Bangladesh's integration in South Asian trade
The development of regional integration and cooperation in South Asia began with the inception of the South Asian Association for Regional Cooperation (SAARC), This represents a significant effort to enhance economic and trade relations among its member countries. Established in 1985, SAARC includes Bangladesh, Bhutan, Nepal, India, the Maldives, Pakistan, and Sri Lanka, and Afghanistan. These countries collectively represent 3% of the world's land area, 21% of its population, and contribute around 4.67% (US$4457 billion) to the global economy as of 2022.
Following the establishment of SAARC, its member countries embarked on several important initiatives. In 1993, they implemented the SAARC Preferential Trading Arrangement (SAPTA), aimed at enhancing and maintaining mutual trade and economic cooperation within the SAARC region through tariff reductions. However, the growth in intra-regional trade in South Asia remained modest, increasing from 2.4 percent in 1986 to just 4.6 percent in 2001. This revealed that a substantial 95.6 percent of SAARC's trade was still carried out with non-SAARC regions.
Understanding the limitations of SAPTA in advancing regional commerce, SAFTA was introduced in 2004 as its successor. The South Asian Free Trade Area (SAFTA) was designed to encompass a wider range of products and support more liberal trade conditions. Importantly, SAFTA recognized the need for special consideration for the region's Least Developed Countries (LDCs), as outlined in its preamble. SAFTA's principal goal was to reduce barriers between states to enhance economic cooperation and trade. Objectives included easing the movement of goods across borders, endorsing equitable trade practices, ensuring fair and balanced benefits, and implementing effective measures to uphold SAFTA's goals. The transition from SAPTA to SAFTA represented a notable evolution in South Asia's regional trade agreements, signaling an ongoing commitment to deeper economic integration in the area.
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Despite these initiatives, South Asia remains the least integrated region globally in terms of intra-regional trade, which makes up less than 5% of its total trade. This percentage is considerably lower when compared to regions like East Asia, where intra-regional trade comprises 35%, and Europe, where it accounts for 60%. Contributing factors to this low level of economic collaboration include poor transportation infrastructure (including road, maritime, and air transport), high protective tariffs, various non-tariff barriers, restrictions on investments, and a prevailing sense of distrust throughout the region. Notably, it is about 20% less expensive for an Indian company to conduct trade with Brazil than with a neighboring country in South Asia.
Recent data shows India as Bangladesh's primary trade partner, with only 9% of Bangladesh's global trade occurring within South Asia. However, the country, by deepening regional and global integration in trade, connectivity, energy, and investment, can significantly boost its economy. According to data, bilateral trade between India and Bangladesh has consistently grown over the past decade, with Bangladesh's exports to India tripling to US$1 billion in 2018-2019. In 2019-2020, India exported goods worth US$8.2 billion to Bangladesh, while imports stood at US$1.26 billion. However, the trade imbalance has caused economic and political concerns in Bangladesh, given its reliance on India.
The World Bank suggests that Bangladesh's exports to India could soar by 182% under a free trade agreement. Enhanced transport connectivity could further boost exports, potentially increasing them by 297%. In spite of regional trade challenges, countries are advancing with more intra-regional trade agreements. For example, an agreement for electricity supply from Nepal to Bangladesh through an Indian transmission line is being finalized, as per Nepal Electricity Authority (NEA) officials. Initially, 40 MW of electricity will be exported to Bangladesh, with long-term plans for 9,000 MW. This tripartite agreement represents a significant step in regional cooperation. Additionally, Bangladesh is actively pursuing free trade agreements with 11 countries to diversify trade partnerships, as indicated by Prime Minister Sheikh Hasina. This move is in anticipation of Bangladesh's transition from a "Least Developed Country" status in 2026, which will end its current tariff exemptions on exports to developed nations.
Furthermore, in 2022, the World Bank sanctioned financing of $1.03 billion to improve regional trade in Bangladesh and Nepal by diminishing trade and transport expenses and reducing transit durations along key regional routes. Within this funding, $753.45 million was allocated for the ACCESS Project in Bangladesh. This project entails upgrading a 43-kilometer segment of the two-lane Sylhet-Charkai-Sheola road into a four-lane route resilient to climate changes, thereby linking the Sheola Land Port with the Dhaka-Sylhet Highway. This upgrade is expected to reduce travel times by about 30 percent. The project also includes the enhancement of digital systems, infrastructure, and the streamlining of procedures at Benapole, Bhomra, and Burimari land ports, which are among Bangladesh's largest and handle nearly 80% of its land-based trade. Additionally, it will facilitate the modernization of the Chattogram customs house, responsible for processing 90% of all import and export declarations in Bangladesh.
Underdeveloped border infrastructure and trade facilities continue to pose significant barriers to open trade. As per the Asian Development Bank (ADB), the average duration for goods to pass through border crossings such as Akhaura, Sonamasjid, and Tamabil is approximately 4 hours for imports and 3 to 6 hours for exports. An ADB study reveals that nearly half of this time is attributed to delays caused by inefficient procedures. Such slow and unpredictable processes make the trade of perishable goods particularly challenging.
With modest investments in land customs stations and land ports, along with policy reforms in trade facilitation to align with international standards and enhanced inter-agency cooperation, Bangladesh has the potential to transform into a key trade and transport node in South Asia. Implementing these measures would not only increase trade with neighboring nations but also significantly contribute to the economic growth of Bangladesh.
The authors are students of Department of Economics, East West University.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
