Dhaka expects EPA with Tokyo by 2026 for post-LDC duty-free access

Infographics: TBS

Bangladesh and Japan have agreed to officially commence negotiations for the signing of an Economic Partnership Agreement (EPA) by 2026, with Dhaka aiming to attract more investment from the world's fourth-largest economy while also securing the continuation of duty-free export facilities after its graduation from least developed country status.

State Minister for Commerce Ahasanul Islam and Japanese Ambassador to Bangladesh Iwama Kiminori made the announcement at a joint press conference at the ministry in Dhaka on Tuesday.

Japan is one of Bangladesh's largest trade and investment partners. As an LDC, the South Asian nation currently benefits from duty-free market access to Japan, which will cease to exist after LDC graduation. Without the signing of a free trade agreement, or EPA, Bangladesh will face average tariffs of 18% on exports to the island nation.

Bangladesh's exports to the Japanese market are rapidly increasing. Shipments from Bangladesh to the East Asian country totalled $1.9 billion last fiscal year, while imports amounted to $2 billion.

Currently, more than 300 Japanese firms have invested in Bangladesh. Japan's total foreign direct investment in Bangladesh since independence amounts to a mere $3 billion.

Ahasanul Islam said the Japanese Economic Zone is being established in Narayanganj's Araihazar to boost investments from that country. Japan's investment in the industrial zone will amount to $1.6 billion. Additionally, the country has invested in the Matarbari deep-sea port. 

He noted that approximately $100 billion in investment is expected to come to Bangladesh as a result of this port.

Iwama Kiminori said the two countries have decided to commence formal negotiations on signing the EPA. Once this agreement is finalised, it will not only increase the export of goods and services but also simplify the investment environment, reduce duties, and create trade facilities. This, in turn, will lead to an increase in Japanese investment in Bangladesh.

The Japanese envoy further mentioned that existing non-tariff barriers and customs barriers in bilateral trade will be removed by signing and implementing the EPA. This will benefit the economy of Bangladesh as a whole. The EPA will not only focus on market access but also contribute to overall economic development. It will be a win-win situation for both countries.

The state minister for commerce noted that once the EPA is signed with Japan, it will facilitate the transformation of Bangladesh's economy into a smart economy. By signing the EPA, Bangladesh will prioritise 13 potential sectors, thus encouraging Japanese industrial ventures.

"We see Japan as our strategic partner. Projects such as the Matarbari deep seaport and the metro rail in Dhaka have been initiated with their investment. Japan has been supporting Bangladesh since the latter's emergence as a sovereign country. Therefore, the EPA negotiations will be conducted in a very friendly manner," Ahasanul Islam added.

Commerce Secretary Tapan Kanti Ghosh remarked, "If there is no EPA, exports to Japan will be subject to an average tariff of 18%. That's why we are urgently aiming to sign the EPA by 2026."

He went on to say that if the EPA cannot be signed before Bangladesh's LDC graduation, Bangladesh can still maintain the existing GSP benefits through bilateral negotiations until the agreement is finalised. Additionally, he emphasised the potential for increased investment from Japan.

Officials at the commerce ministry noted that Bangladesh has no prior experience in signing FTAs or EPAs. While Bangladesh has initiated efforts to sign free trade agreements with various countries, including India and China, ahead of LDC graduation, the commerce ministry is particularly eager to prioritise signing the EPA with Japan.

The secretary acknowledged that once negotiations commence, it cannot be guaranteed that they will be swiftly completed. He cited the example of India's negotiations on signing an FTA with the European Union since 2007, which is yet to be finalised.

Bangladesh and Japan conducted a joint study in the interest of signing the EPA and have identified 17 sectors as having scope and coverage. 

The sectors cover trade in goods, including trade remedies, rules of origin, customs procedures and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, trade in services, investment, electronic commerce, government procurement, intellectual property, competition, subsidies, state-owned enterprises, improvement of business environment, labour, environment, transparency, cooperation, and dispute settlement.

On 27 December, both countries released the joint feasibility study report.