Capitalising on the duty-free, quota-free market access to China

Representational image. File Photo: TBS

Bangladesh has a huge opportunity to increase its exports to China, which is currently the world's second-largest importing country ($2.7 trillion). At the moment, bilateral trade between Bangladesh and China heavily leans towards imports of about $13 billion (25.3% of total imports, FY2021), followed by insignificant export of $683 million to China. 

It was expected that exports would rise rapidly after the announcement of 97% DFQF benefits to Bangladesh from 60% (under WTO) in 2020, but it did not happen. According to the Export Promotion Bureau (EPB), exports to China reached the highest level in FY2017 at $949.41 million. 

In the last couple of years, the export trend to China has fluctuated. Disruption during Covid-19, an extended period of the 'Chinese Zero Covid policy', plus some stringent conditionalities for food and fisheries items, certification requirements, and quality control issues on processed food and meat. etc. have made the export process cumbersome.  

BUILD analysed the extended 98% DFQF benefits announced in 2022 on top of 97% DFQF, and reviewed the status of the top 20 (considering 2-digit HSCode) exported products from Bangladesh to China in the 98% DFQF list. 

Present import trends of China and comparator countries' export baskets focusing on China were also reviewed. Finally, we tried to identify the potential sectors with high import demand in China and considered how Bangladesh can maximise the DFQF benefits of China.   

Under 97% DFQF, Bangladesh was enjoying benefits for 8,256 products (among 8549) from July 2020 to August 2022. The extended 98% DFQF benefit raised the product number to 8,930 from 8,256, effective 1 September 2022. It was seen that China allowed an additional 674 (8-digit HScode) products in the 98%, which includes apparel, fish, chemical products, nuclear reactors etc. to all LDC countries. 

This has created an opportunity for Bangladesh to take advantage of additional DFQF for at least the next four years.

According to the ITC Trade Map, Bangladesh is the 87th importing country of China, exporting only $1.05 billion (0.04%) in 2021, while according to the EPB, export was $682 million in 2021.  

As per EPB, export was $275 million during January-May 2022, while Chinese Customs claimed $410 million in import for the same period. It seems the information gap is huge between these two organisations; these issues and clarity can be sought from the commercial counsellor section.   

China imports mostly from Taipei, South Korea, Japan, the United States, Australia, Germany, Vietnam, etc. Chinese top import products are electrical machinery and equipment, mineral fuels, mineral oils and products, ores, slag and ash, machinery, optical, photographic, vehicles, plastics, natural or cultured pearls, copper, organic chemicals, oil seeds and oleaginous fruits, iron and steel, pharmaceutical products, meat and edible meat offal, miscellaneous chemical products, etc. 

While reviewing the export scenario of comparator countries like India, Vietnam, Malaysia and Thailand, it was seen that their exports mostly complement China's import demand. 

Vietnam captured about 1.83% ($48.88bn, 2020) of China's imports, which is aligned with its import demand. India's share was 0.86% ($23.04 billion) in 2021. While reviewing the export of Malaysia ($46.36bn, 2021) and Thailand ($36.69bn, 2021), both countries' export baskets were noted to be well-designed to capture the import demand.  

Export of Bangladesh to China was mostly concentrated on RMG and textile (58%) and leather (14%) in FY22. China accounts only for 1.3% of the country's total export. Bangladesh exports to about 202 countries, yet it is heavily concentrated in a few markets like the US, UK and EU countries (Germany, Spain, France, etc). 

Apart from RMG, textile, and leather products, Bangladesh also exports iron and steel, fish, plastics, copper, aluminium, etc. If Bangladesh can increase its export share to China by even 1%, it could generate more than $26 billion in export.  

In FY2022, Bangladesh exported a total of 406 (considering 8-digit HSCode) products to China under a total of 57 HSCode (2-digit). While reviewing the top 20 (considering 2-digit HSCode) exported product line and their status in the newly extended 98% DFQF list, some interesting findings were outlined. Here it needs to be mentioned that China announced DFQF benefits on 8-digit HSCode products. Some of the findings have been elaborated on below.

In 2022, the top exporting product from Bangladesh was 'Other vegetable textile fibres (HScode-53)' which exported $169.6 million. In the 98% DFQF list, 43 products are listed under this HScode and with no new addition. Only five products were exported, and all are listed. 

So, there is ample opportunity to increase exports from this segment, aligning with the 98% list. An estimate shows that by just increasing to 25% from the present level of 17% (BGD share in Chinese imports of the product, 2021) export can be $307 million. 

The second largest exporting product is 'Articles of apparel..not knitted or crocheted (HSCode-62)' which exported $138.1 million in FY22. 

Comparing both the 98% and 97% DFQF lists, it is seen that 155 products are included in the 98% list under HScode, with 12 new inclusion and 19 omissions from the previous list. It is also noted that Bangladesh exported 76 products under this HSCode in FY22, of which 35 products ($97.93 mn) are not listed in the new list. The inclusion of these products in the DFQF list can boost exports to China further. 

The 3rd largest export product is 'Articles of apparel.., knitted or crocheted (HSCode-61)', which exported $84.2 million in 2022 by exporting 65 products of which six are not listed in the 98% list. Under this HScode, 132 products are listed with no new addition or omission. Bangladesh has also got potential in this segment to increase exports.

The fourth highest products are 'Raw hides.. and skins and leather (HSCode-41)' which exported 14 products ($78.7 million) in FY22 of which eight are not listed in the 98% list. Under this HScode, 60 products are listed with no new addition or omission.   

The fifth largest item 'Prepared feathers..; artificial flowers; articles of human hair (HSCode-67)' which exported four products in FY22 ($31.4 million) and all are listed. Under this HScode, 11 products are listed with no new addition or omission. The sixth product is 'Iron and steel (HSCode-72)', which exported $20.5 million by exporting only 2 products in FY22, and one is not listed. 

Under 'HSCode-64: Footwear', Bangladesh exported 10 products ($17.7 million) in FY22 of which three ($10.75mn) are not listed in the 98% list. Exports would surely escalate further if these products were included. 

Another in-demand exporting product 'Fish and crustaceans' (HSCode-03) exported 16 products ($17.5 million) in 2022 of which six are not listed. 300 products under 'HSCode-03' are included with 20 new inclusion and 15 omissions from the previous list.    

Another promising item 'Plastics (HSCode-39)' exported 13 products ($14.5 million) and all are listed. With no new addition, 129 products have been included in the 98% list. 'Cotton (HSCode-52)' is the tenth highest product which exported $14.1 million to China through 13 products (all are listed). Under this HSCode, 129 products are included with no new additions in the 98% list.  

Similarly, the other ten products which accounted for only $73.5 million in export altogether in FY22, were reviewed and analysed. Though export is not much higher at present, Bangladesh can increase its export of these high-import-demanding products. 

Out of a total of 8,930 products listed in the 98% list, around 3,260 products (8-digit HSCode) are included under the top 20 export items (2-digit HSCode). Altogether, 172 new products are included in the 98% list and 84 products are omitted from the 97% list under this top 20 export products line. 

Based on an analysis, it shows that out of a total 406 (FY22) exported products, 294 (8-digit) products are exported from the top 20 (2-digit) export items, of which 100 products are not enlisted in the 98% DFQF list. Apart from the top 20 export segment, export of the other 112 (8-digit) products is insignificant ($121.73 mn, FY22) and only 58 products are enlisted in 98% DFQF list. 

It is apparent from the analysis, that collectively 155 products from the current export basket are not included in the 98% DFQF lists such as Men's or Boys' Anoraks (62019300), Men's or Boys' Bib and amp (62034200), Shorts Of Synthetic Fibres (62034300), Aluminium alloys (76012090), Split leather (41041910), Zinc (28170000), Plastics (39081000) and more. 

A strong negotiation can be initiated to include these unlisted 155 products in the 98% DFQF. 

Potential products such as iron and steel (China imported $43.57billion, 2021), plastics ($82.83 billion), nuclear reactors, boilers, machinery and mechanical appliances ($231.21bn), ores, slag, and ash ($272.76bn), inorganic chemicals ($14.89bn), copper ($66.09 bn), aluminium ($12.49bn), oil seeds ($60.17bn) etc. have high demand in China. Some of these products can be given emphasis for exporting to China. 

DFQF benefit is not the only instrument for hiking export to a country. Demand and supply mismatch has been identified as one of the major constraints for exporting in China. 

Now it's high time to work on increasing export competitiveness by focusing on one of the vital export destinations. A long-term comprehensive export development and promotion strategy for enhancing existing export competencies of the top exporting products is a must. 

Sketch: TBS

Ferdaus Ara Begum is the chief executive officer of BUILD, a public-private dialogue platform that works in the area of private-sector development.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.