Bangladesh and Nepal share frequent geographical, cultural, and linguistic linkages. Nonetheless, commerce and funding between the 2 international locations have traditionally remained comparatively restricted. As an example, Bangladesh’s exports to Nepal remained modest from the Eighties by way of the early 2000s. Though a notable growth occurred after 2014, with export volumes rising from roughly USD 20 million to USD 105.48 million in 2021, this upward development was not sustained, as exports declined to USD 40 million in 2024, indicating underlying challenges in sustaining constant commerce development. Equally, imports from Nepal into Bangladesh reached a peak of USD 66.5 million in 2008 however have skilled a gentle decline, thereafter, amounting to solely USD 6 million in 2024. This persistent downward trajectory suggests structural constraints that hinder Nepal’s export competitiveness within the Bangladeshi market.
Agricultural merchandise, textiles, and electrical equipment, alongside numerous processed meals and manufactured items, dominated commerce between Bangladesh and Nepal in 2022. Nonetheless, based on the Worldwide Commerce Centre (ITC) export potential map, there lies vital untapped export potential for each international locations, notably in merchandise corresponding to jute, cotton attire, cardamom, and yarn. This suggests that diversifying into these high-potential items can additional strengthen and broaden bilateral commerce relations between Bangladesh and Nepal.
Tariffs and non-tariff boundaries proceed to impede commerce between Bangladesh and Nepal. Further fees and insurance coverage necessities are imposed on merchants, whereas the absence of environment friendly and direct transport hyperlinks provides to logistical expenditure. This additionally limits people-to-people connectivity, hindering tourism and medical journey. Though Bangladesh presents concessions below the Most Favored Nations (MFN)[1] clause of the World Commerce Group (WTO) and the South Asian Free Commerce Space (SAFTA), exports from Nepal proceed to face a excessive commerce price resulting from tariffs coupled with Different Duties and Costs (ODCs). Bangladesh maintains an in depth record of delicate merchandise, which incorporates items excluded from preferential tariff concessions below SAFTA when imported from member international locations. Moreover, because of ODCs[2], merchandise with low or zero customs duties as per the SAFTA settlement are sometimes subjected to a excessive general tax burden. Consequently, the general tax burden stays exorbitantly excessive for Nepali exports, additional decreasing their competitiveness in Bangladesh’s market. That is notably evident for merchandise like cardamom, the place Bhutan faces duty-free entry, whereas Nepal is subjected to a big tax burden. This poses an extra constraint on its export potential. Given these circumstances, Bangladesh and Nepal have initiated negotiations for a Preferential Commerce Settlement (PTA), which started in 2020.
Nonetheless, relatively than pursuing a PTA, Bangladesh and Nepal would derive higher benefits from establishing a Complete Financial Partnership Settlement (CEPA). Basically, a PTA focuses on points regarding commerce, whereas a CEPA emphasizes not solely commerce, but additionally producing overseas direct funding. Commerce and funding are integral parts of financial development. Due to this fact, a bilateral CEPA between Bangladesh and Nepal can present an efficient avenue to deal with the present impediments to commerce in items and commerce in providers, encompassing each tariff and non-tariff boundaries, whereas additionally fostering a conducive enterprise setting to generate substantial funding in each economies. As an example, the Indo-Japan CEPA, which got here into impact in 2011, demonstrates how a phased discount in tariffs might be helpful for each economies whereas nonetheless guaranteeing that delicate home sectors are protected. In accordance with the settlement, India pledged to remove tariffs on roughly 90% of its imports from Japan. Then again, Japan dedicated to abolishing tariffs on roughly 97% of its imports from India by 2021. This incremental discount in tariffs, encompassing 4,500 tariff traces, illustrates a harmonized technique of offering vital market entry whereas additionally limiting flexibility for delicate merchandise. An analogous strategy might be thought-about when negotiating a complete settlement between Bangladesh and Nepal, the place tariffs might be lowered in phases, prioritizing merchandise with increased commerce worth and higher export potential which are at the moment subjected to excessive commerce boundaries. Strategic entry to the market whereas safeguarding the particular sector will additional make sure that commerce facilitation coincides with the event aims of each international locations. Such an settlement additionally offers additional avenues to facilitate the motion of individuals between the 2 international locations, whereas laying the groundwork for a progressive framework that fosters conducive bilateral cooperation, enabling each international locations to additional combine into regional and world worth chains.
Drawing on insights from comparable agreements, a CEPA between Bangladesh and Nepal might be divided into a number of modules, encompassing inclusive market entry and regulatory rules. Making certain expanded market entry will entail decreasing tariffs and para-tariffs between Bangladesh and Nepal, bettering customs procedures, and selling commerce facilitation. Concurrently, this might additionally embody stipulations to liberalize commerce in providers regarding sectors pertaining to tourism and hospitality, training, monetary {and professional} providers, additional bettering people-to-people connectivity. This will even facilitate cross-border funding alternatives whereas aiding a switch of expertise and data. Moreover, a complete algorithm and laws will assist average border procedures and behind-the-border insurance policies associated to commerce, funding, manufacturing, and enterprise actions. This module won’t solely embody prevailing guidelines outlined by the WTO, such because the Guidelines of Origin and Sanitary and Phytosanitary measures, however may tackle different regulatory points like mental property rights, e-commerce, competitors coverage, technical cooperation, and help for small and medium enterprises (SMEs). These preparations will likely be notably essential for each Bangladesh and Nepal as they goal to diversify exports, strengthen commerce, and improve the competitiveness of the personal sector in preparation for the upcoming commencement from the Least Developed Nation (LDC) standing.
Nonetheless, to actually unlock and strengthen commerce ties between Bangladesh and Nepal, it’s essential to reinforce funding and streamline the enterprise setting in each international locations. International direct funding (FDI) from Nepal to Bangladesh remained minimal throughout the early 2000s, with the primary recorded optimistic influx occurring in 2005 at USD 0.07 million. A considerable enhance was noticed in 2021, when FDI inflows rose to USD 6.82 million. By 2024, FDI elevated to USD 7.03 million, marking the best stage of funding recorded between 2005 and 2024. To maintain and develop this optimistic trajectory of FDI development in Bangladesh, it’s important to mitigate additional boundaries to funding by way of structured coverage frameworks and foster cross-border collaboration, thereby creating avenues for mutually helpful financial development. Moreover, by leveraging regulatory reforms, initiatives to construct Particular Financial Zones (SEZs) can facilitate funding flows between Bangladesh and Nepal, deepening bilateral financial cooperation.
It’s also important to emphasise that exporters from Nepal encounter challenges in securing superior funds in Bangladesh, and the need of rerouting items by way of third-country customs incurs each extra prices and delays. Due to this fact, the event of a cross-border digital cost system and improved infrastructure can facilitate transactions, encourage personal sector participation, and enhance commerce volumes between Bangladesh and Nepal. It’s noteworthy that Bangladesh and Nepal are members of a number of regional and subregional platforms, together with the South Asian Affiliation for Regional Cooperation (SAARC), Bay of Bengal Initiative for Multi-Sectoral Technical and Financial Cooperation (BIMSTEC), South Asia Subregional Financial Cooperation (SASEC), and Bangladesh, Bhutan, India, and Nepal (BBIN), the place they typically share frequent views. Simpler utilization of those frameworks may function a strategic technique of fostering deeper bilateral commerce and financial cooperation between the 2 international locations. Addressing tariff and non-tariff boundaries, bettering connectivity, and diversifying export baskets may assist reverse these traits and create a extra steady and mutually helpful commerce relationship between the 2 international locations.
[1] MFN refers to a basic precept of the WTO that prohibits member states from discriminating amongst their buying and selling companions. It states that a bonus regarding commerce, corresponding to a lowered tariff or preferential remedy, granted to at least one member should be supplied impartially to all different WTO members.
[2] ODCs or para-tariffs are extra fees corresponding to Regulatory Obligation (RD), Supplementary Obligation (SD), Worth Added Tax (VAT), Advance Revenue Tax (AIT), and Advance Commerce VAT (AVAT), which enhance the price of imports.
