Bangladesh Trade Gap- Newspaper Clippings

8/7/2019 Bangladesh Trade Gap- Newspaper Clippings

http://slidepdf.com/reader/full/bangladesh-trade-gap-newspaper-clippings 1/13

The Daily Star, Monday, February 8, 2010Editorial

Trade gap with India

Sadiq Ahmed

BANGLADESH'S large and growing trade deficit with India is often used by critics as anindication of India's dominance in its relationship with Bangladesh, and by implication, serves asa rationale for why it is a bad idea to engage in more cooperation with India. What is amazing isthat not just political opponents but also NGOs, business leaders and even some professionaleconomists use this argument. Is this a valid concern? Should our trade gap with India matter?

To understand the underlying economic arguments, it is instructive to first look at the facts of Bangladesh's country/region-wise direction of trade. The table below shows that the largest tradedeficit of Bangladesh is with China (US$3.8 billion), followed by India (US$2.8 billion), and theMiddle East (US$2.4 billion). At the same time, Bangladesh has a huge trade surplus withWestern Europe (US$5.8 billion) and the USA (US$2.9 billion). These numbers illustrate thefollowing fundamental principle of global trade. A country should export to markets that fetchthe highest price for its products and import from countries with the lowest price for their imported products. With 200 plus countries in the global market, it would be a rare coincidencethat a country that fetches the maximum price for our exports is also the country that is the

cheapest source for our imports. So, the concept of "balanced trade" with any specific country isnot an economically meaningful concept.

Applying this logic to Bangladesh, it is hardly surprising that Bangladesh sends most of itsexports (RMG) to the OECD countries where it gets the best price. Similarly, it is hardlysurprising that China, followed by India and the Middle East, are the most important sources of our imports. These countries provide the cheapest sources for our industrial raw materials, fooditems and fuel. Given this, it is very natural that Bangladesh has huge trade surpluses with





Sadiq Ahmed is Vice President of the Policy Research Institute (PRI). He formerly served as the Chief

Economist and Director Economic Management of the South Asia Region of the World Bank in Washington

DC.

The Daily Star, Published On: 2009-08-21Letters

Trade deficitSuman Saha, MBA (Strategic and International Management), University of Dhaka

The balance of trade is the difference between the monetary value of exports andimports of output in an economy over a certain period of time. A favourable balanceof trade is known as a trade surplus and consists of exporting more than is imported,whereas an unfavourable balance of trade is known as a trade deficit or, informally, atrade gap.

At first Bangladesh started to open up its economy by liberalizing its trade policyduring the mid-80s. Later it got momentum while the concept of globalisation of market spread all over the world. So Bangladesh started to join regional and worldeconomic forums e.g. Saarc, WTO, BIMSTEC etc. aiming at boosting internationaltrade.

However, there are lots of arguments for and against this globalisation concept acrossthe globe. There is little doubt that globalisation is a threat to weak states likeBangladesh, but for disciplined and efficient states it provides opportunities to foster growth and economic development. As a result, Bangladesh suffers huge trade gapwith next-door countries. It currently suffers a significantly large deficit with India. In

the year 2007- 08 Bangladesh's imports from India stood at US$ 3375.10 million,while exports amounted to US$ 358.08 million. It is to be noted that only 1 per cent of India's total imports are from Bangladesh, whereas over 15 per cent of Bangladesh'stotal imports come from India.

Bangladesh also suffers trade gap with Pakistan. The two-way trade between thesetwo countries in recent years has been in the range of US$ 300-$ 350 million, andBangladesh's exports have hovered around US$ 70 million only.

Though Bangladesh is one of the signatories of SAFTA effective from 1st July, 2006,it does not bring any trade benefits for the Saarc nations. The main impediment of

trade in South Asia is lack of confidence at political level and most of the countries inthe region consider business from the political point of view. Besides, the political andmilitary rivalry between India and Pakistan is another significant reason for Saarc'sinability to play a crucial role in integrating South Asia.

Finally, I would like to mention that Bangladesh should pursue bilateral FTAs with itsneighbouring countries such as India, Pakistan, and Sri Lanka etc. It wouldsignificantly help to narrow down the trade gaps with its neighbouring countries.



Besides, as Bangladesh has deficiency in negotiating skills, it cannot bargaineffectively before the global forums to capitalize on its logical demands. So,Bangladesh has to take the initiative to augment negotiation skills of the governmentofficials by arranging suitable and timely training programmes and devise appropriate policies. Otherwise, we will invariably face huge trade deficits with the neighbouring

countries and the rest of the world.

Cover Story

The Daily Star, November 26, 2010

TRADING IN TRANSPORT

The widening trade deficit between Bangladesh and India has been a sore point for Bangladeshis.

Compounded with this are a number of unresolved issues ranging from the Tipaimukh projectand demarcation of maritime boundary to the long-standing border tensions. Against this backdrop, a bilateral agreement on the transit issue between the two countries is on the cards. Asalways, political leaders are at loggerheads over the pros and cons of transit. Despite all thecritical speculations, experts believe that if transit is dealt with properly, it will substantially addto national income.

Rifat Munim

The joint communiqué signed by the premiers of Bangladesh and India in January this year lays

emphasis, among many other issues, on the muchdebated issue of transit. The highly political issuewas brought to the fore again when theBangladesh Customs in early October seized twoIndian ships that had refused to pay the transit feeas stipulated by a fee structure imposed by the National Board of Revenue (NBR) in line withthe agreements reached in the communiqué. Asthe customs authorities charged the newlyenforced transit fees, the Indian side asked for awaiver on the basis of the Protocol on Inland

Water Transit and Trade (IWTT) signed by thetwo countries in 1972, which does not mentionany transit fee but has the provision of payingBangladesh an annual charge of five crore takafor maintenance of the river routes. Following a meeting between the Finance Minister AMAMuhit and the Indian High Commissioner Rajeet Mitter the fee stipulated for transit through thewaterways was withdrawn, and the IWTT protocol resumed.



Although charges for the road and rail routes in the fee structure still remain in force, withdrawalof the river transit fee has raised questions about the possibility of an effective set of rules for transit fee. Against such allegations the finance minister asserted that there would be no freetransit and formulation of a totally new set of rules, which is supposed to be completed byDecember 2010, would replace all the existing charges and fees. A senior official from the NBR

also echoed the finance minister saying that a committee involving several ministries includingforeign affairs, finance, commerce, communications and shipping was working to that end. Thecommerce ministry will head the committee, he added. Nevertheless speculation about nationalsecurity and the widening trade gap existing between the two countries has not lessened.According to a report by the Bangladesh Bureau of Statistics published in 2009, Bangladesh'strade deficit with India in the fiscal year 2007-2008 was $2.8 billion. Many believe that the gapwill further widen if transit is given.

Transport experts and economists, however, aresanguine about the prospect of transit. They believe that Bangladesh is blessed with a unique

geographical location with two landlockedcountries (Nepal and Bhutan) and a nearlylandlocked region of northeastern India at itshinterland. So development of regionalconnectivity in South Asia largely depends onthe transit traffic through Bangladesh. Negatingall the pessimistic speculation about thedrawbacks of transit, Dr Rahamatullah, theformer director of the United Nations Economicand Social Commission for Asia and the Pacific,opines that the advantageous geographicallocation of Bangladesh can turn the service of transit traffic into a viable industry that can

generate national income and create employment opportunities at the same time.

³Establishment of regional connectivity will provide tremendous opportunities for these regionsas well as for Bangladesh to trade in transport services and develop itself as a 'transport hub'´ hesays.

Rahamatullah differentiates 'trade in transport' from 'trade in commodity' in that the former earns by providing transport services while the latter involves earnings from exports and imports.

³Not all the countries have the opportunity of trading in transport. Besides, the importance of anefficient integrated transport system between regions cannot be overemphasised in today'scompetitive world economy. So we should utilisethe trade opportunities offered by our uniquegeographical location,´ he affirms.

Lack of adequate as well as in-depth study hasgiven rise to various misconceptions about the

A huge sum of diverted goods through theroad routes of Bangladesh may generate a lot

of money for the country



multifaceted issue of transit and transhipment. Many have likened it to the concept of µcorridor¶,misconstruing the whole thing, and hence have opposed it in the most vociferous manner.

When a 'corridor' is given, a country gives certain privileges or control on the land to thereceiving country while in transit there is no question of such rights in the territory allowed for

transit. Transit provides only transport facilities under certain conditions, which can well bewithdrawn if necessary. For example, under the Bangladesh-India 1974 Land BoundaryAgreement which was partly addressed in the joint communiqué, Bangladesh wanted a lease in perpetuity an area of India's territory (178 metres x 85 metres) near Tin Bigha to connect theDahagram enclave with main land of Bangladesh. Eventually, Bangladesh did not get thecorridor.

'Transhipment' refers to the same inter-country passage but mandates Bangladeshi-ownedtransportation whereas in transit Indian-owned surface transport will move through the transitterritory from one end to the other. In the present case, India wants to dispatch goods and other materials from the western parts of India to its northeastern states through Bangladesh where the

question of India's rights on the land territory of Bangladesh is completely irrelevant.

Yet political leaders are divided in their opinions about the pros and cons of transit. BNP Vice-chairman Shamsher Mobin Chowdhury is highly critical of allowing transit to India until theunresolved political issues are properly addressed.

Rail routes also need reconstruction and can bring us a huge amount of transit fee.

³At first we were told that the transit would bring us a lot of money but now we hear that therewill be just transit fee, but no duty to be imposed on the diverted goods. This is how such aserious issue is being dealt with while keeping the people of the country totally in the dark,´ hesays.



Duty is usually imposed when a product is imported from a foreign country, a fact that is alsotrue of other countries. In matters of transit, only fees can be charged, says a customs official onconditions of anonymity. When Chowdhury's attention was drawn to this fact, he says, ³ Other countries do not have a neighbouring country which always tries to dominate in terms of river water sharing, border killing and sealing off the border. We should never alienate transit from

other outstanding problems especially those which are taking a heavy toll on us.´

³At first we should resolve those problems, then we should think of the transit. We also believein peaceful relations with our neighbours, but not at the cost of our own interest,´ he adds.

Senior Awami League MP Tofail Ahmed, on the other hand, says that it was late president Ziaur Rahman who initiated the process of transit through a bilateral agreement with India in 1980.³The BNP government extended that agreement in 2006, so we are just continuing that legacy,´he adds.

About the inter-relation of transit with the unresolved political issues, Tofail says, ³Transit is a

separate economic issue which has hardly anything to do with water sharing and other suchissues.´

Prior to the partition of India in 1947, the trade between the northeastern sub-region of SouthAsia and the rest of India passed through the territories of what is now Bangladesh. Rail andriver transit across the erstwhile East Pakistan continued till 1965. After Bangladesh'sindependence, only the inland water transport was restored in 1972 based on the IWTT Protocol.Due to various political changes in the post-colonial periods an integrated transport system between the regions of South Asia now remains fragmented. As a result, Europe-boundconsignments of Assam Tea now travel 1,400 km through India's 'chicken neck' to reach KolkataPort. Moreover, traffic from Tripura now travels 1,650 km to reach Kolkata port, a distance that

could be covered by travelling only 400 km if transit through Bangladesh was possible.

By allowing transit to India, Bangladesh will not only earn from freight and port charges, butalso from the transit fees imposed on the foreign goods to be carried through its routes. Inaddition, experts believe that the transit fee should include 70 percent of the transport cost thatIndia would save by diverting its goods.

Along with transit fee and charges, the issue of reciprocal transit has been raised by manyquarters. Professor Mustafizur Rahman, an economist and executive director of the Centre for Policy Dialogue says that since Bangladesh does not at the moment require any transit throughIndia to facilitate its export, it sought Nepal and Bhutan's transit through India so that they canuse the Chittagong and Mongla ports and other road and rail routes in order to export their goodsto Europe or other Asian countries. He also informs that at present Nepal has to use the Kolkata port because of India's restriction, which highly escalates its export cost.

As mentioned in the joint communiqué, India for the first time has agreed to allow transit to Nepal so that the latter can use the rail and water routes of Bangladesh, adding substantially toBangladesh's overall transit profit. Bhutan's transit is still under consideration.





about $ 5 billion in the next five to seven years given that the cost will further increase in theyears after that. The Asian Development Bank and the World Bank have already consented to provide the soft loan on condition that Bangladesh will reform its rail and road routes, andseaports. India has also agreed to make some investment. In addition, if we can develop thedeep-sea port at Sonadia in Chittagong, further possibilities of connectivity with India, Nepal,

Bhutan and China will open up.

Dr Rahamatullah, who is the team leader of the joint study for the SACEPS, elaborates on thehectic infrastructure development and points out the conditions of the road and rail routes whichare not fit for overloaded vehicles.

³To materialise the transit project, many roads and rail links need to be constructed while manyneed to be renovated. The Dhaka-Chittagong highway is narrow. Some part of it is dilapidated aswell. As for the rail routes, our railway tracks are weak and our rolling stock is old. Besides, theDhaka-Chittagong rail route is completely saturated.´

³An entirely new bridge along the Jamuna Bridge needs to be built for facilitating railway-transit, which alone would cost nearly $1 billion. The seaports and the river port of Ashuganj inBrahmanbaria also need massive renovation and reconstruction,´ he says.

Considering the amount of cargoes that may be diverted through Bangladesh, one can assume theearnings that Bangladesh can garner from the facilities. According to the revised study, a total of 18 million tons of cargoes will be diverted through the routes of Bangladesh. This projectedamount also encompasses the Nepalese cargoes that now use the Kolkata port. AlthoughRahamatullah declined commenting on the profit rate, he implied that the massive investment onthe part of Bangladesh would be worth its while.

³We are yet to complete the study. Still in view of the cost-benefit analysis and the risk analysis,it can be said that the profit coming from the transit traffic will add substantially to the nationaleconomy,´ he says.

About national security, Rahmatullah says that if transit was threatening to national security,then the river transit existing from 1972 would surely jeopardise our national security.



Freight charges can also be good source of earning.

³All the goods, be they carried by transit or transhipment, must be strictly scanned by our customs. So there is not much chance that illegal or smuggled goods will be transported,´ headds.

Rahamatullah also informs that only about 10 percent of the full potential benefits can berealised during the first five years when the various projects to develop infrastructure will beimplemented. From the sixth year onward, it will be possible for us to realise full potential

benefits.

So the question is not so much of security as of a viable fee structure for the diverted Indiangoods and reciprocity of transit, and inter-relation of the unresolved political issues with transit-all of which together will ensure our national benefit. Only such a deal will enable us tominimise the trade deficit to some extent.

³Firstly, we must ensure the freight and port charges. Then fixing a transit fee is of utmostimportance, which should include maintenance cost, toll and more than half of what India saves.Since our vehicles will also use the infrastructure, charge for the maintenance cost should befixed in a win-win manner,´ says Mustafizur Rahman.

Rahman also thinks that transit is in no way a one-dimensional issue and stresses that theBangladesh side should relate transit with other unresolved issues while negotiating fees andother related charges.

Finally the time-consuming process essentially calls for political stability in a country where the politics of violence and acrimony is taking its roots more persistently than any time before. Sucha political backdrop can at its best falter the progress of an effective project initiated during the



tenure of the former government. Hence political stability for the sake of greater national interestis a must not only for the successful implementation of transit, but also for all the unresolvedissues with other countries, be it India or Pakistan.

The Daily Star, Thursday, December 9, 2010

Business

Column

The bilateral trade illusion

Shipments pile up at Chittagong Port.

The reason for signing a free trade agreement with any country is to get a wider market access for Bangladeshi

products.Photo: STARAsjadul Kibria

Over the last seven years, Bangladesh has tried to engage in bilateral free trade deals with severalcountries. A series of initiatives were undertaken, but very little progress was made. Yet therecent disclosures of the commerce minister regarding bilateral Free Trade agreements (FTAs)with India and Malaysia again brought the issue to the fore.

The minister said that a deal with India and Malaysia is now at the final stage; however, he didn't

elaborate.

The bilateral trade deficit with India recently crossed the $3-billion level, while the trade gapwith Malaysia is above $1 billion. In the last fiscal year, Bangladesh's imports from India andMalaysia stood at $3.07 billion and $1.22 billion, respectively.

In contrast, exports to both the countries stood at just $32.1 million and $6.8 millionrespectively. So it appears that FTAs could be instrumental in reducing such yawning trade gaps.



Now, it is unclear how such important trade deals reached the final stage, apparently escapingseveral procedural stages. Is it because the government is working very secretly and preparingdrafts for agreements?

In reality, it is not possible to prepare to sign an FTA with a trading partner secretly and

bureaucratically. Without the active involvement of the country's businesspeople, nothing can bedone.

The very first stage of a bilateral FTA is to make a decision to strike the deal with a trading partner. The incumbent government has, in principle, agreed to sign such a deal with a fewcountries. The country's business community is also ready to accept such a deal.

Back in 2003, Bangladesh first officially decided to sign an FTA with three South Asiancountries -- India, Pakistan and Sri Lanka. A proposal was floated at that time to sign anexperimental FTA with Nepal and Bhutan. The idea was, however, dropped.

The move to sign FTA with the three South Asian countries also slowed, as the South Asian FreeTrade Agreement started to gain momentum. The government preferred this Regional TradeAgreement (RTA). It also preferred regional groupings under the Bengal Initiative for Multisectoral Technical and Economic Cooperation and the Asia-Pacific Trade Agreement, therenamed Bangkok Agreement.

The pace of the South Asian FTA also slowed due to regional political turmoil as well asmistrust between India and Pakistan. Moreover, Bangladesh failed to secure any better deal onmarket access in India under all three RTAs to which India is a signatory.

The scenario has, however, changed significantly in the last three years. During the army-backed

caretaker regime, the bilateral FTA again started to gain prominence. Based on several studies, adecision was taken to start negotiations with three South Asian trading partners. Thenegotiations, however, did not move swiftly; policymakers eventually forwarded the decision tothe elected government.

Assuming power, the Awami League government decided to strike FTAs with several regionaltrade partners, and even discussed the possibility of an FTA with China. But an FTA can't beone-sided deal. The partner country also needs to respond positively -- only then Bangladesh canstart negotiations. And before negotiating, comprehensive research must determine what thecountry is expecting from the FTA and how to realise the gain.

The basic reason for signing an FTA with India or any other country is to get wider marketaccess for Bangladeshi products. Another possible benefit is to attract investment from thosecountries to manufacture products here, and to export these to Europe and other developedmarkets where Bangladesh enjoys duty-free access.

Let us check the validity of the arguments in the present context. In fact, India proposed an FTAin 2002, when Bangladesh was seeking tariff-free access for selected products. Over the years,Bangladesh mostly concentrated on goods, while India shifted towards the service sector.



India has provided duty-free access for many products under SAFTA. LDCs enjoy 480 tariff-freeitems on the Indian list. India also allows market access to the least developed countries under itsduty-free tariff preference scheme.

Bangladesh is suffering from various non-tariff barriers in the Indian market. Removing these

barriers is more important than reducing the tariff barriers.

It is very unlikely that Indian companies will be interested in investing here. India signed a FTAwith the Association of Southeast Asian Nations this year. Duty on some 4,000 items will beeliminated gradually by 2016, as this large market opens to it. India is also negotiating with theEuropean Union to sign an FTA as early as next year.

Again, Malaysia put the proposal for an FTA with Bangladesh. Now, Bangladesh has to decidehow to negotiate and for what.

The new scenario shows that greater market access for our goods through FTAs remains elusive.

Bangladesh needs to refocus on the role of FTAs. We should consider them a larger framework for negotiating non-tariff barriers with India, or for negotiating restrictions on manpower imports by Malaysia.

In this regard, a well-planned FTA policy would be very helpful. One can expect the governmentto seriously engage in formulating an FTA policy; if done in a comprehensive manner, it couldrid us of the illusions.

Asjadul Kibria is a journalist and can be reached at [email protected].

Documents

Bangladesh Trade Gap- Newspaper Clippings