Japan's Economic Partnership Agreement with Bangladesh: A Mixed Bag of Benefits and Challenges
The recent economic partnership agreement between Japan and Bangladesh has sparked a range of reactions, from business leaders' enthusiasm to trade analysts' concerns. The deal, which comes as Bangladesh nears graduation from least developed country status, promises strategic gains but also poses significant long-term risks for the economy.
Securing Duty-Free Access for Garments and More
Business leaders have broadly welcomed the agreement, highlighting its potential to secure continued duty-free access for Bangladeshi garments and several other products in Japan, the world's third-largest economy. This is a significant relief for exporters, who had been worried about losing this privilege after graduation.
The agreement includes a trade facilitation chapter, obliging the government to improve the business environment's efficiency. It also contains detailed anti-corruption provisions, which could help curb arbitrary harassment of businesses.
Potential Challenges and Risks
However, trade analysts point out several potential challenges. Bangladesh will grant Japan duty-free access to a wide range of products, including garments, fabrics, accessories, motor parts, light engineering goods, chemicals, glass, metals, jewellery, and pharmaceuticals. This could pose a threat to domestic industries, especially in sectors like plastics, glass, and light engineering, where Bangladesh has developed sufficient capacity to meet domestic demand and export abroad.
In the pharmaceuticals sector, Bangladesh exports medicines to many countries, benefiting from flexibilities available to LDCs. However, under the EPA, Japanese medicines and protective devices will enter Bangladesh duty-free, while Japan has not extended reciprocal duty-free access to Bangladeshi leather products, which remain the country's second-largest export after garments.
Intellectual Property Rights and Subsidy Restrictions
The agreement also includes strict intellectual property rights obligations, which could disrupt local industries that rely on imitation products. Bangladesh has agreed to accede to several international protocols typically implemented by developed economies, including the Patent Cooperation Treaty (PCT), which could erode LDC-related benefits despite formally retaining LDC status.
Additionally, the agreement bars Bangladesh from providing subsidies in transportation, logistics, and computer services, including freelancing. This could allow Japanese firms, with far greater capacity, to dominate logistics and transport projects at the expense of local companies.
Impact on Garments, Cars, and Agriculture
In the garments sector, Japan will continue to grant duty-free access for Bangladeshi exports, but Bangladesh has offered reciprocal duty-free treatment for Japanese garments, accessories, and cotton. This could affect the local textile sector, as Bangladesh has begun producing higher-end fabrics in certain segments.
The EPA mandates the complete elimination of all import-related duties on Japanese vehicles over 12 years, including customs duty, supplementary duty, and regulatory duty. This could erode government revenue, as combined duties currently stand at around 120%.
Despite strong lobbying, Japan did not offer zero tariffs on Bangladeshi leather products, deferring the issue to future negotiations. Japan also did not grant duty-free access for all agricultural products.
Capacity Building and Diversification
Business leaders emphasize the need for capacity building and diversification to address these challenges. Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh, highlights the country's limited capacity to diversify its export basket and the need for more research and innovation to cater to transforming global demands.
Regulatory bottlenecks and customs hassles also stand in the way, demanding full automation of customs clearance for raw material imports and enhancement of cargo handling capacity at Chattogram Port to reduce export lead time.
In conclusion, while the Japan-Bangladesh economic partnership agreement offers strategic benefits, it also poses significant challenges that require careful consideration and proactive measures to ensure a sustainable and mutually beneficial outcome for both countries.
