Joining Regional Comprehensive Economic Partnership: A strategic necessity for Bangladesh in the post-LDC era

Bangladesh prepares for its graduation from Least Developed Country (LDC) status by 2029. Graduating from LDC status means Bangladesh will lose duty-free and quota-free market access in major economies, which could drop export earnings significantly. The joining Regional Comprehensive Economic Partnership (RCEP) has become an important policy consideration.  

The RCEP is the world's largest free trade agreement, consisting of 15 Asia-Pacific countries, including the ten ASEAN nations along with China, Japan, South Korea, Australia, and New Zealand. The agreement aims to promote economic integration through reduced trade barriers, common rules of origin, investment liberalisation, and enhanced economic cooperation. Since coming into force in 2022, the RCEP accounts for around 30% of global GDP, making it a highly influential economic bloc in the global trading system.

Joining RCEP serves as a highly justified strategic move to ensure post-LDC economic resilience, boost exports, and attract Foreign Investment. The fact that the RCEP eliminates roughly 90% of tariffs on merchandise trade among its members over a phased period. For example, Vietnam, Bangladesh's primary global competitor in the Ready-Made Garments sector, is already an active member of RCEP. If Bangladesh remains outside the bloc, its garments will face higher tariffs and more stringent trade barriers across East Asia and ASEAN than Vietnamese exports. The RCEP provides structural integration into East Asian and ASEAN supply chains, opening doors to high-value sectors like electronics, light engineering, and e-commerce. 

One of the strongest arguments for Bangladesh joining RCEP is improved access to the world's largest consumer markets. The membership would provide preferential tariff treatment in key markets such as China, Japan, South Korea, Australia, and New Zealand. RCEP membership could make Bangladesh a more attractive destination for foreign investors. International companies often prefer investing in countries that are integrated into major trade agreements because of easier access to regional supply chains and larger markets. 

RCEP facilitates such integration through common rules of origin and trade facilitation measures. Bangladesh's participation would enable domestic firms to source inputs more efficiently and become part of East Asian manufacturing networks, particularly those led by China, Japan, and South Korea. RCEP membership would encourage diversification toward Asia-Pacific economies, reducing vulnerability to economic downturns or policy changes in traditional markets.

The global economic center of gravity is increasingly shifting toward Asia. By joining RCEP, Bangladesh would deepen economic and diplomatic relations with the fastest-growing economies in the world.  RCEP can serve as an important mechanism to offset the loss of these benefits by providing a stable and rules-based framework for international trade.

RCEP membership could help Bangladeshi firms improve productivity and adopt advanced manufacturing techniques through partnerships with firms from Japan, South Korea, China, and Australia. Greater investment and export growth would likely create employment opportunities across manufacturing and service sectors. Participation in a highly competitive regional market would encourage domestic industries to improve efficiency, quality standards, and productivity. 

Although the agreement is currently limited to its existing members, it contains provisions allowing accession by new countries in the future, subject to approval by existing members. For Bangladesh to join RCEP, it would need to satisfy both procedural and economic requirements while demonstrating its commitment to the principles of free trade and regional economic integration. Bangladesh has proactively advanced negotiations to fast-track its entry into the trade bloc. The RCEP Secretariat has issued detailed questionnaires regarding Bangladesh's trade, investment policies, governance, and regulatory frameworks, with the Ministry of Commerce leading inter-ministerial efforts to align national policies. Support from ASEAN countries and major economies like China, Japan, and South Korea will be crucial.

While joining the RCEP offers many opportunities, it also presents several risks and challenges that Bangladesh would need to manage carefully.

Increased Competition for Domestic Industries. Joining RCEP would expose domestic industries to intense competition from more advanced economies such as China, Japan, and South Korea. Domestic industries, especially small and medium-sized enterprises, may struggle to compete with imports from highly industrialized economies. This could lead to business closures, reduced industrial growth, and potential job losses in vulnerable sectors.

Trade Imbalance Risks. Bangladesh already imports large quantities of machinery, raw materials, and consumer goods from several RCEP members. If imports increase without a proportional rise in exports, this may put pressure on the balance of payments. This imbalance could weaken foreign exchange reserves and economic stability.

Loss of Tariff Revenue. One of the most significant risks is the loss of government revenue from import tariffs. The government earns significant revenue from import duties. RCEP membership would require tariff reductions on many goods, potentially decreasing government revenue in the short to medium term and creating fiscal challenges. 

Threat to Infant Industries. Some emerging industries in Bangladesh may not yet be competitive enough to withstand foreign competition. Without adequate protection or adjustment periods, these sectors could experience reduced production, job losses, or even business closures.

Pressure on the Agricultural Sector. Agricultural producers could face competition from more efficient producers in countries such as Australia and New Zealand. Farmers may struggle to compete on price and productivity unless supported through modernisation programs.

Employment Disruptions. While some sectors may gain jobs through increased exports and investment, others could lose jobs due to stronger import competition. Workers in less competitive industries may require retraining and support during the transition.

Lessons from India. India officially withdrew from negotiations in November 2019. During the seven years of negotiations, India pushed for specific defence mechanisms. Finally, it decided not to join the RCEP due to several critical economic, strategic, and domestic concerns. The agreement posed a massive threat to India's massive agriculture and dairy industries, which employ millions of small-scale, unorganised farmers. Dairy farmers fiercely protested the deal, fearing they would be wiped out by highly competitive, large-scale dairy giants from New Zealand and Australia if import duties were lifted. 

The Indian government argued that past FTAs had widened its trade deficits rather than boosting Indian exports, making a mega-regional deal highly risky for its financial stability. The biggest driving force behind India's exit was the fear of being flooded with cheap Chinese goods, hurting local industries. Ultimately, India chose an "India First" approach. The government decided that protecting domestic industries, farmers, and small businesses from unmatched foreign competition outweighed the benefits of joining the regional trade bloc.

The RCEP membership is justified as a strategic necessity to maintain export competitiveness in the post-LDC era. By entering the RCEP, Bangladesh may secure its trajectory toward becoming a highly competitive, industrialized middle-income economy. While joining the bloc offers significant benefits, it also involves several potential risks. 

These risks mainly relate to economic adjustment, fiscal impacts, and domestic competitiveness. To join RCEP, Bangladesh must adopt "WTO-plus" commitments, which require members to significantly open up their domestic services markets to foreign competition. 

A balanced understanding of these challenges is essential.  The Bangladesh government has to assess whether the benefits outweigh the potential risks of joining the regional trade bloc. Moreover, Bangladesh should adopt a phased, "learning-by-doing" approach - similar to the transitional pathways granted to Cambodia and Lao PDR. This will allow the country to protect sensitive domestic industries while locking in the immense long-term advantages of global trade integration.

Dr Sajjad M Jasimuddin is a professor (professeur senior) at Kedge Business School and Head of the Geopolitics Strategy Lab (France). He previously held faculty positions at several universities based in Bangladesh (Dhaka University), Saudi Arabia, the UK, the UAE, and China.  

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.