9 months ago

Challenges of a win-win CEPA with India

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For the last two decades, several measures taken by Bangladesh and India to reach a free-trade agreement (FTA) to enhance bilateral trade have lost way. The two next-door neighbours are, however, yet to sign any FTA although bilateral trade has increased significantly--- from US$3.50 billion in FY10 to over $10 billion in FY22, with trade balance heavily tilted to India. In other words, Bangladesh's import from India is much higher than its export to the largest country in South Asia.

Gone are the days when trade gap with India was considered a serious blot on bilateral economic relations. Now, it is an accepted reality as the country has to import various raw materials and intermediate goods from India for domestic consumption and export-oriented industry.  Keeping the trade deficit at a tolerable level by export enhancement and cheap import gets priority. As it is difficult to define the tolerable level of the trade deficit, the focuses of two countries are now widening the horizon in economic relations. So, a major shift in the approach to enhancing the bilateral trade has already taken place.

Again, Bangladesh and India are common members of three regional trade blocs, namely, South Asian Free Trade Area (SAFTA), The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and The Asia-Pacific Trade Agreement (APTA). SAFTA is almost dysfunctional now--as also is its parent body, SAARC-- due to rivalry between India and Pakistan. Progress in BIMSTEC is slow as Myanmar is the main obstacle. Desired outcome from APTA is also not there. Thus a comprehensive economic partnership deal is considered a better option for advancing the economic interests of both the countries.

Against the backdrop, instead of signing an FTA, which is mostly focused on trade in goods, the two countries have agreed to enter into a wider framework of economic cooperation. Thus, a decision was taken, almost four years back, to strike a deal named Comprehensive Economic Partnership Agreement (CEPA). To identify the pros and cons of the deal, a joint-feasibility study was also conducted and the result suggested moving ahead. The result of the study showed that CEPA would boost Bangladesh's export earnings by 190 per cent and India's by 188 per cent. The gross domestic product (GDP) of the two countries is also expected to rise, by 1.72 per cent and 0.03 per cent respectively.

CEPA or similar type of deal named Comprehensive Economic Cooperation Agreement (CECA) is different from a traditional FTA for various reasons. Be it CECA or CEPA, the deal is more comprehensive and ambitious compared to an FTA in terms of coverage of areas and the type of commitments. Usually, a traditional FTA focuses mainly on goods. A CEPA focuses beyond goods-- services, investment, competition, government procurement and disputes. Again, in terms of regulatory view, a CEPA is deeper than an FTA. For instance, the former includes mutual recognition agreements (MRAs) on standards. A mechanism to address bilateral trade-related disputes is also included in CEPA.

 At present, India has three CEPAs with Japan, South Korea and the United Arab Emirates (UAE) and two CECAs with Malaysia and Singapore. The country also has CECPA (a mixture of CEPA and CECA) with Mauritius. Thus, India already has enough experience of negotiating a CEPA deal. For Bangladesh, the opposite is true. The country has yet to fully negotiate an FTA, let alone CEPA. Thus, negotiating CEPA with India is a daunting task.

Bangladesh has, however, a lot of experiences dealing with India on various fronts. From border management to defence partnership, the country has sat with India at many tables of discussions and negations since the independence. Bangladesh and India have also made many decisive interactions in the last decade on transit, transhipment and connectivity. The two countries negotiate a number of credit and investment deals. Thus, a platform is already there for both the countries to initiate a formal negotiation on CEPA. The agenda and issues relating CEPA are not unknown to Bangladesh though India has well advanced in negotiation skill.  Bangladesh has also experienced negotiating many other bilateral, regional and even multilateral deals.  These experiences will be beneficial for dealing with India in a broad horizon.

Investment is now a critical element in bilateral economic ties. Indian foreign direct investment (FDI) in Bangladesh has started to rise since 2014. Annual average FDI from India stood at $90 million in the last decade. It is, however, quite low compared to FDI from China which stood at $245 million annually on average during the period under review. So, it is a challenge for Bangladesh to attract more Indian FDI in the near future. CEPA may be helpful in this connection. Again, on external borrowing, India is far behind than China. At the end of 2021, stock of private credit from India stood at $9.53 million against $1745 million from China.

Trade dispute with India is another issue Bangladesh needs to deal with carefully. India has imposed anti-dumping duties on Bangladeshi jute-goods exports. Despite several attempts, there is no result to remove the deterrence.  In fact, the other side doesn't care the language of request, it only understands the language of legal response. Dhaka has failed to move ahead strongly by applying trade- remedial measures under the umbrella of  World Trade Organization (WTO).

Various non-tariff measures (NTMs) as well as non-tariff barriers (NTBs) regularly imposed by India also need serious attention. Bangladesh also imposes various NTBs. Dealing with NTMs and NTBs require rigorous approach where Bangladesh has some shortcomings.  Both the countries need harmonisation of Technical Barriers to Trade (TBT) & Sanitary and Phyto-Sanitary (SPS)- related technical standards for mutual recognition of standards to be issued by the respective accreditation-certification bodies.

Globally, India is in a strong position in terms of trade in services. So, it is another challenge for Bangladesh to negotiate with India in trade in services. The SAARC Agreement on Trade in Services (SATIS), however, may be a template for Bangladesh in this connection.

Finally, the country's graduation from the least-developed country (LDC) category in 2026 will also be a factor in  negotiation on the CEPA which is likely to be formally announced during Bangladesh Prime Minister's visit to India this week. The four-day visit, which starts tomorrow, is mainly focused on economic cooperation, besides current international issues of common concern.

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