Starting from July 1, some 8,256 Bangladeshi products will get zero tariff facility in the Chinese market
The world economy is battered by the coronavirus pandemic and the global trade is almost in a standstill for the last five months. Factories are being closed down in the country due to cancellation in buying orders in the garment sector.
Amid such a grim economic situation, Bangladesh's large trading partner China has offered a breath of relief.
The country has offered zero tariff facility to 97% of items imported from Bangladesh.
The new announcement will come into effect on July 1 this year. From that day, 8,256 Bangladeshi products will get zero tariff facility in the Chinese market.
Bangladeshi manufacturers will be able to avail this duty-free and quota-free facility after 40% value addition to these products.
After the decision was approved by the Chinese government on June 16 (Tuesday), the country notified the Bangladesh government about it on Friday through the Bangladesh High Commission in China.
Stakeholders concerned believe this opportunity is expected to give a boost to Bangladesh's exports to the Chinese market and attract foreign investment into Bangladesh.
There is a strong prospect of expanding markets of Bangladeshi pharmaceutical products, readymade garments, frozen food, fish and vegetables in China.
The Bangladesh government hopes the new facility will help to reduce the expanding trade gap between Bangladesh and China.
Mamun Rashid, joint-secretary to Bangladesh China Chamber of Commerce and Industry, told The Business Standard there is a huge demand for Bangladeshi traditional products as well as pharmaceutical items in China that has a population of around 140 crore.
"Bangladesh could not use that potential for not having duty-free access to the Chinese market," he said, adding, "it has opened up a new opportunity for Bangladesh."
According to sources at the Ministry of Commerce, Bangladesh has been enjoying zero tariff facility on 60 percent of export items to China since July 1, 2010 under Asia Pacific Trade Agreement (APTA) for LDCs.
However, Bangladesh was not able to benefit much from the opportunity as the facility was on less important export items other than the principal exportable items of Bangladesh . The latest facility would ensure unimpeded access of Bangladeshi products to the Chinese market.
Hafizur Rahman, joint-secretary to the commerce ministry and chief of the WTO Cell, told The Business Standard, "There are many products in Bangladesh which are good in quality but much cheaper when compared to those of China. Those products can find a place in the Chinese market."
Pointing out that China is ready to shift a large number of mills and factories to other countries owing to tough compliance requirements and high costs of production, he said Bangladesh could become a potential investment destination for China.
The broader access of Bangladeshi products to the Chinese market will help reduce the expanding trade gap between the two countries and also will help to create employment in the country by attracting more foreign investment, he hoped.
China has been enjoying an upper hand in bilateral trade. In the last fiscal year, China exported $12 billion worth of goods to Bangladesh, while Bangladesh's exports to the country stood at a paltry $831 million.
Businesses claim that even though labour in Bangladesh is cheaper than in China and that Bangladeshi products have huge demand in Chinese market, Bangladesh is not being able to increase exports to China due to tariffs.
Bangladesh Tanners' Association President Shahin Ahmed said Bangladesh could previously export over 3,000 products to China without facing tariff barriers by adding 35 percent value to those. However, since the more prominent export items were out of the list of products under the facility, Bangladesh could not get the facility on most of the potential export items.
At present China buys 50 percent of Bangladesh's tannery products, he said, adding that the sector will benefit from the newly announced facility.
Bangladesh Association of Pharmaceutical Industries Secretary Shafiuzzaman said, "Although Bangladesh's pharmaceutical industry relies on raw materials from China, we can supply cheaper drugs to China."
Pharmaceutical companies in Bangladesh can still make profit by exporting drugs of similar standard at 20-25% cheaper rates than those offered by Chinese manufacturers, he said, adding that the new tariff-free facility will help to expand the market for Bangladeshi drugs in China.
Commenting on this, Bangladesh Garment Manufacturers and Owners Association President Rubana Huq told The Business Standard, "China used to provide us duty free access for 60% items of all the tariff lines under its LDC scheme through WTO notification, and I think this has been extended to 98% since the formalities were going on for quite some time."
"For most of the items we used to enjoy duty-free and quota-free access to China under the prevailing facility, if there were few items left it will now be included," she added.
There are certain issues regarding duty free access to China, she continued, "There are two schemes through which we can get duty free, one is LDC scheme through WTO, and the other is APTA.
"Though apparently the duty-free and quota-free facility is more beneficial for us at this moment than APTA with respect to product coverage and tariff cut, but when we will lose LDC status we will have to go for APTA."
However, Joint Secretary Hafizur Rahman of the commerce ministry said the new facility will not be affected by Bangladesh's graduation from the LDC status. "The APTA facility has just been put on hold because of this new facility. We will get it back after graduation from the LDC status."
China or Bangladesh: Who to benefit from the move?
The commerce ministry said all potential Bangladeshi export products will get duty-free and quota-free access to China from July 1 this year, but Bangladesh will not have to offer any facility to China for this.
Commerce Secretary Jafar Uddin said China has offered this facility unilaterally to the LDCs at the behest of the World Trade Organisation so Bangladesh will get this facility unconditionally.
Forty-one LDCs including Vietnam, Cambodia, Laos, and the Philippines have been enjoying zero tariff treatment on their export items to China.
However, Khondaker Golam Moazzem, senior research director of the Centre for Policy Dialogue, said although China has granted this facility to Bangladesh unconditionally, it will be benefited from this indirectly.
He said, "Due to its industrial policy, China is gradually moving away from lighter industries. The country is producing expensive products instead of cheaper ones.
"China will get an opportunity to shift these factories to other countries and then import those products under the zero tariff facility."
Besides, investing in Bangladesh is profitable for Chinese investors as labour has become costlier in China.