South Asia can treble regional trade
Intra-South Asian trade can grow three times from $23 billion now to $67 billion by reducing man-made barriers, said the World Bank in a new report yesterday.
The report – A Glass Half Full: The Promise of Regional Trade in South Asia – also said Bangladesh has the potential to more than double its trade with South Asian nations.
The WB and the Policy Research Institute of Bangladesh (PRI) jointly launched the report at an event at the Hotel Amari in Dhaka.
Intraregional trade in South Asia remains one of the lowest in the world and accounts for about 5 percent of the region's total trade, compared with 50 percent in East Asia and the Pacific.
The report said the large gaps between actual and potential trade arise because countries in the region have erected barriers against each other.
The WB identifies four critical barriers to the regional trade: tariffs and para tariffs, real and perceived nontariff barriers, connectivity costs, and a broader trust deficit.
“Trust between countries is in short supply in South Asia,” said Sanjay Kathuria, WB lead economist and lead author of the report.
Speaking at the event, Zaidi Sattar, chairman of the PRI, said South Asia has the potential to stimulate rapid growth and economic prosperity in the region and lift millions of people out of poverty.
He said South Asia's trade with the rest of the world has been expanding by leaps and bounds for the last quarter century but the intra-regional trade has actually declined as a share of the total trade.
The intra-regional trade has come down to 2.5 percent from 5 percent posted before the signing of the South Asian Free Trade Area (SAFTA) agreement in 2004, said Sattar citing a PRI research.
The WB said the costs of trade are much higher within South Asia compared with other regions: the average tariff in South Asia is more than double the world average.
“South Asian countries have greater protection for imports from the region than from the rest of the world.”
The report said countries impose high para-tariffs and more than one-third of the intraregional trade falls under sensitive lists, comprising goods not included under the SAFTA's tariff liberalisation.
In case of Bangladesh, nearly 46 percent of the country's imports from the region fall under the sensitive lists, according to the WB.
“The South Asian countries are yet to reap the benefit of shared land borders. This arises from deficiencies in border regimes, including limited information flows on nontariff measures, and inadequate use of modern clearance procedures.”
Limited air connectivity makes regional trade and investment costlier, it said.
The report recommends targeting sensitive lists and para tariffs to enable real progress on the SAFTA and calls for a multi-pronged efforts towards addressing non-tariff barriers, focusing on information flows, procedures, and infrastructure.
Bangladesh's trade with South Asia is $7.6 billion, which is about 9 percent of its global trade of $84.3 billion.
The report said increased regional trade can accelerate Bangladesh's growth and create more employment opportunity for men and women.
“Bangladesh can become an economic powerhouse by deepening regional and global integration in trade, connectivity, energy and investment,” said Qimiao Fan, country director of the WB for Bangladesh, Bhutan, and Nepal.
“For increased regional trade, the country needs to focus on improving its trade policy regime, which currently has a strong anti-export bias.”
The report said limited air connectivity with South Asia is inhibiting Bangladesh from taking full advantage of potential investment and trade in services.
Addressing the programme, Finance Minister AMA Muhith said it is not possible to go back to the pre-partition era when the market of the subcontinent was integrated.
“We should maintain good relationship with the neighbouring countries and allow more cross-border trade,” he said.
Muhith said in terms of trade and business, the border haats are not significant but it is building trust, boosting people-to-people contacts and creating jobs locally.
“We will increase the number of the border haats to continue this relationship,” he said, underscoring the importance of enhancing connectivity to boost trade in South Asia.
Kathuria also said border haats between Bangladesh and India aimed at recapturing the once thriving economic and cultural relationships are now changing cross-border relations.
“Haats are not just about trade; they are about using trade to foster people to people connect and trust.”
“South Asian policy-makers can aim to reinforce the virtuous circle between trade and trust. The experience of Bangladesh-India border haats offers several useful insights in this context.”
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