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Nepal-Bangladesh trade relations

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🕐 2021-05-09 14:54:15

Nepal-Bangladesh trade relations

Dr. Banshidhar Mishra



Nepal-Bangladesh commercial and economic relations are growing in sentiments to our mutual benefits. There is tremendous potential for expanding and diversifying trade between the two countries. Bilateral trade between our two countries is far below the potential. In the fiscal year 2019/20, the trade volume was around US$ 60 million, with the trade in favor of Bangladesh. Nepal’s exports to Bangladesh constitute mainly yellow lentils, oil cakes, cardamom (large), wheat, vegetable seeds, handicrafts, Pashminas etc. Imports from Bangladesh include industrial raw materials, chemicals, fabrics and textile materials, jute products, electric and electronic items.

Bilateral relations between Bangladesh and Nepal have been moving ahead since the founding of Bangladesh in 1971. The two nations are separated by the Siliguri Corridor—a small stretch of territory of the Indian state of West Bengal lying between south- eastern Nepal and northern Bangladesh.

Nepalese Foreign Minister Mr. Pradeep Gyawali called on Hon. Prime Minister Sheikh Hasina on 19 February 2020 during his official visit of Bangladesh.


Existing Mechanisms for trade and Transit

Nepal and Bangladesh have signed four agreements in April 1976 relating to trade, transit, civil aviation and technical cooperation. The transit agreement and the protocol to the transit agreement inked in 1976, identified six ports of calls for the movement of transport vehicles to and from Nepal. The ports of calls were Khulna-Chalna (currently Mongla Port), Chattogram Port, Banglabandha (Land port), Biral, Chilahati and Benapole. Bangladesh Government has permitted Nepal to use the facilities at Mongla Port since September 1997, following the opening of Kakarbhitta-Phulbari-Banglabandha transit route. Since then most of the products coming in Bangladesh from Nepal and exported to Nepal from Bangladesh use the Banglabandha port.

The government of Bangladesh on 10 August 2020 included a rail route in the Bangladesh-Nepal’s existing transit agreement to give a much-needed boost to bilateral trade by cutting distance. The cabinet amended the existing transit protocol to add Rohonpur in Chapainawabganj district of Bangladesh as an additional transit entry and exit point connecting Biratnagar of Nepal through Singabad of West Bengal India. The Letter of exchange was formally accomplished on 22nd March 2021 during the visit of Rt. Honorable President of Nepal to the People’s Republic of Bangladesh to mark the historical ceremony of Golden Jubilee of Independence of Bangladesh and Birth centenary of the Father of the Nation Bangabandhu Sheikh Mujibur Rahman.

The initiation started in January 2010, when the prime ministers of Bangladesh and Nepal agreed to include Rohonpur-Singabad broad gauge railway link as the additional transit route. In September same year , the addendum to the letter of intent between Bangladesh and India allowed the use of rail network as a new transit route to facilitate overland transit and tariff between Bangladesh and Nepal.


Rt. Hon. Presidents of Bangladesh and Nepal, Abdul Hamid and Bidya Devi Bhandari, at the MoU signing ceremony at Bangabhaban on Monday, March 22, 2021.

 Nepal signed a letter of exchange with New Delhi in February 2016 to use Singabad to expand trade with Bangladesh. Nepal requested Dhaka to add Rohonpur as the seventh port of call during the fourth Nepal-Bangladesh commerce secretary- level meeting in Kathmandu in June 2018 and sent a letter of exchange on 16 April 2019. The linkage became practically possible after Bangladesh replaced meter-gauge track on it’s side by broad gauge track in 2015 to connect with already existing broad gauge rail network from Biratnagar (Nepal) to Singabad (India). With this two rail routes being effective, the Rohanpur - Singhabad Railway route is more useful as it involves a distance of 217 km to reach Biratnagar of Nepal compared with the 514 km Biral – Radhikapur to Birgunj Nepal. In 2017, a company named “Best Trade” used this Rohanpur – Singabad railway route for the first time and exported 35,000 tons fertilizer to Nepal using Indian Good’s Train and since then it has been used occasionally for transporting fertilizers imported from third country or from Bangladesh to Nepal.


Bangladesh Nepal 4th Commerce Secretary Level meeting in Kathmandu.

Nepal-Bangladesh Joint Economic Commission (JEC) was set up in 1978 at the level of Finance Ministers. Both countries are keen on working together to further strengthening economic ties. The areas of such cooperation have been joint ventures sectors like banking, finance and insurance. Examples of joint venture initiatives are in the areas of banking (Nepal-Bangladesh Bank), finance and insurance. New initiatives are being undertaken in the field of readymade garments, leather goods, pharmaceuticals, and PVC pipes.

The first Nepal-Bangladesh Joint Group of Customs officials meeting was held on 12-13 December 2018 in Kathmandu. The meeting at length, discussed the issues pertaining to trade and transit facilitations such as facilitation of smooth movement of Nepal bound cargo through Banglabandha LCS, identification of trade barrier and coordinated customs procedure between two countries, export of acrylic yarn through Banglabandha LCS, easy access to Nepali agricultural products and fruits in Bangladesh market, customs cooperation and coordination among others. Following the decision of this meeting, the Government of Bangladesh has amended the existing provision to import acrylic yarn from Nepal through Banglabandha Land Customs Station (LCS). However, Bangladesh has imposed some restrictions such as import through government approved bonded warehouses, import after chemical testing & assessment of report of the sample yarn for proper compliance, among others to import acrylic yarn from Banglabandha Land Customs Station.


Fifth Nepal-Bangladesh Commerce Secretary-Level Meeting, Dhaka.

Nepal-Bangladesh Technical Committee (Commerce Joint Secretary Level) meeting was held in Kathmandu on 22-23 October, 2019. The meeting agreed to the following:

(i) Both countries would share the revised list of export products at the earliest for duty-free and preferential access to each-other’s market;

(ii) Bangladesh will share PTA template along with Rules of Origin modality based on SAFTA and Nepal will examine it.

(iii) Nepal would share the revised draft of Operational Modalities of BBIN MVA within a month and Bangladesh will share its comments on it;

(iv) Nepal would share the revised draft Agreement on Regulation of Motor Vehicle Passenger Traffic (Dhaka-Kathmandu Bus Service) with Bangladesh within a month and the latter would share its comments.

(v) Nepal will share within a month revised draft of the following MoUs and agreements to be concluded with Bangladesh:

* MoU between Department of Food Technology and Quality Control (DFTQC) and Bangladesh Standards and Testing Institution (BSTI).

* MoU between the Department of Agriculture, Nepal and Department of Agriculture Extension, Bangladesh on Strengthening Sanitary and Phytosanitary Cooperation.

* MoU between Trading Corporation of Bangladesh and Salt Trading Cooperation Limited, Nepal.

* Agreement between the Government of the People’s Republic of Bangladesh and the Government of Nepal for the Regulation of Motor Vehicle Passenger Traffic between the Two Countries.

* Agreement on Operating Modalities for the Carriage of Transit/Trade Cargo between Nepal and Bangladesh.

Nepal and Bangladesh signed an MoU on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income (DTA) on 5 March 2019 in Kathmandu. This MoU would be crucial for investment expansion and further enhancing the trade relations between the two countries.

The third Commerce Secretary level meeting between Nepal and Bangladesh was held in Dhaka in May 2016. Similarly, the third Meeting of Nepal-Bangladesh Additional/Joint Secretary Level Technical Committee on Trade was held in Dhaka in January 2017.

Existing Trade Situation between Nepal and Bangladesh

The bilateral trade data over the period 2004-2019 is presented below:(Value in ‘000 NRS) 

 

The fourth Nepal-Bangladesh Commerce Secretary level meeting was held on 30-31 May 2018 in Kathmandu. Issues relating to additional entry-exit point (Rohanpur, Bangladesh) for Nepal in the existing transit treaty, finalizing the operational modality concerning carriage of transit cargo from Mongla and Chittagong port to Nepal’s border point, enhancing road and rail connectivity, possibility of conducting air flight from Saidpur of Bangladesh to Biratnagar/ Bhadrapur, easing registration process for pharmaceutical products manufactured from Nepali Pharmaceutical Companies among others, were discussed during the meeting. The meeting also agreed to expedite the Bilateral Investment Promotion and Protection Agreement (BIPPA) between the two countries at the earliest possible. Both sides agreed to consider a trilateral agreement between Nepal, Bangladesh, and India to enhance transit through railways and inland waterways.

Fifth Nepal-Bangladesh Commerce Secretary-Level Meeting between Bangladesh and Nepal was held on 3-4 March 2020 in Dhaka. An eight-member team led by Baikuntha Aryal, secretary at the Ministry of Industry, Commerce and Supplies, participated in the two-day meeting. The meeting primarily focused on bilateral trade and investment, direct bus service, cargo movement, direct flights, possible waterways connecting the two nations and easing different customs barriers. Similarly, preliminary discussions regarding the bilateral investment promotion and protection agreement also took place at the meeting.

The 6th Commerce Secretary Level Meeting on Trade and Economic Cooperation was held on 8 October 2020 virtually on trade and economic cooperation decided to hold the technical committee meeting in the third week of November 2020 to finalise the list of products, text of the PTA and rules of origin. Nepal is seeking zero tariffs on goods listed under the agreement and the removal of other duties and charges. The Nepali side also discussed the issue of yarn export. Bangladesh proposed implementing the Bangladesh, Bhutan, India, Nepal (BBIN) initiative for passenger and cargo transit between Nepal and Bangladesh. The discussion also included visa process simplification and Bangladesh raised the issue to simplify the process for investors and businessmen.

According to the table shown following inferences can be drawn:

First, imports from Bangladesh have been consistently increasing over the last 15 years with a peak of NRs Five Million in 2015. There after a declining trend is observed with the lowest volume of about NRs two million in 2019. Second, exports from Nepal registered the peak of NRs 4.7 million in 2008, thereafter started a downward spiral to NRs 2.7 million but yet with a positive trade balance of NRs 556,000 in 2012.Thereafter, not only the export from Nepal to Bangladesh declined sharply but also the trade balance increasingly turned out to be negative for Nepal. Lastly the year 2021 also would not be an exception in terms of trade performance due mainly to the Covid-19 pandemic as it was in 2020.

Bangladesh exported goods worth $38.1 million to Nepal in fiscal 2018-19, up from $10.8 million in fiscal 2010-11, according to the data from the commerce ministry of Bangladesh. In fiscal 2018-19, Nepal’s exports stood at $9.9 million, down from $49 million in fiscal year 2010-11.

For bilateral trade the land ports at Banglabandha (Bangladesh) and Fullbari (India) are under process of being equipped with necessary structures and facilities (customs, quarantine, etc) since transshipment is necessary at Banglabandha (Bangladesh) for Nepali trucks and at Fullbari (India) for Bangladeshi trucks. The road up to Banglabandh is being upgraded as a part of multinational Asian Highway inside Bangladesh thus being favorable for multi axel heavy vehicles while 37 Km. Fulwari (India) – Kakadbhitta (Nepal) is already a four Iain highway.

While Bangladesh could import from Nepal plenty of green vegetables and fruits of citrus variety like orange, apple, pear and peach and goods like Ginger, cardamom, cement, sand and boulders for which demand is increasing annually, Nepal could import Bangladeshi products like medicines, textiles, jute, juice, agro machineries and many others.

Both countries have in principle agreed to sign a Preferential Trade Agreement (PTA) and the draft with the list of 20 products from both sides have been shared. Also, both the countries are considering for zero customs and abolition of other duties and charges (ODC) under the PTA. Review of the documents are ongoing at both ends and, hopefully, a practically feasible mutual understanding will be reached soon. Also, both countries should attempt to benefit from the SAFTA framework of SAARC. It is imperative for both Bangladesh and Nepal to finalize the Preferential Trade Agreement (PTA) as soon as possible to maximize the benefits emanating from PTA.

Both countries have been recommended by UN to graduate from LDC by 2026. Thereafter, it won’t be possible to continue PTA rather both countries will have to move to a Free Trade Agreement (FTA) Regime after the graduation in 2026. The FTA will demand that trade between the nations have to be free of customs and other fees and charges, which eventually will reduce the export competitiveness, which will be the price to pay for graduating from LDC.

 

Nepal’s Major Exports

*            Large Cardamoms: The largest producer in the World

*             Ginger: Third largest producer in the World

*              Tea/Coffee:The world award winner in quality2016/17

*              Lentils: Fifth largest producer in the World

*            Medicinal and Aromatic Plants (MAPs), blessed by nature

*              Himalayan Apple, Oranges and other fruits

*              Chyangra Pashmina

*             Knotted Carpet, one of the largest export of Nepal

Areas in Nepal suitable for investors?

There are many areas suitable and attractive to invest in Nepal. There is huge labor force, sufficient hydroelectricity available and industrial atmosphere has been created, so investors from Bangladesh can make Nepal their destination. Government of Nepal organized “Nepal Investment Summit 2019” on March 29 -30 in Kathmandu with the main objective to project Nepal as a favorable investment destination. The summit unveiled potential opportunities for investment in various sectors in Nepal including Hydro power, Solar power, Tourism, Infrastructure, Industry, Transport, Agriculture and Information and Communication Technology. Nepal has in place a special Investment Promotion Board, chaired by the Prime Minister to attract foreign investments across sectors. So, potential investors can also get the best out this great opportunity that Nepal offers through its Board. Besides the Federal Government Provincial Government especially Province no.1 the eastern province closest to Bangladesh, is proactive in welcoming Foreign Direct Investment in various sectors including domestic and local projects thus encouraging for Bangladesh. Nepal being directly connected with two big markets India and China, This is high time for the Investors of Bangladesh to opt for investments in its’ dearer and nearer country Nepal.

 

Visa Issues

Nepal issues multiple entry free of cost transit visa for one month to Bangladeshis at land port, Airport and Diplomatic missions while the same reciprocity from Bangladesh to Nepali at Banglabandha land port is yet to be operational.

India, however, offers only a Single Entry Transit Visa for Bangladeshis to pass through Indian Territory to reach Nepal by land route. If a Bangladeshi obtains a Single Entry Transit visa his/her already existing Multiple Entry Multi Year Indian Visa (allows to travel Nepal or abroad by Air only) automatically becomes void. It is understandable that just for the sake of crossing few kilometers of Indian Territory, no any Bangladeshi citizen would like to take unnecessary hassle emanating from cancelation of Multi Year Multiple Entry Visa to India.

This has been an impediment for Bangladeshi citizens to freely travel to Nepal through Land Ports and, indeed, a huge barrier for the promotion of Regional and National tourism between Bangladesh and Nepal.

Once the Bangladesh, India, Nepal (BBIN) Cargo and Passenger Motor vehicle Protocols as a part of BBIN Motor Vehicle Agreement (MVA) is signed by tri-nations, the direct uninterrupted motor vehicle movement of goods carrier vehicles and passengers between major cities of Nepal and Bangladesh including Chittagong and Mongla Port will be materialized.

 

Conclusion

Despite having tremendous potentials for trade, investment and joint economic collaboration between the two countries, the lack of proper connectivity, insufficient infrastructures at the border points, lack of proper initiatives of the private sectors, presence of non-tariff barriers etc. are impediments to realize the potentials.

Trade is an area of concern for both countries, Nepali goods can find access to the Bangladeshi market and Nepal would allow Bangladeshi exports in abundance if tariff and non-tariff (ODC: other duties and charges) barriers are removed as agreed in 4th, 5th and 6th commerce secretary level meetings and conclude the PTA between these two neighbors.

The two have done well in joint-ventures set up of Nepal-Bangladesh Bank Limited. The IFIC Bank (Bangladesh) has 40.91 percent shares, and it is one of the biggest FDIs from Bangladesh in Nepal. While the progress is slow, the two economies hold the potential to grow cooperation in years to come.

Exchange of goods and services between two nations on a comparative advantage of each nation greatly contributes to economic dynamism of both the nations, and thereby, contributes to economic growth.

Both sides have agreed to rationalize tariff and remove non-tariff barriers to ease and enhance bilateral trade for mutual benefit.

Both sides have agreed to consider a trilateral agreement between Nepal, Bangladesh, and India to enhance transit through railways and inland waterways.

Even though the economic logic in strengthening trade and transit relations between Nepal and Bangladesh is clear enough, little has happened so far other than policy concessions that seem out of touch with ground reality.

Nevertheless, there exist a huge potential for bilateral trade between the two resource rich nations. Therefore, Nepal and Bangladesh clearly now need to work to bring India fully on board in helping to smoothen the implementation of signed and agreed protocols as well as to develop new trade and transit routes. In this, sector-specific trade policies are necessary components if both countries are to truly pursue significant and increased bilateral trade. 

Business community of both countries should be encouraged for organizing a Single Country Trade Fair every year in Kathmandu and Dhaka. This will have a positive impact on the trade enhancement. Nepalese business persons should be encouraged to take advantage of the huge market of Bangladesh, having about 165 million consumers near to its border and Bangladesh should complement with increased volume of trade.

 

Dr. Banshidhar Mishra, Ambassador of Nepal to the People’s Republic of Bangladesh. Earlier the Ambassador was the State Minister and Member of Parliament of Nepal.