Strict rules of origin stunt exports to Korea
Stricter rules of origin in the South Korean market have made it hard for Bangladeshi manufacturers to increase exports to that country, where Bangladesh enjoys a duty-free access, analysts said at a discussion in Dhaka yesterday.
The rules demand higher value addition of Bangladeshi products, meaning the goods should have higher local contents.
The observation came at a dialogue co-organised by the Korean Embassy and the Centre for Policy Dialogue at the Westin Hotel.
“Despite having a duty-free access to the Korean market, Bangladesh is yet to boost its exports there due to a higher requirement for local contents,” said Khondaker Golam Moazzem, additional research director of the CPD.
“If Korea relaxes the rules of origin, Bangladesh would be able to export much to the Korean market,” he said. At the session chaired by CPD Executive Director Mustafizur Rahman, Moazzem also talked about the trade benefits Bangladesh's competitors enjoy in the Korean market.
China, Vietnam and Cambodia have geographical proximity to Korea, while India has a bilateral free trade agreement with the Asian economic giant.
Bangladeshi products enjoy duty-free access to the EU market even if the goods are made of imported materials, while Canada gives the benefit on 25 percent value addition.
But Korea keeps the value addition requirement for Bangladesh at 40 percent, meaning Bangladeshi clothes or other exports should have 40 percent local contents.
Bangladesh's exports to Korea amounted to $345 million in fiscal 2013-14, though its total exports were worth $30 billion, according to Export Promotion Bureau.
Exports from Bangladesh to Japan, a neighbour of Korea, have been increasing fast and reached $862.08 million in fiscal 2013-14, from $750.27 million in the previous year.
Commerce Minister Tofail Ahmed said, although Korea provides duty-free market access for major products of Bangladesh under its generalised system of preferences (GSP) for least developed countries, Bangladesh is yet to utilise the facility due to strict rules of origin.
Former commerce secretary Sohel Ahmed Chowdhury called upon Korea to ease the rules to help boost Bangladesh's exports to its market.
However, Kihak Sung, chairman and chief executive of South Korea's Youngone Corporation, which is a major exporter of apparel products from Bangladesh, differed with others on the issue of rules of origin.
“Forty percent local value addition is not so high, rather it could be a blessing for Bangladesh,” he said, adding that Bangladesh can overcome the challenge by enhancing its port efficiency.
The commerce minister said Bangladesh has to think twice before going for an FTA as the country enjoys duty-free market access to many countries, including Korea.
Prof Moonsung Kang of Korea University, who presented a paper on Korea's foreign economic policies in the era of East Asian integration, shared the story how his country became an industrialised nation from an agrarian economy 40 years ago.
The country's economy was $1,304 billion in 2013, up from just $8.2 billion in 1970. Korea's exports reached nearly $560 billion in 2013 from only $835 million in 1970. Imports also soared nearly 260 times since 1970.
The US had been Korea's largest export destination for 30 years. Gradually China replaced the US and has been Korea's largest export market since 2003.
Garments were the top export products of Korea, being one-fifth of its total exports in 1977. Now semiconductors, cars, ships and auto parts took the place. The country now makes high-tech machinery, which they used to import in 1970s.
In Korea's economic development over the years, FTAs have played an important role, according to Prof Kang. Now the country has 10 FTAs and another five are in the offing, Kang said.
“Korea had focused on multilateralism in late 1990s, but later it emphasised regionalism, hoping to secure foreign markets through FTAs with major trading partners,” he said.
Political stability and leadership have also played an important role in the country's economic development, he said.
Lee Yun-young, Korean ambassador, said Bangladesh should work for skills development of its human resources. He called upon factory owners to start evening schools at their factories to educate workers for better productivity.
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