Bangladesh-India economic ties: Addressing the next generation of challenges
Over the past decade particularly, the Bangladesh-India bilateral economic relationship has entered a new terrain with the strengthening of traditional ties and foundations being laid to deepen and broaden the partnership in going forward. The recent state visit of the Indian prime minster to Bangladesh—to join the celebrations of the golden jubilee of Bangladesh's independence and the birth centenary of Bangabandhu, the Father of the Nation—marked new initiatives to further strengthen the bilateral ties. The communique issued at the end of the visit states that "the ties reflect an all-encompassing bilateral partnership based on equality, trust and understanding that transcends even a strategic partnership". As Bangladesh prepares for its dual graduation journey (middle-income graduation and LDC graduation), it will be important to harness the potential opportunities of this partnership by addressing the attendant concerns and leveraging the initiatives that have been flagged in the communique.
The economic issues mentioned in the joint communique may be categorised in three groups: reiteration of the traditional areas of cooperation, adding new dimensions to the ongoing initiatives, and proposals for initiatives in new areas to broaden and deepen the ties.
The communique emphasised the need to address prevailing non-tariff barriers and underscored the importance of upgrading the infrastructure at land customs stations (LCSs). In this connection, the Bangladesh side had raised two concerns with a request for their earliest resolution: one concerned the new policy of the Indian Customs that requires verification of certificates of origin issued from Bangladesh, and the second related to the anti-dumping duties imposed on Bangladesh's jute products exported to India. The first originates from the fact that Bangladesh receives duty-free market access which India has offered to the SAARC LDCs under the SAFTA. Access to this requires compliance with the stipulated rules of origin. The Export Promotion Bureau (EPB) has traditionally served as the issuing authority for purposes of certification which was accepted by the concerned Indian authorities. It was stated in the communique that in the event of a conflict between provisions of customs rules and the rules of origin of a trade agreement, the latter shall prevail. Bangladesh has maintained that the SAFTA rules of origin do not envisage such verification and therefore the EPB certification should suffice. Hopefully, the issue will now be resolved.
At the same time, the concern that was raised sends a cautionary note to Bangladesh's relevant authorities as regards the need to strengthen oversight mechanisms to ensure that terms of preferential market access are strictly maintained. This will become even more important in view of Bangladesh's ongoing trade negotiations with other countries, since partner countries will want to be ensured that local value addition (or change of tariff headings) requirements for preferential market access are duly enforced and complied with by Bangladesh.
As regards anti-dumping duties (ADDs) on jute products, the Indian side has agreed to look into the matter. As a matter of fact, this issue has been there for some time, since January 2017, with the ADDs on jute yarn, hessian and jute bags ranging from USD 19 to USD 352 per tonne depending on specific exporters. These duties have also been imposed on Bangladesh's exporters of hydrogen peroxide and fishing nets. Several consultations have already taken place in this regard but without any result. The ADDs have seriously undermined the competitiveness of the exporters of the concerned items from Bangladesh; a number of them have been priced out of the market already. One hopes that the direction from the highest authorities, as stipulated in the communique, will now result in speedy review and withdrawal of the ADDs. The need for predictability of trade policies, regulations and procedures was stressed in the communique. If this serves as a policy guideline, the possibility of such disputes arising can be effectively pre-empted, on both sides.
Issues of strengthening the capacity of Bangladesh Standard and Testing Institute (BSTI) and its collaboration with the Bureau of Indian Standards (BIS), harmonisation of standards and signing of mutual recognition of certificates have been on the table for some time. Indeed, strengthening of BSTI was included as one of the projects which was prioritised under the first Indian Line of Credit in 2010. It will be good if a timeline is now set to realise this in accordance with the communique directives, as regards the signing of the Mutual Recognition Agreement between the BSTI and the BIS.
With respect to the second group of issues, the communique mentioned further initiatives to expand the ones already in place. The number of border haats was to be raised; LCSs and land ports were to be upgraded; India wanted an LCS to be established without port restrictions (or with a negative list) on the border with India's north-eastern region. Against the backdrop of the BBIN Motor Vehicle Agreement, and the routes now being identified, the need for upgradation of LCSs—both on the western and eastern sides of Bangladesh's border with India—has assumed heightened interest. Without integration and interoperability of systems, electronic data exchange, standardised digital platforms and single windows at the LCSs, the potential benefits of not only the Motor Vehicle Agreement but also of the rail and coastal shipping linkages will not be realised to the fullest extent. These initiatives also need to be looked at from the perspective of multi-modal connectivity and deepening of cooperation beyond the remit of bilateral ties with India, and in the context of the sub-regional cooperation that also embraces Nepal and Bhutan.
One critically important initiative that was mooted in the communique relates to a comprehensive economic partnership agreement (CEPA) between the two countries. The communique recognised the significant benefits of bilateral economic and commercial ties, and stated that both sides had emphasised the need for expeditious conclusion of the ongoing joint study on the prospects of entering into a CEPA. A CEPA, by definition, is a multi-dimensional concept that embraces a wide range of areas including trade liberalisation plan, preferential market access for goods and services, transport and multimodal connectivity, investment cooperation, customs standardisation and harmonisation, mutual recognition agreements, harmonisation of labour and environment standards and disputes settlement mechanism, among others. Such a study ought to be based on evidence and sound analysis and informed by appropriate consultations with the private sector, chambers, experts, professionals and representatives of other stakeholder groups, including civil society organisations.
One hopes that on the Bangladesh side, these will be done with due importance and openness. For such a comprehensive partnership to be grounded on broad-based support, the offer and request lists will need to be appropriately calibrated to reflect the relative strengths of the two economies—one an emerging powerhouse of the twenty-first century, and the other still an LDC poised for graduation after five years. A balanced, two-track implementation road map will be the best way to go forward.
As regards connectivity, both sides have also indicated their preferences in terms of modes and routes, which will need to be considered with the urgency these deserve. Bangladesh, understandably, is keen to emerge as a regional connectivity hub, not only of South Asia but also of the Southern Asia region, and as a major exporter of services, through deepening of sub-regional and regional cooperation. A CEPA with India should be seen as a building bloc for the realisation of such a broad vision. For buy-in in Bangladesh of CEPA type of deepening of cooperation, a speedy resolution of the water sharing issues within the perimeters of joint river basin management as well as resolution of other contentious issues will be the key.
However, physical connectivity will not be translated automatically into business ventures and drivers of development. Modalities of public-public and public-private partnerships and cross-country joint venture initiatives involving the private sector will need to be identified—and realised on the ground—to reap the potential benefits originating from the various ongoing initiatives including multimodal connectivity, coastal shipping agreement and BBIN-MVA. For Bangladesh, a key challenge will entail making greater use of the duty-free access to the Indian market, the potential of which continues to remain largely underutilised. One strategy in view of this is to be able to attract Indian investments that take advantage of the preferential market access to be offered under CEPA. Taking the discourse beyond bilateral trade deficit to areas of trade creation will be important, with concrete initiatives to realise potential export opportunities. Transforming the transport corridors into economic corridors will be the key here.
From this vantage point, concrete actions will need to be taken towards triangulation of trade, transport, and investment connectivities to develop the production networks and establish the backward and forward value chains that serve the interests of trade, business and commerce—both bilateral and beyond. What is needed is a time-bound road map, phased and sequenced in a manner that is geared to taking advantage of the emergent window of opportunity.
Mustafizur Rahman is Distinguished Fellow, Centre for Policy Dialogue (CPD).