Bangladesh wants to secure more trade benefits from China as a least developed country (LDC) instead of signing a free trade agreement with the Asian economic giant, according to commerce ministry officials.
"We don't want to sign an FTA with China because the country is the largest trading partner of Bangladesh. If we sign the FTA, we will lose a lot of revenue each year," said Sharifa Khan, additional secretary (FTA) of the commerce ministry.
The commerce ministry has already accepted China's offer for the duty-free import of 97 per cent of all Bangladeshi products under the LDC category, effectively rejecting the benefits the country would have received under the Asia-Pacific Trade Agreement (APTA).
Bangladesh and China are both APTA member nations.
In 2015, China, Bangladesh's largest bilateral trade partner, offered various LDCs extensions on the trade benefits for up to 97 per cent of their goods. However, nations that took up the offer were no longer allowed to enjoy the benefits under the APTA.
Since Bangladesh was late in its response, China will now send a fresh offer for 95 per cent of the country's goods.
China was supposed to issue a letter to Bangladesh in this regard in January."But unfortunately, the letter is yet to be received by the commerce ministry due to the coronavirus outbreak," Khan told The Daily Star over phone.
Incoming goods from China amount to more than $14 billion and earn Bangladesh Tk 23,000 crore as import duty each year.
The import duty levied on the Chinese products accounts for 30 per cent of the total revenue collected from import duties annually.
"So, we are not interested to sign the FTA with China even though the Chinese government does want to," the additional secretary said.
However, Bangladesh is close to signing an FTA with Indonesia and the deal could be finalised this year if normalcy is restored after quelling the coronavirus outbreak.
"Once we graduate to a developing country in 2024 and come out of the LDC bracket, we will again enter the APTA to enjoy trade benefits from China," Khan added.
China is a vital trade partner of Bangladesh for various reasons. For instance, the country's garment industry is heavily reliant on Chinese fabrics although local manufacturers can supply nearly 80 per cent of the yarn required by the knitwear sector.
Bangladesh's woven garment makers import nearly 60 per cent of all the fabrics they require directly from China as local weavers cannot supply adequate raw materials.
In total, apparel makers in the country source 46 per cent of their raw materials from China.
Bangladesh is also dependant on Chinese dyes, chemicals and capital machinery.
The bilateral relations between the two nations go deeper though as China is now a major export destination in the Asian region for Bangladesh.
China is one of the biggest consumers of apparel products in the world. The domestic market for garments in China is worth $350 billion as the middle income bracket is expanding, according to estimates from the International Textile Manufacturers Association.
Apparel exports from Bangladesh to China are increasing with time as a section of consumers in the middle income bracket cannot afford the high-end garment items made in China.
This is why they depend on cheaper Bangladeshi products, industry insiders said.
The cost of apparel production in China has gone through the roof due to a shortage of skilled workforce. This is because the workers prefer jobs in more sophisticated technological industries rather than the garment sector.
The export of various merchandise, especially apparel products, from Bangladesh to China has grown rapidly in recent years following increased demand while preferential trade benefits are given to local exporters.
In fiscal 2018-19, Bangladesh's total exports to China amounted to $831.20 million while it was $694.97 million just the previous year, according to the Export Promotion Bureau.
In the February-July period of the current fiscal year, Bangladesh earned $470.20 million through exports to China. Of that total, garment exports accounted for 80 per cent.
"Bangladesh should enjoy the duty-free benefits for 97 per cent of its goods and reject the APTA for the greater interest of the country," said Abdur Razzaque, research director of the Policy Research Institute.
Currently, there are about 65 Bangladeshi goods that are allowed duty-free access to the Chinese market under the APTA while more than 5,000 goods enjoy the same benefit under the LDC coverage.
"That's why Bangladesh needs to accept the 97 per cent package," Razzaque told The Daily Star.
It is believed that China would be Bangladesh's third Asian export destination after Japan and India, where the country would be able to send more than $1 billion worth of goods.
Currently, Vietnam and Cambodia are enjoying increased exports to China since they have preferential trade agreements with the world's most populous nation.
"If Bangladesh is granted the 97 per cent package, exports to China will increase manifold," Razzaque said.