EPA with Japan: What will Bangladesh gain, and how much risk involved?

Bangladesh has signed an Economic Partnership Agreement (EPA) with Japan last Friday in Tokyo, the capital of Japan, by Bangladesh's Trade Advisor Sheikh Bashir Uddin and Japan's State Minister for Foreign Affairs HORII Iwao. HORII Iwao

The agreement was finalised after seven rounds of negotiations conducted in Dhaka and Tokyo regarding trade in goods and services, investment, and economic cooperation.

The 1,272-page agreement contains 22 chapters. The government has stated that this agreement will serve as an important framework to strengthen the ''strategic partnership'' between both parties.

The Ministry of Commerce said that the goal of the agreement is to facilitate cooperation and make the markets more transparent and competitive in various fields such as trade, investment, services, intellectual property, labour, and the environment between the two countries.

The agreement will act as an integrated and sustainable guide for the economic, business, investment, and social development of both countries. This agreement is not only commercial but will also strengthen political and diplomatic relations and contribute to regional stability and prosperity.

According to the agreement, approximately 7,379 Bangladeshi products will receive 100 per cent duty-free access to the Japanese market.

Conversely, 1,039 Japanese products will receive duty-free or preferential treatment in the Bangladeshi market.

The agreement states that it will help strengthen a free, open, fair, and rule-based international economic system, serving as a foundation for the economic development, stability, and growth of both sides.

The establishment of a fair and competitive market will ensure mutual benefits to both parties, respecting environment, health, safety, and labour rights.

Maria Howlader, the General Secretary of the Japan-Bangladesh Chamber of Commerce and Industry (JBCCI), welcomed the agreement.

She told Prothom Alo, "As a result of this agreement, we are gaining duty-free access to the Japanese market, and secondly, investment from Japan in Bangladesh is likely to increase."

Moreover, Maria Howlader believes that this agreement will increase Bangladesh's productivity, efficiency, and the capacity to produce high-quality products.

She mentioned, "An opportunity has been created. Whether we can fully capitalise on it will determine what ultimately this agreement brings us."

A major part of the agreement is concerned with simplifying and clarifying the trade of goods between Japan and Bangladesh. It has been stated that neither country will impose unreasonable restrictions on each other's goods. There will be no limitations other than the applicable tariffs. Certain protective measures can be adopted in special situations, such as when there is a risk of industrial disruption. However, both sides will abide by the rules of the international trade organisation.

Additionally, the agreement includes topics such as rules of origin, tariff processes, and trade facilitation, sanitary and phytosanitary measures, technical regulations, standards and conformity assessment procedures; trade in services, movement of natural persons, investment, electronic commerce, government procurement, intellectual property, competition policy, subsidies, state-owned and designated monopoly enterprises, business environment improvements, labour, environment, transparency, cooperation, dispute settlement, and concluding provisions.

It has been stated that both parties will provide each other with proof of origin for products and will verify and exchange information about origins. There will be separate rules of origin for specific products. Certain conditions regarding quantity, capital expenditure, and processing procedures of products must be met. Procedures for trade goods and services must be straightforward, transparent, and effective; therefore, both parties need to publish customs systems, rules, and regulations. To minimise complexities, computerised systems should be used.

Another important aspect of the agreement is services and investment. Stakeholders argue that this agreement could create advantageous entry for the Bangladeshi service sector into the Japanese market, and Japanese investors can invest in a more transparent and protected environment in Bangladesh. Both countries' investors will receive equal opportunities and protection. Any bilateral investment disputes will be resolved through discussion and, if necessary, via mediation or arbitration.

In the realm of digital economy, e-commerce and online transactions are acknowledged, making digital trade more secure and effective. Furthermore, the acceptance of personal data protection, e-contracts, and digital signatures aims to ensure ease of business between the two countries.

The agreement also emphasises making government procurement processes more transparent and competitive. Businesses from both countries will have equal opportunities in government procurement.
The agreement secures the protection of intellectual property, such as copyrights, trademarks, patents, industrial designs, and protection of new plant varieties. It also includes provisions for effective enforcement of intellectual property in the digital environment and prevention of unfair competition.

Labour rights, fair wages, safe and healthy work environments, and social security have been prioritised in the agreement. Separate provisions are in place to ensure pollution control, natural resource conservation, and sustainable development, maintaining environmental accountability along with economic activities in both countries.

The agreement also emphasises ensuring labour rights, safe and healthy work environments, and social security; maintaining limited and transparent subsidies; making administrative processes simple with fewer documents while ensuring business regulations are transparent; and making government policy and information readily accessible.

According to stakeholders, as a result of the agreement, Bangladeshi products will be able to enter the Japanese market more easily. Duty-free privileges will reduce the prices of manufactured goods, making them more competitive. Export times and costs will also decrease. Bangladesh may become more attractive to those in Japan looking for diversification in their supply chains, as the agreement will ensure legal certainty alongside tariff exemptions.

From the day the agreement comes into effect, some Bangladeshi products will gain duty-free entry into Japan. Japan will gradually reduce tariffs on Bangladeshi products, step by step, over four, six, eight, eleven, or sixteen years.

Another major benefit is the simplification of rules of origin and tariffs, which will make exporting to Japan easier. The rules and procedures for proving origin will become clearer and more straightforward as a result of the agreement. If implemented effectively, exporting to Japan will become less costly and time-consuming. However, this will depend on how efficiently customs, certification, and verification processes can be managed, meaning administrative capacity needs to be increased.

The EPA encompasses not just goods but also investment and service trade structures. Bangladesh has relatively more regulations when it comes to foreign investments and service sector operations. Foreign citizens cannot open a branch or liaison office in Bangladesh without registering according to company law for specified sectors. While Bangladesh keeps its doors open in principle, it also wants to maintain control to ensure market equity. The EPA has not enacted anything new for Japanese companies in this respect.

The agreement mentions the movement of skilled manpower but with limitations. It aims to facilitate temporary movement for businesspeople and service suppliers, with the note that it does not ensure entry into the permanent job market or guarantee permanent migration.

The agreement has created opportunities for competent companies in Bangladesh's IT, engineering, supply, and related sectors to enter Japanese government procurement.

When asked about the agreement, former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), Md Fazlul Haque, told Prothom Alo that although the initiative to sign the EPA started during the Awami League's tenure, it was completed during the interim government, which is good news. He sees the EPA in a positive light.

Following Bangladesh's graduation from LDC status, reciprocity is no longer the issue; the main focus is now on improving competencies. Japan is a significant and familiar market for us. Both boosting exports to Japan and increasing Japanese investment in Bangladesh are critical tasks. However, Japan is not an easy market, and they take time for decision-making. Therefore, persistence is necessary to realise the benefits of the EPA.

According to the agreement, Bangladesh will also gradually lower tariffs on Japanese imports, which may reduce import tariff revenue, especially for those goods currently protected by high tariffs. This could create a shortfall in tax revenue, possibly increasing dependence on VAT and income tax for revenue collection. Lower tariffs could make Japanese products like machinery, capital equipment, and high-quality consumer goods comparatively cheaper, thereby increasing competition in certain domestic industries and reducing protection for infant industries.

Intellectual property is an important topic; there will be obligations in the future. Bangladesh will be able to defer some obligations for 5 to 10 years in certain cases. When this period ends, it will need to strengthen intellectual property laws and administrations, increasing implementation costs. Maintaining policy balance in certain industries might become difficult, according to experts.

Dispute resolution and rule-based pressure are also expected to increase. The easier entry of Japanese products may present challenges for local industries. Without improvements in production and quality, local enterprises may be vulnerable, experts caution.

Even if Japanese investments come in, the dominance of foreign companies could create pressure for local businesses. If the rules on labour rights and environmental protection are not strictly enforced, international criticism may increase. Due to capacity shortages, the implementation of tariffs, origin certification, intellectual property protection, and government procurement processes might become complex.

Meanwhile, the agreement mandates compliance with additional rules in sectors like agriculture, food, processed food products, and fishery products, which could raise costs, according to stakeholders.

When asked, Kazuiki Kataoka, the country representative of the Japan External Trade Organization (JETRO), told Prothom Alo that while duty-free benefits help competitively with prices, producing high-quality products acceptable to Japanese consumers will likely become the most important task for Bangladesh. This agreement will contribute to increasing investment from Japan to Bangladesh, but more importantly, a business-friendly investment environment needs to be established in Bangladesh.

According to information from the Bangladesh Bank and the Export Promotion Bureau, Bangladesh lags behind Japan in bilateral trade. In the most recent fiscal year of 2024-25, Bangladesh exported 1.41 billion USD worth of goods to Japan. In that same fiscal year, Bangladesh imported 1.87 billion USD worth of goods from Japan.

*This report, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam