Off the mark: Transit and connectivity

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 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 ADP spending of 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.

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 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 billion. India is the second largest source of formal import of Bangladesh accounting for 15 percent of the total import in 2009-10. If probable informal import is added, the figure rises to around 25 percent, 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 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-à-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.

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M A Taslim is a professor of the Department of Economics, University of Dhaka.