Friday, June 14, 2024

Section

বাংলা
Dhaka Tribune

What is Cepa and how does it benefit Bangladesh’s economy?

Cepa has the potential to be a game-changing agreement given the economic and geographical potential of the two countries

Update : 07 Sep 2022, 07:31 PM

Indian Prime Minister Narendra Modi on Tuesday said rising energy prices are presently posing a challenge to all developing countries and fruitful talks between Bangladesh and India are underway on connecting power transmission lines.

"The unveiling of the first unit of Maitree Thermal Power Plant will increase the availability of affordable electricity in Bangladesh," he said after his extensive discussions with Prime Minister Sheikh Hasina on all bilateral, regional and international issues.

The Indian PM said his country is the largest market in Asia for Bangladesh's exports and to further accelerate this growth, they will soon start discussions on the bilateral Comprehensive Economic Partnership Agreement (Cepa).

"Our bilateral trade is growing rapidly."

Modi also said that the two economies will be able to connect more with each other, support each other with the expansion of connectivity between the two countries and the development of trade infrastructure on the border.

For India, Bangladesh is India’s biggest trade partner in South Asia.

The bilateral trade has grown from $9 billion to $18 billion in the last five years.

It has also become the fourth largest export destination for India with the exports registering a growth of over 66% from $9.69 billion in FY21 to $16.15 billion in FY22.

Indian foreign secretary Vinay Kwatra later told reporters that the two leaders have asked for the negotiations to be completed “in time for Bangladesh’s final graduation from LDC status”.

Bangladesh is scheduled to graduate from the Least Developed Country status in November 2026.  

It is also India’s largest trade partner in South Asia with major exports from India including cotton, cereals, fuel, vehicle parts and machinery and mechanical appliances.

Why Cepa?

Cepa has the potential to be a game-changing agreement given the economic and geographical potential of the two countries, doctoral researcher Doreen Chowdhury wrote for The Diplomat recently.

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.

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. 

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. 

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, Chowdhury further stated.

If Cepa is operationalized, bilateral trade potential could be $40 billion.

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.

Third, the agreement will create new venues 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. 

Challenges

As per the World Trade Organization (WTO) regulations, all border duties and undue restrictions must be eliminated, covering at least 90% of trade in goods with partner countries, and service must cover substantially all sectors.

Hence, it may impact Bangladesh’s import duties. Reciprocity should be maintained while striking the deal, Doreen Chowdhury further suggested.

To fully harness the benefits of an FTA, a country should have a diversified export basket to balance trade volumes, she added.

Talking to Dhaka Tribune, Prof Mustafizur Rahman, distinguished fellow of the CPD said that now was a very opportune time to deepen the bilateral trade relations between Dhaka and Delhi.

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, he added.

 “But once we sign Cepa, we will have to shift to reciprocity from non-reciprocity,” he said, adding that in that case, if there is a two-track policy for Bangladesh as a relatively weaker economy, with regard to trade liberalization, tariff liberalization, compliance assurance under Cepa, it will be better for Bangladesh.

Along with tariff issues, Bangladesh also needs to focus on how it can boost investment in India's north-eastern region and attract Indian investors to the special economic zones through Cepa.

“India has competitive advantages over us in the fields of services, IT, and software. If we can enhance our collaboration with it in those areas, our services exports to the country will go up,” he added.

If Bangladesh can reach Indian standards through mutual initiative and the help of the South Asian Regional Standards Organization, it will help to address the existing issues, such as anti-dumping and countervailing duties.

“Our trade with India is mainly done through land ports. So, we can maximize gains from Cepa by building an integrated customs system as well as interoperability of the system and a single window at land ports,” Rahman added.

Talking to Dhaka Tribune, Shahidullah Azim, acting president of the BGMEA, said that the trade deficit between Bangladesh and India is very high, at more than $7.35 billion. 

If Cepa is signed there is a possibility of reducing this trade deficit, he also said.

Azim also said that Bangladesh imported a big chunk of raw materials from India.

“Moreover, India is one of the new markets we have targeted for apparel export. Once the agreement is made, we can import duty-free materials from India and export the finished products further to India,” he mentioned.

In this regard, the contract should be negotiated in such a way that the exporters of our country get the maximum advantages, he added 

Saddam Hossain also contributed to this report

Top Brokers

About

Popular Links

x