Bangladesh's newly signed reciprocal tariff agreement with the United States places conditions on Dhaka's trade policy, potentially limiting its entry into major trade blocs.
The agreement was done hastily by the interim government only three days before the national election. Many raised questions why the interim government signed the deal at the fag end of its tenure and many asked whether the interim administration has a mandate to negotiate and sign agreement on sensitive national issues.
The agreement states that if Bangladesh enters into a new bilateral free trade or preferential agreement with a "non-market economy" that undermines the deal, the US may terminate the pact and reimpose the applicable reciprocal tariff rate if consultations fail.
The clause could complicate Bangladesh's potential accession to the Regional Comprehensive Economic Partnership (RCEP), the world's largest trade bloc, as China - classified by the US as a non-market economy - is a member and accession would require agreements with all members. The US list of non-market economies includes China, Russia, Vietnam, Belarus, Tajikistan, Uzbekistan, Moldova and Azerbaijan.
Signed on February 9 in Washington by Bangladesh's Commerce Adviser Sk Bashir Uddin and US Trade Representative Jamieson Greer, the agreement lowers the reciprocal tariff on Bangladeshi exports by only 1pc to 19pc, down from the 37 per cent rate first imposed in April last year. Garments made from US cotton and synthetic fibres will qualify for zero reciprocal duty.
However, much of the 32-page text released by the Office of the US Trade Representative outlines obligations Bangladesh must meet to access the limited US tariff relief.
The agreement allows the US to take action against companies operating in Bangladesh if they export goods to the US at below-market prices. It also permits action if a foreign firm exports to third countries at below-market rates and a US company claims injury.
A close reading shows that while most US tariffs remain in place, Bangladesh has agreed to eliminate or sharply reduce customs duties on most US product categories. Some goods will receive duty-free access immediately, while others will see tariffs halved and phased out within five to ten years.
The document states: "Customs duties on originating goods provided for in the items in staging category EIF shall be eliminated entirely … and these goods shall be duty-free on the date of entry into force of this Agreement … customs duties on originating goods provided for in the items in staging category A shall remain zero," though it does not specify the products in those categories.
The agreement will take effect 60 days after both sides complete their legal procedures.
The new elected government through February 12 national election will have to bear the responsibility of the agreement which was done by the interim government.
Despite the conditions, the deal is expected to boost Bangladesh's garment exports by granting zero reciprocal tariffs on apparel made from US cotton. India and Pakistan, which rely primarily on domestic cotton, will not receive similar benefits, potentially giving Bangladesh a competitive edge.
Under the pact, the US will offer tariff concessions on 6,710 products, while Bangladesh will benefit on 1,638 items.
