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Transit dissected

News Published: Tuesday, Aug 02, 2011


Tuesday, August 2, 2011


Regional trade

Transit dissected

Policy Research Institute vice chairman analyses transit issues with The Daily Star

Sadiq_AhmedSadiq Ahmed

Rejaul Karim Byron and Md Fazlur Rahman

Bangladesh should look for long-term benefits in allowing transit facilities to India and other neighboring countries, rather than eyeing short-term gains for economic development, an expert said.

“It's a major endeavour and it will help modernise Bangladesh over the longer term,” said Dr Sadiq Ahmed, vice chairman of think-tank Policy Research Institute of Bangladesh (PRI).

“Along with transit, traffic and people will come. Our whole country will be internally and regionally connected. Port services will be boosted. Tourism will pick up. So the multiplier effect of the transit is large,” he told The Daily Star in an exclusive interview.

India and Bangladesh have been discussing the issue of transit for long. The issue has revived of late, as New Delhi wants to reach out its eastern states through Bangladesh.

The issue of transit is supposed to be on top of the agenda when Indian Prime Minister Manmohan Singh visits Bangladesh next month.

The issue has apparently divided Bangladesh politically, as critics of transit think Bangladesh will lose more whereas India will achieve more.

But Ahmed said: “We should approach the issue of transit from the perspective of how it is helpful to Bangladesh. What India is getting is totally a different thing. There is ample evidence that Bangladesh will gain from transit. To me that is the critical issue. If India, or other neighbours, happens to gain more, then that should not be the reason to deny transit access. That is a negative approach.”

Ahmed is leading the economic analysis of a government team that is analysing various technical issues of transit, the economics of transit and how economic development is related to transit.

“As a citizen of a poor country, in my mind, this is all about modernising Bangladesh,” said Ahmed, who also taught economics at Dhaka University in 1974.

He said the government-sponsored committee working on the transit issue is a good one and is looking at transit as a multilateral issue, not a bilateral issue.

“Benefits will be maximised if we can include other countries. Even we have to look beyond the south Asian sub-region and include China and Myanmar. I would like to think of it as an instrument of development and open access to other countries. Similarly, Bangladesh must have access to India, Nepal and Bhutan. It must be a uniform policy.”

He said the background work done for the transit agreement for the sub-region of Bangladesh, Bhutan, India and Nepal is quite substantial. “For the first time, the government is adopting a comprehensive approach. The technical team working on the transit issue is conducting a rich and detailed analysis. This work provides a strong analytical basis for conducting negotiations on the various transit related protocol agreements.”

Ahmed, who held several top positions in the World Bank before taking early retirement in 2009 to work on Bangladesh development issues, does not believe that there is any scope for political fallout if Bangladesh offers transit to India. “The whole concept that we are giving away our country to India is totally negative. Transit is a hugely important instrument for development of Bangladesh. It is similar to the export of services and not just to India but to other neighbours. ”

He said Bangladesh should not eye short-term gains out of transit. “We have to go for the long-term gains.”

“There should not be too much focus on only transit fees, as the tariff is only a small part of the whole picture. The real picture is much bigger. Transit will really be a tool for economic development. It helps us exploit our comparative advantages provided by nature in terms of open access to sea and as the gateway between South and East Asia.”

Ahmed said the right approach to transit fee is to think of it as a service charge for services provided. Based on a good practice approach to the determination of service charge, the team is looking into social marginal costs triggered by transit access, including costs for construction, maintenance, congestion, accident, and environment pollution, on various routes. “With full cost recovery, we will still be a competitive alternative for India and other port users.”

“If we focus on short-term gains and impose a charge that does not conform to international standards and in the process, our port does not become attractive, then all efforts will go in vain.”

The PRI vice-chairman said Bangladesh should fully utilise its access to the sea to become a regional hub for business and trade. “Countries or cities such as Singapore, Hong Kong and Rotterdam, which have been able to do so, have already become international centres for global trade.”

“There is immense potential for us to develop Bangladesh as a regional hub for sea traffic. We should open our sea routes for all countries that wish to do so. We will need global cargo to make our deep sea port idea economically viable.”

Ahmed said the global cargoes might come from countries such as India, Myanmar, China, Nepal and Bhutan. “Bangladesh should fix its poor infrastructure to attract traffic from other countries in the region. We have to make our ports attractive. We have to develop land and rail routes as well,” Ahmed said.

He said there are two sides of transit -- one is access to ports and the other is India's access to its eastern states. “From the Bangladesh perspective, we will build infrastructure capacity that is needed for regional connectivity to our ports as well as linking up various national districts. If that infrastructure is used by India to go to the eastern states by paying the relevant transit service charge that should be fine as well.”

Ahmed said all traffic would not go to the Kolkata port. “Our main competitor is Kolkata. But it does not have the capacity. It is already congested. There are also other technical problems.”

He said the country's two existing ports are currently running below their capacities. “The capacity of Chittagong Port is 1.2 million TEU. It is nothing compared to other global ports. The capacity of Mongla port is also limited. Even this limited capacity is not fully utilised. We should prioritise the utilisation of the existing capacities, which I think we should able to do through transit access.”

He said the deep sea port planned to be erected in the Bay of Bengal is the bigger picture. “We have to first develop the Chittagong Port and increase its efficiency. Our vision should be where we will be 10 years from now. If we can develop our ports and improve other infrastructures, I think we will have enough traffic from neighbouring countries.”

Ahmed said Bangladesh's potential is huge when it comes to ports. “Fifty years ago, Singapore and Hong Kong did not think that they would be at the stage they are at today. You have to draw up long term perspective to reach full potential.”

He said most of Bangladesh's routes to be used as transit routes are still underdeveloped. “If we can develop them, they will not only serve the purpose of transit, it will also help our internal trade. Trade in North Bengal will also benefit from the improved infrastructure. It will also facilitate us to reach Nepal, Bhutan and India's northeastern states, which have huge natural resources but not enough people.”

“If the northeastern states are developed and well-connected it would give Bangladesh a comparative advantage.”

He also countered doubt that India would most benefit and take away market from Bangladesh. “What is the evidence that India is more efficient from us on all areas of production? How can India's businesses be more competitive than us by travelling four hundred miles in lines of business, such as construction and other items, where transport costs are large?”

“I agree that it is an empirical point, but Bangladeshi businesses presently engaged with India's northeastern states have told me that they can double their businesses in eastern India with better connectivity.”

“Transit cannot be just seen as a paper agreement. Trade facilitation and infrastructure have to be included. Then it will be meaningful,” Ahmed said. “If you sign a transit agreement, but you do not develop transport routes and other support services, then how will trade facilitation happen? So transit is only meaningful if you consider a holistic approach. Transit means providing an entire range of services to transport goods from the point of origin to the destination point efficiently.”

Ahmed said infrastructure bottleneck stands in the way of economic development in the whole of South Asia. “Trade transport bottleneck is a far bigger constraint than tariff. The transport cost is high and trucks loaded with goods are stranded on the roads in Benapole or Petrapole.”

He said Bangladesh has to dredge its rivers to make the water routes more effective. “Otherwise, nothing much will happen on the river route. So, we are looking at transit as a development issue,” he said, adding that Bangladesh would need to set up a transit authority or something like that to facilitate transit services.

Ahmed said the argument that Bangladesh should resolve all its issues including water problems before providing transit access to India is not a pragmatic or practical argument. “The attitude should not be that we will not go for it until we resolve all problems with India. China and India have many problems, but they are also major trading partners of each other. The same is applicable to US-China relationship.”

By providing transit, access opportunities will be broadened for resolving other issues incrementally, he added.

He said: “Africa has sorted out transit issues and they are moving ahead despite the many instances of political turmoil and in-fighting in the continent, but we are still grappling with it.”

“This is not the right way of thinking. We need to solve as many problems as we can. Then we can go for the other unresolved and tricky issues. Diplomatic efforts will continue to solve them.”

“We have to look at the long-term interest of Bangladesh. We cannot look at negative experiences of past history as reasons for not moving forward now. The world has changed and others are moving forward. We also have to move forward. A lot of change has come in the globalised world, in India and also in Bangladesh.”

“Opportunity has come and we have to utilise it. I think it will help both countries. If there is any opening, we have to grab it. We cannot sit around and assume that as nothing has happened in the last fifty years, nothing will happen this time also.”

Ahmed said India could be given transit facilities in one or two less congested routes immediately on an experimental basis, to keep the momentum going. “We need to invest in almost all routes. If we have capacity in the port then we can start from that point.”

He said the Bangladeshi government should give the highest priority to link up the ports. “Bangladesh will gain most if we are able to do so.”

Ahmed also brushed aside the logic of a fund crisis. “Funding would never be a problem for a good project. We can free up some money from our annual development programme. The World Bank has a special fund that promotes regional connectivity.”

He said Bangladesh should not be too fearful of security issues, as some anti-transit experts and even opposition political parties are suggesting. “There are many ways to ensure that security concerns are adequately protected. We can learn from the experiences of the European Union and ASEAN in this regard. The most risk lies in river routes. We have to boost monitoring there.”

He said the world is changing too fast. “We need to be ahead of the game.”

Critics including opposition parties have urged the government to not rush to any decision, but Ahmed said: “Political opportunities are limited. It takes a lot of years to change a political mindset. We must seize this window of opportunity. Implementation can take time. I do not see any reason why we will not take advantage of this opportunity.”

The committee will recommend various charges for various routes. “We do not want to make any haphazard suggestion.”