The Financial Express

The whispering willows about Indo-Bangladesh bilateral free-trade agreement

Crossroads of economics and politics

Crossroads of economics and politics

Ending on a progressive note, the fourth BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral and Economic Cooperation) Summit left Bangladesh and India facing a daunting task: making crucial, even breakthrough, economic agreements on the eve of equally crucial elections. Economic agreements promising openness in democratic countries have not been too popular: by inviting cheaper imports, they are seen as threatening sectors and factory closures.

Post-Kathmandu (the August 2018 BIMSTEC summit), whispering willows about a bilateral free-trade compact raise both hope and concern. Haste could spell waste, especially with Bangladesh at the short-end of the stick out of control. How the key obstacles get ironed out may be the starting point to what should be a promising outcome.

Bangladesh-India trade is just too skewed to promise continued stability; and it is also too asymmetrical in terms of the commodities traded. As a country on a developmental upswing from a lower-level than India, Bangladesh has a rapidly expanding market for conspicuous consumption, from high-end products, like automobiles and tractors, to lower-end movies, designer clothing (such as saris), television services, and so forth. Those with the means to consume them will purchase them, no matter what price, or how obtained, meaning smuggling. A very vibrant smuggling industry easily preys on loopholes and pitfalls like these. Routine over-the-board trade could virtually wipe out our own counterpart stores and firms. Yet, since that is the way the 'free-trade' cookie crumbles (if not competitive enough, to wit, get out of the way), but if a reverse-window is not opened, then it becomes a justifiably raw deal. Our ready-made garment (RMG) export, for instance, still faces enormous hindrances entering the Indian market.  Concessions, even if small, on that front would smoothen the way elsewhere. Unless more attention is paid the country's increasingly detrimental trade balance, the trading relationship becomes what Albert Hirschman and others have dubbed as structural dependence.

That said, Bangladesh awaits not only its maiden free-trade agreement, but also a game-changing bilateral trade arrangement with India. Any free-trade agreement, or some compact similar to it, would spur already-underway negotiations with several South-east Asian countries for a similar outcome: at least Cambodia, Indonesia, Singapore, and Thailand belong to that next free-trade frontier for Bangladesh if an opening is made with India (since negotiations have been underway this year). Ripple effects on Laos, Malaysia and Vietnam on other countries cannot be ignored, while even more distant shores, in Australia, Japan, and Korea, cannot but respond positively. The sky could be the limit should a next-door compact emerge (and Bangladesh is well known to go on a roll when circumstances are right), but we should not get too giddy with these possibilities before the tough nut is cracked first.

No such compact would (or could) be comprehensive at this stage, but making signals of further future widening would boost any stock-market here. On the one hand, it would build upon a long list of non-tariff concessions India recently made whose primary beneficiary is Bangladesh. It would help redraw Bangladesh's trading map, which has accented China so conspicuously (even with the same unfavourable trade balance that it has with India), that broader Bangladesh-India relations may be on the line, if not now, then clearly in the near future. It would strengthen India's Look/Act East policy approach, especially when this approach, despairing of Bangladesh's China-turn, began exploring a Plan B skirting Bangladesh through an inter-connecting highway immediately north of Bangladesh, or a maritime route across the Bay in the south. And it would be consistent with India's recent post-Doklam rapprochement with China, hinting that if India can ease tensions on that front, it can also relax its attitudes to handle Bangladesh's sharp trade shift towards China.

In addition to opening a free-trade gateway for Bangladesh, any bilateral compact with India would help Bangladesh prepare for the structural industrial change it must undergo at some point, the sooner, the better: downgrading RMG exports so as to push other less low-wage exports. Software production as well as pharmaceutical and leather exports have been in the news as possible alternate export 'kingpins' (or simply reducing the huge RMG export share). These would all be gestures consistent with a middle-income country climbing up the production value-chain, slowly relegating its own low-wage industry to expand slightly more expensive value-chain production.

Both Bangladesh and India might be seeing more light at the end of an increasingly tense bilateral relations and more light at the end of even more explosive trade relations. That could be a good sign, if the readings are correct. All it needs is a continuity of the status         quo. This is where matters get tricky.

Selling freer trade to India might be easier inside Bangladesh than it would be inside India to Bangladesh. Both would be risk-laden. With the Awami League dominating the legislature passing such a policy proposal may be less the problem than the capital the opposition may make of it. Most clearly, Bangladeshi politicians have far more important issues to debate and deliberate than any agreement with India; and by making some noise about it at the wrong time could even backfire.

The same holds in India under Narendra Modi's Bharatiya Janata Party (BJP), but even more dramatically. India's opposition is making more noise, and even though the Congress Party has good relations with Bangladesh, election campaigns are just the wrong litmus test of that strength. Modi himself lambasted Bangladesh over immigration four years ago, yet gets away with too smooth-sailing dealing with that country now. He faces more formidable opponents, eager to oppose anything with a BJP stamp. This scenario is unlikely to change before the election next year. With Bangladesh's election around the turn of the year, both countries may find the warmth struck in Kathmandu in August 2018 at the BIMSTEC Summit may have to be placed in cold storage for some time.

No one expects any breathtaking development, but should there be one, sagacious leadership would show. Both Bangladesh and India need something like that simultaneously for such a trade breakthrough: Bangladesh for reasons outlined above, India to enter the big-league of free-traders, a necessary condition of world leadership. China is knocking on that door, the United States is exiting by choice, and India feels its moment has come to stand tall on the global stage.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

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