Why Bangladesh's Decision To Join The RCEP Might Be An Amateurish Affair

Publicity stunts are not uncommon during elections. Anti-India stance is also common in the neighbourhood.

The Sheikh Hasina government in Dhaka has taken the competition to a new high by making a mockery of as complex a topic as trade negotiation.  

Early during the week, Dhaka newspapers came blazing with the country’s “in principle” decision to join the mega trade bock, Regional Comprehensive Economic Partnership (RCEP), in which China is a major partner. 

RCEP is a comprehensive (including goods and services) free trade agreement between the 10-member ASEAN (Association of Southeast Asian Nations) and its free trade (FTA) partners Australia, China, Japan, Korea New Zealand etc. 

There was no logical build-up to Dhaka’s decision. The country is taking baby steps in the world of trade negotiations and hasn’t signed a single FTA except for the defunct South Asian Free Trade Area Agreement (SAFTA). 

There is no cabinet approval or invitation from the ASEAN. In April this year, the Prime Minister told Nikkei Asia that the country was holding “free trade talks with 11 countries”. There was no mention of any trade block. 

According to Financial Express, the country’s most prominent pink daily of Bangladesh, the “decision” to join RCEP, was taken at a “workshop” chaired by the commerce secretary on 1 August. The ministry would explore the joining process in RCEP. 

There is no detailed impact assessment. A study on goods trade by Bangladesh Trade and Tariff Commission (BTTC) showed that joining the trade block may increase Bangladesh’s exports by 17 per cent and imports by 14 per cent. 

It is abnormal for any country, big or small, to decide to join a trade block, that too of the size and scale of RCEP, in such an amateurish fashion. But then, Bangladesh is a country that makes the impossible possible.  

Lack of preparedness 

FTAs are back in the reckoning as the world is getting increasingly protectionist. Bangladesh has a bigger case to enter FTAs, as the scheduled graduation from ‘least' developed’ (LDC) to ‘developing’ country in 2027, will rob it duty concessions in the export markets. 

Having said that entering a comprehensive FTA is not easy as it would require the opening up of both goods and services sectors which often comes with the risk of job loss and shakeouts in the domestic market. India backed out of RCEP negotiations in 2020, just ahead of its formation. 

It is even more difficult for Bangladesh which failed to diversify its export basket beyond readymade garments, lives in a highly protectionist environment and hasn’t done much to rationalize tariffs. India reduced tariffs, as outlined in SAFTA, but Bangladesh didn’t. 

Tariffs apart, Bangladesh doesn’t have a market-determined foreign exchange rate. It has four administered rates. And, there are heavy restrictions on the outward movement of capital, which restricted the flow of foreign direct investment (FDI). 

The banking sector of the country is in shambles. Last year Bangladesh offered foreign currency loans to the garments sector. Recent media reports suggest that the loans were never repaid. This is a major reason behind the prevailing foreign currency crisis in the country. 

Parking export income outside the country and defaulting loans at home is rampant among industry groups. A top Bangladeshi businessman built a $1 billion empire in Singapore without any official records of overseas investment. 

Provoking India  

Observers in Bangladesh feel the RCEP stunt was aimed at earning brownie points from the anti-India lobby and/or using China as bait to extract benefits from India ahead of the polls. 

It is not clear what benefits she wants. When it comes to trade and investments, Delhi fulfilled almost each of her wishes. 

Since 2010, India offered $8 billion in aid and line of credit. Including the $1.6 billion extraordinarily soft loan to 2X660MW (megawatt) Rampal thermal power station, the total sanctioned support was worth $10 billion or more. 

It’s a different matter that the highly corrupt administration-business nexus in Bangladesh, which benefits from repeated cost inflation in China-funded projects, doesn’t show much interest in the implementation of tightly structured Indian projects. 

On the trade front, between 2008-09 — when Hasina came to power — and 2021-22, total export and import between the two nations increased by five times. But Bangladesh’s exports to India increased by seven times to nearly $2 billion. 

India plays a critical role in meeting the rising energy needs of the nation. The export of electricity and pipeline-based diesel supplies helps Bangladesh in optimising its investment and foreign exchange needs. 

The gap, if any, lies in Bangladesh’s front. The Rampal thermal power station has been idling and the diesel trade suffered due to the forex crisis in Bangladesh. To further solve it, India extended the rupee-trade facility which has just started. 

On the political side, India resolved both maritime and land boundary issues. The Land Boundary Agreement in 2015 was crucial as it involved the exchange of enclaves, which was pending for four decades. 

The federal structure of India, however, came in the way of resolving the Teesta water sharing issue. Though the BJP government in Delhi was keen, the Trinamool Congress government in the bordering state of West Bengal objected to the deal. 

In a recent development, the Parliamentary Standing Committee on External Affairs recommended resolving the Teesta dispute. Abhishek Banerjee, nephew of West Bengal Chief Minister Mamata Banerjee and the second-in-command in Trinamool, is a member of the committee.  

Wrong attitude

Disputes are normal in country relations. It is the long-term trajectory that matters. India-Bangladesh relations have developed substantially over the last decade for mutual benefit. 

The importance of regional cooperation was evident during the two years of the pandemic when the global supply line was completely disrupted and, Bangladesh had depended heavily on India for the entire range of supplies — from food to raw materials for its forex-churner readymade garments. 

It is legitimate for Bangladesh to expand its trade. But taking reference to RCEP for cheap gains is silly. Given the condition of its economy, joining the trade block would be as good as cutting off its nose to spite India’s face.