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India’s Market Access Offer: Realising Potential Opportunities – Mustafizur Rahman

Published under Opinions on the SARCist website

India’s Market Access Offer: Realising Potential Opportunities
Professor Mustafizur Rahman, Executive Director, Centre for Policy Dialogue (CPD), Bangladesh

Backdrop of the Initiative

Over the past years India has emerged as an important trading partner of Bangladesh. In this backdrop, the offer made by the Indian Prime Minister at the Seventeenth SAARC Summit in Malé in November, 2011 to grant duty-free (and quota-free) market access for virtually all export products originating from the SAARC LDCs demands special attention, particularly from the perspective of Bangladesh. Since the other SAARC LDCs (barring Afghanistan) have already been enjoying preferential (duty-free) market access in India for virtually all products of export under various bilateral arrangements, it is Bangladesh (along with Afghanistan) which stands to gain the most from this new initiative. Indeed, the offer has opened a potential window of opportunity for Bangladesh to enter the fast-growing Indian market from a position of more competitive strength. As will be appreciated, Bangladesh’s supply-side capacity and competitive strength make her prospects to take advantage of the duty-free market access by far the most promising among the five SAARC LDCs.

What it means for Bangladesh

The duty-free offer would mean that, of the more than 5050 items imported by India (at 6 digit level), Bangladesh will now be able to gain duty-free market access for all but 25 items (these relate to arms, tobacco and liquor).As is known, India is the second most important import source for Bangladesh (USD 4740.7 million in FY2012-13), conceding only to China (USD 6307.6 million). If informal bilateral trade is factored into the equation, India is likely to be Bangladesh’s single most important trading partner. On the other hand, Bangladesh’s ranking in terms of India’s import sourcing was 62nd in FY2013. Bangladesh is yet to take advantage of the increasingly large Indian import market. It is true that, in recent years Bangladesh’s export to India has experienced robust growth, rising from USD 144.7 million in FY2005 (as against import from India of USD 2026.0 million) to USD 563.9 million in FY2013 (import from India was USD 4740.7 million). Share of Bangladesh’s export in the global import of India (490.7 billion in FY2013) was an insignificant 0.1 per cent (India’s global import being USD 489 billion in 2013); to compare, Bangladesh’s own import from India accounted for about 16.3 per cent of her total import (34.1 billion) in the same year.

Bangladesh’s bilateral trade deficit with India has been on the rise over the corresponding period – between FY2005 and FY2013 the deficit, through formal channel, has more than doubled, from USD 1882.0 million to USD 4176.7 million. However, the issue of trade deficit needs to be treated with some nuance. In a globalised world it is the global trade deficit which should be of concern to countries, not bilateral trade deficit. Additionally, as is well-known, a large part of the Indian import included raw materials that go for export-oriented industries in Bangladesh. However, the issue of growing deficit merits special mention in the backdrop of Bangladesh’s inability to access the growing Indian import market.

Whilst apparels constitutes about four-fifths of Bangladesh’s global export, more than three-fourths of Bangladesh’s export to India is accounted for by non-RMG products. These include traditional export items such as raw jute and jute goods, frozen-food items, dry-cell batteries, fertiliser, and chemicals, but also new goods such as plastic items, cement, ceramic and melamine products, leather and footwear, juice and accessories. As a result, higher exports to India should help Bangladesh not only in terms of market diversification (away from the traditional markets of the EU and North America) but also product diversification (beyond the RMG). This twin diversification possibility is of crucial importance to Bangladesh.

Trade Facilitation as a Major Concern

About 90 percent of trade between Bangladesh and India are carried out through land ports. However, trade facilitation measures at the border have tended to remain mostly archaic inspite of the fact that bilateral trade has risen from USD 1.2 billion in FY2000 to USD 5.3 billion in FY2013. A number of studies have shown that, for Bangladesh to be able to exploit the full potential of the duty-free offer of India, a major thrust will need to be put on addressing issues related to trade facilitation so that the 33 land customs stations (LCSs) through which trade takes place are transformed from “checking points” to “crossing points”. Whilst signing of transport connectivity agreements and motor vehicle agreements (MVAs) are perhaps issues of future that are key to putting in place seamless multi-modal movement of goods between the two countries, a number of studies have shown that at the moment there was an urgent need to give priority attention to issues of improving the state of trade facilitation at the border. From this vantage point intervention in four areas is reckoned to be of critical importance in terms of promoting trade and attracting Indian investment to Bangladesh targeting the Indian market: (a) Infrastructure Bottlenecks; (b) Limited capacity at the LCSs; (c) Non-Tariff Barriers (NTBs) and (d) Cumbersome Export Processing and Complex Documentation.

In view of the above, some of the measures that should command urgent attention of policymakers are: (a) Introduction of Single Window Facilities and establishment of automated systems for cargo processing and electronic data interchange on both sides; (b) Building of dedicated bypass roads to reduce congestion at LCS with designated clearance facilities for specified major items; (c) Expansion of areas at LCS, with appropriate parking and warehousing facilities and loading/unloading facilities in the NML area; (d) Establishment of testing facilities at major borders; (e) Standardisation and harmonization of customs procedures; (f) Signing of MRAs with commensurate strengthening of BSTI to address standards-laboratory testing-certification related NTBs; (g) Coordinate the developments of LCSs on both sides of the border; (h) Take advantage of the public private partnerships to develop LCSs.Both export facilitation and import facilitation should be given equal importance to advance the interests of exporters, producers and consumers in Bangladesh. There is also a need to coordinate trade facilitation measures on both sides of the border.

Concluding Remarks

A number of trade facilitation measures have been put in motion in Bangladesh as part of the one billion USD line of credit (LoC) support extended by India.These included development of transport infrastructure and strengthening of Bangladesh Standards and Testing Institution (BSTI). Therecently established SAARC Regional StandardisationOrganisation (SARSO) in Dhaka should also be seen as a welcome development in this regard. In view of the above, issues related to trade facilitation ought to receive heightened attention on the part policymakers, both in Bangladesh and India, in order to realize the potential opportunities emanating from India’s duty-free market access offer for the SAARC LDCs. Professor Rahman can be reached at mustafiz@cpd.org.bd

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