Economic partnership with Japan – how it will benefit Bangladesh
Officials and experts acknowledge that there are revenue risks but also say phased duty reductions will limit the risks and give local industries time to strengthen
Highlights:
- EPA gives Bangladesh early duty-free access, shifting towards Japan later
- Over 7,300 Bangladeshi products gain immediate duty-free access to Japan
- Japanese products gain phased tariff-free entry, limiting short-term revenue risks
- Bangladesh faces potential $248 million annual revenue loss under EPA
- Garments gain major advantage through relaxed single-stage rules of origin
- EPA seen boosting exports, investment, services, post-LDC transition security
A commerce ministry report shows that under an Economic Partnership Agreement (EPA) with Japan, Bangladesh will initially benefit from duty-free access for a large number of products, but the balance will begin to shift in Japan's favour after six years.
Officials and experts acknowledge that there are revenue risks but also say phased duty reductions will limit the risks and give local industries time to strengthen.
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They say the EPA will boost exports, attract investment, and support Bangladesh's development, while the agreement could also encourage other countries to pursue similar deals.
The commerce ministry report, a copy of which was obtained by The Business Standard, shows that when the agreement takes effect, 7,379 Bangladeshi products will receive duty-free access to the Japanese market, while 1,039 Japanese products will enjoy the same benefit in Bangladesh.
Although these figures initially favour Bangladesh, a further 2,702 Japanese products will gradually receive duty-free access to the Bangladeshi market within the next six to eight years.
At one stage, a total of 9,354 Japanese products will enter Bangladesh without tariffs, while 7,436 Bangladeshi products will enjoy duty-free access to the Japanese market.
Commerce Secretary Mahbubur Rahman said because duty reductions for various sectors are being phased in, it will take time for all Japanese products to gain tariff-free access.
"As a result, there is little risk of revenue loss or an oversupply of Japanese goods. By then, Bangladesh will have reached a competitive position in many sectors," he added.
He noted that Bangladesh must gradually adopt a lower import duty structure as most developed countries are reducing tariffs, leaving the country no alternative but to follow suit.
Mahbubur confirmed that the agreement will be signed on 6 February, with him and Commerce Adviser Sk Bashir Uddin expected to attend the signing ceremony in Tokyo.
However, a senior commerce ministry official, speaking on condition of anonymity, said there was uncertainty over signing the deal just five days before the national election.
Bangladesh's EPA with Japan could encourage other countries to engage similarly.
$248.34m revenue loss
The ministry report also estimates that Bangladesh could lose about $248.34 million a year in revenue if customs, supplementary, and regulatory duties on Japanese products were withdrawn.
At the same time, it warns that exports to Japan could fall by $250 million to $300 million after LDC graduation if an EPA is not signed and Bangladeshi goods face regular tariffs.
Most of the 1,039 Japanese products set to receive zero-duty access at the initial stage already enter Bangladesh at zero or 1% duty.
Good opportunity for RMG
At present, garments exported to Japan must meet double-stage transformation rules of origin, meaning at least two production stages must be completed in Bangladesh.
The report said once the EPA takes effect, Bangladeshi garments will be able to enter Japan from day one under single-stage transformation rules, requiring only one production stage in Bangladesh.
Due to phased process, there is little risk of revenue loss or an oversupply of Japanese goods.
Leather, agriculture, services
The report notes that 206 leather and leather goods products could later gain duty-free access to the Japanese market through further negotiations. However, the leather sector is considered highly sensitive by Japan and is not included in any of its free trade agreements or EPAs.
Most of Bangladesh's 1,259 agricultural products will not receive zero-duty access to Japan immediately after the deal is signed.
Under the WTO's sectoral classification, there are 155 service sectors. Under the EPA, Bangladesh will gain duty-free access for 120 service sectors in Japan, while Japan will receive the same benefit for 97 service sectors in Bangladesh.
Passenger cars
In the case of Japan's CKD (completely knocked-down) passenger cars, tariffs will be reduced gradually over 12 years before eventually allowing duty-free entry into the Bangladeshi market.
A senior commerce ministry official, speaking on condition of anonymity, said Japan had strongly pushed for immediate duty-free access for its cars, as Bangladesh is a major market for Japanese vehicles.
However, Bangladesh has not agreed to the proposal due to revenue concerns. Instead, Dhaka has offered Japan extended MFN status for vehicle exports, meaning that if Bangladesh grants duty-free access to cars from any other country, Japanese cars will automatically receive the same benefit, the official added.
What experts say
Mostafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said the deal should not be judged solely on goods trade; services, investment, technology, and other factors are equally important.
"Although Japan will grant immediate zero-duty access for 7,379 Bangladeshi products, only a few are currently exported. To benefit fully, Bangladesh must boost supply capacity, diversify exports, and strengthen competitiveness," he said.
He explained that tariff concessions for Japanese products pose little threat to local industries.
"No Bangladeshi sectors face direct competition from imports from Japan. On the contrary, products currently imported under tariffs from other markets could, in future, enter duty-free from Japan, benefiting consumers and producers," he added.
The economist added that attracting Japanese investment is crucial, requiring a better business climate, one-stop services, reliable gas supply, improved port facilities, and shorter lead times.
Mostafizur also stressed focusing on services exports, including training nurses and medical technicians to meet Japan's demand for skilled workers.
MA Razzaque, chairman of Research and Policy Integration for Development (RAPID), told TBS that the EPA with Japan has several positive aspects.
"Bangladesh exports the most RMG to Japan, so even after LDC graduation, these products will enter Japan duty-free. Without an EPA, Bangladeshi garments would face a 10% tariff after graduation," he said.
He added that Japan is a developed country and a globally recognised negotiator. "Bangladesh's EPA with Japan could encourage other countries to engage similarly."
Razzaque further said Japan is also a major investor, and with its push to reduce dependence on China, Bangladesh could emerge as a new destination for Japanese investment.
However, Razzaque cautioned about risks, noting that revenue loss is the main concern.
"The more Japanese products enter Bangladesh duty-free, the higher the risk to revenue. Local industries must also be strengthened. Moreover, if the agreement is not properly implemented, it could send a negative signal internationally," he added.
Former Tariff Commission member Mostafa Abid Khan said signing an EPA with Japan was a positive development, but it was too early to say how much Bangladesh's export sector would ultimately benefit.
"Japanese imports would not hurt Bangladesh if tariff policies for other countries were properly aligned," he told TBS. "Failure to adjust MFN (most favoured nation) rates could create a risk of trade diversion."
Government sees opportunity
The government believes the Japan deal will create new opportunities for trade, investment, and employment. It also hopes the agreement will reduce dependence on the European Union and the United States, while positioning Japan as a major export market.
Japan has notified the World Trade Organisation that it will extend GSP benefits to LDCs and graduating countries until 2029. Dhaka views the EPA as a long-term safeguard, as GSP is temporary while the EPA is a binding agreement.
Currently, 98.7% of Bangladeshi products enjoy duty-free and quota-free access to the Japanese market, and Japan is one of Bangladesh's key export destinations.
According to commerce ministry data, Bangladesh exported $1.4 billion worth of goods to Japan in FY25, while importing $1.8 billion in the same year.
Seven rounds of meetings
The Bangladesh-Japan EPA was launched under the ousted Awami League, with a joint research group identifying 17 priority sectors in a 27 December 2023 feasibility report.
Negotiations began in Dhaka on 19 May 2024 but stalled after the 5 August political change. The interim government revived talks in November 2024, setting a one-year signing target. Seven rounds of meetings preceded the commerce ministry's announcement of the deal signing.
The EPA aims to secure market access, expand services trade, and address post-LDC graduation challenges, marking Bangladesh's only bilateral deal beyond its pact with Bhutan.
