Bangladesh, Japan sign major trade deal to safeguard market access post-LDC
The EPA provides a permanent legal framework and long-term certainty for exporters at a time of rising production costs, soft global demand and intensifying competition from Vietnam, Indonesia and India
Bangladesh and Japan yesterday signed a landmark economic partnership agreement (EPA) in Tokyo, a major step in Dhaka's efforts to preserve export market access and attract investment as it prepares to graduate from least developed country (LDC) status.
The deal, hailed by business leaders, is Bangladesh's first bilateral free trade agreement and secures continued duty-free access to Japan – the world's third-largest economy – for key exports even after LDC graduation.
Covered products include ready-made garments, leather goods, plastics, light engineering items and selected agricultural products, protecting an export market worth $2.1 billion.
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Crucially, the EPA preserves Japan's highly flexible "single-stage transformation" rule of origin, under which garments qualify for duty-free entry even if fabrics are imported and only the final sewing takes place in Bangladesh.
After the signing, Commerce Secretary Mahbubur Rahman told TBS that Japan currently grants Bangladesh duty-free access under this rule, and the EPA ensures its continuation beyond graduation.
"In simple terms, garments made by importing fabric and sewing it in Bangladesh will continue to enjoy tariff-free entry," he said.
The agreement also allows preferential treatment even when the tariff classification of the finished product differs from that of imported inputs. "If raw materials are imported under one HS code and the final product falls under another, the product will still qualify for preferences," he added.
Economists and business leaders described the EPA as less about tariff cuts and more about economic survival after LDC graduation in 2026. Without such an agreement, Bangladesh would face higher tariffs and stricter compliance requirements once Japan's temporary LDC preferences expire.
The EPA provides a permanent legal framework and long-term certainty for exporters at a time of rising production costs, soft global demand and intensifying competition from Vietnam, Indonesia and India.
Under the agreement, duty-free benefits will be gradually extended over a 12-year period to more than 9,000 products, including Japanese-made vehicles exported to Bangladesh. Besides, the rules of origin allow exporters to qualify for preferences with just 35-40% local value addition, even when key inputs such as fabric, yarn or components are imported.
Key chapters in EPA
Md Hafizur Rahman, former director general of the WTO Cell at the commerce ministry and a member of Bangladesh's delegation during EPA negotiations, said the agreement includes a "Trade Facilitation" chapter, which will obligate Bangladesh to implement measures to simplify business procedures and improve the overall trade environment.
He added that the EPA provides for the appointment of "Authorized Economic Operators". Under this system, importers will assess and pay customs duties on their own shipments, clearing goods directly.
"So far, the National Board of Revenue has certified 10 firms as AEOs, while applications from another 70 are pending. Once fully implemented, the system is expected to reduce delays and harassment at ports, significantly easing trade," he said.
The agreement also addresses "corruption and unlawful financial transactions", with a dedicated chapter outlining enforcement mechanisms. "Previously, anti-corruption measures were not included in any of Bangladesh's bilateral trade agreements. Only the US TIFA agreement mentions corruption, but without specifying how it would be addressed."
Hafizur added that a notable provision on customs penalties has also been added. Currently, any misdeclaration by an importer can attract fines of up to 200%. Under the EPA, penalties will be limited to the actual revenue loss suffered by the government, reducing unnecessary harassment for businesses.
Regarding investment, the EPA stipulates that any dispute must first be resolved through internal consultations within 60 days. If unresolved, the matter may be referred to the International Centre for Settlement of Investment Disputes (ICSID) for arbitration.
Hafizur Rahman added that for the first time among Bangladesh's signed agreements, the EPA includes mutual participation in government procurement.
"Japanese companies will be able to participate in Bangladeshi government tenders, while Bangladeshi firms can bid for contracts in Japan, with certain concessions for local companies," he added.
Legal certainty and investor protection
Mostafa Abid Khan, former member of the Bangladesh Trade and Tariff Commission, told TBS that the agreement is undoubtedly comprehensive, but implementing it will be challenging.
Having participated in the Bangladesh delegation during EPA negotiations, he said the rules on customs valuation leave no room for minimum import prices or tariff values. "Imports must be valued at the actual price paid, which could make implementation difficult for Bangladesh," he said.
According to the Bangladesh Investment Development Authority, Japan's FDI stock in the country stands at $1.6 billion. To attract further investment, the government is establishing a Japanese Economic Zone in Narayanganj.
Secretary Mahbubur Rahman expressed optimism that the deal will boost Japanese investment in Bangladesh. He said in countries with similar agreements, Japanese investors' confidence has grown. "The EPA is expected to encourage more investment in Bangladesh, particularly in the services sector."
Skilled labour mobility
Unlike traditional labour agreements, the EPA focuses on skilled and semi-skilled professionals, including engineers, IT specialists, and culinary workers.
Although the numbers are expected to be limited, analysts said the inclusion of labour mobility reflects both Japan's demographic pressures and Bangladesh's desire to diversify overseas employment.
Strict language requirements, professional certification, and employer-led recruitment mean the pathway will remain narrow. Still, experts view the chapter as symbolically significant, signalling Bangladesh's gradual shift toward exporting higher-value human capital.
Secretary Mahbubur Rahman said the EPA will boost the export of skilled and semi-skilled Bangladeshi workers to Japan, opening employment opportunities for the country's educated youth.
Intellectual property
Intellectual property rights remain one of the most sensitive elements of the agreement. The EPA introduces advanced standards on patents, industrial designs, and plant varieties, although Bangladesh has secured transition periods reflecting its development status.
The pharmaceutical sector is closely monitoring the implications, as stronger IP enforcement could eventually affect Bangladesh's globally competitive generic drug industry. While immediate impacts are expected to be limited, analysts note that post-LDC Bangladesh will face growing pressure to align with higher IP standards across trade agreements.
Procurement and digital trade
The agreement also covers government procurement and e-commerce – areas traditionally approached with caution by developing countries. Commitments on transparency and procedures could improve governance and efficiency but may reduce the scope for domestic preference policies in public purchasing.
In digital trade, provisions supporting electronic transactions and cross-border data flows align Bangladesh with emerging global norms. Experts caution that balancing openness with data sovereignty and cybersecurity priorities will require careful implementation.
Opportunity tied to readiness
Asked whether the EPA imposes tough conditions on intellectual property rights, Secretary Mahbubur said IP protections for products are already ensured under the WTO's TRIPS agreement.
"Member countries have ratified the pact, which will remain in force until 2032. Bangladesh is actively working at the WTO to ensure it continues to benefit from TRIPS even after graduation," he said. "There is no reason to be alarmed about the conditions in the EPA regarding the services sector."
What biz leaders say
Md Mohiuddin Rubel, former director at BGMEA and managing director of Denim Expert Limited, said the agreement is expected to boost Japanese investment in Bangladesh.
"Japanese companies are likely to become more active in establishing new industries and factories, expanding the scope of business and trade," he told TBS.
Currently, Bangladesh's garment sector is largely confined to low- and mid-end products. However, Japanese firms are highly conscious of quality, technology, and knowledge.
By leveraging Japan's technology, skilled workforce, and management expertise, Bangladesh could make significant progress in producing high-value-added garments, he said.
"The potential for Japanese investment is not limited to the garment sector. Industries such as automobiles, electronics, and other high-technology sectors could also benefit," he added.
"By tapping into Japan's strong client base and technical support, Bangladesh can develop new markets, which is crucial for the country's economic growth."
The Dhaka Chamber of Commerce considers the agreement vital for maintaining duty-free benefits as Bangladesh prepares to face post-LDC graduation challenges in 2026.
Taskeen Ahmed, president of the Chamber, said the "single-stage transformation" facility in the garment sector will multiply export capacity and simplify access to imported raw materials.
"The deal will encourage Japanese investment, technology transfer, and management expertise, fostering long-term business planning and strengthening Bangladesh's position in global competition," he added.
