9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

Understanding the Proposed Bangladesh-India

Comprehensive Economic Partnership Agreement
thediplomat.com/2022/09/understanding-the-proposed-bangladesh-india-comprehensive-economic-partnership-
agreement

Doreen Chowdhury

Bangladesh and India enjoy cooperation and warm relations in almost

every area. Throughout history, both countries have also cultured an
economic and trade dependency. At present both countries are
experiencing high growth. To consolidate their growth and
interdependency, they have embarked on signing a comprehensive
economic partnership agreement, titled the Bangladesh-India
Comprehensive Economic Partnership Agreement (CEPA). 

Bangladesh’s Prime Minister Sheikh Hasina is scheduled to begin a

visit to India on September 5, and she is likely to address CEPA during
the trip. So, what are the prospects and potential of CEPA?

Notably, the talks on CEPA began informally in 2018, against the

backdrop of increasing Chinese investments in Bangladesh. It also
received greater attention given that existing regional free trade

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9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

arrangements, like the South Asian Free Trade Area (SAFTA), have
become dysfunctional. To date, the countries have run a joint study
after agreeing to terms of reference.

Understanding CEPA

The proposed CEPA between Bangladesh and India has three

dimensions, namely trade in goods, trade in services, and investment.
The main target of the proposed agreement is to reduce the huge trade
gap between Bangladesh and India and open up new economic
opportunities including connectivity, new markets, and cooperation
and partnership. Moreover, the CEPA is planned to resolve the issues
and challenges of anti-dumping duties and rules of origin through the
perspective of multi-modal connectivity and deepening of cooperation
in the context of the sub-regional cooperation. It recognizes the
significant benefits of bilateral economic and commercial ties. 

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According to an official statement released by India’s Ministry of

Commerce and Industry, CEPA will incorporate a variety of issues of
mutual interest, including the development of railway infrastructure,
port infrastructure, border haats (trading posts), regional connectivity
through multi-modal transportation, harmonization of standards, and
a mutual recognition agreement. Further, the agreement looks to step
up cooperation in new areas such as green technologies, renewables,
and IT and digital platforms. CEPA will also strengthen the scope of
investment as it includes the new areas and ways of cooperation. It will
give a significant boost to two-way trade. In addition, the agreement
focuses on four areas for strengthening India-Bangladesh partnership
including connectivity and maintaining uninterrupted supply chain,

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9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

joint production of defense equipment, the exploring of potential areas

of investments, and joint manufacturing of vaccines and other
medicines. 

Benefits of CEPA

CEPA could potentially provide many future benefits. First, against the
backdrop of growing bilateral trade, the trading regime between the
two countries, including imports, exports, and related rules and
regulations, will get new momentum as the agreement has instruments
to work jointly on trade, supply chains, and production. If CEPA is
operationalized, bilateral trade potential could be $40 billion. After its
withdrawal from the Regional Comprehensive Economic Partnership
(RCEP), India is looking to settle several bilateral FTAs with
neighboring countries.

Second, the agreement will boost bilateral and sub-regional

connectivity that Bangladesh has championed in its policy initiatives.
The CEPA will produce a cluster of connectivity which will shape future
trade through the Asian Highway Network routes (AH-1 and 2); the
Bangladesh, Bhutan, India, Nepal Initiative; the Bangladesh, China,
India and Myanmar Economic Corridor; and BIMSTEC – the Bay of
Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation.

CEPA will also connect India and Bangladesh at the Petrapole-

Benapole, Phulbari-Banglabandha, and Dawki-Tamabil points, and
create a new rail link between Akhaura (Bangladesh) and Agartala
(India), among others. The agreement will ease personal, passenger,
and cargo vehicle travel across the borders once fully implemented.
This will be most visible in bordering areas of Bangladesh where the

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9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

price of goods could decrease by more than 4.5 percent. More trade and
transit will inspire new economic activity that will raise income and
lowers costs for businesses and consumers.

Growing connectivity will have some trickle-down effects on other

connectivity projects in the region. For instance, the BIMSTEC
Conclave of Ports agreement linking Thailand’s Ranong Port with ports
in Chennai, Vishakhapatnam, and Kolkata, a BIMSTEC Coastal
Shipping Agreement and a BIMSTEC Free Trade Agreement will bring
more than 2 billion people – 22 percent of world’s population –
together into a single economic region.

Third, the agreement will create new venue for cooperation and
partnership and open up opportunities for the creation of joint
production hubs and uninterrupted supply chains, which will create
new markets for both countries. Bangladesh has already set up three
Special Economic Zones for Indian investors and Indian companies are
investing in various sectors including telecommunications,
pharmaceuticals, consumer goods, and automobile manufacturing in
Bangladesh.

Fourth, as Bangladesh prepares for its dual graduation journey

(middle-income graduation and LDC graduation), the agreement will
be important for harnessing the potential opportunities by addressing
the attendant concerns and leveraging the initiatives. And fifth, CEPA
will generate revenues for both Bangladesh and India as the
connectivity and trade along territorial and maritime borders
increases. 

What Next? 

To reap the benefits of any economic partnership agreement,

infrastructural conditions are crucial as these yield the outcomes. Both
countries should take calculative and accommodative stances to agree

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9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

on the necessary conditions. Informal trade between the two countries

should be reduced in the interest of formalizing economic relation. To
increase trade, tariff and non-tariff barriers and rules of origin should
be removed. Dumping and anti-dumping disputes, lack of
formalization of customs, time consuming approach of loading and
unloading at a no man’s land should be addressed.

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Existing legal barriers may also pose challenges. As per the World
Trade Organization (WTO) regulations, all border duties and undue
restrictions must be eliminated, covering at least 90 percent of trade in
goods with partner countries, and service must cover substantially all
sectors (under Article XXIV of GATT 1994 and Article V of GATS) to
conclude an FTA. Hence, it may impact Bangladesh’s import duties.
Reciprocity should be maintained while striking the deal.

To fully harness the benefits of an FTA, a country should have a

diversified export basket to balance trade volumes. Notably, apparel
constitutes more than 80 percent of Bangladesh’s total exports and it is
mainly exported to developed countries. There is very little demand for
such Bangladeshi apparel in Indian markets. Therefore, diversification
of export products is a prerequisite of achieving success in the proposed
CEPA.

CEPA has the potential be a game-changing agreement given the

economic and geographical potential of the two countries. From trade
and connectivity to infrastructure and socio-economic development,
the agreement may bring forth profound sense of cooperation and
partnership. However, the challenges must be addressed. Both
countries should run a cost-benefit analysis to yield the desired
outcome. Constructive steps must be undertaken towards the

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9/6/22, 8:02 PM Understanding the Proposed Bangladesh-India Comprehensive Economic Partnership Agreement – The Diplomat

triangulation of trade, transport, and investment connectivity to

develop the production networks and establish the backward and
forward value chains that serve the interests of trade and commerce –
both bilateral and beyond. In sum, a time-bound road map is needed to
take advantage of the emergent window of opportunity.

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