Study Indian market before FTA

The Daily Star, February 8, 2009
By Sajjadur Rahman
Bangladesh should go for a comprehensive approach, including through research on Indian market, before striking a bilateral free trade agreement (FTA) with India, the biggest economy in South Asia, says a Sri Lankan economist.

“How will it benefit if we get duty-free access for thousands of products to Indian market without readymade garment?” questions Subhashini Abeysinghe, an economist at the economic intelligence unit of Ceylon Chamber of Commerce.

Readymade garment accounts for nearly 60 percent of Sri Lanka’s total exports, she said.

There are more contentious issues, including non-tariff barriers and the federal and provincial issues that need to be discussed thoroughly before inking a deal, Subhashini says.

“Now Sri Lankan companies are scared of losing business to Indian companies,” she told The Daily Star last week as she came to Bangladesh to attend a regional discussion.

Big companies may be optimistic about business with India, but Sri Lanka’s economy is based on small and medium companies similar to that of Bangladesh.

She said: “Sri Lanka’s food and agriculture companies and the services sectors including IT, telecom and banking are fearing losses to the growing Indian presence.”

India has long been pressing Bangladesh to sign an FTA between the two countries. But Bangladesh always regrets the issue. Once again the issue has come to the limelight soon after the Awami League-led government took over last month.

An FTA is not always bad, at least from the global perspective. Different countries, including developed ones, also prefer FTAs in the absence of a breakthrough in multilateral talks at the World Trade Organisation (WTO).

Since the signing of the FTA between India and Sri Lanka in March 2000, trade grew rapidly. Bilateral trade exceeded $1.7 billion in 2004 and rose to $2.025 billion in 2005. Exports from India to Sri Lanka in 2004 amounted to $1.35 billion, while exports from Sri Lanka to India in the same year were worth $382 million. Those rose to further $1.437 billion and $588 million respectively in 2005. The FTA prompted a 257 percent increase in bilateral trade between 2001 and 2004.

Under the FTA, Indian companies invest in Sri Lanka, produce and export those products to their country.

Subhashini says a lot of Indian companies are coming to Sri Lanka to exploit the tariff anomalies, not to do fair bilateral trade.

For example, she says: “Palm oil import to Sri Lanka enjoys zero duty facility, while the duty is 100 percent in case of import to India.” Copper is another product that is being exported to India, she said.

According to the economist, palm oil and copper exports account for 60 percent of Sri Lanka’s total export to India.

“It’s not a sustainable and competitive business,” she remarks.

Now Sri Lankan entrepreneurs are questioning the viability of the FTA.

She said there are other problems that include rules of origin, standard and sanitary, federal and provincial systems of business operations, and of course bureaucratic issues.

If the federal government in India gives a product duty-free access, not necessarily that a state government will do so, Subhashini says. “We don’t have that type of problem in Sri Lanka,” she says.

Then there is the port issue, she says, as India is a big country and has a lot of ports to operate business.

“Our products have to wait at ports for long time for clearance on standard issues,” the economist said.

Often Sri Lankan exporters face problems at Indian customs points. “We are not recognised by the Indian customs,” she said.

However, she admits that there is no alternative to doing business with India, the third largest Asian economy. India is thriving, no doubt, she says, but it is a difficult market also.

The economist suggested that Bangladesh should conduct detail studies on Indian markets before going for an FTA.

“A lot of researches on the Indian economy and its trend are needed while negotiating a deal,” she said. India’s commercial section does it consistently.

Bureaucrats, especially of the commercial section, have to do continuous studies on Indian markets and changes.

“Otherwise, Bangladesh will face the same situation as the Sri Lankan companies do,” she says.

Subhashini says failure in multilateral South Asian Free Trade Area (Safta) has prompted countries to go for bilateral agreement.

“Safta has become uncertain, especially after the Mumbai attacks,” she thinks.

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