Thursday, August 18, 2011

Will Transit To India Enhance Regional Connectivity?

The important question is whether or not international law requires freedom of all transit including travel between two points of the same country through the territory of another.

There is no ambiguity about freedom of transit to land-locked countries:

"Land-locked States shall have the right of access to and from the sea for the purpose of exercising the rights provided for in this Convention including those relating to the freedom of the high seas and the common heritage of mankind. To this end, land-locked States shall enjoy freedom of transit through the territory of transit States by all means of transport." (UNCLOS 1982, Article 125 Clause 1)

However, transit from one coastal state to another is less clear. GATT 1947 stipulates:

"There shall be freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties. No distinction shall be made which is based on the flag of vessels, the place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport." (Article V, Clause 2)

The use of the term 'international transit' above is significant. It seems to suggest that GATT calls for freedom of international transit. The important question then is whether goods travelling between two points of the same country through the territory of another country qualify to be called international transit.

GATT (and its current incarnation World Trade Organisation or WTO) was a multilateral organisation for promoting international trade through uniform laws. Nothing in GATT relates to exclusively internal matters of a Contracting Party. Since transit between two points of the same country, albeit through the territory of another country, is essentially internal trade, it is unlikely that GATT would have contemplated regulating such trade. This seems to be the broad international understanding. UNCTAD Trust Fund for Trade Facilitation Negotiations states:

In the WTO context, goods are defined to be in transit when the crossing of the territory of another WTO Member constitutes only part of the journey between departure and final destination country ... . GATT Article V therefore only refers to so-called through-transit, i.e. transit in the GATT context, normally involves at least three states. (Technical Note 8, rev 2, February 2009, emphases added.)

Thus, transit between two points of the same country through the territory of another country does not fall within the purview of Article V as it is commonly understood by the international community. It seems nations were aware of the political and security aspects of transit and therefore avoided multilateralisation of the issue. Bangladesh is under no international obligation to offer transit to India which has a much larger coast than what Bangladesh has. Hence, transit to India must be decided bilaterally or sub-regionally.

It is customary to begin a discourse on transit by pointing out the limited scale of trade in the South Asia region relative to other regions such as South-East Asia. This is attributed to restrictive cross-country regulations and trade logistics problems. Without mentioning which countries are imposing these restrictions, the authors jump to the conclusion that if Bangladesh offers transit between North-East and rest of India (i.e. East-West transit through Bangladesh), it will melt away the trade barriers and thereby substantially increase trade and investment in the entire region.

Actually these arguments do not fully apply to Bangladesh. India is the largest trade partner of Bangladesh with two-way formal and informal trade putatively in the region of $6.0 billion. India is the second largest source of formal import of Bangladesh accounting for 15 per cent of the total import in 2009-10. If probable informal import is added, the figure rises to around 25 per cent, which makes it the largest source of import for Bangladesh. Bangladeshi export faces substantial non-tariff hurdles erected by India, but nonetheless export to India exceeded half billion dollars last year. But for these hurdles export to India would have been much greater and total trade greater. There can be no doubt that there is scope for substantial expansion of trade with India if the trade barriers are relaxed.

It is claimed that transit to India will enhance regional connectivity and thereby promote greater trade and investment. However, a little reflection will reveal that East-West transit to India does not do much for regional connectivity; it only improves internal connectivity of India by making traffic movement from the West to North-East India quicker and cheaper. It is unlikely that Bangladesh will gain greater access to either the North-East or the rest of India due to transit.

Currently access to North-East India is hampered by various non-tariff barriers and infrastructure bottlenecks. The Ministry of Commerce (MoC) has been complaining about these barriers for a long time without much success in reducing them significantly. It would seem that India is not particularly keen about Bangladesh having extensive economic and commercial ties with North-East India. East-West transit will enable India to prevent Bangladesh from gaining a sheltered market in North-East India by largely offsetting its geographical comparative advantage. India could transport goods from the rest of the country to the North-East quickly and cheaply through the transit corridor, but Bangladeshi goods could be made unattractive through an appropriate choice of non-tariff barriers.

It should be very clear that connectivity of Bangladesh with Bhutan, Nepal and North-east India is not automatically enhanced by East-West transit unless India makes it a pre-condition of connectivity, and it does. What the Core Committee is suggesting is that East-West transit to India will pacify India to give Bangladesh better access to the North-East. East-West transit is neither necessary nor sufficient to secure access to North-East India. Bangladesh may end up losing its principal bargaining chip without much tangible gain.

While East-West transit does not automatically enhance regional connectivity, North-South transit does serve this end. Both Bhutan and Nepal gain by having North-South transit routes through Bangladesh. Bangladesh also gains direct access to these countries unless India creates hurdles.

The biggest gainers from North-South transit are the North-East Indian states. Their international trade (though not internal trade) will be greatly facilitated by access to Chittagong port. Bangladesh will gain from providing transit services including port services. The magnitude of the gain will depend on the skills of the negotiators on both sides. Trade and investment in the region are likely to be promoted by such transit. As economic development of the North-East is accelerated by the transit, trade and investment should flourish.

The geographical location of Bangladesh gives it a comparative advantage in trade with the North-Eastern states vis-a-vis other states of India as well as other countries of the world. This advantage should be protected as far as practicable to exploit the trade benefits. East-West transit dilutes this comparative advantage to a large extent. Hence, such transit should not be granted without ample compensation. However, North-South transit appears to benefit the entire region including Bangladesh. These considerations should be borne in mind when negotiating a deal with India.

A major obstacle to transit is the inadequacies of the transit infrastructure on both sides of the border. Roads and rail tracks of Bangladesh that might be used for transit are in an appalling condition. They can hardly bear the load of domestic traffic, which is increasing at a rapid rate. The total breakdown of transport services along some of the arterial roads recently is a stark reminder of the need to very substantially improve the transport infrastructure of the country. It would be a mistake to allow transit traffic without first ensuring that the transport infrastructure can bear the load of both domestic and transit traffic.

By- M.A. Taslim.