Trading more within Asia makes economic sense

Source– The post is based on the article “Trading more within Asia makes economic sense” published in The Hindu on 3rd February 2023.

Syllabus: GS2- Bilateral, Regional and Global Groupings and Agreements

Relevance– Trade and Economic relations across Asia

News– IMF has warned that global trade would slow down from 5.4% in 2022 to 2.4% in 2023. It calls for having a re-look at regional trade across Asia.

What are some facts and statistics about trade South Asia- East Asia Trade?

A recently published paper in an IMF says that a strong base exists for South Asia trading more with dynamic East Asia.

Since the 1990s, South Asia-East Asia trade has gathered pace. It is linked to India’s trade re-aligning towards East Asia through its ‘Look East’ and ‘Act East’ policies, South Asia adopting reforms, and also China offshoring global supply chains to Asia.

The total merchandise trade between South Asia and East Asia grew at about 10% annually between 1990 and 2018 to $332 billion in 2018.

The free trade agreements linking economies in South Asia with East Asia may rise to 30 by 2030.

Regional trade in Asia is recovering after the COVID-19 pandemic. It has opened opportunities for South Asia to participate in global value chains and services trade.

What needs to be done for regional trade integration across Asia?

Reforms in taxation structure– Regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade. Import tariffs and non-tariff measures have risen in several South Asian economies since the 2008 global financial crisis.

Trade opening in South Asia should be calibrated with tax reforms as trade taxes account for much of government revenue in some economies.

Finance for loss making sectors and re-training of workers is also essential to promote gains from trade.

SEZs reforms– There is a need to improve the performance of special economic zones and invest in services SEZs to facilitate exports.

South Asia has over 600 SEZs in operation.These SEZs have a variable record in terms of exports and jobs and fostering domestic linkages.

SEZ reforms in South Asia require macroeconomic and political stability, good regulatory policies towards investors, reliable electricity and 5G broadband cellular technology, and also worker skills.

Comprehensive FTAs– These will eventually lead to the Regional Comprehensive Economic Partnership to provide for a regional rules-based trade.

South Asia is a latecomer to FTAs when compared to East Asia. But, it has made a start with the Japan-India FTA, the Sri Lanka-Singapore FTA and the Pakistan-Indonesia FTA.

South Asian economies need to improve tariff preference use. They need to be better prepared in navigating the complex rules of origin in FTAs and including issues relevant to global supply chains in future FTAs.

Reinvented trade-focused BIMSTEC– It can facilitate stronger trade ties and support the interests of smaller members.

It requires better resourcing its Secretariat, BIMSTEC FTA, trade capacity in smaller economies, and introducing dialogue partner status.

What is the way forward for better integration?

A narrower geographical coverage between South Asia and Southeast Asia may be a building block for trade integration across Asia. The larger economies should facilitate gains from trade to the smaller economies.

There is a need for political will to implement pro-trade policies that 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.