Transit Arrangements for Indian Trade Through Bangladesh

Project Active from to Firms and Trade

Landlocked countries and landlocked regions within countries depend totally on transit facilities provided by contiguous neighbors for their domestic and international trade. Transit procedures should be simple to avoid excessive delays and costs, besides conforming to relevant international conventions. Poorly implemented transit is a major obstacle to trade. South Asia is well known for inter-regional conflicts and lack of economic cooperation. Consequently, political boundaries tend to become physical barriers to trade. One result of this is that inter-regional trade is overly restricted by cross-country regulations and logistical barriers. As a result trade logistic costs are much more serious barriers to inter-regional trade than tariff barriers. Trade relations between India and Bangladesh, while seemingly positive, are similarly restricted by the large cost of trade logistics. Additionally, a part of India on the North East is separated from the rest of India by Bangladesh, except for a very narrow transport corridor, known as the 'chicken neck'. Bangladesh does not allow India transit access for trade to the North Eastern states. These seven North-eastern states of India also do not have access to sea except through Kolkata, that requires passage through the round-about chicken neck. For example, the distance between Agartala (India) and Kolkata is over 1600 kilometers. In comparison, the distance between Agartala and the nearest seaport in Bangladesh (Chittagong) is less than 100 kilometers. Understandably, transport costs of trade for these North Eastern states are very high. Furthermore, two landlocked countries, Nepal and Bhutan, have not had transit facilities through India to access Bangladesh ports of Mongla and Chittagong. Fortunately, this limiting restriction on trade movements is about to change. India and Bangladesh are in the process of negotiating a transit agreement to allow traffic between western Bengal and the landlocked Indian states in the North East through Bangladesh. It is expected that this framework will also help Nepal and Bhutan trade internationally through Bangladeshi sea ports. The transit has been a thorny issue in Indo-Bangladesh political and economic relations for a long time. So the change in political mindset is a huge step forward. Effective implementation of this transit agreement hinges on two main issues: 1. A functional transit procedure through Bangladesh that would allow seamless movement of goods between western Bengal and the North Eastern states of India, and from Bangladesh into Nepal and Bhutan, through India, with no significant waiting time at the border or en route due to inspections or trans-loading for instance. 2. Adequate cost recovery mechanisms for the transit country, Bangladesh, to recoup the costs associated with required infrastructure and services, according to agreed international principles on freedom of transit. The proposed research by Dr. Sadiq Ahmed (Vice Chairman, Policy Research Institute of Bangladesh) and Dr. Zaidi Sattar (Chaurman, Policy Research Institute of Bangladesh) seeks to focus on these two aspects to help policy makers in both countries, but especially Bangladesh, to move forward with the speedy implementation of the transit agreement. Time is of essence since the political window may not last forever. The benefits of this policy change are obvious and will be advantageous for both countries. India will gain from much lower transport cost for its own trade as well as international trade with the North Eastern states. Bangladesh will benefit from a much better utilization of its port facilities and associated fees, reduced trade costs with India, Nepal and Bhutan resulting in higher volume of trade, and an opportunity to upgrade its transport network financed by user charges. The dynamic benefits may include much better economic relations with India and larger investment opportunities.