What if trade barriers were reduced in South Asia?

With some effort, South Asia can reap massive regional integration benefits.


Isabel Guerrero October 09, 2012

Fast forward to 2020, and Vasu, an Indian trucker, is allowed to operate his truck in Bangladesh. He is not required to offload his cargo into a Bangladeshi-owned truck, a ten-hour affair, to take it to the factory. Bangladeshi and Indian officials do not subject his truck to 78 hours of customs. Eighty per cent of each trip is not spent idling his truck near the Bangladesh border. However, today, his truck is only able to make one-fifth as many trips.

Delhi native Lakshmi, an IT system designer, is also shut out of some South Asian markets because of low internet penetration and expensive intra-regional calls.

At present, regional borders are hampering South Asia’s economic growth by penalising efficient trade routes. Only two borders, Afghanistan/Pakistan and India/Nepal, are open to trucks. And then, there is the plethora of paperwork. Complying with trade restrictions in South Asia takes an average of a month, compared with 20 days in Latin America and only 11 days in the OECD (Organisation for Economic Cooperations and Development) countries. Container shipment within South Asia costs 25 per cent more than within Latin America and 50 per cent more than within the OECD countries. These border issues result in circuitous routes: trade from India to Pakistan goes via Dubai rather than making the short crossing over land borders or from Karachi to Mumbai.

These barriers may have risen out of security concerns but poor infrastructure, logistics and management systems have compounded their costs on trade competitiveness. For instance, the rail network is largely inward-facing in South Asian countries with few links between countries. Track gauge differences mean that trains from one country cannot run on another country’s railway tracks. High logistics and regulatory costs must be factored into all cross-border shipping.

India and Pakistan have attempted to decrease wait times at their borders by implementing customs reform and system modernisation. These promising initiatives need to be complemented with broader systemic changes; infrastructure, capacity-building and autonomous monitoring and evaluation are needed to fully realise the efficiency potential. Energy deficits take a heavy toll on South Asian economies. South Asia has a large but unevenly distributed energy resource potential, which suggests strong potential complementarities in their primary energy sources. For example, Nepal, Bhutan and Central Asia have ample hydropower resources, but developing this energy potential is only profitable if cross-border trading occurs.

The region’s telecommunications and electronic infrastructure also need integration. It costs more than twice as much to call from Bangladesh to India as it does to the US. The region has exorbitant roaming rates.

With some effort, South Asia can reap massive regional integration benefits. If intra-regional trade is facilitated, cheaper transport costs, wider markets and broader supply chains will reduce production costs and expand jobs for the 1-1.2 million young South Asians entering the labour market each month.

Therefore, by 2020, reducing regional trade barriers, rationalising cross-border transport regulations, simplifying customs procedures and facilitating higher technology and efficient border control systems could result in a 17 per cent increase in GDP for Bangladesh and Sri Lanka, a 15 per cent increase for India, and a five per cent increase for Pakistan.

Published in The Express Tribune, October 10th, 2012.

COMMENTS (23)

Abreez | 11 years ago | Reply

@Indian Wisdom India ordered SU 30 MKI costs per unit US$ 30.43 million India has 157 and wants more for peace, 126 Rafale multirole fighters cost US$ 10.4 billion for peace, India want Admiral Gorshkov air craft carrier costs US $ 3 billion for peace, another Vikrant class aircraft carrier under development at a cost of US$800 million, India wants that for peace, India awarded a US$1.56 billion contract to build three additional 1135.6 frigates for peace, Indian Navy has signed a deal with Boeing to supply twelve P-8 Poseidon Anti Submarine Warfare/Maritime Surveillance Aircraft unit cost US$220 million each for peace, India wants 10 C-17s unit cost 218 million each for peaceful purposes. This is shortest possible list for Indian efforts for peace, India is following a strategy ‘make war costly for poor countries, and when certain countries unable to cope with cost of war, attack’.

Brown Eagle | 11 years ago | Reply

Streamlining customs/trade barriers would increase trade 5-15%.

I wonder what it would have been with no barriers?

VIEW MORE COMMENTS
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ