Thursday, August 18, 2011

Transit: Some Issues

Transit facility for India has become quite contentious largely as a result of the way it has been handled by the government. It would have been less controversial if it had been taken up as part of an overall settlement of the outstanding bilateral issues, which appears to have been the approach taken by India in its dealing with Bangladesh.

To go by public statements, there is not much disagreement about giving transit to India in principle, but a large group of the citizenry want this to be agreed upon only if it is demonstrably beneficial to Bangladesh. Since a beneficial transit agreement can always be negotiated, the government needed to convince the public that its negotiating team has the skill and will to ensure such an outcome. Instead, the government agreed on transit even before any negotiations began (note that Bangladesh had agreed on transit in principle as early as 1972).

Stung by criticisms, the government's first ploy was to appeal not to politicise the transit issue. The Commerce Minister, who did most of the talking on the issue until recently, urged everyone to treat transit from an economic and commercial viewpoint. If substantial economic and commercial benefits could accrue from transit facilities given to neighbouring countries, then there would be a strong case for it. The government and allied economists and intellectuals initially suggested that Bangladesh stood to gain revenue in excess of one billion dollar per year through imposing transit fees. There would be further gains in terms of regional connectivity that would open up huge trade and investment opportunities within the region. With such rosy prospective gains, it was difficult to argue against transit.

However, there was suspicion that the possible gains were greatly overestimated and the costs suppressed. The suspicion deepened as the estimated magnitude of gains started dwindling precipitously. One highly respected economist estimated that the net revenue earning from transit was likely to be of the order $15-30 million if only rail routes were used - a pittance compared to the initial claim.

When it became clear that there would be negligible revenue earning from transit, the government's economic case for transit appeared rather weak. In this situation the Economic Advisor to the Prime Minister made a rather startling observation that it would be 'uncivilised' to require India pay anything for transit facilities through Bangladesh. Predictably, it whipped up a maelstrom of protests and criticisms.

The Government (Ministry of Commerce) formed a Core Committee headed by the Chairman of Bangladesh Tariff Commission ((BTC) to suggest the terms, including fees, of transit. It has reportedly submitted its report. It has not been made public, but bits and pieces of the report have been published in the news media. The Committee estimated the cost of development of necessary infrastructure for transit at a staggering $7.1 billion dollars. It is about twice the entire Annual Development Programme (ADP) spending of fiscal year (FY) 2009-10 and much more than the amount needed for solving the nation's energy problem permanently. The emphasis on transit gives out a signal that the government regards it as more important than two years' development work or the solution to the energy crisis that the nation is suffering from.

From the estimates of the probable volume of traffic and charges, it became quite clear that transit revenue would not generate enough to cover even a fraction of the maintenance cost of the infrastructure, let alone the capital expenditure. An economist argued that since the infrastructure will be used also by the domestic vehicles, it will be unfair to require Indian transit vehicles to bear the entire cost. The Foreign Minister recently came forth with the argument that transit was essentially a political matter; presumably economic cost calculations did not matter. Thus two years into the controversy, the government came around from cautioning people not to regard transit as a political issue to asserting that it was.

To put transit to India in a favourable light, the Government and some economists linked it with transit for Bhutan and Nepal through Bangladesh. Both of these countries are land-locked countries. India, as well as Bangladesh, is obligated under international law to provide them transit facilities through routes most convenient for international transit. However, India has denied their rightful claim to access to routes through Bangladesh as a pressure tactic to secure transit for itself.

Bhutan is a tiny country of only seven hundred thousand people. Its trade volume is minuscule and most it is with India. There is little economic or commercial gain to be made through transit trade. A profitable opportunity that may arise is if Bhutan were in a position to export electricity to Bangladesh.

Nepal's first choice for transit is unlikely to be routes through Bangladesh, although it may want to keep Bangladesh option open as a safeguard against problems with other routes. It is unlikely that a large amount of revenue will accrue from Nepal transit. Thus, the economic case for transit to India should be viewed on its own merit.

There are some misconceptions and controversies that occur repeatedly in the discourse on transit. To start with, there is no agreement on whether the access facility that India wants can be termed 'transit'. A large group of people hold the view that what India is really asking for are 'corridors' through Bangladesh for quicker and less expensive traffic movement from to North-Eastern part from the rest of the country. It cannot be called transit since transit refers to movement of goods from one country to another through the territory of a third country.

In other words, movement of goods originating from and ending in the same country cannot be called transit even though it might have required travelling through the territory of another country.

There can be no restrictions on the definition of a term one chooses to adopt. However, some terms are used in the relevant international laws and given specific definitions that have gained currency. The transit question arose in the context of land-locked countries. The trade and development prospects of these countries were perceived to be rather dim if they did not have uninterrupted access to the sea.

The League of Nations took an initiative to conclude an international treaty that would guarantee land-locked countries free access to the sea. The initiative resulted in the Barcelona Statute on Freedom of Transit (1921). Article 1 of this Statute defined transit, which was borrowed with only minor modifications by Clause 1 Article V of GATT 1947:

Goods (including baggage), and also vessels and other means of transport, shall be deemed to be in transit across the territory of a contracting party when the passage across such territory, with or without trans-shipment, warehousing, breaking bulk, or change in the mode of transport, is only a portion of a complete journey beginning and terminating beyond the frontier of the contracting party across whose territory the traffic passes. Traffic of this nature is termed in this article "traffic in transit".

This definition does not mention whether the journey commences in one country and ends in another, and hence presumably, if the journey commences and ends in the same country, the passage through the other country would still be termed transit. Indeed, transit is broadly defined in international law to cover passage between custom points within the same country.

Thus, if a container is unloaded from ship at the Chittagong port and forwarded without custom clearance to Dhaka Container Terminal where it is delivered to the consignee after the completion of all custom procedures, then the container was in transit between Chittagong port and Dhaka Container Terminal.

The term 'Corridor' does not appear in the international agreements. However, transit corridor is sometimes used in ordinary discourse to describe an across-the-board arrangement between countries including all stakeholders, both public and private, for the development of a good physical infrastructure and harmonised and simple procedures for transit traffic. Walvis Bay corridors, which are a network of transport corridors principally comprising the Port of Walvis Bay, the Trans-Kalahari Corridor, the Trans-Caprivi Corridor, the Trans-Cunene Corridor, and the Trans-Oranje Corridor that connect several countries of southern Africa are an example of successful cross-border transit traffic facilitation arrangement. The Trans-Caprivi Corridor runs from Congo to the Port of Walvis Bay through the territories of Zambia, Angola and Namibia.