Addressing Bangladesh’s key concerns for EPA with South Korea

Bangladesh is poised to graduate from its status as a least-developed country (LDC). This creates a “post-LDC dilemma” for trade due to the expiration of duty-free, quota-free access to the Korean market for approximately 95 percent of its products. For continuing benefits, both nations are eager to sign an economic partnership agreement (EPA). It will offer tariff cuts for a wide range of goods, services, investment and labor. Bangladesh faces challenges and it must be strategic in safeguarding its interests.

According to Commerce Secretary Mahbubur Rahman, this EPA will cover duty rationalization, investment, regional value addition, trade in services and other components. Korea and Bangladesh present it as a "trade and investment promotion framework." In practical implementation, Bangladesh can bargain for not only zero tariffs but also binding rules on investment protection, service-sector market access and cooperation clauses.

Korean delegates are eager to foster infrastructure and industry projects in Bangladesh for Korean firms. They have also emphasized the electronics and digital industries. South Korean Ambassador Park Young-sik is expected to increase Bangladesh’s ready-made garment (RMG) sector imports to Korea and hopes to spur Korean foreign direct investment in Bangladesh during the EPA period.

In 2022, bilateral trade reached $3.03 billion, 38.7 percent higher than in 2021. By 2023, Bangladesh had imported $1.62 billion worth of goods from Korea and exported $649 million, resulting in a significant trade deficit. Bangladesh places a high emphasis on the textile and RMG sectors for its exports. Its RMG market share in Korea remains low (around 5 percent), indicating room for expansion. Additionally, demand persists for non-leather footwear, home textiles and jute goods.

Korea offers machinery, electronics, petrochemicals and refined oil products to Bangladesh. In 2022, Korea’s diesel exports to Bangladesh surged past steel, pesticides, cars, textile machinery and electronic components. Ambassador Park advised using the EPA to tap the untapped potential and increase Bangladesh’s exports to Korea. From 2008 to 2024, around 34,000 Bangladeshi workers have gone to Korea, and an EPA will unlock new opportunities for skilled nurses and IT engineers.

Let’s examine Cambodia and Vietnam to gauge potential outcomes for Bangladesh: Cambodia and Korea signed a free trade agreement (FTA) in 2021. That deal eliminates tariffs on about 93.8 percent of Cambodia’s exports and 95.6 percent of Korea’s exports. The deal is expected to increase Cambodian exports by 14 percent this year compared to the previous year, and bilateral trade is projected to reach $1 billion in the near future.

Vietnam is another striking example of a successful agreement. Vietnam’s bilateral FTA with Korea streamlined duties on approximately 11,679 Vietnamese products, resulting in a significant surge in trade. Bilateral trade rose from $2 billion in 2010 to $86.5 billion in 2022, during which time Vietnam exported $15.8 billion worth of goods to Korea and imported over $70 billion.

To turn this EPA into an agreement with tangible benefits, we must concentrate on several issues and urge Korea to consider several areas. Firstly, rules of origin are a critical risk factor for Bangladesh. For example, under the Asia-Pacific Trade Agreement, Bangladesh must ensure that at least 35 percent of the value of products are domestic. Authorities should recognize mutual lab testing or simplified documentation for the origins of goods. Bangladesh should also negotiate for easy rules for garments and footwear that allow third-country inputs.

Secondly, nontariff barriers and regulations are another hurdle. Korea places a high value on safety, sanitation and technical standards. Bangladesh’s small firms may struggle to fulfil these demands.

Third, it is not only Bangladeshis who confront customs delays and roadblocks when conducting business, but also Korean investors, requiring immediate measures to diminish these problems.

Fourth, asymmetric pressures may produce critical hurdles for both countries due to an imbalance in trade. Bangladesh should seek protection for its emerging and sensitive sectors through lists or safeguard clauses. Without addressing these issues, the EPA cannot guarantee equitable market access.

Mehedi Hasan (mhmehedi505@gmail.com) is a researcher and former student of the University of Dhaka.