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Doubt over benefits of FTA with India

Star Business Report
Analysts yesterday expressed doubt over a World Bank idea that a free trade agreement (FTA) with India will boost Bangladesh's exports to the neighbour.
Instead of an FTA, they stressed increasing trade facilitation, market access, regional connectivity and investment to raise Bangladesh's exports to India. They also put emphasis on the removal of non-tariff barriers (NTBs).
Sanjay Kathuria, lead economist of the WB in Bangladesh, shared the suggestion of the lender at a dialogue, forecasting that an FTA will raise Bangladesh's exports by up to 133 percent to India.
It will also open up productionsharing possibilities in textiles and clothing, iron and steel as well as
electrical machinery and equipment making because of trade complementarities between the two countries, according to a WB study.
"This is just the tip of the iceberg. Trade complementarities will grow with time," said Kathuria, presenting the study — Bangladesh-India Trade Relationship: New Opportunities, New Challenges -- at the dialogue. Selim Raihan, associate professor of economics at the University of Dhaka, coauthored the study.
The Centre for Policy Dialogue (CPD) in collaboration with the WB organised the event at BRAC Centre Inn in Dhaka, where Prime Minister's Foreign Affairs Adviser Gowher Rizvi and Commerce Secretary Md Ghulam Hussain also spoke.
CPD Distinguished Fellow Debapriya Bhattacharya chaired the session.
Kathuria said Bangladesh and India’s relationship is rich but it remains below its potential.
To realise the prospect both the countries will have to further liberalise trade, cut tariffs, reduce non-tariff barriers and take steps to facilitate more trade, he said.
"The bilateral FTA will be a building block towards regional cooperation," said the WB economist, arguing that Bangladesh will hardly achieve 8 percent growth without significant cooperation with neighbours --India, Nepal and Bhutan. "A full FTA plus improved connectivity would result in a much higher export growth," said Kathuria.
Commerce Secretary Ghulam Hussain said, apart from the benefit of the bilateral FTA, impact on employment, industry, poverty and revenue should be taken into account.
"I am not convinced that we should go for an FTA with India," Hussain said, citing that Bangladesh received such proposals earlier, but the conclusion was negative.
He said Bangladesh gets duty-free access to India excluding 25 product lines. Trade facilitation and removal of NTBs will boost bilateral trade further, he said.
Instead of an FTA, Bangladesh should work on trade facilitation issues, said CPD Senior Research Fellow Khondaker Golam Moazzem.
He said increased market access and better regional connectivity will raise Bangladesh's exports.
Mostafa Abid Khan of Bangladesh Tariff Commission also questioned the prediction of the
WB on Bangladesh-India FTA.
In 2004, a similar WB study did not find any benefit from such an FTA between the two countries, he said.
Khan said Bangladesh should go for a comprehensive agreement that would incorporate connectivity, investment, trade facilitation and other aspects.
"The study has raised expectations and concerns, said Osman Faruk, an adviser to the chairperson of opposition BNP.
He said India's actual exports to Bangladesh are much higher because of a huge informal trade.
"India has to take proactive measures to reduce NTBs to boost bilateral trade," said Faruq, also a former WB economist and a former minister.
On connectivity with India, he suggested considering the matter more from regional perspective, encompassing Nepal, Bhutan, Myanmar and China.
He said providing transit to India may erode comparative advantages of Bangladesh’s garment products in northeast Indian states.
Bangladesh Foreign Trade
Institute's Chief Executive Mozibur Rahman expressed doubt over the predicted export growth for the FTA. "We have to be very cautious in forecasting the potential. Growth cannot be linear and horizontal type," he said.
Citing a study of the Asian Development Bank, he said gains would be higher for Nepal and Bhutan for regional connectivity.
He said gains for India will be $3.billion for using Bangladesh's ports, railway and roads for transporting goods to its northeast region.
Bangladesh will gain only $200-300 million, said Rahman, citing an estimate.
Referring to India's FTA with Sri Lanka, former ambassador Ashfaqur Rahman said Sri Lanka is not happy with the trade deal.
Sohel Ahmed Chowdhury, a former commerce secretary, cited a lack of investment from the Indian side for trade facilitation with Bangladesh. Bangladesh established a land port in Banglabandha in 2004, but India did nothing, he said.
Former ambassador Farooq Sobhan said the issue of trade
facilitation needs to addressed.
Kathuria, in reply, said the WB study in 2004 considered that garments would not be competitive.
He said the FTA will increase formal trade and enhance revenue. The increased trade will also impact prices and thus contribute to poverty reduction, he said.
PM's Foreign Affairs Adviser Gowher Rizvi said further examination is necessary before signing an FTA with India.
Rizvi said Indian investors are showing interest to invest here. "But, we need a transparent policy to attract investment."
He said the both sides should at first find all the NTBs between them.
CPD Distinguished Fellow Debapriya Bhattachariya said Bangladesh should focus on subregional cooperation.
Summing up the discussion, he said instead of an FTA, a comprehensive framework agreement that incorporates issues such as trade facilitation, investments, trade in services, and infrastructure development, may be considered.