China commenced rounds of import tariff reductions in 2015, on an array of imported goods including: raw materials for pharmaceutical goods, textiles, apparel, home appliances, electronic equipment, and paper commodities. China's Ministry of Finance also announced reductions to Most-Favoured-Nation (MFN) duty rates on 706 products – including certain raw materials used in the medicine, agriculture, manufacturing, and information technology industries – on December 24, 2018. These have been effective since January 1, 2019.
The reduction of conventional tariff rates with Asia-Pacific Trade Agreement (APTA) countries has been applied to certain products throughout the year. Subsequently, China reduced tariffs on 298 information technology products staring on July 1, 2019.
The import tariff cut is expected to expand imports, thereby encouraging domestic consumption and satisfying Chinese consumers' demands for foreign products – that are subject to higher quality standards and more reliable than Chinese domestic products.
The all-around opening up under China's new reform policy also attempts to promote balanced trade between China and her trading partners. In this regard, Chinese President Xi Jinping pledged to increase the import of goods and services plus further lower its tariff rates at the Second Belt and Road Forum held from 25-27 April, 2019, in Beijing as a part of China's new reform policy to promote balance of trade.
Given this context, it is important to examine the extent to which Bangladesh can reap benefits from China's new import policy. Several issues can be identified as mentioned below:
China has significantly increased its imports from African and Asian least developed countries (LDCs) – over the past few years – and has become the largest market and export destination for LDCs. Along with the import tariff cuts, China's announcement of duty-free market access for 97 percent of the tariff lines since 2015 – just for imports from LDCs who have diplomatic relations with China – has further increased LDCs' exports to China.
China is also the world's second-largest importer and consumer. The country has become the second largest importer in the world with 10.2 percent of global imports in 2018. It is estimated that China's imported goods will exceed $24 trillion with $10 trillion's-worth of goods and services in the next 15 years.
Bangladesh is one of the beneficiaries of the World Trade Organization's (WTO) Duty-Free and Quota-Free (DFQF) coverage at 61 percent of China's total tariff lines – instead of 97 percent based on its LDC status. Although the Government of Bangladesh has signed a letter of exchange requesting DFQF access to 97 percent of tariff lines into the Chinese market, the process is awaiting approval.
As a result, Bangladesh's major export items are currently subject to higher tariffs than the goods of other countries that receive duty-free facilities on the Chinese market. This has been intensifying the trade deficit between the two countries – greatly in favour of China. The total amount of Bangladesh's imports stand at more than $12 billion's-worth of goods from China in a year, while the export earnings of the former from the latter are only about $800 million. Though Bangladesh's trade deficit narrowed slightly in the first half of the 2018-19 fiscal year, Bangladesh's imports from China amounted to $11,706 million compared with a sharp decline in exports – worth $694.96 million – that left the bilateral trade deficit at a record $11.01 billion in fiscal year 2017-18.
The imported goods under the new import policy include competitive farm products as well as finished and high quality products. China imports quality food products and multi-layered food regulations are applied to ensure the quality and safety of imported food items. A large amount of food imported by China is either returned or destroyed, every year, because of irregularities in food quality or a lack of compliance – while both importing and exporting companies face severe losses. Regarding this, challenges remain for Bangladesh to export food and processed food products to China.
There is also uncertainty over the prospect of boosting exports of finished products to China as the former is mostly the exporter of primary products with the latter. The manufacturing sector of Bangladesh – the largest LDC in terms of population and economic size – is mainly labor-intensive and dominated by the ready-made garment (RMG) industry. It accounts for more than 83 percent of the country's total exports.
Basic manufacturing industries abound when there is a huge labour force – mostly unskilled and cheap – and Bangladesh carries a comparative advantage in cheap, unskilled labor. The comparative advantage of cheap labor only generates lower productivity. On the other hand, China is the world's second-largest economy, biggest developing country and the leading producer of manufactured goods. The structuralist approach to international trade, on the disparity of manufacturing products produced by unequal economies, explains the disproportionate share of the gains generated in favor of developed countries at the at the expense of poor nations.
The export of Bangladesh's Leather and Leather Goods (LLG) to China declined from $239.04 million in fiscal year 2016-17 to $75.29 million in 2017-18. Bangladesh's LLG exports to China also declined in fiscal year 2018-19 – registering only US52.72 million. The data from the Export Promotion Bureau shows a sharp fall of Bangladesh's LLG exports to China. Therefore, nearly 40 percent of pharmaceutical raw materials – e.g. active pharmaceutical ingredients – come from China, while India is the source of 30 percent, according to a June 2019 report of the United States Agency for International Development.
Bangladesh has also seen a negligible share of apparel exports to China –compared to its other trading partners like the European Union (EU) countries and the US. This has been caused by: Bangladesh-China competition, China's tariffs, as well as non-tariff barriers, and Bangladesh's lack of diversified products.
Meanwhile, the US is the single largest export destination for Bangladeshi apparel, while the EU remains the largest export destination. According to the Export Promotion Bureau, Bangladesh exported apparel goods worth $6.13 billion to the US, posting 14.60 percent growth in the fiscal year 2018-19. The export earnings from Europe in the garment sector amounted to $19.63 billion in 11 months, July to May, of fiscal year 2018-19. Meanwhile, garment exports from Bangladesh to China – the largest garment supplier worldwide – amounted to $506.51 million in the last fiscal year.
China's demand for high-value apparel items seems challenging due to limited capacity and Bangladesh's lack of diversified products in this segment. Hence, no clear framework or outline of Bangladesh's preferential – or duty-free – access to the Chinese market has been negotiated for after Bangladesh's expected 2024 LDC graduation or three-year transition in 2027.
Although the Chinese government has undertaken a series of policies to narrow the trade gap between China and its trading partners, the extent to which Bangladesh has benefited from this remains a big question.
Sultana Yesmin, is a PhD Candidate, School of Politics and International Studies, Central China Normal University (CCNU), Wuhan, Hubei, China.