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Free trade agreement with China: a necessity

  • Published at 03:55 pm May 18th, 2018
Photo: Bigstock

Chinese protectionism is clearly depicted on the ‘Made in China 2025’ industrial policy plan

According to the Chinese Ministry of Commerce website, “the Chinese Government deems Free Trade Agreements (FTAs) as a new platform to further opening up to the outside world and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as an important supplement to the multilateral trading system.”

For Bangladesh, an FTA with China represents a golden opportunity, giving her access to the world’s third-largest economy after the European Union and the United States. It will also help level the playing field for Bangladeshi businesses vis-à-vis their Pakistani, Maldivian, Chilean, Costa Rican and Peruvian competitors, which operate under FTAs their countries have signed with China. 

During his Bangladesh visit in December 2014, the Chinese foreign minister Wang Yi offered a free trade agreement to decrease the growing trade gap between the two countries. On January 1, this year, the economic and commercial counsellor of the Chinese embassy in Bangladesh, LI Guangjun wrote an op-ed for the Daily Star, which said, “China now is the biggest trading partner of Bangladesh; however, China does not seek trade surpluses as its trading goal. In the future, China will import more competitive goods from Bangladesh. The signing of a free trade agreement between China and Bangladesh will provide Bangladesh with more preferential goods, services and investments access to China.”

China and her FTA strategy

When China became a WTO member, the country appeared as a dynamic negotiator of bilateral and regional FTAs in line with the global trend towards bilateral and regional trade agreements rather than multilateral ones under the WTO’s guidance. China’s FTA strategy is primarily driven by regional security interests, access to natural resources for her developmental continuity, to be recognized as a market economy with Chinese characteristics and improving access to regional trade networks for her businesses.

So far China has signed 14 FTAs - six with developed countries (Australia, Iceland, New Zealand, Singapore, South Korea and Switzerland), and six with developing countries (Maldives, Peru, Pakistan, Chile, Costa Rica, Georgia). ASEAN (Association of Southeast Asian Nations) and Hong Kong also signed FTA’s with China. It is a widely accepted fact that there is no “modus operandi” to China’s FTA strategy. Most of them appear exceedingly generous to the trade partners, while others aggressively promote and protect Chinese domestic industries.

Towards the FTA with China

China’s meteoric rise throughout the last few decades was driven mainly by massive investments in production capacity, infrastructure and exports of labour-intensive manufactured goods with western technology. But China is now slowly adopting a consumption driven, service-based economy. Bangladesh exports to China are limited to leather, cotton textiles, fish, etc. The FTA with China will boost Bangladeshi exports to China significantly, help to create new industries and firms, and generate millions of jobs. The import of lower-priced goods from China will also be beneficial to consumers as well as manufacturers. 

When it comes to energy and natural resources, there is a similar story of opportunity. China’s demand for energy and natural resources will continue to grow significantly over the next decade, so an FTA with China can also enable access to clean technology to generate electricity at cheaper prices. 

Since China is moving towards a consumption based economy, there will be types of services as potential beneficiaries from free trade with China as a result of growing demand. This can help Bangladesh lower the unemployment rate and open a new way to earn foreign currency. Bangladeshi sectors associated with agro-food, leather and textile, manpower and natural resources are expected to be among the biggest winners from an FTA, since the Chinese demand for such products continues to grow. 

Challenges towards the FTA 

There are, however, several challenges which should be addressed before signing and implementing the FTA with China. There are important restrictions on investing in China. Regarding free trade, China seems intent on continuing to impose tariff and/or quota protection in certain sectors of its economy. Such Chinese protectionism is clearly depicted on the ‘Made in China 2025’ industrial policy plan. For developed countries which signed the FTA with China, competition in many sectors is skewed, especially in favour of Chinese state owned enterprises, which are deemed to control 38 percent of industrial assets in China, as a result of central and regional government’s financial support. The Made in China 2025 plan has appeared as a threat to foreign businesses of developed countries operating in the plan’s targeted sectors. And finally, the last major challenge for foreign businesses is the Chinese ways of implementation and enforcement of laws and regulations which are generally lax and uncertain.

Another geopolitical challenge will come from the US and India if Bangladesh advances towards the FTA with China. India may consider the FTA between China and Bangladesh as the Chinese assertion in her backyard and a Chinese penetration into her sphere of influence in South Asia. On the other hand, the US may consider the FTA as the geostrategic obstacle in containing China at the Bay of Bengal and Indian Ocean region. Bangladesh must deal with India and the US delicately and convince them that the FTA with China will not be used against their interests in the region. The agreement will solely be treated as Bangladesh’s national interest for economic development. 

Looking to the future

Although China’s peculiar political economy focused on state capitalism has some obstacles and challenges for Bangladesh, an FTA with China offers a number of opportunities for Bangladeshi businesses. To address these challenges, both parties should ensure that the FTA includes a comprehensive, multi-level governance structure to help resolve disputes and frictions in a quick, less bureaucratic way.

To allow for opportunities to materialize, a Bangladesh-China FTA will have to eliminate tariffs imposed by China on imports from Bangladesh as well as ensure fairly unrestricted market access to China’s goods and services markets supported by the national conduct standard. For this purpose, the China-Maldives FTA should be a good starting point for the negotiations; however, Bangladeshi negotiators will need to push China to go further in terms of market opening for Bangladeshi businesses. 

Rajeev Ahmed is a geo-political analyst

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