“Having the political will to implement trade promotion policies can improve the lives of Asians.” | | Photo credit: KR Deepak
South Asia needs to rethink regional trade across Asia after the International Monetary Fund (IMF) warned on 31 January 2023 that global trade will slow from 5.4% in 2022 to 2.4% in 2023. I have. We are optimistic about the risk of multiple crises, such as the escalation of the war between Russia and Ukraine, the disconnection from global supply chains, and the fight against variants of the COVID-19 virus.
A recent IMF book article, “South Asia’s Path to Resilient Growth,” argues that there is a strong foundation for South Asia to do more with dynamic East Asia. This relates to India’s ‘Look East’ and ‘Act East’ policies to realign trade to East Asia, South Asia’s adoption of reforms, and China’s offshoring of its global supply chain to Asia. I’m here. Total merchandise trade (in dollar terms) between South and East Asia increased at an annual rate of about 10% between 1990 and 2018, reaching $332 billion in 2018 and growing to about $332 billion in the future. could reach $500 billion. The handful of free trade agreements (FTAs) linking South Asian economies and East Asia could reach 30 by 2030.
Moreover, regional trade in Asia is recovering after the COVID-19 pandemic, opening up opportunities for South Asia to participate in global value chains and trade in services.
Steps starting with tax reform calibration
So what do you need to do?
First, the gradual reduction of barriers to trade in goods and services can facilitate regional trade integration across Asia. Since the 2008 global financial crisis, several economies in South Asia have raised import tariffs and opaque non-tariff measures with no return. South Asia’s trade opening needs to be coordinated with tax reforms to overcome trade taxes, which account for a large share of government revenues in some countries. Matching loans to losing sectors to redistribute factors of production and retrain workers are also essential to promote gains from trade and reduce income inequality.
Second, improve the performance of Special Economic Zones (SEZs) and invest in service SEZs to promote industrial clustering and exports. In South Asia, over 600 of his SEZs are in operation in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh) and Hambantota (Sri Lanka). These SEZs, however, have mixed records in terms of exports and employment, as well as promotion of domestic linkages. Competitive fiscal incentives are only the limits of location decisions for multinationals, and lengthy tax holidays deprive the economy of vital tax revenues. Improving SEZ processes and outcomes in South Asia will require ensuring macroeconomic and political stability, adopting appropriate regulatory policies for investors, providing reliable power and 5G broadband cellular technology, We need to improve the skills of our workers.
Third, pursue comprehensive FTAs that will ultimately lead to Regional Comprehensive Economic Partnerships (RCEPs) that provide regional rules-based trade to prevent the rise of protectionism. South Asia lags behind East Asia in launching FTAs, but it all started with the Japan-India FTA, the Sri Lanka-Singapore FTA, and the Pakistan-Indonesia FTA.
But the devil is in the details. South Asian countries need to improve their use of tariff preferences by navigating complex rules of origin in FTAs and better preparing businesses to include issues related to global supply chains in future FTAs. India opted out of her RCEP negotiations in November 2019, but the door is still open for joining the deal. India has also signed her FTA with the United Arab Emirates and Australia in 2022. The trust gained from these will help her prepare for future RCEP accession by implementing structural reforms to make her business more competitive in her supply chain and to promote greater regulatory coherence with East Asia. help.
If India joins RCEP, the rest of South Asia, fearing being left behind and suffering trade diversion effects, may be motivated to do so.
Fourth, a restructured trade-focused Bay of Bengal Initiative for Multisectoral Techno-Economic Cooperation (BIMSTEC) can help strengthen trade ties and support the interests of smaller members. . The suspension of activities of the South Asian Association for Regional Cooperation (SAARC) means India is focusing on her BIMSTEC to promote cooperation between South and Southeast Asia. Reforming BIMSTEC involves improving the resources of the Secretariat, concluding his long-term BIMSTEC FTA, building trading capacity in small economies and introducing dialogue partner status to open the region in Asia. need to promote doctrine.
Wider trade between South and East Asia may be desirable, but the emergence of increasingly complex geopolitics may make this impossible for some time. A narrower geographic range between South and Southeast Asia may therefore be a component of eventual trade integration across Asia. To mitigate the backlash against regionalization, larger economies need to promote trade gains to smaller economies.
A slowdown in global trade means that it makes economic sense to increase intra-Asia trade. Having the political will to implement trade promotion policies can improve the lives of Asians. India is South Asia’s largest economy, and India’s holding of her G20 presidency could be a good platform to initiate these changes.
Ganeshan Wignaraja is a Professor Fellow in Economics and Trade at Gateway House, Mumbai and a Senior Research Associate at ODI Global, London.Views expressed are personal