free access to the two countries.
Vietnam's new trade relations with the two countries in the wake of the RCEP will create a reason of worry for Bangladesh.
The Asean country will also get an upper hand in the Chinese market over Bangladesh which exports $600 million worth of goods to the world's largest market. Vietnam's export to China stood at $64 billion last year.
Bangladesh also exports a huge number of goods to South Korea, Malaysia and Singapore but Vietnam will get an extra advantage in the countries too because of the RCEP deal.
Except for apparels, Vietnam is far ahead of Bangladesh in global trades. In 2019, Vietnam's trade volume stood at $520 billion. Of them, the export amounted to around $265 billion.
In contrast, Bangladesh's global trade volume stood at $100 billion last year and the export was only $40 billion.
In the last two decades, Vietnam inked 26 trade deals including the Trans-Pacific Partnership, which is now defunct. Of these agreements, 13 have come into effect and the country is enjoying duty-free facilities, alongside LDC benefits, in most countries it signed with.
On the other hand, Bangladesh has long been working on the implementation of 13 trade agreements but it could take advantages from only three – Developing Eight (D-8), the Asia-Pacific Trade Agreement (APTA) and the South Asian Free Trade Area (Safta).
When contacted, Commerce Secretary Md Zafar Uddin said, "Ten Asean countries have already introduced duty-free trade facilities among themselves. Among the remaining six signatory countries, China and Japan are important markets for Bangladesh we are getting duty-free access to. Bangladesh's exports to four other countries, including Australia and New Zealand, are low. So, I do not think the RCEP will cause any problem for Bangladesh."
In 2015, the commerce ministry sent a letter to the commercial counsellors of Bangladesh appointed in different countries to know the impacts of a different Asia Pacific trade pact – the Trans-Pacific Partnership (TPP).
Tapan Kanti Ghosh, the then Bangladesh's commercial counsellor in Brussels, had suggested that Bangladesh join the RCEP to overcome the TPP's effects.
If not possible, he proposed signing a free trade agreement with China after graduating to developing a country.
Manoj Kumar Roy, then head and former additional secretary of the FTA wing of the commerce ministry, told The Business Standard, "Bangladesh has never tried to join the RCEP. However, Bangladesh was with the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) that took an initiative to build an integrated market with countries in South Asia and the Pacific. However, after 2015, the initiative did not make any headway.
Signing of RCEP deal
Launched in 2012, the RCEP is a trade pact between the 10-member Asean bloc, along with China, Japan, South Korea, Australia and New Zealand. India had been due to sign but pulled out last year.
The 15 RCEP countries agreed on the terms of the deal last year, setting up the path for it to be signed during the summit.
Asean is considered as one of the most influential groupings in the region, and India and several other countries including the US, China, Japan and Australia are its dialogue partners.