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What if trade barriers were reduced in South Asia?

By Isabel Guerrero
October 11 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.

The writer is Vice President of the South Asia region at The World Bank

Originally published by Tribune Pakistan

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