Bangladesh's regional transit agenda
The Indo-Bangladesh joint-communiqué (IBJC), originating from the January 2010 summit, has gained new momentum following the finalisation of the transit operating modalities between Bangladesh and Nepal.
It is an encouraging step by the Government of Bangladesh (GOB) to demonstrate its serious commitment in connecting with its neighbours on both sides (mainland India and its seven sisters in the North-East) and Nepal and Bhutan, and ultimately, as can be hoped, with rest of the world through the Asian Highway and Railway.
It is expected that a Bangladesh-Nepal transit agreement will be ratified by both governments and parliaments by early 2011.
Trucks from Nepal will be allowed into Bangladesh territory up to Mongla Port, with no transit (entry) fee other than port fees, labour charges and other costs. Indeed, such a bold policy incentive by the GOB, in trying to appeal to its neighbouring countries to use its ports, is praiseworthy.
It is now strongly presumed that once Nepalese trucks start to use the route from the north of Bangladesh (Banglabandh) to Mongla Port in Khulna, and then subsequently to other countries, it will physically ignite the process of economic integration in the South Asia region.
So, in the normative sense, what should the governments of Bangladesh and India do to translate the IBJC into reality? In the backdrop of the increasing bilateral trade deficit of Bangladesh with India ($ 2.1 billion in 2009), the economic rationale of promoting trade in transport services to not only address the yawning trade gap but also to boost revenue earnings, cannot be overemphasised.
Imports from India, particularly of fabrics and other industrial raw materials, feed Bangladesh's export-oriented sector (mainly the RMG industry) and provide some fiscal cushion in the form of a healthy balance of trade status with some of its major trading partners (e.g. $ 3.6 billion trade surplus with the US in 2008-09).
Therefore, in the context of reducing the bilateral trade deficit with India, an informed approach would seek to simultaneously increase Bangladesh's exports share in India, vis-à-vis trade in both goods and transport services, instead of reducing import from the latter.
Game theory is relevant from the perspective of Indo-Bangladesh and South Asia regional cooperation in two fundamental ways -- (a) where all are well-informed about each others' equilibrium strategies (Nash Equilibrium); and, (b) where one member is uncertain in fully comprehending its other partners' strategies (Prisoner's Dilemma).
Due to information asymmetry or any type of uncertainty (e.g. political), both parties can be expected to enter into a prisoner's dilemma situation. In such cases, where countries are not aware of each other's strategies, both will be inclined to defect with a zero payoff. The paradox in this case is that both Bangladesh and India would be acting rationally, but producing an evidently irrational result.
On the other hand, when transparency in the decision-making process and legitimacy of the state's willingness (through information sharing) to cooperate are evident, there is no information asymmetry and, hence, all members will opt to cooperate.
Bangladesh, by transforming its ports into "hot-hubs" serving the entire hinterland of Nepal, Bhutan and North-East India, would be able to upgrade its rail system and develop Chittagong Port, or even invest in a new sea port, in order to establish itself as a regional hub.
The country's physical (transport) transformation will hinge upon two crucial factors: (a) development of a land link connecting South East Asia with South Asia; and, (b) the extent of political concessions, in terms of sovereignty loss. Whilst the former is a matter of transport policy and economic estimations, the latter will demand close cooperation in order to promote regional solidarity.
One should always remember that in the EU, economics have successfully trumped politics and remains the driving force behind decisions on regional expansion through integration into the Single Market. After a long time, governments in South Asia are demonstrating an awareness that the future is impinging on its present, much more rapidly than it did in the past.
To conclude, the main challenge before South Asia today may be to seize the historic moment (e.g. by transforming the Saarc into a supranational organisation) and lead the way into the future, rather than being content with the prevailing status quo by allowing long-term economic considerations to trump short-term political impediments.