LAW MANTRA THINK BEYOND OTHERS (National Monthly Journal, I.S.S.N 2321 6417)

"Indo -Bangladesh Trade Agreements - A Critical Appraisal"

Abstract

Indo-Bangladesh trade relations can be understood at two levels. First, trade relations as

existing at bilateral level and secondly, trade ties emanating by virtue of India- Bangladesh

being SAARC member countries.

This paper shall attempt to discuss various aspects of Indo-Bangladesh Trade with special

reference to the contribution made by two bilateral trade agreements concluded between the

two countries. Finally, the paper shall also explore the prospect and ways of improving trade

ties between the two neighbouring nations by means of Free Trade Agreement and other

measures.

1. Introduction India and Bangladesh shares a unique kind of relations between them, which has it origin

mostly in political reasons. Indias role in the birth of Bangladesh and assistance it extended in

Bangladeshi liberation war is well known and is well received in the two nations. This

historical fact had given the shape to foreign policies of Bangladesh towards India.

However, relation soon hit a low patch due to certain issues, which includes border matters,

illegal migration, water sharing etc which gave birth to sense of political mistrust and neglect

at both sides.

On similar lines there exist few other reasons also which led to a peculiar kind of trade

relations between the two countries. First and the foremost dominating aspect of Indo-

Bangladesh trade cooperation is asymmetrical relationship between a small country and a big

neighbour. 1 This asymmetrical relation has created a fear of dominance and hegemony in the

mindset of Bangladeshi masses against India. This scepticism is further strengthened by the

fact of perennial and large bilateral trade deficit of Bangladesh which existed with India till

recently.

1 Nurul Islam(Sep. 4-10, 2004), Indo-Bangladesh Economic Relations: Some Thoughts Economic and Political Weekly, Vol. 39, No. 36 pp. 4069-4075

Another peculiarity of Indo-Bangladesh trade relations is the large volume of informal trade.

According to the survey of National Council for Applied Economic Research estimated

Bangladesh to India unrecorded trade is about $10 million, compared with an India to

Bangladesh estimate of $371 million which form the part of informal trade between the two

nations. 2

All these aspects of Indo-Bangladesh trade relations, with specific reference to various trade

agreements concluded between the two nations shall be critically analysed in this project.

2. History of Bilateral trade between India Bangladesh The history of bilateral trade between India and Bangladesh has begun with signing of Treaty

of Friendship, Cooperation and Peace3 in Dhaka on March 19, 1972. The treaty was also

known as the Indira-Mujib Treaty, after the name of the signatories of the treaty the Prime

Minister of India Mrs. Indira Gandhi and the Prime Minister of Bangladesh Sheikh Mujibur

Rahman.4

Consequent to the signing of this treaty, first Indo-Bangladesh bilateral trade agreement was

signed on March 28, 1972. The agreement had a very limited scope and it covered trade only at

governmental level that too in specified categories of merchandise and products. From

Bangladesh products like newsprint, raw jute, fish and naphtha were earmarked as the principal

exports from Bangladesh to India. Similarly Indias major export items to Bangladesh, on the

other hand, were cement, coal, machinery and unmanufactured tobacco.5

This agreement also provided for free trade between Bangladesh and neighbouring border state

of India to the extent of 16 km from the international border. However, it was limited only

certain category of commodities.6

2 Chaudhuri, S.K. (NCAER) (1995). Cross Border Trade Between India and Bangladesh, p.27. 3 The treaty consists of a preamble and 12 articles. The preamble specified peace, secularism, democracy, socialism and nationalism as the common ideals that inspired the two nations. For trade point of view treaty stated that the parties would continue to strnethen and widens their mutually advantageous and all-round cooperation in the economic, scientific and technical fields and would develop mutual cooperation in the fields of trade, transport and communications. 4 See M. A. Salman and Kishor Uprety, Conflict and cooperation on South Asia's international rivers World Bank Publication; Chapter 7.2 Formation of Closer ties Page.127 onwards 5 See D.K. Madaan (1996). Indo-Bangladesh Economic Relations and SAARC, Deep and Deep Publications, New Delhi-110059. As quoted in Mohammad Mafizur Rahman, Bangladesh-India Bilateral Trade: Causes of Imbalance and Measures for Improvement Sydney eScholarship Repository - The University of Sydney http://hdl.handle.net/2123/7632 6 M.K. Hassan(2002), Trade with India and Trade Policies of Bangladesh in Cookson, Forrest E. and Alam, A.K.M.S.. (ed.) Towards Greater Sub-regional Economic Cooperation, chapter 10; pgs 349-401.

The expected level of trade could not be achieved through 1972 agreement. Further it also

resulted into large scale illegal trade. Accordingly the agreement was abolished just few

months after its enforcement in Oct.1972.

The first agreement of 1972 was replaced by another agreement of 1973. This agreement was

signed on 5 July 1973 and became effective from 28 September 1973. The most important

aspect of this 1973 agreement was that it granted most favoured nation status to both the

countries.

Even 1973 agreement failed on the expectation of both the parties. However, Bangladesh has

the special reason to protest against the agreement because of adverse balance of payment

problem for Bangladesh. Further, Indian Rupees as the currency for exchange between India

and Bangladesh was also the subject of criticism. Accordingly, Protocol signed on 17

December 1974 it was decided that trade would be conducted in free convertible currency.7

On 4 October 1980, the third trade agreement was signed between these two nations initially

for three years. By mutual consent, this agreement was extendable for another 3 years.

Subsequently this agreement was renewed a number of times.

And finally on 21st March, 20068 a new trade agreement in the form of Trade agreement

Between India and Bangladesh, 2006 was signed between the two nations. This agreement is still in force.

Another, the latest trade agreement between India and Bangladesh is Memorandum of

Understanding for Establishing Border Haats across the Border between India and Bangladesh. This MOU came into force on 23rd Oct.2010.

This MOU aims at opening of up of Border Haats across India-Bangladesh border at different

locations which has to be decided jointly by the two nations. As quoted in Mohammad Mafizur Rahman, Bangladesh-India Bilateral Trade: Causes of Imbalance and Measures for Improvement Sydney eScholarship Repository - The University of Sydney http://hdl.handle.net/2123/7632 7 Freely convertible currencies have immediate value on the foreign exchange market, and few restrictions on the manner and amount that can be traded for another currency. Free convertibility is a major feature of a hard currency. Latest status of Freely convertible currency: According to Notification No-19/2005-CE(N.T.) dated 29.04.2005 under rule 19 of the Central Excise Rules, 2002 Freely convertible currency means Australian Dollars, Austrian Schillings, Bahrain Dinars, Belgian Francs, Canadian Dollars, Danish Kroner, Deutsche Marks, European Currency Units (Euros), French Francs, Hong kong Dollars, Italian Lire, Japanese Yen, Kuwaiti Dinars, Malaysian Dollars, Netherlands Guilders, Norwegian Kroner, Pounds Sterling, Singapore Dollars, Swedish Kroner, Swiss Francs and the U.S.A. Dollars (and includes Indian Rupees bought by the Asian Development Bank by payment to the Reserve Bank of India in foreign exchange)..] 8 Agreement shall come into force on the 1st April, 2006.

3. Bilateral Trade Agreements: A Critical Evaluation As it is mention above, India and Bangladesh entered into number of bilateral trade

agreements. However, if all these trade agreements are critically analysed than it would be

apparent that all these agreements failed miserable to substantially contribute to the trade

relations between the two countries.

The latest bilateral agreement between India and Bangladesh is Trade Agreement between

India and Bangladesh 2006. This agreement was signed New Delhi, on the 21st March, 2006 and it came into force on the 1st April, 2006.

This agreement provides for expansion of trade and economic cooperation, making mutually

beneficial arrangement for the use of waterways, railways and roadways, passage of goods

between two places in one country through the territory of the other, exchange of business and

trade delegations and consultation to review the working of the agreement at least once a year.

Implementation of this agreement has the potential to aid trade and investment between the two

countries.

The 2006 agreement between the two countries is just the reiterated of earlier trade agreements

and it consist of all those provision which has been there in earlier agreements particularly of

1980. This agreement seems more like rhetoric of words which is devoid of any substantial,

specific and concrete commitment.

Table: 01

Source: Ministry Of Commerce, Govt. Of India

Still after the signing of end numbers of agreements the trade between India and Bangladesh

has been miserably low. Bangladesh share in Indias total trade has never even touched 1%

mark. Bangladesh share in Indias total trade was just 0.60% in FY 2006-07 which came down

to 0.58% in 2010-11.9

As table above show, out of Indias total trade of US $ 312149.29 million in FY 2006-07

Bangladesh shares just US $ 1857.57 million trade (i.e. 0.60%). Further, in FY 2010-11 out of

US $ 620905.02 million Bangladesh share was US $ 4053.15 which is just 0.58% of India total

trade transactions.

These figures show that minimal trade transaction exists between India and Bangladesh. Even

though they both are the member of WTO/GATT and are also amongst the founding member

of SAARC. And more importantly shares longest land border with each other which extend to

the total length of about 4095 km.

If position of South Asia and particularly of Bangladesh is seen on System on Foreign Trade

Performance Analysis (FTPA) it would be found that South Asia shares the least amount of

trade with India and have lowest growth rate.

9 Source: Ministry Of Commerce, Govt. Of India.

0

100000

200000

300000

400000

500000

600000

700000

2006-07

2007-08

2008-09

2009-10

2010-2011

India's Total Trade 312149.29 414786.19 488991.67 467124.31 620905.02Bangladesh's Share 1857.57 3180.74 2810.98 2688.44 4053.15

Tota

l Tra

de U

S $

Mill

ion

Bangladesh Share in India's Total Trade

As show by pie chart below, on System on foreign Performance Analysis Index, SAARC

shares only 3.9% of Indias total foreign trade transactions. It is one of the lowest shares even

when all these countries are members of SAARC and subsequent SAPTA/SAFTA.

It also shows the poor achieved of SAARC as a regional integration forum.

Table: 02

% Share In Indias Total Foreign Trade Transaction (Region-Wise)

Further, if level inter-regional trade growth amongst SAARC nations are taken into account,

than Bangladesh-India transaction occupies the second lowest position just above Pakistan.

In the pie-chart given below, percentage growth in India-Bangladesh trade has been just 3.37%

which is the lowest growth rate in comparison with all other SAARC trading partner except

Pakistan which recorded -27.82% growths in trade transaction with India.

Table: 03 10

% Growth in Intra-regional amongst SAARC nations with India (FY 2010-11)11

10 DATA Source: Directorate General of Commercial Intelligence and Statistics (DGCI&S), Kolkata, under the Ministry of Commerce, Government of India. Data is of FY 2010-11 11 Note: the given chart doesnt show growth figure of Pakistan as she recorded no growth in trade transaction with India in FY 2010-12. In fact, India-Pakistan trade went down by 27.82%. (i.e. growth is -27.82%)

EU Countries, 17.99

East Euproe,

0.07

WE Countries,

1.99Sountern Africa,

2.04West Africa, 2.03Central Africa,

0.24East Africa, 2.21North

America, 12.05

Latin America, 4.61East Asia, 0.82

ASEAN, 12.29

WANA, 19.59

NE Asia, 14.68

SAARC, 3.9

All these data show that even though India and Bangladesh are having many trade agreements

and are both the parties to SAPTA/SAFTA; even than trade transactions between them are

minimal.

There is end number of reasons which hinders trade relations between these countries. One of

the prime reasons for such poor trade transaction is the lack of political trust along with end

number of non-tariff barriers to trade etc. Some of these issues are discussed below.

4. Trade Barriers in Indo Bangladesh Trade Together with tariff barriers there are number of non-tariff barriers which severely hamper the

smooth flow of exchanges between India and Bangladesh. Presently the most widely used non-

tariff barrier in India-Bangladesh trade are barriers like mandatory testing required by India, inadequate banking facilities and poor infrastructure at the land ports.

These non-tariff barriers impacts the trade more adversely than the tariff barriers as such non-

tariff barriers are hard to resist and they exists at very rudimentary form.

Mandatory testing requirements As per the study conducted by the Bangladesh High Commission in New Delhi12, mandatory

testing requirements along with mandatory standard requirements, additional technical

12 Study conducted by Mahbub Hassan Saleh, Bangladesh deputy high commissioner in New Delhi which was published in September 2011. See also Jasim Uddin Khan, Exports to India hit hard for non-tariff barriers: Study published in THE INDEPEDENT (Bangladesh Newspaper) dated Wednesday, 02 November 2011.

Sri Lanka, 45.71

Bangladesh, 3.37

Nepal, 8.14

, 0

Afghanistan , 25.62

Bhutan, 40.47

Maldives, 22.43

regulations and special labelling requirements are some of the major para- tariff barriers which

are imposed on the Bangladeshi imports to India.

Under, mandatory testing requirements exporters complain that each consignment is subjected

to certification by port a health officer which takes months to secure. The impact of such

requirement is felt very harsh particularly in case of food and other perishable items.

Similarly in case of goods having certain chemical composition like soaps, they have to be

sending to chemical laboratories for chemical test and sampling. Again such testing

requirements take months to get clearance. Such testing is mostly conducted to check whether

the particular products are in compliance with the Indian Bureau of Standards (BIS) mandatory

marketing and standard requirements.13

Inadequate Banking Facilities One of the prime reasons for huge quantity of informal trade between India and Bangladesh is

the inadequate banking facilities provided by national banks to foreign traders. Because of

which the traders has to shift towards informal channels of trading.14

Requirement of banking facility in international trade generally arise for the purpose of

payment of international trade dues. If the exporter does not know the foreign importer or if he

has no confidence about the credit worthiness of the foreign importer, he requests the importer

to arrange for the letter of credit from a bank. A letter of credit (L/Cs) is an advice issued for

undertaking given by a bank that bills drawn on the banker by the exporter, according to the

terms of letter of credit (L/Cs), will be honoured. All importers usually request the bank to

issue a letter of credit in favour of the exporter.15

Letter of Credit also called as documentary credits are the most commonly methods of

payments for goods in the exports trade and have been described as the life blood of

international commerce16

But unfortunately, letter of credit facility did not exist in both nations till recently. In

Bangladesh only in 1991 by Industrial Policy, 1991 letter of credit facility was introduced.17

13 All major product from Bangladesh like cement, steel products, electrical and electronic goods, and leather products are mandatorily passes through this requirement. 14 For detailed discussion on the topic Sanjib Pohit And Nisha Taneja INDIAS INFORMAL TRADE WITH BANGLADESH AND NEPAL-A QUALITATIVE ASSESSMENT Indian Council For Research On International Economic Relations July 2000 15 For further discussion see Carole Murray Schmitthoffs Export Trade: The Law and Practice of International Trade 11th edition Sweet & Maxwell Publication Chapter No.11 16 In the case of Intraco Ltd. Vs. Notis Shipping Corporation of Liberia [1981] 2 Lloyds Rep. 256 at 257.

However, such facilities are provided at very stringent conditions. Non-funded credit facilities,

e.g. letter of credit (L/Cs), guarantee etc. be provided to a single large borrower. But under no

circumstances, the total amount of the funded and non-funded credit facilities shall exceed

35% of a bank's total capital.

In addition, the banks shall follow certain prudential norms. Loan sanctioned to any individual

or enterprise or any organization of a group amounting to 10% or more of a bank's total capital

shall be considered as large loan and higher level of interest shall be imposed. 18

In case of India, facility of letter of credit was introduced way back in 1958 with the

establishment of Foreign Exchange Dealers Association of India (FEDAI)19 . FEDAI is the

main governing body which issues guidelines and rules in regard to Letter of Credit (L/Cs) in

India. And it works in coordination with the Reserve Bank of India, other organizations like

FIMMDA20, the FOREX Association of India and various market participants.

Even though letter of credit facilities were introduced long back in the India, still its not wide

spread and most of the banks do not provide even the basic foreign exchange facilities. This

problem is even more acute in North Easter India which shares border with Bangladesh.

Ironically, its only in 2006 with the change in Government policy banks in north-eastern

country started providing facility of letter of credit (L/Cs). Earlier the banks in the north-

eastern India could not open letters of credit (L/Cs) for imports from Bangladesh, discouraging

potential importers.

This change is the result of the report of COMMITTEE ON FINANCIAL SECTOR PLAN

FOR NORTH EASTERN REGION, July 2006 which found that:

There are very few branches where basic for-ex facilities are available. Despite

there being so many international borders, even basic money changing facilities are

not available at branches near the borders. Further, at certain land custom centres

identified as having large export transactions, the banks do not provide expeditious

facilities such as Letters of Credit (LCs), etc. 21

17 See Bangladesh Industrial Policy of 1991 at Bangladesh : Facilities and Tax Incentives for Foreign Investors http://www.betelco.com/bd/bdsbus/finvfac.html as assessed on 2012-03-13 18 See BANGLADESH BANK PRUDENTIAL REGULATIONS FOR BANKS : SELECTED ISSUES at pg no.35 19 See official website Foreign Exchange Dealer's Association of India (FEDAI) @ http://www.fedai.org.in/ 20 Fixed Income Money Market and Derivatives Association of India 21 See Report of COMMITTEE ON FINANCIAL SECTOR PLAN FOR NORTH EASTERN REGION, July 2006 at pg 19

Thus, there is an urgent need on the part of both the nations to strengthen the banking

facilities in regard to cross border trade. And further more work has to be done on the part of

India to spread the banking facilities relating to foreign exchange to every part of the country

and particularly in border areas.

Poor Infrastructure The most important and critical barrier to trade between India and Bangladesh is the poor

infrastructure. India shares longest international border with Bangladesh which has a massive

potential for the moment of goods between the two countries through rail and road links.

Despite the geographical proximity of the borders of India, Bangladesh, Nepal and Bhutan, the

issues of border control and territorial sovereignty have obviously prevented the establishment

of direct trade routes.

If inter country rail and road links are properly built it would tremendously accelerate economic

growth of the two countries. Speaking at a press conference in Dhaka on July 3, 2006 World

Bank Country Director Christine Wallich22 said, "When I first came to Bangladesh, I had

visited some border areas and found the possibility of such a railway linkage."

The issue of infrastructural bottleneck was discussed at the fourth meeting of the Indo-

Bangladesh Joint Working Group (JWG) on trade which was held in Agartala on July 2006. In

this meeting delegates of both the nations have decided to modernise and upgrade existing

infrastructure, including roads, to boost their bilateral trade.

But nothing substantial could be done because the issue is highly politicised in Bangladesh

which is very obsessed with its adverse balance of payment with India. But however,

Bangladesh, on the 31 May, 2010 signed an agreement to finalize a transhipment deal with

India to allow Indian goods to be transported to the north-eastern city of Tripura and in the state

of Assam through Bangladeshi territory.

Business in India particularly in north eastern part would get a major boost if the region is

allowed to use Bangladeshi ports for speedier transportation of goods. It is expected that if

transhipment facility is provided to Indian ships on Bangladeshi ports it would substantially

increase Indias trade with Bangladesh and also with South East Asia.23

22 Christine Wallich heads the World Bank office in Bangladesh. 23 Chittagong port is just 75 km from south Tripura's border town of Sabroom, while the Ashuganj port is 25 km from state capital Agartala.

Further there is also need for the up gradation of custom land ports alongside Indo- Bangladesh

Border.

India has 14,103.1 kms long international border which it shares with Pakistan, China, Nepal,

Bhutan, Myanmar, Afghanistan24 and Bangladesh. But there are only 132 Notified Land

Customs Stations (LCSs) on the border of these countries.25 Further many of them are not well

functional and few even dont have minimum trade facilitation amenities like warehousing

etc.26

However, recently for the development of proper infrastructure at Land Customs Stations

(LCSs), CIB (Critical Infrastructure Balance) Scheme and now under ASIDE (Assistance to

States for Infrastructure Development of Exports) scheme has been introduced.

Out of the 36 operational LCSs with Bangladesh, 16 LCSs have been prioritised for

infrastructure development works in the various joint meetings with Bangladesh, Nepal and

Myanmar. These are Raxaul & Jogbani in Bihar; Nepalganj and Sunauli in Uttar Pradesh;

Petrapole, Chandrabandha, Gede and Phulbari in West Bengal; Karimganj and Sutarkhandi in

Assam; Borsorah and Dawki in Meghalaya; Moreh in Manipur; Demagiri in Mizoram and

Agartala and Old Raghna Bazar in Tripura. 27

Thus, for the purpose of improving trade ties between India-Bangladesh infrastructures has to

be improved on priority basis.

5. Changing dynamics of Indo- Bangladesh Trade: Recent Positive

Developments The large trade deficit with India has been a major cause of concern in Bangladesh. Since long

Bangladesh suffers from large scale and persistent deficit in bilateral trade balance with India,

which has resulted in great political opposition against India28.

24 Indias border with Afghanistan extends to approx.105 km and it under POK. 25 Source Ministry of Commerce Press Release dated Jan 2004 26 See also Transport Strategy Brief for South Asia Region May 2007: World Bank Study (2007) 27 Ibid. 28 See also Mohammad Mafizur Rahman, Bangladesh-India Bilateral Trade: Causes of Imbalance and Measures for Improvement

On the Bangladeshi side the argument29 which is assigned to such trade imbalance is the high

tariffs which are imposed by India on Bangladeshi exports. Even though Bangladesh has

maintained a more liberal trade regime in relations to Indian exports it has seldom been

reciprocated from Indian side.

Because of this reason India exports gets smooth entry to Bangladesh market however, vice

versa does not happen in case of Bangladeshi exports to India. Ultimately it leads to persistent

trade imbalances with India.

To substantiate the above argument, if tariff regime prevalent in India and Bangladesh is

comparatively analysed than it would be apparent that in spite of recent trade liberalisation of

Indian import regime, the level of tariff and other duties are still comparative high in India than

in Bangladesh. (Table 04)

Table: 04

Comparative tariff regime in India and Bangladesh:

Tariff India Bangladesh

Average customs duties 29.0 16.5

Average of other protective duties 6.0 5.4

Total protective duties 35.0 22.0

Maximum customs duties 30.0 32.5

Maximum protective duties 36.0 36.0

The trade deficit has been increasing exponentially since the recent past. Official data show

that compared to 1983, trade deficit in 2003 is more than 46 times higher30. This growing

deficit is a cause of serious concern for Bangladesh and has important economic and political

implications.

Though trade relations between the two countries have not been so encouraging for Bangladesh

for past decade or two, but recently there have been some positive changes in favour of

Bangladesh

29 Supra note no. 01 at page 4070. 30 In 1983, trade deficit of Bangladesh was US$31 million. In 2003, it increased to US$ 1435.83million. (IMF: Direction of Trade Statistics).

Table: 05

Source: Ministry Of Commerce; Govt. Of India

Recent data released by Bangladesh31 shows that there has been significant positive change in

relation to balance of payment problem with India. There has been a massive increase in the

exports of Bangladesh to India. It has risen by 68 percent, amounting to $241.96 million in

fiscal 2005-06. In the preceding year, they stood at $143.66 million only. This increase in

exports has largely been to north-eastern states.

On the other hand, according to the statistics provided by Export Promotion Bureau (EPB) of

Bangladesh imports from India have dropped by around 8 percent, totalling $1,868 million in

the last financial year from $2,025.78 million in FY 2004-05. As a result of this rise in exports

and decline in imports the trade deficit of Bangladesh with India narrowed by around 14

percent.

Similarly data released by Department of Commerce, Ministry of Commerce and Industry,

Government of India shows that there has been increase of 68.54 % in imports from

Bangladesh in financial year 2010-2011. Total import from Bangladesh was Rs.120,528.14 in

FY 2009-2010 which increased to Rs. 203,138.64 in FY 2010-2011. This magnificent jump in

31 Data released by Export Promotion Bureau, Ministry of Commerce, Bangladesh 2011 ; See also South Asian Analysis Group @ http://www.southasiaanalysis.org/

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2006-07 2007-08 2008-09 2009-10 2010-11Exports (US $) 1629.57 2923.27 2497.87 2433.77 3606.39Imports(US $) 228 257.02 313.11 254.66 446.75Total trade 1857.57 3180.74 2810.98 2688.44 4053.15

Tota

l Tra

de (U

S $M

illio

n)

India -Bangladesh Trade 2006-11

Bangladeshi exports to India has considerably lowered down the trade imbalance though it has

not been completely done away.32

As shown by the table below, Bangladesh imports to India in FY year 2008-09 increased by

21.82% and after certain fluctuation in FY 2009-10 it again touched the growth rate of 75.43%.

Table: 06

Source: Ministry Of Commerce; Govt. Of India

According to vice-chairman of Export Promotion Bureau (EPB) of Bangladesh, Mir

Sahabuddin Mohammad:

Exports to India have increased substantially in the last financial year. This rise

is because of change of policy of government of India which has facilitated the

work of businessmen. Earlier the banks in the north-eastern India could not open

letters of credit (L/Cs) for imports from Bangladesh, discouraging potential

importers. But now they can open L/Cs, which has facilitated the trade between

32 Official website of Department of Commerce, Ministry of Commerce and Industry, Govt. Of India http://commerce.nic.in/eidb/iecnt.asp as on 12 March 2012

-20

0

20

40

60

80

2007-08 2008-09 2009-10 2010-11Export 79.42 -14.57 -2.57 48.18Import 12.73 21.82 -18.67 75.43Total Trade 71.23 -11.62 -4.36 50.76

Trad

e (U

S $)

% Growth in India- Bangladesh Trade 2006-11

the two countries. Though Bangladesh has a trade deficit with India, it is surplus

with the north-eastern states.

The most important catalyst of this change has been the enforcement of SAFTA33 obligations

from 2006. At the 14th SAARC summit held in New Delhi in April 2007, India announced that

it would grant duty-free access to Bangladeshi imports that are on the `positive list. India has

also agreed to slash import duty on the `negative list (Sensitive List)34 from 45 per cent to 10

per cent.35 In fact, India decided to grant zero tariff access for products in the positive list to all

the Least Developed Countries (LDCs) of SAARC. While India, Pakistan and Sri Lanka are

categorized as Non-Least Developed Countries (NLDCs), Bangladesh, Bhutan, Maldives and

Nepal are categorized as the LDCs. This unilateral gesture by India is in keeping with the trade

liberalization and investment enhancing measures that SAFTA embodies towards the LDCs of

the region, and it has come much before the scheduled date of 2009.

Thus, the major cause of concern in Bangladesh about the adverse balance of payments is

seems to be fast evading which is the positive sign for both the nations. This positive

development will further strengthen the economic ties between India and Bangladesh and will

do away with the allegation that India hegemonies the economy of Bangladesh which suffers

historical trade deficit with India.

Further it has to be taken into account that trade imbalances with which Bangladesh suffers has

more to do with the differing nature of economies of both countries. It is not because of any

hostile or restrictive policy followed by India.

Along with it, India and Bangladesh agreed for various bilateral trade initiatives during Indian

Prime Minister Dr Manmohan Singhs visit to Dhaka where Bangladesh Prime Minister Sheikh

Hasina was present. The joint statement released on 7th September 2011 narrated various steps

taken for the benefit of people from both the countries. Those included the opening of

Banglabandha-Fulbari Land Port for bilateral trade, inauguration of the border Haat in

Baliamari (Kurigram)-Kalaichar (West Garo Hills) and the proposed in Balat (East Khasi

Hills)-Dalora (Sunamganj), permission of passage of ODC cargo for the Palatana power project

33 Article 7 of the SAFTA Agreement provides for a phased tariff liberalization programme and covers all tariff lines except those kept in the Sensitive List by the member states. SAFTA was signed by all the member states of SAARCIndia, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lankaduring the 12th SAARC Summit held in Islamabad in January 2004 and came into force from January 1, 2006. 34 Indias Sensitive List comprises mainly of primary products, including live animals, animal products, vegetable products, prepared foodstuffs, fats and oils, rubber products, textiles, marble and ceramics, second hand motor cars etc 35 Indra Nath Mukherjee: Research and Information System for the Non-Aligned and Other Developing Countries; Discussion Paper #86/2004

in Tripura, operationalisation of Ashuganj and Silghat as additional Ports of Call under the

bilateral Inland Water Transit and Trade Protocol, proposed railway infrastructure at the border

point between Agartala and Akhaura, proposal for using Chittagong and Mongla seaports for

movement of goods to and from India through water, opening of a Deputy High Commission of

Bangladesh in Mumbai, proposal for India-Bangladesh Culture Centre in Dhaka etc

Table: 07

0

200

400

600

800

1000

1200

1400

1600

1800

1991

1992

1993

1994

1995

1996

1997

1998

1999

2002

2003

2004

Export 280 290 310 410 610 1100 850 800 1000 650 1180 1700Import 30 20 18 20 25 90 75 70 70 80 70 78

Tota

l Tra

de (U

S $

mill

ion)

India-Bangladesh Trade 1991-04

Source: World Bank, 2006

6. Prospect of Indo Bangladesh FTA As we have seen in the above discussion, the trade transaction between India and Bangladesh

has been minimal. Although both the nations are party to many multilateral and regional trade

agreements. And have also concluded as many as half a dozen bilateral trade agreements. But

fact remained the same that these agreements have hardly contributed in any way to the trade

promotions between the two countries. Therefore, even on the question of FTA scepticism

exists amongst stakeholders.

The prospect of FTA between India and Bangladesh can be understood from two prospective

i.e. from the Indian and Bangladeshi side.

As per WTO reports36, India exports a wide range of products to Bangladesh. As show by table

below, about a third of total exports were primary agricultural, fish and livestock products,

6.6% processed foods and drinks (including animal foods), and most of the rest manufactured

products.

Table: 08

India exports to Bangladesh 2003/04

Category Products

US$

million

% Share

01 Primary agriculture, fish and livestock products 571 32.8

02 Processed foods and drinks (including animal foods) 115 6.6

03 Miscl. mineral and manufactured goods 318 18.3

04 Textiles fibres, textiles and clothing 269 15.4

05 All others (including machinery and transport equipment) 468 26.9

Total 1741 100.0

During 2003/04 the category 01 products group accounted for 81% of Indias total recorded

exports to Bangladesh. Further, Indias share of Bangladeshs total imports of each of these

product groups (categories in above table) is quite high: more than half for 8 product groups

36 The World Bank Report Dec 2006 www.worldbank.org.bd/bds

under category 01, between 20% and 30% for 7 product groups under category 02; between

10% and 20% for 7 product groups; and in only three cases less than 10%.

Average protective tariffs for majority of the product groups are high. Most of the product

group have tariff as high as 29% except for cereals, non-electrical machinery, animal foods,

pharmaceuticals and railway equipment on which tariff is less than 10%. Irrespective of this

fact Indias export to Bangladesh has been thriving fast.

As show by above statistics, Indias share in Bangladesh exports is substantial. If Bangladeshs

MFN tariffs for the rest of the world were to remain the same while India received duty free

treatment under a bilateral FTA, it will further add to Indias exports to Bangladesh.

However, FTA prospective for Bangladesh exports to India is not so bright. As shown by

figure 06 and 07 Bangladesh imports a very small amount to India. From Indias perspective

they are a miniscule share of its total imports (less than 0.1%) and are only about 1% of

Bangladeshs total exports.

The very low level and slow growth of Bangladeshs exports to India is not primarily

attributable to restrictive import policies in India. Indian tariffs on industrial goods have fallen

dramatically in the past three years and are now at historically low levels, and even lower on

many products on which India has given large numbers of substantial preferences to

Bangladesh under SAPTA.

Important exceptions to these developments are textiles and clothing, where many fabrics and

garments are protected by specific duties, and agriculture (understood in the broad WTO

sense to include to also include fish and livestock products and processed foods) where there

are still government import monopolies and other NTBs, and tariffs are still vary from high to

prohibitive. But there is a great deal of tariff redundancy in both these two sectors, with

domestic prices of most T&C (Textiles and Clothing) products (including readymade garments)

and of many agricultural products are at or even below international prices. In addition, in the

industrial sector, many more Indian industries than in the past are exporting, and domestic

markets are increasingly competitive. This means that the prospects for the expansion of

Bangladesh exports to India are at present quite limited, and would remain modest even if

Bangladesh from an FTA with India under which Bangladesh exporters would have duty free

access to the Indian market, while the present tariffs and other restrictions on imports into India

from the rest of the world would remain the same.

7. Research Suggestions

Thus it could be concluded that though India and Bangladesh has entered into number of

bilateral trade agreements and has also been part of other regional and multilateral trade

arrangements like SAARC and WTO, even than trade relation between the two nations is poor.

At bilateral level the agreements which has been entered into between the two nations has not

contributed anything substantial to strengthen the trade ties between them. It is an irony that

though India and Bangladesh are two neighbouring countries and have a great potential to trade

because of the long land border of 4096.70 km even than Bangladesh shares only 0.65% trade

with India.

These weaken trade ties trade is mostly the result of political mistrust in Bangladesh in regard

to India which is considered as playing a hegemonic role in the SAARC region. Another most

important reason for such minimal trade is the lack of viable trade facilitation measure in force

between the two nations which because of which huge trade potential remains un- used.

On the basis of the research study, following suggestions can be taken into account which

could aid in improving trade relations between India and Bangladesh:

Opening of more Land Custom Stations: Currently on the whole stretch of 4096.70

km of International India- Bangladesh border there are only 36 LCS. Out of this

only one LCS i.e. Benapole Custom station is the well equipped port which has all

facilities to support smoother trade transactions. According to Bangladesh Land

Port Authority, approximately 90 percent of the total imported items from India

come through Benapole.

Because of few LCSs on India-Bangladesh border businessmen have to incur lot of

transportation cost to take goods to the available LCS which add the cost and cause

inconvenience to trading community. Thus there is urgent need that more LCSs be

established to facilitate smoother trade transactions.

Development of Infrastructure: As discussed earlier there is a need for

development and up gradation of infrastructure along the border to facilitate trade.

Basic infrastructure facilities like warehousing and storing facility, road

connectivity etc has to be properly developed.

Banking facilities: Proper banking facilities particularly letter of credit facilities

have to be further strengthened.

Disassociate trade from politics: Lastly it is quintessential for improving trade ties

that both India and Bangladesh that they should disassociate its trade ties from

political logjam likes boundary dispute in form of enclaves issues or water sharing

issues.

Proper implementation of the bilateral agreements: Most importantly the bilateral

trade agreements which have been entered into between India and Bangladesh

should be implemented in letter and spirit; and they should not be just paper tiger

or rhetoric.

However, recently certain positive steps have been taken by both the nations which will

strengthen trade ties between them. Steps in form of opening of more border haat,

authorisation to banks in North Easter part of India to open L/C account in favour of

Bangladeshi businessmen, transhipment facilities allowed to Indian businessmen at Bangladesh

ports, project for infrastructural development at LCSs etc are expected to pay rich dividend to

India-Bangladesh trade relation.

By:- Owais Hasan Khan, Assistant Professor Of Law, Institute Of Law | Nirma University