Bangladesh and India enjoy cooperation and warm relations in almost every area. Throughout history, both countries have also cultured an economic and trade dependency. At present both countries are experiencing high growth. To consolidate their growth and interdependency, they have embarked on signing a comprehensive economic partnership agreement, titled the Bangladesh-India Comprehensive Economic Partnership Agreement (CEPA).
Bangladesh’s Prime Minister Sheikh Hasina is scheduled to begin a visit to India on September 5, and she is likely to address CEPA during the trip. So, what are the prospects and potential of CEPA?
Notably, the talks on CEPA began informally in 2018, against the backdrop of increasing Chinese investments in Bangladesh. It also received greater attention given that existing regional free trade arrangements, like the South Asian Free Trade Area (SAFTA), have become dysfunctional. To date, the countries have run a joint study after agreeing to terms of reference.
Understanding CEPA
The proposed CEPA between Bangladesh and India has three dimensions, namely trade in goods, trade in services, and investment. The main target of the proposed agreement is to reduce the huge trade gap between Bangladesh and India and open up new economic opportunities including connectivity, new markets, and cooperation and partnership. Moreover, the CEPA is planned to resolve the issues and challenges of anti-dumping duties and rules of origin through the perspective of multi-modal connectivity and deepening of cooperation in the context of the sub-regional cooperation. It recognizes the significant benefits of bilateral economic and commercial ties.
According to an official statement released by India’s Ministry of Commerce and Industry, CEPA will incorporate a variety of issues of mutual interest, including the development of railway infrastructure, port infrastructure, border haats (trading posts), regional connectivity through multi-modal transportation, harmonization of standards, and a mutual recognition agreement. Further, the agreement looks to step up cooperation in new areas such as green technologies, renewables, and IT and digital platforms. CEPA will also strengthen the scope of investment as it includes the new areas and ways of cooperation. It will give a significant boost to two-way trade. In addition, the agreement focuses on four areas for strengthening India-Bangladesh partnership including connectivity and maintaining uninterrupted supply chain, joint production of defense equipment, the exploring of potential areas of investments, and joint manufacturing of vaccines and other medicines.
Benefits of CEPA
CEPA could potentially provide many future benefits. First, against the backdrop of growing bilateral trade, the trading regime between the two countries, including imports, exports, and related rules and regulations, will get new momentum as the agreement has instruments to work jointly on trade, supply chains, and production. If CEPA is operationalized, bilateral trade potential could be $40 billion. After its withdrawal from the Regional Comprehensive Economic Partnership (RCEP), India is looking to settle several bilateral FTAs with neighboring countries.
Second, the agreement will boost bilateral and sub-regional connectivity that Bangladesh has championed in its policy initiatives. The CEPA will produce a cluster of connectivity which will shape future trade through the Asian Highway Network routes (AH-1 and 2); the Bangladesh, Bhutan, India, Nepal Initiative; the Bangladesh, China, India and Myanmar Economic Corridor; and BIMSTEC – the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
CEPA will also connect India and Bangladesh at the Petrapole-Benapole, Phulbari-Banglabandha, and Dawki-Tamabil points, and create a new rail link between Akhaura (Bangladesh) and Agartala (India), among others. The agreement will ease personal, passenger, and cargo vehicle travel across the borders once fully implemented. This will be most visible in bordering areas of Bangladesh where the price of goods could decrease by more than 4.5 percent. More trade and transit will inspire new economic activity that will raise income and lowers costs for businesses and consumers.
Growing connectivity will have some trickle-down effects on other connectivity projects in the region. For instance, the BIMSTEC Conclave of Ports agreement linking Thailand’s Ranong Port with ports in Chennai, Vishakhapatnam, and Kolkata, a BIMSTEC Coastal Shipping Agreement and a BIMSTEC Free Trade Agreement will bring more than 2 billion people – 22 percent of world’s population – together into a single economic region.
Third, the agreement will create new venue for cooperation and partnership and open up opportunities for the creation of joint production hubs and uninterrupted supply chains, which will create new markets for both countries. Bangladesh has already set up three Special Economic Zones for Indian investors and Indian companies are investing in various sectors including telecommunications, pharmaceuticals, consumer goods, and automobile manufacturing in Bangladesh.
Fourth, as Bangladesh prepares for its dual graduation journey (middle-income graduation and LDC graduation), the agreement will be important for harnessing the potential opportunities by addressing the attendant concerns and leveraging the initiatives. And fifth, CEPA will generate revenues for both Bangladesh and India as the connectivity and trade along territorial and maritime borders increases.
What Next?
To reap the benefits of any economic partnership agreement, infrastructural conditions are crucial as these yield the outcomes. Both countries should take calculative and accommodative stances to agree on the necessary conditions. Informal trade between the two countries should be reduced in the interest of formalizing economic relation. To increase trade, tariff and non-tariff barriers and rules of origin should be removed. Dumping and anti-dumping disputes, lack of formalization of customs, time consuming approach of loading and unloading at a no man’s land should be addressed.
Existing legal barriers may also pose challenges. As per the World Trade Organization (WTO) regulations, all border duties and undue restrictions must be eliminated, covering at least 90 percent of trade in goods with partner countries, and service must cover substantially all sectors (under Article XXIV of GATT 1994 and Article V of GATS) to conclude an FTA. Hence, it may impact Bangladesh’s import duties. Reciprocity should be maintained while striking the deal.
To fully harness the benefits of an FTA, a country should have a diversified export basket to balance trade volumes. Notably, apparel constitutes more than 80 percent of Bangladesh’s total exports and it is mainly exported to developed countries. There is very little demand for such Bangladeshi apparel in Indian markets. Therefore, diversification of export products is a prerequisite of achieving success in the proposed CEPA.
CEPA has the potential be a game-changing agreement given the economic and geographical potential of the two countries. From trade and connectivity to infrastructure and socio-economic development, the agreement may bring forth profound sense of cooperation and partnership. However, the challenges must be addressed. Both countries should run a cost-benefit analysis to yield the desired outcome. Constructive steps must be undertaken towards the triangulation of trade, transport, and investment connectivity to develop the production networks and establish the backward and forward value chains that serve the interests of trade and commerce – both bilateral and beyond. In sum, a time-bound road map is needed to take advantage of the emergent window of opportunity.
