Duty-free access to China offers little hope for export growth

Highlights

• China had already granted Bangladesh duty-free access for 98% of its products in 2022
• It covered everything except alcohol, arms, corn, and nuclear items
• Since Bangladesh does not export these excluded goods, the extension of duty-free access is unlikely to significantly boost the country’s export capacity
• Experts suggest attracting Chinese investment into Bangladesh’s industrial sector to increasing exports to China 

China, the world’s second-largest economy, has extended duty-free market access to 100% of Bangladesh’s products, but this offer has generated little enthusiasm among exporters, policymakers, and economists.

Despite the facility being available since December this year, they do not see the possibility of increasing exports, as there are no products besides readymade garments in the export basket of the South Asian nation.

According to officials, China had already granted Bangladesh duty-free access for 98% of its products in 2022, covering everything except alcohol, arms, corn, and nuclear items. Since Dhaka does not export these excluded goods, the extension of duty-free access is unlikely to significantly boost the country’s export capacity.

Exporters and policymakers argue that there is little opportunity for Bangladesh to expand its garment exports to the Chinese market. Beyond RMG, there are no other products in the country’s export basket that China imports on a significant scale. As a result, increasing exports to China will likely require attracting Chinese investment into Bangladesh’s industrial sector.

Manufacturing costs in China remain the lowest in the world for many products. Consequently, Bangladesh is unable to produce these goods at prices competitive with those offered by Chinese manufacturers.

Officials say China imports only $10 billion worth of high-end garments annually from various developed countries. In addition, the country sources some ready-made clothing from factories operated by Chinese investors in Vietnam and Cambodia.

Since 2015, approximately 3,000 Bangladeshi products have benefitted from duty-free access to China under the Asia-Pacific Trade Agreement, requiring a 35% value addition for eligibility. After this facility was cancelled, China first granted duty-free access to 97% of goods in 2020, contingent on a 40% value addition, which was later increased to 98% two years later.

Recently, Beijing announced it would provide 100% duty-free access to all least developed countries, including Bangladesh, starting next December.

According to data from the Export Promotion Bureau, despite the expanded duty-free export facilities, Bangladesh’s exports to China have declined rather than increased. During this period, the overall export landscape for Bangladesh has been affected by factors such as the Covid pandemic and the Ukraine-Russia war. Bangladesh’s exports to China were valued at $831 million in the fiscal 2018-19, but this figure dropped to $677 million in FY23.

A study titled “Accessing the Growing Import Market of China: Strategies to Realise Potential Opportunities,” published by the Centre for Policy Dialogue last December, revealed that the total trade value between Bangladesh and China reached approximately $29.1 billion in 2022. Of this, Bangladesh’s exports to China accounted for $1.13 billion, while imports from China amounted to $28 billion.

“We lack the capacity to export the products that China imports. Bangladesh cannot benefit from the Chinese market solely through ready-made garments.”

Al Mamun Mridha, Secretary General, Bangladesh-China Chamber of Commerce and Industry

When asked about the reasons for this situation, Al Mamun Mridha, Secretary General of the Bangladesh-China Chamber of Commerce and Industry, told The Business Standard, “We lack the capacity to export the products that China imports. Bangladesh cannot benefit from the Chinese market solely through ready-made garments.”

He noted that China has requested a list of exportable products from Bangladesh. The country has expressed interest in exporting ICT products, leather, marine fish, shrimp, and mangoes, and is now also exploring the export of guava. Beijing has assured Dhaka that it will increase imports of these products.

Mridha said Dhaka has proposed to Beijing that China could invest in Bangladesh’s economic zones to produce products that it currently imports from other countries, which could then be exported to China. Since exports from Bangladesh would enjoy duty-free benefits, this could significantly advantage Chinese companies.

He further said China is relocating its factories across various sectors worldwide. If a portion of this production shifts to Bangladesh, exports from Bangladesh to China will likely increase. Currently, goods can be transported by sea from Bangladesh to China in just nine days, allowing Chinese importers to source products from Bangladesh at lower costs and in less time.

Mostafa Abid Khan, a former member of the Bangladesh Trade and Tariff Commission, told TBS, “We have no export products other than RMG. As a result, even if China offers us benefits, we are unable to capitalise on them. Moreover, the export duty on garments produced in the Chinese market is relatively low, at just 6%. Therefore, despite receiving duty-free benefits, Bangladeshi RMGs cannot compete effectively with Chinese RMGs.”

He said Bangladesh has been discussing export diversification for many years, but the government has yet to implement any policies to support this. “The Chinese do not widely use jute products, which limits opportunities for increasing jute and jute product exports. However, there is significant potential for leather exports, and both government and private sector initiatives should be developed to seize this opportunity,” he added.

Hafizur Rahman, former director general of the WTO Cell at the commerce ministry, told TBS that despite China providing duty-free facilities, Bangladesh’s exports are not increasing due to various non-tariff barriers and strict rules of origin.

“The condition for duty-free benefits under China’s Rules of Origin requires a minimum value addition of 40%. Other than Bangladeshi knitwear, no other garments can meet this condition,” he explained. “Additionally, China imposes various testing requirements on imported products as non-tariff barriers, and goods often face long delays at Chinese customs. As a result, exporters are reluctant to ship products to China.”

However, he believes there is an opportunity to increase the export of intermediate products from Bangladesh. Rahim Afroz previously exported significant quantities of LED batteries to China, but export volumes have recently declined as the company has weakened.

There is potential to boost exports of light engineering products, electronics, and float glass. While there isn’t much demand for lobsters in China, Bangladesh has begun farming Vannamei shrimp, which can be exported to China. However, it is important to note that China still produces the lowest-cost products in the world, he added.

Economist Professor MA Razzaque told TBS that China imports only $10 billion worth of ready-made garments from the global market, most of which are high-end products. Additionally, only a few items are imported from Vietnam and Cambodia, primarily exported by Chinese companies.

He noted that Bangladesh cannot manufacture all of these products at prices comparable to those found on Alibaba.com. Therefore, to penetrate the Chinese market, attracting Chinese investment will be essential. It’s important to recognise that Chinese investment encompasses more than just large infrastructure projects like bridges and roads.