Countries around the world are currently harnessing the potential of intraregional trade to prosper together with neighbouring nations. According to World Bank figures, intraregional trade accounts for 50 per cent of the total trade in East Asia and the Pacific and 22 per cent in Sub-Saharan Africa. In South Asia, however, it forms only 5 per cent of the total trade, says the latest World Bank report.
A Glass Half Full: The Promise of Regional Trade in South Asia, the new World Bank report, says India’s trade within South Asia has the potential to more than triple if there is deeper regional trade and connectivity.
According to the report released on Monday, India’s estimated worth of potential goods trade with South Asia is $62 billion against the actual figure of $19 billion — about $43 billion (3 per cent) below its potential.
Increasing trade cooperation will benefit all countries in the region, says the report.
Listing the benefits for India, it says deeper regional trade and connectivity can reduce isolation of the Northeast, give Indian companies better access to South and East Asian markets, and allow the country “to substitute fossil fuels by cleaner hydropower from Nepal and Bhutan”.
The trade between India and Pakistan, the report shows, is a mere $2 billion today, which could go up to $37 billion if the trade barriers are removed. The report speaks in detail about the barriers because of which intraregional trade in South Asia falls short of its potential.
THE TRADE BARRIERS
This World Bank report addresses four specific barriers that have constrained trade within South Asia:
Tariff and para tariff barriers: Despite significant liberalisation since the 1980s, says the report, average tariffs are still high. In 2016, it points out, the average tariffs in South Asia were 13.6 per cent, which was more than double the world average of 6.3 per cent. The tariffs were the highest among most world regions despite the existence of a regional free trade agreement (SAFTA) since 2006.
Nontariff barriers (NTMs): After examining the NTMs in bilateral trade between Bangladesh and India and between India and Nepal in selected products, the World Bank report says lack of awareness among exporters on regulations and standards in partner countries is the reason behind misperceptions about NTMs. The report recommends a proactive approach to addressing information asymmetries and enhancing infrastructure and simplifying procedures.
High costs of connectivity: The report says the high costs of connectivity were investigated using the India-Sri Lanka air travel agreement as a case study.
Trust deficit among South Asian countries: The World Bank report stresses on the importance of people-to-people interactions through initiatives such as the Bangladesh–India border haats programme.
The report says approach should be of open regionalism, stressing that intraregional trade is complementary to, and a stepping stone for, deeper global integration.
“Given the context of South Asia, an incremental approach toward deeper trade cooperation can be very powerful, and the region has witnessed examples of this in the form of India-Sri Lanka air services liberalization and India-Bangladesh border haats,” said Sanjay Kathuria, lead author of the report and Lead Economist, World Bank.
He added: “Given its complicated history, size asymmetries, and a trust deficit, small steps backed by policy persistence is probably the right way to go for South Asia.”
The specific recommendations mentioned in the report are:
Border tax distortions: Sensitive lists and paratariffs should be targeted to enable real progress on SAFTA.
Nontariff barriers: A multi-pronged effort is needed, with the focus on information flows, procedures, and infrastructure.
Connectivity costs: Draw lessons from the experience of India-Sri Lanka air services, “where liberalisation was gradual and incremental but policy persistence paid off”.
Trust deficits: Address the mutual trust deficits between South Asian policy makers by reinforcing the virtuous circle between trade and trust.