Trade and Investment Opportunities in a Pakistan – Bangladesh FTA

This study by the Pakistan Business Council (PBC) titled “Trade and Investment Opportunities in a Pakistan – Bangladesh FTA” is part of the Pakistan Business Council’s (PBC’s) Market Access Series 2021 – 22. The idea of a Free Trade Agreement (FTA) between Pakistan and Bangladesh was first proposed in 2002, however, for various reasons this could not move forward at that time.

Recently, there has been renewed interest in Islamabad and Dhaka to revisit the possibility of signing an FTA between the two countries. With Bangladesh’s LDC status expected to lapse in 2026, the government of Bangladesh is looking to maintain market access in key markets through trade agreements.

Bilateral trade between Pakistan and Bangladesh has been in favor of Pakistan for at least the last 10 years.

However, Pakistan’s exports to Bangladesh decreased from $947.23 million in 2011 to $583.44 million in 2020.

Major Findings of the Study:

Pakistan’s main export commodities to Bangladesh are classified under ‘Cotton’ ($427.6 million); ‘Salt; Sulphur; earths and stone; plastering materials, lime and cement’ ($73.7 million); ‘Edible vegetables’ ($17.5 million); ‘Raw hides and skins’ ($9.8 million); ‘Machinery’ ($9.7 million); ‘Inorganic chemicals’ ($4.4 million); ‘Man-made staple fibers’ ($4.0 million); ‘Plastics’ ($3.9 million), ‘Tanning or dyeing extracts’ ($3.9 million); and ‘Edible fruits and nuts’ ($3.2 million).

With an import value of $46.78 million, Pakistan’s major import from Bangladesh was ‘Jute and other textile bast fibers’ (HS-530310). This single tariff line accounted for 75.5 percent of Pakistan’s total imports from Bangladesh in 2020.

For Pakistan, there exist an export potential of at least $2.95 billion in Bangladesh, mainly driven by sectors that include textile, agriculture, foodstuff, chemicals, base metals, plastics, and salt & cement products. The aggregate export potential for the top 25 commodities amounted to $1.24 billion in 2020. However, the country only exported goods worth $435.78 million for these top 25 commodities to Bangladesh during the year. Ten of the top 25 products fall under the category of ‘Denim and Woven Fabrics of Cotton’ (HS 52-55). While Pakistan can potentially export $522.74 million worth of these commodities, it exported $341.25 million worth of woven fabrics to Bangladesh in 2020.

Major Recommendations:

• The current tariff structure reveals that there is room for tariff cuts for goods traded between the two countries.
• Non – tariff barriers imposed by both countries need to be revisited.
• Anti-dumping duty (ADD) on Bangladesh’s exports of ‘Hydrogen Peroxide’ (HS-284700) needs to be reconsidered as this is a major irritant for Bangladesh at the moment.
• Regional syndication restriction claims by Bangladeshi potato exporters needs to be
• Pakistani food exporters need to work towards complying with the standards set by Bangladesh Standard & Testing Institution (BSTI).
• Pakistan should ask for unilateral access from China to the Chinese market similar to that given by China to Bangladesh’s exports.
• Both countries need to make their visa regimes more lenient for business travelers.
• A mechanism needs to be agreed between the two countries to ensure Pakistani Consignments especially of fabrics are not inordinately delayed.
• The possibility of a direct shipping line needs to be explored to promote bilateral trade.
• Pakistan needs to diversify its export basket to Bangladesh
• Bangladesh’s exports to Pakistan should also be a priority in bilateral negotiations.
• Japanese buying houses operating in Bangladesh should be targeted & efforts made to get them to also open offices in Pakistan. This interaction will allow Pakistani firms to improve standards.

Whilst Pakistani textiles have parity access in the USA with countries like Bangladesh, exports from Pakistan suffer high duties into countries like Japan, relative to Bangladesh. The PBC, through its national charter of exports, recommends that one of the strategies to achieve economic diplomacy goals is that Pakistan should be allowed parity access in Japan, Australia, and Canada with countries like Bangladesh.

The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 88) of Pakistan’s most prominent businesses. PBC’s research-based advocacy supports measures which improve the Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives, and activities can be found on its website: www.pbc.org.pk