China-Bangladesh Trade Deal: What It Is All About And How India Actually Stands To Gain From It

From 1 July this year, China will not impose any customs duty on an additional 5,161 merchandise goods from Bangladesh apart from the imports of 3,095 products duty-free that it is currently permitting.

The State Council of Ministry of Finance in China made this announcement last weekend making imports of nearly 97 per cent of the products exported from Bangladesh to Beijing duty-free.

Bangladesh has described this as a victory for its economic diplomacy, though a section of the Indian media has painted this development as a snub to India following clashes between Indian and Chinese armies at the Line of Actual Control (LAC) near Ladakh.

The Bangladesh Foreign Affairs Ministry has said that China’s offer comes on the heels of a protracted communication between both the countries.

Bangladesh has got this concession from China because it has sought it as a least developed nation.

China made a commitment at the Asia-Africa conference in Jakarta in 2015 to offer duty-free access to its markets for 97 per cent of products from least-developed countries, provided they had diplomatic relations with it.

A section of the Indian media and some Indian commentators have termed the deal as China’s “charity” to Bangladesh. But its Foreign Minister A K Abdul Momen has regretted the comments saying it reveals their “narrow-mindedness”.

The Sheikh Hasina government has made it clear that the remarks from sections of the Indian media were “entirely unacceptable” and regretted that they have renounced their “ethics” .

Bangladesh has a point on this issue and the intentions of sections of Indian media seem to not only hurt Dhaka but also show the Narendra Modi government in poor light.

There are a couple of reasons why the trade deal is not something that will affect India.

The deal is one that benefits Bangladesh immensely and it has, in fact, got what it wanted without yielding much to Beijing.

This duty-free access to 97 per cent of Bangladesh imports into China is an issue pending since 2015. Then, China offered various concessions to Bangladesh to cover duty-free access for 97 per cent of the latter’s products.

There was one catch, however, in that offer. If Dhaka were to avail of this concession, then it would not enjoy any benefit under the Asia Pacific Trade Agreement (APTA), earlier known as the Bangkok Agreement.

India is also a member of APTA.

Bangladesh failed to respond then and it began moving China for the concessions as a least developed country late last year. Beijing was to have issued a letter to Dhaka on this issue in January this year but it got delayed due to the outbreak of novel coronavirus pandemic.

Indian media and commentators should take note of the fact that this is just a trade concession offered by China and not any free trade agreement (FTA) between Dhaka and Beijing.

In March this year, a Bangladesh Commerce Ministry official Sharifa Khan told the Daily Star newspaper that the Sheikh Hasina government was more interested in deriving trade benefits from Beijing as a least developed country (LDC) instead of signing an FTA.

Bangladesh is not interested in signing an FTA with China because the latter is its largest trading partner and signing such an agreement will result in Dhaka losing huge revenue annually.

Chinese exports to Bangladesh amount to $14 billion annually (Rs 1.06 lakh crore). This helps Dhaka earn a revenue of 23,000 crore Taka (Rs 20,500 crore) as customs duties.

The earnings make up nearly one-third of the revenue that Bangladesh earns every year through duties on imports. Dhaka is clear that it does not want to sign an FTA for this very reason, though China has long been pursuing it for such an agreement.

The Bangladesh garment industry, which has overtaken India in acquiring the second position in the global export market, is heavily dependent on China for its fabrics and other input materials.

The Bangladesh knitwear industry imports about 60 per cent of its total requirements from China since its domestic industry faces raw materials shortage, especially cotton.

Dhaka also depends on Beijing for its dyes, chemicals and machinery requirements. In turn, China is one of the largest buyers of Bangladesh garments and its demand is increasing with every passing day.

Garments make up nearly 80 per cent of the nearly $700 million (over Rs 5,300 crore) of Bangladesh exports to China.

According to the Federation of Bangladesh Chambers of Commerce and Industries, the duty concession extended by China will help Dhaka cut down its trade deficit with Beijing.

Bangladesh expects a quantum jump in its exports to China. India should probably sense an opportunity in this deal for two reasons:

One, increased garment exports to China from Bangladesh could mean India could look at the markets where Dhaka could have problems in meeting the rising demand.

Two, the Bangladesh woven industry is heavily dependent upon Indian cotton for meeting its demand. That way, India, which faces a production glut, can not only hope to sell its excess stocks but also help its farmers earn more.