Trade: a low hanging fruit in ties with Bangladesh

Bangladesh has been one of the key exporting destinations for Pakistani goods over the decades. Pakistan’s exports to Bangladesh have come through various fluctuations but still managed to end on a rise. It rose from $14.27 million in January 2005 to $48.8 million in January 2017. This fluctuation in export is primarily due to rising domestic demand and a stiff competition in the export market. Other reasons for the fluctuation include improved manufacturing facilities in Bangladesh, rise in regional agreements with India, Nepal, Bhutan and the Maldives and also major developed economies along with increase in informal trade.

In January 2017, the most popular commodities that found their way to Bangladesh from Pakistan included cotton yarn not for sewing cotton type products and woven cotton fabric products. Among export of services, Pakistan provided transportation, government-related services, telecommunication, financial and travel services. During the same month Pakistan’s major imports from Bangladesh was tea (flavoured and not flavoured), hydrogen peroxide, woven cotton fabrics, jute and other textile fibres and yarn of jute or other textile fibres.

Pakistan over the decade has also been a key supplier of cotton and woven goods along with the services sector where contribution was of minimal level to the economy. Like trade in locally-produced goods and services, its flow has also reduced over the period when it comes to discussion of trade ties between the two South Asian countries. There are several explanations for this reduction. The most important are: political shifts occurring in this region, eg, different regional agreements where Pakistan is not a part of. These key regional agreements include South Asian sub-regional Sub-Economic Commission, Bangladesh, Bhutan, India, Nepal motor vehicle agreement and Bangladesh, Bhutan, India and other agreements of regional connectivity (Sasec and BBIN). Beside these political shifts and regional pacts there had been increasing demand in the domestic market both in Bangladesh and Pakistan also resulted in low trade over the period.

In different forms of literature, we had established that the relationship between Pakistan and Bangladesh was not on the positive side thus resulting in low and fluctuating trade numbers over the period. Data has also revealed that there is huge trade potential in the services sector, ie, during 2010-15; Pakistan has been more inclined in government and other business services leading to increasing employment trend and mostly in the lower and upper middle class income groups.

We also have evidence from recent literature of different forms and data that the slowdown and fluctuation was mainly due to political differences which has hindered the growth in various sectors and thus resulting in trust deficit followed by communication problems between people of different countries. This less than desired pace of reform in formal trade also explains the reason for stagnant growth in economic and political ties.

While security and political cooperation between the two countries may continue to remain a great challenge, we believe that cooperation in trade is a low hanging fruit, considering the business communities of both sides. We have clear identification of challenges which the business community is facing. And given this identification, there should be an easy solution to work on. For example, in 2013 there were different MoUs signed between traders from both sides, the business community was worried about getting business visas, non-signing of a free trade agreement, lack of implementation of regional agreements like the South Asian Free Trade Agreement (Safta).

A critical evaluation of data and trends reveal that several mutually-agreed decisions have yet to be implemented. For instance, both sides agreed to sign a bilateral FTA to open more trade alongside Safta. This needs to be implemented in letter and in spirit. There were many reservations beside these hindrances which were raised by Bangladesh. Key reservations included special and differential treatment of Bangladeshi goods on grounds of being a least-developed nation, as well as differences over opening of markets post-FTA.

The other major points of negotiations at that time included relaxed rules of origin, reduction in the rate of direct tariffs, elimination of non-tariff barriers, longer phase-out period of tariff withdrawal and anti-dumping and countervailing measures. During the course of discussion Bangladesh continued with its “negative list approach” in the negotiations for protection of local industry. By this approach both countries at the time of negotiations were on positive note to allow products between the two countries and save the items that are incorporated in the list.

During the dialogue period both countries were able to forge consensus on number of issues. Pakistan did agree to give Bangladesh special and differential treatment under the bilateral trade deal and both countries will continue with their negative lists. Bangladesh will be enjoying longer phase-out period and have a longer negative list of products along with two different type of lists been agreed upon. The first list will have products with immediate tariff concession and another with reduction in tariff in different phases.

Thus Pakistan had already granted duty-free access to Bangladesh tea and jute goods which came into effect during 2002-03. But Dhaka had no success in achieving the target over the period. Apart from the need to have a more expanded network of Pakistani banks in Bangladesh, there are challenges for other banks to pursue because of the different banks operating there from different parts of the world.

Despite these challenges, the business community is more upbeat and sees markets on both sides as linking trade to trust and bringing people closer to each other. During the last four to five years the business community is coming closer to each other for expansion of trade as an initial barrier to breaking the ice. Thus the business community is stressing both the governments to finalise a bilateral FTA for better ties. This agreement can strengthen cross border-value chains, comparative advantage for enterprises working on both sides. Given the conditions and trade terms, an urgent meeting should be called between ministries concerned at initial level followed by the head of the states which may be termed a near-term goal. Given the hesitation felt by the two governments based on political differences, we propose some recommendations which can hold the political representatives and bureaucracy on both sides more answerable to the long due promises.

Firstly, the finance and commerce ministries of the two countries should be pressed into meeting by the Bangladesh and Pakistan Chambers of Commerce and Industry. Secondly, representatives from both the chambers should also meet with the president of Saarc Chambers of Commerce and Industry with the request to send formal communication to the heads of the two states. The key focus of this request should demonstrate the loss to all stakeholders given the reduced level of cooperation and high political tensions.

Thirdly, the apex chambers on both sides need to invest their resources to showcase their argument in print, electronic and social media, and highlight the loss to producers, traders and consumers as a result of a lack of bilateral cooperation. Fourthly, a detailed orientation may be organised for economic journalists, think tanks and academia in Dhaka and Islamabad, so that repeated messaging is ensured through various forums.

Fifthly, think tanks in both Bangladesh and Pakistan should join hands in producing joint research and advocacy material. This will also bring in independent voices for pro-trade and transit reforms. Think tanks should focus on their views specific to the business community and to respective and concerned bodies in parliament. Sixthly, there is also a need for proactive approach of these standing committees which in the past also resulted in reforms and measures. Seventhly, advocacy efforts should be backed by rigorous research which demonstrates loss to the business community and the country’s economy.

Published in The Express Tribune, August 23^rd, 2017.

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