United News of Bangladesh

Bangladesh’s potential accession to the Regional Comprehensive Economic Partnership (RCEP) could deliver positive trade and welfare gains, but also pose significant fiscal and structural challenges, according to a new study. The analysis, conducted by the Research and Policy Integration for Development (RAPID) and published recently, suggests that while joining the world’s largest trade bloc may not immediately transform Bangladesh’s export performance, it could act as a long-term catalyst for economic diversification, regional integration and investment inflows. RCEP, the world’s largest free trade agreement, was signed in November 2020 and came into force on January 1, 2022. The bloc brings together 15 Asia-Pacific economies, comprising the 10 ASEAN member states along with Australia, China, Japan, New Zealand and South Korea, and accounts for nearly 30% of global GDP and population. The agreement aims to lower tariffs, harmonise trade rules and facilitate more efficient regional supply chains. Bangladesh has expressed interest in joining RCEP and has sought New Zealand’s support to secure membership in the world’s largest trade pact. The request was made in March during a bilateral meeting between Commerce Minister Khandakar Abdul Muktadir and New Zealand Trade and Investment Minister Todd McClay in Yaoundé, Cameroon, on the sidelines of a World Trade Organization conference. The study finds that Bangladesh’s exports to RCEP markets could rise modestly, reflecting the country’s existing preferential access as a Least Developed Country (LDC) in several member economies. Simulation results show exports could increase by about $415 million, with an additional $80 million diverted from non-RCEP markets, amounting to less than 1 percent of total exports. “This relatively small gain should not be misinterpreted as a lack of potential,” the report notes, highlighting that Bangladesh already enjoys duty-free access in key markets such as China, Japan and Australia. However, the broader significance lies in positioning Bangladesh within the fast-growing production networks of East and Southeast Asia, where trade is increasingly driven by integrated value chains rather than standalone exports. Currently, Bangladesh’s trade with RCEP is heavily import-dependent, with nearly 70% of total imports sourced from the bloc, while exports remain limited and concentrated in ready-made garments. One of the most immediate risks identified is a sharp decline in tariff revenue following liberalisation. The study estimates that Bangladesh could lose around $4.2 billion in tariff revenue under full liberalisation, equivalent to roughly 1.7% of GDP and nearly 75% of current tariff income. The largest losses are expected from imports originating in China, followed by India and Japan, as tariff elimination and trade diversion shift sourcing patterns. Key affected sectors include electrical machinery, industrial inputs, metals and motor vehicles – products that currently generate a substantial portion of government revenue. Despite these losses, the study notes that consumer welfare will improve due to lower import prices, generating a net welfare gain of over $950 million. The modelling results indicate that Bangladesh will experience a net positive trade effect, driven primarily by increased imports from more efficient RCEP suppliers. Trade creation is expected to exceed trade diversion, although the margin remains relatively narrow. China is projected to capture the largest share of increased trade flows, followed by countries such as Indonesia, Vietnam and Thailand, reflecting their strong industrial base and competitiveness within the bloc. At the same time, non-RCEP partners such as India, the European Union and the United States could face reduced market share in Bangladesh due to shifting import patterns. The report emphasises that Bangladesh's real opportunity lies beyond immediate trade gains, particularly in integrating into regional value chains. Lower-cost imported inputs and improved trade facilitation could enhance competitiveness across multiple sectors, including textiles, leather goods, footwear, pharmaceuticals, plastics and light engineering. Footwear and selected non-RMG products show particularly strong growth potential, with some items projected to see export increases exceeding 100% under tariff liberalisation scenarios. Such diversification is critical as Bangladesh prepares for LDC graduation, which will gradually erode its existing preferential market access. The study also highlights opportunities in digital trade and services, supported by RCEP provisions on e-commerce, paperless trade and data flows. RCEP accession could also serve as a signal to global investors that Bangladesh is ready to operate within a rules-based trade framework. The agreement’s investment provisions covering transparency, investor protection and capital flows could help attract foreign direct investment, particularly in export-oriented manufacturing sectors. However, realising these benefits will depend heavily on domestic reforms, including improvements in infrastructure, logistics, regulatory consistency and energy supply. “RCEP can act as a strategic catalyst, but only if complemented by strong domestic policy adjustments,” the report suggests. Beyond tariffs, Bangladesh will need to align with a wide range of non-tariff measures under RCEP, including standards on customs procedures, sanitary and phytosanitary rules, and technical regulations. While these changes could reduce trade costs and improve market access, they would require significant institutional upgrades and regulatory capacity. The compliance burden is expected to be substantial, particularly given existing constraints in administrative and technical capabilities. The study recommends a phased approach to tariff liberalisation, allowing Bangladesh to manage revenue losses while strengthening domestic tax systems. High-revenue sectors such as fuels, machinery and chemicals may require longer transition periods to avoid abrupt fiscal shocks. At the same time, broader tax reforms, including improvements in VAT administration, will be necessary to offset declining border taxes. Overall, the report concludes that RCEP accession presents a mixed but potentially transformative opportunity for Bangladesh. While short-term export gains may be limited and fiscal risks significant, the long-term benefits – ranging from industrial upgrading to deeper regional integration – could be substantial. As Bangladesh navigates its post-LDC transition, joining RCEP could help secure more stable market access, attract investment and integrate into global production networks. However, the success of such a move will depend on careful policy design, institutional preparedness and the ability to manage the economic adjustments that come with deeper trade liberalisation.