Bangladesh signs trade deal with Bhutan today

Bangladesh will ink its maiden preferential trade agreement (PTA) with Bhutan as the country looks to retain duty benefits following its graduation to a developing country from the least developed nation category.

Bangladesh is signing the deal with Bhutan as the country was the first one to recognise Bangladesh as an independent nation in 1971, said Commerce Minister Tipu Munshi at a press conference at State Guest House Sugandha yesterday.

Munshi and his Bhutanese counterpart will pen the deal. Bhutan recognised Bangladesh on December 6.

Prime Minister of Bangladesh Sheikh Hasina and Bhutanese Premier Lotay Tshering will attend the ceremony virtually.

Under the deal, Bangladesh will enjoy duty benefit on the exports of 100 local products such as garments, processed agricultural goods and electronics. Bhutan will enjoy duty benefit on 34 products like fruits, Munshi said.

The agreement will come into effect immediately.

In the fiscal year of 2018-19, Bangladesh exported goods worth $7.56 million and imported goods worth $42.09 million, according to data from the commerce ministry.

The trade balance between Bangladesh and Bhutan is tilted towards Bhutan as Bangladesh is a major importer of stones used in the construction sector.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the signing of the PTA with Bhutan was a good beginning.

Bangladesh can also look into signing comprehensive economic partnership agreements (CEPAs) with Bhutan and other major trading partners to retain the preferential trade benefits even after the graduation, said Rahman.

Bangladesh is set to make its status graduation to a developing country in 2024. In doing so, the country will lose preferential trade benefits as an LDC, except to the European Union, where the benefit would continue up to 2027 to help the country's transition.

Bhutan is also a member of the BBIN (Bangladesh, Bhutan, India and Nepal) initiative, but it has not ratified the agreement yet.

"Bangladesh should negotiate more with Bhutan for the BBIN initiative so that the connectivity grows. The CEPA can ensure connectivity and investment between the two countries," Rahman said.

Bangladesh and Bhutan have agreed on establishing railway connectivity, which is expected to improve connectivity and boost trade and investment.

Both Bangladesh and Bhutan enjoy tariff benefit reciprocally under the South Asian Free Trade Area (Safta). So, Bangladesh will have to see how to access more beyond the Safta and under the PTA, the trade analyst said.

"Only the PTA is not enough; Bangladesh will need to sign CEPAs with major trading partners to secure more trade benefit after the graduation."

Bangladesh is ready to sign free trade agreements (FTAs) and PTAs with 11 more countries such as Nepal and Indonesia by June next year, said the commerce minister.

"We have limited time, and we would have to sign a lot of FTAs or PTAs with our major trading partners to protect our trade privileges after the graduation," he said.

Bangladesh might lose revenue from import tariffs due to the FTAs and PTAs, but it needs to go for the deals to protect the trade privileges, he said.

"Bhutan might be a small country, but we will have to start from a certain point. So, we started with Bhutan as we have an emotional relationship with Bhutan," said Munshi.

Commerce Secretary Md Jafar Uddin said although Bangladesh would lose tariff from import to some extent, studies show that a lot of jobs would be created in the country and exports would grow.

"We can't sit idle. We will have to move, as we will lose duty privileges in 2024. We have to sign such agreements with our trading partners," he said.

There is a 30 per cent duty on garment imported by Bhutan, which buys around $2 million worth of apparel from external sources every year.

"So far, we exported a little over $300,000 worth of goods in a single year. We see opportunities everywhere, especially in South Asia," said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, recently.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the signing of the PTA with Bhutan was a tiny step for a long jump.

"Bangladesh will not have any economic impact on signing the PTA, but it has a learning point. We can learn a lot from the signing of such PTAs. We can learn how to negotiate," he said.

Bangladesh needs to sign trade deals with major trading partners like China, India, the Association of Southeast Asian Nations and the EU to retain trade benefits. So, the government is desperately lobbying with trading partners to sign either FTAs or PTAs.

The PTAs constitute an exception to the general most-favoured-nation provision of the World Trade Organisation (WTO), where all WTO members impose on each other the same non-discriminatory tariff.

All WTO members, sans Mongolia, have signed at least one PTA.

Bangladesh has begun negotiations with the Asean so that the country can grab more of its market share within the region.

Currently, Bangladesh, as an LDC, enjoys zero-duty benefits, preferential trade benefits and regional trade benefits on exports to 38 countries, including the EU countries.

Also, in the US, Bangladesh gets a zero-duty benefit for 97 per cent of its products, excluding garments, the country's main export item. Nevertheless, the US is the single largest export destination for the country.

Bangladesh will face competition in the EU after graduation as Vietnam has already signed an FTA with the bloc.

Some 74 per cent of Bangladesh's export earnings come under preferential trade as an LDC. Of the income, 64 per cent comes from the EU and 10 per cent from Japan, Canada and other developed countries.