Trading more within Asia makes economic sense

• South Asia should relook at regional trade across Asia after the warning by International Monetary Fund (IMF) that global trade would slow down from 5.4% in 2022 to 2.4% in 2023.
• This forecast is optimistic with ‘poly-crisis’ risks such as an escalating Russia-Ukraine war, a decoupling from global supply chains and tackling variants of the COVID¬19 virus.

Measures required to increase trading

• Tax Reforms:
  • Regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade.
  • Import tariffs and murky non¬tariff measures have risen in several South Asian economies and never reversed.
  • South Asia’s trade opening should be calibrated with tax reforms as trade taxes account for much of government revenue in some economies.
• Role of Special Economic Zones (SEZs):
• Measures to improve the performance of special economic zones (SEZs) and invest in services SEZs to facilitate industrial clustering and exports.
• South Asia has over 600 SEZs in operation, in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh) and Hambantota (Sri Lanka).
• Improving SEZ processes and outcomes in South Asia requires Ensuring macroeconomic and political stability, Adopting good practice regulatory policies towards investors, Providing reliable electricity, 5G broadband cellular technology and Upgrading worker skills.
• Role of Free Trade Agreements (FTAs):
• There is a need to pursue comprehensive FTAs that eventually lead RCEP to provide for regional rules-based trade to insure against rising protectionism.
• South Asian economies need to improve tariff preference use by better preparing businesses in navigating the complex rules of origin in FTAs and including issues relevant to global supply chains in future FTAs.
• While South Asia is a late comer to FTAs when compared to East Asia, it has made a start with the Japan¬ India FTA, the Sri Lanka ¬Singapore FTA and the Pakistan¬ Indonesia FTA.
• Membership of RCEP:
• Although India opted out of the RCEP talks in November 2019, the door is still open for it to join the agreement.
  • If India joins RCEP, the rest of South Asia may be incentivised to join out of fear of being left out and suffering from trade diversion effects.
• India has also concluded FTAs with the United Arab Emirates and Australia in 2022.
• Reinventing BIMSTEC
• A reinvented trade-focused Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) can facilitate stronger trade ties and support the interests of smaller members.
• In order to Reinvigorate, BIMSTEC requires better resourcing of its Secretariat, concluding the long-running BIMSTEC FTA, building trade capacity in smaller economies, and introducing dialogue partner status to encourage open regionalism in Asia.

Conclusion:

• Therefore, while the broad South Asia and East Asia trade may be desirable, the advent of increasingly complex geopolitics might rule this out for some time.
• Accordingly, a narrower geographical coverage between South Asia and Southeast Asia may be a building block for eventual trade integration across Asia.
• Slowing global trade means that trading more within Asia makes economic sense. Having the political will to implement pro-trade policies can improve the lives of Asians.
• India is South Asia’s largest economy and its G¬20 presidency can be a good platform to initiate these changes.