India proposes free trade agreement with Bangladesh

India has proposed that Bangladesh consider negotiating with it a free trade agreement on goods, services and investment to promote two-way commerce and connectivity.

The proposal was made by the Indian side a month and a half ago, with both countries looking forward to making wider trade facilities available for each other, sources at the Bangladesh Foreign Trade Institute (BFTI) have said.

If signed, the bilateral trade contract – the Comprehensive Economic Partnership Agreement (CEPA) – will enable the two countries to enjoy duty-free and quota-free access for their products to each other's market.

In August this year, Delhi sent a draft Memorandum of Understanding (MoU) to Dhaka to ascertain Bangladesh's observations on the proposed deal.

Subsequently, on September 22, Bangladesh gave its positive nod to the draft MoU, albeit with a request that India bring some changes to it, the BFTI source confirmed.

If India agrees to the changes suggested, Bangladesh will go ahead and sign the MoU with the neighbouring country. The next step will be for the two nations to jointly conduct a feasibility study relating to the prospects and benefits accruing from the CEPA.

The Bangladesh Foreign Trade Institute and the Indian Institute of Foreign Trade have been tasked with dealing with the entire issue.

Meanwhile, Bangladesh has also been negotiating a free trade agreement with China. The Asian trade giant has proposed to Bangladesh a deal envisaging a hundred-percent duty-free and quota-free access for its products (excluding weapons), including readymade garments, to the Chinese market.

The ongoing trade war between China and the United States has, however, slowed down the negotiation process on the deal in Beijing and Dhaka.

Prime Minister Sheikh Hasina, now on an official visit to India, will discuss the CEPA at length with her Indian counterpart Narendra Modi, according to Ali Ahmed, the BFTI chief executive officer.

"We are at an initial stage now. It will take about three to four years to give it a complete shape," he said.

But, there must be a profitable situation for both countries, and the joint study will explore such profitability, he added.

Currently, Bangladesh enjoys duty-free access for its products to the Indian market as a Least Developed Country (LDC) and under certain provisions of some sub-regional agreements.

Once Bangladesh graduates from LDC status in 2024, it will no longer enjoy duty-free and quota-free access to the Indian market under the South Asia Free Trade Agreement (Safta).

"The future of Safta is uncertain. After graduating from an LDC in 2024, we will lose our duty-free access to India but the CEPA will allow both nations to continue enjoying the facility," said Ali Ahmed.

At present, India has to pay duties for the export of most of its products to Bangladesh. Once the CEPA becomes effective, India will enjoy duty-free access, and Bangladesh will lose the customs duty it now earns from Indian export goods.

The question now, therefore, is one of how the CEPA will benefit Bangladesh more than the existing arrangement does.

In his response, the BFTI chief executive said both countries look forward to widening the opportunities in trade between them. The existing non-tariff barriers may also go away under this new agreement.

"Besides, Bangladesh is also looking to prospects for it in future," he added.

Apart from making its suggestion to Bangladesh, India earlier signed a similar trade agreement with South Korea in 2009. The deal became functional in January 2010.

Within only nine years of the agreement, both Delhi and Seoul derived remarkable benefits from it, with trade per annum reaching more than $20 billion. The figure was $16 billion before the two nations signed the deal.

In order to increase their bilateral trade to $50 billion by 2030, the two countries have further agreed to upgrade the CEPA by removing some existing trade barriers.

In mid-2018, they signed the "Early Harvest Package", an extended version of the CEPA, which is expected to give a boost to bilateral trade.