Bhutan–Bangladesh Preferential Trade Agreement

The Bhutan–Bangladesh Preferential Trade Agreement (PTA) is a bilateral trade pact signed on 6 December 2020 between the Royal Government of Bhutan and the Government of the People's Republic of Bangladesh. The agreement, which came into effect on 1 July 2022, grants duty-free access to 100 Bangladeshi products in the Bhutanese market and 34 Bhutanese products in the Bangladeshi market. It represents Bhutan's most significant trade liberalisation initiative with a country other than India, its traditionally dominant trading partner, and marks a deliberate effort by both nations to strengthen bilateral economic ties and reduce trade dependence on third countries.^[1]

The PTA builds on a broader pattern of growing Bangladesh–Bhutan relations, which have expanded from diplomatic and development cooperation into substantive economic engagement. Bilateral trade between the two countries doubled in the first full year of the agreement's implementation, demonstrating the pact's practical impact on commercial flows.^[2]

Background

Bhutan's economy has historically been heavily oriented towards India, which accounts for the vast majority of Bhutanese trade. The two countries maintain a free trade regime under the India–Bhutan Agreement on Trade, Commerce and Transit, and the Indian rupee circulates freely alongside the Bhutanese ngultrum. While this relationship has provided Bhutan with a reliable market and essential imports, it has also created a structural dependence that successive Bhutanese governments have sought to moderate through economic diversification.^[3]

Bangladesh, as the nearest large economy beyond India, presented a natural partner for diversification. The two countries share no land border but are connected via Indian territory, and both are members of the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). Despite these linkages, bilateral trade remained minimal for decades owing to the absence of a preferential trade framework and logistical challenges related to transit through India.^[4]

Terms of the Agreement

Under the PTA, Bangladesh grants duty-free access to 34 Bhutanese products in the Bangladeshi market. These include oranges, ginger, natural honey, limestone, fruit juices, wheat or meslin flour, jam, fruit jelly, marmalade, cement clinker, portland cement, soap, particle board, ferro-silicon, iron and non-alloy steel bars and rods, mineral water, wheat husk, and wooden furniture. In return, Bhutan grants duty-free access to 100 Bangladeshi products, including readymade garments, jute goods, leather items, processed foods, beverages, and electronics.^[5]

The asymmetry in the number of products — 100 Bangladeshi versus 34 Bhutanese — reflects the significant difference in the size and industrial capacity of the two economies. Bangladesh's far larger manufacturing sector produces a wider range of exportable goods, while Bhutan's export basket is dominated by primary and semi-processed products such as minerals, agricultural commodities, and basic manufactures.

Implementation and Impact

The PTA came into force on 1 July 2022, following the completion of domestic ratification procedures in both countries. In its first full year of operation, bilateral trade between Bangladesh and Bhutan doubled to US$22.1 million in the fiscal year 2022–2023, a significant increase from pre-PTA levels. Bangladeshi fruit juices, garments, and processed foods have found growing markets in Bhutan, competing effectively with Indian products that had previously dominated. Bhutanese exports of gypsum, limestone, and agricultural products to Bangladesh have also increased.^[6]

By 2024, both governments had initiated a review of the PTA with a view to expanding the product coverage and potentially upgrading the agreement to a full Free Trade Agreement (FTA). Bhutanese officials have publicly expressed eagerness to negotiate an FTA with Bangladesh, seeking deeper market access for Bhutanese agricultural and mineral products.^[7]

Strategic Significance

The PTA holds strategic significance beyond its immediate commercial impact. For Bhutan, it represents a concrete step towards reducing structural dependence on a single trading partner and diversifying economic relationships within South Asia. For Bangladesh, the agreement strengthens ties with a neighbouring country whose hydropower resources and geographic position are of growing strategic interest, particularly in the context of regional connectivity initiatives linking Bangladesh to the eastern Himalayan economies.

The agreement also complements the Bangladesh–Bhutan Agreement on the Movement of Traffic-in-Transit, signed separately, which aims to reduce the logistical barriers that have historically constrained bilateral trade by facilitating the transit of goods through Indian territory. Together, these agreements represent a significant deepening of the Bangladesh–Bhutan bilateral relationship.^[8]

References

1. "Signing of Preferential Trade Agreement with Bangladesh." Ministry of Economic Affairs, Royal Government of Bhutan.
2. "Trade with Bhutan doubles after preferential trade agreement." The Business Standard.
3. "Bangladesh–Bhutan relations." Wikipedia.
4. "Preferential Trade Agreement." Bangladesh Embassy, Thimphu.
5. "Bangladesh grants duty-free access to 16 products of Bhutan." Dhaka Tribune.
6. "Trade with Bhutan doubles after preferential trade agreement." The Business Standard.
7. "Bhutan eager to sign FTA with Bangladesh: Envoy." The Business Standard.
8. "Bangladesh and Bhutan Sign Agreement on the Movement of Traffic-in-Transit." SASEC.