Trade within South Asia can grow three times by reducing trade barriers

The report, 'A Glass Half Full: The Promise of Regional Trade in South Asia,’launched today, documents the gap between current and potential trade in South Asia and provides a roadmap for deepening regional trade

By reducing man-made trade barriers, trade within South Asia can grow three times, from $23 billion to $67 billion, says a new World Bank report. Bangladesh has the potential to more than double its trade with South Asian countries. Increased regional trade can accelerate Bangladesh’s growth and create more jobs for men and women.

The report, 'A Glass Half Full: The Promise of Regional Trade in South Asia,’launched today, documents the gap between current and potential trade in South Asia and provides a roadmap for deepening regional trade. It identifies four critical barriers to regional trade:  tariffs and para tariffs, real and perceived non­tariff barriers, connectivity costs, and a broader trust deficit.

Intraregional trade in South Asia remains one of the lowest in the world and accounts for about five percent of the region’s total trade, compared with 50 percent in East Asia and the Pacific. Bangladesh’s trade with South Asia is only nine percent of its global trade.

“Bangladesh can become an economic powerhouse by deepening regional and global integration in trade, connectivity, energy, and investment,” said Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan, and Nepal. “For increased regional trade, the country needs to focus on improving its trade policy regime, which currently has a strong anti-export bias.”

The costs of trade are much higher in South Asia compared with other regions: the average tariff in South Asia is more than double the world average. South Asian countries have greater protection for imports from within the region than from the rest of the world. Countries impose high para tariffs, and more than one-third of the intraregional trade falls under sen­sitive lists, comprising goods not included under South Asia Free Trade Area (SAFTA)’s tariff liberalization. In the case of Bangladesh, nearly 46% of its imports from South Asia fall under sensitive lists.

Countries are yet to reap the benefit of shared land borders. This arises from deficiencies in border regimes, including limited information flows on nontariff measures, and inadequate use of modern clearance procedures. Limited air connectivity makes the regional trade and investment costlier.

“Trust between countries is in short supply in South Asia. The border has between Bangladesh and India, aimed at recapturing the once thriving economic and cultural relationships are now changing cross-border relations,” said Sanjay Kathuria, World Bank Lead Economist and lead author of the report. “Haats are not just about trade. They are about using trade to foster people to people connect and trust. South Asian policymakers can aim to reinforce the virtuous circle between trade and trust – the experience of Bangladesh-India border has to offer several useful insights in this context.”

The report recommends targeting sensitive lists and para tariffs to enable real progress on SAFTA and calls for a multi-pronged effort towards addressing non-tariff barriers, focusing on information flows, procedures, and infrastructure. The report also suggests that policymakers draw lessons from the India-Sri Lanka air services liberalization experience, where liberalization was gradual and incremental, but policy persistence paid off. Connectivity is another key enabler for robust regional cooperation in South Asia.