Context: 

The International Monetary Fund (IMF) said in January 2023 that global trade would slow down from 5.4% in 2022 to 2.4% in 2023. South Asia should now have a re-look at regional trade across Asia.

Findings of a recently published paper in an IMF book:

• A strong base exists for South Asia trading more with dynamic East Asia.
• Since the 1990s, South Asia­- East Asia trade has gathered pace, which is linked to 

1. 1. India’s trade re­aligning towards East Asia through its ‘Look East’ and ‘Act East’ policies
   2. South Asia adopting reforms
   3. China offshoring global supply chains to Asia. 

• Merchandise trade between South Asia and East Asia (in dollar terms) grew at about 10% annually between 1990 and 2018 to $332 billion in 2018, and could reach about $500 billion looking ahead. 
• Free Trade Agreements (FTAs) linking economies in South Asia with East Asia may rise to 30 by 2030. 
• Regional trade in Asia is recovering after the COVID­19 pandemic and has opened opportunities for South Asia to participate in global value chains and services trade.

Challenges to South Asian Trade:

• Intra-regional trade percentage which is very less. 
• Trade among South Asian countries currently is far below an estimated value of at least $67 billion.
• Border challenges among neighbouring South Asian country. 
• Trade has been limited by several factors such as inadequate road, marine, and air transport. 
• Other constraints include protective tariffs, real and perceived non-tariff barriers, restrictions on investments and a broad trust deficit throughout the region.
• Conflict between India and Pakistan has a profound effect on trade development in this region, which affects entire region growth. 

What needs to be done?

• Gradual tax reforms I the form of regional trade and tax reforms are desirable. 
• Improving SEZs: South Asia has over 600 SEZs in operation. Improving SEZ processes will ensure macroeconomic and political stability and economic growth. 

• Comprehensive FTAs:  

1. 1. Need to pursue comprehensive FTAs that eventually lead to the Regional Comprehensive Economic Partnership (RCEP) to provide for a regional rules based trade to insure against rising protectionism. 
   2. South Asian economies need to improve tariff preference use by better preparing business in navigating the complex rules of origin in FTAs and including issues relevant to global supply chains in future FTAs. 
   3. If India joins RCEP, the rest of South Asia may be incentivised to join out of a fear of being left out and suffering from trade diversion effects.
   4. Concluding the long running BIMSTEC FTA, building trade capacity in smaller economies, and introducing dialogue partner status to encourage open regionalism in Asia.

Conclusion:

A narrower geographical coverage between South Asia and Southeast Asia may be a building block for eventual trade integration across Asia. India is South Asia’s largest economy and its G­20 presidency can be a good platform to initiate these changes.

News Source: The Hindu