Non-tariff barriers slow down trade
World Bank estimates that South Asia has a potential of $20 billion annual intra-region trade by 2010, writes Saikat Neogi.Updated: Apr 09, 2007, 02:19 IST
Describing South Asia as the least integrated region in the world, the World Bank estimates that it has a potential of $20 billion annual intra-region trade by 2010, more than three times the current figure. Trade among Saarc nations has not flourished because of troubled bilateral ties and most of them have their largest trading partners outside the zone.
Will the just concluded summit provide any impetus to transform Saarc from an ivory tower into an organisation actually enhancing economic cooperation? Habil Khorakiwala, president of the Federation of Indian Chambers of Commerce and Industry (FICCI) says that without a concrete economic integration framework, the grouping will not be able to realise its avowed objectives. FICCI has suggested a 12-point reform agenda, which includes implementing SAFTA in letter and spirit and building better connectivity for economic integration of the region.
What are the roadblocks? Prabir De, associate fellow at New Delhi-based think-tank RIS says trade liberalisation through tariff reduction is not an issue as all the member nations have agreed to reduce import duties in phases over a decade. "The real challenge is non-tariff barriers like transport, customs, standards and infrastructure."
A major impediment to smooth trade is the lack of integrated transportation linkages. For example, at all times, there are as many as 1500 trucks lined up on both sides of the Petrapole-Benapole border between India and Bangladesh. Their paper work takes as many as four days to complete.
Similarly, trade between India and Pakistan still remains a tedious affair. Though the bi-weekly Samjhauta Express transports goods across the border, the bulk of them are shipped via Mumbai- Dubai-Karachi, a three thousand-kilometre detour. The cost of transportation thus becomes exorbitant for smaller industries.
An RIS study notes that of the $1 billion India-Bangladesh official trade in 2002, transaction costs alone amounted to $108 million. Ideally, they should be less than $40 million. UNCTAD estimates that intra-region trade transaction cost in South Asia is the highest in the world. It is around 15 per cent compared to only around 3 per cent in Asean and the European Union. In fact, the Saarc Secretariat conducted a study on an integrated transport and transit network in 1994, but the recommendations are yet to be implemented.
Multiple documentation and signatures requirements, and lack of a computerised customs network and uniform standards pose significant bottlenecks for cross border trade. The World Bank estimates that it takes around 33 days to complete a trade transaction between Saarc nations, compared to just 5 days in EU.
Biswajit Nag, associate professor at the Indian Institute of Foreign Trade who specialises in regional trade cautions that unless the bloc addresses trade facilitation issues immediately, grand plans like creating a South Asian Customs Union and a South Asian Economic Union will remain a distant dream.