Free-trade with India: How beneficial is it for Bangladesh?

Prominent economists, industrialists, financiers, businessmen as well as leaders of the civil society in Bangladesh have written and spoken on this subject quite at length. In India, the subject has been dealt with mostly at the official level and in forums devoted to develop India's relations with Bangladesh and other neighbouring countries. Interests among the Bangladeshi people evidently are enormous, due to their heavy dependence on India in trade.

It is interesting to note that with the advent to power of the BNP regime in 1991, India's exports to Bangladesh in 1991-92 was a paltry $226 million and Bangladeshi exports dropped down to an incredibly low figure of only $2 million. Besides, the trade through unofficial channel or smuggling from India amounted to a figure more than double of that of the official trade. Because of the trade liberalisation policy introduced and pursued by the BNP government, many restrictions on imports into Bangladesh were withdrawn or reduced. As a result, Indian traders promptly took due advantage so much so that Indian exports to Bangladesh soared within four years to $1082 million in 1995-96 and continued to stay more or less at that level till at present.

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Bangladesh did not get any reciprocal benefit from India, since the act of liberalisation was done by Bangladesh unilaterally, mostly at the behest of the World Bank, and without specific reciprocal expectation from any other country, including India. However, much later, during the Awami League regime, the visiting Indian Commerce and later even the Prime Minister himself pledged duty-free concession on 25 categories of Bangladeshi exportable items to India. This pledge is yet to be redeemed fully. The Indian side sought to link this concession to transshipment or transit of Indian goods over Bangladeshi territory to eastern India, but Bangladesh refused.

India has already introduced free trade with her neighbours in South Asia, except with Bangladesh and Pakistan. Those neighbours appear to have found, in varying degrees, the newly adopted free trade policy beneficial. At least, not much of discontent has been aired by any of these countries. In that case, why should not Bangladesh and India earn some benefit by introducing the same system? One wonders. Though all such cases are not identical in terms of traded goods and their volume, let us first take up the case of Bangladesh.

There is a general apprehension and veritable fear that under a Free Trade arrangement cheaper Indian goods will inundate Bangladesh because of India's economy of scale in production as well as consummate skill, elaborate network, vast experience and various marketing advantages of Indian traders. Consequently, Bangladeshi industries, especially medium and small scale as well as agro-based industries, will be doomed to failure in competition. The enormous adverse balance of trade of Bangladesh will increase further. Industry and commerce of Bangladesh will then be sacrificed at the altar of India's economic interests. Such an apprehension, at the very outset, is surely natural. However, one should also at the same time recall that if other countries, both in and outside our region, have benefited by using this system, why should not we? In that case, we have to examine first the nature and extent of benefits accrued by others as well as the reasons thereof?

Two principal safeguards are ensured for the weaker economy in such agreements. One is induction of the clause of a "negative list" on which the principle of free trade will not apply, fully or partially. The other is a provision relating to the "length of period" of restriction imposed on such goods. In other words, whereas all goods and, hopefully, services will have free access across the political boundaries of the sovereign states, the two sides may mutually draw up a list of commodities on which some restrictions and barriers will remain for a specified period of time for entry into the weaker economy. If Bangladesh is able to draw up successfully a suitably long list of exportable commodities for a sufficiently long period of time, we will be able to derive substantial benefit by enhancing our exports. This, however, will depend upon the art of negotiations and the strength of persuasion of the respective sides during the course of future talks. Besides, it is heartening to note that a section of enthusiastic entrepreneurs would like to take the free trade system as a form of challenge to face squarely and boldly. What is of special significance on this issue is that, apart from abolition of tariff, non-tariff and para-tariff barriers, the concerned people connected with trade, customs and service sectors should have a changed outlook and a new mind-set signifying mutual help, benefit and accommodation.

There are a number of regional organisations outside our region where free trade, in some form or other, is in vogue. The most successful of these lots is, no doubt, the European Union. Its members are not only economically, commercially and even financially integrated, they are taking steps towards political integration. It is a remarkable achievement. Yet, it took its members about three decades to accomplish that. But this has been made possible only through the exercise of a spirit of understanding, compassion and sincere desire for imparting equitable benefit to all members. A common fund was first created through subscription of rich members, like Germany, France, Luxembourg and others. These funds were later allocated more to poorer countries, such as Greece and Portugal, so that the economic and industrial level of all member-states came close to one another in order to allow a fair and just competition. In our region, the only country, which can, to some extent, contribute to a common fund, is India. But India is reluctant to grant such material benefits to her relatively poor neghbours in order to elevate their economy and industry to allow a fair competition.

One must not also be oblivious of the fact that under the Free Trade concept, trade of all the partners will grow. But the special objective is that exports from the weaker partner will grow more than proportionately. Under this system, and, for that matter, under any other such system, our trade imbalance will not completely wither away. For example, a 10 per cent rise in India's, say, $1 billion exports to Bangladesh will raise its value to $1.1 billion. At the same time, if we are able to raise our, say, $100 million exports to India, by even 100 per cent or double, our total exports will rise to only $200 million. In the new situation the over-all trade imbalance will still remain at $900 million. One may naturally ask, if the trade imbalance cannot be substantially reduced under the free trade system, then why is so much hulla-ballo? The reply is that otherwise the trade gap will widen further, to the detriment of Bangladesh's interests. However, though Bangladesh has limited number and volume of exportable items to India, the prospect of enhancing our exports to a higher level still exists. It depends upon the skill and determination of our entrepreneurs as well as facilities granted by both governments.

There is another way of mitigating the trade imbalance which may be toying in the minds of many. In their opinion, Bangladesh and the seven sisters of Eastern India should have an exclusive Free Trade agreement. The result will go in favour of Bangladesh. But its volume and value will be relatively low. Yet, it has a better prospect in future, particularly if Indian goods cannot substantially and competitively find market across Bangladesh in eastern India. One must also note that Bangladesh and India are participants in dialogues to forge co-operation by forming sub-regional groups like BIMSTEC. Exclusive trade with eastern India and consideration of providing transport and road facilities to Chittagong and its improved port facilities will certainly prove to be of mutual advantage. After all, a welcome beginning has recently been made by introducing passenger bus service between Dhaka and Agartala.

It goes without saying that both India and Bangladesh are hyper-sensitive in their relations with each other. So, both sides have to proceed with due caution. It is natural that they will try to uphold their respective national interests at best as they can, but this should not be done at the cost of the other's legitimate interest. Solutions must be fair, equitable and acceptable. In order to register due progress, the minor and less controversial subjects must be dealt with first. This would create a congenial atmosphere and encourage further progress. But the imperative need for action towards increasing Bangladeshi exports to India cannot be denied even by India. This must be addressed fully and promptly, keeping in view future WTO impacts. Free Trade arrangement provides one such avenue of redress and, therefore, deserves due exploration.

I have had the personal experience of witnessing the helpful attitude of Indian Prime Minister Morarji Desai in respect of the Ganges Treaty in 1977 and of Prime Minister Rajiv Gandhi's unbounded enthusiasm on the founding of the SAARC in 1985. I presume eyes of Prime Minister Dev Gowda twinkled on the occasion of signing the long-term Ganges Treaty in 1996. Foreign Minister J Sinha manifested a positive tone when we met him recently. Time has now come for Prime Minister Vajpayee to do his turn. This can be done by allowing Bangladesh a long "negative list" for a substantial period of time under a Free Trade Agreement. This will not only prove mutually beneficial for the two neighbourly countries, but will promote peace, progress and amity among the people of the region itself.

M.M.Rezaul Karim, a former Ambassador, is a member of BNP's Advisory Council.