When the newly independent Bangladesh completed all the necessary formalities to join the General Agreement on Tariffs and Trade (GATT) in November 1972, an objection was raised by Pakistan at the multilateral trade forum. The memory of the fateful defeat of the country in the war against its then-eastern wing in 1971 was fresh. For Bangladesh, the war, imposed by Pakistan, was primarily a fight for its survival and self-defence, which later turned into a war of independence for obvious reasons. Thus, Bangladesh emerged as a sovereign nation on December 16, 1971.
Access to GATT, the predecessor of the World Trade Organization (WTO), as a contracting party, was crucial for the newly born country. Within a year, it became a reality, and Bangladesh became a contracting party or a member on December 16, 1972. The decision to give accession to Bangladesh as a contracting party was finalised on November 10, 1972. Immediately after the decision, Pakistan officially informed the GATT secretariat that it had decided to invoke Article XXXV of GATT concerning Bangladesh. This means that Pakistan would not go for any trade negotiation or trade preference arrangement with Bangladesh under the framework of GATT. To put it another way, it was a protest from Pakistan, though the move could not block Bangladesh from joining the multilateral forum of international trade negotiation and rule-making.
Two years later, in January 1975, Pakistan withdrew the invocation by accepting the Protocol for the Accession of Bangladesh to the GATT. Earlier, in 1974, Pakistan also agreed to recognise Bangladesh as an independent country, leading to establishing bilateral diplomatic relationships. It also opened the path of bilateral trade.
Nevertheless, bilateral trade between these two countries has yet to achieve optimal momentum for various reasons. The common memberships in two regional trade agreements - South Asian Free Trade Area (SAFTA) and Developing Eight Preferential Trade Agreement (D-8 PTA) - play a little role to enhance the economic ties among them. Bangladesh-Pakistan bilateral trade reached at US$782 million in fiscal year 2022-23 (FY23) with trade balance in favour of Pakistan.
Geo-politics is a critical barrier to advancing bilateral trade, especially in the last one and half decades when the Hasina regime was heavily tilted toward India. It drove Bangladesh to downgrade its bilateral relationship with Pakistan persistently. The ousted government, however, tried to use Pakistan's unwillingness to formally seek an apology for the atrocities in 1971 as the cover. In 2016, Bangladesh followed the Indian path and decided not to join the SAARC Summit in Pakistan. The reason was cited as 'interference in internal affairs' indicating Pakistan's protest to the execution of Jamaat-e-Islami leaders found guilty of war crimes in 1971.
The troubled bilateral relationship has cast a shadow on trade ties, with the Hasina-regime imposing a number of non-tariff barriers (NTBs) on importing Pakistani products. This has led to all consignments from Pakistan being selected for 100 per cent manual inspection, a process that significantly hampers trade efficiency. The recent decision by the interim government to scrap the mandatory physical inspection is a step in the right direction.
Bangladeshi exporters also face various NTBs in Pakistan. That's why exports to Pakistan are still below $100 million. It was only in FY22 when exports to Pakistan crossed $100 million. It came down to $84 million in FY23 and further declined to $54 million in FY24. Despite some demands for clothing and pharmaceutical products, Bangladesh is yet to tap the market potential due to various NTBs and a lack of marketing. The main exportable item from Bangladesh is 'vegetable textile fibres', which is around two-fifths of the total exports. Again, there is a demand for raw jute.
There are some tariff barriers also as the ad valorem equilibrium tariff applied by Pakistan on products originating from Bangladesh ranges from 2 per cent to 59 per cent, with an average rate of 7.8 per cent, according to an analytical note prepared by Karachi-based Pakistan Business Council (PBC). The anti-dumping duty imposed by Pakistan on hydrogen peroxide manufactured by Bangladeshi companies is also a contentious issue in the bilateral trade.
Another problem is the need for direct shipment of goods between the countries. Pakistan's export cargo is trans-shipped via Singapore or Colombo to Chittagong. It is, however, a long practice since the discontinuation of the route many years ago. Pakistan International Airlines (PIA) suspended its flight operations to Bangladesh in 2015, breaking the only direct physical connection between the two countries. So, both exports and imports have become costlier. Businessmen on both sides also face stringent visa rules primarily 'motivated by political bias and improper considerations'.
Import from Pakistan is much higher as the country was the 19th import source of Bangladesh in FY23. Imports of goods from Pakistan stood at around $700 million in the year under review, which was one per cent of the country's total imports. However, imports from Pakistan are heavily concentrated as cotton accounts for 80 per cent of total imports. Pakistani fibre and textile are also on the list, along with some other products. Due to some strict regulations coupled with excessive import tariffs, Pakistani textiles and clothing enter Bangladesh through a third country, Dubai to be precise.
As a growing economy with a booming consumer base, Bangladesh is not just a potential market, but a market with significant growth potential for Pakistani goods. Pakistan, on the other hand, is a competitive source of various raw materials and intermediate goods for Bangladesh. The potential for growth is further underscored by the fact that Pakistan could be a growing market for some Bangladeshi products like jute and pharmaceutical items. The resumption of Dhaka-Karachi direct flights may also open competitive air connectivity to the Middle East, further fuelling this growth. Therefore, the exploration of trade cooperation between Bangladesh and Pakistan with a focus on removing undue barriers should be considered seriously.
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