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Prospects of Bangladesh-Russia trade relationship

M S Siddiqui
09 Dec 2021 00:00:00 | Update: 09 Dec 2021 04:47:11
Prospects of Bangladesh-Russia trade relationship

The people of Bangladesh have much admiration for the USSR because of the valued support and contribution received from the then Soviet Union during the Liberation War in 1971 and for their rehabilitation and reconstruction efforts after independence. Soviet Union blocked the attempts of Pakistan to stop the War of Liberation by using its veto power three times in the Security Council of the United Nations. Bangladeshi freedom fighters finally defeated the Pakistani army to free the country from occupation. Immediately after the war, Soviet Union also extended its hands of cooperation to Bangladesh. The global opinion was in favour of Bangladesh due to the strong support from the then super power Soviet Union. Prime Minister Sheikh Hasina recalling that cooperation stated that “The country (Russia) has supported us strongly at our struggling time (during the War of Liberation). So, they are in a special place of our heart.”

The USSR helped Bangladesh in revitalising and developing its economy. In particular, the power plants namely Ghorashal and Siddhirganj, electrical equipment factory in Chittagong (Chattogram) and other projects were built with financial and technical assistance of the Soviet Union.

The major part of USSR is now Russia. Russia-Bangladesh economic and trade relations are based on the inter-governmental Agreement on Economic and Technical Cooperation and Trade Agreement, dating back to 1972. The relationship further extended with the agreement between the government of the Russian Federation and the government of the People’s Republic of Bangladesh with the establishment of the Inter-governmental Commission on Trade, Economic, Scientific and Technical Cooperation on March 1, 2017. The aim of the commission is to develop broad-based cooperation between the two countries in various spheres. It will facilitate the diversification of bilateral trade, economic, scientific and technical ties between the business communities of the two countries and assist to remove barriers to mutual trade.

The data from Russia’s Federal Customs Service states that the volume of bilateral trade between Russia and Bangladesh crossed $1.4 billion in 2016, almost double since 2012. It may be mentioned that in the last fiscal year 2020-2021, Bangladesh exported goods worth 665.31 million US dollars to Russia. During the same period, it imported goods worth 466.70 million. More than 90 per cent of the Bangladeshi exports to Russia consists of ready-made garments, seafood and leather goods. And Russia exports metal-roll, raw materials for the textile industry, machineries, fertilisers, and crops, including high quality milling wheat. It is important to note that our bilateral trade is generally balanced.

There may be cooperation in the sphere of trade and economic liaison, power and energy, atomic energy, aviation industry, fisheries, fisheries and livestock, smooth banking transaction, geological research, information and communication technology industry, space and satellite and culture. Russia, especially has a big market. The country’s economy is blooming day by day and their purchasing power is also very strong.

Bangladesh cannot directly export its products to Russia due to tax related issues and other complications. Russia imposes a 20 per cent tax on Bangladeshi products. Bangladeshi businesses also have to pay an 18 per cent value added tax. Bangladesh currently exports its products to Russia through Germany, Poland and other European Union countries. Russia granted DFQF access facility to 48 Bangladeshi products as a least developed country (LDC). But most of these are not adequately produced here for export. So, Bangladesh is not getting enough benefits from the preferential trade arrangement in exporting its items to the Russian market.

Bangladesh also lacks a proper banking channel with Russia for financial transactions, which hinders its export sector in that particular market. Bangladesh or Russia cannot go for opening Letter of Credit (LC), as the central banks of the countries do not have any such bilateral provision. Bangladesh is also facing another obstacle due to the economic sanctions on Russia imposed by the US and the EU. Doing business with Russian banks is not smooth and we want to establish such a payment arrangement between the two countries so that businesspeople can run their business through private and public banks. Bangladesh also proposed that Russia become a member of the Asian Clearing Union so that we can make the payment under the intra-regional arrangement among the participating central banks but this is not a priority for Russia.

The sales policy of Russian enterprises is to offer better price for advance booking of production or on spot payment by Telegraphic Transfer or TT. A very negligible amount of business between the two countries takes place through telegraphic transaction. Bangladesh’s central bank also have restrictions over payment by TT for import and there is a need to amend our foreign currency law. Bangladesh importers paying additional cost of involvement of 3rd party for trade who are adding about 10-20 per cent service charges for our business with Russia. Bangladesh may focus on advance booking and import through TT at very competitive prices.

Bangladesh is now in the global market for the import of LPG and Russia is an important player in the global gas market. Bangladesh can buy gas at a competitive price by advance booking of future extraction as other countries are doing.

Unfortunately, Bangladesh is missing out on this huge opportunity for business because it lacks direct market access to the Commonwealth of Independent States (CIS). The Commonwealth of Independent States is comprised of Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan and Uzbekistan. These countries have strict regulations for import, which is preventing Bangladesh from reaching their markets directly. If Russia allows Bangladesh direct access to its market, Bangladeshi products can be exported to other member countries of the Commonwealth of Independent States.

Russia is a country with whom most of the countries of that region are cordially linked up through different types of regional and sub-regional cooperation types of organisations. Bangladesh should also try to be a member of Euro-Asian Economic Commission, a platform of Russia, some CIS (Commonwealth of Independent States) and central Asian countries, to get more trade benefits. Although the scale of cooperation between Russia and Bangladesh is far smaller when it comes to business-to-business interactions, the private sector’s mutual interest in exploring investment and trade opportunities is increasing. We need free trade area agreements (FTA) to grab opportunities in that market. China, India and Vietnam have already signed FTAs with Russia and are doing very good business. We are late to sign FTA but let us follow China, Vietnam and India. Bangladesh and Soviet Union had barter agreement for mutually agreed machinery, goods, etc. immediately after independence and a similar barter system may be another option of business relationship now.

 

The writer is a legal economist. He can be contacted at [email protected]