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Khaleda's Pakistan visit Shifts Focus to Economic Synergy

Sreeradha Datta is Research Fellow at Institute for Defence Studies and Analysis, New Delhi. Click here for detail profile.
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  • February 27, 2006

    Bangladeshi Prime Minister Khaleda Zia's state visit (February 12-14, 2006) to Pakistan after a gap of a decade signals subtle changes that are driving bilateral relations. Both sides are consciously moving away from the political issues that had undermined ties for long and are looking to economic cooperation as the engine of change. The composition of the delegation accompanying the Prime Minister and the focus of the official dialogue reveal a focus on strengthening economic ties.

    Since the birth of Bangladesh in 1971, its ties with Pakistan has been marred by a host of contentious issues and disputes. Principal among the irritants were a) division of assets of united Pakistan (consisting of East and West wing); b) repatriation of stranded Pakistanis or Bihari Muslims, who after the birth of Bangladesh had opted for Pakistani citizenship but were physically unable to move and resettle in Pakistan; and c) formal Pakistani apology for the atrocities committed during the Liberation War by its armed forces.

    Successive governments in Pakistan have been reluctant to discuss the substance of the dispute over the division of assets. Bangladesh has laid claim to an estimated US$4 billion with respect to retention of financial assets, creation of internal capital, and external debt settlement. It has also been demanding the US$200 million, which was received by Pakistan as donation from various countries for the 1970 cyclone victims of then East Pakistan.

    The issue of repatriation of stateless Bihari Pakistanis (present population estimated around 250,000) from Bangladesh has assumed further significance in light of some recent developments. First, in May 2003 the Bangladesh High Court awarded citizenship to ten such stranded Pakistanis of whom eight were born after 1971. In another controversial move, the Election Commission enlisted 10,000 such Pakistanis as voters for the upcoming Jatiya Sangsad election slated for early 2007. For years, Bangladeshi governments have been trying to repatriate these Bihari Muslims but with little success. While in the 1990s Prime Minister Nawaz Sharif did agree to a miniscule number to be repatriated, the problem has largely been ignored by all Pakistan leaders.

    On the eve of Khaleda's visit, a section of this stranded population had submitted a petition to the Prime Minister's Office asking her to raise the issue of Bihari repatriation to Pakistan with President Parvez Musharraf. The repatriation question is not without its pitfalls. Given its inclusion in the voters list, this segment has become an important component of vote bank politics in Bangladesh and keeping alive this issue was not going to ensure for the BNP any extra mileage in the ensuing polls given the lack of interest within Bangladesh on this.

    The issue of apology is deeply embedded in the Bangladesh psyche. Given the sensitivities that are involved in events leading up to the birth of Bangladesh, the regret that was expressed by Prime Minister Nawaz Sharif and subsequently by President Musharraf during his state visit in 2002 were not considered adequate and it continues to rankle Bangladesh.

    None of these protracted differences between the two countries are expected to be resolved anytime soon. Bangladesh consequently seems to have shifted the focus of its bilateral ties with Pakistan to the logic of economic cooperation. Here, the textile industry is proving to be the engine of change. In both countries, the textile industry is the principal foreign exchange earner. Moreover, in the case of Bangladesh, the textile industry accounts for 45 per cent of all industrial employment, contributes 5 per cent to the total national income, and is the largest employer with nearly 4 million employees. While Pakistan produces some of the best quality yarn and fabrics, Bangladesh enjoys low cost of production. Dhaka seems intent on exploring this mutual complementarity and the textile industry has thus emerged as the principal vehicle of Bangladesh-Pakistani economic synergy.

    The end of the Multi-Fibre Arrangement in 2005 actually gave rise to fears of a slump in the textile industries of both Bangladesh and Pakistan. However, despite some initial setbacks, the textile industry in Bangladesh recovered, especially in its knitwear garments sector. Similarly, in Pakistan too, textile and clothing exports during the first four months of 2005 were substantially higher than in 2004 and experienced an average monthly growth of 22.1 per cent.

    A new synergy between the textile manufacturers of the two countries is visible. Textile products are the mainstay of Pakistani exports, but the cost of production has gone up substantially. On the other hand, Bangladesh of late has been seriously searching for FDI and had offered a tax-free investment environment to the Pakistani textile industry. In November 2005, a 10-member Pakistani delegation of leading upholstery manufacturers and exporters visited Bangladesh and held a series of meetings at the Bangladesh Board of Investment and the Ministries of Commerce and Industries.

    Attempting to capitalise on the low cost of production in Bangladesh, Pakistani textile manufacturers showed interest in shifting some of their units to Bangladesh. This was a reflection of pressure tactics that could motivate the Pakistan government to introduce better incentives at home as well as indicative of the growing synergy between the textile industries of the two countries.

    Greater Cooperation in the textile sector was the major outcome of Khaleda Zia's visit to Pakistan. She was accompanied by a 43-member business delegation. During the visit four Memoranda of Understanding (MoU) were signed between the two countries covering agriculture, tourism, export promotion and standardization of export products. Currently Bangladesh has a US$ 75 million trade deficit with Pakistan and hence has asked for duty-free access to Pakistan's market for over 70 items in which it has a competitive edge. There are indications that the FTA and the operationalising of SAFTA were the other main items on the agenda. Although problems relating to terrorism and religious radicalism were also discussed during the visit, in view of the comprehensive discussions and agreements on economic convergence, it is evident that Dhaka and Islamabad are determined to make sure that unresolved political issues no longer hold the strengthening of bilateral relations hostage.