Bangladesh and Bimstec

A whole new opportunity, but are we up to it?

Dr. Abdur Rab Khan

With a well functioning free trade area within ASEAN, the signing of Framework Agreement on free trade area among the BIMSTEC countries in February 2004 and the South Asian Free Trade Area (SAFTA) in January 2005, heralded a season of regional trading agreements (RTAs) in Asia. These RTAs also contributed to deepening of free trade arrangements in Asia. The formation of the BIMSTEC spanning two contiguous sub-regions where two regional cooperation processes are on-going is a significant development. It opened the eventual possibility of Asia-wide cooperation, or what the SAARC heads of states and governments recently visualized as Asian economic union. As Bangladesh is a founding member of BIMSTEC, immense potentials are also open to this otherwise least developed country in South Asia.

East Meets West
The initiative for BIMSTEC was taken by Thailand as part of its 'look west' policy. The look west policy matched well with Bangladesh's, and later, India's 'look east' policy. Consequently, Thailand, Bangladesh, India, and Sri Lanka formed BIST-EC (Bangladesh, India, and Sri Lanka Thailand-Economic Cooperation on June 6, 1997 for promotion of economic cooperation among themselves. With Myanmar's joining in December that year, the organization became BIMST-EC. The group renamed itself Bay of Bengal Initiative for Multi-sectoral Technical Economic Cooperation (BIMSTEC) in July 2004. Later Bhutan and Nepal joined the group.

BIMSTEC Structure
While the structure of BIMSTEC is similar to SAARC, there are some differences as well. Like SAARC, BIMSTEC decisions are made at the summit level but the decision principle is not based exactly on unanimity, as in SAARC. The BIMSTEC summit takes place every second year. The second tier of BIMSTEC is the Ministerial level meetings among the Foreign Ministers, supported by meetings of the line ministers. The third tier consists of senior officers' meeting (SOM) usually at the level of the Foreign Secretaries. Below the SOM, a host of bodies like working groups, expert committees, and in the context of the FTA, trade negotiating committee (TNC) work. Below the summit, the ministers and foreign secretaries meet as many times as needed. The second summit is expected to take place in 2006. The eighth Foreign Ministers meeting and 10th SOM have taken place In December 2005.

BIMSTEC, unlike SAARC, is yet to set up a headquarters or Secretariat. The 6th Ministerial meeting agreed to set up BIMSTEC Technical Support Facilitation Center as a coordination mechanism of BIMSTEC's general cooperation. Thailand supported the establishment of the Center, possibly as a foundation for the BIMSTEC Secretariat.

BIMSTEC Cooperation Process: Deepening and widening agenda
Following its foundation in June 1997, the BIMSTEC leaders identified six areas for cooperation, trade and investment, technology, transport and communication, energy, tourism and fisheries. Lead countries were identified to coordinate activities in the sector. The initial thrust areas were road and air connectivity and energy sector cooperation. However, guided by an urge for deeper economic integration, the leaders decided to go for free trade area. While FTA process is moving on a fast track, the original six areas remain high on the agenda and at the same time, other pertinent issues have been added.

Trade and Investment
Trade and Investment area led by Bangladesh is divided into two categories: (a) goods and services with 8 sub-sectors: gems and jewellery (Sri Lanka), automotive industry (Thailand), processed food (Sri Lanka), horticulture/ floriculture(Thailand), drugs/ pharmaceuticals(India), rubber, tea, coffee(Thailand), textile and clothing (Bangladesh) and cocoanut/spices(India); (b) Trade and Investment facilitation with 7 sub-sectors: customs procedures (Bangladesh), standards and conformity(Thailand), banking arrangement(Sri Lanka), IT-BIMSTEC (India), intellectual property rights(India), mobility of business people(Sri Lanka) and promotion of intra-BIMSTEC investment(India). A Task Force has been constituted to review the trade and investment cooperation.

Transport and Communications
Several rounds of Task Force meetings at the expert level on transport and communication led by India have been organized to create air, sea and land linkages. There is also a proposal for a deep sea port at Tavoy. The realization in BIMSTEC is that the group's potentials will not be fully realized without development of infrastructural facilities like transport and communications. BIMSTEC leaders tasked the EASCAP to prepare the feasibility of providing the missing links on the Asian Highway. However, in recent times, India-Myanmar Highway project has been launched and Thailand is expected to join the highway. Whether such developments drop Bangladesh from the much-talked about Asian Highway is not quite clear. Once the physical connectivity is established, next step should be developing the software of transport and communication, namely, rules and regulation facilitating the cross-country movements.

The focus of technology led by Sri Lanka have been agro-based technology, ICT and capacity for disaster management. In the disaster management field, India has proposed to set up a Weather and Climate Centre in New Delhi.

Agriculture and Fisheries
Originally fisheries, the sector was expanded to include agriculture and Thailand offered to lead the composite sector. Major projects of the sector are: impact of offshore oil and gas drilling on marine fisheries, and management and development of new fisheries in the Bay of Bengal.

Initially Sri Lanka was the lead country in tourism. Later India took over. Projects in the tourism sector include BIMSTEC Tourism Institute, BIMSTEC Tourism Fund, BIMSTEC Tourism Year 2005,later extended to 2006, regional tourism through joint marketing and training IT.

Current important projects in the energy sector led by Myanmar are the development of regional hydro projects, cooperation in energy infrastructure (Natural gas), energy information centre and energy trading network. India organized a training programme for energy officials of the member countries and also offered to host a summit on the sector. The greater region of South and South East Asia contains huge reservoir of non-renewable and renewable energy. As far as gas reserve is concerned, some of the countries like Myanmar and possibly Bangladesh have reserves beyond their short and medium term requirements. Nepal and Bhutan have immense untapped hydel power. A comprehensive framework for cooperation in regional resources going beyond simple energy trading and linking the region in an energy grid is needed to tap the full potentials in industrialization and consumer needs.

BIMSTEC Free Trade Area
Framework agreement on BIMSTEC free trade area (BIMSTEC-FTA) was signed in February 2004 covering three vital areas: trade in goods, trade in services and investment cooperation. The BIMSTEC FTA on trade in goods is expected to be launched in July 2006 while FTA in two other areas will commence after 2007. The FTA is to be implemented in two phases, fast track between 2006 and 2011,and normal track between 2007 and 2017. The least developed countries Bangladesh, Nepal, Bhutan and Myanmar will get a grace period in both the phases. In the first phase or fast track that confines only to trade, the three developing countries India, Thailand and Sri Lanka will give free access to a number of products from the LDCs between July 2006 and 2007. In the second phase or normal track, the developing countries will give access to most of the LDC product. The LDCs, on their part, will give free access to a number of goods from developing countries from July 1, 2011 under the fast track, while under the normal track, they will free their market from July 2017.

Trade negotiations are being conducted by Trade Negotiating Committees (TNCs). Several rounds of meetings have been held. The BIMSTEC officials have finalised a list of 1300 negative item list. The 9th senior official level meeting was held in Dhaka in June 2005. Bangladesh assumed chairmanship for the next one year. Trade experts were expected to meet in Colombo to discuss and finalize the list of sensitive goods.

The expert level meeting at Bangkok in September 2005 considered the negative list submitted by the member states. The earlier meeting held in August 2005 to discuss rules of origin (ROO) failed to reach any agreement. They were also expected to discuss matters relating to various direct and indirect taxes, revenue loss impact and compensation mechanism.

Cooperation in Other Areas
At the Summit in July 2004, the BIMSTEC leaders agreed to expand cooperation to a number of new areas, such as, culture, education, public health (including HIV/AIDS, malaria, tuberculosis and polio), protection of bio-diversity and traditional knowledge, rural community development, small and medium scale enterprise, construction, environment, information and communication technology, biotechnology, weather and climate research, natural disaster mitigation and management.

The Working group report on counter-terrorism through intelligence sharing and combating trafficking in narcotics was considered at the 9th senior officials meeting in Dhaka in June 2005. The report will be considered by the Foreign Ministers meeting in Dhaka in December 2005. In December 2004, the Joint Working Group on counter-terrorism and trans-national crime decided to ”enhance operational and strategic capabilities in preventing and suppressing terrorism and trans-national crime which included currency counterfeit, forged travel documents, illegal movements of people including human trafficking. Ministerial meeting on poverty alleviation is to be hosted by Bangladesh in 2006.

Bangladesh and BIMSTEC
Bangladesh is a founding member of BIMSTEC and has been playing an active role in the sub-regional cooperation process. Location-wise, Bangladesh provides the essential bridge between South and Southeast Asia. In what follows, Bangladesh's role in important BIMSTEC fora is briefly outlined.

On FTA, at the negotiation stage of the framework agreement, Bangladesh wanted a SAFTA-like revenue compensation provision for the LDCs. Bangladesh's point of view was guided by getting an equitable share of the vast market of SAARC and part of ASEAN. Bangladesh initially stayed out of signing of FTA framework agreement on ground of LDC compensation issues which was not sufficiently addressed in the document. Bangladesh later signed FTA in June 2004 in order that Bangladesh is not left out of this important cooperation process and its external trade and FDI did not suffer. But the fact remains that Bangladesh raised the issue of compensation on behalf of the four LDCs in the sub-region.

As far as rules of origin is concerned, Bangladesh has decided to propose in the next TNC for adaptation of value addition criteria only with 35% value addition for non-LDCs and 25% for LDCs for rules of origin criteria. Bangladesh has also decided to oppose country's position on rules of origin criteria that requirements of value addition in fallback position would be 40% for non-LDCs and 30% for LDCs.

On anti-dumping issue, Bangladesh took a moderate line and decided to propose prior consultation with the LDCs after finalisation of anti-dumping consultation and before imposition of anti-dumping duty. In fact, earlier position of Bangladesh was consultation prior to initiation of anti-dumping measures but in the face of opposition from India and Sri Lanka, Bangladesh shifted its position.

Wider Scope of Cooperation
BIMSTEC FTA is more comprehensive in scope covering trade in goods as well as services and investment than SAFTA. Apart from the comprehensive coverage, the greater potential of BIMSTEC in unleashing industrial restructuring and providing connectivity to the contiguous countries will remove the barriers of movements to such an extent that continental nature of the two sub-regions will clearly emerge. In fact, transport connectivity will hold up the potentials to be fully realized even in the field of preferential trading arrangements.

The combined size of BIMSTEC economies is $750 billion with a 1.3bn population. The members are at different stages of economic and industrial development and share different natural resource endowments. Hence complementarities between them are substantial. Combining some geographically contiguous South Asian and ASEAN countries in the Bay of Bengal, BIMSTEC is widely seen as the bridge between SAARC and ASEAN. As is well known, there are significant developmental and technological gaps between the SAARC and ASEAN countries. The BIMSTEC may provide a mechanism of reducing the gaps between the two sub-regions.

In the field of energy, mutual gains are enormous. The region combines countries having large gas reserves beyond their short and medium term domestic requirements such as Myanmar, and those with immense untapped potentials of hydroelectricity such as Nepal and Bhutan.

An issue of critical significance for Bangladesh is trade imbalance which stood at $ 873 m last year with the BIMSTEC countries. Bangladesh has balance of payments trade deficits with all the BIMSTEC countries. But while the gap is enormous with India, trade intensity with Myanmar and Thailand remains far less than the potentials. BIMSTEC FTA with Myanmar and Thailand may raise the level of trade with these countries and bring some moderation in trade gaps with India.

The author is Research Director, BIISS.

©, 2006. All Rights Reserved