Bangladesh currently sends goods to the countries under separate preferential trade agreements, using the South Asian Free Trade Area or special permission from India
Bangladesh is yet to receive any regular transit facilities from India for the export of goods to Nepal and Bhutan, despite a decade and a half having passed since the two subcontinental neighbours began discussions on the matter in 2005.
In February, India approved a one-off permit to Bangladesh to transport one consignment of fertilizer to Nepal through Indian territory, but no further transit or transhipment facilities have been granted.
In the meantime, India has received various transhipment facilities from Bangladesh, delivering goods using the latter’s rivers, railways, and highways.
An Indian High Commission spokesperson in Dhaka told Dhaka Tribune: "Many are not aware that through an agreement signed in 1976 between India and Bangladesh, export commodities from Bangladesh to Nepal and import from other countries to Nepal is carried out in 'traffic-in-transit' mode via the Indian territory. India has already been providing the transit facility to Bangladesh exclusively for their exports since 1976."
However, Bangladeshi officials said following the 'traffic-in-transit' mode still required special permission from India before sending goods to Nepal.
On condition of anonymity, Commerce Ministry officials told Dhaka Tribune the delay in transhipment facilities from India was likely the result of simple national self-interest.
"Currently, India can charge customs fees and tariffs when Bangladesh wants to send goods to Nepal or Bhutan through their territory. India will lose revenue if they offer transhipment facilities, as transit fees would be lowered," an official said.
"Nepal and Bhutan are landlocked countries. They are dependent on India for purchasing goods. If India allows transit and transhipment facilities to other South Asian countries, Nepal and Bhutan will become less dependent on India, and this will lead to India losing their trade dominance with the two countries," the official added.
An official from the Shipping Ministry told Dhaka Tribune: "Both Nepal and Bhutan are currently dependent on India for external trade using seaports and highways. Bangladesh has already offered Nepal and Bhutan use of Mongla seaport and Saidpur airport for trade with other countries.
"This will be cost-effective and save time for Nepal and Bhutan once India allows transit. Bangladesh could earn revenue from this," the official added.
Delay due to Covid-19
State Minister for Shipping Khalid Mahmud Chowdhury said: "Both the Bangladesh and Indian governments are very much positive about transit and transhipment facilities, as they will help build greater regional connectivity. However, progress is slow due to Covid-19.
"Offering India transhipment benefits is not only about giving them financial benefit. India may fund infrastructure development in Bangladesh to facilitate their transit and transhipment activities," he added.
Currently, Bangladesh sends goods to Nepal and Bhutan under separate preferential trade agreements (PTA), using the South Asian Free Trade Area or special permission from India. Transit fees under such arrangements are higher than they would be if a transhipment agreement with India was in place.
According to the Export Promotion Bureau, the bilateral trade volume between Bangladesh and Bhutan stood at $49.65 million in the 2018-19 fiscal year, out of which Bangladesh's exports to Bhutan accounted for $7.56 million against imports of $42.09 million.
In the same fiscal year, goods worth $38.1 million were exported to and goods worth $9.9 million imported from Nepal.
Stalled for over a decade
Discussions on transit facilities for the movement of goods from Bangladesh to Nepal and Bhutan through India officially began during the 14th Saarc Summit held in New Delhi, India in 2007. However, unofficial discussions with India had begun as early as in 2005.
"The transit issue was first discussed in 2007 at a Saarc summit and the draft of the regional connectivity agreement for transit was finalized in 2010," said Dr Khondaker Golam Moazzem, regional connectivity expert and research director at the Centre for Policy Dialogue (CPD).
"However, the initiative was not successful due to political instability in the neighbouring countries," he added.
Bangladesh recently received a one-time transit facility from India for the export of around 27,000 tons of fertilizer to Nepal through Indian Railways in February. At that time, the Indian government committed to allow another consignment of around 25,000 tons of fertilizer under special consent.
The second fertilizer shipment to Nepal is yet to be completed.
"We are expecting regular movement between Bangladesh and Nepal through Indian Railways, as the process has already been started," said Bangladesh Railway Director General Dhirendra Nath Mazumder.
"The second phase of transportation of fertilizer using Indian Railway has been put on hold due to Covid-19 situation," he added.
"It is a positive sign that India is allowing Bangladesh to transport goods to Nepal through railways, but it will not be fruitful until India issues a regular transit for using their land," said CPD Distinguished Fellow Professor Mustafizur Rahman.
India also allowed Bangladesh a transit facility by rail to Nepal in August last year after making some amendments in the transit agreement signed between Bangladesh and Nepal in 1976.
A spokesperson of Indian High Commission said: "As you may be aware, transshipment/in-transit goods from Bangladesh to Nepal, Bhutan and even to European nations via Kolkata airport is allowed and utilized by Bangladeshi businesses.
"With reference to movement of Bangladeshi trucks and for foreign trucks in general to freely move across another country’s territory crossing Nepal, Bangladesh and India, the operationalization of the Motor Vehicle Agreement (MVA) is essential. All three countries have made substantial progress in negotiations on the Cargo and Passenger Protocols under this MVA, and have also agreed to sign an enabling MoU between the BIN countries."
According to the spokesperson: "We have been striving to formalize negotiations to finalize Protocols for Cargo and Passenger movement, through which legal and administrative arrangements will be established. In fact, India has consistently been keen to sign both of these protocols at the earliest."
"On the positive side, as we can see, in the past year, despite the pandemic, we were able to jointly enable substantial goods movement over rail, both bilaterally and with Nepal, and through new Inland waterway routes and modalities. Clearly, the future of South Asian connectivity is very promising,” said the spokesperson.