Monday, 2 October, 2023

Can Joining RCEP Yield a ‘Net Benefit’ for Bangladesh?

Doreen Chowdhury

Recently, Bangladesh has taken the initiative to join Regional Comprehensive Economic Partnership (RCEP). “An inter-ministerial meeting agreed that the county will join the RCEP, an agreement comprising the world's largest trade bloc led by China if an opportunity is created after negotiations,” said the commerce ministry. In the near future, Bangladesh may send a formal letter expressing interest to join the trade bloc. It is important for Bangladesh to sign the agreement with the RCEP as the country also needs to join the global value chain to retain duty benefits after the LDC graduation. Bangladesh has been exploring the pros and cons of joining RCEP since the birth of the agreement in November 2020. Many analysts have pointed out many pros and cons of joining RCEP. But the questions remain the same, can joining RCEP yield a ‘net benefit’ for Bangladesh? To find the answer, we need to explore what RCEP is and what is the rationale for Bangladesh in joining RCEP.
RCEP at a Glance
The Regional Comprehensive Economic Partnership (RCEP) is basically a free trade agreement. The Chinese effort brought 10 ASEAN members, Japan, South Korea, Australia, and New Zealand together to sign a free trade agreement that allows the member states to overcome tariff barriers and ensure duty-free access in the Asia-Pacific region. RCEP is a bloc of 15 countries, representing 2.3 billion people, & $25.8 trillion GDP- 30% of global GDP, and 31% of global FDI inflow. According to estimates by PricewaterhouseCoopers, the GDP of the RCEP member states is likely to amount to nearly $250 trillion by 2050.
The Idea of RCEP was conceived in 2011 in Bali, Indonesia. India was also present in the negotiations but decided not to join later. RCEP intends to reduce bureaucratic hassles such as by implementing a unified rule of origin, removing protectionist tariff barriers, and facilitating a supply chain in the region.
Bangladesh has strong trade relations with RCEP countries as the country imports goods worth $24.5 billion and services worth $2.6 billion from these states. Bangladesh exports goods worth $ 3.9 billion and services worth $1.8 billion. Bangladesh earns 55.33% of its total tax revenue from imports from RCEP countries.
As per regulations of RCEP, any country is eligible to seek membership in the bloc starting 18 months after the initiation of their joining process. Consequently, interested countries can submit their applications for RCEP membership from June 2023 onwards. It means if Bangladesh applies now or later this year, Bangladesh will be a member of RCEP from 2025 onward. Apart from Bangladesh, Nepal, and Sri Lanka are also eager to join the bloc.
Bangladesh’s Pros and Cons of Joining RCEP
The tariff commission of Bangladesh has examined the pros and cons of joining the RCEP in its study. If Bangladesh becomes a member of the RCEP, its exports to the global market are projected to surge by 17.37%, exceeding $5 billion. A significant portion of this export growth will be driven by the ready-made garment industry, leading to an estimated 18% increase in demand for both skilled and unskilled workers in this sector. Overall, joining the RCEP is expected to boost the country's GDP by 0.26%.
However, RCEP will provide the most benefit for the country in the context of LDC graduation. As Bangladesh is scheduled to graduate to developing country in 2026, it will lose current preferential market access under the WTO’s duty-free facilities such as GSP and EU’s Everything But Arms (EBA). Again, as Bangladesh’s export largely depends on preferential market access to overcome tariff barriers, it will require new mechanisms to ensure smooth export at that time. According to a WTO estimate, Bangladesh would lose 15% of its foreign trade after graduation. Another study reveals that Bangladesh’s export will be reduced by $7 billion in the absence of preferential market access. In this context, Bangladesh needs duty-free access and for that inking Free Trade Agreement (FTA) is crucial. Trade creation and diversion are common characteristics of any FTA. Upon creating a trade bloc, it will naturally divert trade from less effective regions.
Hence, Bangladesh will be benefited in two aspects, by ensuring duty-free access in the post-graduation phase and by increasing export by 17% and GDP by 0.26%.
Center for Policy Dialogue (CPD)’s Distinguished Fellow, Prof Mustafizur Rahman also believes that it would be a great opportunity for Bangladesh to join the RCEP bloc as it will ensure preferential market access facilities from the member states. Besides, signing RCEP will also help Bangladesh to attract investment as for the investors and the market will be the whole RCEP zone.
On the other hand, joining RCEP has some negative impacts. As Bangladesh will be a part of the Free Trade Area, it will lose the tax revenue generated from imports from RCEP member states. Currently, Bangladesh earns 55.33% of its total tax revenue from these imports. Upon signing, this revenue collection will be adversely affected. Joining the RCEP will increase the global import of Bangladesh by 14.46%. This liberalisation of the trade regime will affect many domestic industries. Those industries will no longer be protected as they are now.
As the tariff commission alongside relevant ministries ran a joint study before the decision, it is likely that the pros are bigger than the cons. Moreover, in the neoliberal economy, there is a global effort to reduce tariff barriers. In this context, enjoying tax and customs revenue is a bit old-fashioned.
However, even though it seems that the pros are greater than the cons, comprehensive preparations are necessary before joining to avoid cons. One promising outcome of joining this bloc is the potential increase in export-oriented investments. Bangladesh should also promote its potential investment opportunities as per the market demand.
Joining RCEP may provide a ‘net benefit’ for Bangladesh if utilised properly. But the concessions will be crucial as the FTA will remove protection for infant industries, surge import and reduce tax and customs revenue for the country. At the same time, it will help Bangladesh to continue enjoying preferential market access, increase export and attract foreign investment. As Bangladesh is also seeking a GSP+ scheme from the EU upon graduation, it seems the government’s priority is to ensure the continuation of the country’s export. In this regard, RCEP will yield greater benefits for the country in return for the aforementioned concessions.

The writer is a Doctoral Researcher at the University of Groningen