Trade Potentiality in BIMSTEC

IntroductionIn recent times, BIMSTEC (the Bay of Bengal

Multi-Sectoral Technical and EconomicCooperation), an economic grouping comprisingof Bangladesh, Bhutan, India, Myanmar, Nepal,Sri Lanka and Thailand as member countries, isgaining importance. The initiative for thiseconomic cooperation was undertaken during1997.

BIMSTEC was formed with the idea ofimparting greater socio-economic cooperationamong the member nations in the area oftechnology, transport and communications,energy, tourism, agriculture, fisheries andhuman resources development. In addition tosectoral cooperation, BIMSTEC also want tostrengthen cooperation in the areas of trade andinvestment.

Compared to South Asian Free Trade Area(SAFTA), BIMSTEC FTA seems to be muchmore promising. A deeper economic integration

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process within South Asian Association ofRegional Cooperation (SAARC) is sufferingbecause of political tensions between India andPakistan.

Such things are less likely to happen in case ofBIMSTEC. It is believed that negotiations underthe BIMSTEC umbrella will be easier than underSAFTA because all the BIMSTEC members aremajorly guided by their economic rather than bypolitical interests.

Pillars of CooperationBroadly speaking, the BIMSTEC is based on

three pillars of cooperation. The first pillar istrade and investment, the second is energy, withtransportation being the third.

Intertwined in these three pillars are theprospects of the BIMSTEC region emerging as ahotspot of economic growth. In recent years,emerging Asia has posted an average GDP (grossdomestic product) growth of 6.4 per cent in

* Fellow, CUTS International** Research Assistant, CUTS Centre for International Trade, Economics & Environment

Nilanjan Banik* and Aparna Sharma**

The Bay of Bengal Initiative for Multi-Sectoral and Technical and Economic Cooperation(BIMSTEC) is the only sub-regional grouping which can serve as an effective bridge betweenSouth Asia and Southeast Asia. As the group has a cosmopolitan base with 14 priorityareas of cooperation including trade and investment, it could easily achieve its immenseuntapped trade potential.

The member countries of BIMSTEC grouping are natural trading partners because oftheir geographical proximities and the abundance of natural resources. Countries such asIndia and Thailand have absolute advantage in exporting specific commodities having greatdemand in other BIMSTEC members. This grouping can emerge stronger if it focusses onspecific initiatives to improve their connectivity.

In the light of above, this Briefing Paper has emphasised on the trade performance ofBIMSTEC countries and an assessment of their potentiality.

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investment cooperation with its neighbours.Participating in the manufacturing related

supply chains among the BIMSTEC group ofcountries will help, especially for India to takeadvantage of lower raw materials, land, andlabour costs in other BIMSTEC countries, allthat goes into the production of final output.

In turn, India�s total factor productivity willgrow, helping it to allocate its resources moreefficiently including taking into accountdevelopment dimensions of the Make in Indiainitiative.

Also, marginal return on capital invested inthis region is one of the highest in the world.There are two specific reasons for this. First,value addition of each additional dollar investedin this region promise more marginal returnthan elsewhere. Secondly, seamless movementof transport will benefit companies willing to dobusiness in this region. It is, therefore, notsurprising why developed countries are keenabout investing money and technological know-how to develop infrastructure andtransportation in the BIMSTEC region.

In respect to physical connectivity, Japan hasshown interest to invest in energy infrastructurein the region. For instance, JapaneseInternational Cooperation Agency is providingUS$406 million to construct the 1200 megawattMatarbari Ultra Super Critical Coal-FiredPower project in Bangladesh.

comparison to less than a per cent for Europe, 5per cent for the US and 3 per cent for theAustralasian region.

In addition to the income factor (promising agreater potential demand, which should be amajor driver of economic growth in future), theBIMSTEC region has the potential to transforminto a global manufacturing hub.

Unlike in the past, tariff barriers have fallen,and countries have opened up more. Productionprocess happens through coordination acrossnational borders with successful industries arethe ones which are part of global supply chainnetwork.

For example, in the supply chains involvingthe textiles and clothing industry: from rawcotton to readymade garments � India cansupply cotton bales, Thailand can use them toproduce fabrics, Sri Lanka has competitiveadvantage in textile designs, and Bangladesh canbe more competitive in manufacturingreadymade garments using those fabrics anddesigns.

India is the largest economy within theBIMSTEC region. Other members (that is,BIMSTEC-6) can offer cheaper land and labourrelative to India. There is an added advantage.India being a large economy may come underprotectionist measures (read, non-tariff barriers[NTBs]) in the developed nations and it cancircumvent that through greater trade and

Table 1: Tracking Macros in the BIMSTEC Region

Year India�s Exports India�s Exports by Exports by India�s Intra- to BIMSTEC-6* Exports to BIMSTEC-6 BIMSTEC-6 Total Trade BIMSTEC-6

ROW to India to ROW with Trade (%)excluding excluding BIMSTEC-6

BIMSTEC-6 India

2007 7,802 1,38,096 5,721 1,74,320 13,523 0.0461

2008 10,127 1,71,734 6,151 2,01,961 16,278 0.0462

2009 7,257 1,69,508 6,026 1,75,676 13,282 0.0450

2010 10,798 2,09,611 7,050 2,23,559 17,848 0.0457

2011 13,860 2,87,623 8,393 2,63,312 22,253 0.0494

2012 15,489 2,74,076 8,470 2,66,321 23,959 0.0439

2013 19,032 3,17,579 8,338 2,72,150 27,370 0.0482

AGR 13.3 12.4 5.4 6.4 10.4 0.62

Source: Trade Map, International Trade Centre, Geneva

Note: * BIMSTEC-6 comprise of Bangladesh, Myanmar, Sri Lanka, Thailand, Bhutan, and Nepal.

ROW: Rest of the World excluding BIMSTEC-6/India.

AGR: Annualised Growth Rate

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China has shown willingness to develop high-speed railway corridors in India, roadinfrastructure in Myanmar and Nepal (includingas part of trilateral cooperation with India),eventually joining them to develop a BCIM(Bangladesh, China, India, Myanmar) economiccorridor, which can be extended to other

BIMSTEC countries through multi-modaltransport linkages.

Thailand is already getting benefits from theEast-West and the North-South Corridors: roadhighways built with assistance from the AsianDevelopment Bank. This emphasis on furtheringphysical connectivity can be a win-win situationfor all.

Table 2: Country-wise Top Five Exports

Source: UN COMTRADE Database, United Nations Conference on Trade and Development, Geneva

Table 3: Country-wise Top Five Imports

Source: UN COMTRADE Database, United Nations Conference on Trade and Development, Geneva

© CUTS International 2015. This Briefing Paper is published by CUTS International, D-217, Bhaskar Marg, Bani Park, Jaipur 302016,India. Ph: +91.141.228 2821, Fx: +91.141.228 2485, E-mail: citee@cuts.org, Website: www.cuts-citee.org. CUTS Briefing Papers are toinform, educate and provoke debate on specific issues. Readers are encouraged to quote or reproduce material from this paper for their own use,but CUTS International requests due acknowledgement and a copy of the publication.

Trade PotentialityIntra-regional trade among the BIMSTEC

group of countries is about seven per cent oftheir total trade. However, it is not a rightindicator of their trade potentiality. A closerlook at the trade figures show that at a macrolevel there are enough activities happening in theBIMSTEC region.

Between 2007 and 2013, India�s export to theBIMSTEC-6 has grown at a faster rate incomparison to India�s export to the rest of theworld excluding BIMSTEC: 13.3 per cent asoppose to 12.4 per cent.

Again, between 2007 and 2013, India�s totaltrade with BIMSTEC-6 has grown at anannualised growth rate of 10.4 per cent incomparison to intra-BIMSTEC-6 trade growingat 0.62 per cent annually. India�s import fromBIMSTEC-6 is also growing at an annualisedrate of 5.4 per cent.

Digging a little deeper, there are reasons forimpressive macro-trade figures within theBIMSTEC region. Table 2 and 3 show why theBIMSTEC group is emerging as a natural tradingpartner. The interesting point to note is withinBIMSTEC some major export items of a countryalso happen to be another country�s majorimport items.

For example, India�s (marked in green) majorexport items are car and refined petroleum.These items are in great demand among otherBIMSTEC members such as Bangladesh, Bhutan,Nepal and Sri Lanka.

Similarly, items such as computers, gold, andtrucks, supplied by Thailand (marked in orange)

are in great demand in Bangladesh, India and SriLanka. Similar patterns are there when thisexercise is extended for other BIMSTECmember countries.

ConclusionsMoving forward, these benefits can be

accrued more provided BIMSTEC membersremove barriers to investment flow, allowtransit of road and rail transport through amulti-modal transport and transit facilitationagreement, harmonise product standards andcertificates through mutual recognition, anddemand for cumulation of rules of origin.

Concomitantly, there is a need for improvingissues related to governance. At times, the localgovernance authorities obstruct development ofinfrastructure at the border points. The case inpoint is cross-border trade between India andBangladesh over land routes. This is due to thefact that congestion at border points generate anamount of revenue via parking charges, sale ofconsumables, food, etc. which, at times, drives asubstantial part of the local economy at theborder locations.

Likewise, to facilitate seamless movement oftransport, there is a need to have well-definedsecurity and insurance clauses in a multi-modaltransport and transit facilitation agreement.Presently, there are concerns over who is goingto foot the bill if there are theft and accidentsacross national borders. Managing micro issuessuch as these are equally important asnegotiating much macro trade and investmentissues.