More than a decade after its conception, the notion of a growth quadrangle in the South Asian sub-region is back. But will the Bangladesh, Bhutan, India and Nepal (BBIN) initiative, having already spent four years in negotiation, finally materialise even at the cost of Bhutan opting out? What benefit does it have in store for Nepal? Most importantly, will it be the long-awaited remedy to Nepal’s connectivity woes?
--BY MADAN LAMSAL / SABIN JUNG PANDE
The hope for regional cooperation
Across the world, markets have enjoyed tremendous success by embracing free trade regimes within regional markets with connectivity as the nucleus of such practices of economic integration. The Association of South East Asian Nations (ASEAN) or the European Union (EU) bloc is a vivid example. Within regionalism, countries have even experimented with sub-regionalism to realise the economic potential of underdeveloped pockets. Brunei, Indonesia, Malaysia, the Philippines, and Timor-Leste – East Asian Growth Area (BIMPT-EAGA), Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) and SIJORI Growth Triangle (Singapore, Johor in Malaysia and Riau Islands in Indonesia) are sub-regional cooperation frameworks that have been successful in sub-regional economic integration and development.
“Globally, more the integration has taken place; more it has benefited the countries,” thinks Sujeev Shakya, chairman at Nepal Economic Forum (NEF), a private sector led economic policy and research institution. Shakya who is also the CEO of the consulting firm Beed Management says that the BBIN Initiative is significant because of Nepal’s landlocked status. “And, if we want to look at our comparative and competitive advantages, connectivity beyond India makes more sense,” he expresses.
Nepal, whose only regional integration hope has been SAARC, has not been given a lot to be optimistic about. SAARC is one of the least integrated regional blocs in the world, widely regarded as a failure due to the rivalry between India and Pakistan and India’s dominant foreign policy. Even when it appeared active, there weren’t many significant outcomes that member countries could be content with. The intra-regional trade between SAARC countries has remained around five per cent of their total trade despite the ratification of a free trade agreement (SAFTA) in 2004 (see table below).
Such disappointing trade relations may not affect the rest of the economies to the extent it affects Nepal. Nepal is small, landlocked and one of the least developed countries (LDC); a nation that considers the rest of the South Asian countries, other than India, as its best hope for diversifying its trade and economic relations. To put Nepal’s connectivity woes in perspective, most of the SAARC countries have sea access. In terms of connectivity, Pakistan has a China-funded, more than USD 50 billion infrastructure project in hand; the China-Pakistan Economic Corridor (CPEC). While Bangladesh has access to the sea, Sri Lanka is an island country. Both are larger economies with higher productivity than Nepal and are even showing signs of consistent growth. Bhutan, though landlocked, is glad to go slow, all the while protecting its environmental concerns, while external trade is of little importance to the island nation of the Maldives. Afghanistan, another LDC in the SAARC, is a larger economy and is bordered by six Asian countries. In reality, Nepal is ‘sandwiched’ between two giant economies struggling to defy geopolitical and geographical constraints.
In the light of the success of growth triangles in Southeast Asia and the failure of SAARC, Bangladesh, Bhutan, India and Nepal (BBIN), a sub-regional connectivity initiative between the four South Asian countries, may prove a means to develop and diversify its economic integration process. In the long term, the initiative may also open doors for Nepal for trading with countries beyond India and Bangladesh.
BBIN and BBIN MVA
BBIN is a sub-regional initiative between the four South Asian countries Bangladesh, Bhutan, India and Nepal for sub-regional development cooperation. BBIN was conceptualised way back in the 1990s as a South Asian Growth Quadrangle (SAGQ) following the path of growth triangles in Southeast Asia. The four countries converged to cooperate in the areas of environment, energy, trade investment, transport and tourism and even paved the way for the creation of the South Asia Sub-regional Economic Cooperation (SASEC) bringing in Maldives, Sri Lanka and Myanmar as other members.
On 15 June 2015, respective ministers of transportation of the BBIN countries signed the Motor Vehicles Agreement (BBIN MVA) in Thimpu. Earlier, India had proposed a similar vehicular agreement for the SAARC region during the 18th SAARC summit which was later opposed by Pakistan.
With the signing of the agreement, it is expected that BBIN MVA will enhance sub-regional connectivity by allowing a seamless passenger, personal and cargo vehicular traffic between the BBIN countries along the designated routes with pre-issued electronic permits. “BBIN MVA can facilitate alternative movement of transport for the Nepali traders and freighters. Until a few months back, the Kolkata Port used to be the only port we had access to. Access to the Vishakpatnam (Vizag) Port has provided us a choice,” opines Rajan Sharma former president of Nepal Freight Forwarders Association, the umbrella organisation of Nepali logistics services providers. Trade expert Sharma predicts that BBIN MVA is likely to help Nepal to access ports in Bangladesh for third country trade.
According to former commerce secretary Purushottam Ojha, BBIN MVA carries the potential for Nepal to connect the country with countries in Southeast Asia. “It can also be helpful in increasing and managing our access to the seas,” he says.
Within the BBIN MVA framework, the agreement will upgrade and develop corridors, ensure port access and improve border and port efficiency to ensure a smooth cross-border flow of factor movements. Trade facilitation measures such as online issuance and dissemination (to land ports) of permits, GPS tracking of cargo vehicles, electronic sealing of the container, non-requirement of transshipment of goods and hassle-free customs clearance as some of its key features. During its conceptualisation, BBIN was to invest USD 8 billion for 30 road projects over a five-year span to achieve its objective under cooperation with Asian Development Bank (ADB).
Looking beyond Indian interests
At present, BBIN is gaining immense and persistent thrust from India. The BBIN cooperation serves multiple Indian interests which are economic and strategic. First, it is a part of India’s ‘Act East’ policy that seeks to connect the Indian market with the economies beyond immediate neighbouring South Asian countries. By developing trade corridors in BBIN, particularly Bangladeshi corridors, India plans to unlock doors to nurture broad trade and economic relations with economies in Southeast Asia and East Asia through Myanmar, which is actually the bigger pie. Essentially, the initiative of regionalism and connectivity is also expected to usher in Northeast India’s new economic era.
Second, India intends to gain strategic influence in the South Asian countries and contain the possibility of increased Chinese influence in the sub-region by unlocking economic opportunities for them through connectivity and establishing much stronger economic ties with the sub-regional countries, which are also the poorest in the world. By deepening economic ties in the region, it will also serve India’s interest of isolating Pakistan in SAARC.
Though sceptics doubt that India intends to gain larger dominance in the region in the absence of Pakistan and Sri Lanka and that BBIN will serve only India’s economic and strategic interest, it is actually a false impression. It’s up to Nepal to use the BBIN MVA to negate the ‘curse’ of being a landlocked nation and leverage it towards developing its economy by negotiating better protocols within the BBIN framework, bilateral trade and transit agreements and domestic economic policies back home. The need of the hour is to improve trade facilitation and develop export baskets focusing on regional value chains and export-friendly infrastructures.
Benefits of BBIN MVA
According to World Bank, South Asia's intra-regional trade is the lowest in the world (less than 5 percent of total trade), intra-regional FDI inflows are only 4 percent of total inflows, and flow of ideas and people is also very low as indicated by flow of people, telephone calls and flow of technology. Some estimates show that intra-regional trade can increase from the current USD 28 billion to over USD 100 billion in five years if artificial trade barriers are removed. Obviously, India will be the largest beneficiary due to its economic size and appetite but there are many ways to analyse how BBIN will
First, Nepal’s continuous struggle for connectivity which became pronounced following the 2015 economic blockade imposed by India will find an outlet. Since that time, it has persistently pursued connectivity with China and rightly so. In 2016, Nepal signed a landmark Agreement on Transit and Transport with China seeking to use Chinese sea and land ports for Nepal’s third country trade. The protocols of the agreement are still at the drafting stage. In 2017, Nepal signed a MoU on the framework of China’s Belt and Road Initiative (BRI), giving its endorsement for the initiative. On June 21, Nepal and China signed multiple agreements including the Tibet-Kathmandu railway and road network. Pragmatically, connecting with China will be a time-consuming process because there are several security and feasibility concerns.
In such a scenario, the effective implementation of BBIN MVA will be a milestone in Nepal’s struggle for connectivity. The agreement ensures simplified access to the ports of India and Bangladesh for intra-regional and extra-regional trade. It implies that with BBIN MVA, there is an immediate possibility of getting better penetration to the Indian market, and a better shot at Bangladesh’s market too. Such connectivity will also unlock extra-regional trade opportunities in the future with other regional cooperation modalities such as BCIM and BIMSTEC round the corner using corridors in Myanmar as a gateway to the Southeast Asia market.
“So if you think of the containerised movement of goods from Nepal to Myanmar and Nepal to Bangladesh, and vice versa, I think this will be a tremendous opportunity for us to broaden our trade base in terms of imports and exports,” says NEF chairman Shakya. Additionally, there are possibilities of intermodal connectivity with India and Bangladesh which is one agenda in the broader BBIN framework.
The deepening of the economic relationship between India and Bangladesh will also create direct opportunities for Nepal. For instance, it may lead to increased demand for power in Northeast India and/or Bangladesh’s economic corridors close to Nepal’s borders, which can be fulfilled by Nepal. Such ties will also enhance other business linkage opportunities for Nepal and can be used as a base for improving and expanding Nepal’s production and supply chain in the long term. From the point of view of seamless passenger vehicular movement, BBIN MVA will also play a critical role in boosting tourism.
Essentially, one of the fundamental objectives of BBIN MVA is to reduce transaction costs associated with trade, a major headache for Nepal’s exporters and a significant barrier to the expansion of intra-regional trade. Transaction costs are inflated by lack of trade facilitation, non-tariff measures (NTMs), non-tariff barriers (NTBs) and procedural obstacles (POs). An effective implementation of BBIN MVA is expected to ensure a streamlining of the transaction procedure, a reduction in trade costs and duration of transactions to yield larger gains for the BBIN countries. Experts point out to several underlying issues that need to be addressed in order to achieve the aims. “The cross-border transit system in the sub-region is full of hassles due to the lack of harmonisation between the documentation and other processes at the border customs of the countries,” mentions Ojha. Besides, the difference in the work days in the countries also adds to the problems in trade and transit in the sub-region.
Beyond the benefits of trade
Experts say that for the successful realisation of the objectives of MVA, potential pockets of trade must be identified and developed in each country. A country like Nepal needs to identify tradable items in the markets across the sub-region to register benefits from the implementation of the agreement, according to Sharma. “Even if we have exportable items, it will become quite difficult to export our products to markets such as India and Bangladesh as their compliance and standards for domestic as well as foreign goods have gone up in recent years,” he says.
The idea of regional integration wouldn’t come without security challenges which can hamper cross border movement between potential trade hubs and existing trade hubs. For countries with porous borders, there are sensitive security concerns, particularly terrorism, trafficking and smuggling, requiring robust security mechanisms and border infrastructure.
Bhutan has ‘temporarily’ backed off from the BBIN MVA citing environmental impacts arising out of traffic congestion and its carrying capacity to accommodate the vision of seamless cargo and passenger vehicle movement. Many think such concerns are legitimate from the perspective of Nepal, too, as infrastructure construction and allowing seamless cargo and passenger vehicle movement will incur a burden on the environment which calls for comprehensive assessment and effective mitigation. NEF chairman Sujeev Shakya has a different observation in this particular topic. “Nepal already has enough environmental impacts due to various reasons. The increased vehicular movement will add nothing new,” he states, adding that after the implementation of BBIN MVA, there will be containerised movement of vehicles which will be more structural rather than the movement of small vehicles.
How BBIN MVA will present a fair opportunity to low productivity countries like Nepal and Bhutan both at the private sector level and ground level is a matter that needs thorough assessment. Bhutan may bargain for concessions on inward seamless cargo and passenger vehicle movement from Nepal and Bangladesh to protect some of its interests that is shared by Nepal too. How does Nepal look to address the concerns of transport operators, truck owners and daily wage earners? Will they be subjected to costs like transit fee applications? Such concerns about equity and fair gains for all the member countries pose a different type of challenge in the context of the implementation of BBIN MVA.
At the heart of any economy’s drive to achieve stupendous growth lies the need to propel the manufacturing sector for which BBIN MVA will provide a much-needed impetus to Nepal. But, no country will take responsibility for the materialisation of its objectives unless each economy checks and resolves its issues back home. The contribution of Nepal’s manufacturing sector in the last 15 years, starting from FY 2002/03 has averaged just 6.8 percent. In 2016, it plummeted to 6 percent, far less than other South Asian economies. Similarly, the sector’s growth rate in the last 10 years has averaged a meagre 2.08 per cent.
While tariff barriers and high transaction costs resulting from trading countries certainly reduce competitiveness, the limited export capacity and inability to diversify export baskets are problems of Nepal’s own making. BBIN won’t accelerate Nepal’s trading figures overnight, but it will be an impetus to its ailing manufacturing sector and private sector investors for whom the opportunity for larger connectivity will act as an enticing proposition. Policy reformations and overcoming infrastructural constraints are the only ways to realise the benefits from any improved connectivity.