Introduction :- 

Recently World Bank has released a report called A Glass Half Full: The Promise of Regional Trade in South Asia. Trends in trade in South Asia :-

• Intra-regional trade- It accounts for a little more than 5 percent of South Asia’s total trade while it accounts for 50 percent of total trade in East Asia and the Pacific and 22 percent in Sub-Saharan Africa.
• Intra-regional trade part of regional GDP- The relatively large economies of South Asia just have only 1% of its trade as GDP as against 2.6 percent in Sub-Saharan Africa and about 11 percent in East Asia and the Pacific.
• Trade Restrictiveness- According to global trade data, trade restrictiveness index is 2 to 9 times higher for imports from South Asia than rest of the world in case of India, Nepal, Srilanka and Pakistan.
• Disproportionate cost of trade-The South Asian regional trading cost is 20% higher than ASEAN.

Causes of Skewed Trend :- 

• Non-functional SAFTA :- Para tariffs –These are duties levied on imports but not on domestic production. These Para tariffs are kept out of SAFTA thus leads to artificial high tariffs. E.g. simple average tariff in Bangladesh in fiscal year 2016/17 almost doubles, from 13.3 percent to 25.6 percent due to Para tariffs.
• Sensitive List - This list comprises goods that are exempted from tariff rationalization. Almost 35 percent of the value of intraregional trade in South Asia is subject to sensitive list tariffs. There is no provision in SAFTA to phase out this list.
• Non-Tariff Measures - Non-tariff barriers (NTBs) in form of sanitary, labor, phyto-sanitary etc. are abnormally high for specific products and market combinations in South Asia. It varies from over 75 percent to over 2000 percent. E.g. port restrictions are imposed by several countries in the region. For instance, Pakistan allows only 138 items to be imported from India over the Attari–Wagah land route, the only land port between the two countries. This erodes market access opportunities. This is further accentuated by information asymmetries with respect to different forms of non-tariff barriers across the region.
• Lack of Border infrastructure and procedural delays- There is poor transportation and logistics infrastructure across south Asian borders. Inefficient customs and border procedures makes the trade slow thereby increasing the cost of trade. e.g. cumbersome product registration and requisite authorization processes for pharma import.
• Poor Regional Connectivity- There is dearth of air, land and water transportation in the region. The service trade is hugely restricted due to unfriendly visa regimes. It restricts FDI and development of regional value chains.
• Lack of normal trade between India and Pakistan- The complex trade relation between India and Pakistan has heavily impacted South Asian trade. The two countries account for 88% of the region’s GDP. The trade potential is of $37 billion which today stands at $2 billion only.
• Trust Deficit-There is security dilemma in the South Asian region due to large size of India vis-à-vis other countries in the region. This fear and insecurity give rise to mistrust which is perpetuated further by a lack of people-to-people interactions and partnerships.

What needs to be done :- 

• Restructuring of SAFTA - Eliminate SAFTA’s sensitive list in 10 years and for starters the list can be narrowed down as of now. Also, a panel of experts should be formed to decide on elimination of Para tariffs reduction and accelerate removal of Para tariffs on non-sensitive list.
• Non-Tariff Barrier reduction- NTB can be addressed by filling the information gaps, developing border infrastructure and simplifying the administrative procedures. An awareness program across the region and a bilateral dispute resolution mechanism is essential. Introduction of electronic data interchange, risk management systems, and single windows at borders is the need of the hour.
• Enhance Regional Connectivity – Connectivity is main constituent of trade relations. Road, rail and air connectivity will induce trade. Bilateral air service policies and simplified Visa regimes should be followed. E.g. success of India Sri Lanka air service agreement.
• Building Trust- Trust induces trade and trade results into peace and prosperity. The border haats at India Bangladesh border is a case in point. It has helped in developing social capital between both the countries.

Benefits of enhanced trade :- 

• Socio economic conditions - South Asian region suffers from similar problems like poverty, hunger, malnutrition, unemployment, gender discrimination etc. All countries in the region will gain from regional trade as it will help in lowering socioeconomic disparities.
• Gains to various stakeholders- Consumers gain from access to food products, services, and consumer goods. Producers and exporters gain from greater access to inputs, investment, and production networks. Firms gain from expanding market access in goods and services.
• Increased Access to landlocked countries
  and sub regions - Landlocked countries like Afghanistan, Bhutan, and Nepal, and isolated sub regions, such as Northeast India and Khyber-Pakhtunkhwa and the Federally-Administered Tribal Areas in Pakistan will benefit as cost of transportation and logistics will come down. It will in turn increase the access.

Extra Read :- 

India -Pakistan trade relations 

Current Status-Slow progress in trade with declining trend :- 

• Though trade increased by 3.5 times between 2000-2005 but it was slow. Recently it fell in 2017 to $2.40 billion from $2.70 billion in 2013-2014.
• There has been minimal increase in Indian exports after Pakistan’s change in import policy in 2012. In 2016-2017 new exports were only 12% of India’s total export to Pakistan.
• In absence of full trade relations there is rampant illegal trade routed through West Asia and Nepal.
• Indirect trade via UAE is 10 times the normal bilateral trade.

Required Changes :-

• Development of Regional Value chains in textile, pharma and sports goods. Develop links between textile hubs i.e. Lahore and Surat etc.
• Normalization of trading relations i.e. Non-discriminatory in nature thereby complying with the WTO rules.
• Narrowing the sensitive list on both sides and reducing non-tariff barriers.
• Business level dialogue-It includes building social capital in trading community; develop business to business linkages through national chambers and implementing SAARC visa regime.