Understanding the proposed Bangladesh-India agreement

The agreement has the potential to be a game-changing one, given the economic and geographical potential between India and Bangladesh.

Doreen Chowdhury

Doreen Chowdhury

The Daily Star


As Prime Minister Sheikh Hasina is visiting India after three years on a four-day visit (beginning on September 5, 2022), the visit is likely to address CEPA for further development. FILE PHOTO: REUTERS

September 6, 2022

DHAKA – Bangladesh and India enjoy cooperation and warm relations in almost every area. Throughout history, both countries have cultivated an economic dependency through export relations. At present, both the countries are experiencing high growth and stable rise. To consolidate their growth and dependency, they have embarked on signing a comprehensive economic partnership agreement, titled Bangladesh-India Comprehensive Economic Partnership Agreement (CEPA).

Currently, both countries are diplomatically engaged on this issue. As Prime Minister Sheikh Hasina is visiting India after three years on a four-day visit (beginning on September 5, 2022), the visit is likely to address CEPA for further development. So, what are the prospects and potentials of CEPA?

Notably, the talks on a CEPA began informally in 2018, against the backdrop of increasing Chinese investments in Bangladesh. It was also discussed due to the fact that regional free trade arrangements, like the South Asian Free Trade Area (SAFTA), have become dysfunctional. Till now, both India and Bangladesh have run a joint study and agreed on the terms of reference.

Understanding CEPA
The proposed CEPA between Bangladesh and India has three dimensions: Trade in goods, trade in services, and investment.The main target of the proposed CEPA 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 sub-regional cooperation. The CEPA recognises the significant benefits of bilateral economic and commercial ties.

According to an official statement released by India’s Ministry of Commerce and Industry, the CEPA will incorporate a variety of issues of mutual interest, including the development of railway infrastructure, port infrastructure, border haat, regional connectivity through multi-modal transportation, harmonisation of standards, and mutual recognition agreements.

Further, the agreement could help step up cooperation in new areas such as green technologies, renewables, and IT and digital platforms.

A CEPA will also strengthen the scope of investment as it includes new areas and ways of cooperation. It will give a significant boost to two-way trade. In addition, the agreement is focusing on four areas for strengthening the India-Bangladesh partnership including connectivity and maintaining uninterrupted supply chain, joint production of defence equipment, exploring potential areas of investments, and joint manufacturing of vaccines and other medicines.

Benefits of CEPA
There are specific benefits that CEPA can provide in the future. Firstly, against the backdrop of growing bilateral trade, the trading regime between the two countries, including imports, exports, related rules and regulations, will get new momentum as the agreement has instruments for them to work jointly on trade, supply chain, and production. If the CEPA is operationalised, bilateral trade potential would be USD 40 billion. After the withdrawal from RCEP, India is looking forward to making several bilateral FTAs with its neighbouring countries.

Secondly, the CEPA will boost bilateral and sub-regional connectivity that Bangladesh is championing in its policy initiatives. It will produce a cluster of connectivity which will shape future trade through the Asian Highway Network routes (AH-1 and 2), BBIN, BCIM and BIMSTEC connecting India and Bangladesh at the Petrapole-Benapole, Phulbari-Banglabandha and Dawki-Tamabil points, and 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 lower costs for businesses and consumers.

Connectivity facilities 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, Visakhapatnam, and Kolkata, a BIMSTEC Coastal Shipping Agreement and a BIMSTEC Free Trade Agreement will bring more than two billion people – 22 percent of world’s population – together into an economic region.

Thirdly, the agreement will create a new avenue for cooperation and partnership and open up opportunities for a joint production hub and create an uninterrupted supply chain. When the production hub and supply chain are materialised, they will create new markets for both the countries and the investments will get a new boost in coming days. Bangladesh has already set up three Special Economic Zones for Indian investors and Indian companies are investing in various sectors including telecommunications, pharmaceuticals, FMCG and automobiles sectors in Bangladesh.

Fourthly, as Bangladesh prepares for its dual graduation journey (middle-income graduation and LDC graduation), the agreement will be important to harness the potential opportunities by addressing the attendant concerns and leveraging the initiatives.

And fifthly, CEPA will generate revenues for both Bangladesh and India as the connectivity and trade along territorial and maritime borders will increase.

What is to be done?
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 conditions. Informal trade between the two countries should be reduced to formalise economic relations between the two countries. To increase trade, tariff and non-tariff barriers and rules of origin should be removed. The dumping and antidumping disputes, lack of formalisation of customs, time consuming approach of loading and unloading at no man’s land should be addressed.

Challenges for CEPA
However, existing legal barriers may also pose challenges. As per the WTO regulations, all border duties and restrictive 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.

Again, to fully harness the benefits of an FTA, a country should have a diversified export basket to balance the trade volume. Notably, apparel constitutes more than 80 percent of Bangladesh’s total export and it is mainly exported to developed countries. And, there is very little demand for apparels in the Indian market. Therefore, diversification of export products is a prerequisite of achieving success in the proposed CEPA.

The CEPA has the potential to be a game-changing agreement given the economic and geographical potentials between India and Bangladesh. From trade to connectivity and socio-economic to infrastructural arena, the agreement may bring forth a 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 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. Moreover, a time-bound road map is needed to take advantage of the emergent window of opportunity.

Doreen Chowdhury is a doctoral researcher at the University of Groningen.

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