If trade barriers are overcome, trade within South Asia can increase three-fold, from US$23 billion to $67 billion, suggests a new World Bank report.
Sri Lanka has the potential to more than double its exports to South Asia.
Increased intraregional trade will provide a greater variety of goods and services at cheaper prices for Sri Lankan consumers. Additionally, it can offer better access to inputs for producers and exporters, increased investment, export diversification and growth.
Most rapidly growing region
South Asia is the world’s most rapidly growing region. It is also the world’s least integrated region. Man-made trade barriers have hampered intraregional connectivity. And this kept South Asian countries from maximizing their prospects.
Trade within South Asia accounts for only 5 percent of the region’s total trade, compared for 50 percent in East Asia and the Pacific.
Sri Lanka’s exports to South Asia are equivalent to only 11 percent of its global exports.
The report, A Glass Half Full: The Promise of Regional Trade in South Asia, highlights four critical obstacles to regional trade. Border tax distortions, nontariff barriers, connectivity costs, and trust deficits. Also, it offers options for policymakers to address them.
The report helps to quantify commonly known benefits associated with a more integrated South Asia.
For example, the actual value of Sri Lanka’s exports to South Asia is $1.2 billion, but the potential value is $2.8 billion. This $1.6 billion gap between the two is equivalent to 15 percent of Sri Lanka’s total global exports. Closing the gap will not only enhance but also help diversify Sri Lanka’s trade.
“Sri Lanka is brimming with possibilities for greater regional integration,” says Dr. Idah Pswarayi-Riddihough, World Bank Country Director for Sri Lanka and the Maldives.
“Trade barriers and insufficient connectivity to the region are preventing Sri Lanka from maximizing the benefits of its proximity to South Asia.”
In addition to tariffs, para tariffs such as port and airport development levy and cess create an anti-export bias. Para tariffs more than double the average import tariff in Sri Lanka.
Additionally, 44 percent of Sri Lanka’s imports are not provided concessional treatment under the South Asia Free Trade Agreement. And about 23 percent of its exports to South Asia suffer from the same non-concessional treatment. Non-tariff measures further increase the cost of imports.
Recommendations provided in the report include targeting sensitive lists and para tariffs to enable real progress on SAFTA. It also calls for a multi-pronged effort towards addressing non-tariff barriers, focusing on information flows, procedures, and infrastructure.