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This Assignment is prepared for the course named Foreign Exchange Dealing and International Banking. The study was done for the Business Administration Department of Southeast university, Dhaka, Bangladesh. The authors wish to thank our course instructor Jannatul Ferdaous, lecturer of BBA Department in Southeast university, for her kind guidance, advice and encouragement during the course.
This Assignment is prepared for the course named Foreign Exchange Dealing and International Banking. The study was done for the Business Administration Department of Southeast university, Dhaka, Bangladesh. The authors wish to thank our course instructor Jannatul Ferdaous, lecturer of BBA Department in Southeast university, for her kind guidance, advice and encouragement during the course.
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This Assignment is prepared for the course named Foreign Exchange Dealing and International Banking. The study was done for the Business Administration Department of Southeast university, Dhaka, Bangladesh. The authors wish to thank our course instructor Jannatul Ferdaous, lecturer of BBA Department in Southeast university, for her kind guidance, advice and encouragement during the course.
Droits d'auteur :
Attribution Non-Commercial (BY-NC)
Formats disponibles
Téléchargez comme DOCX, PDF, TXT ou lisez en ligne sur Scribd
2 FOREIGN EXCHANGE DEALING AND INTERNATIONAL BANKING
Prepared for Jannatul Ferdaous LECTURER SCHOOL OF BUSINESS STUDIES SOUTHEAST UNIVERSITY Prepared by Arafat Ahmed Chowdhury 2008010000166 Saeed Ahmed 2008010000185 Yasmin Khan Shawan 2008020000188 BATCH-18 TH
SECTION-B (FINANCE) BBA DEPARTMENT SOUTHEAST UNIVERSITY
3 ACKNOWLEDGEMENT This Assignment is prepared for the course named Foreign Exchange Dealing and International Banking. The study was done for the Business Administration Department of Southeast University, Dhaka, Bangladesh. We wish to thank our course instructor Jannatul Ferdaous, lecturer of BBA Department in Southeast University. For her kind guidance, advice and encouragement during the course of this study, she played the pivotal role by giving us an insight thought about this topic. She also provides a guideline for preparing this Assignment. We deeply express indebtedness opinion that she helped us immensely in preparing this Assignment. Her encouragement and praise during the course provided us real support in preparing this Assignment. We also duly appreciate for extending his helping hand whenever we needed which undoubtedly will enrich our academic and individual proficiency. Our family members deserve special credit for giving us adequate hope and praise to prepare this Assignment.
4 TABLE OF CONTENT Chapter-1 1.1 Introduction 5 1.2 Objectives of the study 6 1.3 Methodology 6 1.4 Limitations of the study 6 Chapter-2 2.1. Literature Review 7 Chapter-3 3.1 Overview of Balance of Payment 8 3.2 Balance of payment situation in Bangladesh ... ... 9 Chapter-4 4.1 Imports from India 11 4.2Export to India 18 Chapter-5 5.1 BOP condition and suggestive measures 26 Chapter-6 6.1 Findings 27 6.2 Recommendation 27 6.3 Conclusion 28
5 Chapter-1 (1.1)Introduction Bangladesh and India have long shared the common objective of fostering closer economic integration within the South Asia region.
While bilateral trade between the two countries has been growing steadily since the early 1990s, exports from India far outweighed imports from Bangladesh, resulting in a yawning trade gap. Only recently, this trend is showing signs of abating with a strong pick up in Bangladesh exports, thanks to tariff concessions from India and removal of other trade barriers with mutual agreement. The signing and ratification of South Asia Free Trade Agreement (SAFTA) in early 2006 by the two countries sets forth the possibility of further consolidation of trading arrangement through the formation of bilateral Free Trade Agreement (FTA).
Critical concerns on the Bangladesh side include the massive trade deficit with India and the large volumes of informal imports from India across the land border which avoid Bangladesh import duties. For India, although trade with Bangladesh currently is small, the potential of Bangladesh as an emerging market on Indias borders will evince great interest for the business and investor communities. In addition, closer economic ties with Bangladesh are seen as a very important way of reducing the economic and political isolation of the seven Indian eastern and north eastern states from the rest of the country. A bilateral FTA could create the scope for resolving some of these critical issues while removing some vexing tariff and non-tariff barriers.
6 (1.2)Objective of the Study 1) To know the reasons of trade deficit between Bangladesh and India. 2) Find out the materials exported and imported by the Bangladesh and India 3) Find out the impact of balance of payment between Bangladesh and India. 4) Find out the solution how to minimize the trade deficit between Bangladesh and India. 5) Find out how to improve trade facilitation of Bangladesh. 6) To know the scenario of balance of payment between Bangladesh and India 7) To know the present balance of payment condition
(1.3)Methodology We collect our data from books, newspaper and internet. All the data are secondary data.
(1.4)Limitations of the study Following limitations are faced: 1) Cannot find out sufficient data 2) limited information in internet 3) Limited access to some of the information that might provide the best result.
7 Chapter-2 (2.1)Literature Review Books: 1) Economic Growth and the Balance of Payments in Bangladesh: A Macroeconomic Study. By- Akhter Hossain (1995) 2) India-Bangladesh Trade Relations: Prospects of a Bilateral Free Trade Agreement (FTA). By- Professor Ayubur Rahman Bhuyan (1991)
8 Chapter-3 (3.1)Over view of Balance of Payment What is Balance of Payment? A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.
Balance of payments may be used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency.
This is just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP includes the trade balance, foreign investments and investments by foreigners.
Types of balance of payment Balance of payment has 3 types of account:
1) Current account 2) Capital account 3) Error and omission
9 (3.2)Overview of balance of payment of Bangladesh Export production in Bangladesh is narrowly based. India itself is a big producer and exporter of most of the products that Bangladesh can export. Undiversified production base rather than Indias restrictive trade policies is the root cause of BDs slow growth of exports to India.
One of the major reasons of political discontent in Bangladesh is the huge trade gap which is also supported by the fact that India has a lot of non-trade barriers for Bangladesh exports. Although the exports from Bangladesh are growing at a healthy pace, there is no sign of squeezing the trade gap. However, the amount of loss due to non-trade barriers is never properly evaluated. The barriers to discourage import from Bangladesh are: laboratory test for every consignment of food products, cosmetics, and leather and textile products, delay in getting test results, imposition of state tax, packaging requirement, anti-dumping and countervailing duties. Also, inadequate infrastructure facilities such as warehousing, transshipment yard, parking yard and connecting roads at land customs stations of India also hinder exports from Bangladesh, the list elaborated.
10 Effects on Bangladeshs imports: Despite high tariffs Indian exporters can successfully compete in Bangladesh market. In a free trade situation, they will enjoy a substantial price advantage. Bangladeshs imports from India might therefore rise Loss of government revenue and lower protection to local industries On the positive side, duty free imports from India will create economic welfare benefits in the form of lower prices and better quality products for Bangladesh consumers Low-duty imports will bring down cost of production, and local industries will be competitive Fall in import duty will be outweighed by increased revenue through VAT and excise duty These welfare benefits will considerably exceed the economic welfare losses to Bangladesh producers
Effects on Exports: All major Bangladesh exports to India currently attract high import duties. In an FTA when there will be no tariffs, exports in these goods would increase. Long term benefits would be much higher. In an FTA environment, the entrepreneurs will be encouraged not only to raise investment in existing export activity but also set up new industries and produce new products for the large Indian market.
11 Chapter-4 (4.1)Bangladesh imports from India There are large discrepancies between the Indian statistics of exports to Bangladesh and the Bangladesh statistics of imports from India, both in the aggregate and even more so at the level of individual commodities. Disaggregating the Bangladesh import statistics (Table 6.1) by some major commodity categories shows the following: y Highly variable but sometimes large imports of cereals (mainly wheat and rice) from India. Bangladesh is also importing from other countries, but India has been the main supplier in recent years. y An apparently declining role of India as a supplier of duty free intermediate goods (mainly textiles) for Bangladeshs export RMG sector. According to the Bangladesh import data, in 2003/04 Back-to-back LC imports from India only accounted for 3.5% of its total Back- to-back LC imports y That India is supplying fairly constant shares of Bangladeshs imports of basic raw materials, intermediate goods used for domestic production, capital goods and non-cereal final consumer goods
The Indian export statistics have been not been sorted into these categories, but a separation into the three categories illustrated in Fig 6.1 (cotton and cotton textiles, cereals and all other) confirms the importance and variability of cereal exports, and is consistent with a declining Indian role in the supply of inputs to Bangladesh exporters, since this is the main destination of its cotton textile exports. However, according to these statistics, all other exports have been growing very rapidly, on average at around 15% annually since 1996/97, with especially big increases in 2002/03 and 2003/04. This suggests that at least one of the following categories of Indian exports to Bangladesh basic raw materials, intermediate goods used in domestic production, capital goods, or non-cereal consumer goods, have been growing faster than indicated by the Bangladesh import statistics.
India exports a wide range of products to Bangladesh. According to the Indian export statistics for 2003/04, there were at least some exports in all but 4 of the 98 HS chapters. About a third of total exports were primary agricultural, fish and livestock products, 6.6% processed foods and drinks (including animal foods), and most of the rest manufactured products (Table 6.2).Leaving aside textile and clothing exports, most of which go duty free to Bangladesh RMG exporters, India was supplying 21.5% of Bangladeshs total imports for use in the domestic market.
12
Table 1: Indian exports to Bangladesh 2003/04 (from Indian export statistics)
HS code $ US million Share % 1-14 Primary agricultural, fish, and livestock products 571 32.8 15-24 Processed foods and drinks (including animal foods) 115 6.6 25-49 Miscl mineral and manufactured goods 318 18.3 50-63 Textile fibres, textiles and clothing 269 15.4 64-98 All other (including machinery and transport equipment) 468 26.9 TOTAL
1741 100.0
13 Indian exports to Bangladesh 2003/04 During 2003/04 the 25 product groups accounted for 81% of Indias total recorded exports to Bangladesh, and almost 96% of total exports to Bangladesh after excluding T&C exports. The fiscal year difference, the exclusion of T&C imports and other factors discussed previously should be borne in mind in comparing the Indian and Bangladesh statistics, but the data nevertheless provide a useful preliminary overview of the likely consequences for Bangladesh of free trade with India. In particular note that: y Indias share of Bangladeshs total imports of each of these product groups is quite high: more than half for 8 product groups, between 20% and 30% for 7 product groups; between 10% and 20% for 7 product groups; and in only three cases less than 10%. y Average protective tariffs for most of the product groups are high. Even after allowing for and averaging over end user tariff lines, and weighting by imports, only 5 of the 25 product groups (cereals, non-electrical machinery, animal foods, pharmaceuticals and railway equipment) have average tariffs of less than 10% , and the average import weighted tariff of the other 20 product groups is 2.
The potential for expanded Indian exports to Bangladesh is supported by a very interesting NCAER paper which was prepared as part of the project. The paper outlines the results of a survey carried out in Kolkata by an NCAER team, and a survey in Bangladesh by Data International which asked for information on domestic prices of a set of representative products. The Kolkata survey received responses from 82 firms exporting to Bangladesh and from 50 manufacturers who were supplying them. Many responses were incomplete and the coverage of individual questions (including price information) was not the same in India and Bangladesh. As regards comparative prices in the two countries, the sample of reasonably reliable responses that could be compared in the end was quite small and covered only 30 products. Nevertheless, the results were striking, indicating that prices of 25 of the 30 products were higher in Bangladesh, and in most cases very considerably higher-on average for the 30 products about 62% higher.
Table-2: Number of product
Number of products with prices Higher in India Higher in Bangladesh Total number of products Average ratio of Bangladesh price to Indian price Agricultural products 1 9 10 1.83 Processed foods - 4 4 2.00 Manufactured products 4 12 16 1.39 TOTAL 5 25 30 1.62
14 Product Estimated ratio of Bangladesh price to Indian price: retail incl indirect taxes Estimated ratio of Bangladesh price to Indian price: tax free wholesale or ex-factory Bangladesh: % of VAT to retail price India: % of indirect taxes to retail price Domestic soap 0.85 0.98 11.8 22.8 Dry red chilly 0.89 0.95 nil 6.5 Ceiling fan (sweep type 900- 1200 mm) 0.78 0.85 12.5 18.3 UPS (600-625 VA) 0.99 1.15 11.9 22.7 Paints 0.70 0.81 nil 13.8*
Table-3: Types of product
Type of product Number of products Average of expected increases in exports to Bangladesh % Agricultural 14 31 Processed food 4 45 Manufactured 39 35 Mineral 1 10 All products 58 34
15 Table-4: Bangladesh Imports FY 1996 & FY 2011-FY2004 1995-96 2000-01 2001-02 2002-03 2003-04 Description Imports million $ Shar e % Import s in million $ Shar e in % Import s million $ Shar e in % Import s million $ Share in % Import s million $ Shar e in % Imports from World Basic Raw Materials 758 11.5 903 10.8 852 9.1 1,015 10.7 1,409 12.8 Intermediate Goods: total 3,63 2 54.9 4,956 59.3 4,761 51.1 5,240 55.3 5,899 53.4 Intermediate Goods: Domestic Consumption 1,93 6 29.3 2,082 24.9 2,169 23.3 2,445 25.8 2,702 24.5 Intermediate Goods: Back- to-Back-L/C & EPZ Imports 1,69 6 25.7 2,874 34.4 2,592 27.8 2,795 29.5 3,197 29.0 Capital Goods 1,16 5 17.6 1,463 17.5 2,555 27.4 1,447 15.3 2,016 18.3 Final Consumer Goods: Total 1,05 7 16.0 1,036 12.4 1,151 12.3 1,775 18.7 1,720 15.6 Final Consumer Goods: Wheat & Rice 479 7.2 251 3.0 246 2.6 345 3.6 332 3.0 Other Final Consumer Goods 578 8.7 785 9.4 905 9.7 1,430 15.1 1,387 12.6 Total 6,61 2 100.0 8,357 100.0 9,319 100.0 9,477 100.0 11,044 100.0 Imports from India Basic Raw Materials 117 11.1 84 10.4 126 13.0 135 11.2 218 16.8 Intermediate Goods: Domestic Consumption , Back-to- Back L/C 442 42.1 405 50.2 400 41.1 436 36.0 448 34.5
(4.2) Bangladesh exports to India Bangladeshs exports to India, after increasing quite rapidly in the early 1990s from almost negligible levels, levelled off after 1995/96 and in 2003/04 were about the same in nominal US dollars, and lower in inflation adjusted dollars, than they had been 9 years earlier (Fig 5.2). From Indias perspective they are a miniscule share of its total imports (less than 0.1%) and are only about 1% of Bangladeshs total exports. Since 2001/02 they have been increasing fairly rapidly, and according to the most recent Indian import statistics, this increase was sustained until Indias 2005/06 fiscal year at roughly a 30% rate, rising to $120 million in 2005/06. However it was from a very low level of only $50-60 million in 2001/02. These levels are much too low to be confident in projecting longer term trends, because the exports are dominated by just a few products, changes in which can cause large proportionate changes in the totals. For example, the increase between 2002/03 and 2003/04 was almost entirely due to increased exports of just one product, anhydrous ammonia.
About two thirds of Bangladeshs exports to India consist of this one product, (which is imported duty free as an input into Indias urea industry) plus raw jute. In 2003/04 there were only seven products (including these two) with exports exceeding $1 million, and between them these seven accounted for 87% of Bangladeshs total exports. As indicated in Table 7.1, there were only 29 products (defined at HS 6-digit level) with Indian imports exceeding $100,000.
Industrial products (other than textiles and clothing) with SAPTA preferences Most of Indias 2925 SAPTA preferences for Bangladesh are on industrial products, and the most frequent concession rate is 50%. Assuming this preference rate, a typical industrial preferential tariff for Bangladesh has declined during the past five years as follows:
21 Textile and clothing (T&C) products: Three quarters of Bangladeshs exports are ready made garments, most of which go the US and Europe. there is a quite a low likelihood that there would be very substantial Bangladesh RMG exports to India even under this very favorable policy scenario, at least in the short to medium run. In particular: y India is also a major exporter of RMGs, in 2003/04 with exports of $6.2 billion versus Bangladeshs exports of $4.9 billion. y It also has a very large and diversified textile industry which exports on its own account and supplies its RMG firms. By contrast, Bangladeshs textile industry-especially the fabric sector-is a problem industry with high costs and high domestic prices, and is protected against imports by very high tariffs. As a result, Bangladeshs RMG exporters rely mainly on imported yarns and fabrics. y The paper argues that the very high protection levels provided by Indias specific duties on fabrics and garments are mostly redundant by wide margins. That is, actual domestic prices in India of all T&C products-yarns, fabrics, garments, and made-ups-are probably not far above and may even be below prevailing international prices at the cif stage in India. This generalization is partly based on reports that imports for the domestic market (as distinct from duty free imports of textile inputs by RMG exporters) of T&C products not subject to specific duties, have so far been minimal despite substantial reductions in ad valorem tariffs. The report also notes that Sri Lanka- which is a major RMG exporter has had negligible RMG exports to India, despite the 75% preference for garments negotiated under the Sri Lanka-India FTA. This preference means that during 2003/04, 2004/05 and 2005/06 Indian preferential ad valorem tariffs have been 12%, 5%, and 3.75% , and for garments subject to specific tariffs the tariffs for Sri Lanka are 25% of the MFN tariff. In 2003/04, the ad valorem equivalent for Sri Lanka of the Indian specific tariff on a $4 shirt would have been about 12%. As Sri Lankan exporters have not been competing in India with these substantial preferences, the paper suggests that it would probably also be difficult for Bangladesh RMG exporters to compete there, even if the protective umbrella of Indias specific tariffs continues to keep out suppliers in the rest of the world. y These likely difficulties of competing in India are compounded by the absence of a competitive low cost textile industry in Bangladesh, more so for fabrics than for yarns. This means that RMG firms exporting to India would have to deal with the usual delays and difficulties of international procurement of their textile inputs, whereas the Indian firms with which they would be competing would in general obtain their inputs at highly competitive prices nearby in the domestic Indian market. y The RMG market in India is far larger and more diversified than RMG production in Bangladesh.
22 Agricultural, fish, livestock and processed food and drink products: During 2003/04 exports of these products from India to Bangladesh were $731 million74, but the reverse trade was tiny, just under $29 million75. Of this, approximately $20 million was raw jute, Hilsa fish ($5 million), betel and some other nuts ($2.2 million) and the rest consisted of very small volumes of frozen shrimp and fruit drinks. in the World Bank trade policy Overview report, these policies in fact have been and remain much more protective than industrial protection policies. In particular: y Import of the main foodgrains is still monopolized by parastatals, and some grains and powdered milk imports are subject to tariff rate quotas y Tariffs on these agricultural products were excluded from the tariff reduction program which started in 2002/03 and except for system of specific duties protecting the T&C sector-remain much higher than industrial tariffs. At present the generally applied tariff is 30%, but tariffs on many products are much higher, so the unweighted average tariff is around 40%. Some obvious examples are for products which are regularly or periodically exported. For example: Table-7: Indian protection policies for some major exported commodities Tariff and NTBs in India 2004/05 Total exports 2003/04 $ million Exports to Bangladesh 2003/04 $ million Rice 87.2%+STE 907 197 Wheat 70% or 80% + STE 520 196 Maize 15% or 50% (TRQ) 77 36 Sugar 60% +NTB 264 32 Tea 100% 338 1 Coffee 100% 162 0 Onions 30% 156 62
23 Table-8: Some agricultural products and processed foods: comparisons of prices and Tariffs in India and Bangladesh Ratio of Bangladesh price to Indian price Indian tariff 2004/05 & NTB Bangladesh tariff 2003/04 Retail Wholesale % % Rice 1.77 1.48 87.2+STE 7.5 Wheat 1.15 n.a. 70 or 80 + STE 7.5 Apple 2.09 2.20 50 86 Cumin seed 2.95 n.a 30 66.5 Grapes 1.60 1.52 40 86 Lentils 1.23 0.89 30 11 Mango 4.74 5.12 30 86 Onion 2.39 2.74 30 26.5 Red dry chilly 0.85 0.78 70 26.5/49 Turmeric 1.26 1.32 87.2 49/66.5 Soya oil 1.10 1.20 45 7.5 Mustard oil 1.05 1.10 85 7.5 Milk powder 3.68 n.a. 15 or 60 (TRQ) 63.25 +NTB Sugar 1.47 1.85 60+ NTB 98.4
25 Total export and import result 2004-10 Bangladesh is an important trading partner for India. In FY 2008-2009, Bangladeshs imports from India were US$ 2.841 billion and exports to India were US $276.58 million. Total bilateral trade in FY 2008-2009 stood at US $ 3.117 billion. Table-10: Trends in India-Bangladesh Merchandise Trade
04-05 05-06 06-07 07-08 08-09 9-10 (first nine months) (July 09 March 10) Bangladeshs export to India 144.20 241.96 289.42 358.08 276.58 257.41 Bangladeshs import from India 2030.00 1864.70 2288.00 3364.00 2841.06 2300.63 Total trade 2174.20 2106.70 2557.40 3722.08 3117.64 2557.63
26 Chapter-5 Balance of payment condition & Suggestive measure: y Trade between Bangladesh and India is heavily tilted in favour of India. To solve this problem we have to increase export to India y In 2004-05, BDs official imports from India were $2030 million but its exports to India were just $144.20million. Exports to India could pay for only 13% of imports from India. That is the huge trade deficit. To solve this problem we have to produce more products in Bangladesh which ultimately reduce the import. y In 2005-06, BDs official imports from India were $ 1864.70 million but its exports to India were just $ 241.96 million. In 2005-06, Bangladeshs exports to India accounted for as little as 2.30 percent of its total exports, whereas imports from India in that year were 12.5% of her total imports. We have to produce more qualitative products which meet the demand of Indian people. As a result the export may be increased and import decreased. y In 2006-07, BDs official imports from India were $ 2288.00 million but its exports to India were just $ 289.42 million. There was the same situation like before. We have to increase the export. y In 2007-08, BDs official imports from India were $ 3364.00 million but its exports to India were just $358.08 million. There was the same situation like before. We have to increase the export. y In 2008-09, BDs official imports from India were $ 2841.06 million but its exports to India were just $276.58 million. There was the same situation like before. We have to increase the export. y In 2009-10, BDs official imports from India were $ 2300.63 million but its exports to India were just $257.41 million. There was the same situation like before. We have to increase the export.
We can see that every year there is a huge trade deficit between India and Bangladesh. So we can take these steps also: y Reduction of Trade Deficit (by increasing Exports) y Forced Reduction of Imports to Improve Trade Balance will be Self-Defeating y is hardly any scope to cut down essential imports from India without jeopardizing growth y Piecemeal efforts by Government in the past to obtain trade concessions from India failed to raise exports y A free trade agreement (FTA) might offer a solution
27 Chapter-6 Findings y The import rate of Bangladesh is very high than export with India. Excessive dependence on a few export items and markets reflects the vulnerability of Bangladeshs external sector. y Because of time limitation we cant prepare the assignment in the current way. y Export diversification and market diversification continue to remain major challenges.Bangladesh exports to international markets. The government should play a major role through dialogue with foreign trading partners. y Appropriate macroeconomic policies including price stability and an appropriate exchange rate must be ensured. Bangladesh Bank, the central bank of Bangladesh, must take appropriate steps independently in this regard. The government must also contribute by playing a helping role to maintain the price stability. y Despite adoption of various export promotion measures and rising trend in wage earners remittances, the disequilibrium in the balance of payments position persisted. y The terms of trade consistently deteriorated due to rising import prices and instability in export earnings, causing continuous deficits in trade accounts of balance of payments. y Adequate infrastructure must be built to facilitate the countrys exports. Sufficient investments, both from internal and external sources, are vital to improve the existing infrastructure facilities. Foreign direct investment can play a contributory role in this regard. The government must create a favourable investment environment by improving law and order situation and controlling corruption. y Proper quality of exportable items must be maintained to meet foreign demand. Better education and training to the workers and managers in the export industries, establishment of more technical schools and colleges, import of improved technology for export industries, and closed and regular product supervision can ensure the quality of exportable items. y Due to crop failures caused by devastating floods that occurred off and on during the last three decades, which resulted in further deterioration of the balance of payments situation of the country.
Recommendation y Government may seriously consider signing the proposed FTA agreement, provided there is guaranteed market access (liberal rules of origin, no tariff and non-tariff barriers) y Fast Track Liberalization. Tariffs on fast track items should be eliminated immediately. y Normal Track Liberalization. Trade barriers on products of the normal list could be phased out over an agreed timeframe 12 years for Bangladesh, and a shorter period of not more than 2 years for India. y Negative list. Products of exports interest to Bangladesh should not be in Indias Negative List y Dismantle all NTBs and Para-Tasssriffs y Safeguard Provisions. The Agreement should include a safeguard clause to protect Bangladeshs infant industries
28 y Rules of Origin. The rules of origin should be more favorable than under the India-Sri Lanka FTA y Expand Production Base Conclusion The trading relationship between India and Bangladesh is currently of special interest in both countries for a number of reasons.
Firstly, there are urgent and longstanding concerns in Bangladesh arising from the perennial, large bilateral trade deficit with India, and from the large volumes of informal imports from India across the land border which avoid Bangladesh import duties. These concerns have been particularly acute on the Bangladesh side in the context of discussions between the two governments of the possibility of a bilateral free trade agreement along the lines of the India-Sri Lanka FTA.
Secondly, even though (because of the disparity in the size of the two economies) Indias trading relationship with Bangladesh is much less significant for it than it is for Bangladesh, closer economic integration with Bangladesh is nevertheless seen as a very important way of reducing the economic and political isolation of the seven Indian eastern and north eastern states from the rest of the country.
Finally, both countries have long shared common objectives for closer economic integration within the South Asia region, and these have recently been reemphasized by signing on to SAFTA, which takes effect from January 2006. Under SAFTA, the preferential tariffs agreed in the various rounds of SAPTA-- so far largely ineffective in generating much intra-regional trade-- will continue, but a number of ambitious new objectives have been enunciated. These include the eventual elimination of tariffs and non-tariff barriers on trade between the members, the harmonization of Customs procedures and documentation, the facilitation of banking relationships, and cooperation and improvements in the infrastructure for regional trade and cross-border
This report summarizes and attempts to draw out and synthesize some of the main conclusions of a series of consultant papers on various aspects of the trading relationship between India and Bangladesh. The study program originally also included a component which involved a summary and overview of the current situation on trade policy between India and Bangladesh.