US will reimpose 37% tariff if Bangladesh signs any deal with China, Russia: Experts
They said this condition will also make it difficult for Bangladesh to join the world's largest trade bloc
Bangladesh cannot enter into a trade deal with any non-market economy under the recently signed reciprocal tariff agreement with the US. As a result, Bangladesh will be unable to negotiate trade deals, free trade agreements, or other arrangements with countries like China or Russia, experts have said.
They said this condition will also make it difficult for Bangladesh to join the world's largest trade bloc, the Regional Comprehensive Economic Partnership (RCEP), since China is a member and Bangladesh would need separate agreements with every member state to participate.
Besides, the current trajectory of Bangladesh-China relations may no longer be feasible, experts added.
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The agreement, signed on 9 February, also stipulates that any trade deals with such countries could trigger the reimposition of the 35% reciprocal tariff that the US first applied to Bangladesh in April last year.
Analysing various provisions of the trade pact, former WTO Cell director at the commerce ministry of Md Hafizur Rahman and former member of the Bangladesh Trade and Tariff Commission Mostafa Abid Khan shared these insights with The Business Standard.
The agreement on non-market economies states: "If Bangladesh enters into a new bilateral free trade agreement or preferential economic agreement with a non-market country that undermines this Agreement, the US may, if consultations with Bangladesh fail to resolve its concerns, terminate this Agreement and reimpose the applicable reciprocal tariff rate set forth in Executive Order 14257 of 2 April 2025."
The US government has identified the countries it classifies as non-market economies. Alongside China and Russia, the list includes Vietnam, Belarus, Tajikistan, Uzbekistan, Moldova, Azerbaijan, and several other nations.
Implications for Rooppur
The agreement states: "Bangladesh shall not purchase any nuclear reactors, fuel rods, or enriched uranium from a country that jeopardises essential US interests, except for the procurement of proprietary materials for which there are no alternative suppliers or technologies, or materials contracted prior to the entry into force of this agreement required for existing reactors."
Regarding this provision, Mostafa Abid Khan said it raises concerns for projects such as the Rooppur nuclear power plant, as Bangladesh will be unable to import essential materials by signing new agreements with Russia.
"Our hands are tied," he added.
Potential impact on investment
Hafizur added that regarding investment, the agreement states that if a third-country investor produces goods in Bangladesh and exports them to the US below market value, the US may take action against that Bangladeshi company.
He further explained that even if a foreign company invests in Bangladesh and exports goods to other countries below market rate, and a US company suffers losses as a result, the US can still take measures against the company.
"This could discourage investors, including those from China and other countries, who consider investing in Bangladesh to take advantage of lower production costs for exporting to the US," Hafizur said.
Asked about the term "market rate," Abid explained that the US would determine it. He recalled that in the 1990s, when the US imposed anti-dumping duties on Bangladesh, it calculated the market rate by adding a 20% profit margin to production costs.
Revenue collection
The pact with the US is expected to boost Bangladesh's garment exports, as it allows zero reciprocal tariffs on garments produced from US cotton. India and Pakistan, which produce their own cotton, will not enjoy the same benefit, giving Bangladesh a competitive edge over its neighbours.
Under the agreement, the US will grant tariff concessions on 6,710 products, while Bangladesh will receive benefits on 1,638 items.
Hafizur said the US has cut tariffs on its products by 50% under the pact. This reduction applies not only to customs duties but also to supplementary and regulatory duties, leaving only VAT and advance income tax. He said this will reduce Bangladesh's revenue collection and make it harder to protect domestic industries.
Abid added that Bangladesh has granted a 50% tariff cut on almost all US products under its HS codes, except for a few.
Regarding intellectual property rights, Bangladesh must sign 13 agreements and conventions, all outside the WTO's existing intellectual property framework. Implementing these agreements and adapting the economy to comply with them will pose a significant challenge, both experts said.
