Prime Minister Sheikh Hasina’s upcoming visit to Beijing promises to be a defining moment in China-Bangladesh relations, as highlighted by Chinese Ambassador Yao Wen. The visit’s primary focus will be concluding the feasibility study for a Free Trade Agreement (FTA) between the two nations, which aims to bolster bilateral trade and investment.
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As one of Bangladesh’s most significant trading partners, China’s role in the country’s economic growth cannot be overstated. The proposed FTA would reduce tariffs lower import prices and provide a much-needed boost to Bangladeshi exports. This strategic move is expected to solidify the economic ties between the two countries and contribute to Bangladesh’s ambitious Vision 2041 objectives.
Historical Economic Relations
For more than ten years, China has maintained its position as one of Bangladesh’s most significant trading partners. In 2022, China exported $26.8 billion worth of goods to Bangladesh, while Bangladesh exported $952 million to China. Key exports from Bangladesh to China include jute, leather, and garments, playing a crucial role in bolstering the economic ties between the two nations.
In a move to modernize their economic relationship, which currently relies on the 1996 Agreement on the Encouragement and Reciprocal Protection of Investments, China and Bangladesh signed a Memorandum of Understanding in 2016 to explore the feasibility of a Free Trade Agreement (FTA). This initiative is expected to build upon the existing framework and provide new opportunities for growth and collaboration.
As a gesture of goodwill and support for Bangladesh’s economic development, China has already offered duty-free access to 97% of Bangladeshi products under the Asia-Pacific Trade Agreement (APTA), eliminating tariffs on 84 types of commodities. The proposed FTA is anticipated to further boost bilateral trade, help reduce the trade deficit, and contribute to the realization of Bangladesh’s ambitious Vision 2041 goals.
FTA Discussions
Bangladesh and China have been actively engaged in discussions to promote a Free Trade Agreement (FTA) between the two countries, with the primary objective of boosting bilateral trade and attracting more Chinese investment in Bangladesh.
In a significant step towards formal negotiations, officials from both sides exchanged a draft feasibility study in March 2024, demonstrating their commitment to enhancing trade and investment relations. The ultimate goal is to finalize the agreement by 2026, which would mark a new era of economic cooperation between the two nations.
The proposed FTA is expected to have far-reaching benefits for both countries, as it would lower tariffs, making imports cheaper and helping to reduce the trade deficit. With China already being Bangladesh’s largest trading partner, with trade reaching an impressive $26.8 billion in 2022, the FTA is anticipated to further strengthen this relationship by increasing Bangladeshi exports to China and providing a solid framework for sustainable economic cooperation.
The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) has been vocal in its support for the FTA, urging the government to expedite the negotiation process. The organization emphasizes the crucial role that the agreement will play in addressing the economic challenges Bangladesh may face after graduating from the Least Developed Country (LDC) status, as well as in boosting investor confidence. Moreover, the FBCCI firmly believes that an FTA with China will be instrumental in supporting Bangladesh’s ambitious Vision 2041 goals by creating new trade and investment opportunities.
Strategic Benefits
The proposed Free Trade Agreement (FTA) between Bangladesh and China holds the promise of numerous strategic benefits for both countries. By reducing tariffs, the FTA will not only make imports more affordable but also boost trade between the two nations, ultimately leading to an increase in Bangladesh’s exports to China. This development is particularly significant, as it will help address the current trade imbalance, wherein Bangladesh’s exports to China are considerably lower than its imports from the economic giant.
Moreover, the FTA is anticipated to serve as a catalyst for attracting more Chinese investments in Bangladesh, which will, in turn, create job opportunities and foster industrial growth. This increased investment will be a critical factor in supporting Bangladesh’s ambitious goal of achieving developed country status by 2041. The establishment of special economic zones in Bangladesh, with heightened Chinese investment, will further stimulate economic activities and contribute to the nation’s overall development.
In addition to these benefits, the FTA will play a crucial role in helping Bangladesh navigate the challenges that may arise after it graduates from the Least Developed Country (LDC) status. The agreement will provide a stable and sustainable framework for trade and investment relations between the two countries, ensuring long-term economic stability. Furthermore, the FTA will support Bangladesh’s export diversification strategy, opening up new markets and opportunities for the nation’s products and services.
Analysis of Possible Risks
As Bangladesh moves forward with negotiating a Free Trade Agreement (FTA) with China, it is important to acknowledge and address the various challenges that may arise during the process. One of the most pressing concerns is the potential revenue loss resulting from reduced import duties, which is estimated to be nearly Tk 15,000 crore annually. This substantial loss could have a profound impact on Bangladesh’s fiscal budget, necessitating careful planning and mitigation strategies.
Another significant issue that must be addressed is the existing trade imbalance between the two countries. Bangladesh’s exports to China are currently much lower than its imports, leading to a considerable trade deficit. If not managed carefully, an FTA could potentially widen this gap, further exacerbating the imbalance in trade relations.
A key consideration for Bangladesh is ensuring that the FTA equitably benefits both countries. Bangladesh must secure terms that not only enhance its exports and attract Chinese investment but also protect its local industries from being overwhelmed by an influx of Chinese imports. Striking the right balance will be essential for the long-term success and sustainability of the agreement.
Conclusion
The proposed Free Trade Agreement (FTA) between Bangladesh and China holds immense potential for boosting bilateral trade, attracting Chinese investment, and fostering economic growth. The FTA could help Bangladesh navigate post-LDC challenges, ensure market access, and reduce trade imbalances.
However, careful negotiation is crucial to strike a balance between benefits and potential revenue losses from reduced import duties. Equitable terms will maximize the FTA’s positive impact on Bangladesh’s economy. Despite challenges, the FTA has the power to strengthen economic ties and support Bangladesh’s Vision 2041 goals. As negotiations progress, both parties must work towards an agreement that benefits both nations and lays the foundation for a strong, lasting economic partnership.
