PM okays major trade deal negotiations with India

Prime Minister Sheikh Hasina has given her seal of approval to a proposal to begin formal negotiations towards signing the Comprehensive Economic Partnership Agreement (CEPA) with India, according to sources in the know about the development.

She also agreed on including this deal signing issue in the joint statement to be issued by the Bangladeshi and Indian PMs during her upcoming visit to India slated for 5-7 September.

Earlier, the commerce ministry sent a summary to the premier, seeking her permission for starting talks over striking the proposed agreement.

Bangladesh is thus for the first time going to officially start negotiations on signing a free trade agreement (FTA) with any country. Some other countries, including China and Japan, have offered Bangladesh FTA proposals, but everything is now at an assessment stage.

The CEPA is a little different from the FTA as it covers many issues, including trade in goods and services, investment, intellectual property rights and e-commerce.

According to the summary on what Bangladesh and India will gain from the trade deal once it is signed, Bangladesh's export earnings will shoot up by 190% and India's by 188%.

Besides, Bangladesh and India will see their gross domestic product (GDP) grow by 1.72% and 0.03% respectively as revealed by a Dhaka-Delhi joint feasibility study.

"Signing such an agreement with major trade partners brings about good results. But a risk of a fall in revenue is also associated with it. In FY22, Bangladesh generated Tk17,964 crore against imports amounting to Tk1,44,160 crore," the commerce ministry said in the summary.

If the CEPA is signed, import revenue will come down to a large extent in phases, it noted.

But as other aspects related to economic development, including services and investments, are included in CEPA, it is expected that there will be a positive impact on the overall economy if the deal is inked, the ministry pointed out.

In the last fiscal year, Bangladesh's exports to India rose to nearly $2 billion for the first time, while imports stood at around $14 billion.

Officials at the commerce ministry said Bangladesh currently enjoys duty-free and quota-free benefits for all products except 25, such as tobacco and alcohol, in the Indian market as a least developed country under the South Asian Free Trade Area agreement.

When Bangladesh graduates to a developing country, such facilities will no longer be available in the market after 2026. As a result, there is a risk of a negative impact on exports to India, they also said.

According to the ministry, there are various types of non-tariff barriers to exports to India, including the imposition of an anti-dumping duty, testing and certification, inadequate port infrastructure, and road and waterway communication restrictions. If such barriers are removed, exports of Bangladeshi products have potential for further growth.

During the visit of Indian Prime Minister Narendra Modi to Bangladesh on 27 March 2021, the prime ministers of the two countries issued instructions on quickly completing the joint feasibility study relating to the signing of the CEPA to strengthen bilateral trade relations.

Accordingly, Bangladesh's Foreign Trade Institute and India's Centre for Regional Trade conducted a detailed joint feasibility study. Later in May this year, they sent the study report to their respective commerce ministries. The report came up with a positive opinion over beginning negotiations for the signing of CEPA.

The commerce ministry held an inter-ministerial meeting on the report and it decided to start negotiations with India for signing the CEPA with certain precautions.

On 26 July, ahead of the PM's upcoming visit to India, Bangladesh High Commissioner to India Muhammad Imran met with India's Commerce Secretary BVR Subrahmanyam and discussed various issues of bilateral trade.

At the time, India's commerce secretary said, "The FTA negotiations should be done in a way that Bangladesh benefits more compared to India."

Once the trade deal is signed, Bangladesh's export earnings will go up by $3-5 billion and India's by $4-10 billion in the next 7-10 years, according to a final draft report of the joint feasibility study by Dhaka and Delhi.

New investment windows will also open up for both countries thanks to the proposed CEPA, said the report.

The report says, "It may be concluded that the estimates and analysis of this study indicate that the proposed CEPA between India and Bangladesh is not only feasible but also mutually beneficial in terms of possible gains in the realms of trade in goods and services, and investment."

Dr Mostafa Abid Khan, a trade policy analyst and trade negotiator, told The Business Standard that Bangladesh's main goal during the CEPA negotiations should be staying eligible for duty-free export facilities in the Indian market even after LDC graduation. 

"We should also try to remove non-tariff barriers that are hindering our exports to India," he said.

Before starting formal negotiations, a detailed study needs to be done on what Bangladesh needs from India. In this case, it is also important to discuss with the private sector. Otherwise, it will not be possible to get expected benefits from the CEPA, he added.

Abdul Matlub Ahmad, president of Bangladesh-India Chamber of Commerce and Industries and former president of the Federation of Bangladesh Chambers of Commerce and Industries, told TBS that the value chain is now the most important issue in the world.

"India has cotton. We can make yarns and garments. So, if the CEPA is signed, joint investment as well as bilateral trade between the two countries will increase," he said.

The skills and resources of the two countries can be utilised for each other's development through the signing of the CEPA. This will benefit both countries. There will also be opportunities to create many jobs in Bangladesh, he noted.

"I agree with the fact that the final draft report of the joint survey has raised the possibility of increasing bilateral imports and exports," Abdul Matlub added, hoping that the trade volume will further increase if the existing barriers to bilateral trade under the CEPA are removed.

Prof Mustafizur Rahman, distinguished fellow of the CPD, earlier told TBS that the signing of the CEPA can be a win-win for both countries as such a deal covers trade, investment, connectivity, logistics, and various policy coordination issues.

It is not just tariff adjustment or tariff reduction through the CEPA, "We also need to focus on how we can boost our investment in India's north-eastern region and attract Indian investors to our special economic zones."

"It will be particularly good for us if we can bring in Indian investment in our economic zones and target the Indian market, cashing in on the advantage of zero tariffs," he added.