Bangladesh and Pakistan have reportedly agreed to establish a new joint trade and investment commission to boost bilateral trade. At the same time, the two also plan to draft a Preferential Trade Agreement (PTA) and revitalise the Joint Economic Commission (JEC), which has been dormant for over a decade.
The joint working group agreement is set to be signed on 24 August while talks over the other two issues are ramping up.
Pakistan Deputy Prime Minister and Foreign Minister Ishaq Dar's visit to Dhaka on Saturday, which will overlap with Federal Minister for Commerce Jam Kamal Khan's official four-day visit from 21-24 August, will mark a significant development, especially as the last time such a high-powered Pakistani delegation visited Bangladesh was in 2012.
From stalled talks to renewed hope
The last time the two South Asian nations engaged in comprehensive trade talks was in 2003, when a Free Trade Agreement dialogue took place in Dhaka from 16-18 November, led by Jafar Iqbal Qadir, a joint secretary of Pakistan's Commerce Ministry, and his Bangladeshi counterpart Elias Ahmed.
Although it was reported that a deal had been struck, the FTA was ultimately never realised due to issues pertaining to rules of origin, reduction of direct tariffs, elimination of non-tariff barriers, longer phase-out period of tariff withdrawal, and anti-dumping and countervailing measures.
However, the scenario is more promising this time around.
In October last year, the first direct shipping route between Bangladesh and Pakistan was launched, reducing transit times by more than 50%, according to reports.
In February this year, Bangladesh resumed direct trade with Pakistan on a government-to-government basis for the first time since independence in 1971. The agreement saw Bangladesh purchase white rice from Pakistan at $499 per tonne through the Trading Corporation of Pakistan.
A remedy for declining trade?
Bangladesh and Pakistan are both members of the South Asian Association of Regional Cooperation (SAARC) and operate under the South Asian Free Trade Area (SAFTA).
Yet, bilateral trade has decreased significantly since 2012.
The volume of trade between the two nations had jumped from just $100 million in 2001 to almost $1 billion in 2011, according to a 2021 SAARC Chamber of Commerce and Industry study.
However, in 2020, it dropped to just $778 million.
More worryingly, the balance of trade has always been skewed in Pakistan's favour, a source of industrial raw materials and intermediary goods.
The trend was no different in 2023. Whereas Bangladesh exported goods worth $58.6 million to Pakistan, it imported goods worth $690 million from the country, per The Observatory of Economic Complexity (OEC)
Bangladesh's major exports to Pakistan included jute and other textile fibers, worth about $40 million, raw tobacco ($3.65m), and packaged medicaments ($3.53m). Pakistan's exports to Bangladesh included heavy pure woven cotton ($306m), non-retail pure cotton yarn ($71.5m), and heavy mixed woven cotton ($54m).
Over 85% of Bangladesh's total exports to Pakistan are jute and jute products. This is because Pakistan had granted duty-free access to Bangladesh's jute goods and tea in 2002.
Under that agreement, Bangladesh can export up to 10,000 tonnes of jute and tea to Pakistan each year without paying any duties.
But due to various shortcomings, Bangladesh has only been able to utilise around 50% of the quota.
What do the countries want?
- In the context of ongoing PTA, Bangladesh has requested a revision of anti-dumping duty on its hydrogen peroxide exports (HS-284700), mutual acceptance of certificates, and duty-free access for sugar and leather goods.
- The Pakistan Business Council recommended reconsidering the anti-dumping duty (ADD) on Bangladesh's exports of 'Hydrogen Peroxide' (HS-284700), which is a major irritant for Bangladesh.
- The current tariff structure reveals room for cuts while non-tariff barriers also need to be revisited.
- The Pakistan Business Council also recommended diversifying the nation's exports to Bangladesh
- A study analyzed the top 100 exported products at the HS-06 level, found that around 50% of these products are on sensitive lists, subject to high tariff rates – up to 25% by Pakistan and 20% by Bangladesh. Therefore, pruning these sensitive lists under SAFTA is crucial to increasing trade, the study recommended.
- As major exports fall in the sensitive list under SAFTA, pruning those lists is crucial to increasing the trade
- Trade plays an important role in any country's development process as it provides capital, transfer of technology, expertise and employment, and various other economic benefits. With cultural and religious affinity in common, both Pakistan and Bangladesh have many opportunities to establish good trade relationships with each other.
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