Question

Trade regimes and regulations in South Asia often discriminate against each other, offsetting the potential positive impacts of geography and proximity. Comment.

Answer 1

Approach:

• Start with highlighting low intra-regional trade in South Asia region by citing some facts.
• What are the reasons for low intra-regional trade.
• Briefly write about SAFTA and how SAFTA can be made more meaningful to realise true trade potential of the region.
• Conclude by mentioning how increased trade can bring Peace and stability in the region.

The potential for intra-trade growth in South Asia region has not been fully tapped yet, evident from the fact that the Intra-regional trade in South Asia is negligible -a mere 5 % of the region’s total trade(World Bank study ‘A Glass Half Full).


Trade regimes and regulations in South Asia often discriminate against each other, offsetting the potential positive impacts of geography and proximity. The critical barriers to trade in the region - includes tariff and non-tariff barriers, connectivity costs, and trust deficits.

Reasons /obstacles in intra-regional trade:
As per the World Bank report, Intraregional trade is only one-third of its potential. The underlying theme in all obstacles is ‘Lack of mutual trust’ and South Asian countries discriminate against each other. This can be seen in the form of

• High Tariffs and Paratariffs (An extra fee or tax imposed on a good in addition to the tariff).
• Complicated and non-transparent Non-tariff measures.
• Sensitive/negative list of products that are exempted from the tariff liberalization program.
• Disproportionately high trade costs, due to poor logistics infrastructure and inefficient trade facilitation.
• Various constraints on services trade.
• The troubled political climate in the region also deters intraregional trade and investments.

In 2016, average tariffs in South Asia were 13.6%, more than double the world average of 6.3% and the highest among major regions of the world despite a regional free trade agreement (SAFTA) which came into force in 2006.

How can SAFTA be made more meaningful to realise true trade potential of region:

• SAFTA members should continue their tariff elimination efforts for their nonsensitive lists.
• Problems of para tariffs need to be squarely addressed.
• South Asian countries need to agree on an accelerated, time-bound schedule for elimination of sensitive lists.
• Connectivity is the nuts and bolts of international trade.
  • Transport and connectivity agreements like Open Sky, Bangladesh, Bhutan, India, Nepal(BBIN) network etc needs to be promoted
  • Infrastructure-Electronic Data Interchange (EDI), Risk Management System (RMS), and Single Window at border points to avoid Cumbersome procedures.
  • Faster implementation of projects like Kaladan and Sittwe port and the long struck IMT corridor.
  • Multilateral treaties like The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation need to be strengthened and vital treaties like the Mekong- Ganga cooperation need to be re- invigorated.
• Procedures & capacity building: Bilateral mechanism to coordinate and expedite accreditation for testing and certification to meet standards.
• Open regionalism to bridge trust deficit:
  • Cross-country studies show that nations in which there is a lot of trust among people do well economically example Post war western Europe.
  • Information flows to remove ‘Real’ and ‘perceived’ non-tariff barriers and bridge trust deficit
  • Open up regional value chains, critical to trade dynamism.
  • Tourism and cultural ties promotion through Films.

Altogether, deeper trade cooperation can be very powerful not only economic growth but also in reducing conflicts in the South Asian region. India considering its economic size can play a critical role in regional cooperation for mutual economic and welfare gains.