Bangladesh – India Trade Relations

Bangladesh – India Trade Relations:  A Critical Evaluation, D.U. Journal of  Marketing, University of Dhaka, Vol. 8, June, 2005.

Muhammad Mohiuddin *Selina Begum—

Abstract: Bangladesh has been suffering massive trade imbalance with India. It is now almost a self-evident truth. One of the main factors for this massive imbalance is India’s policy of tariff and non -tariff barriers to the Bangladeshi commodities exportable to India. This article particularly focuses on the non-tariff barriers and recommends for remedial measures in order to bridge the trade gap between Bangladesh and India.

INTRODUCTION

Bangladesh suffers a huge trade imbalance with India. Apart from the larger size of the economy, maintenance of a high protectionist trade regime by India in the forms of tariff and non -tariff barriers have contributed to this imbalance. While Bangladesh has progressed much ahead of India along with its liberalization of trade, India remains slow. Against this backdrop, this article takes up the central question: why does trade imbalance exist in Bangladesh -India trade relations? This central question raises a number of subsidiary questions: what is the current status of Bangladesh -India trade relations? What constitutes this trade imbalance? What remedial measures can be pursued to minimize this imbalance? For the convenience of our analysis, we shall divide the paper into three sections. In the first section, by tracing out the roots of Bangladesh -India trade relations, we shall look into the existing pattern of Bangladesh -India relations. The second section deals with the market constraints with particular focus on the non –tariff barriers being maintained by India. The third section presents remedial measures for removing such barriers.

HISTORICAL BACKGROUND

Bangladesh -India signed the “Treaty of Friendship, Cooperation and Peace” on March 19, 1972 in Dhaka for 25 years. This Treaty widened the scopes of developing relations in many areas. As a result, both countries signed the first one-year trade agreement on March 28, 1972. In the agreement, fish, raw jute, newsprint and naphtha were identified as the principle exports of Bangladesh to Professor, Department of Studies, and University of Dhaka. Associate Professor, Department of Economics, Dhaka City College, Dhaka 216 D. U. Journal of Marketing, Vol. No. 8, June 2005 India. India’s major export items to Bangladesh, on the other hand, were cement,coal, machinery and unmanufactured tobacco. The trade was confined to government level between these two countries (cited in, Rahman 2005: 1-2; Madaan, 1996). This agreement also provided border trade between Bangladesh and Neighboring Indian states; and within 16 kilometers of both countries’ border, free trade was allowed for certain commodities (ibid; Hassan, 2002).The first trade agreement failed to achieve the expected level of trade. Also free border trade between Bangladesh and India led to illegal trade and hence was abolished in October 1972 through mutual consent of both governments.However, to attain the desired level of trade, the first trade agreement was further extended up to September 27, 1973 (ibid: 2; Madaan, 1996).

The first trade agreement of 1972 was replaced by another one, signed on 5 July

1973 and became effective from 28 September 1973. Raw jute, fish, newsprint,and the like were identified as major exportable items of Bangladesh to India. On the other hand, major exports of India to Bangladesh were unmanufactured tobacco, cement, coal, raw cotton, cotton yarn, cotton textiles and books. This agreement provided for a system of Balanced Trade and Payment Arrangement (BTPA) and favored nations treatment to each other (ibid: 2; Madaan, 1996 andHassan, 2002).The 1973 agreement too failed to achieve the desired level of trade between the two countries resulting in increased trade imbalance. Rupee trade was found to be a barrier in the bilateral trade, and thus abolished rupee trade from 1 January 1975 by a Protocol signed on 17 December 1974. It was decided that trade would be conducted in free convertible currency (Rahman 2005:2). India and Bangladesh signed another trade Protocol on 12 January 1976 for higher volume of trade and long term arrangements for trade of coal and newsprint. BTPA between Bangladesh and India was extended for another three years till 27 September 1979, since 5 October 1976. On 4 October 1980, the third trade agreement was signed between these two countries initially for three years with a provision for extension through mutual consent for another 3 years. On 8 November 1983, Bangladesh and India renewed a Protocol on trade of 1980 for further three years. In May 1986, 1983 agreement was extended for another three years till 3 October 1989. Subsequently this agreement was renewed a number of items and valid up to 3 October 2001 (Rahman 2005:3). The above narrative demonstrates the dynamics of Bangladesh- India trade relations. However, dynamism in their bilateral trade relations did not stop in

Download it