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BANGLADESHSEXPORTOPPORTUNITIESINTHEINDIANMARKET:ADDRESSINGBARRIERSANDSTRATEGIESFORFUTURE

OccasionalPaper:90

MustafizurRahmanTowfiqulIslamKhan

AshiqunNabiTapasKumarPaul

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Publisher

CentreforPolicyDialogue(CPD)HouseNo40/C,RoadNo11(new),DhanmondiR/A

Dhaka1209,Bangladesh

Tel:(8802)8124770,9141703,9141734

Fax:(8802)8130951

Email:[email protected]

Website:www.cpd.org.bd

FirstPublishedJuly2010

CentreforPolicyDialogue

Disclaimer:Theviewsexpressedinthispaperarethoseoftheauthorsaloneanddo

notnecessarilyreflecttheviewsofCPD.

Tk.65

ISSN1818

1570

(Print),

ISSN

1818

1597

(Online)

C42010_5OP90_TRC

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TheCentreforPolicyDialogue(CPD),establishedin1993,isacivilsocietyinitiativetopromote

anongoingdialoguebetweentheprincipalpartners inthedecisionmakingand implementing

process.Thedialoguesaredesignedtoaddressimportantpolicyissuesandtoseekconstructive

solutions to these problems. The Centre has already organised a series of such dialogues at

local,regionalandnationallevels.TheCPDhasalsoorganisedanumberofSouthAsianbilateral

andregional

dialogues

as

well

as

some

international

dialogues.

These

dialogues

have

brought

together ministers, opposition frontbenchers, MPs, business leaders, NGOs, donors,

professionals and other functional group in civil society within a nonconfrontational

environment to promote focused discussions. The CPD seeks to create a national policy

consciousness where members of civil society will be made aware of critical policy issues

affectingtheir livesandwillcometogether insupportofparticularpolicyagendaswhichthey

feelareconducivetothewellbeingofthecountry.

In supportof thedialogueprocess theCentre isengaged in researchprogrammeswhich are

bothservicedbyandare intendedtoserveas inputsforparticulardialoguesorganisedbythe

Centre throughout the year. Some of the major research programmes of the CPD include

Macroeconomic Performance Analysis, Agriculture and Rural Development, Eradication ofPoverty, Trade, Regional Cooperation and Global Integration, Investment Promotion,Infrastructure and Enterprise Development, Climate Change and Environment, HumanDevelopmentandSocialProtection,andDevelopmentGovernance,PoliciesandInstitutions.TheCPD also conducts periodic public perception surveys on policy issues and issues of

developmental concerns.With a view to promote vision and policy awareness amongst the

youngpeopleofthecountry,CPDisalsoimplementingaYouthLeadershipProgramme.Dissemination of information and knowledge on critical developmental issues continues to

remainan importantcomponentofCPDsactivities.Pursuant to thisCPDmaintainsanactive

publicationprogramme,bothinBanglaandinEnglish.Aspartofitsdisseminationprogramme,

CPDhasbeenbringingoutCPDOccasionalPaperSeriesonaregularbasis.Dialoguebackgroundpapers,

investigative

reports

and

results

of

perception

surveys

which

relate

to

issues

of

high

public interestarepublishedunder this series.TheOccasionalPaperSeriesalso includedraft

researchpapersandreports,whichmaybesubsequentlypublishedbytheCPD.

ThepresentpapertitledBangladesh'sExportOpportunities inthe IndianMarket:AddressingBarriers and Strategies for Future has been prepared under the CPD programme on TradeRelatedResearchandPolicyDevelopment(TRRPD).ThepaperhasbeenpreparedbyProfessorMustafizur Rahman, Executive Director, CPD, Mr Towfiqul Islam Khan, Senior ResearchAssociate,CPD,MrAshiqunNabi,ResearchAssociate,CPDandMrTapasKumarPaul,ResearchAssociate,CPD.

AssistantEditor:AnisatulFatemaYousuf,Director,Dialogue&Communication,CPD.SeriesEditor:MustafizurRahman,ExecutiveDirector,CPD.

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Contents

Acronyms ...................................................................................................................................................vii

1.

Introduction

.................................................................................................................................

1

2. LiteratureReviewandMethodology............................................................................................3

3. BangladeshsExporttoIndia:SomeStylisedFactsandDynamicsofCompositionalChanges......8

4. BangladeshsExportPotentialintheIndianMarket..................................................................12

5. AnExaminationofIndianSensitiveListunderSAFTAandMFNTariffBarriers..........................17

6. NontariffBarrierstoTradewithIndia.......................................................................................20

7. ConcludingRemarks..................................................................................................................25

References..................................................................................................................................................

30

AnnexesAnnex1: 4thSAFTASubgroupMeetingoftheCoE,2627October2009,Kathmandu

NotificationandResponseswithregardstoNontariffandParatariffMeasures......................27

Annex2: ProposedRoadMapforUpgradationofBSTILabs.....................................................................29

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ListofTablesandFigures

ListofTablesTable1: BangladeshsTradeBalancewithIndia................................................................................................ 9

Table2:

Bangladeshs

Export

Share

of

Traditional

and

Non

traditional

Commodities

to

India

..........................

10

Table3: BangladeshsExportShareofNewCommoditiestoIndia.................................................................... 10

Table4: DiversificationofBangladeshs ExportinIndianMarket...................................................................... 11

Table5: DiversityofBangladeshsExporttoIndiaintermsofNumberofTariffLinesandExportValue........... 11

Table6: RCAandShareofBangladeshsExportinIndiasGlobalImport:2008................................................. 13

Table7: IndiasImportMarketofBangladeshiExportItemsin2008................................................................ 13

Table8: PerCapitaNetDomesticProductofNorthEasternStatesinIndia...................................................... 15

Table9: BangladeshsTradewithNorthEastIndia............................................................................................ 15

Table10: InwardandOutwardMovementofMerchandiseinNorthEasternStatesandRestoftheStatesin

IndiathroughRailandRiverfor12Months(EndingMarch2008)............................................................. 16

Table11: FDIInflowtoBangladesh:20022008.................................................................................................. 17

Table12: CategorywiseShareofNTBsinSAARC................................................................................................ 21

Table13: MostPrevalentNTBsinASEAN............................................................................................................ 23

ListofFiguresFigure1: SensitiveListofIndiaanditsImplicationsforBangladesh................................................................... 19

Figure2: BangladeshsPotentialOfferListforIndiasConsiderationtobeTakenoutfromthe

SensitiveList........................................................................................................................................ 20

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Acronyms

ADD AntidumpingDuty

APTA AsiaPacificTradeAgreement

ASEAN

Associationof

Southeast

Asian

Nations

BIMSTEC BayofBengalInitiativeforMultiSectoralTechnicalandEconomicCooperation

BIS BureauofIndianStandards

BOI BoardofInvestment

BSTI BangladeshStandardsandTechnicalInstitution

CVD CounterVeilingDuty

CGE ComputableGeneralEquilibrium

CoE CommitteeofExperts

DFQF DutyfreeQuotafree

EPB ExportPromotionBureau

EPZ ExportProcessingZone

EU EuropeanUnion

FDI ForeignDirectInvestment

FSC FreeSaleCertificate

FTA FreeTradeAgreement

GATT GeneralAgreementonTariffsandTrade

GDP GrossDomesticProduct

GLS GeneralizedLeastSquare

GSP GeneralizedSystemofPreference

LDC LeastDevelopedCountry

L/C LetterofCredit

MFN MostFavouredNation

MT MetricTon

MoU MemorandumofUnderstanding

NAA NorwegianAccreditationAuthority

NABL NationalAccreditationBoardforTestingandCalibrationLaboratories

NBR NationalBoardofRevenue

NTB

Nontariff

Barrier

NTM NontariffMeasure

PSI PreshipmentInspection

RCA RevealedComparativeAdvantage

RMG ReadymadeGarments

RTA RegionalTradingAgreement

RoO RulesofOrigin

SAARC SouthAsianAssociationforRegionalCooperation

SAFTA SouthAsianFreeTradeArea

SAPTA SAARCPreferentialTradingArrangement

SARSO SouthAsianRegionalStandardOrganization

SATIS SAARCAgreementonTradeinServices

SPS SanitaryandPhytosanitary

TBT

TechnicalBarrier

to

Trade

TLP TradeLiberalization Plan

TRQ TariffRateQuota

TTI TotalTaxIncidence

US UnitedStates

USD UnitedStatesDollar

VAT ValueAddedTax

WTO WorldTradeOrganization

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1.INTRODUCTION

India continues to remain one of Bangladeshs major trading partners, accounting for 8.7

per cent of Bangladeshs global trade in FY200809, a year when India was Bangladeshs

fourthmostimportanttradingpartner.1However,withanimporttoexportratioof10.3to1

andanincreasingbilateraltradedeficit,issuesofbarrierstotradewithIndiaandsearchfor

avenuesto

enhance

Bangladeshs

export

opportunities

in

the

growing

Indian

market,

have

assumed high significance and prominence in related discourse in Bangladesh in recent

times. Underlying factors contributing to Indias strong presence in Bangladeshs import

marketarewellknown.AsBangladeshstartedtoopenupintheearly1990s,India,withits

geographical proximity, familiarity with the Bangladesh market, lower transport cost and

increasing competitive strength, was able to take advantage of the growing Bangladesh

market,accountingforabout12.6percentforBangladeshstotalimportinFY200809.

However,inspiteofthefactthatIndiaherselfalsoemergedasasignificantimporteroverthis

sameperiod(IndiasglobalimportwastothetuneofUSD300billioninFY200809),Bangladesh

hadnotbeenabletomatchIndiasperformanceandherexporttoIndiacontinuedtoremain

low.This

consequently

resulted

in

agrowing

bilateral

trade

deficit

with

India.

It

needs

to

be

recognised in this connection that in a globalised world, bilateral deficit should not be of

much concern and what should receive attention is global trade deficit of a country. For

developing countries such as Bangladesh large trade deficits with some of the trading

partners are to be expected and should not be cause for undue concern as long as the

deficitscanbefinanced(Rahmanetal.2008).Moreover,as isknown,asignificantpartof

the import from India goes as inputs toBangladeshsexportoriented industries.2 Imports

from India help Bangladeshi enterprises access inputs at lower costs and enable these to

remain competitive in domestic and foreign markets; import of consumer goods help

stabilisepricesofsomekeyessential items inBangladesh. However,all thesedoesnot in

anyway undermine or minimise the importance of the need to enhance and realise

Bangladeshsown

export

opportunities

in

the

Indian

market.

ItistoberecalledintheaboveconnectionthatBangladeshhasbeenamemberofthe

SAARCPreferentialTradingArrangement(SAPTA)3and theSouthAsianFreeTradeArea

1TheEuropeanUnion(EU)takenasoneentitywasthelargesttradingpartnerofBangladeshinFY200809with

tradevalueofaboutUSD8.6billion;EUwasfollowedbytheUnitedStates(US)withtradevalueofUSD4.5

billion,andChinawithtradevalueofUSD3.5billionforthisparticularyear.2Forexample,textilesandfabricsimportedfromIndiabyBangladesh,whichaccountforabout22percentof

total imports from the country, help Bangladesh maintain robust trade surpluses with US and EU through

exportofreadymadegarments(RMG)itemsusingthoseinputs.3The

framework

agreement

on

SAPTA

was

approved

in

1993.

SAPTA

became

operational

by

the

end

of

December1995, twoyearsaheadof theplannedperiod.Since1995, fourroundsofnegotiationswereheld

underSAPTA;tariffconcessiononnearly5,500productswasexchanged.However,exceptfor India,product

coverageandextentofconcessionsgrantedbythemembercountriestotheleastdevelopedcountries(LDCs)

werenotsignificant.Indiagranted10to50percentconcessiontoallmembercountriesfor788products.In

addition, 15 to 100 per cent concession was granted for 2,576 products from all LDC members. From

Bangladeshspart,10to15percentconcessionwasgrantedtothemembercountriesfor645items.ForLDC

members,Bangladeshgrantedthesameextentofconcessionfor265itemsadditionally.However,exchangeof

request and offer lists under the SAPTA, and the resultant schedule of preferences failed to enhance intra

regionaltradeinSAARCinanysignificantway(Rahman2006).

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CPDOccasionalPaperSeries90

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(SAFTA)4

along with India and other South Asian Association for Regional Cooperation

(SAARC) countries. Bangladesh has received preferential market access treatment from

IndiaforalargenumberofitemsofexportunderthefourroundsofSAPTAnegotiationsand

alsoaspartofTradeLiberalizationPlan (TLP)oftheSAFTA.Bangladeshand Indiaarealso

members of the Bay of Bengal Initiative for MultiSectoral Technical and Economic

Cooperation(BIMSTEC),FreeTradeAgreement(FTA)5,andtheAsiaPacificTradeAgreement

(APTA).6As

an

LDC

member,

Bangladesh

has

been

receiving

various

derogations

and

special

and differential treatments offered by India under the aforesaid Regional Trading

Agreements (RTAs). In recent times, India has also mooted the idea of signing a Bilateral

Free Trade Agreement with Bangladesh. In spite of the initiatives under the various RTAs

andalsobilateralmarketaccess initiativesexport fromBangladesh to Indiahastended to

remainatlowlevelsreachingUSD276.6millioninFY200809whichwasamere1.8percent

ofBangladeshsglobalexport.7

Theabovetrendsnotwithstanding,recentdynamicsoftradebetweenthetwocountriesdoes

indicate new developments with regard to Bangladeshs export to India. Evidence suggests

that Bangladeshs export to India has been on the rise in the recent past. A number of

initiativeshave

been

put

in

place

to

stimulate

Bangladeshs

export

to

India,

both

as

part

of

measures in the RTAs and also thanks to unilateral initiatives by India. However, a host of

factorsincludingtheremainingtariffbarriers,variousparatariffs inplace,Nontariffbarriers

(NTBs)ofvarioustypes,restrictedmarketaccessonaccountofthesensitive listcontinueto

inhibit the realisation of the full potential in this context. These constraining factors have

come under renewed scrutiny also following the highlevel bilateral talks held recently

betweenBangladeshandIndia.8

In view of above, the present article attempts to address the following issues relating to

stimulatingBangladeshsexportstoIndia.

Followingthe

Introduction,

Section

2presents

areview

of

relevant

literature

on

Bangladesh

India trading relations, and articulates the methodology followed in the present study;

Section 3 deals with an analysis of recent trends in Bangladesh exports to India and the

dynamics of change in composition of the exports; Section 4 presents an analysis of

Bangladeshs export potential in the Indian market on the basis of estimates of Revealed

Comparative Advantages (RCAs); Section 5 deals with tariff barriers currently faced by

4Atthe12thSAARCSummitinIslamabad,SAFTAwassignedandenteredintoforceon1July2006.

5TheBIMSTECAgreement,foundedbyBangladesh,India,Myanmar,SriLankaandThailand,andlaterjoinedby

NepalandBhutan,wassignedin2004.6TheBangkokAgreement,thefirstRTAintheAsiaPacificregion,wassignedin1975byBangladesh,India,Lao

PDR, Republic of Korea and Sri Lanka. Later, in 2001, beside these founder members, Chinajoined in. In

November2005,

in

ameeting

held

in

Beijing,

the

Bangkok

Agreement

was

renamed

as

the

Asia

Pacific

Trade

Agreement(APTA).7Atthesamepoint,IndiasexporttoBangladeshasashareofIndiasglobalexportdeclinedto1.5percentand

IndiasimportfromBangladeshasashareofherglobalimportremainedaboutthesameatonly0.1percent.8Issues of trade and connectivity with India have attracted renewedattention in recent times following the

visitoftheHonblePrimeMinisterofBangladeshtoIndiaduring1013January2010.Thejointcommuniqu

emergingfromthisvisitmentionsaboutdeepeningbilateraleconomiccooperationbetweenthetwocountries

inseveralareasincludingreductionofIndiassensitivelist,addressingNTBs,strengtheningcapacitytoaddress

standardsrequirement,allowinguseofChittagongandMonglaPortsbyIndia,andofferbyIndiaofaUSD1.0

billioncreditlinetobuildtherequiredinfrastructuretowardsbetterconnectivity.

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BangladeshsExportOpportunitiesintheIndianMarket

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BangladeshintheIndianmarketandpresentsastrategyforreducingIndiassensitivelistto

Bangladeshs advantage; Section 6 focuses on the issue of NTBs and the modalities to

addressthese;Section7concludes.

2.LITERATUREREVIEWANDMETHODOLOGY

2.1Literature

Review

As itwouldappear,asignificantpartoftheliteratureonthestateofbilateralandregional

economicandtradecooperationinSouthAsiadealswithfactorscontributingtoweakstate

of integration in the region. According to Sawhney and Kumar (2008), the underlying

reasonsoriginatefromacombinationofpolitical,economicandinstitutionalfactors.Alarge

segmentofrelevantliteraturedealswith identifyingopportunitiesthatcouldemergefrom

closercooperationamongcountriesintheregion.Threestrandsofdiscoursearecommonly

discernible in this context: firstly, identification of challenges and opportunities of

cooperationthroughregionalandbilateraltradeandotheragreementswithparticipationof

SAARC member countries; secondly, quantitative assessments of economic gains, welfare

losseswhich

could

potentially

originate

from

such

cooperation;

and

thirdly,

evidence

based

assessmentsoftradepotentialitiesatsectorallevels.

Along with analysis at the regional level, some part of the literature has explored the

relevantissuesatthebilaterallevel.Anumberofstudieshaveattemptedtoassesswhether

a bilateral route is more preferable to a regional one in advancing the level of trade and

economiccooperationinthecontextofSouthAsia.

In recent times, increasing attention is being given to the state of bilateral economic

cooperationbetweenBangladeshandIndia.Onenagginglimitationinthisconnectionhas

beenthelackofadequatedataoninformaltradewhichhastendedtoconstrainthescope

of

analysis

pertaining

to

bilateral

and

regional

trade

in

South

Asia.9

Only

a

few

studies

haveattemptedtocapturethisimportantaspectoftradeintheregion(Bakht1996;World

Bank2006).

In a feasibility study on the prospects of bilateral FTA between Bangladesh and India,

BhuyanandRay(2006)concludethatsuchagreementbetweenthetwocountrieswould

bring about substantial benefits to both partners. In contrast to the multilateral

arrangements,bilateralFTAscouldbefasttrackedandwouldofferadditionalpreferential

treatment to the partner countries. Based on a review of bilateral FTAs, they conclude

thatthismodeoftradingarrangementhasshownabetterrecordofsuccessinexpanding

tradebetweencountries,andstimulatesinvestmentcomparedtoregionalorsubregional

integration

schemes.

De

and

Bhattacharyay

(2007)

argue

that

a

bilateral

FTA

with

India

wouldenableBangladeshtostrengthenherfoothold intheIndianmarket.Inviewofthe

NTBsthatseverely limittheopportunitiesofbilateraltradebetweenthesecountries,the

studysuggeststhatanFTAwithIndiawouldbethebestwaytoaddresstheissueofNTBs.

Someoftheotherstudieshaveputmoreemphasisontheregionalroute.Amongthose,

Sawhney and Kumar (2008) hold that implementation of the regional free trade

9Indiashares4,096kmborderwithBangladesh;ofwhich2,979kmisthelandborder,and1,116kmoverrivers.

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agreement (e.g.SAFTA)would result inpositiveoutcomes forallmembercountries.The

authorsalsoconcludethatregionalcooperationthroughFTAssuchasSAFTAcouldleadto

highervolumeoftrade ingoodsandservicesthroughallocativeefficiencyandenhanced

productioncapacity.

Rahman (2001) identifies a number of issues which would need urgent attention if

BangladeshIndia

bilateral

economic

relation

is

to

gain

momentum

including

multilateralism versus bilateralism, sectoral versus comprehensive approach, dutyfree

marketaccess,rulesoforigin(RoO),removalofNTBsandtheneedforpolicycoordination

to stimulate investment. A number of studies have argued in favour of taking a holistic

approach embracing cooperation in areas of trade, investment, transport and

infrastructure in order to realise the potential opportunities of bilateral economic

cooperationinvolvingSAARCmembercountries(CPD2004).

However, in articulating a contrasting view, Baysan et al. (2006) argue that the SAFTA

makes sense only in the context of a much broader strategy of creating a larger

preferential trade area in the region that would need to encompass China and also

membersof

the

Association

of

Southeast

Asian

Nations

(ASEAN).

Assuming

that

the

SAFTA

agreement was there to stay, the authors recommend a number of steps towards

promotionof intraregionaltrade inamannerthatminimises likelytradediversioncosts

and maximises potential benefits. In this context, some studies have highlighted the

positiveimpactintermsofgrowthandpovertyreductionthroughregionalcooperationby

citingotherRTAssuchasSouthEastAsianandEuropeanregionalentities (Sawhneyand

Kumar2008).

In recent times, a number of studies have tried to quantify the potential benefits arising

fromcooperationamongSAARCcountries,bothatregionalandbilaterallevels.Anumberof

studies have tried to estimate the degree of market access under the preferential

treatment.

Mukherji(2000)

estimates

that

the

annual

value

of

all

imports

that

entered

the

SAARC member countries under SAPTA preferences amounted to approximately USD 480

million at the end of the 1990s. According to his estimates, the share of intraregional

imports covered by the SAPTA preferences was the highest for Pakistan (39.6 per cent),

followedbyNepal(35.2percent),India(30percent),Bhutan(17percent)andSriLanka(12

percent).IncontrasttheimportvaluecoverageofBangladeshandMaldiveswasrelatively

low.BasedonimportdataforFY199798,highestrevenuelosswassustainedbyIndia(USD

2.45million),whereasthatofBangladeshwasrelativelymodest(USD0.02million).10

In a more recent study undertaken to evaluate the performance of SAPTA that also

explored the prospects of the then proposed SAFTA, Hirantha (2004) applied the well

knowngravity

model

to

estimate

potential

benefits

of

an

FTA

in

South

Asia.11

The

study

finds that there will be substantial trade creation in the region under SAPTA with no

significant trade diversion impact. The estimated results for 2002 showed that bilateral

trade between any two pairs of SAARC member countries would be about 10.5 times

higher under the SAPTA compared to two otherwise similar countries in absence of an

10IndiasrevenuelosswasprimarilyonaccountoftradewithBangladesh.

11Bothpanelandcrosssectionaldatafor19962002wasusedtoestimatetradecreationandtradediversion

effectsundertheexistingarrangement.

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RTA. Moreover, according to estimated coefficients, not only would intraregional trade

beenhanced,butthiswouldalsoleadtoincreasedbilateraltradewithnonmembers.This

resultcontradictedearlierstudyof(Hassan2001)which indicatedthat loweringoftrade

amongSAARCcountrieswouldnotresult insubstantialbenefitsandwould leadresult in

reducedtradewithnonmembers.12

Rahmanetal.(2006)supportedtheearlierfindingsof

Hirantha(2004)andarguedthattherewouldbesignificantintrablocexportcreationasa

result

of

SAPTA;

though

there

would

be

netexport

diversion.13

However,

results

of

this

study showed that Bangladesh, India and Pakistan were expected to gain byjoining the

RTA,whileNepal,MaldivesandSriLankawouldbenegativelyaffected.

GiventhefactofBangladeshsexportopportunitiesinIndia,anumberofstudieshavetried

to identify potential market opportunities for Bangladeshi sectors/products particularly in

the Indian market. Based on analysis of secondary data and stakeholders perception,

BhuyanandRay(2006)identifyasetofpotentialexportableproductsfromBangladeshthat

could enjoy export potential in the Indian market. These were fish products (including

shrimp), leather goods, cement, light engineering items, jute products, pharmaceutical

products,ceramic productsandprocessedagroproducts.Theauthors recommended that

anFTA

with

India

would

enable

Bangladeshi

producers

and

exporters

to

have

access

to

the

muchneededrawmaterialsandsemifinishedproductsatcompetitiveprice.Inyetanother

study,applyingacomputablegeneralequilibrium (CGE) framework,SiriwardanaandYang

(2007) estimate that a number of Bangladeshi items, including beverages and tobacco,

fabricated metal products, textile and leather, petroleum and other minerals, food

manufactures,andvegetablesandfruitssector,willgainsubstantiallyintheIndianmarket

bothintheshortrunaswellaslongrun,ifimportdutiesareabolishedbyIndia.

In a recent study, the World Bank (2006), however, finds that the prospect for trade

between Bangladesh and India, through a bilateral FTA, to be rather limited. Analysis

undertakenforanumberofitemsincludingcement,lightbulbs,bicyclerickshawtyresand

sugarindicate

that

if

abilateral

FTA

is

signed

with

India

it

will

be

India

which

would

be

able

toexpandherexportstoBangladesh;BangladeshsexportpotentialintheIndianmarketis

ratherlimited.Thestudypointsoutthereasonsbeing(a)fasterproductivitygrowthinIndia

bolstering Indias comparative advantage in competing goods, and/or (b) tariff and NTBs

constraining Bangladeshs major exports (RMG) as well as minor exports which have

experiencedrapidgrowth inothermarkets.Thestudyarguesthat inasituationwherean

Indian supplier gets advantage of captive protected market under the bilateral FTA with

Bangladesh, therewas likelihood ofcollusionamongst Indianproducersorbetween them

andBangladeshiimporterswhichwouldreducesomeofthewelfaregains.Accordingtothis

12Thestudyhasusedthe1997annualtradedatafor27countriesandhasrunGLS(GeneralizedLeastSquare)

regressionadjusted

for

heteroskedasticity

and

autocorrelation.

13The study used the augmented gravity model to identify trade creation and trade diversion effects

originating from SAPTA. The gravity models basically try to explain bilateral trade flows with a set of

explanatoryvariables thattrytopredictthe impactofthearrangementonbilateral trade flows. Ina typical

manner,theexerciseinvolvesestimatingabilateraltradeflowequationwithbilateraltrade(imports,exports

ortotaltradeattheaggregateorsector level)asthedependentvariableandcountrycharacteristicssuchas

the grossdomestic product (GDP),population, landarea, distance, thecommonality of language orcultural

ties and the existence of preferential trade arrangements as independent variables. Once estimated, the

equationcan thenbeusedtopredictthe impactofaunionbetweencountrypairsthatdidnothavesucha

unionduringthesampleperiod.

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study,Bangladeshsinterestswouldbebetterservedthroughmultilateralliberalisation.Ina

similarvein,BandaraandYu(2003)alsoconcludethatSAFTAwouldleadtoamarginal0.21

percentgaininrealincomeforIndia,0.03percentgainforSriLanka,0.10percentlossfor

Bangladesh,whiletherestofSouthAsiawouldgain0.08percentintermsofrealincome.

More recently, Raihan (2008) used the WITS/SMART model and carried out simulation

exercisein

view

of

various

scenarios

under

the

SAFTA

accord

(removal

of

intra

regional

tariff

forallcountries).ThestudymakesanattempttoquantifyexportpotentialsofBangladeshin

the Indian market. The modeling exercise identifies export items of Bangladesh at

disaggregatedHS6digit levelwhichwere likelytoexpand inthe Indianmarketunderthe

SAFTA.ThestudyfindsthatundertheSAFTABangladeshsexportstoIndianmarketwould

rise by only about USD 78 million. Top 30 products (at the 6 digit HS code), together,

accountfor83percentoftheincreaseinBangladeshsexportearnings(USD64.9million).

Areviewof literature indicatesthatthemajorityofstudieshavetendedto focusontariff

barriersandthe impactofremovalofdutiesonregionalandbilateraltrade.However,the

presenceof largenumberofNTBswasalsorecognisedasamajorconstraint intheseand

other

studies.

Rahman

(2010)

identifies

salient

features

of

the

NTBs

prevailing

in

South

Asiantrade,andexaminedcrosscountryexperiencesinaddressingtheNTBs.Thestudyalso

documentedhowtheNTBsarebeingaddressedwithintheSAFTAarchitecture.Particularly,

an indepth look at NTBrelated issues has become even more necessary in view of the

recentdebates,andthemodalitiesthatarebeingputinplacetoaddressthose.

An important recentstudybyRazzaque (2010),whichcombinesqualitativeanalysiswith

threedifferenttypesofquantitative analyses(gravitymodel,CGEmodelandGTAP)argues

thattheweakereconomiesintheSAARCregionareexpectedtolosesignificantlyfromthe

SAFTA agreement, at least in its current form. The study shows that the losses for the

weaker economies, particularly for Bangladesh and Nepal, arise from increased imports

from

regional

partners,

nominal

increase

in

exports

within

the

region

and

loss

of

tariff

revenue.ResultsofestimationcarriedoutinthisstudybasedonWITS/SMARTsimulation,

aresimilartothatofBandraandYu(2003),andshowsthatSAFTAwillleadtoanincrease

in Bangladesh imports from the region of about USD 400 million compared to rise in

regional exports of only about USD 33 million. Results of the study also show that only

Indiastandstoexperienceregionalexportgainsthatwouldbehigherthan importsfrom

regional sources. The gravity simulation results suggest that SAFTA would influence

regional trade flows mainly by increasing Indias exports, and Bangladesh and Nepals

imports. For every USD 100 worth of new export trade almost USD 78 would accrue to

India, whereas share of Bangladesh, Maldives and Bhutan would be insignificant. The

authorsrecommendthatLDCmembersoftheSAFTAshouldcontinuewiththeirrespective

policyreforms,

and

will

need

to

address

supply

side

bottlenecks

in

order

to

benefit

from

theincreasinglylargerregionalmarket.

Inanotherstudy,RaihanandRazzaque(2007)rantwodifferentsimulationsusingtheGTAP

modeland database. In the firstscenario, theauthors depict a case in which all member

countrieseliminatetheirintraregionaltariffsbutretaintheirrespectivetariffswiththerest

oftheworld intact.Inthesecondscenario, inadditiontoSAFTAtariffcuts,theauthors let

Bangladeshslashitstariffsagainsttherestoftheworldby50percent.Comparisonsofthe

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variousscenariosgiveanopportunitytoexaminetradediversioneffectswhendetermining

the overall welfare effects for Bangladesh. The results show that full tariff liberalisation

under SAFTA alone would lead to a net welfare loss of USD 184 million for Bangladesh.

India,SriLanka,andtherestofSouthAsia inthisscenarioregisterwelfaregains,astrade

creation effects dominate trade diversion effects. However, when Bangladesh undertakes

MFN(mostfavourednation)tariffcutsby50percentalongwiththefulltariffliberalisation

forSAFTA

members,

it

stands

to

gain

by

USD

84.1

million.

In

the

latter

exercise,

the

positive

welfaregainsofothercountriesweremaintained.

ADBandUNCTAD(2008)findsthatthewelfaregains,basedonCGEanalysis,forBangladesh

are likelytobeoneofthehighest.Accordingtothestudy,exportgains forBangladesh in

SAFTAmarketunderthephaseIof liberalisation(200809)wouldbesignificant(38.08per

cent to South Asia), but not as high as the peak export growth to SAFTA seen by other

countries. The study further contends that Bangladesh will be able to increase her global

exportsbyabout4.3percentby2016onaccountofSAFTA.

A number of authors have highlighted the importance of better regional connectivity to

foster

and

promote

intraregional

trade

and

deepen

economic

cooperation

among

the

regional countries. Rahmatullah (2010) points out in this connection that due to lack of

integration of the transportsystem in SouthAsia, logisticscostsareveryhigh and ranges

between1314percentofGDP,comparedto8percentintheUS.

Whilst many studies have focused on aggregate level gains and losses originating from

regional cooperation among SAARC countries, those focusing on identifying potential

opportunitiesofbilateraltradebetweenBangladeshandIndia,atadisaggregated level,as

waspointedoutabovearefew.Additionally,inviewoftherapidchangesinthestructureof

bilateraltrade inrecenttimes,acloser lookattherelevant issueshasbecomeevenmore

urgent.Sincethesensitivelistshaveemergedasamajorareaofconcern,an indepthlook

atthe

Indian

sensitive

list,

from

the

Bangladesh

perspective,

is

also

called

for

in

order

to

identifythefallopportunitiesofmarketaccessbyBangladeshintheIndianmarket.

The issueofsigningbilateralFTAasamorecomprehensiveandspeediertoolofenhancing

tradeamongSAARCcountrieshasbeenhighlightedbyanumberofauthors.deMel(2010)

points out in this connection that negative lists of India, Pakistan and Sri Lanka are

substantially larger than those in the respective bilateral trade agreements. Echoing this,

Weerakoon(2010)observesthatSAFTAhasalreadybeenovertakenbybilateralprocess in

many instances, and would appear to be in danger of being further upstaged by bilateral

andotherregionalinitiatives.

A

review

of

literature

thus,

in

general

indicates

that

under

the

existing

scenarios

the

potentialbenefitsoriginating fromregionaltradecooperationamongtheSAARCcountries

wouldnotbesubstantial.Bangladeshsgainsalsoappeartobeinconsequential.Theideaof

bilateral FTA has been examined by some, but here also the positive impact in terms of

additional trade flows is rather limit. However, one common limitation of most of these

studieshadbeenthatthesearebasedonstaticanalysis.Onewayofaddressingthis is to

examine and analyse the data with regard to the dynamics of trade, its composition and

puttingunderscrutinyfactorscontributingtoandfactorsconstrainingthetradeflows.This

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particularstudyhasthusmadeanattempttoexamineBangladeshIndiabilateraltradefrom

thisparticularperspective.

2.2Methodology

ThepresentstudyfocusesonissuesofbilateralcooperationintradebetweenBangladesh

and

India,

with

the

thrust

being

on

identifying

Bangladeshs

export

opportunities

in

the

Indianmarket.Thestudyisbasedonsecondarydataandinformation,andvariousrelated

documents.Thepapermakesuseoftradedatageneratedbygovernmentagenciessuchas

Export Promotion Bureau (EPB) of Bangladesh, National Board of Revenue (NBR) of

Bangladesh, Tariff Commission of Bangladesh, Ministries of Finance and Commerce of

India and Directorate General of Commercial Intelligence and Statistics, India;

internationaltradestatisticsdatabasesuchasUNCOMTRADEhasalsobeenneedforthe

purposeofanalysis.Thestudyalsoreviewsanumberofgovernmentdocumentsofboth

BangladeshandIndia,andvariousrelevanttraderelatedagreementssignedbetweenthe

two countries to assess their efficacy in terms of addressing the issue of enhancing

Bangladeshsexportopportunities intheIndianmarket.Statisticaltoolswereused inthe

study

to

arrive

at

quantitative

measures

relating

to

some

variables.

The

paper

analyses

most recent data on exports from Bangladesh to India, and based on disaggregated

productlevel analysis attempts to identify Bangladeshs export potential in the Indian

market;RCAswereestimatedtomeasuretherangeofsuchopportunities. Thestudyhas

proposed a modality to prune the sensitive list of India with a view to maximising

Bangladeshs gains. NTBs being a major constraint to accessing the Indian market, the

studyhasgivenparticularattention to the issueofaddressing theNTBs inplace inboth

BangladeshandIndia.

3. BANGLADESHS EXPORT TO INDIA: SOME STYLISED FACTS AND DYNAMICS OF

COMPOSITIONALCHANGES

3.1TrendsofExportfromBangladesh

ItisamatterofrecordthatovertherecentpastBangladeshhaswitnessedawideningof

trade deficit with India which increased from USD 1.5 billion in FY200304, to USD 3.0

billion in FY200708, and USD 2.6 billion in FY20080914

(Table 1). This bilateral trade

deficitofaboutUSD3.0billionwouldrisesignificantlyifthedeficitintheinformaltradeis

also factored into the picture. In the mid1990s Bangladeshs informal trade with India

wasestimatedtobeabout1.4timesmorethan thatof formal trade (Bakht1996).With

significantreductioninratesofMFNtariffsandformalisationofsomeofthe illegaltrade

(e.g.cattle)inrecentyears,thesizeoftheinformaltradeisperceivedtohavecomedown,

but

isstill

reckoned

to

be

equivalent

to

about

three

fourths

of

the

formal

trade

(World

Bank2006).

14However, on a related note, over the same period Bangladeshs bilateral trade deficit with China has

increased at a faster pace, and indeed has surpassed that with India. Bangladeshs trade deficit with China

increasedtoUSD3.3billioninFY200809.

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Table1:BangladeshsTradeBalancewithIndia(inBillionUSD)

Period Export Import TradeBalance

FY200304 0.09 1.60 1.51

FY200405 0.14 2.01 1.86

FY200506 0.24 1.85 1.61

FY200607

0.29

2.23

1.94

FY200708 0.36 3.38 3.03

FY200809 0.28 2.84 2.56

Source:ExportPromotionBureau(EPB)andBangladeshBank(variousyears).

Itisimportanttoexamineintheabovecontextthedynamicsofchangethatistakingplace

intheformaltradebetweenBangladeshand Indiaovertherecentpast. It isof interestto

noteherethatBangladeshsexportto India,throughformaltrade,experiencedafourfold

increasewithin thespanof the last five years,whilstBangladeshsglobal exporthadonly

doubledoverthecomparableperiod.Indeed,betweenFY200304andFY200708,exportto

IndiarosefromUSD89.3milliontoUSD358.1million.Theexportfigure,however,dropped

toUSD

276.6

million

in

FY2008

09,

to

alarge

extent,

due

to

the

global

financial

crisis

when

Indian imports posted significant decline. Although the significance of such high growth

ratesshouldbeseen from theperspectiveofthe lowbaseofexports fromBangladesh to

startwith,thisisnodoubtindicativeofthepotentialopportunitiestoexpandBangladeshs

exportstoanincreasinglyexpandingIndianmarket.

3.2DynamicsofCompositionalChange

ItisamatterofrecordthatpolicyoftradeliberalisationpursuedbySouthAsiancountriesin

the1990shad ledtosignificantopeningofmarketsofthesecountries,tovaryingdegrees.

However,itwasprimarilyIndia,whichwasabletotakeadvantageofthemarketopeningin

the region. In case of Bangladesh, high concentration of export basket both in terms of

products(apparels)

and

markets

(North

America

and

the

EU)

explains,

to

alarge

extent,

the

low share of her regional export in total global export earnings. This also reflects the

structural rigidities in the smaller South Asian economies such as Bangladesh which have

relativelylowcapacityintermsofexportdiversificationandabilityforentryintotheIndian

market (Sobhan 2006). Till FY200304, more than 90 per cent of Bangladeshs exports to

Indiawerecomprisedofafewtraditionalitemssuchaschemicalfertiliser,rawjuteandjute

manufactures, frozen fish, RMG etc. (Table 2). In recent years, however, there has been

important compositional change in the structure of exports to India, with the share of

traditionalcommodities intotalexporttoIndiacomingdownsignificantly(68.8percent in

FY200809 from 90.5 per cent in FY200304), whilst that of nontraditional items posting

impressiverise(31.2percentinFY200809comparedto9.5percentinFY200304).15

The newBangladeshiproducts which werebeingexported tothe Indianmarket in recent

times include textile fabrics, plastic goods, cement, furnace oil, battery, cut flower,

pharmaceutical products, copper wire, melamine, etc. (Table 3). Increased export flow to

IndiaindicatessomeexportdiversificationtakingplacewithregardtotradewithIndia.Itis,

thus,importantthatarenewedeffortneedstobeundertakenfromtheBangladeshsideto

supportthistrendbypursuingappropriatetradeandinvestmentpolicies.

15However,itistobenotedthatinvaluetermsbothindicatorshaveregisteredarise.

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AsisevidencedfromTable4,betweenFY200304toFY200809,shareoftopfivetraditional

products in Bangladeshs export to India (in FY200304) has declined quite sharply, from

75.9percentto46.2percent.Overthesameperiodthenumberofexportableproductsin

the export basket had gone up significantly. Among the 162 product categories in

Bangladeshs global export (according to EPB classification) 100 categories were being

exportedtoIndiainFY200809comparedto86categoriesexportedinFY200304.

Table4:DiversificationofBangladeshsExportinIndianMarket

Period ShareofProductCategory (%) NumberofProductsExported

(Outof162EPBCategories)Top10in

FY200708

Top5Traditionalin

FY200304

FY200304 78.8 75.9 86

FY200506 70.3 58.8 102

FY200708 71.8 47.7 94

FY200809 60.4 46.2 100

Source:

Authors

calculation

based

on

the

Export

Promotion

Bureau

(EPB)

data.

IncreasingdiversityofBangladeshsexport isparticularlyevidentintermsofdisaggregated

tarifflines,at6digitHSlevel.At6digitHScode,exportstoIndiafromBangladeshcovered

409tarifflinesin2008whichwasalmostdoubletothatof2004(Table5).Thiswouldmean

that within the broad product groups in Bangladeshs export basket, some degree of

differentiationhas indeedbeentakingplace.However, it is importanttoanalysewhichof

theexportitemsenjoycomparativeadvantageintheIndianmarket.

Table5:DiversityofBangladeshsExporttoIndiaintermsofNumberofTariffLinesandExportValue

Indicators No.ofTariffLines

(HS6Digit

Level)

Value

(MillionUSD)

2004 2008 2004 2008

Bangladeshsexportto

India

219 409 58.80 329.80

RMG

(HS61+62)

17

(1+16)

52

(16+36)

0.82

(0.01+0.81)

4.09

(1.12+2.98)

Bangladeshsglobal

export

1151 1732 8267.50 15356.20

RMG

(HS61+62)

230

(113+117)

219

(103+116)

6231.30

(3007.00+3224.30)

12440.70

(6,721.5+5719.30)

Indiasglobalimport 4752 4701 108248.00 315712.00

RMG

(HS61+62)

211

(102+109)

217

(106+111)

31.89

(10.33+21.56)

137.70

(50.30+87.41)

Source:AuthorscalculationbasedontheUNCOMTRADEdata.

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4.BANGLADESHSEXPORTPOTENTIALINTHEINDIANMARKET

4.1CommoditybasedAnalysis

Market dynamics and growth performance are good indicators to assess the export

potentialityofacountryinaparticularmarket.TheRCAestimatesareoftenusedtogauge

thispotential.

RCA

estimates

have

been

widely

used

in

the

relevant

literature

in

an

attempt

to understand competitive strength of particular items in an importing market.16

To

ascertainBangladeshscompetitiveedgeintheIndianmarketanexercisewasundertakento

computetheRCAsofaselectsetofexportablestotheIndianmarket.

TocomputeRCAs,exportdataatHS6digit levelwereaccessed from theUNCOMTRADE

databasefortheyear2008.HS6digitlevelclassificationswerematchedandclusteredwith

theclassificationusedbytheEPBfor162productgroupsthatareexportedtoIndia.Finally,

RCAswereestimatedbothforaselectgroupofbroadproductgroupsthatareexportfrom

Bangladeshandalsoforitemsofexportatdisaggregatedlevel.17

Aswould

be

expected,

in

terms

of

the

value

of

RCA

index,

raw

jute

ranks

at

the

top

in

the

Indianmarket.AsisseenfromTable6,otherimportantitemswithRCA>1includechemical

fertiliser,cement,RMG,leather,battery,textilefabrics,etc.18

ItistobenotedherethatIndiaisasignificantimporterofmanyoftheitemslistedinTable

6, from countries other than Bangladesh. Bangladeshs share of these items in the total

Indian import is rathersmall, barringa few items such as rawjute, cane sugar, coriander

seed, frozen fish and a few other items. If Bangladeshi items with RCA>1 in India is

considered,itisseenthatIndiamadeaboutUSD1.4billionworthofimportsoftheseitems

in2008excludingchemicalfertiliserandfurnaceoil(Table7).ItemswithRCAindexlessthan

unity(indicatingabsenceofcomparativeadvantage)wasfoundforsuchBangladeshi items

ofexport

as

pharmaceuticals,

plastic

goods

and

home

textiles.

However,

within

these

three

productgroups,consideringitemsattheHS6digitlevel,threeitemsfrompharmaceuticals,

11itemsfromplasticgoods,andoneitemfromhometextileswerefoundtoenjoyRCA>1in

theIndianmarket.

16As isknown,Balassa (1977)wasamong thefirst todevelop theconceptwhichwasapplied toanalyse the

pattern of comparative advantage of industrial countries for the period between 1953 to 1971. The index

cametobeknownasBalassaindex.17The

following

formula

was

used

to

obtain

RCA

index:

(Bangladesh'sexportofcommodityjtoIndia)/(India'simportofcommodityjfromworld)

RCA=

(BangladeshstotalexporttoIndia)/(India'stotalimportfromworld)

AcomparativeadvantageisrevealedifRCA>1,inwhichcasetheorigincountry(Bangladesh)hasarevealed

comparativeadvantagetoexportthatparticularproductinthedestinationcountry(India).18

ItmaybenotedherethattheseproductgroupsaresimilartotheoneidentifiedbyBhuyanandRay(2006),

butdonotmatchwiththatofSiriwardanaandYang(2007).

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Table6:RCAandShareofBangladeshsExport inIndiasGlobalImport:2008(BasedonProducts

at6DigitLevel)

CommodityGroups RCA BangladeshsExportasa

ShareofIndia'sImport

Rawjute 954.08 99.66

Cane

sugar

654.04 68.32

Corianderseed 254.00 26.53

Frozenfish 186.77 19.51

Betelnuts 170.43 17.80

Soaptoilet 164.52 17.19

Cement 118.98 12.43

Glasssheet 59.19 6.18

Juteyarnandtwine 38.98 4.07

RMG 28.38 2.96

Chemicalfertiliser 18.63 1.95

Leather 18.30 1.91

Zincwaste 7.09 0.74

Accumulatorbatteryandparts 5.34 0.56

Textilefabrics 3.13 0.33

Furnaceoil 1.82 0.19

Plasticgoods 0.76 0.08

Hometextiles 0.30 0.03

Pharmaceuticals 0.27 0.03

Source:AuthorsestimationbasedontheUNCOMTRADEdata.

Table7:IndiasImportMarketofBangladeshiExportItemsin2008(inMillionUSD)

CommodityGroupsBangladeshs

Export

to

India

IndiaGlobalImportImportofIndiafrom

Non

Bangladesh

Sources

Accumulatorbatteryandparts 2.9 515.1 512.3

Leather 7.3 380.8 373.5

RMG 4.0 135.8 131.8

Textilefabrics 0.4 130.5 130.1

Cement 10.5 84.5 74.0

Glasssheet 3.4 54.5 51.1

Zincwaste 0.2 25.8 25.6

Betelnuts 4.1 23.1 19.0

Juteyarnandtwine 0.8 18.8 18.1

Corianderseed 2.8 10.5 7.7

Frozenfish 1.9 9.5 7.6

Soaptoilet 1.0 5.8 4.8

Canesugar 2.2 3.2 1.0

Rawjute 13.2 13.2 0.0

Total 54.6 1411.3 1356.7

Source:AuthorsestimationbasedontheUNCOMTRADEdata.

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If pharmaceuticals, plastic goods and home textiles are also included (only those items

which have RCA valueof greater than one within these threebroadproduct groups), the

importmarketinIndiawasworthaboutUSD2.0billionin2008.Thereisthusanopportunity

totargettheseitemsforgreateraccesstotheIndianmarket.However,Bangladeshsability

to realise the potential expansion will depend on a number of critical determinants (a)

supplysidecapacityinBangladesh;(b)elasticityofdemandfortheparticularitemsinIndia;

(c)further

reduction

of

tariff;

(d)

non

tariff

barriers;

(e)

micro

(enterprise)

level

efficiency

andproductivity;and(f)qualityoftheproduct.ItneedstobeconcededthatBangladeshwill

perhaps not be able to tap the market potential worth USD 2.0 billion for these items in

India.However, it ispossiblethatBangladeshshouldbeabletotargetasignificantpartof

thismarketasisalsoevidencedbytherecentdynamicsofexporttoIndia.

From a dynamic perspective, exports could increase at a much faster pace if supportive

measuresareputinplacetotargetitemswithexportpotentialsintheIndianmarket.Itmay

benotedherethatbetween1990and2003IndianexporttoBangladeshroseby9.3times,

whilstBangladeshsexporttoIndiarosebyabout2.7times.Incontrast,betweenFY200304

andFY200809 trendsactuallyreversed inBangladeshs favour: therise inexportswasby

1.8times

and

3.1

times

respectively.

Thus,

backed

by

appropriate

policy

support,

there

is

a

strongcaseforgrowthofexportfromBangladeshtoIndiatobefurtheraccelerated inthe

neartermfuture.

OpportunitiestoExpandBangladeshsTradewithIndiasNorthEasternStates

The fact of disadvantaged location of the North Eastern states of India19

from the

perspectiveoftradewithrestofIndiaiswellknown.Bangladeshsgeographicallocationand

proximitymakeheranaturaltradingpartnerfortheNorthEasternstates.Theselandlocked

statesareconnectedtotherestofIndiabyanarrowstripof20kmwidelandcorridorwith

NepalandBangladeshbeingoneithersideofthecorridor.20

Itisgenerallyfeltthatsincethe

regionis

isolated

from

the

mainland

India

and

thus

involves

high

transportation

cost

when

tradingwithrestofIndia,Bangladeshhasanaturaladvantageashertradingpartnerofthe

North East. Some often go as far as saying that the North East is a captive market21

of

Bangladeshi products. Often the argument is put forward that if Bangladesh provides

connectivitytoIndia,thiscaptivemarketwouldbelost.

However,itneedstobetakenintocognisancethattheNorthEastIndiaisarelativelypoor

regionevenbyAllIndiastandards.Only3.8percentpeopleofIndiaresideintheregionand

theNorthEastsGDPcontributesonlyabout2.7percenttoIndiastotaldomesticproduct.

WithintheNorthEastthereisawidevariationintermsofvalueofnetdomesticproduction.

Assam alone accounts for 65 per cent of the entire net domestic product of the region,

followedby

Tripura

(10.6

per

cent)

and

Meghalaya

(7.3

per

cent).

Per

capita

net

domestic

19North East India comprises of seven states commonly known as the Seven Sisters. These are Arunachal

Pradesh,Assam,Manipur,Meghalaya,Mizoram,NagalandandTripura.20

ThecorridorispopularlyknownastheSiliguriCorridororChickenNeck.21

Captive markets are markets where consumers face only a limited number of competitive suppliers; their

onlychoiceistopurchasewhatisavailableortomakenopurchaseatall.

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productinthesevenNorthEasternstateswasonlyUSD552inFY20070822

(Table8),which

wasabouthalfofthatofrestofIndia(USD995).

Table8:PerCapitaNetDomesticProductofNorthEasternStatesinIndia(inUSD*)

State/Region FY200506 FY200607 FY200708

Arunachal

Pradesh

574.3 639.5 837.7

Assam 455.7 491.7 611.5

Manipur 434.4 459.7 561.4

Meghalaya 589.3 658.8 847.4

Mizoram 615.6 660.9 820.3

Nagaland 573.3 na na

Tripura 621.2 636.7 na

NorthEasternStates 489.4 494.6 551.5

RestofIndia 690.1 771.4 994.9

AllIndia 682.6 750.1 950.6

Source:AuthorsestimationbasedonMinistryofFinance,India(2010).

Note:*Atcurrentprice.

narefersdataisnotavailable.

ItisthusnotsurprisingthatNorthEaststatescapacitytoimportisratherlimitedandtrade

ofNorthEastwithBangladeshhasalsotendedtoremainverylow.Bangladeshstradewith

the North East was only USD 34.2 million of export and USD 73.6 million of import in

FY200809(Table9).23

Asdataindicate,therehasindeedbeensomeriseinexporttoNorth

EastfromBangladeshinrecentyears.ShareofexporttotheNorthEasternstateswasabout

12.4percentofBangladeshstotalexporttoIndiainFY200809.Majoritemsofexportfrom

Bangladesh to North East included RMG, cement, pharmaceuticals, ceramic tiles, hosiery,

etc. Many of these are smallscale nontraditional items exported by small and medium

enterprise(SME)exporters.

Table9:

Bangladeshs

Trade

with

North

East

India

(inMillionUSD)

Year Export Import MajorImportItems MajorExportItems

FY200405 4.9 50.1 Rice,coal,agarbati,bamboo,

naturalrubber,limestone,

marbleslab,fruit,ginger,

spices,motorcycleparts,spares

oftractor,sanitaryware,fabric,

watch

RMG,cement,pharmaceuticals,

ceramictiles,hosiery,foodproducts,

bleachingpowder,sari,polyfabric,

cottonwaste,glasssheet,fish,lichi,

brick,furniture,plasticproducts,

battery,molasses

FY200506 11.4 52.2

FY200607 18.4 73.6

FY200708 30.2 83.6

FY200809 34.2 73.6

Source:AuthorsestimationbasedonNationalBoardofRevenue(NBR)customspointdata.

Note:17landcustomstationswithNorthEastIndiawereconsidered.

Althoughthe

North

Eastern

states

of

India

are

rich

in

mineral

resources,

the

region

has

a

low level of industrial development because of lack of market access and inhospitable

investmentenvironment(Sobhan2000). TheNorthEastsuppliestea,petroleumproducts,

limestone, mineral resources, gas, coal, wood and timber to other states of India, whilst

receivingmanufacturedconsumergoodsandfoodgrains.TheIndianinterstatetradeprofile

22ThefiscalyearinIndiarunsfrom1Aprilto31March.

23InFY200405thiswasUSD4.9millionandUSD50.1millionrespectively.

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of the North East indicates that the region, for a select set of commodities (as shown in

Table10),hadan incoming trafficof5.8million tonnesandoutgoing trafficof9.1million

tonnes.Thefiguresforagriculturalproductswere3.9millionmetrictonnes(MT)(incoming)

and 0.3 million MT (outgoing); and for industrial products these were 1.9 million MT

(incoming); and 8.8 million MT (outgoing). Total freight movement between North East

statesandrestofIndiaiscurrentlyestimatedat40milliontonnes.

Table10:InwardandOutwardMovementofMerchandiseinNorthEasternStatesandRestofthe

StatesinIndiathroughRailandRiverfor12Months(EndingMarch2008)(000MT)

CommodityGroup

(Selected)NorthEasternStates

Inward Outward

Agriculturalproductsofwhich

Rice 2469.7 132.6

Wheat 632.7 25.4

Oilseeds 0.7 0.0

Rawcotton 0.1 0.1

Fruitsandvegetables 446.5 0.0

Oilcakes

12.0 124.9

Sugar 368.0 11.2

Industrialproductsofwhich

Coalandcoke 27.5 5692.5

Limeandlimestone 149.0 120.2

Mineraloils(excludingkerosene) 238.7 2691.9

Cement 1219.3 110.0

Fertiliserandorganicmanure 263.3 178.5

Total 5827.4 9087.3

Source: Authors estimation based on Directorate General of Commercial Intelligence and Statistics, Government of

India(2009).

Given

the

location

of

the

North

East,

connectivity

provided

by

Bangladesh

to

facilitate

movement of cargo between the North Eastern part and rest of India could create

opportunities forexportoftransportservices forBangladesh.Accordingtosomeestimate

(Murshid2010),ifeven25percentofthecargomovementbetweenNorthEastandrestof

IndiaisallowedtopassthroughBangladesh,thiscouldgeneraterevenueearningsofabout

USD 400.0 million. Half of this would accrue to the NBR (cost of cargo movement by rail

wouldbeUSD11/tonagainstthecurrentUSD30/ton,andbytruckUSD50/tonagainstUSD

150/ton). However, this would require major investments in infrastructure and would

require setting up of appropriate institutional protocols to facilitate movement of cargo.

ExportstoIndiacouldthusbesubstantivelyincreasediftradewiththeNorthEastregionis

facilitatedthroughgreaterconnectivity.Asofnow,becauseofthelowpurchasingpowerof

the

North

East

the

opportunity

for

higher

exports

to

the

region

has

tended

to

remain

severely limited. If greaterconnectivity throughBangladeshcreatesopportunity for faster

development of the North East, Bangladesh is likely to gain from the consequent higher

purchasing power of its people. In all likelihood, a developed North East will also be in a

positionto importmorefromBangladesh.Thecaptivemarkethypothesiswill indeedbe

proved correct when North Easts purchasing power rises, and thanks to its geographical

location, Bangladesh is able to take advantage of its growing market. Thus, realisation of

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Bangladeshs export opportunities in the Indian market will also critically hinge on the

prospectsofamorecomprehensiveeconomicpartnershipwithIndia.

ForeignDirectInvestment(FDI):AKeyContributingFactor

A key factor in tapping the potential opportunities forBangladeshi products in the Indian

marketwould

be

Bangladeshs

ability

to

attract

Indian

foreign

direct

investment

(FDI)

that

is

targetedtothegrowing Indianmarket.Bangladeshcouldserveasadestination for Indian

investment in sectors identified in the study and also other items with export potential.

Sobhan (2000) had argued that Bangladesh could emerge as a regional production hub,

thankstosuchinvestment.However,asisknown,FDIflow toBangladeshhasbeenrather

lowandFDIinflowfromIndiahasnotbeenanexception,contributingonlyabout1percent

ofthetotalFDIinflowtoBangladeshin2008(Table11).24

Table11:FDIInflowtoBangladesh:20022008(inMillionUSD)

Year TotalFDI India ShareofIndia(%)

2002

328.3 4.3 1.3

2003 350.3 3.6 1.0

2004 460.4 6.8 1.5

2005 845.3 2.7 0.3

2006 792.5 6.1 0.8

2007 666.4 1.7 0.3

2008 1086.3 11.3 1.0

Source:AuthorscompilationbasedonBangladeshBankdata.

AsBoardofInvestment(BOI)dataindicates,registrationofFDIproposalsbyIndianinvestors

in recent times has also tended to be abysmally low. Improvement of overall investment

environmentinBangladesh,includingavailabilityofpowerandadequateinfrastructureand

trade

facilitation,

will

be

crucial

in

realising

opportunities

of

intraregional

investment

in

Bangladesh.Establishmentofprivateexportprocessingzones(EPZs),guaranteedbuyback

arrangements and special incentives for Indian investors may need to be considered to

stimulateIndianFDIinducedexportstotheIndianmarketfromBangladesh.

5. ANEXAMINATIONOFINDIANSENSITIVELISTUNDERSAFTAANDMFNTARIFFBARRIERS

SAPTA is often considered as the first significant step towards economic cooperation

betweenIndiaandBangladesh,undertheregionalumbrella.SAPTA,asisknown,envisaged

aPositiveListapproach.However,asthisapproachwasfoundtobebothtimeconsuming

and

cumbersome

(Rahman

2006),

subsequently

SAARC

countries

moved

to

a

Negative

(sensitive)ListapproachwhentheFTAwasnegotiated.Indeed,threelistswerenegotiated:

theNegativeList,thePositiveListandtheResidualList.AsperSAFTATradeLiberalization

Plan(SAFTATLP),dutiesonitemsoutsidethesensitivelistweretobereducedto0to5per

centattheveryoutset(positivelist);someoftheotheritemswouldbereducedgraduallyto

0to5percentover7yearsfornonLDCsandover10yearsforLDCs(residuallist);itemsin

thesensitivelistofacountrywouldbeoutsidetheambitoftariffreductionandwouldneed

24FDIfromIndiahasbeenconcentratedmainlyinbankingandtextilesectors.

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toenterthatcountrybypayingMFNdutiesatthecustomspoints.25

AccordingtotheSAFTA

accord,thesensitive listofamembercountry istobereviewedeverythreeyears. Indias

initialsensitivelistof763itemsforLDCswasperceivedtoberatherrestrictive.26

However,

Indiahasagreedtoreviewhersensitivelistatanacceleratedpace,andhasrevisedthelist

twicesince2006.Thenumberof items inthesensitive listforSAARCLDCswasreducedto

744, in2005andthenfurtherreducedto480items in2008.27

Outsideofthesensitivelist,

India

has

provided

accelerated

dutyfree

treatment

for

almost

all

items,

excepting

a

few

where tariffs were reduced to between 0 and 5 per cent. It is, however, important to

mentionthat,outofthese480items154itemsbelongtotheRMGcategory(HS61andHS

62).SinceMaldives,NepalandBhutan(aswellasSriLanka)havesignedbilateralFTAswith

India,fromapracticalpointofviewtheissueofrestricteditemsintheIndiansensitivelists

for LDCs is of importance only to Bangladesh (other than newly accessed Afghanistan).

GiventhatBangladeshhasrelativelystrongsupplysidecapacity,theissueofapparelsitems

in the sensitive list under the SAFTA is of relevance with regard to Bangladeshs market

accesscomparedtootherLDCsintheregionwhichenjoyFTAstatusunderbilateralFTAsin

anycase.As isknown,onaunilateralbasis Indiahasofferedtoprovidezerodutymarket

access for upto 8 million pieces of garments from Bangladesh (Tariff Rate Quota

(TRQ))without

any

sourcing

conditionality

as

per

amemorandum

of

understanding

(MoU)

betweenthetwocountriesin2008.28

However,only44percentand52percentoftheTRQ

couldbeutilised in2008(AprilDecember)and2009respectively.It isanencouragingsign

thatexportofRMGproductstoIndiaundertheTRQhasrisensignificantlyinrecenttimes

about 20 per cent of the TRQ could be utilised during the first two months of 2010 in

contrasttotheverylowfigureofutilisationduringthematchedperiodofearliertwoyears.

In2008,Bangladeshsentalistof101items29

toIndiawitharequesttoexcludethesefrom

theIndiansensitivelist.OftheseIndiahadagreedtotakeout47items30

whenthenegative

listwasreducedfrom744itemsto480items.TheMFNdutiesontherest54itemsinthelist

of 101 items ranged from5percent to 100per centwith the medianbeing10 percent.

However,it

is

to

be

noted

that

48

items

out

of

these

54

were

already

enjoying

concessional

treatmentunder the four roundsofSAPTA (preferentialmargin ranging frombetween50

percentto60percent).Inviewoftheabove,BangladeshhasrequestedIndiatotakeout

itemsfromthesensitivelistwhichareaccordedpreferentialtreatmentundertheSAPTA.

Out of the 480 items in the current sensitive list of India, 323 were actually subject to

various levels of tariffs whilst 157 items currently enjoy dutyfree access under TRQ and

variousotherRTAs;85itemsoutofthe323itemsenjoyedconcessionalduties(rangingfrom

15percentto100percent)underSAPTAandAPTA(Figure1).In2008,outoftheaforesaid

480 items, 59 items were actually exported to India from Bangladesh of which 36 were

25However, the concessional treatments under other regional agreements (e.g. SAPTA, APTA, etc.) remain

validfortheseitems.26

IndiassensitivelistfornonLDCsincluded884items.Bangladeshsownsensitivelistincluded1,249itemsfor

LDCsand1,254itemsfornonLDCs.27

Numberoftarifflinestraded,at6digitHScode,forIndiawas5,054in2008.28

ItistobenotedinthisconnectionthatmostapparelsitemscontinuetoremaininthesensitivelistofIndia.29

48ofthesewereRMGitemswhile53werenonRMG.30

FiveoftheseareRMGitems.

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subjectedtoMFNduties.31

Thus,theargumentthattariffsonitemsinthesensitivelistbeing

amajorconstrainingfactorisgraduallylosingitsvalidity.

Figure1:SensitiveListofIndiaanditsImplicationsforBangladesh

Source:TariffCommissionandAuthorsestimation.

Estimatescarriedoutforthisstudyindicatethatunderadutyfreescenario,thepossible

revenue

loss

to

India

would

be

around

only

USD

4.9

million

(0.023

per

cent

of

Indias

custom duty and 0.004 per cent of total government revenue earnings of India) on an

exportofaboutUSD15.2millionfromBangladesh in2008.Thus,Indiadoesnotstandto

lose revenue in any significant manner if the entire sensitive list is eliminated for

Bangladesh,onanimmediatebasis.

Inspiteofsome initialdifficultieswhichconstrainedBangladeshsabilitytotakeadvantage

of theTRQgivenby India, as waspointedoutabove, the record for the first fewmonths

indicatesome improvement inquotautilisation.Thiswouldmean thatBangladeshhasan

interesttotakeoutthe154RMG itemsfromthenegative listofIndiaalongwiththenon

RMGitemsthatareinIndiasnegativelistandareexportedtoIndiabyBangladesh.Aswas

noted

earlier,

prior

to

the

last

revision

of

the

sensitive

list,

Bangladesh

requested

for

anexclusion of 101 items from the list, of which 47 item were finally taken out. During

subsequentnegotiations,Bangladeshcouldpursueexclusionofatotalof90 itemsatHS6

digitlevelthatincludes59itemsmentionedaboveplusanother31itemsthatwerepartof

the previous request list from Bangladesh, but were not taken out of the sensitive list in

2008(Figure2).

31This implies that there is another 287 items in the sensitive list out of 323 items with MFN duties which

BangladeshdidnotexporttoIndiain2008.

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Figure 2: Bangladeshs Potential Offer List for Indias Consideration to be Taken out from the

SensitiveList

Source:AuthorsestimationbasedondatafromUNCOMTRADEandTariffCommission,Bangladesh.

InthecourseoffuturetradenegotiationswithIndia,Bangladeshmayconsiderthefollowing

strategies.Firstly,

India

should

be

pursued

to

take

out

items

from

the

sensitive

list

for

which

BangladeshgetspreferentialtreatmentundertheSAPTA.Secondly,asIndiastotalrevenue

losswouldberatherinsignificantevenifallBangladeshiproductsgetdutyfreeaccess,India

should be persuaded to offer dutyfree market access for all Bangladeshi products on an

immediatebasis.Thirdly,BangladeshremainstheonlySAARCLDCforwhichsensitivelistof

India remains to be of some importance as was mentioned above; most LDCs (barring

BangladeshandAfghanistan)havesigned bilateralFTAs with India and are enjoying duty

free bilateral treatment for their respective export to India. Indeed, proposal for bilateral

FTA was put forward by India in 2007 and is being considered by Bangladeshs

policymakers.32

It is important forBangladesh to firm up her position with regard to this,

and design a strategy to enable Bangladesh to maximise her benefits if and when such a

bilateralFTA

is

signed.

6.NONTARIFFBARRIERSTOTRADEWITHINDIA

EvidencesuggeststhatvarioustypesofNTBsoftentendtounderminethepotentialbenefits

that partner countries could reap from membership in RTAs. SAFTA has not been an

exceptioninthisregard.Indeed,thelowlevelofintraregionaltradeamongmembersofthe

SAFTAhasoftenbeenattributedtothepresenceofNTBs.Although,theSAFTAaccorditself

stipulates various measures and initiatives to facilitate intraSAARC trade, the fact of the

matteristhatNTBs,realandperceived,areamajorconcerninSouthAsia.Thus,theissueof

NTBsandmodalitiestoaddresstheattendant issuesmeritspecialattention inthecontext

ofpresent

discussion.

6.1NTBsinSouthAsia

NTBs that inhibit intraSAARC trade are large in number, and the related disputes and

complaintsencompassawiderangeofissues.AsurveyofNTBsreportedbySAARCmember

32PakistanandSriLankahavealsosubmittedsimilarproposalsforbilateralFTAswithBangladesh.

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countries to the Committee of Experts (CoE) shows that SPSTBT (sanitary and

phytosanitarytechnicalbarriertotrade)relatedNTBsarethemostfrequentlypresentNTBs

to trade as far as SAARC countries were concerned; others include quotas, license

requirementsandantidumpingcountervailingmeasures.33

Documentationproceduresand

SAPTA/SAFTAcertification forRoO are alsoconsidered tobe NTBsby exporters. ADBand

UNCTAD (2008) estimated that SPSTBT and related measures account for about86.3per

centof

NTBs

in

the

region

(Table

12).

Table12:CategorywiseShareofNTBsinSAARC

NontariffBarrier Share(%)

SPS,TBTandotherrelatedmeasures 86.3

Tariffquota 9.8

Antidumpingmeasures 7.4

Licenserequirement 5.3

Countervailingmeasures 1.2

Source:ADBandUNCTAD(2008).

Note:Percentage

shares

exceed

100

per

cent

since

number

of

cases

varies.

Bangladeshi exporters have also complained that total tax incidence (TTI) of various

customssurchargesinplaceinIndiaisratherhigh,varyingbetween8.3percentand12.7

percent (4.4percent to8.6 percent ifadditionalexciseduty isexcluded). However, in

thiscontext, India hasargued thatsuchsurchargesare imposed onall importsand that

theseare notcountryspecific,andare onMFN basis. Bangladeshiexportershaveurged

foreliminationofatleasttheadditional excisedutywhichiseligiblefordutydrawbackin

Indiaat the timeofpaymentofvalueadded tax (VAT)on the followinggrounds.Firstly,

Indian importers tend to set price for items imported from Bangladesh by taking into

cognisance duties paid at the customs point; this makes Bangladeshi goods less

competitive.Secondly,

apart

of

importers

capital

is

stuck

on

account

of

the

duties

paid.

Thirdly,therewillbenorevenue lossfortheGovernmentofIndia ifthis isallowedsince

thesedutiesarerebatableinanycase.

6.2RulesofOrigininSAFTA

UnderSAFTA,thegeneralRoO is40percentvalueadditionpluschange inclassificationat

thefourdigit level(CTH).ForLDCs,theRoO is30percentvalueadditionplusCTH.Under

regional cumulation rules of SAFTA, applicable rules relate to provision of value addition

criterion only. In this case, domestic value addition (value of inputs originating in the

exporting contracting state plus domestic value addition in further manufacture in the

exporting

contracting

state)

is

to

be

no

less

than

20

per

cent

of

the

export

value.

The

aggregatecontent(valueof inputsoriginating inanycontractingstateplusdomesticvalue

addition in further manufacture) is to be no less than 50 per cent of the export value. It

needstobenotedherethatbotharesubjecttochangeinclassificationatthefourdigitlevel

(CTH),orchangeinclassificationatthesixdigitlevel(CTSH).Thereisaneedtomakethese

ruleslesscumbersomeandmoreexportfriendly.A25percentflatRoOforLDCs(asinthe

33TheCoEservesastheSAARCarbitrationbodiesthatincludegovernmentofficialsofvariousSAARCcountries.

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Canadian Generalized System of Preference (GSP)) will make both compliance and

implementationeasier.

6.3MechanismforComplaintandResponse

TheSAFTACoEhasbeenentrustedwiththeresponsibilityofdealingwithnotificationsand

collating

and

considering

responses

with

regard

to

NTBs.

The

member

countries,

on

an

annualbasis,notifytheSAARCSecretariataboutNTBswhichareperceivedtobehindering

theirrespectivetrade.Consequently,theCoEreviewsthemtoexaminetheircompatibility

withrelevantWorldTradeOrganization(WTO)provisions,andrecommendselimination,or

failing that, implementation of measures in the least traderestrictive manner in order to

facilitateintraSAARCtrade.Asofnow,foursubgroupmeetingsonNTBshavetakenplace.

Notifications and complaints are generally dealt with through bilateral negotiations

(Rahman2010).

WithregardtotradebetweenBangladeshandIndia,bothcountrieshavesubmitteddetailed

list of NTBs which are perceived to be constraining their trade with each other, at and

beyond

the

border,

for

consideration

by

the

CoE.

The

detailed

list

of

notification

and

responseofpartnercountrieshasbeenpresentedinAnnex1.Itwasfoundthat,allmember

countrieshavetriedtojustifytheirresponsesonthegroundthatmeasurestakenbythem

did not violate national treatment and nondiscrimination principles of the WTO. A large

number of NTBs originated from healthhygiene and other admissible concerns. Rahman

(2010)hascategorisedtheNTBsinthefollowingmanner:(a)marketaccessdifficultiesfaced

on account of requirements relating to SPSTBT, certification, labeling, registration,

laboratorytestingandstandardisationinplaceinpartnercountries; (b)difficultiesfacedin

partnercountriesduetoinfrastructuralconstraintsthatimpedecrossbordermovementof

goods from the exporting countries (lack of infrastructure, low handling capacity, lack of

warehousefacilities,etc.);(c)impositionofparatariffs,surcharges,cess,VAT,salestax,and

otherduties

beyond

MFN

tariffs;

(e)

requirements

of

licenses

and

permits

from

importing

countries;(f)antidumpingandcountervailingmeasures;(g) interpretationofRoO;and(h)

lack of availability of adequate letter of credit (L/C) facilities and necessary financial

intermediation.However,responsesfrompartnercountrieshavetendedtoarguethatNTB

orNTMs(nontariffmeasures)inplaceintheircountriesshouldnotbeinterpretedassuch

because: (a)SPSTBT andother relatedcomplaintsshouldnot beperceivedasNTBssince

thesehavebeenput inplacetoensurecompliancewithnationalrelevantstandards,rules

and regulations related to health, sanitation and hygiene requirements; (b) measures

perceivedasNTBsareofMFNnatureandarenotdirected tospecificcountries; (c) these

measureswereWTOcompatible;(d)someofthemeasuresrelatetosecurityconcerns;(e)

partnercountryhasalso imposedsimilarbarriers; (f) lackofdomesticcapacitytodevelop

necessaryinfrastructure

has

led

to

infrastructure

related

constraints

in

importing

countries,

andtheseshouldnotbeperceivedasNTBs.Inonlyafewcasesdidthepartnercountry,in

response, has mentioned that the complaint was a valid one and it was taking corrective

stepstoaddresstheconcern(buildingof infrastructure)orthatrelevantauthorities(often

centralbanks)havebeenaskedtoprovideclarificationaboutthecomplaint.Thus,inspiteof

thebesteffortsoftheCoEtoresolvetheexistingNTBrelatedissues,muchstillremainsto

bedoneamongtheSAARCnations.

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6.4DrawingLessonsfromASEANExperience

A majority of RTAs have developed mechanisms to deal with the NTBs, primarily through

mutual recognition agreements, where certification, laboratory test results and SPSTBT

standards of one country are accepted at the border points by other member countries.

Such mutually beneficial arrangements were found to be an excellent and eminently

effectivemodality

to

address

concerns

of

RTA

member

countries

with

regard

to

the

NTBs.

The experience ASEAN is relevant in the above connection. As Table 13 indicates, the

overwhelming majority of NTBs (70 per cent) leading to disputes in ASEAN is related to

customssurcharges.Toaddress theattendantproblems,ASEANhassignedanagreement

on general framework of a process following which NTBs would be addressed, and

subsequentlyeliminated.Theprocess involves: (a)verificationof informationonNTBs; (b)

prioritisationofproducts/NTBs;(c)developingspecificworkprogrammes;and(d)obtaining

a mandate from the ASEAN Economic Ministers to implement the work programme.

MembercountriesarenowintheprocessofverifyingthelistofNTBsandproductscovered

bythesemeasureswhichisbeingcompiledbytheASEANSecretariat.

Table13:MostPrevalentNTBsinASEAN

TypesofNontariffBarriers NumberofTariffLineAffected ShareofTotal(%)

Customssurcharges 2683 69.4

Additionalcharges 126 3.3

Singlechannelforimports 65 1.7

Statetradingadministration 10 0.3

Technicalmeasures 568 14.7

Productcharacteristicrequirement 407 10.5

Marketingrequirements 3 0.1

Technicalregulations 3 0.1

Total 3865 100.0

Source:ASEANSecretariat(2005).

It istobenotedthat, inspiteofsubstantialreduction inMFNtariffs,underautonomous

tariff rationalisation and further reduction of tariffs as a result of the preferential

treatment offered to member countries, NTBs still continues to persist in intraASEAN

trade. SPSTBTrelated disputes are being resolved through agreements pertaining to

mutual recognition of standards and certification. ASEANs experience could be highly

relevant and pertinent for the SAARC in addressing the oftquoted problem of NTBs in

tradeamongSAARCmembercountries.

6.5PolicyInitiativestoAddresstheNTBs

Anexaminationofcrosscountryexperiencessuggestthatfollowingpolicyinitiativesmaybe

consideredtoresolveNTBsinSouthAsiantrade,particularlyastheyrelatetotradebetween

BangladeshandIndia.

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GeneralPrinciples

Implementation of on effective agreement that value of all imported products would be

ascertainedonthebasisofcustomsvaluationassessmentoftheWTO.

StrengtheningSPSTBTrelatedCapacities

Strengthening national capacities in relevant areas through capacity building of

standardisation institutions should be seen as a priority task by the SAARC countries. It

needs to be mentioned here that India has been providing some technical assistance

towardsstrengtheningoftheBangladeshStandardsandTechnicalInstitution(BSTI)(Annex

2).Suchcooperationshouldbefurtherstrengthened.

DisputeSettlementMechanism

SAARCmembersshouldintroduceamoretransparentprocedureforlodgingcomplaintsand

getting remedy. A system of permanent panelists and a transparentsystem of arbitration

involving

cases

relating

to

antidumping

duties

(ADDs)

and

counter

veiling

duties

(CVDs)

shouldbeputinplace.

CapacityBuilding

A more towards a common set of standards is critical to resolving the NTBrelated

disputes. The proposed South Asian Regional Standards Organization (SARSO) is

expected to play a key role inensuringevolution of commonstandards with regard to

variousSPSTBT,certification, testingrequirementsSARSOcouldalsoplayan important

role in terms of putting in place Framework Agreements for Mutual Recognition of

StandardsandCertification.

AccreditationAgencies

Support setting up of accreditation agencies to provide certification about standards and

compliance.

CustomsCooperation

Cooperation among various customs agencies could play an important role in resolving

many of the customsrelated disputes in the SAARC. A SAARC Agreement on Mutual

Administrative Assistance in Customs Matters has been finalised by the subgroup on

customscooperation.

Speedy

completion

of

the

harmonisation

and

computerisation

of

the

customsclearanceprocessatborderpointsandportsshouldbegivenhighprioritysothat

disputes at customs points, particularly at land customs points, could be appropriately

addressed,andreduced.

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ofstandards,andstrengtheningofsupplysideinstitutionalandhumanresourcescapacities.

Improvementsoftraderelated infrastructureatborderandcustomspointsarecritical for

not only increasing Bangladeshs export opportunities, but also from the perspective of

bringingdown thecostof import from India.Attracting investment from India that target

the Indianmarketwillbecritical to realisingBangladeshsexportopportunities in India. It

was pointed out in the paper that the North Eastern region of India presents a unique

opportunityfor

enhancing

Bangladeshs

exports.

Deepening

of

bilateral

economic

relation

BangladeshandIndiacouldcreateaconduciveenvironmentforaccelerateddevelopmentof

theeconomyoftheNorthEast,whichinitsturncouldenableBangladeshtotakeadvantage

ofthegrowingpurchasingpowerofthatregion.

As was noted, India has proposed establishment of a bilateral FTA with Bangladesh. This

proposalhasbeenonBangladeshstableforsometimenow,andisbeingexamined.There

is a need to take a decision on this proposal by articulating the best possible options for

Bangladesh,asanLDCpartner,withregardto:(a)marketaccessandsensitivelist,(b)rules

of origin, (c) institutional mechanisms to deal with NTBs, (d) investment promotion

measures,(e)tradefacilitation,and(f)capacitybuildingsupport.

As envisaged under the bilateral communiqu following the recent visit to India by

BangladeshsPrimeMinisterduring1013 January2010,providingconnectivityanduseof

portfacilitiescouldopenupopportunitiesofexportofservicesbyBangladeshwhichcould

significantly enhance Bangladeshs export to India. However, this will require appropriate

homework on Bangladeshs part. Indeed, a broadbased, twotrack Common Economic

PartnershipAgreement,thatincludestradeingoods,services,connectivityandinvestment

related aspects along with scope for sectoral cooperation, in a phased manner, could be

considered with a view to exploiting the opportunities of multidimensional cooperation

betweenthetwocountries.

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Annex1

4thSAFTASubgroupMeetingoftheCommitteeofExperts(CoE),2627October2009,Kathmandu

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