The Federal Board of Revenue has proposed that Pakistan and Bangladesh should liberalise their markets for each other and finalise the overdue Free Trade Agreement without further delay and non-tariff barriers at both ends which hinder the trade between two nations should be removed by signing the FTA.
A senior official of the FBR Umar Wahid has conducted an in-depth analysis on 'Pakistan-Bangladesh Economic Expansion Challenges and Opportunities' which has been part of the FBR's quarterly review issued here on Thursday. The data compiled by the FBR revealed that the GDP of Bangladesh is US $115.2 billion (FY 2011), GDP per capita is US $690. Real GDP is 6.3%. Total exports stood at US $23.68 billion and total imports US $31.75 billion.
Total trade volume is US $55.61 billion and trade balance is US $- 7.89 billion. In contrast to Pakistan the economy of Bangladesh is mainly driven by the services sector which account for 52.9% in the overall GDP composition, followed by Industry which shared 27.8% in the GDP and agriculture is the third composition of GDP with share of 18.4%. Major industries of Bangladesh are cotton textiles, jute, garments, tea processing, paper newsprint, cement, chemical fertiliser, light engineering, and sugar.
Bilateral trade between these two countries is not only very small but also has been growing very slowly over the past years. During the eleven-year period between 2000-01 and 2010-11, Pakistan export to Bangladesh grew at an average annual rate of 27.6 percent and imports from Bangladesh grew at the rate of 9.2 percent. The total value of trade (export plus import) between the two countries in 2010-11 was about $983 million, FBR added.
The FBR said that the total volume of trade between Pakistan and Bangladesh stood around US $1 billion during the fiscal year 2010-2011. Pakistan exports to Bangladesh during the fiscal years 2010-2011 stood US $908 million while imports from Bangladesh were to the tune of US $75 million. Hence the trade tilts in favour of Pakistan. To give a boost to bilateral trade between Pakistan and Bangladesh both countries have decided to finalise a bilateral Free Trade Agreement. Bangladesh hopes to reduce trade gap through this agreement.
The bilateral Free Trade Agreement (FTA) will allow increased access of Bangladeshi goods into Pakistani market. It was agreed that, bilateral FTA shall be a Safta plus initiative including shorter sensitive list, lesser phase out period and softer Rules of origin. Bangladesh has conveyed a list of 104 items for which it requested duty-free access to Pakistani market. It was decided that such issues could be discussed during the Free Trade Agreement (FTA)/Early Harvest Program (EHP).
About Technical Level Negotiations on bilateral Free Trade Agreement, Bangladesh side has yet to respond. Pakistan and Bangladesh are already members of South Asian Free Trade Agreement (Safta). Free Trade Agreement with Bangladesh is supported on the grounds that it will provide maximum market share for Pakistani exports and will ensure level playing fields for Pakistani exporters viz-a-viz other competing exporters who have regional arrangement of free trades or preferential trade rights in the Bangladesh market, the FBR added.
According to the leading researcher of FBR, to further strengthen Pakistan-Bangladesh relations, the FBR has made some viable recommendations. Firstly, both the countries should liberalise their market for each other and finalise the over due Free Trade Agreement at the earliest. FTA will definitely pave the way for opening trade opportunity and will help expansion of trade between the two countries. Bangladesh trade gap will be reduced with the help of this agreement.
The Joint Economic Commission and Joint Business Council should be activated to perform important role and provide institutional support. Secondly, Bangladesh fall under the category of 'Least Developing Country' therefore enjoy preferential treatment of duty free export to European Union and other countries. This is a competitive advantage for Bangladesh. This facility could be availed by the Pakistani industrialists if they set up factories in Bangladesh especially in the Engineering, Information Technology and textile sectors.
Thirdly, Pakistan and Bangladesh have a bright future for promotion of bilateral trade provided the people to people contacts are rapidly increased which increases confidence among them. In the area of non-Governmental co-operation, close inter-action between the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) should be encouraged by both the Governments.
Fourthly, non-tariff barriers at both ends which hinder the trade between two nations should be removed by signing FTA. Fifthly, Pakistani textile products are low value added and are of poor quality, therefore, fetches low international price. The machinery installed in recent years is old in relation to Pakistan's competitors.
These machines are power intensive, less productive and carry higher maintenance cost. Increase wastage of inputs also adds to their cost. Pakistan's labour is less productive because little or no efforts have been made to impart training or improving their skills. Pakistan's exporters spend little money on research and development. There are structural issues and must be addressed by the industry itself with government playing its role of a facilitator and providing temporary financial assistance to address short term issues.
Sixth, the era of globalisation, privatisation and de-regulation both the countries should facilitate private sector to enter into joint ventures in the field of textile, Information Technology, engineering goods, Information Technology and agri-business. The Government of Pakistan and Bangladesh should act as facilitator and regulator.
Seventh, if we look at the export and import basket for both the countries, we will see that they have similar comparative advantage. Exports from both the nations are generally labour intensive manufactured goods such as clothing and textiles. These items account for more than two thirds of the export earnings for both Pakistan and Bangladesh. With almost similar export baskets, there is little opportunity for Bangladesh to export those products which are already being produced by Pakistan. Therefore, this has arisen the need for both the countries to diversify their products.
Eight, one of the reasons for low trade volume between Bangladesh and Pakistan is high transportation costs. In the absence of land routes for the transportation of goods, producers can not exploit economies of scale since goods have to be transferred by ships from Chittagong or Mongla port to the Karachi port via the Indian ocean.
This is expensive and time consuming. Pakistan-Bangladesh Joint Economic Commission has already recommended to both the Governments to establish a direct shipping service between the two counties in order to promote commercial and trade links. Bangladesh should allow Pakistan to set up warehouses in Bangladesh to stock products to meet the growing demand.
Ninth, joints working Group and Joint Business Council should follow up the effective implementation of agreements entered into by both the Governments. The report said that Pakistan and Bangladesh are members of Saarc and working under the umbrella of Safta, therefore, tariff structure for trade with Bangladesh (non sensitive items) fall in the range of 0-5%, being LDC status of Bangladesh. However, Rs 1.8 billion has been collected under indirect taxes regime during the last four years. It may be highlighted that the trade between the two countries is aimed at boosting economic activities to generate more production, more employment opportunities that leads to more consumption and enhance tax collection.
It said that the survival and prosperity of the region and particularly of Pakistan and Bangladesh depends upon reciprocal co-operation rather than conflict. The relationship between the two countries has witnessed many ups and downs during the last 41 years. To facilitate trade and business, Bangladesh may open bank branches in Pakistan, open pre-shipment inspection offices in Pakistan and Bangladesh should do away with the requirements of Radiation Free Certificate for imported food items from Pakistan as it add cost to the consignments, FBR said.
Bangladesh is a "least developing country" due to which it enjoys the duty free exports to European Union and other countries. This comparative advantage of enhanced international access could be availed by Pakistani industrialists if they set up factories in Bangladesh especially in engineering and textile sectors, FBR's report said.
In the era of globalisation, privatisation and de-regulation both the countries should facilitate private sectors to enter into joint ventures in the fields of textile, engineering goods and agri-business. The Governments of Pakistan and Bangladesh should act as facilitator and regulator. There exist non-tariff barriers that hinder trade between two nations. For instance, non-tariff barriers such as import restriction, inconsistent and lengthy custom procedures and complicated documentation requirements are quite common in both the countries. These should be removed. Efforts may be made to remove irritants in the relationship, the FBR said.
If we look at the export and import basket for both the countries, we will see that they have similar comparative advantage. Exports from both the nations are generally labour intensive manufactured goods such as clothing and textiles. These items account for more than two thirds of the export earnings for both Pakistan and Bangladesh. With almost similar export baskets, there is little opportunity for Bangladesh to export those products which are already being produced by Pakistan. Therefore, diversification of products is needed by both the countries. In the nutshell, both countries have political will to work together to expand volume of trade and commerce. Establishment of ties in IT sector will boost the economy of both the countries, Umar Wahid added.