RCEP: Bangladesh ignoring the centre of gravity

M S Siddiqui

23 Dec 2021 00:00:00 | Update: 23 Dec 2021 10:04:30

https://businesspostbd.com/post/41591

The Regional Comprehensive Economic Partnership (RCEP) will be the

world’s largest trading bloc in economic size, and is set to become a new

centre of gravity for global trade. It will enter into force on 1 January 2022.

RCEP includes 15 Asian and Pacific nations: Australia, Brunei, Darussalam,

Cambodia, China, Indonesia, Japan, the Republic of Korea, Laos, Malaysia,

Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

Its impact on international trade is expected to be significant. Under the RCEP

framework, trade liberalization will be achieved through gradual tariff reductions.

Many tariffs will be abolished immediately, while others will be reduced gradually

during a 20-year period. The concessions are key in understanding the initial

impacts of RCEP on trade, both inside and outside of the bloc. The export losses of

countries such as Bangladesh, Pakistan, Sri Lanka are more significant when

measured in percentage terms. In the case of Bangladesh, it is expected that about

12 per cent of its export to RCEP would be diverted to favour RCEP members. The

United Nations Conference on Trade and Development (UNCTAD) made the

estimate in its latest report titled “A new centre of gravity: The regional

comprehensive economic partnership and its trade effects” released on December

15, 2021.

This FTA includes 15 East Asian and Pacific Nations of different economic sizes

and stages of development, representing around 30 per cent of world GDP. Intra

RCEP-trade was already worth about US$ 2.3 trillion (2019) and this analysis

shows that RCEP’s tariff concessions would further boost the intraregional exports

of the newly formed alliance by nearly 2 per cent, approximately US$42 billion.

Most of these gains come from trade diverted away from non-members.

The pact will progressively remove both tariff and non-tariff barriers on trade in

both goods and services. Tariff concessions in the manufacturing sectors are

expected to add about US$ 30 billion to intra-RCEP trade, or an increase of about

2 per cent. More than 60 per cent of this gain, US$ 18 billion, comes from trade

diversion effects. Overall, the tariff concession of RCEP results in gains where

trade diversion effects represent 60 per cent, while trade creation represents 40 per

cent. As the process of integration goes further these effects could be magnified, a

factor that should not be underestimated by non-RCEP members. Agricultural

trade is expected to see gains of about US$ 10 billion, equivalent to an increase of

7 per cent. Most of this gain is expected to come from trade diversion effects from

non-member countries.

As the process of integration of RCEP members goes further, these diversion

effects could be magnified, a factor that should not be underestimated by non-

RCEP members. This is the result of two forces: trade creation, as lower tariffs

would stimulate trade between members, by nearly US$17 billion; and trade

diversion, as lower tariffs within RCEP would redirect trade away from non-

members to members, equivalent to nearly US$25 billion.

The agreement goes beyond tariff concessions and encompasses other areas of

cooperation to foster regional integration among its members. For example, a

single document covering several processing stages and border crossings will

suffice to prove the origin of goods. Documentation of data accompanying the

trade will be able to occur centrally, in RCEP member countries. The combination

of reduced tariffs, facilitated cross-border trade and standardised rules of origin

will trigger a re-organisation of supply chains. It will strengthens economic

integration and the benefits that may come with it, such as foreign direct

investment, technology sharing, structural transformations, among others.

With the signing of the RCEP, the announcement of the EU-China Comprehensive

Agreement on Investment (CAI) on 30 December, and the prospects of enlarging

the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

(CPTPP), trade policy with and within Asia is gathering speed. In the greater East

Asia region, consisting of Japan, South Korea, China and the Association of

Southeast Asian nations (ASEAN), economic integration via trade, investment,

supply chains and digital connectivity will accelerate. In contrast, regions that

remain on the outside – i.e. North America, Europe and India – surely fear that

trade flows will be diverted. UNCTAD study report fear the possible bad impact

on trade of Bangladesh as well.

India opted to stay out of RECP due to their fear of Chinese dominate role in

RCEP. RECP will become a new centre of gravity for global trade with China in

the centre point of the block. One the China is major supply source of raw

materials to Bangladesh. The economic and trade perspective is different for

Bangladesh and India. An USA based weekly newspaper THE DIPLOMAT article

opined (author was a Bangladeshi) on November 05, 2021 that “Bangladesh

expressed interest in joining the mega partnership. But with India pulling out,

critics are now questioning whether Dhaka acted prudently by showing interest in

the grouping”.

Whatever be the regional politics, Bangladesh is in a global value chain (GVC)

with upstream supply from China and the emerging export market is China, Japan

Korea and ASEAN countries. By joining RECP, Bangladesh may gain most from

regional market. For GVCs, low trade barriers between participating countries are

particularly important because products cross country borders multiple times –

with high barriers, high costs accumulate, and this type of production becomes

unprofitable. Therefore, with the emergence of GVCs in Asia, RCEP members

have had great incentives to liberalise trade policy.

Bangladesh authority is still undecided about FTA with major trade partners. Md

Abdus Samad Al Azad, Joint Secretary (FTA-2) of Commerce Ministry told a

daily newspaper that the ministry was studying the merits and demerits of the

RCEP agreement and prospects of Bangladesh’s joining with trade pact. Due to

FTAs throughout the world, Bangladesh is alone and in a similar situation like

falling in the ocean from a ship but preparing to study feasibility of swimming!

Bangladesh has one best option to join the RCEP that will facilitate to regain the

lost opportunities of FTA with many countries like ASEAN, China, Japan,

Australia etc. Alternately, it may pursue these countries for bilateral FTA with is

time consuming. These countries now may not agree to negotiate bilateral

agreement. For instance, Japan was willing for FTA with Bangladesh but now not

very keen as in a recent interview; the Japanese Ambassador in Bangladesh

observed that Japan might negotiate FTA with Bangladesh if Japanese

businesspersons ask for any FTA. Other countries also may not now waste their

time to negotiate FTA with Bangladesh as they are in process finalizing trade

partnership with multipole bilateral and regional FTAs. Does Bangladesh have any

other option except joining a trade block like RCEP?

The writer is a legal economist He can be contacted

at mssiddiqui2035@gmail.com