Garment exports constitute more than four-fifths of Bangladesh’s total export of trade and services. Eighty-five percent of garments find markets in Europe and the United States, under the system of preferential trading for least developed countries. Together, exports to the European Union, UK and US add up to as much as $37 billion. In comparison, Bangladesh’s garment exports to its next-door neighbour, India, is barely $1 billion. And this has been achieved in just the past couple of years. In 2020 India’s garment import from Bangladesh was just about a fifth of this.
It is just one example of the low levels of regional economic cooperation in the South Asian region, home to some of the poorest people in the world. According to a 2021 World Bank report, regional trade can boost India’s national income by as much as 7.6% and that of Bangladesh by over 16%, bringing all-round prosperity to a fifth of humanity. The benefits of regional cooperation had occurred to South Asian countries nearly half a century ago, leading them to create the South Asian Association for Regional Cooperation (SAARC) in 1985. SAARC had been inspired by the success of other regional economic groupings like the European Community, now expanded into the European Union, and the Association of Southeast Asian Nations (ASEAN).
The collapse of the Soviet Union in 1991 spurred SAARC to activity and a free trade area was created in 1993. Despite a number of multilateral agreements since, the idea of economic cooperation among South Asian nations has languished, marred by mutual suspicion and in some cases hostility. High tariffs, trade barriers and inefficient border procedures discourage intra-regional trading among South Asia’s eight nations. It is faster and cheaper for an Indian firm to trade with faraway countries like Brazil and Germany than with Bangladesh.
Take the case of the Motor Vehicles Agreement (MVA) signed in 2015 by four SAARC members who came together in a sub-regional grouping, BBIN (Bangladesh, Bhutan, India, and Nepal), that emerged as long back as 1997.
The MVA aimed at making free movement of vehicles possible within these four countries, all sharing borders with India, shortening trade routes and making international and inter-regional trade faster and cheaper. But eight years have passed, and it remains mostly on paper.
Consider the numbers. A truck travelling from Guwahati (the trade hub of the Northeast) to Kolkata via the Siliguri corridor takes on an average 164 hours and pays ₹3,129 per tonne. If MVA is fully implemented the truck can use the Petrapole-Benpole (West Bengal-Bangladesh) land port, will take an average of 126 hours plus eight hours’ waiting time at the border, and cost ₹2,479 per tonne, a saving of 18% in time and 21% in cost, according to the World Bank report, “Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia”. India can increase inter-regional trade with its neighbouring countries three-fold by making international borders superfluid for seamless movement of logistics, goods, and tourists, says the World Bank.
The borders of all four countries fall within a radius of 200 km. The central point that connects all four countries is Siliguri in West Bengal. Nepal’s eastern border at Panitanki-Kakarbhitta is just 28 km to the west of Siliguri from where it is 15 km to the Bangladesh border at Banglabandha. People and goods from Nepal can cross the 43-km Indian ‘Chicken’s Neck’ at Siliguri in just about an hour into Bangladesh, expanding both economies. But this will come to pass only if there is smooth transit between them.
Clearly, countries in the BBIN sub-region have so far failed to take advantage of proximity to one another and it remains one of the least integrated regions globally. Trade between Bangladesh and India, the two largest economies of the region, is just 1% of Indian trade and 10% of Bangladeshi trade. The sub-region is way behind: even in the East African and Sub-Saharan regions, inter-regional trade is 50% and 22% of total trade, respectively, according to a report, “Multimodal Connectivity for Shared Prosperity: Towards Facilitating Trade in the BBIN Sub-Region”, by development organisation CUTS International.
The sub-region is burdened by high trade costs due to poor infrastructure and logistics. The Asian Development Bank (ADB) under its South Asian Subregional Economic Cooperation (SASEC) programme has invested more than $15 billion in the priority sectors of transport, energy, trade facilitation, economic corridor development and information and communication technology (ICT) till August 2020.
Though cooperation and integration in the BBIN sub-region have moved forward in fits and starts, their importance for economic growth in the sub-region is beyond doubt.
The CUTS analysis of GDP and trade within the sub-region between 2010 and 2019 brings out the positive correlation between the two. In 2010, inter-regional trade was $6 billion, while GDP was $1.7 trillion. By 2019, trade had risen to $16 billion, while GDP had nearly doubled to $3.2 trillion. The GDP of the BBIN sub-region grew faster than the world GDP, leading to its identification as one of the fastest growing regions of the world.
The real benefits of integrating BBIN will begin to emerge only when trucks, trains and boats actually begin to cross international boundaries with the complete implementation of the MVA. Though the MVA has an average score measured against an ideal transport agreement, it misses out with regard to some important elements, according to the 2021 World Bank Report. Chief among them are standards for the design of infrastructure on which services are provided, rules on the training and issuance of driver’s licences and general principles for transit movement.
The cost and quality of road transport services are critical as it accounts for more than 80 percent of all regional trade shipments. High costs of trade and long delays in crossing borders, the age and reliability of fleets, the poor quality of services, weak skills and the high degree of atomisation hamper trade. But despite its importance, said the WB Report, little attention has been paid to the cross-border integration of transport services in the region.
Creation of infrastructure alone will not reduce trade costs. Countries must invest in regulatory reform in logistics services like trucking, warehousing and freight forwarding. Infrastructure has to be built to the same standards and specifications, providing the basis for allowing vehicles loaded to the same limits to cross the borders without hindrance. Different load limits may require goods to be transloaded, resulting in delays and high costs.
Efficient cross-border road transport operations require countries to negotiate complementary reforms — on road signage, driver training, insurance, and visa regimes, not specified in the MVA. Digital technology can help in sharing information between the countries, obviating the need for drivers to carry physical copies of documents. The MVA requires them to carry as many as 11 documents.
Because of the shape of the borders in the region, Bangladesh could serve as a transit country for trade between Northeast India and the rest of India as well as provide easier access to ports for landlocked Nepal and Bhutan. But, as of now, cross-border movement of vehicles — for transit or delivery of goods — is not possible. But if the integration eventually happens then, CUTS International estimates, the combined GDP of the region can easily exceed $8.3 trillion by 2035 as projections show.