Bangladesh in Regional Trade and Connectivity
By M. Shahidul Islam
Asia has shown marked economic success in the past few decades. However, economic growth of the world’s largest continent- both in terms of size and population- is far from over. As the global economy’s centre of gravity shifts to the east the region continues to contribute to the lion’s share of global economic output. As the global economic power no longer resides in the trans-Atlantic region, the continent’s economic strengths powered by a number of large economies viz., China, India, Indonesia, in addition to four Asia tigers and Japan, is increasingly demand greater say in the strategic and political future of the world. However, despite much economic success Asia as a continent is not integrated in line with Europe. While ASEAN integrates Southeast Asia, economic integration in other parts of the continent is relatively low. There is high hope to integrate the region and projects such as Pan Asian Regionalism are working in that pursuit. However, it is yet to be known as to what kind of regional architecture will evolve to integrate Asia. There is also huge interest of United States, European Union and other extra regional powers in the region. Lately, the region has witnessed the growth of a number of new initiatives. China-led Belt and Road Initiative (BRI), Japan’s Big-bay and ASEAN+3 centric Regional Comprehensive Economic Partnership (RCEP), inter alia, are likely to write new script of the region’s economics and geo-politics.
Bangladesh, being sandwiched between the region’s two largest economies, namely China and India, faces unprecedented opportunities as well as geo-political challenges. Given the marked changes in its neighbourhood, this seminar explores Bangladesh’s position as far as regional trade and connectivity are concerned, and how the country can best exploit the emerging opportunities managing geo-politics.
Trade and connectivity are the two key forces of economic integration. As far as direction of trade is concerned, 52% of Bangladesh’s trade is concentrated in Asia. European Union and North America are the country’s two other major trading partners. Moreover, within Asia, there is also a major shift with Bangladesh’s trade has been growing much faster vis-à-vis China than its close neighbor India with the two-way (Sino-Bangladesh) trade exceeding $15 billion in 2016. ASEAN is also the country’s an important trading partner. However, trade growth in South Asia constrained by non-tariff barriers, high trade cost and negative list, among other factors.
Going forward, there are some opportunities as well as threats with regard to Bangladesh’s trade. There is a prospect of trade growth vis-à-vis China as the latter’s size of middle class grows steady. The cost of trade can also be reduced to some extent conducting a part of China-Bangladesh trade in Chinese currency (RMB). To do so, there is a need for creation of RMB liquidity facilitating cooperation between the central banks of two countries. However, while the US withdrawal from TPP does bode well for Bangladesh (as Vietnam, Bangladesh’s one of the key competitors in RMG, was included in TPP), the country’s trade growth in the region might face a major hiccup if the proposed RCEP comes into effect (as Bangladesh is not part of the initiative). Dhaka’s possibility to join RCEP is very slim as Bangladesh’s trade regime remains very restrictive. In fact, according to trade experts, with its current tariff regime, the country will not qualify for entry into any of the meaningful regional trading agreements.
The medium to long term challenge for Bangladesh with regard to trade growth is to improve its infrastructure and connectivity given the linkages between them. Moreover, the country needs to adopt policies taking into account the changing pattern of international trade. Integrated factory floor that dominated manufacturing since the 19th century is replaced with a network of individual suppliers specializing in specific services or phases of production. This new paradigm is termed “trade in tasks”.
As far as connectivity is concerned, the recent progress is at best mixed. Bangladesh is involved with a host of regional and sub-regional blocks namely SAARC, SASEC, BIMSTEC, BBIN and BCIM. While the country has witnessed little progress of these entities, bilaterally, there are some favourable developments, particularly vis-à-vis India, in recent years. A number of Integrated Border Check Posts are currently operational facilitating trade and movement of people in the border. Border hats are also drawing a sizable number of buyers and sellers across the Indo-Bangladesh borders.
However, Bangladesh has to connect physically with Southeast Asia and East Asia in order to exploit trade, technology and other opportunities offer by these dynamic regions. India, for instance, is connecting with ASEAN through Myanmar thanks to its Act East Policy. While ASEAN-India FTA is building bloc in this regard, Delhi has invested millions in Myanmar to develop the Kaladan Multimodal Transit and Transport Project as well as in the Thailand-Myanmar-India Trilateral Highway. Bangladesh should also find ways to connect China and Southeast Asia given the stalemate in BCIM Economic Corridor.
For Dhaka, Bay of Bengal can also offer a big opportunity to augment trade and maritime connectivity thanks partly due to its settlement of maritime boundaries with India and Myanmar. This also coincides with launching of some ambitious initiatives such as China’s Maritime Silk Route and Japan’s Big-Bay. Bangladesh can develop sophisticated blue economy in the world’s largest bay drawing funds and technology from China and Japan, among others. This is an emerging opportunity for Dhaka to fully exploit the potentials of its favourable geography.
That said, in order for materializing its trade and connectivity goals, besides expediting the work of BBIN and other bilateral arrangements with India, Bangladesh has to connect itself with Southeast Asia and South Asia. There are three options in this regard. First: BCIM is the best option for Dhaka as it could facilitate physical connectivity with both China and ASEAN. Moreover, all the parties involved with the entity has finalized the routes and made some progress to integrate their markets. However, the biggest roadblock to materialize the goal is the growing rivalry between China and India.
Second: That India and other big powers de facto oppose Bangladesh’s direct connectivity with China via Myanmar, Dhaka should negotiate with Delhi and Naypyidaw to join the ongoing connectivity projects that are being implemented in Myanmar.
Third: If Delhi is less than enthusiast on option 1 and/or option 2, Bangladesh should negotiations with Myanmar and China capitalizing Beijing’s leverage over Naypyidaw. This is the shortest path to link Bangladesh with ASEAN and China. Although it looks a distant reality in the short-run given the ongoing bilateral problems between Bangladesh and Myanmar, largely owing to the ethnic problems in Rakhine province.
There are a host of political constraints to materialize Dhaka’s trade and connectivity goals. Bangladesh’s fragile internal politics limit the country forming political consensus among major political parties on key issues. This invites external powers to meddle through in its internal politics leading to higher external influence in the country. Big powers take the advantage of the political weakness of Bangladesh that often limits the country benefiting from its favourable geography.
To sum-up, as discussed, the existing trade, transit and connectivity arrangements are producing sub-optimal outcome for Bangladesh.
– Dhaka requires a “two-pronged approach” to increase trade and connectivity both bilaterally and multilaterally.
– Bangladesh’s economic future hinges largely on Asia, in particular Southeast and South Asia (given growing trade share, potential access to East Asia Production Network/GVC, World’s most innovative region, inter alia).
– Thus, there should be a strong drive to link the country physically with the world’s most dynamic regions (East and Southeast Asia).
– There is a need for political consensus at home to pursue the country’s strategic interests in the region.
M. Shahidul Islam, HUST School of Economics, China. e-mail: firstname.lastname@example.org