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WB for cutting barriers to increased trade with South Asia

FE Report | September 20, 2018 12:00:00

Finance Minister AMA Muhith and others launching the report "A Glass Half Full: The Promise of Regional Trade in South Asia", at a city hotel on Wednesday — FE photo

Bangladesh can viably raise more than double its trade volume in South Asia if man-made trade barriers are reduced, said a new World Bank (WB) report.

The country is currently having around $7.6 billion worth of annual trade with its neighbours, which is 9.0 per cent of the total global trade in 2015, it showed.

That volume can reach $18.9 billion through reduction of trade barriers, says the report styled 'A Glass Half Full: The Promise of Regional Trade in South Asia'.

Unveiled in Dhaka on Wednesday, it further finds that trade within South Asian countries can grow threefold, from $23 billion to $67 billion, by reducing barriers.

"Can we have a South Asia where we can have breakfast in Kabul, lunch in Lahore, tea in Delhi and dinner in Dhaka?" said WB lead economist Sanjay Kathuria.

"Intraregional trade in South Asia is only one third of its potential," he mentioned.

"It accounts for only five per cent of the region's total trade compared with 50 per cent in East Asia and the Pacific," said Mr Kathuria who led the WB research.

The report also found that 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, the research revealed.

South Asian countries also have greater protection for imports within the region than from the rest of the world, it said.

The countries impose high para-tariffs and more than one-third of the inter-regional trade falls under sensitive lists, the study added.

Mr Kathuria said, "South Asian countries actually discriminate against each other which ultimately negate the benefit of proximity."

The report said the South Asian Free Trade Area or SAFTA, which was signed back in 2004, has been undermined by the long sensitive lists.

In 2015, it found, almost 35 per cent of inter-regional trade in South Asia was restricted under sensitive lists.

"In case of Bangladesh, nearly 46 per cent of its imports from South Asia fall under sensitive lists," said the WB lead economist.

The report identified lack of trust between countries as a major barrier for improved regional trade.

"Trust is a fragile commodity in South Asia," Mr Kathuria said, adding: "The virtuous circle between trade and trust is broken in South Asia."

The report, however, cited the recent establishment of Indo-Bangla border haats as an example of bridging trust deficits and promoting people-to-people interaction.

It also recommended reviewing sensitive lists and para-tariffs to enable SAFTA's real progress and called for a multi-pronged effort to address non-tariff barriers.

Finance Minister AMA Muhith, who attended the event as the chief guest, said greater improvement can take place in terms of trade between the South Asia nations.

"Connectivity between Bangladesh and its neighbours have significantly improved in the recent past," he mentioned.

"Our traders usually do business in Europe and the USA. But huge untapped trade potential lies in our next-door neighbours," Mr Muhith observed.

"To increase regional trade, Bangladesh needs to focus on improving its trade policy regime which currently has a strong anti-export bias," said WB Country Director Qimiao Fan.

Meanwhile, experts at the event called for creating more efficient border infrastructure and increasing service-related trade within South Asia.

"Tariffs are not a big problem for expanding our market in India. But real problems are connectivity and border infrastructure," said Ahsan Khan Chowdhury, chairman and CEO of Pran-RFL Group.

"For example, if we can export our products to India using our own trucks, our cost would reduce significantly," he added.

Pran-RFL Group, the country's leading conglomerate, has already made a foray into a number of Indian states.

"The global experience shows when political border creates economic barriers, trade cost rises. And when trade cost rises, consumers on either side of the border pay high price," said Dr Zaidi Sattar, chairman of Policy Research Institute of Bangladesh (PRI).

"Apart from commodity trade, we need to see whether we can tap the potential of service-related trade in the region," said Dr Abdul Razzaque, research director of the local think tank.

Noting that a large portion of Bangladesh's trade with its neighbours is done through land ports, experts said trade facilitation at the ports is very crucial.

"Coordination between border agencies and interoperability of the border management system between the countries is also important," said Prof Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue.

"Huge potential also exists in the area of energy trade between the South Asian countries," said Farook Sobhan, president of Bangladesh Enterprise Institute.

PRI vice-chairman Dr Sadiq Ahmed and Prof Dr MA Taslim of Dhaka University, among others, also spoke.

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