SARConnect
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This series of briefs aims to provide pointed analysis and discussion of topical cross-border issues in South Asia, with a view to stimulating and deepening the dialogue on regional economic cooperation.
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Publication
How Can South Asia Turn Its Proximity from a Burden to an Advantage?
(World Bank, Washington, DC, 2019-03)Around the world, trade has played a critical role in reducing poverty. Some of the most successful countries in East Asia, Europe, and North America owe much of their success to strong trade relations with their neighbors. However, South Asian countries have yet to reap the benefits of proximity. Intraregional trade accounts for a little more than 5 percent of South Asia’s total trade, compared with 50 percent in East Asia and the Pacific and 22 percent in Sub-Saharan Africa.The World Bank’s recent report, A Glass Half Full: The Promise of Regional Trade in South Asia, clearly illustrates the gaps between current and potential trade in South Asia.The force of gravity—the degree of trade attraction between countries—is also manifest in high levels of informal trade. Informal trade has been estimated at 50 percent of formal trade in South Asia, aggregating assessments of various studies covering the 1993 to 2005 period.The large gaps between actual and potential trade arise because South Asian trade regimes discriminate against each other. This can be shown through an index of trade restrictiveness. Based on global trade data, such an index generates an implicit tariff that measures a country’s tariff and non-tariff barriers on imports. In India, Pakistan, and Sri Lanka, the index is two to nine times higher for imports from South Asia than from the rest of the world.Moreover, although the average burden of non-tariff measures may not appear high, it is high for specific product and market combinations in South Asia. It varies from over 75 percent to over 2,000 percent. Sri Lanka consistently appears on the list of product-market combinations with the highest trade restrictiveness index in the region. Barriers that have held back trade and investment within South Asia include tariffs and para tariffs, real and perceived non-tariff barriers, connectivity costs as manifested in the cost of air travel, and the broader trust deficit. -
Publication
The Security and Trade Facilitation Nexus: Options for South Asian Countries
(World Bank, Washington, DC, 2015-07)Depending on the nature of the threat and the type of transaction and transport, the ability to profile risk and the type of potential risk-mitigation intervention will be different. If the predominant risk is economic (undervaluation, for instance), a certain set of transactional data can help profile and identify high-risk targets. In such cases, physical inspection responses will be not be as effective as conducting post-transaction auditing as the main compliance strategy. Supply-chain security is based on the understanding that industry has an equally strong financial interest in the security and visibility of goods, and is generally better placed to recognize what is normal behavior as goods move through the supply chain. Adoption of a contemporary risk-based regulatory compliance framework vastly improves an institution’s overall ability to ensure security while delivering improved levels of facilitation. -
Publication
The Security and Trade Facilitation Nexus: International Trends and Practices
(World Bank, Washington, DCB, 2015-05)Improving levels of trade facilitation is one of the remaining challenges to enhancing connectivity and trade growth in South Asia, but border and internal security concerns are often perceived as a barrier to implementing key reforms. Security is a legitimate issue for South Asian nations. But there needs to be a balance to achieve the optimum level of security without restricting trade and damaging a nation’s ‘economic’ security. Even border management agencies employing a ‘100 percent’ intervention policy does not have the resources to examine every package. The challenge is to focus security resources to target transactions of highest risk, using sophisticated analysis of transaction data and maintaining visibility and integrity of supply chains. After the 9/11 attacks, several governments had to address the challenge of securing their national borders and protecting their international supply chains against terrorist threats. There is concern that poor border security risks the trafficking of weapons or drugs, entry of terrorists or their means of support, or other threats. Following the attacks, many jurisdictions emphasized more intervention and an increased regulatory burden on international trade. However, added emphasis on security need not become a barrier to international trade or render trade uncompetitive. Based on several case studies, this note synthesizes some principles that can be adopted to govern the balance between managing security risks and facilitating trade. -
Publication
How Has Regional Integration Taken Place in Other Regions?: Lessons for South Asia
(World Bank, Washington, DC, 2015-04)As the momentum for multilateral trade liberalization has slowed, an increasing amount of liberalization is taking place at a regional level. As of April 2015, there are 406 regional trade agreements (RTAs) in force worldwide, more than double the number in force in 2000. These agreements cover over half of international trade. Countries engage in regional cooperation for a variety of reasons. First, it is easier to achieve agreement among a small number of regional partners than it is globally. Second, regional cooperation takes advantage of existing natural tendencies for regional trade that arise from geography and shared culture. This reinforces the regional division of labor already taking place among firms. Global value chains, in which lead firms organize a division of labor for complex products among many countries, often turn out to have a regional focus. Think, for example, of the electronics value chain in East Asia, and the automotive value chains focused on the United States, Germany, and Japan. South Asia itself is a small but growing part of value chains in textiles and apparel with both regional depth and cross-linkages to East Asia. This piece will focus on four aspects of trade liberalization (trade facilitation, non-tariff measures/barriers, intra-regional investment, and energy cooperation) that go beyond traditional preferential tariff reduction to illustrate both the potential of south-south liberalization and some of the particular challenges faced by South Asia. There is widespread agreement that deeper regional engagement in these areas will benefit the people of South Asia. -
Publication
Opening Up Markets to Neighbors : Gains for Smaller Countries in South Asia
(World Bank, Washington, DC, 2015-01)The South Asia Free Trade Area (SAFTA) came into effect in 2006, but free and unfettered trade is still a work in progress. Drawing from theory and evidence, this note looks at how all countries, especially the smaller ones, can gain from mutual trade liberalization. Consumers, exporters, and producers, the three key players in this debate, all stand to gain from multilateral trade. Consumers enjoy lower prices, more product variety, and better quality goods. Exporters obtain access to much larger markets and sourcing opportunities for key inputs. Producers are incentivized to become more efficient, increase their sizes and scales via access to a bigger market, gain cheaper and higher quality inputs, and receive more foreign direct investment (FDI). As an example of how smaller South Asian nations can reap significant benefits, the US-Mexican asymmetry case study is presented, demonstrating how Mexico rose to become the world's thirteenth largest economy after joining NAFTA. Given that the South Asia region is in the process of making SAFTA effective, nations that hold out from the process could suffer by being "innocent bystanders," which is a welfare loss faced by a country that does not fully participate in a regional agreement being created around it.