Changing Cross-Border Relations Through Increased Trade

Breakfast in Kabul, lunch in Lahore, tea in Delhi, and dinner in Dhaka can become a reality only by increasing trade and connectivity, according to a new World Bank report. By reducing man-made trade barriers, trade within South Asia can grow three times, from $23 billion to $67 billion.

The report ‘A Glass Half Full: The Promise of Regional Trade in South Asia,’ says that Bangladesh has the potential to more than double its trade with South Asian countries, thus creating more jobs for men and women in the workforce. The report was launched by Mr. AMA Muhith, Honorable Finance Minister, and Qimiao Fan, Country Director for Bangladesh, Bhutan, and Nepal. A panel discussion followed the report launch.

The Missing Potential

Intraregional trade in South Asia remains one of the lowest in the world and accounts for about five percent of region’s total trade. Bangladesh’s trade with South Asia is only nine percent of its global trade and it can more than double its trade with South Asia. “Bangladesh can become an economic powerhouse by deepening regional and global integration in trade, connectivity, energy and investment. For increased regional trade, the country needs to focus on improving its trade policy regime, which currently has a strong anti-export bias,” said Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan, and Nepal.
The country is significantly undertrading with India ($10 billion), Pakistan ($540 million), and Sri Lanka ($420 million). Unrealized trade potential ultimately means that people are denied the benefits of cheaper goods – from a carton of milk to bananas – via proximity.

Trade Barriers and Better Connectivity

South Asian countries have greater protection for imports from within the region than from the rest of the world. Costs of trade are high due to high tariffs and paratariffs: the average tariff in South Asia is more than double the world average. Bangladesh has a strong anti-export bias stemming from extensive use of paratariffs and needs to focus on improving its trade policy regime, according to experts at the launch. The high trade costs in South Asia are further exacerbated by inefficient logistics and non-tariff barriers. For instance, it is cheaper for Bangladesh to trade with Brazil than with Nepal. The South Asia Free Trade Area (SAFTA) is undermined by sensitive lists, comprising goods not included SAFTA’s tariff liberalization. More than one-third of the intraregional trade falls under sen­sitive lists. In the case of Bangladesh, nearly 46% of its imports from South Asia fall under sensitive lists.

Limited air connectivity with South Asia is also creating an obstacle for Bangladesh to take full advantage of potential investment and trade in services. The study looks at the case of India-Sri Lanka air services, which shows how liberalization through incremental steps can improve connectivity, increase trade and bolster the tourism sector.

Benefits of Trade, Improving Trust

Increased regional trade can accelerate Bangladesh’s growth and create avenues for more women to enter the workforce. The key benefits are a greater variety of goods and services at cheaper prices for consumers; better access to inputs for producers and exporters; and increased regional investment creating more and better jobs.

Trust is a fragile commodity in South Asia. The report analyzed the four border haats between Bangladesh and India, which are recapturing the once thriving economic and cultural relationships and changing cross-border relations by promoting people-to-people contact. These border haats can be viewed as instruments to deepen trust between the countries to reinvigorate the virtuous circle of trade and trust.

Moving Ahead

The report makes the following recommendations:

-       Targeting sensitive lists and para tariffs to enable progress on SAFTA
-       Multi-pronged effort to address non-tariff barriers
-       Focus on information flows, procedures, and infrastructure
-       Draw lessons from the India-Sri Lanka air services liberalization experience
-       Increased people-to-people connectivity for regional cooperation