Trade and Commerce with Bhutan

Preferential Trade Agreement (PTA)

Bangladesh and Bhutan have signed a preferential trade agreement (PTA) on 06 December 2020 to ease further trade barriers between the two countries and facilitate an increase in the volume of bilateral trade. H.E. Tipu Munshi, Bangladeshi commerce minister, and Lyonpo Loknath Sharma, Bhutanese Minister for Economic Affairs signed the agreement on behalf of their respective governments. Bangladesh Prime Minister Sheikh Hasina and her Bhutanese counterpart Lotay Tshering witnessed the event and joined virtually the signing ceremony from Dhaka and Thimphu respectively. Bhutan is the first country to sign PTA with Bangladesh. Under the agreement, Bangladesh will enjoy duty benefit on export of 100 local products and Bhutan will enjoy duty benefit on its 34 products.

Please click on the link to download the Product list under PTA between Bangladesh and Bhutan .        

Facts and figures of bilateral trade

Bangladesh is the 2nd largest trading partner of Bhutan after India. Both the countries are enjoying excellent bilateral trade relation and both the countries are members of SAFTA, BIMSTEC, BBIN etc. Despite geographical proximity and huge potential, the volume of trade between Bangladesh and Bhutan is significantly low with total trade volume of US$ 35 million (F/Y 2017-2018). In 2017-18 Bangladesh export to Bhutan was 2.92 US$ and Bhutan’s export to Bangladesh was 33.13 million US$.

Bhutan’s trade has always been directed towards the two neighboring countries, namely India and Bangladesh, which jointly accounts for 86% share of the total trade. This trend is expected to continue for some time, primarily due to the geographical proximity backed by close bilateral ties with the two countries. Moreover, formal trading arrangements through the Free Trade Agreement (FTA) with India and Bilateral Trade Agreement (BTA) with Bangladesh has always been instrumental in facilitating and promoting trade with these two countries. Successful negotiation of the ongoing discussion on a draft Preferential Trading Agreement (PTA) between Bangladesh and Bhutan will ensure preferential market access of each country’s export potential products to other country’s market.

Bangladesh’s export to Bhutan is characterized by very limited products. Garments, melamine, pharmaceuticals, furniture, aluminum structures (doors, windows etc), dry food, confectionary items (sweet biscuits, cakes & pastry), fruit juice, mineral water, kitchenware, toiletries dominate the export of Bangladesh to Bhutan. Bhutan’s exports to Bangladesh mainly consist of boulders, cardamom, oranges, pebbles and gravels, limestone, dolomite, ferroalloys, gypsum, semi-finished products of iron or non-alloy steel, silicon carbide etc.

Total trade between Bhutan and Bangladesh saw substantial increase in the last 10 years as reflected in the Figure below. Over the years, both export and import saw an increasing trend. Bhutan has always been enjoying favorable balance of trade with Bangladesh. Over the last ten years, the variety of items imported from Bangladesh increased considerably. Imports from Bangladesh, both in terms of volume and diversity are expected to increase with the further developments in bilateral trading arrangements between the two countries.

The successive rounds of annual Bilateral Meetings at Commerce Secretary Level (CSLM) have focused on strengthening trade relations between the two countries. Further, it attempts to explore new areas of cooperation for expansion of Bhutan’s bilateral and international trade through the development of institutional linkages and collaboration between the chambers of commerce, tourism authorities, and standards authorities of the two countries.

The Governments of the two countries are in the process of negotiating the Transit Agreement and its Protocol as the last one which expired in 2000 had no specific provisions for renewal. Bhutan has been able to gain access to the use of inland water transport routes in Bangladesh for bilateral trade and transit cargoes going to and coming from Chittagong and Mongla Ports in Bangladesh. For that, a Memorandum of Understanding (MoU) was signed during the visit of Hon’ble Prime Minister of Bangladesh to Bhutan in April 2017, and the Standard Operating procedure (SOP) to implement the MoU was signed on 13th April 2019 during the visit of Hon’ble Prime Minister of Bhutan to Dhaka, Bangladesh.

Investment in Bangladesh

Being characterized by friendly feelings and understanding, Bangladesh and Sweden enjoy excellent bilateral relations. The relations are well reflected in the economic co-operation between the two countries in various sectors of our development. The platform was laid through the support of the Swedish Government and the people for the great cause of our War of Liberation in 1971, according recognition in 1972 and subsequent financial assistances provided for the reconstruction of the war-ravaged economy. This co-operation continues to develop further to the mutual benefit. The common perceptions on all global issues have brought the two countries closer.

Acclamation on Bangladesh

• IMF commented on the economy of Bangladesh as resilient. It reports that Bangladesh continues to generate strong growth driven by consumer spending and investment. The consistent growth of more than 6 per cent over the last decade has been significantly lifting per capita income through which poverty has declined steadily and other social indicators have improved significantly. Throughout this process, the country has diversified away from an agrarian to a more manufacturing-based economy.
• Citi Investment Research & Analysis reported that Bangladesh is one of the countries having the most promising (per capita) growth prospects.
• Goldman Sachs branded Bangladesh in ‘Next 11’-list after the BRIC nations.
• The Wall Street Journal (WSJ) dismissed the previous branding of Bangladesh as ‘Basket Case’, No More. It considers Bangladesh as an emerging market economy with high potentials.
• JP Morgan Chase commented that Bangladesh ranks fourth in growth in economically active population.
• Morgan Stanley has commented that Bangladesh is at the very early stages of an investment boom…
• New York Times has termed Bangladesh as “an unlikely corner of Asia, strong promise of growth”.
• HSBC reports that Bangladesh will be the 26th largest economy in 2030.

KEY SECTORS IN BANGLADESH FOR INVESTMENT

The major sectors for investment are: IT, ship-building, agro-based industries, leather and leather products, pharmaceuticals, ceramics, frozen fish, plastic, furniture, home textile, jute & jute products, tourism, etc.

IT Sector

Information and Communication Technology (ICT) has been considered as the driving force for achieving ‘Vision 2021’ and thus to transform Bangladesh into a self-reliance middle income country. In order to realize the above mentioned goal, Bangladesh Hi-Tech Park Authority (BHTPA), core responsible entity in Bangladesh for developing Hi-Tech Park/Software Technology Park (STP)/IT Village and thus to boost up the IT sector of the country, offers-

• Tax/Customs duty exemption up to 100% for the potential developers/ IT/ITES companies/Hi-Tech industries;
• Freedom of ownership;
• No limit on FDI;
• World-class physical Infrastructure with utilities;
• One Stop Service;
• Knowledgeable workers with cheap cost;
• Increasing Global Confidence with the pursuit that Bangladesh has been recognized as one of the most attractive global IT destinations;

INVESTMENT OPPORTUNITIES IN BANGLADESH

Bangladesh offers the most liberal and sound FDI regime in South Asia, allowing 100% foreign equity ownership with unrestricted exit policy. Almost all the sectors are open for Foreign Investment without any quantitative restriction. Due to competitive wages, low energy prices, it is found that the production cost in Bangladesh compared to Japan is less than half. Bangladesh offers the most generous incentive packages in the South Asian region which include the followings:

• Reduced import duty on machinery and spares;
• Bonded warehousing facilities for export oriented industries;
• Funds for export promotion;
• Export credit guarantee scheme;
• Domestic market sales upto 20% allowed to export oriented companies outside EPZ (relevant duties applied);
• Cash incentives and export subsidies granted in the FOB values ranging from 5% to 20% on selected products;
• Corporate tax holiday from 5 to 10 years for selected sectors;
• Accelerated depreciation on cost of machinery for new industries in lieu of tax holiday;
• Avoidance of Double Taxation under Bilateral Tax Convention;
• Tariff Concessions on Import of raw materials of the export oriented industries;
• 100% foreign equity;
• Unrestricted exit policy;
• Remittance of royalty, technical know-how, and technical assistance fees;
• Full repatriation of dividends and capital;
• Full-fledge One Stop Service Centre;

ADVANTAGES FOR THE INVESTORS

Industrious and Competitive Workforce

Bangladesh offers a well-educated, highly adaptive and industrious workforce with the competitive wages and salaries in this region as studied by international agencies. About 57.3% of the population is under the age of 25, providing a youthful group for engagement. The labour force working towards developing its skill set to meet global standards. The country has consistently developing a skilled work force catering to diverse needs. English is widely spoken in Bangladesh.

Strategic Location, Regional Connectivity and Worldwide Access

Bangladesh is strategically located next to India, China and ASEAN (Association of South East Asian Countries) countries. The economic corridors in the south and south-east Asian region such as BCIM (Bangladesh, China, India, and Myanmar), BIBM (Bangladesh, India, Bhutan and Myanmar) are taking tangible shape and becoming a hub of opportunity for Bangladesh. Gradually Bangladesh is integrating in the global value chain hence the importance as an investment destination for Bangladesh is also attracting the global attention.

Strong Local Market and Growth

Along with her global presence in terms of export potential the domestic market of 160 million populations with rising per capita and brand consciousness is also alluring the foreign investors to consider Bangladesh as an attractive investment location.

Low Cost of Energy

Energy prices in Bangladesh are the most competitive in the region. Since 2009, the Energy production has grown in mammoth scale. Currently the installed capacity is more than 15000 MW and by the end of 2021, it will reach 23000 MW. Furthermore, under regional arrangement adequate power is being imported from neighbouring countries.

Proven Export Competitiveness

Bangladesh enjoys tariff-free access to the European Union, Canada and Japan in RMG sector. In the EU, Bangladesh enjoys 60% of RMG market share and is the top manufacturing exporter amongst the LDC countries. By 2019, Bangladesh is expected to become market leader in RMG sector. To balance the trade portfolio Bangladesh is focusing on trade diversification based on non-traditional markets. Adequate incentives are offered to encourage export in those areas. New markets for existing and prospective goods are on the pursuit.

Competitive Incentives

Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity ownership with unrestricted exit policy, almost all the sectors are open for foreign investment without any quantitative restriction. The incentives offer can be summarized as under:

Tax holiday

• 5 to 10 years for selected sectors
• Upto 10 years for infrastructure
• Upto 10 years for EZs

Accelerated depreciation

• in lieu of tax holiday

Double tax avoidance under DTTs

Tariff concessions

• capital machinery
• import of raw materials

Bonded warehousing for export oriented industries

Cash incentives

• Exporting selected products at the rate of 5-20% based on the FOB value of the exportable goods.

Export Processing Zones

Bangladesh offers export oriented industrial enclaves with infrastructural facilities and logistical support for local and foreign investors. As of now 8 export processing zones (EPZs) operating in Bangladesh in the various parts of the country. In these enclaves 566 enterprises are registered among which 445 are functional.

Bangladesh Economic Zones

Bangladesh is building100 Economic Zones (EZs) in various parts of the country to create structured and balanced investment so that arable lands and habitats can be least subjected. Bangladesh targets to develop all the proposed EZs within next 15 years.

The broader visions for creating these zones are:

• Create 10 million employment opportunities
• Foster industrialization by increasing additional export of USD 40 billion.

The policy perspective to develop zones would be as the following:

• Comprehensive industrial Infrastructure;
• Owned and regulated by the Government, but managed by the private sector;
• Encompasses multiple business sectors within each zone;
• Combine both bonded and non-bonded area;
• Inclusion of non-processing & domestic area;
• Inclusion of FDI and local investment

Positive Environment

A largely homogenous society with people living in harmony irrespective of race and religion, Bangladesh is a democratic country enjoying broad support for private investment. The legal and policy framework for business is conducive for foreign investment. The people are hospitable to foreigners.

Macroeconomic Stability

The country is enjoying macroeconomic stability for a good time period. The foreign exchange rate and exports are suitable; the inflation is well within the tolerable range in terms of the food and non-food segment. The country rating in terms of risk perception is also stable.

Corporate Taxes

The corporate taxes of Fiscal Year 2016-17 for various entities can be summarized as follows:

Cash Incentives

To promote non-traditional sectors export incentives on selected products are given at the rate of 5-20% based on the FOB value of the export proceeds. The item wise details for the FY 2016-17 are summarized as follows:

Protection on Investment

According to industrial Policy 2016, Bangladesh welcomes foreign private investment in all areas of the economy and there is no restriction on the amount of share of the investment. Foreign investors are eligible to take advantage of a wide range of generous tax concessions and other fiscal incentives and facilities.Foreign investment in Bangladesh is secure vis-a-vis nationalization and expropriation. The Foreign Private Investment (Promoting and Protection) Act 1980 ensures full protection to foreign investors. Furthermore, Bangladesh is a signatory to MIGA, OPIC, ICSID, WAIPA, WIPO and WTO. Also Bangladesh has signed bilateral investment treaties with 32 countries (List-A) for promotion and protection of investment. To ease the investors from paying double tax Bangladesh has signed Avoidance of Double Taxation Treaty (DTT) with 28 countries (List-B). Bangladesh has also signed multilateral and regional treaties such as APTA, BIMSTEC, IORA,SAPTA,SAFTA,SAFAS,COMCEC,TPS-OIC, Preferential Trade with D-8 Countries etc. to conveniently access market and investment opportunities. In addition, Bangladesh has signed trade agreements with 45 countries for trade facilitation among the countries.

List-A

Austria, DPR Korea, Thailand, Belgium, Republic of Korea, the UK, Canada, Malaysia, USA, China, Pakistan, Uzbekistan, France, Poland, Vietnam, Germany, Romania, Singapore, Indonesia, Switzerland, Denmark, Iran, the Netherlands, India, Italy, the Philippines, UAE, Japan, Turkey and Belarus

List-B

Canada, Poland, Norway, China, Romania, Turkey, Denmark, Singapore, Vietnam, France, Republic of Korea, Philippines, Germany, Sri Lanka, Indonesia, India, Sweden, Switzerland, Italy, Thailand