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Did we get a good deal? – Mustafizur Rahman

Published in The Daily Star on Wednesday 26 April 2017

BANGLADESH-INDIA TRADE NEGOTIATIONS

Did we get a good deal? – Mustafizur Rahman

Naznin Tithi

Professor Mustafizur Rahman
Professor Mustafizur Rahman

During Prime Minister Sheikh Hasina’s recent visit to India from April 7-10, a number of MoUs and agreements were signed to facilitate trade and investment between the two countries. Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), talks to Naznin Tithi of The Daily Star about possible measures that could be taken to reduce the existing trade deficit between the two countries, how Indian investment of over USD 9 billion can benefit our local economy and other relevant issues.

Is there any significant outcome of the PM’s visit to India that will help address the existing barriers in promoting trade between Bangladesh and India?

From the particular perspective of Bangladesh, two types of challenges impede her bilateral trade with India. The first relates to Bangladesh’s own limited supply-side capacities in view of the structure of India’s import market demand; the second one relates to the broader areas of the state of transport and trade facilitation with India that undermines Bangladesh’s competitive strength in the Indian market. Under the third line of credit for commercial purposes worth USD 4.5 billion, a number of projects are envisaged which are geared to address these challenges. These will contribute to addressing the aforesaid challenges in a number of ways: (a) establishment of transport and border/port infrastructure, (b) better trade facilitation, (c) promoting investment in special economic zones as also investment in the areas of energy and trade in energy, (d) putting in place measures towards harmonisation, standardisation and certification. As can be seen from a close examination of the projects identified under the LoCs and the MoUs signed, many of these are geared to deepening connectivity in five areas: trade, transport, investment, energy, and people-to-people connectivity. Many of the identified projects should bring in private sector investment by way of creating opportunities for reducing costs and raising competitive strength.

How can our government reduce the existing trade deficit between Bangladesh and India?

Many of the non-tariff barriers relating to trade with India concern disputes with regard to technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures, certification, laboratory testing, harmonisation and standardisation. While there does exist an MoU signed between Bangladesh Standards and Testing Institution (BSTI) and Bureau of Indian Standards (BIS), time has come to sign a comprehensive bilateral Sanitary and Phytosanitary (SPS) Agreement (an agreement on how governments can apply food safety and animal and plant health measures). This would, however, call for significant strengthening of the BSTI. Indian first line of credit did include one project in this regard, but there is need for more significant investment to raise the concerned capacities if mutual recognition is to be enforced.

The key to reducing the bilateral deficit lies mainly in three areas. Firstly, strengthening of Bangladesh’s supply-side capacities by attracting Indian investment to Bangladesh, which will target the Indian market and take advantage of the offered duty-free market access. Secondly, to enhance Bangladesh’s competitive strength in the Indian market by taking the necessary measures to improve trade facilitation. Thirdly, it will be important to implement, on an urgent basis, transport connectivity initiatives envisaged particularly under the BBIN-Motor Vehicle Agreement, and as part of Bangladesh-India connectivity protocols and agreements. If these steps, many of which are envisaged under the various projects as part of the Indian LoCs, are taken, it will be possible to reduce Bangladesh’s bilateral trade deficit with India.

Bangladesh’s export to India is not even worth a billion dollars. Hence the opportunity of accessing the growing Indian market by creating supply-side capacities and enhancing competitive strength is crucial.

The Indian government has assured that it would look into the issue of anti-dumping duties imposed on jute exports from Bangladesh. How do you view this?

These duties have had serious adverse impact on Bangladesh’s export of jute goods by undermining the competitive strength of Bangladeshi exporters. India’s assurance of looking into this concern is a positive development. Meanwhile, it will be good for the concerned Bangladeshi companies to prepare relevant documents and accounts to deal with Indian investigation.

On its part, the Indian government will have to prove that there has been material loss to the Indian jute industry as a result of the ‘dumping’ by Bangladeshi companies. At the same time, Bangladesh should develop her own capacity to initiate dumping investigations if and when such practices are suspected. In general, Bangladesh should also strengthen her capacity to deal with these issues at appropriate forums, such as the WTO dispute settlement body.

India has requested Bangladesh to put an end to ‘minimum import price’ regarding the import of certain products from India to Bangladesh. Do you think this practice is ‘discriminatory’ towards India as claimed? How should the government approach the issue?

The minimum import price is not country-specific, it is product-specific. This is generally applied to address concerns regarding under-invoicing in case of imports. When products are under-invoiced, governments lose revenue because the tariffs would be imposed on lower import value than should have actually been the case. While minimum import prices may not be necessarily discriminatory to India in particular, and are product-specific, if the product is imported mainly from one country, such duties in effect could become country-specific. Bangladesh could consider undertaking a review on a case-by-case basis if India can provide a concrete example of an unjustified minimum import price being set on its products.

The Indian private sector has signed investment agreements worth over USD 9 billion. Bangladesh government has also assigned land for establishing Indian special economic zone (SEZ) in Mirsarai. How will these investments benefit our local economy?

The Indian private sector is showing increasing interest to invest in Bangladesh, which is an encouraging sign and should be welcomed. During the Indian PM’s visit here and Bangladesh PM’s visit to India, the business communities of both countries signed MoUs relating to energy projects, plans to set up LNG terminals, investment in SEZs, etc. Also, the government-to-government (G2G) projects, when implemented, will create a conducive, supportive environment for the private sector to invest in.

Indian companies have been offered two SEZs at Mongla and Bheramara, and about a thousand acres in the Mirsarai SEZ. Of particular interest to Bangladesh will be the proposed projects relating to energy sector development. Indian companies investing in Bangladesh will be able to take advantage of duty-free access in the Indian market, as also in most other markets where Bangladesh enjoys preferential market access as an LDC. These investments will create jobs here and cater to both domestic and export markets, and could contribute to both product and market diversification for Bangladesh in case of exports. Bangladesh has to ensure that such investments, while creating opportunities for good returns to the Indian companies, should also result in expected benefits for us through creating jobs, business opportunities for our SMEs, benefitting our consumers, and promoting our exports to India and other markets.

The two governments have revised the MoU to ease up border trade, agreeing to open up more border haats. Is there any other issue that needs to be addressed to facilitate border trade between the two neighbours?

Four border haats are already in operation and it has been agreed to open more. The agreement to set up border haats is a good initiative which is benefitting the people in adjacent areas on both sides of the border. To enable the local consumers and producers to gain more from the border trade, the list of products and the limits on value of goods that can be traded may be sequentially expanded. Border haats are only local solutions and the overall impact of such haats in enhancing bilateral trade will presumably be rather limited. However, border haats should be seen only as initiatives which are complementary to the broader initiatives towards attracting more FDI from India, and more effective trade facilitation to stimulate bilateral trade.

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