To boost bilateral trade and economic ties, Bangladesh and India have agreed to begin negotiations on the proposed Comprehensive Economic Partnership Agreement (CEPA). A formal announcement is expected to be issued during the Bangladesh Prime Minister Sheikh Hasina‘s high-level visit to India next month. This will be Dhaka’s first trade agreement with any country, that opted for India over China and Japan’s requests for free-trade agreements. From feasibility study of Dhaka-Delhi, it indicates that, CEPA would increase the export revenues of India and Bangladesh by 188% and 190%. Moreover, the Gross Domestic Product (GDP) is also anticipated to increase by 1.72% and 0.03%, respectively.
Bangladesh and India had initially planned to secure the agreement four years ago. A joint feasibility study was also launched to assess the advantages and disadvantages of the agreement. In March 2021, PM Narendra Modi and HPM Hasina gave orders to finish the joint feasibility study for the signing of the CEPA. Therefore, the Foreign Trade Institute of Bangladesh and the Centre for Regional Trade of India performed a joint feasibility study. They delivered the study report to their respective trade ministries in May 2022. The report recommended beginning discussions for the CEPA’s signing. As HPM Hasina is anticipated to visit India on the 6th and 7th of September, the CEPA will be a major topic of discussion.
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India’s largest commercial partner in South Asia is Bangladesh, while India is Bangladesh’s second-largest trade partner. The CEPA will address e-commerce, investment, intellectual property rights, and trade in products and services. India has already signed CEPA with three nations – Japan, Korea, and the United Arab Emirates (UAE) – and has a negotiating framework in place.
According to a joint feasibility assessment, Bangladesh’s export revenues will increase by $3-5 billion and India’s by $4-10 billion in the next 7-10 years. It will also create new investment opportunities for both countries. The study concludes that the proposed CEPA between India and Bangladesh is not only viable but also mutually beneficial for probable advantages in the areas of trade in products, services, and investment. Because Bangladesh would lose duty-free and quota-free (DFQF) market access to India after 2026 when it graduates to a developing country. The agreement will resolve and open opportunities by initiating CEPA among Bangladesh and India in order to retain the South Asian Free Trade Area (SAFTA) facilities.
Dr Sanjay Kathuria, the former lead economist with the World Bank, stated “If there is a free trade agreement between India and Bangladesh, as they are currently contemplating under the Cepa, Bangladesh’s exports to India would go up 182% under an FTA, and if they add trade facilitation measures, and reduce transaction costs, then there could be an increase of 300%.”
However, Bangladesh has some restrictions in this scenario. The country’s average MFN tariff rate is 14%, whereas the average final bound rate is 156.30% and approximately one-third of the nation’s tax revenue is generated by import-related tariffs. A significant problem for Bangladesh has been the CEPA negotiations with India in respect to this as FTA lowers tariff rates. Additionally, Bangladesh imports a considerable amount of consumer products, intermediate goods, and raw materials, which significantly favors India’s trade balance. Bangladesh’s exports to India in FY22 totaled almost $2.0 billion, pushing the country’s annual trade deficit with Bangladesh beyond the US$10 billion mark. It is challenging for Bangladeshi items to enter the Indian market due to the non-tariff barriers (NTBs) established by Delhi. Furthermore, antidumping taxes on Bangladeshi jute goods suggest a trade dispute as well.
Dr. Khondaker Golam Moazzem, Research Director at the Centre for Policy Dialogue (CPD), advised doing independent research on trade in commodities and services, and investment to discover suitable CEPA-based strategies. He added, “Since India earlier negotiated a number of trade and investment deals and a number of those are currently in the process of negotiation, it is important to review the documents related to those negotiations to understand its priorities, offensive and defensive interests, institutions working with negotiations, and institutional measures undertaken to implement such agreements.”
Bangladesh must implement effective protection and dispute resolution strategy to negotiate for CEPA. Bangladesh needs to emphasize the inclusion of the South Asian Free Trade Area (SAFTA) accord and SAARC Agreement on Trade in Services terms and benefits (SATIS). Synchronization of Technical Barriers to Trade (TBT) and Sanitary and Phyto-sanitary (SPS) standards is needed to reduce the scope of NTBs. Last but not least, for Dhaka to have the full benefits of CEPA, it needs to reach a win-win agreement with India, thus, it needs full preparation for a thorough and informed discussion.
