“Can’t live with you, but can’t live without you” is not just a romantic refrain. It reflects the mood inside Bangladesh and India about each other today. Narendra Modi’s Bharatiya Janata Party’s tumultuous partnership with the Rashtryia Swayamsevak Sangam (RSS) projects it as vigorously as Sheikh Hasina’s Awami League. Without India, our liberation war would have been far more uphill; without the border fence, Main Street Indians would likely have positioned guns instead. That the relationship did not boil down to a tryst between the Gandhi and Mujib families was conspicuously shattered by Sheikh Hasina’s rapport with Modi, who had dubbed our migrants as a menace. Does that mean we are evolving into a more matured relationship, at least beyond idiosyncrasies like these just mentioned? With both Manmohan Singh and Modi, Hasina has forged so many deals, the big question remains why a free trade agreement (FTA) is not among them: the Land Boundary Agreement, Bangladesh-Bhutan-India-Nepal (BBIN) and Bangladesh-China-India-Myanmar (BCIM) highways, transportation services between Kolkata and Agartala through Bangladesh, as too the Kolkata-Kunmin (K-K) infrastructural line, not to mention the Rampal project, possibly Payra seaport, and electricity transmission with Tripura. Every other day in the year, a Bangladeshi diplomat seems to be somewhere in India negotiating a deal, just as an Indian businessman is doing likewise somewhere across Rabindranath Tagore’s “Sonar Bangla.” How can these isolated incidents of cooperation be coordinated more generally? For example, the “gold” prize of such economic inter-flows still evades both countries: India boasts a 28-strong FTA kitty, but we are not on that list; and our paltry six-counterparts only connect with India through one multilateral arrangement (BIMSTEC: Bay of Bengal Initiative Multisectoral, Scientific, Technological, and Economic Cooperation), and a tepid South Asian Free Trade Agreement (SAFTA) network. Neither of these preclude us from a bilateral deal with India, indeed we have one ongoing with Pakistan (another SAFTA negotiating partner). Why an FTA embrace is a big deal is because both countries have increasingly made each other a big deal increasingly, at least at the official level, to the point that, once we lock up all our national and other emotional arguments, at the end of the day, it makes the most practical sense, but even more, it remains the most optimal future course for both countries. Almost a quarter of India’s cotton exports go to the world’s second largest RMG (ready-made garment) exporter, Bangladesh, where the RMG labour cost is such that India can easily be out-priced in the global market: 50 cents for us against $1.0 dollar an hour in India (RMG Bangladesh, May 16, 2016). Instead, Bangladesh’s RMG sales to India, valued at barely $55 million in 2011-2, face an extraordinary 12.36 per cent countervailing duty (CVD), a duty paid to offset government subsidies. In fact, as our Commerce Minister Tofail Ahmed frequently reminds us, the two countries have duty-free, quota-free trade on all commodities except alcohol, certain drugs, and tobacco; but it is this across-the-board 12.36 per cent CVD that tilts the playing field, to say the least, and fattens the smuggler’s hide, at worst. The just-released World Bank’s Stitches to Riches report acknowledges how spiralling RMG costs in China offer South Asian countries a huge opportunity to fill the growing global gaps. Behind a “Made in India” platform, the world’s fourth largest RMG exporter, India is wooing Hong Kong-based factories, according to the Hong Kong Trade Development Council. When Bangladesh can do it more competitively, jingoistic drum beats like this do not help: if push came to shove in this regard, Bangladesh could easily snatch Indian RMG markets with the blink of an eye since our RMG wages are not set to climb, at least not at the rate India’s will owing to its overhead capacity costs, while our special-economic-zones (SEZs) could easily throttle India’s RMG industry (in fact, Rajshahi’s Bangladesh Small and Cottage Industry Corporation Industrial Estate, just across the Indian border, is building a huge RMG factory extensively for export). With three SEZ allocations from Bangladesh, India hopes to absorb the IT fallout from China owing to its climbing costs. A similar arrangement with Bangladesh over China’s RMG fallout would be mutually beneficial. If we recall how the European Union (EU) began as the European Coal and Steel Community (ECSC) in 1950 under Jean Monnet’s stewardship, sectoral integration paves the way for a free trade agreement. Our RMG industry, intertwined as it is with India’s cotton exports (one of the world’s largest textile exporters), offers a similar window if leaders in both countries listen to each other and coordinate joint policies: cross-border combinations of this sort would be enormously beneficial to both countries, since Bangladesh moves to push its $35 billion RMG exports to $50 billion in five years will depend more heavily on cotton from India. It is a win-win outcome. It sets the stage for a win-win follow-up: conversion into a free-trade agreement, especially for the very reasons why SAFTA initiative continues to be sluggish. A World Bank report ten years ago (India-Bangladesh Bilateral Trade and Potential Free Trade Agreement) noted how such a bilateral FTA “outweighs the total of governmental revenue losses, producer surplus losses . . . from contraction . . . and losses of economic rents . . . from the contraction of both ‘bootleg’ and ‘technical’ smuggling” (p. 81). Furthermore, although it would lead to “large economic welfare for Bangladesh consumers,” there was, at that time when bilateral relations were mostly under Khaleda Zia’s administration, “no compelling case for India to pursue an FTA with Bangladesh” (p. 82). Much water has flown under bilateral bridges since then. Revisiting the issue should yield more encouraging news for India: without any prompts from Bangladesh, India has stepped up to the plate too many times ever since to let this opportunity pass. There will be costs and benefits for both sides. India would be able to connect its heartland with the north-eastern provinces, and Southeast Asian countries, with huge economic savings, just as Bangladesh’s RMG exporters could find a larger Indian market, in addition to harnessing many of its infrastructural projects with India’s, while together, both countries could benefit from controlling rampant smuggling along their borders, clamp down even further on terrorism, thus emitting more positive vibes to the rest of the world, and open up hitherto stalled sectors, such as tourism. To go solo would be costly for both, not just in controlling terrorism, but also in the higher living costs this would entail, from the clothes one would wear to the food one would eat, not to mention giving smugglers a carte blanche playground. For Bangladesh, any market collusion between producers would easily slant any level playing field in India’s favour, with detrimental consequences for us, while Bangladesh’s terms of trade would become more unfavourable should Indian export prices exceed global price-levels. For India, job-creation would be negatively impacted if Bangladesh RMG exports flooded the Indian market, and given the embedded Indian hostility towards any other South Asians, the masses would further undermine any such deal. This is where political leadership is vital, of the sort Alcide de Gasperi Jean Monnet, Robert Schuman, Paul Henry Spaak, and Altiero Spaak, provided in the tumultuous years before the European Coal and Steel Community and European Economic Cooperation were launched. Any Bangladesh-India FTA initiative would (a) integrate single-shot past cooperative attempts and transactions; (b) streamline markets, and thereby both producers and consumers, not to mention spill over to other non-market policy arenas; (c) strengthen bilateral political coordination as a step towards enhancing collaborative global undertakings; (d) pave the way towards a much needed customs union and currency integration, thereby pulling the rug under smuggling and threatening illegal commodity-flows; and (e) signal to the rest of the world that the joint-market is far larger than just India’s and investment opportunities already have enough of a local-level of confidence between wary neighbors to enhance comfort zones for likely foreign investors.
