Road to regional integration amid Dhaka-Tokyo trade imbalance
Farrukh Khosru :
Trade relations between Bangladesh and Japan have grown steadily over the years, but several challenges persist.
Bilateral trade increased from US$ 1 billion in 2010 to approximately US$ 3 billion in 2023, with ready-made garments (RMG) dominating Bangladesh’s exports.
Other significant exports include leather goods and home textiles, while Bangladesh imports essential industrial products such as iron and steel, vehicles, and machinery from Japan. However, trade imbalances remain a concern, with Bangladesh facing a merchandise trade deficit with Japan.
Additionally, anti-dumping duties (ADD) imposed by Japan on select Bangladeshi exports, such as jute, have further complicated trade relations.
Recent data shows Japan’s growing Foreign Direct Investment (FDI) in Bangladesh’s industrial and infrastructure sectors may help mitigate the trade deficit. Enhanced cooperation on non-tariff measures (NTMs) and streamlining regulatory frameworks could unlock further trade opportunities.
Japan’s support for the Matarbari Deep-Sea Port is a critical infrastructure initiative that aims to boost connectivity and facilitate smoother trade between the two countries.
India emerges as another crucial stakeholder in the Bangladesh-Japan trade dynamic. Bilateral trade between India and Bangladesh has increased significantly, from US$ 3.38 billion in 2010 to a peak of US$ 15.99 billion in 2022, before slightly falling to US$ 13.15 billion in 2023.
India is Bangladesh’s second-largest trading partner after China, providing duty-free and quota-free market access under the South Asia Free Trade Area (SAFTA) for nearly all Bangladeshi products, excluding 25 tariff lines.
Key Indian exports to Bangladesh include cotton, cereals, mineral fuel, automobiles, machinery, and iron and steel, while major imports from Bangladesh feature apparel, fish, and cereal-based products.
Despite these gains, several barriers hinder trade growth between India and Bangladesh. Product diversification, standardisation issues, and infrastructure limitations at key border points remain major obstacles.
For instance, the Agartala Integrated Check Post (ICP) in Tripura faces significant trade restrictions, allowing only 42 export items, unlike the more accessible Petrapole ICP in West Bengal.
Additionally, Bangladesh has imposed 30-36 per cent of its duties on specific Indian goods despite India’s duty-free access to Bangladeshi products since 2011. Both India and Japan have imposed anti-dumping duties on select Bangladeshi exports, further constraining trade growth.
Total intra-trilateral trade between Bangladesh, India, and Japan has grown from US$ 18.4 billion in 2010 to US$ 36.77 billion in 2023, indicating the potential for deeper regional cooperation.
Establishing industrial value chains among the three nations could enhance trade flows and foster broader regional economic integration. However, addressing non-tariff barriers, harmonising standards, and improving payment systems are essential steps to fully unlock this potential.
India’s trade relationship with Japan also plays a critical role in the broader regional framework. Bilateral trade between India and Japan expanded from US$ 14 billion in 2010 to over US$ 20 billion in 2023.
India primarily exports textiles, chemicals, leather, and footwear to Japan while importing iron and steel, electrical machinery, and chemicals. Japan’s increasing FDI in India, particularly in manufacturing and infrastructure, is a key factor in mitigating trade imbalances.
Looking ahead, greater liberalisation of trade agreements and the conclusion of Comprehensive Economic Partnership Agreements (CEPA) between Bangladesh, India, and Japan could pave the way for a trilateral free trade area.
Bangladesh is set to graduate to the ‘developing country’ category by 2026, necessitating new trade frameworks with both India and Japan.
If CEPAs are successfully implemented, industrial value chains could be expanded, offering economic benefits for Bangladesh and Northeast India while strengthening regional trade cooperation.
As Bangladesh, India, and Japan continue to deepen their economic ties, addressing trade imbalances and improving connectivity remains vital to fostering sustainable regional growth and prosperity.