Washington: A new World Bank study suggests that trade between India and Bangladesh would do better if there were broad-based liberalisation, rather than a Free Trade Agreement (FTA). 

Noting that an India-Bangladesh FTA has been under consideration for some time, the study points at possible advantages, but concludes that there is no compelling case for the two countries to pursue a bilateral agreement. Rather a broader-based liberalisation would be preferable since this would yield much larger economic benefits, whilst minimising risks, said the study on 'India-Bangladesh Trade, Trade Policies and Potential Free Trade Agreement'.
 

A bilateral free trade agreement would provide substantial benefits to Bangladesh consumers by giving them access to cheaper exports from India, according to the study. These consumer benefits would far outweigh losses in government revenue or lost profits for local manufacturers.
 

Yet the study goes on to say such benefits could easily be wiped out, if one does not make sure that the incentive systems give the right signals.

By keeping out cheaper third-country imports, the FTA risks providing a captive, protected market where Indian producers might collude amongst themselves or with Bangladeshi importers to artificially increase prices.

On the other hand cheaper goods from, say East Asia, might be excluded, forcing Bangladeshi consumers and businesses to overpay, the study suggested.

For India, the economic benefits from a Free Trade Agreement would be modest since its trade with Bangladesh is small in relation to India's overall trade. These modest gains would mostly stem from expanded exports.

The study finds that India would stand to profit more from the continuation of its policies of unilateral liberalisation - paying special attention to the removal of non-tariff barriers, specific duties on textiles and garments, and prohibitive tariffs on agricultural products.

India and Bangladesh could still greatly benefit from cooperation in other areas, without necessarily implementing an FTA, it said.

Improvements in the transport, storage and administrative infrastructure at land borders would yield substantial benefits. Greater harmonisation and cooperation in customs administration and banking relationships would also be highly beneficial.

Progress could also be made to tackle informal and illegal trade that, by some estimates, could be as high as three quarters of recorded trade and is mostly from India to Bangladesh.

"The study suggests improved infrastructure at land border customs posts; streamlined customs procedures and administration; expanded facilities at smaller customs border post. Added to this, Bangladesh needs to bring down its protective tariffs to levels closer to those of its comparators in South Asia and elsewhere," it said.