Trade liberalization seems to be the buzzword in the subcontinent right now. Latest in the series of talks for bilateral free trade agreements has been the one between Pakistan and Bangladesh in Dhaka (November 16-17). Pakistan’s delegation was led by Jafar Iqbal Qadir of its Commerce Ministry while the Bangladeshi side was led by Elias Ahmed. After the talks both sides agreed to sign a free trade agreement (FTA) and a draft deal will be finalized at talks to be held in Islamabad in January 2004 soon after the SAARC summit.

Little trade takes place between Pakistan and Bangladesh and the balance tilts in favour of Pakistan. Bangladesh imported goods worth $68.68 million from Pakistan during the last fiscal year, while its export amounted to $31.5 million, leaving a deficit of $37.18 million in favour of Islamabad. In fiscal 2001-2002, Bangladesh imported goods worth $67 million while its export was to the tune of $28.6 million. Major Bangladeshi products that enter the Pakistani market include raw jute, jute goods, tea, leather, agri-products and chemical items. Bangladesh imports textile and textile products, beverages, tobacco, vegetable products, fruits, processed food and a motley of light engineering products.

Bangladesh was offered a proposal to enter into a free trade agreement with Pakistan during the visit of Pakistani Commerce Minister in 2002. However, Pakistan became keener to notch up such a deal with Dhaka as soon as possible due to the fact that India was going to do the same within a year.

Though Bangladesh responded positively to the Pakistani proposal of the FTA it showed a lot of reservations at the two-day negotiations. Bangladeshi negotiators raised the issue of special and differential treatment of the Bangladeshi goods on the ground of being a least developed nation. Bangladesh proposed free access to Pakistani products after 12 years of signing the FTA, while it wanted Islamabad to open its market one year after the deal. But, Pakistan did not agree to this. The major points in the negotiations related to relaxed rules of origin, reduction of direct tariffs, elimination of non-tariff barriers, longer phase-out period of tariff withdrawal and anti-dumping and countervailing measures.  Bangladesh persisted with its "negative list approach" in the negotiations for the pact in a bid to avert a possible adverse impact on its local industries. This approach meant allowing duty-free movement of all products between the two countries save the items incorporated in the list.

Both sides were able to forge consensus on a number of issues. Pakistan has agreed to give Bangladesh special and differential treatment under the bilateral trade deal and both countries will have negative lists. In view of its status as a least developed country, Bangladesh will enjoy a longer phase-out period and have a longer negative list of products than Pakistan. Besides, there will be two separate lists under which one category of products will enjoy immediate tariff concession and another category will see tariffs withdrawn in phases.

Pakistan had already granted duty-free access to Bangladeshi tea and jute goods, which came into effect last year. Under this concession, Bangladesh was allowed duty-free export of jute and tea up to 10,000 tonnes a year to Pakistan. But Dhaka could utilize only 60 per cent of the quota for tea last year.

During the trade negotiations with India, Bangladesh made removal of non-tariff barriers a central issue. But, interestingly, after negotiating with Pakistan, Elias Ahmed stated that Bangladeshi exporters were not facing any significant non-tariff barriers in the Pakistani market. Bangladesh is trying to use free trade as a means to bridge the trade gap by getting special and differential treatments for its products. But, its failure to make use of concessions given earlier for tea and jute products points to a weakness in its economy, because of which it is unable to use the opportunities.

The latest round of talks between Bangladesh and Pakistan has allowed them to agree on major parameters of a framework for negotiating the FTA, including the negative list of items, rules of origin and tariff phase-out period. This has also prepared a foundation for the next round of talks. However, two major issues -- rules of origin and phase-out period – remain to be settled and the future of free trade regime will depend on these.