The Rationale Of Bangladesh’s Economic Cooperation Agreement With Japan – OpEd

With flags that share a brotherly resemblance, Japan and Bangladesh embarked on a unique journey on February 10, 1972. Since then, Japan has steadfastly supported Bangladesh’s development efforts, fostering a bond rooted in trust and friendship. Over 52 years, this relationship has transcended mere diplomacy, evolving into a profound heart-to-heart connection.

The foundations of the current relationship are firmly anchored, even though economic cooperation and bilateral trade interests predominate in the modern stage of diplomatic ties between the two countries. Now, Bangladesh is regarded by Japan as an “attractive” investment location and an economy that is “rapidly developing.” The Land of the Rising Sun wants to elevate the bilateral ties with Bangladesh by having an economic partnership agreement (EPA) to offer preferential treatment to businesses even after graduation to middle-income ones.

The Rationale of the Economic Cooperation Agreement with Japan

The government of Bangladesh recently took a significant step by commencing negotiations for the Economic Partnership Agreement (EPA) with Japan. This agreement aims to continue zero-duty entry of Bangladeshi products to Japan in the post-LDC era. After Bangladesh transitions from a less developed country, such an economic partnership agreement will be necessary if duty-free facilities are removed. With this agreement, Japan and Bangladesh will be able to seek access to the world market together through trade and investment cooperation.

If the EPA is signed with Japan, the country will get duty-free benefits even after it becomes a developing country in 2026. A joint survey with Japan has already been conducted with EPA. Three rounds of meetings were held in April, July, and September last year. Seventeen sectors were identified in the meetings. Later last December, both governments released and approved the joint survey report.

By initiating negotiations for the EPA now, Bangladesh aims to ensure continuity in trade benefits, thereby supporting its export-oriented economy and maintaining its competitive edge in the global market. Overall, this decision marks a crucial milestone in Bangladesh’s economic trajectory, reflecting its determination to navigate the complexities of international trade dynamics and secure favorable terms that will benefit its economy in the long term.

Senior commerce secretary Tapan Kanti Ghosh highlighted the criticality of the EPA, stating that without it, Bangladesh would incur more than an 18 percent duty on exported goods after 2026. Thus, he highlighted the urgency and importance of securing this agreement to safeguard Bangladesh’s economic interests. 

For the first time, there will be an Economic Partnership Agreement with a country with a large economy. This agreement will be made before 2026. EPA will also have trade and customs issues and export of services, investment, trade facilitation, and intellectual property. In light of the EPA, the problems of Japanese investors will be resolved. It will accelerate foreign investment and industrial production. Both countries will benefit economically as a result of this agreement. This agreement will deepen bilateral trade and investment between Bangladesh and Japan.

Future of Japan-Bangladesh ties

Bangladesh gets duty-free and quota-free access when exporting goods to developed and developing countries, which it will lose after 2026. Then Bangladesh will have to pay 18 percent duty. Following this, Bangladesh’s export products must face standard tariffs when entering those countries’ markets. As a result, Bangladesh’s export market is likely to shrink in all those countries.

If Bangladesh can enter the global value chain through Japanese investment, it can be a game changer in terms of product diversification and economic prosperity. Japanese ambassador Iwama Kiminori said the EPA will expand trade by reducing tariffs and improving the business environment. In addition to attracting investment, it will play a role in diversifying Bangladesh’s products. He also commented that Bangladesh could use the knowledge from the EPA negotiations with Japan to negotiate such agreements with other countries.

More than 315 Japanese companies are operating in Bangladesh, and the size has tripled over the last decade. As reported by JETRO, 71% of the firms are keen on expanding their operations in the following couple of years, as they consider Bangladesh a promising location for investment. Japan is the fifth-largest source country for Bangladesh’s merchandise imports, which cost more than $2bn. Bangladesh has witnessed Japan becoming a major consumer of Bangladeshi textiles and garments. For RMG products, Bangladesh’s exports to Japan have nearly doubled in the last decade.

It is worth mentioning that Japan is the fourth largest economy in the world and an important trading partner of Bangladesh. In the last fiscal year, 2022-23, Bangladesh imported goods worth US$ 203 million from Japan. In the same fiscal year, Bangladesh exported goods worth 190 million dollars to the country. In this connection, the strategic partnership will steer to negotiate an early possibility of signing a bilateral Economic Partnership Agreement (EPA), which may position Bangladesh to avoid the erosion of 97.9% Duty-Free Quota Free (DFQF) access of Bangladeshi products to the Japanese market during the post-LDC era.

In 2026, Bangladesh will graduate from the least developed countries (LDC) status and aims to become a developed country in 2041 by achieving “Vision 2041.” Japan wants to continue to stand by Bangladesh in its development journey. Over time, Japan has become one of Bangladesh’s time-tested friends, major bilateral donors, and investors. However, the two countries’ business and investment partnerships and diplomatic alliances have increased significantly recently. So, it is the perfect time for both countries to capitalize on fresh chances to deepen existing relations. In this regard, Bangladesh and Japan should sign the economic partnership agreement (EPA) soon to deepen and expand bilateral trade and investment between the two nations.