Why to sign EPA with Japan at a good speed?

Bangladesh will surely have an improved brand image after the LDC graduation in 2026. However, the items on the list of challenges will be increased, particularly in the area of international trade, where the country will lose preferences and privileges under the Generalised System of Preferences (GSP), duty-free quota-free (DFQF) schemes, LDC-specific special and differential treatment (S&DT), trade-related intellectual property rights, and so on. One of the ways out is to sign a trade agreement with the partners, particularly EPA. International trade experts estimate years of negotiation to sign this type of agreement. So, the clock is ticking fast for Bangladesh to commence negotiations with trade partners. Some of the trade partners, such as the EU, offer three years of preferential market access after graduation. It has also been announced that newly graduating LDCs will enjoy flexibilities, namely the TRIPS patent waiver until 2032 and the GATS Services waiver until 2030. The WTO will continue to support measures such as the EFI (Enhanced Integrated Framework) and the Technology Bank for an additional five years after graduation. Some of the developed countries, for example, Australia, Canada, New Zealand, Norway, South Korea, Switzerland, and the USA, offer non-formal smooth transition provisions, and some of the LDC graduates have been able to maintain the GSP for LDCs after graduation. Considering Japan as the number one development partner, increasing Japanese companies in Bangladesh and trade, specialised economic zones, trade opportunities via Materbari Deep Sea Port, it is important to trade agreements before LDC benefits expire. Let me now outline why Bangladesh should sign the EPA with Japan quickly.
Firstly, Japan doesn't provide GSP and other LDC facilities after graduation. The examples are Batswana, Cabo Verde, the Maldives, Samoa, Equatorial Guinea, and Vanuatu. Therefore, the immediate signing of the EPA with Japan is very important. Nonetheless, the Bangladesh government is undertaking a number of initiatives to manage post-LDC trade challenges. The major initiatives include the National Committee on LDC Graduation (NCG) and the Joint Task Team. Five trade-related thematic subcommittees have also been formed under the NCG. However, overall actions and progress are seemingly slow. The good news is that the EPA talks with Japan are progressing faster than those with China and India. A joint study group was formed and valuating all prospects and challenges, the joint study group recommended a high-level EPA compatible with the WTO (Article 24.8 of the General Agreement on Tariffs and Trade 1994 (GATT). An EPA would undoubtedly increase trade and investment between two countries; furthermore, it would work as a significant instrument for strengthening the strategic partnership that was elevated in April 2023. The report of the study group revealed that the Japanese side raised a number of concerns regarding current systems and procedures, which they wish to resolve through the EPA. Their main concerns are simplifying and expediting the customs process, achieving high consistency of administrative measures, the elimination or relaxation of restrictions on foreign currency remittances, the WWA (Union, Workers, Welfare Association), and the fact that the labour wage increase rate in EPZ/SPZ is now 10 per cent. Bangladesh has already taken the Bangladesh Investment Climate Improvement Programme (BICIP), and it would be expected that the programme will improve the overall business environment.
Secondly, as of 2023, exports from Bangladesh to Japan total US$ 1.9 billion, and imports from Japan total $2.02 billion. Although there is a trade gap of approximately $120 million between these two countries, bilateral trade is increasing, from $3.313 billion in 2018 to $3.92 billion in 2023. On the other hand, trade deficits with India and China are very high. In the fiscal year 2022-2023, imports from India were $10.63 billion; on the other hand, exports to India were around $2.13 billion. Imports from China were around $22.95 billion, and exports were around $677 million. The list of export-imported products with both countries is very long. Therefore, significant time and effort would be required to have CEPA with these two countries rather than Japan.
Thirdly, Bangladesh's main export items to Japan are apparel products, textiles, leather, shoes, and electronics products. On the other hand, the main import items from Japan are iron and steel, ships, boats, floating structures, vehicles, machinery, electronic machinery, man-made filaments, and textile materials. However, signing an EPA can significantly increase exports to Japan. For example, light engineering products, jute and jute products, leather and leather goods, IT and IT enable services, plastic goods, footwear, furniture, fruit and agro products, vegetables, tea, wooden furniture, fish and crustaceans, ICT outsourcing, etc. Conversely, Japan will be interested in the export of iron and steel, textiles and textile materials, automobiles and auto parts, including motorcycles, and industrial machinery, including textile machinery. A reduction in tariffs will encourage Japan to export products and raw materials to Bangladesh.
Fourthly, currently, around 330 Japanese companies are operating in Bangladesh, and we are expecting an increase in Japanese companies due to our growing market and the relocation of Japanese companies from ASEAN and China due to production. The Japanese Special Economic Zone (JSEZ) in Araihazar is under construction, with an expenditure of Tk 55 billion, including the Japanese ODA of Tk 25 billion. One billion dollars of investment and the creation of 100,000 jobs are expected from 100 companies. However, till now, a total of six companies, including three from Japan, have bought plots in JSEZ. It was revealed in the Japan External Trade Organisation's (JETRO's) 2023 survey that if EPA is not signed before 2026 and Bangladesh loses GSP facilities to Japan, 33 per cent of Japanese companies may relocate. It means concerns about Japanese companies are increasing. Furthermore, ready-made garments account for 87 per cent of the total exports to Japan by both Japanese and Bangladeshi companies. If Bangladesh loses GSP, then Japanese companies may relocate to those countries that have free market access in Japan, such as India, Myanmar, Malaysia, and Vietnam. The future of the JSEZ and the overall growth of Japanese companies will be uncertain.
Fifthly, Japanese Prime Minister Kishida, at the time of his visit to India, declared Japan's vision to connect landlocked Northeast India to the Materbari Deep Sea Port, developing the Bay of Bengal-Northeast India industrial value chain. He viewed Bangladesh and other areas to the south as a single economic zone where tri-national cooperation between Japan, India, and Bangladesh is critical. Initially, Sabroom-Ramgarh road connectivity to connect Materbari Deep Sea Port is progressing well. India and Japan are undertaking a number of initiatives aiming to achieve this vision, such as feasibility studies, surveys, and the 'Kizuna'-India and Japan Intellectual Conclave, in which Bangladesh is also participating. This vision of Japan can be significant for Bangladesh if we can ensure our interests. EPA with Japan from this perspective is also critical.
Finally, Bangladesh has requested Japan to provide training on the EPA negotiation. As the country only has a PTA with Bhutan, it would be a significant experience for Bangladesh to negotiate with other countries, as trade volume and items are more moderate with Japan than with other giant trade partners. JETRO already undertook capacity enhancement training and Japan International Cooperation Agency (JICA) is expected to provide training soon.
Japanese FDI, followed by significant infrastructural development, contributed to the economic development of ASEAN countries, including China. However, after the increase in production costs in China, Japan took the 'China-plus One' policy to shift Japanese companies from China to elsewhere, and perhaps Vietnam is able to encash the policy by having around 2000 Japanese companies. Now, production costs in Vietnam are also increasing, and if we have the EPA in place and SPZs becomes fully operational, the number of Japanese companies will undoubtedly increase due to the local market size of around 170 million and the opportunity to export to Japan, ASEAN, and beyond. On the other hand, Japan will not want to lose its current exports of Bangladesh to India and China due to the absence of trade agreements. Moreover, exports from Bangladesh are expected to grow significantly as well. However, increased Japanese FDI and more trade with Japan investment can be blessed with the Japanese investment that may help achieve our development vision. Furthermore, the EPA with Japan will work as a catalyst for Bangladesh to sign trade agreements with other trade partners in many regards. The GSP facility in Japan will end on March 31, 2027, and the EPA needs to be effective on April 1, 2027. The good news is that the first round of negotiations will begin on May 19 in Dhaka, with the goal of completing the negotiations by 2026. Bangladesh should make all-out efforts to complete the negotiation within 2026. However, the EPA negotiation needs to be completed in a win-win situation where the role of the Bangladeshi negotiators is critical.

Abdullah-Al-Mamun, PhD is Associate Professor, Department of Japanese Studies, University of Dhaka & Executive Director (Hon.), Pan-Asia Research Institute, Tokyo.
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