New agreement to increase Bangladesh-India trade

Bangladesh’s exports to India are six times more than that of its exports to six member countries of South Asian Association for Regional Cooperation (SAARC). Bangladesh imports highest number of goods from India after China.

Now both countries have begun talks on signing a comprehensive economic partnership agreement (CEPA) to enhance trade relations. In fact, Bangladesh proposed the agreement focusing on the challenge during graduation from LDC (least developed country) status. Experts said if such deal is signed in addition to improving connectivity, trade between Bangladesh and India will increase.

The World Bank has released a report titled “Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia” this month. The report said, today bilateral trade accounts for only about 10 per cent of Bangladesh’s trade and a mere 1 per cent of India’s trade. Bangladesh’s exports to India could increase by 182 per cent and India’s exports to Bangladesh by 126 per cent if the countries signed a free trade agreement. Improving transport connectivity between the two countries could increase exports even further, yielding a 297 percent increase in Bangladesh’s exports to India and a 172 percent increase in India’s exports to Bangladesh, the report added.

According to the sources at the commerce ministry, talks on signing the Bangladesh-India comprehensive economic partnership agreement (CEPA) began last year. A study will be carried out on it in six months. The government has allocated Tk 9 million (90 lakh) to Bangladesh Foreign Trade Institute (BFTI) to conduct the study. A 10-member advisory committee headed by commerce secretary Md Jafar Uddin has been formed to facilitate the process. The committee held its first meeting at the secretariat on 23 March.

Sources said the BFTI presented an introductory report the meeting. India also submitted a similar report to the commerce ministry. The introductory report has underscored what the study will cover. The BFIT study will cover analysis of all types of agreements between Bangladesh and India, the state and potential of roadways, waterways, railway and airways, and analysis on trade statistics of both countries since independence.

According to the meeting sources, the study will also cover other issues including how bilateral trade is being disrupted because of tariff and non-tariff barriers, how to make customs station more efficient and how to make Asian Free Trade Area (SAFTA) more effective to increase trade.

The advisory committee will hold its next meeting in the last week of the next month. Negotiations will open after both countries conduct the studies separately. These will be reviewed. Amendments will be made. Then finally the agreement will be signed.

According to commerce ministry sources, India signed CEAP with Sri Lanka in 1998, Singapore in 2005, South Korea in 2009, New Zealand, Australia and Indonesia in 2010-11 and Thailand in 2015.

Regarding this, commerce secretary Md Jafar Uddin said “India is our tested friend. It’s normal that India as a big country will give us a bit more. However, export to India may face a little blow after (Bangladesh’s) graduation form LDC status. That is why the CEAP is being signed.”

“The study on CEAP will be completed in six months. Then both countries will negotiate. Once the CEAP is signed, alternative export opportunities to the country (India) will also emerge,” he added.

In the outgoing fiscal year, Bangladesh exported goods worth USD50.5 million (5.05 crore) to Pakistan, USD 46 million (4.6 crore) to Nepal, USD38.4 (3.84 crore) to Sri Lanka, USD 5.76 million (57.66 lakh) to Afghanistan and 4.35 million (43.56 lakh) to Bhutan. In total, Bangladesh exported goods worth a little over USD150 million (15 crore) to six SAARC countries. So Bangladesh’s export to India was six times more that of export volume to these six countries in last fiscal.

India is ninth largest export destination for Bangladeshi products. Records of export in July-January of the 2020-21 fiscal shows, export to India will exceed the last fiscal. According to Export Promotion Bureau (EPB), Bangladesh’s export to India stood at USD1.24 billion (124 crore) in 2018-19 fiscal, USD1.09 billion (109 crore) in 2019-20 fiscal. Goods worth USD860 million (86 crore) were exported to India in seven of the current 2020021 fiscal.

Records of the EBP data show, Bangladesh’s export to India has more than doubled compared to last 10 years. Bangladesh exported goods worth USD512.5 million (51.25 crore) in 2010-11 fiscal. In fact, Bangladesh’s export to India increased after the country announced duty free access except for arms and drugs in 2011. The duty free export facility came to effect after then-India prime minister Manmohan Singh’s state visit to Dhaka.

Like export to India, imports from the country are also increasing. Records of Bangladesh Bank show, Bangladesh imported goods worth USD4.58 billion (458 crore) in 2010-11 fiscal. Imports increased to USD8.62 (862 crore) in 2017-18, but dropped to USD7.64 billon (768 crore).

According to the data from Bangladesh Bank, the trade gap with India was USD4.07 billion (407 crore) 10 years ago. It rose to USD 7.75 billion (775 crore) in 2017-18 fiscal, but dropped to USD4.67 billion (467 crore) in 2019-20 fiscal. The trade gap isn’t rising as imports from India have increased and exports from Bangladesh, too, have risen significantly. Trade remains almost stagnant as it was 10 years ago.

Bangladesh mainly exports products including readymade garments, jute and jute-processed products, leather-processed products, plastic products, fish, soft drinks, copper and edible oil while goods including rice, raw cotton, onion, motor vehicles, boilers, machinery, milk, dairy products, electronic products and iron were imported from India.

According to sources at the Economic Relations Division (ERD), India is one of the largest development partners of Bangladesh. India has promised Bangladesh three LOCs (line of credits) worth 7.36 billion (736 crore) against 46 projects for 10 years from 2010.

Bangladesh receives this credit to implement various development projects including road, railways, water transportation and port, power, information and technology, health and technical projects. However, the Exim Bank of India has released USD8 million (80 crore) to date.

Bangladesh signed a deal worth USD1 billion with India under the first LOC in 2010. Later, India provided a grant worth USD140 million (14 crore) to the Padma Bridge project from this fund. Some 15 projects were financed by the remaining USD860 million (86 crore). Twelve of 15 projects have been implemented.

Indian prime minister Narendra Modi first visited Bangladesh in June 2015. At that time, he announced the second LOC worth USD2 billion (200 crore). Later on, both countries signed agreement on it. Fifteen new projects were taken by this fund. Two projects have been implemented by the fund released so far. The third LOC worth USD4.5 billion (450 crore) was signed when prime minister Sheikh Hasina visited India in April 2017. Another 16 projects were financed by it.

Distinguished fellow of the non-government research organisation Centre for Policy Dialogue (CPD) Mustafizur Rahman told Prothom Alo that Bangladesh’s exports to the country (India) had crossed USD 1 billon for the first time because of duty free facilities. However, the duty free facility will no longer be in effect after graduating from LDC status. Bangladesh has to prepare from now and both countries must find an alternative together, he added.

Mustafizur Rahman further said a comprehensive economic partnership agreement (CEPA) can be that alternative that may consist of three things – trade, investment and connectivity. However, Bangladesh has to be prepared to make some concessions if the CPEA is signed, he added.

This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna