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CEPA may pose risks for domestic industry, jobs

The Financial Express | 13 April 2023

CEPA may pose risks for domestic industry, jobs


Signing the proposed Comprehensive Economic Partnership Agreement (CEPA) with India may pose risks for Bangladesh’s domestic industry, revenue and jobs, forecasts a state-sponsored research and training institute.

Bangladesh annually imports goods worth nearly $15 billion from its big next-door neighbour wherefrom the country receives a significant amount of revenue. Signing CEPA will lead to providing zero-tariff facility to India, resulting in a significant fall in the import-tariff revenue.

The largest fall in tariff revenue may originate from motor vehicles, cotton, machinery and equipment, man-made fibre, iron and steel, and coffee/tea/spices, says the Bangladesh Foreign Trade Institute (BFTI) based on recently studied ‘expectations and risks in Bangladesh-India CEPA’.

The BFTI, which carried out the study on instruction from the ministry of commerce, further says: “Port-related access and lack of adequate hard infrastructure, trade facilitation-related soft infrastructure, and shipping lines pose tremendous challenges to (Bangladesh’s) trade.”

In its opinion the research organisation forecasts that a lack of clear understanding of the trade policy between the countries can have uncertain and unfavourable implications for importers and exporters and the general consumers, especially at the border checkpoints.

The BFTI fears that with the elimination of tariffs and other trade barriers, Indian goods may become more competitive on the Bangladeshi market.

“This could lead to a decrease in demand for Bangladeshi goods, particularly in industries where India has a comparative advantage.”

Also, a lack of essential infrastructure like transportation and logistics “may hinder Bangladeshi companies’ competitiveness in comparison to Indian companies”.

It points out that although the CEPA aims to eliminate tariffs and other trade barriers, non-tariff barriers such as technical standards and product regulations, and licensing requirements may still pose obstacles to trade.

Regarding the risks in trade in services from the signing of the proposed CEPA, the BFTI says since trade deficit of Bangladesh is quite large with India, local businesses may feel threatened under the free-trade regime if trade in services is included in the agreement.

“CEPA could lead to an influx of foreign service providers into the Bangladeshi market, which could potentially displace local service providers and lead to a loss of jobs,” according to the BFTI study.

Also, the BFTI thinks that CEPA may cause job losses in Bangladesh due to increased competition, closure of some factories or layoffs, and Indian companies may bring their own workers to run their factories here when investments are allowed under the trade deal.

It suggests adequate policy mechanisms as prerequisites for mitigating any effect of sudden volatility of currencies so that trade and investment flows remain stable on a bilateral basis.

After completion of a joint study on the pros and cons of CEPA, the prime ministers of Bangladesh and India last September asked the trade officials of both countries to start negotiations within 2022.

However, formal negotiation has yet to get going, as India is further scrutinising the joint-study report.

Meantime, Bangladesh has formed two committees—a negotiation committee headed by commerce ministry’s additional secretary Noor Mahbubul Haque and an advisory committee headed by the ministry’s senior secretary, Tapan Kanti Ghosh.

The BFTI in its study finds that Bangladesh expects a significant reduction in non-tariff barriers to its key export products like textiles and apparel, frozen seafood, leather products, and agro-products. “This reduction will help increase the competitiveness of Bangladesh’s exports on the Indian market.”

It recommends that the efforts to negotiate CEPA must keep a futuristic template of improved road, rail, inland waterways, air and shipping links upfront so as to augment trade in goods on a bilateral basis.

It further feels that the customs-administration rules of India need to be studied in connection with SAFTA rules to prevent any hindrances in trade flows. “This could be adequately focused upon in the CEPA negotiations.”

The foreign-trade researcher says Bangladesh may not be able to offer zero tariffs immediately under CEPA—a gradual phase-out of tariffs could be a better approach.

“To compensate for potential loss of tariff revenue, Bangladesh could diversify its export base, attract foreign investment, reduce non-tariff barriers, implement tax reforms, and negotiate favourable terms under CEPA,” it suggests.

On trade in services front, the BFTI thinks the mutual recognition agreements in sectors like telecoms and IT could facilitate trade in services by allowing for the movement of professionals.

“These agreements should be based on harmonised and mutually agreed domestic regulations.”

Contacted for his view of the pact, Dr Debapriya Bhattacharya, a Distinguished Fellow at the Centre for Policy Dialogue (CPD), told the FE Wednesday all these things depend on negotiating skills and there are a lot of opportunities and flexibilities within CEPA framework.

For example, he said, one can phase in the tariff reduction. “It can be phased and it doesn’t have to be fully reciprocal.”

Mr Bhattacharya points out that tariff should not be zero overnight under the CEPA deal — the sectors and areas can be selected for liberalisation, which also can be phased in.

One can always mention the risk individually, but at the end of the day, s/he has to “make some estimates in terms of what we lose and what we gain,” says the trade economist.

The revenue loss needs to be compared against the investment, income, and employment gains, he says about what can be done for a win-win trade-off.

“We should also see the impact both in short-term and in medium-term. It has to be looked into medium-term dynamic framework,” he suggests about the Indo-Bangladesh trade deal in the offing.

 source: The Financial Express