Uttam DebPrincipal Scientist (Economics), ICRISAT

and Additional Director (on leave),

Centre for Policy Dialogue

Trade in Goods: Progress and Impediments

International Conference on SAARC@25

Organized by RIS and IIC 16-17 September 2010; New Delhi

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Contents

Section I: Introduction

Section II: State of Intra-regional Trade among SAARC Countries

Section III: Impediments in Intra-SAARC Trade

Section IV: Way Forward

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•“I believe we should challenge ourselves by acknowledging that the glass of regional cooperation, regional development and regional integration is half empty.”

•“Intra-regional trade flows have grown and transport and telecommunication links have expanded. Yet, the share of intra-regional trade and investment flows in total trade and investment flows in South Asia is far below what we see in East and South-east Asia. It is also well below the potential”.

Dr. Manmohan Singh Prime Minister of IndiaAt the 16th SAARC Summit in Thimphu, Bhutan28 April 2010

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I: INTRODUCTION

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•Group of Eminent Persons (GEP), constituted by the SAARC leaders, articulated a comprehensive road map towards an Economic Union in South Asia by 2020, through transition from

– preferential arrangement (PTA) to – free trade area (FTA) to – Customs Union (CU), to common market (CM)

to – a Economic Union (EU) in the span of about

two decades.

•The Road Map was placed at the tenth SAARC Summit held in Colombo in 1998.

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I. Introduction

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SOUTH ASIA'S INTRA AND EXTRA-REGIONAL TRADE IN 2008

 

Export Import

Total export (mil. US$)

Share of intra-

regional export

(%)

Share of extra-

regional export

(%)

Total import

(mil. US$)

Share of intra-

regional import

(%)

Share of extra-

regional import

(%)

Afghanistan 421.95 41.75 58.25 5734.71 40.65 59.35

Bangladesh 13907.4 3.1 96.9 23756.9 16.93 83.07

Bhutan NA NA NA NA NA NA

India 187405 5.1 94.9 300539 0.8 99.2

Maldives 202.63 8.78 91.22 1426.17 15.13 84.87

Nepal 1179.67 73.89 26.11 3540.44 59.59 40.41

Pakistan 21762.9 13.36 86.64 46292.8 2.75 97.25

Sri Lanka 8688.02 8.39 91.61 14051.1 22.87 77.13

Total 233567.57 6.29 93.71 395341.12 3.94 96.06

II. State of Intra-regional Trade among SAARC Member Countries

Source: Hossain et al (2010)

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 Trade 1985 1990 1995 2000 2005 2008

Export 4.89 3.45 4.52 4.56 6.60 6.29

Import 2.11 2.18 3.94 4.26 4.70 3.94

Total 3.04 2.70 4.20 4.39 5.47 4.81

Dynamics of Intra-SAARC Export, Import and Trade as % of Global Relevant Indicators of SAARC Countries

II. State of Intra-regional Trade among SAARC Member Countries

Source: Rahman (2010)

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SOUTH ASIA'S EXPORT TO DIFFERENT REGIONS (Million US$)

 2000 2004 2005 2006 2007 2008

Average growth rate (2004-2008)

South Asia 2894 6540 8580 9931 12233 14698 29.00

South East Asia 3354 8047 10665 10538 13206 17143 27.52

Europe 16865 26419 32145 37454 45987 53805 21.76

North America 16778 21459 26590 33294 35418 37441 16.40

Others 23607 40587 52030 67945 87629 110481 29.41

World 63498 103052 130010 159163 194473 233568 24.63

II. State of Intra-regional Trade among SAARC Member Countries

Source: Moazzem and Mahmud (2010)

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Intra-regional Exports of South Asian Countries in 2008(in million USD)

Countries  

Afghanistan

Bangla-desh

Bhutan

IndiaMaldiv

esNepal

Pakistan

Sri Lanka

Total Export (SAARC

)

Exports to World

Share (%) of Intra-regional

Exports to World

ExportsAfghanistan

NA 2.84  88.6

5  0.00 84.68 0.00 176.17 421.95 41.75

Bangladesh

2.23 NA 3.27329.69

0.00 6.03 78.96 10.87 431.0613907.4

03.10

Bhutan NA NA NA NA NA NA NA NA NA NA NA

India 252.01 3296.95 167.23 NA 109.091908.

191123.5

72709.0

19566.0

5187405.

005.10

Maldives   0.00   1.75 NA 0.00 0.00 16.05 17.80 202.63 8.78

Nepal 0.00 70.25  797.63

0.01 NA 3.65 0.08 871.62 1179.67 73.89

Pakistan 1864.99 257.18 0.42590.79

5.14 3.41 NA 184.792906.7

121762.9

013.36

Sri Lanka 0.00 18.73  588.28

58.10 0.21 63.30 NA 728.62 8688.02 8.39

Total                14698.

03233567.

576.29

II. State of Intra-regional Trade among SAARC Member Countries

Source: Rahman (2010)

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Countries 

Afghanistan

Bangladesh

Bhutan

IndiaMaldiv

esNepal

Pakistan

Sri Lanka

Total Imports

from SAARC

Imports from World

Share (%) of Intra-

regional Imports

to World

ImportsAfghanistan

  2.45 NA 277.21 NA 0.00 2051.49 0.00 2331.15 5734.71 40.65

Bangladesh

3.13   14.813626.6

40.00 77.28 282.89 17.15 4021.91 23756.90 16.93

Bhutan NA NA   NA NA NA NA NA NA NA NA

India 97.51 362.66 147.78   2.87877.3

9274.65 647.10 2409.97

300539.00

0.80

Maldives NA 0.00 NA 146.85   0.01 5.03 63.91 215.80 1426.17 15.13

Nepal 0.00 6.64 NA2099.0

1NA   3.75 0.23 2109.63 3540.44 59.59

Pakistan 93.15 86.86 1.011011.0

66.03 4.01   69.63 1271.74 46292.80 2.75

Sri Lanka 0.00 12.54 NA2979.9

117.65 0.09 203.27   3213.46 14051.10 22.87

Total                15573.

66395341.

123.94

Intra-regional Imports of South Asian Countries in 2008 (in million USD)

II. State of Intra-regional Trade among SAARC Member Countries

Source: Rahman (2010)

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• Taneja (2004, 2005) has estimated that total informal trade in South Asia is worth US $1.5 billion, which is 72 per cent of formal trade (for the years for which data were available)

• The SAARC region experienced accelerated growth in intra-regional trade during 2006 to2008; however, extra-regional trade grew at a faster rate during the same period (Moazzem and Rahman, 2010).

II. State of Intra-regional Trade among SAARC Member Countries

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III. Impediments in Intra-SAARC Trade

• Limited product coverage and the extensive nature of negative lists

• Non-tariff Barriers (NTBs)

• Lack of intra-industry trade

• Lack of trade facilitation

• Energy scarcity

Limited product coverage and the extensive nature of negative lists

Countries Number of Tariff Lines in Negative List

Bangladesh 1249 (for LDCs) and 1254 (for non LDCs)Bhutan 259India 763 (for LDCs) and 884 (for non LDCs)Maldives 671Nepal 1300 (for LDCs) and 1350 (for non LDCs)Pakistan 1183Sri Lanka 1574

Source: Annex 1, SAFTA Agreement.

III. Impediments in Intra-SAARC Trade

Limited product coverage and the extensive nature of negative lists

• India has a moderately low number of items on the sensitive list for non-LDCs, but it has the largest per cent of tariff lines in categories for vegetable products (20.2 per cent) and textile products (34.2 per cent).• India’s import of these items from South Asian countries constitutes only 12 per cent of its world imports (Taneja et. al., 2007). • About 53 per cent of the total import trade in SAFTA members has been subject to the negative list of the respective countries (Sawhney, 2008).• India and Sri Lanka have restricted up to 38 and 52 per cent respectively of their total imports by value from other SAFTA members under the sensitive list category (Sawhney, 2008). • The limited product coverage and the extensive nature of negative lists decrease the scope for intra-regional trade in South Asia (Rahman and Shadat, 2006).

III. Impediments in Intra-SAARC Trade

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• India has a moderately low number of items on the sensitive list for non-LDCs, but it has the largest per cent of tariff lines in categories for vegetable products (20.2 per cent) and textile products (34.2 per cent) (Rahman, 2010)

• India’s import of these items from South Asian countries constitutes only 12 per cent of its world imports (Taneja et. al., 2007).

• About 53 per cent of the total import trade in SAFTA members has been subject to the negative list of the respective countries (Sawhney, 2008).

• India and Sri Lanka have restricted up to 38 and 52 per cent respectively of their total imports by value from other SAFTA members under the sensitive list category (Sawhney, 2008).

• The limited product coverage and the extensive nature of negative lists decrease the scope for intra-regional trade in South Asia (Rahman and Shadat, 2006).

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Limited product coverage and the extensive nature of negative lists

III. Impediments in Intra-SAARC Trade

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• SAARC countries have in place several ad hoc restrictions and NTBs on imports. The general consensus has been that whilst SAFTA had failed to address NTB issues, the SAFTA Agreement also is yet to address the NTB issues squarely and with due diligence (Rahman 2010)

Non-Tariff Measures Share

SPS, TBT, and Other Related Measures 86.3

Tariff Quota 9.8

Anti-Dumping Measures 7.4

License Requirement 5.3

Countervailing Measures 1.2

Percentage Share of Specific NTBs to all NTBs in SAARC

III. Impediments in Intra-SAARC Trade

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Lack of Trade Facilitation

Lack of adequate transit facilities• for Bangladesh (from Nepal and Bhutan via India), for

India (from north east states to western states of India through Bangladesh) and for Pakistan (to Bangladesh through India)

Infrastructure Related Constraints

• Lack of physical, industrial, and communication infrastructure in the region had restricted trade in South Asia

• While it takes 2 hours to clear a vessel in Singapore and Laem Chabang, Thailand, it takes 2-3 days in Chittagong

• At Delhi airport, average cargo dwell time is 2.5 days

• A UNESCAP study conducted on South Asian Trade in 2007 found that disparity in infrastructure facilities has indeed been increasing over the years

III. Impediments in Intra-SAARC Trade

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Other Barriers

•Lack of Border Infrastructure and Traffic Planning: Traffic congestion and delays in handling the shipments

•Land Ports at the Border: The storage dwell times has been increasing and the port storage is grossly inadequate. For example, at the Petrapole-Benapole border, it takes longer time to unload vehicles into the land port than the physical clearance time

•Lack of Cross-Border Transport Agreements: Due to lack of through-transport movement, formidable transport inefficiencies exist at the interface

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III. Impediments in Intra-SAARC Trade

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•Elimination of negative lists for LDCs– under a “duty free” scenario, the possible revenue loss to

India would be around only USD 4.9 million (0.023 per cent of India’s custom duty and 0.004 per cent of total government revenue earnings of India) on an export of about USD 15.2 million from Bangladesh in 2008. Thus, India does not stand to lose in any significant manner if the entire sensitive list is eliminated for Bangladesh, on an immediate basis. (Rahman, 2010)

• Promoting Foreign Direct Investment (FDI)• Promotion of intra-industry trade

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IV. Way Forward

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• Revisiting Rules of Origin in SAFTA– Under the SAFTA, the general RoO is 40 per cent value

addition plus change in classification at the four digit level (CTH).

– For LDCs, the RoO is 30 per cent value addition plus change of tariff heading (CTH).

– There is a need to make these rules less cumbersome and more export-friendly.

– A 25 per cent flat RoO for LDCs (as in the Canadian GSP) will make both compliance and implementation easier.

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IV. Way Forward

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• Removal of para-tariffs and surcharges for exports from SAARC countries

• Trade facilitation – Effective and rapid establishments of standards and

mutual recognition of standards– Removal of NTBs– Automation of customs

• Strengthening the Financing of Intra-SAARC Trade• Using WTO DSB Mechanism• Cooperation for energy security• Capacity building

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IV. Way Forward

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