Published in The Financial Express on Wednesday, 11 March 2015.
Dhaka seeks relaxed origin rules to narrow trade gap with Beijing
Ziaur Rahman
The government is exploring ways of jacking up exports to China to help reduce the widening trade deficit between the two countries, which is tilted toward Beijing.
Although the country’s exports to China made a substantial increase in the last fiscal year (2013-14), the trade gap between the two countries is still increasing due to lack of proper initiatives to increase the export to the world’s second-largest economy.
The tempo of exports to China, however, slowed down in recent days. According to the Export Promotion Bureau, Bangladesh’s export to China rose by 9.74 per cent during eight months of current fiscal, versus 58.29 per cent growth during year-earlier period.
Bangladesh’s merchandise shipments to China, also the country’s largest source of imports, amounted to US$ 746.198 million in the fiscal (2013-14). It posted a robust 63 per cent growth, compared with US$ 458.118 million in the previous FY 2012-13.
Although Bangladesh enjoys duty benefits for 4,788 products to China, the country’s export could not be raised due to non-diversification of export items and strict Rules of Origin (RoO) in China.
While the country’s exports rose, imports from China also grew-at a rapid clip, reaching US$ 7.544 billion in 2013-14. That left a trade gap of about US$ 6.798 billion in favour of China. In the previous fiscal the gap was US$ 5.864 billion.
To offset the huge trade gap and explore the vast market potential in China, the government’s export promotion agency is likely to discuss the issue at a meeting soon with exporters and entrepreneurs to identify the roadblocks that stand in the way of increased exports from Bangladesh.
“We have already requested the Chinese government to relax the rule of origin to give us a competitive advantage in the Chinese market,” said EPB Vice Chairman Shubhashish Bose told the FE.
Currently, the level of rules of origin or local value addition is set at 40 per cent for getting duty free market access to China, meaning Bangladeshi clothes or other exports should have at least 40 per cent of local contents. “We demanded 20 per cent value addition,” said the EPB chief adding that the government had also sought duty-free access for 17 additional products to China, to reduce trade imbalance between the two countries.
China also proposed Bangladesh sign a Free Trade Agreement in December last to promote trade and business between the two countries and reduce the yawning trade gap. The FTA, economists apprehend, might have some adverse impact on local industries and invite cheap Chinese products, which have flooded the local market.
The items Bangladesh exports to China include readymade garments and textiles, fish and crabs, leather and leather goods, jute and jute yarn and plastic waste, according to the EPB data. The apparel products constitute one third of the export items.
Bangladesh’s top imports from china are mainly intermediates for the textile and garment industry and these already have duty free access into the Bangladeshi market. The prospective FTA could then have little impact on garment producers
“If China relaxes the rules of origin, the country would be able to export much to the Chinese market,” said Dr. Khondker Golam Moazzem of Centre for Policy Dialogue (CPD).
Dr Moazzem also put emphasis on introducing Preferential Trade Agreement, a trade pact between countries that also provides preferential access to certain products from the participating countries.
Despite the setbacks, he said there are scopes for enhancing export of both traditional and non-traditional products if RoO becomes flexible and preferential market access extended to other products.