Indo Bangladesh Trade and RTAs

1. Indo Bangladesh Trade and RTAs Opportunities for North East

2. Indo-Bangladesh Trade Overview

4. Main Problem: Rising Trade deficit for Bangladesh

5. Reasons for Trade Imbalance Limited export base Backward industries in Bangladesh Inadequate infrastructure in Bangladesh Lower productivity in Bangladesh Appreciation of Bangladesh�s Taka against Indian Rupee Faster trade liberalization program in Bangladesh compared to India Tariff and non-tariff barriers (NTBs) imposed by the Indian government Huge illegal trade Diversified exports Technologically advanced industrial base of India.

6. Commodity Composition of Trade Imports are highly diversified but exports are highly concentrated Major Imports: textiles, food items, machinery, mineral products, transport equipment, chemical products, fish Major exports: As few as six products, viz., raw jute, fertilizer, jute goods, betel nuts, jute yarn and twine, and frozen fish, account for 80% of total exports to India

7. Unofficial Trade between India and Bangladesh As in official trade, unofficial India-BD trade is essentially one-way Unofficial imports from India are about 20 times larger than unofficial exports to India Unofficial imports at the present could be about 1.5 times the official imports. Livestock and Cattle are the major import item but many other commodities of everyday use are also imported. Items of unofficial export are limited Actual trade deficit with India would be much larger if unofficial trade were included

8. India-Bangladesh Bilateral Trade and Potential Free Trade Agreement The World Bank Report, 2006 http://siteresources.worldbank.org/INTBANGLADESH/Resources/Trade.pdf

9. The Case Of Readymade Garments �Three quarters of Bangladesh�s exports are ready made garments, most of which go the US and Europe. Bangladesh RMG producers appear to have a marked labour cost advantage over RMG producers in India, owing to lower wages and similar labour productivity, but India�s specific duties on garments appear to have prevented any substantial penetration of its domestic markets by developing country clothing producers including Bangladesh. � high protection levels provided by India�s specific duties on garments are mostly redundant by wide margins.That is, actual domestic prices in India are probably not far above and may even be below prevailing international prices at the cif stage in India. It is also relevant that Sri Lanka-which is a major RMG exporter- has had negligible RMG exports to India, despite the 75% preference for garments negotiated under the Sri Lanka-India FTA.� The report is also not upbeat about Bangladesh RMG exports in India even if all restrictions are eased out (Page xxiii). It points out that there are various reasons why Bangladesh would not have a good market for RMG in India. In brief, they are -1. India is also a major RMG exporter. The RMG price level in India is close to that of Bangladesh.2. Bangladesh does neither produce yarns, nor it have a textile industry to back up.3. Bangladesh RMG industry is a value-addition (i.e. to produce shirts) on top of a textile industry (i.e.fabrics). If there are rules of origin specified in a FTA, a lot of exports would be filtered out of it.4. Popular choice (such as : brands, style and fashion) is different and diverse in India than those in Bangladesh. Interestingly, most of the Bangladesh exported RMG is actually marketed by retailers such as Walmart in US and Europe. Since India did not open market in retails, Bangladesh exports could face hurdles in marketing their products themselves. The study also pointed out why Bangladesh RMG exporter may not be interested in exporting in India. The margin of export would be very thin (due to small difference in retail market price) which is again vulnerable to Rupee-Taka exchange rate (i.e. if Indian rupee is devalued, the profit margin may be wiped off). Instead, if they focus on exporting the same RMG to Europe and USA where Bangladesh enjoy less tariff barriers and healthy profit margins, they can have a sustainable market share.

10. The Case of Informal Trade The report also dedicated a chapter towards the informal trade or the underworld trade (i.e. smuggled trade) between India and Bangladesh. It points out - �All the literature on the India-Bangladesh informal trade confirms that this trade is essentially one-way, from India to Bangladesh.� The report concluded that this trade indicates higher trade barriers in Bangladesh side and suggested Bangladesh to reduce tariffs, ease customs administration and advised both countries to improve formal infrastructure to facilitate �un-smuggled� trade. If anyone wants insight into the India-Bangladesh trade, the composition, history and tariff and routes � this is the right report to look into. A lot of my queries were in deed answered by this one piece of study thanks to World Bank.

12. Indo-Bangladesh RTAs SAFTA SAPTA APTA

13. Prime Minister Declared in the 14th SAARC summit (New Delhi, April 2007) that there will be zero duty market access for products originating from SAARC countries including Bangladesh (except in 480 sensitive items). With a view to addressing trade imbalances, India has agreed to extend duty free access to 8 million pieces of readymade garments from Bangladesh every year under SAFTA. The MOU was signed in Dhaka in September, 2007 and customs notification was issued in April 21, 2008.

17. FTA with Bangladesh Bangladesh and India are planning to sign a free trade agreement as early as 2011

18. Likely Impact of the FTA on Bangladesh Economy Despite high tariffs, Indian exporters can successfully compete in Bangladesh market. In a free trade situation, they will enjoy a substantial price advantage. Bangladesh�s imports from India might therefore rise Loss of government revenue and lower protection to local industries On the positive side, duty free imports from India will create economic welfare benefits in the form of lower prices and better quality products for Bangladesh consumers Low-duty imports will bring down cost of production, and local industries will be competitive Fall in import duty will be outweighed by increased revenue through VAT and excise duty These welfare benefits will considerably exceed the economic welfare losses to Bangladesh producers

19. Likely Impact of FTA Contd. All major Bangladesh exports to India currently attract high import duties. In an FTA when there will be no tariffs, exports in these goods would increase Long term benefits would be much higher In an FTA environment, the entrepreneurs will be encouraged not only to raise investment in existing export activity but also set up new industries and produce new products for the large Indian market

20. Likely Impact of FTA Contd. The FTA is very likely to attract investment and joint ventures by Indian entrepreneurs in the country This happened in Sri Lanka and Nepal, and may happen to Bangladesh as well

21. Likely Advantages of FTA Cheaper imports of raw material will generate more manufacturing activity and additional employment FTA will make manufacturing production globally competitive as production cost will be lower Government revenue from VAT/Excise will increase and outweigh the revenue loss from CD Falling prices and costs will increase consumer welfare Investment, both foreign and local, will get a boost competition will force domestic industries to raise efficiency and competitiveness

22. RTAs

24. SAPTA

25. The Agreement on SAARC Preferential Trading Arrangement (SAPTA)[28] was signed on 11 April 1993 and entered into force on 7 December 1995, with the desire of the Member States of SAARC (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives) to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions. The establishment of an Inter-Governmental Group (IGG) to formulate an agreement to establish a SAPTA by 1997 was approved in the Sixth Summit of SAARC held in Colombo in December 1991. The basic principles underlying SAPTA are: overall reciprocity and mutuality of advantages so as to benefit equitably all Contracting States, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems; negotiation of tariff reform step by step, improved and extended in successive stages through periodic reviews; recognition of the special needs of the Least Developed Contracting States and agreement on concrete preferential measures in their favour; inclusion of all products, manufactures and commodities in their raw, semi-processed and processed forms. So far, four rounds of trade negotiations have been concluded under SAPTA covering over 5000 commodities.

26. SAFTA

27. The Agreement on the South Asian Free Trade Area is an agreement reached at the 12th SAARC summit at Islamabad, capital of Pakistan on 6 January 2004. It creates a framework for the creation of a free trade area covering 1.4 billion people in India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives. The seven foreign ministers of the region signed a framework agreement on SAFTA with zero customs duty on the trade of practically all products in the region by end 2016. The new agreement i.e. SAFTA, came into being on 1 January 2006 and will be operational following the ratification of the agreement by the seven governments. SAFTA requires the developing countries in South Asia, that is, India, Pakistan and Sri Lanka, to bring their duties down to 20 percent in the first phase of the two year period ending in 2007. In the final five year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts. The least developed nations in South Asia consisting of Nepal, Bhutan, Bangladesh and Maldives have an additional three years to reduce tariffs to zero. India and Pakistan have signed but not ratified the treaty.

28. The Case of Tripura

29. Tripura's Trade Import from Bangladesh Rs.200 crores(approx.) Exports to Bangladesh Less than Rs.1 crore Products imported Cement, Stone Chips, Sanitary fittings, plastic furniture, etc Products exported Pineapple, ginger, etc. Potential products for export Natural rubber and rubber products, processed food, iron and steel, Medical Tourism, Handicrafts, Corrugated sheets,

30. Number of Factories in Tripura

31. Total Output of Different Industries in Tripura

32. Profit of Different Sectors in Tripura

33. RCA in Production

34. Products having RCA in Production in Tripura Tobacco Chemicals Non-metalic Minerals Horticulture & Food products Printing Rubber

35. RCA in Export

36. Horticulture & Food ProductsTobaccoChemicalsNon-metalic MineralsLeatherTextile ProductsIron & Steel Products having RCA in Export in India

37. Products having both Production and Export RCA Tobacco Chemicals Non-metalic minerals Horticulture & Food products

38. DRCA of Import

39. Products where Bangladesh is having DRCA in Import Horticulture & Food Products Chemicals Iron & Steel Leather Paper Cotton Engineering Product Transport Equipments

40. Products of Export Interest from Tripura to Bangladesh Horticulture & Food Product Chemical Products