Flagship EPA with Japan

The Economic Partnership Agreement (EPA) between Bangladesh and Japan is significant not only because it marks Dhaka's first such deal with any country, but also because it offers a blueprint for trade diplomacy in the run-up to the LDC graduation. It appears that Bangladesh has managed to negotiate favourable terms in the EPA with the world's fourth largest economy. Under the agreement, Japan will grant 100-per cent duty-free access to 7,379 Bangladeshi products, including readymade garments. It is a major relief for apparel exporters. Coming at a time when garment exporters were getting increasingly concerned about the potential loss of preferential trade benefits and imposition of higher tariffs after LDC graduation, the EPA dispels the concern as far as the Japanese market is concerned. The sector will also benefit from the removal of some complex sourcing requirements, allowing Bangladeshi products to enter the Japanese market more easily. Apart from RMG, the sheer number of Bangladeshi products eligible for duty-free access speaks volumes for the scope of collaboration and export potential. However, to fully capitalise on the EPA with Japan, Bangladesh must accelerate efforts to diversify its export basket. 

In return, Bangladesh will offer duty-free or preferential access to 1,039 Japanese products. But Japanese automobiles were deliberately excluded from enjoying the duty-free entry. It was done so to encourage Japanese firms to invest directly in Bangladesh's vehicle manufacturing. Japan is a global leader in the automobile industry and investment from companies such as Toyota and Honda in establishing assembly or production facilities is expected to give a big boost to the country's automotive landscape. Its ripple effects across the economy would be immense in terms of job creation, technology transfer and industrial growth.

Another notable dimension of the EPA is its inclusion of the services sector. As per the agreement, Japan will gradually open its labour market to Bangladeshi professionals in 16 sectors covering 120 categories, including information technology, engineering, education, caregiving and nursing. This provision creates a vast horizon of employment opportunities while also ensuring better legal protection and working conditions for Bangladeshi workers in Japan. Demand for skilled and semi-skilled labour is high in ageing East Asian economies such as Japan and South Korea. However, Bangladesh has so far been unable to fully tap into this market due to an acute shortage of skilled workers. To translate this opportunity into tangible gains, Bangladesh must urgently invest in skill development, particularly in technical training, language proficiency and internationally recognised certification systems. Strengthening institutional capacity in these areas will be critical if the country is to leverage the services component of the EPA as a new pillar of export earnings and overseas employment.

Finally, the EPA with Japan should be seen as a strategic first step in safeguarding Bangladesh's trade competitiveness as it prepares for LDC graduation. After the graduation by the end of the year, if not deferred, Bangladesh will lose after the grace period the preferential trade benefits and market access that LDCs are entitled to. Meanwhile, two of Bangladesh's main competitors in apparel segment - Vietnam and India - have already secured free trade agreements with the European Union. This heightens concerns among apparel exporters, as the erosion of trade preferences could significantly undermine the competitiveness of Bangladeshi products. The authorities must therefore proactively pursue EPAs and FTA with the EU and other major export destinations to minimise tariff shocks and retain market share.