Potential impacts of Bangladesh–China free trade area: a general equilibrium analysis

In recent times, both Bangladesh and China have shown interest to sign free trade area (FTA) deal. However, to the best of our knowledge, no studies have examined the potential impacts of such deal on member countries. The current study attempts to fill this gap as we examine the possible impacts of the proposed Bangladesh–China bilateral FTA using a static general equilibrium framework. Employing the standard Global Trade Analysis Project (GTAP) model and exploiting the latest available version (version 10) of GTAP database, we perform two alternative simulations to analyze the potential impacts of the proposed FTA. In simulation 1, both the FTA members fully abolish all tariffs and non-tariff barriers on member country’s imports, while in simulation 2, the FTA deal considers a special and differential (S&D) treatment for Bangladesh. The findings suggest that under simulation 1, implementation of FTA would worsen the aggregate welfare in Bangladesh. At the same time, Bangladesh would not fully utilize the duty-free access to expand its export to China. By contrast, in simulation 2, Bangladesh can improve its overall welfare by partially protecting its domestic market for Chinese imports. However, the expansion of Bangladesh’s RMG sector would be hampered, as the price of imported intermediate inputs from China would become relatively expensive in simulation 2. In both the simulations, China would be the net gainer in terms of aggregate welfare by utilizing market access provisions under the proposed FTA.