Published in The Daily Star, ’23rd Anniversary 2014 – Nation Building Amidst New Challenges’ on Saturday, 15 March 2014.
BCIM-economic corridor: An emerging opportunity
One of the recent initiatives which should warrant heightened attention and importance on the part of all concerned stakeholders in Bangladesh is the Bangladesh, China, India, Myanmar Economic Corridor (BCIM-EC) which received formal endorsement through the first inter-governmental study group meeting in Kunming held on 18-19 December 2013. As may be recalled, the cause of deepening cooperation in the BCIM region had earlier received recognition at the highest political level through the communiqués issued following the visits of the Bangladesh Prime Minister to China in 2010, visit of Indian Prime Minister to China in 2012 and visit of the Chinese Prime Minister to India in 2013. The underlying assumption behind this yet another regional entity was that this particular grouping had some unique attributes which could potentially bring significant benefits to the four participating countries through deepening of economic cooperation and integration by leveraging on three connectivities: transport connectivity, trade connectivity and investment connectivity.
As is known, the BCIM region, inhabitated by two-fifths of the world population, and producing one-tenth of the global GDP, include two of the rising power-houses of the twenty first century, India and China. There was a mutuality of interests between these two countries, on the one hand, and Bangladesh and Myanmar, the two LDCs in the group, on the other hand. The idea driving the proposed BCIM initiative was that, by drawing on respective comparative advantages, all the four BCIM countries could expect to make significant gains through operationalisation of the economic corridor, sub-regional cooperation within the BCIM, and BCIM-wide economic cooperation. These gains are envisaged to accrue from greater market access for goods, services and energy, elimination of non-tariff barriers, better trade facilitation, investment in infrastructure development, joint exploration and development of mineral, water, and other natural resources, development of value and supply chains based on comparative advantages, by translating comparative advantages into competitive advantages, and through closer people to people contact.
Background of BCIM Initiative
One would recall here that, the idea of establishing closer economic cooperation within the BCIM region, with forceful conceptual underpinning and convincing arguments, and backed by sound economic analysis, was first developed by Professor Rehman Sobhan. Two of his pioneering works in this context where he articulated his vision were: “Transforming Eastern South Asia: Building Growth Zones for Economic Cooperation” and “Rediscovering the Southern Silk Route: Integrating Asia’s Transport Infrastructure” (published by the UPL in 1999 and 2000 respectively). Professor Sobhan argued that, notwithstanding the contours of the present day political boundaries, closer cooperation among the countries of the BCIM region merited careful consideration for several reasons. BCIM integration through multi-modal transport connectivity and supported by other initiatives and infrastructure development could significantly reduce transaction costs, stimulate trade and investment and consequently accelerate growth and poverty alleviation in this region. Identification and implementation of concrete projects could enhance intra-regional trade, stimulate flow of investment and deepen people to people connectivity. The ancient southern and South-western silk routes once brought prosperity to the people of this region and those routes could be revived and expanded in the new context. Appropriate institutional mechanisms would need to be put in place to realise the potential opportunities. Indeed, the pioneering ideas of Professor Sobhan had informed and motivated the platform which he helped establish, which later came to be known as the Kunming initiative. The three institutions which took the lead role in convening the first meeting in Kunming in 1999 were the Centre for Policy Dialogue (CPD) from Bangladesh, Centre for Policy Research (CPR) from India and Yunnan Academy of Social Sciences in Kunming, China; from the Myanmar side it was the Ministry of Trade which represented the country. The objective of the Kunming initiative was to create an opportunity for key stakeholders from the four countries to come together to discuss and identify initiatives that could contribute to deepening of cooperation among the four BCIM countries, in various areas. The vision of the Kunming initiative was to gradually steer the endeavour from an essentially civil society (Track II) one to an intergovernmental (Track I) one. It was recognised from the very outset that political buy-in and intergovernmental ownership was key to realising the vision and the objectives of the initiative.
Over the years, the Kunming initiative developed into what came to be popularly known as the BCIM Forum. Successive BCIM Forums, held annually, made a seminal contribution in raising awareness about the potential benefits accruing from the BCIM cooperation. Along with non-governmental actors government representatives also began to take an active part in the Forums. BCIM cooperation also started to feature in intergovernmental discussions, at highest political levels, as was recounted above. The eleven BCIM Forums, organised in rotation by the aforesaid institutions in the four countries, highlighted the potential benefits of closer cooperation among the four countries in such areas as connectivity, trade, investment, energy, water management, tourism and other areas. Members of delegation to the various BCIM Forums included academics and experts, trade and business leaders, members of parliament, and in more recent Forums, high level government officials. Formation of BCIM Business Council, which brought together leaders of business and trade associations of the four countries, was yet another important development in this journey. The three BCIM Forums which were held in Bangladesh, and hosted by the CPD (in 2002, 2007 and 2013), were attended by Ministers and high level policymakers of Bangladesh who were exposed to the potential benefits that could originate from closer BCIM-wide cooperation.
Indeed, the Kolkata to Kunming (K2K) Carry Rally organised at the initiative of the four focal institutions of the BCIM Forum, with active support from the four BCIM governments, played an important role in taking the idea of BCIM cooperation from concept to action. As would be recalled, the Car Rally coincided with the holding of the eleventh BCIM Forum in Dhaka which was hosted by the CPD in February 2013. The rally which covered a 3000 km journey had followed the route: Kolkata-Jessore-Dhaka-Sylhet-Silchar-Imphal-Ka Lay-Mandalay-Ruili-Tengchong -Erhai Lake-Dali-Kunming. CPD had organised a grand reception for the eighty participants of the Rally who travelled in 20 vehicles and arrived in Dhaka on February 23, 2013. They were received by Bangladesh’s Minister for Communication with the event attracting wide media coverage. Indeed, the K2K Car Rally, with its slogan Building Bonds, Fostering Friendship was a major development in the journey of the BCIM Forum. The Rally (and also the preceding route survey undertaken a year back) popularised the idea of BCIM connectivity and promoted the concept of BCIM cooperation. The Car Rally will be remembered as a key milestone in promoting the idea of BCIM-wide cooperation and BCIM economic corridor. The rally also identified the parts of the route where investments were needed to establish and operationalise the K2K route.
The Rationale
As is the case, several regional groupings have successfully developed and implemented the idea of economic corridor by building multimodal transport networks, setting up special economic zones, establishing industrial clusters, export processing zones and business hubs and by developing a diverse range of other economic activities along the corridors. In this region, the Greater Mekong Sub-region (GMS) economic cooperation, initiated in 1992, was an early example whose experience could inform and enrich the proposed BCIM-EC.
Viewed from the perspective of Bangladesh and Myanmar, deepening of BCIM cooperation should be of special interest to these two countries. It would offer them an opportunity to benefit from greater access in the growing markets of China and India if competitive strength could be raised by establishing seamless connectivity, reducing barriers to movement of goods and vehicles across borders and by attracting investment targetting the markets of the two neighbouring BRIC countries. As is known, both Bangladesh and Myanmar have large bilateral trade deficit with both India and China. For example, Bangladesh’s export to India was $564.0 million as against an import of $4740 million in FY2013. The corresponding figures for China were $458.0 million and $6310.0 million. On the other hand, it is interesting to note that, bilateral trade between India and China has been growing at an accelerated pace over the recent past – from less than $5.0 billion in 2000 to $60.0 billion in 2010 and about $70.0 billion in 2012; the target is to take this to $100.0 billion by 2015. However, intra-regional trade in BCIM continues to remain at a low level; similarly, intra-regional investment flows are negligible. Closer cooperation within the BCIM region would create new opportunities for Bangladesh and Myanmar to significantly enhance their exports to the BCIM region.
It is to be appreciated that, Bangladesh’s unique geographical position makes her a major gateway for the land-locked regions of both India and China – more particularly the N.E. seven sister states of India and Southern Chinese provinces such as Yunnan. Currently most of the trade of these sub-regions with rest of the country (in case of N.E. States of India) and global markets, face formidable challenges because of the absence of access to more direct routes and lack of proximity to sea routes. Currently, domestic trade of India’s N.E. States with rest of India, or for that matter, its trade with outside world, is contingent on movement of goods through the chicken neck (a distance of about 1200-1600 km). Trade of Yunnan Province of China with outside world is contingent on goods moving more than two thousand kilometres east to the South China sea and thereon moving onward after transhipment. A Southern route for N.E. region and Kunming through Chittagong port would bring the distance down to 400-700 km if seamless multi-modal connectivity – by road, rail and waterways – could be established by investing in the development of the related infrastructure. Bangladesh would benefit significantly through export of services if the associated service charges are appropriately costed and negotiated. The multiplier economic benefits to Bangladesh would be significant.
For Bangladesh the East-West corridor is of special significance since the overwhelming share of Bangladesh’s trade with India is carried out through land port and there is significant opportunities of reducing transport cost if over land route is operationalised with China. However, of key interest to Bangladesh should be the North-South Economic Corridor (it is possible that there could be overlap between the two corridors) which would connect BCIM hinterland with the Chittagong and Mongla ports.
Studies indicate that East-West and North-South transport corridors within the BCIM region will bring down cost of moving goods significantly, and would also lead to considerable reduction in the lead time which is becoming a core element of competitiveness in a fast changing world. The corridor(s) could benefit not only by enhancing export opportunities but also by reducing cost of imports that would benefit consumers (in case of final goods) as well as producers (in case of raw materials). The associated benefits can be estimated through appropriate exercise and these benefits can be shared in a win-win way between and among the collaborating countries. Indeed, this type of exercise was carried out some time back when Bangladesh was preparing for the envisaged connectivity deal with India which could serve as a reference point for any future exercise in this regard. It is sometimes argued that a East-West corridor would in essence provide India transit facility between N.E. and rest of India, through Bangladesh; and that this would lead to Bangladesh losing her captive market in the North-East Indian region. However, a closer look at the current trade flow between Bangladesh and N.E. clearly brings out two trends that demand careful consideration: firstly, the trade is rather low: it was only $290.0 million in FY2010; this was 8.2 per cent of Bangladesh’s total trade with India. Secondly, Bangladesh had a trade deficit even with N.E.: export from Bangladesh to N.E. was $50.0 million against import of $240.0 million. N.E. India remains a geographically isolated sub-region which is relatively underdeveloped, with low per capita income. The purchasing power of the people in N.E. India remains relatively low, which is also reflected in its very low import from Bangladesh. If thanks to connectivity through Bangladesh, the N.E. region can attract more investment and generate an accelerated development leading to higher standards of living of its people, the consequent higher purchasing power in the N.E. is what will enable the N.E. states to import more from Bangladesh (transit facility provided by Bangladesh some time back, as a one-off facility, for moving cargo for Palatana power plant, may be recalled here). Indeed, it is by facilitating the development of North-East that Bangladesh could make the region her captive market.
As is known, Bangladesh is at present contemplating construction of a deep sea port at Sonadia. Indeed, economic viability of such mega-projects will rise significantly if the hinterland of this port has widest possible geographical coverage. Bangladesh’s strategy should be to enhance the volume of cargo to be handled by the deep sea port. In view of this, the North-South BCIM transport and economic corridor connecting Southern China and N.E. India could emerge as an important opportunity in terms of raising the viability of the Chittagong port and the deep sea port.
The opportunities for collaboration through joint exploitation and development of water and natural resources such as gas, and development of regional energy grid have been identified by experts as areas that merit close examination. Investment in developing transport infrastructures will call for mobilising significant resources. India’s one billion dollar line of credit is an example of how projects of importance to regional and sub-regional cooperation could be facilitated though concessional resource flows from within the region. As is known, at present China is actively looking for investment opportunities for its huge forex reserves – purchasing US treasury bills is no longer as lucrative an option as it used to be. If Bangladesh is able to deal with the attendant issues with intelligence and due diligence, she can mobilise the needed funds for the development of BCIM-EC related infrastructure in a manner that safeguards her interests and at the same time promotes the cause of deepening BCIM-wide cooperation. Japan has also indicated keen interest in providing support for large scale infrastructure projects in Bangladesh; multilateral agencies such as the ADB, the World Bank and the IDB could be the other potential sources for mobilising the needed resources. Indeed, it may be recalled here that the ADB has played a catalytic role in promoting regional cooperation in the GMS.
From Track II to Track I
As may be recalled, the first intergovernmental Joint Study Group meeting of the BCIM countries was held on 18-19 December 2013 in the city of Kunming where it all started fourteen years back. Indeed, this meeting symbolised the graduation of the BCIM initiative from Track II to Track I. With this meeting, the BCIM initiative completed the first lap of its primarily Track II driven journey, and entered into a new phase where Track I has now taken the lead. It is a matter of record that, the Bangladesh delegation led by the Secretary, Ministry of Foreign Affairs, had played a particularly crucial role in giving shape to the Kunming meeting. The Bangladesh delegation included representatives from various ministries, academia, civil society and business. The meeting took a number of important decision towards institutionalisation of the BCIM cooperation and establishment of the BCIM-Economic Corridor. Four country reports were to be prepared focusing on four areas of institutional development (Objectives of BCIM Economic Corridor; Concept, Scope and Elements of BCIM Economic Corridor; Principles and Modalities of Cooperation; Framework of Cooperation) and seven thematic areas (Connectivity; Energy; Investment and Financing; Trade in Goods and Services and trade facilitation; Social and Human Development and Poverty Alleviation; Sustainable Development; People-to people Contact). The next meeting of the JSG will be hosted by Bangladesh in Chittagong, in June 2014 to discuss the four draft country reports. Drawing on the country reports, a Joint Study Group summary report will be prepared for submission to the BCIM governments. The report is expected to identify actionable areas and concrete projects which will focus on realising the potentials of the BCIM Economic Corridor and also on deepening BCIM economy-wide cooperation. These will then be prioritised for implementation by the BCIM countries, under various combinations of partnership, and if required, with support from multilateral development institutions. It is reckoned that a BCIM Framework Agreement will be designed towards the end of 2014 to give formal institutional shape to the BCIM-EC.
Concluding Remarks
The world around us is changing at an unprecedented pace. With tariff rates coming down, the incremental benefits accruing from duty-free market access under the WTO initiatives, GSPs or as part of regional trading arrangements (RTAs), are set to gradually lose their importance in view of the preference erosion. Also, Bangladesh has set her target to be a middle-income country and graduate from the LDC status in near-term future. On both counts, it is important that she prepares herself adequately for the time when her competitive power will mainly rest on her capacity to raise her competitive strength, rather than based on preferences enjoyed on account of being an LDC. BCIM cooperation could be an important contributing factor in harnessing Bangladesh’s potentials in view of the new realities. Mega-blocs such as Trans Pacific Partnership (TPP) and Trans-Atlantic Investment Area (TAIA) will bring in significant changes in the way business and trade is conducted at present in the Asia-Pacific region. To not to be left behind, but to be able to be a part of the Asian century, Bangladesh must strategise by taking cognisance of the evolving scenario and by taking advantage of the emerging possibilities. In this backdrop, BCIM-EC and BCIM-wide economic cooperation and integration could prove to be an important opportunity in the transformative journey that Bangladesh aspires to undertake over the near to medium term future. Let us seize this opportunity.
The author is Executive Director, Centre for Policy Dialogue (CPD)