Strategic Considerations for Bangladesh’s Economic Partnership with South Korea
Bangladesh is on the brink of graduating from its status as a least-developed country (LDC), which brings both opportunities and challenges, particularly in trade. One major challenge is the expiration of duty-free, quota-free (DFQF) access to approximately 95% of its products in South Korea. To address this, both nations are working towards signing an Economic Partnership Agreement (EPA), which aims to reduce tariffs across various sectors, including goods, services, investment, and labor. This agreement could help Bangladesh navigate the post-LDC trade landscape effectively.
According to Commerce Secretary Mahbubur Rahman, the EPA encompasses several key areas such as duty rationalization, investment, regional value addition, and trade in services. It is seen as a “trade and investment promotion framework.” In practical terms, Bangladesh has the opportunity to negotiate not only zero tariffs but also binding rules on investment protection, service-sector market access, and cooperation clauses. South Korean delegates have shown interest in infrastructure and industry projects in Bangladesh, especially in the electronics and digital sectors. South Korean Ambassador Park Young-sik has expressed hope that the EPA will increase Bangladesh’s textile and RMG-related imports to South Korea and encourage more Korean foreign direct investment (FDI) in the country.
Trade Data Between South Korea and Bangladesh
In 2022, bilateral trade between South Korea and Bangladesh reached $3.035 billion, marking a 38.7% increase compared to 2021. By 2023, Bangladesh imported $1.62 billion from South Korea and exported $649 million, resulting in a significant trade deficit. The textiles and ready-made garment (RMG) sectors remain central to Bangladesh’s exports. However, Bangladesh’s RMG market share in South Korea remains low at around 5%, indicating potential for growth. Other areas with demand include non-leather footwear, home textiles, and jute and jute goods.
South Korea supplies Bangladesh with machinery, electronics, petrochemicals, and refined oil products. In 2022, South Korea’s diesel exports to Bangladesh saw a surge, along with steel, pesticides, cars, textile machinery, and electronic components. The South Korean ambassador emphasized that the EPA should unlock untapped potential and boost Bangladesh’s exports to South Korea. From 2008 to 2024, about 34,000 Bangladeshi workers, primarily low-skilled labor, have moved to South Korea. A successful EPA could open new opportunities for skilled nurses and IT engineers.
Lessons from Vietnam’s Success
Vietnam serves as a compelling example of the potential outcomes of a successful economic agreement. Vietnam’s Free Trade Agreement (FTA) with South Korea significantly reduced duties on approximately 11,679 Vietnamese products, leading to a massive increase in trade. Bilateral trade rose from $2 billion in 2010 to $86.5 billion in 2022, with Vietnam exporting $15.8 billion worth of goods to Korea and importing over $70 billion from Korea. Bangladesh’s 5% share in South Korea’s garments market pales in comparison to Vietnam’s success.
Key Challenges and Recommendations
To turn the EPA into a tangible benefit, Bangladesh must focus on several critical issues:
-
Rules of Origin (ROO): ROO is a significant risk factor for Bangladesh. For instance, under the Asia-Pacific Trade Agreement (APTA), Bangladesh must ensure that at least 35% of the product value is domestic. Authorities should consider mutual lab testing or simplified documentation for originating goods. Bangladesh should also negotiate easy rules for garments and footwear that allow a high share of third-country inputs.
-
Non-Tariff Barriers: South Korea places a strong emphasis on safety, sanitation, and technical standards. However, small firms in Bangladesh, which make up about 90% of industrial units and 80% of industrial employment, may struggle to meet these requirements.
-
Customs Delays and Business Challenges: Both Bangladeshi and Korean businesses face customs delays and roadblocks. Immediate measures are needed to streamline these processes.
-
Asymmetric Pressures: Imbalances in trade could create hurdles between the two countries. Bangladesh should seek protection for its emerging and sensitive sectors through sensitive lists or safeguard clauses. Additionally, it should leverage Korea’s technical support, joint ventures, capacity building, technology transfer, and human capital development to scale up its potential.
Without addressing these issues, the EPA may only provide theoretical benefits rather than equitable market access.
