Economic integration in S Asia and trade corridors

Regional integration in South Asia has been one of the hot topics for debate and discussion in recent years. Lot of researches, studies and dialogues have been done to identify pros and cons of regional integration. Similar exercises are going on and will also continue in near future.  Although general conclusion is that integrating the countries of the region will be highly beneficial for more than one billion people of South Asia, a lot of scepticism is there with some valid reasons.
Regional integration: To put it simply, regional integration is a process by which some countries of one region or closer to it agree to co-operate each other on greater development. This co-operation generally begins with economic integration and may finally lead to political integration.
A complete economic integration, however, itself has several stages. It starts with preferential market, moves to free trade area and then customs union and then common market or single market. The single market leads to economic union and later monetary union completing the process of economic integration.
European Union is the only successful example of full economic integration so far. It is now slowly moving towards a political integration although several obstacles exist there. ASEAN (Association of Southeast Asian Nations) is an example of moving towards complete economic integration. By the end of this year, ASEAN Single Market may come into reality.  
In full economic integration, regional countries have to sacrifice their own monetary policies while in political integration, they have to surrender own fiscal policies. Regional integration is thus both a process and an outcome of prolonged and continuous effort.
Context in South Asia: Seed of regional integration, to be precise regional cooperation, was sowed in the '80s.  This is reflected in the formation of the South Asian Association for Regional Cooperation (SAARC) in 1985, an effort primarily mooted by Bangladesh. Since then three decades have passed but progress on regional cooperation under the SAARC framework is disappointing to some extent.
One, however, needs to keep in mind that South Asia is a late starter of regional integration or cooperation process and its successes are not necessarily comparable with those of EU or achievements of ASEAN. It has taken around 60 years for Europe to make the economic integration a success. ASEAN begun it journey in 1967.  South Asia is one of the poorest regions in the world where around two-thirds of the population still lives below the poverty line and inequality is on the rise despite 6-plus growth in Bangladesh or 8-plus growth in India for nearly a decade. In fact, South Asia as a whole has experienced a long period of robust growth, 6 per cent annual average, over the past twenty years. Although this growth has translated into declining poverty and improvements in human development in a large extent, the region still is a home to many of the developing world's poor. According to the World Bank's estimation some 571 million people in the region survive on less than $1.25 a day, and they constitute more than 44 per cent of the developing world's poor. Political turmoils in this region is rather chronic having serious impact on socio-economic development. Mistrust among the countries is also high due to rivalry in different areas. Thus, the surroundings for a smooth economic integration in this region are not very conducive.
Intra-regional trade: Enhancing intra-regional trade is the instrumental to move ahead for fruitful economic integration. A very common reference in this regard is intra-regional trade status of other regional arrangement or cooperation.  South Asia's intra-regional trade accounts for only 5 per cent of the regions total trade while the ratio is 25 per cent in ASEAN.
In fact, South Asia's intra-regional trade was 5.84 per cent in 2005 which declined to 5.11 per cent in 2014. In the BIMSTEC intra-regional trade is higher (5.33 per cent) then that of SAARC. In 2005, there were seven members in SAARC while in 2014 it increased to eight as Afghanistan formally joined the bloc in 2011. Thus, even having an additional member, the intra-regional trade is lower which indicates lack of initiatives to boost the trade.
One of the reasons is that businesspeople in the regional countries are more eager to trade with Europe and America than with regional peers. Although there are some positive changes, they have not sufficiently explored regional opportunities. Higher flow of informal trade among Bangladesh, India and Pakistan is a clear reflection of the opportunities. Governments of many of these countries are also not sufficiently supportive of boost intra-regional trade. The opportunity cost of region's inability to reduce the differences is also high. An estimate by RIS revealed the excess cost of importing from outside the region, when the same goods could have been sourced from within, was $600 million for Pakistan, $425 million for Sri Lanka and about $250 million for India in the mid '90s. Another estimation by State Bank of Pakistan in 2004 mentioned that imports of similar items from India would give Pakistan an average savings of $400 to $900 million. Again, another calculation by CUTS (Consumer Unity and Trusts Society) showed that by reducing the incidence of barriers such as poor trade infrastructure and services through progressive reforms, Bangladesh and India together stand to save a minimum of about 24.36 per cent of their aggregate (2011) bilateral trade costs. The amount that can be thus saved was found to be around $ 1 billion per year.
Barriers to trade: In the process of economic integration, SAARC member countries agreed to establish South Asian Free Trade Area (SAFTA), gradually eliminating all customs tariffs of tradable goods by 2016. The members are, however, allowed to maintain sensitive lists of products they wouldn't want to allow for non-restrictive imports. Under the umbrella of SAFTA, India announced tariff-free access, to all Bangladeshi products except 25 which includes alcoholic products. At the SAARC Summit in the Maldives in November, 2011 Indian Premier Monmohan Singh announced reduction of sensitive list of goods for South Asian Least Developed Countries (LDCs) to 25 from earlier 480. By reducing the sensitive list, India actually provides zero duty market access for 99.7 percent of its goods to LDCs (Bangladesh, Nepal, Bhutan and the Maldives) of the South Asia.
But reduction or elimination of tariffs yet to bring the desired outcome for Bangladesh. After getting the duty-free access to the Indian market in November 2011, Bangladesh exports to India dropped in FY12 by 5 per cent from FY11. Exports surged by 15 per cent in FY13 and again declined by around 19 per cent in FY14. In FY15, export to India, however, surged by 15.5 per cent.  In fact, India has continuously imposing series of non-tariff measures (NTMs) and many of these NTMs become non-tariff barriers (NTBs) for Bangladeshi exporters. NTBs to bilateral trade between Bangladesh and India are classic examples of barriers in the intra-regional trade in South Asia.  
A big problem to deal with NTBs is complexity in distinction between NTMs and NTBs. The UNCTAD broadly classified NTMs in technical and non-technical measures for imports and there is also export related measures. Although the UNCTAD NTM Classification is recognised as benchmark to define NTMs and resulting NTBs, countries in the South Asia are still in limbo.
Moreover, there is a big barrier when it comes to the issue of infrastructure. As major portion of intra-regional trade is conducted through land ports, poor infrastructure in different border points or land customs stations become a big barrier that may and may not be termed as NTBs.
For instance, lack of warehouse facilities; parking facility; cold storage facilities; availability of stationary items, goods scanners and weighbridges; in many of Bangladesh and Indian  land customs stations reflects infrastructure bottlenecks.   
Connectivity & corridors:  While barriers to intra-regional trade are more-or-less recognised by the South Asian countries, measures and tools for addressing and removing the barriers are also acknowledged keeping the integration process in mind. In broader term, it is the connectivity across the region that will ultimately serve as the vehicle of economic integration.  
CUTS Intentional, a Jaipur-based research organisation, identified that trade-related connectivity is mainly comprised of Physical Connectivity and Institutional Connectivity. Physical connectivity includes rail, road, river, sea and air and the functioning of the related links or corridors. Institutional connectivity includes harmonisation, cooperation and coordination of policies and procedures regarding trade related rules and regulations. For example, regional standards developed by the South Asian Regional Standards Authority (SARSO).
In fact, connectivity is a very wide concept and also tricky in many extent. On physical connectivity, establishing the economic corridors and make these functional is the ultimate goal of economic integration. But, before turning or transforming any physical connectivity into an economic corridor, it has to come across four early stages.  In theory, it starts with a transport corridor which turns into trade facilitation corridor, logistic corridor and urban development corridor. The Asian Development Bank (ADB) has identified three characteristics of economic corridor: covering a small geographical space straddling a transport artery such as a road, rail, or canal; emphasizing bilateral rather than multilateral initiatives, focusing on strategic nodes at border crossings between two countries; and highlighting physical planning so that infrastructure development achieves positive benefits.
In fact, a transport corridor needs to cross three more stages to become an economic corridor. These are: trade facilitation corridor, logistic corridor and urban development corridor.
Transport corridor is very much visible in road and railways. Unofficially, there are number of transport corridors exist in South Asia. For example, the route 'Kathmandu-Kakarvitta-Panitanki-Phulbari-Banglabandha-Chittagong' is a transport corridor between Nepal and Bangladesh passed through India. Although there is still no movement of Nepalese truck across the full route and vice-versa, developing sufficient infrastructure along with rules and regulations will ultimately turned it to an official or recognised transport corridor.  In a similar vein, Islamabad-Lahore-Wagha-Attari-Ludhiana-Delhi is another transport as well trade corridor exits linking Pakistan and India.
Last words: Effectiveness of these or other corridors will ultimately depend on improved infrastructure and harmonised regulatory mechanisms. The sub-regional arrangement named BBIN (Bangladesh-Bhutan-India-Nepal) is a clear move to operate transport corridors that would ultimately turn into economic corridors. So, Bangladesh should cautiously calculate the long-term gains or less from these corridors that are due to play an important role in the process of integration in South Asia.
The writer is planning editor, The Financial Express [email protected]