Nepal and Bangladesh are sitting down for a commerce secretary-level meeting in Kathmandu on Wednesday to strengthen economic ties and boost subregional connectivity. But the much-delayed bilateral preferential trade agreement (PTA) between the two neighbours will not be on the agenda, according to the sources privy to the matter.

The two-day meeting will be chaired by Commerce Secretary Dinesh Kumar Ghimire from the Nepal side and Commerce Ministry Senior Secretary Tapan Kanti Ghosh from Bangladesh.

In October 2020, the sixth Nepal-Bangladesh commerce secretary-level meeting held virtually on trade and economic cooperation agreed to sign a bilateral PTA for the first time since the establishment of diplomatic relations between the two countries in 1972.

According to Bangladeshi media reports, Dhaka has formed two delegations of expert officials on PTA, transit, and customs to attend these meetings.

A top official at Nepal’s Ministry of Industry, Commerce and Supplies told the Post that PTA is not on the meeting’s agenda.

“Unless Bangladesh removes the ‘other duties’ on Nepali goods, signing the PTA will not be beneficial for Nepal. We are firm on our stand that Bangladesh should remove these hidden charges for any bilateral preferential trade to happen.”

In 2020, Bangladesh requested the signing of the PTA as trade and services between the two countries grew.

Nepal, however, had proposed eliminating the ‘other duties’ as a key condition for the signing.

The ‘other duties’ imposed by Bangladesh on its all imports are hidden costs that make Nepali exports dearer.

Before the October 2020 meeting, during a commerce secretary-level meeting held in Dhaka held in March of the same year, the two sides had agreed to sign the PTA within three months—June 2020.

The plan, however, was pushed back due to the Covid pandemic.

Masud Bin Momen, foreign secretary of Bangladesh, is also attending the third Nepal-Bangladesh Foreign Office Consultation meeting scheduled to begin Wednesday, according to a statement issued by Nepal’s foreign ministry on Monday.

Foreign Secretary Sewa Lamsal will lead the Nepali delegation. The two delegations will discuss multiple areas of cooperation between Nepal and Bangladesh.

A preferential trade area is a trading bloc that gives preferential access to certain products from the member countries.

As Bangladesh is an initial member of the World Trade Organisation, it has been permitted to levy other duties.

After adding other duties on top of the tariffs on goods exported from Nepal, total charges could come up to 130-132 percent, Nepali officials said. And Bangladesh is not willing to remove the hidden duties and lose out on revenue.

Officials said that before signing the PTA, Nepal needs to make a list of potential exportable goods. The frequent changes in the governments in the past year have delayed the process, officials said.

The PTA can only be done after conducting field studies and analyzing potential exportable and imported goods, they said.

With Bangladesh imposing countervailing and other duty charges on goods imported from Nepal, Nepali goods become less competitive in the Bangladeshi market, said the official at the industry ministry.

“There is no specific agenda. It’s more of a general meeting,” said the official.

“The readymade garment industry in Bangladesh is vibrant. So, we will discuss strengthening cooperation to bring the technology to Nepal. We will also discuss foreign direct investment in this sector.”

To strengthen bilateral trade relations, India provided transit privileges for goods transported from Bangladesh to Nepal in February 2021. Under the arrangement, Bangladesh can use Indian land ports, airports and seaports to transport goods to other countries without paying any charges.

“Despite the agreement, there has been no substantial improvement in trade and technology transfer between the two countries. So, this time, our focus will be on creating an environment of trust, attracting foreign direct investment in industries, and expanding trade for a mutually beneficial outcome,” said the official.

Nepal’s exports to Bangladesh have been declining due to high tariffs on many goods.

According to the Department of Customs, Nepal’s year-on-year export to Bangladesh declined by 34.76 percent to Rs574.02 million in the last fiscal year 2022-23 ending mid-July.

Nepal’s import from Bangladesh too declined by 46.02 percent to Rs6.04 billion during the review period.

Nepal’s trade deficit with Bangladesh was Rs5.47 billion in the last fiscal year. The country has had a trade deficit with Bangladesh since 2014-15.

In the last fiscal year, Nepal mainly imported soybean, raw jute, medicines, piston engines, juices and cotton clothes from Bangladesh.

In the last fiscal year, Nepal majorly exported red lentils, vaccines, brans, sharps (leftover parts of plants or cereals after processing) as well as residues from other cereals and plants for perfumery and pharmacy use.

Officials at the Ministry of Industry say broom grass, spices, cabbage, tomato, kiwi, avocado, orange, lentils, pickles, snacks, carpet and dairy products are potentially exportable products to Bangladesh.

Bangladesh has been providing duty-free access to 108 Nepali products. Kathmandu has been urging Dhaka to expand the list to cover major exportable items such as lentils, tea, coffee, large cardamom, broom, fresh fruits and pashmina, among others.

Items without duty-free access have difficulties entering Bangladesh.

A study conducted by South Asia Watch on Trade, Economics and Environment (SAWTEE) on Nepal-Bangladesh trade has found that Nepal's exports to Bangladesh have mainly centred on agricultural products, with lentils making up approximately 90 percent of the total exports over the past five years.

As Nepal moves closer to graduating from the Least Developed Countries (LDC) status, it becomes crucial to explore alternative markets to mitigate the impact of tariff increment in some of its major trade destinations, the South Asian think tank said in its assessment. “In this context, there exists substantial potential to strengthen bilateral trade ties with Bangladesh.”

According to Bangladeshi media reports, Ahsan H Mansur, director of the Policy Research Institute of Bangladesh said, “Nepal is a place of great potential for Bangladesh. We have to use this opportunity.”

If bilateral transit is implemented, the transport of goods by rail will also increase, especially through the Chilahati-Haldibari and Biral border areas. “As a result, an opportunity to establish a direct rail link from the northern districts of Bangladesh to Nepal can be sought, in addition to expanding trade by road,” The Business Post of Bangladesh quoted Mansur as saying in March.

Nepal wants to join the rail link from Rohanpur in the Chapainawabganj district of Bangladesh via India. The distance to Kathmandu on this railway is 217 kilometres.

According to the news report, China is building a railway from Lhasa to the Nepal-Tibet border town of Khasa. Nepal wants to extend that route to Kathmandu. As a result, tracks from Bangladesh can go to China via Kathmandu if the initiative is taken.

In 2015, the BBIN agreement was signed for the free movement of traffic between Bangladesh, India, Nepal and Bhutan. All countries except Bhutan have ratified it. Under this agreement, there will be free movement of passenger and cargo vehicles.

Protocols and rules on the operation of traffic have already been drafted. The BBIN’s proposition to facilitate transit through India has taken on a fresh dimension.

As of now, Bangladesh's key land trade with Nepal is through the Banglabandha and Burimari borders of Panchagarh.

The distance by road from Banglabandha to Kakarbhitta in Nepal is 39 kilometres. Due to the agreement with India, Bangladeshi goods-laden trucks can go directly to Nepal via that road.