Trading ore Within Asia Makes Economic Sense
Context:
- South Asia should promptly review regional trade across Asia after the International Monetary Fund (IMF) issued a warning that worldwide commerce will decline from 5.4% in 2022 to 2.4% in 2023. Although this forecast is positive, it takes into account “poly-crisis” dangers such the escalating conflict between Russia and Ukraine, a disruption of global supply networks, and COVID-19 viral strains.
Results of the IMF Research Paper “South Asia’s Path to Resilient Growth”:
- The argument made in the paper is that there is a strong foundation for increased trade between South Asia and the dynamic East Asia.
- Since the 1990s, trade between South Asia and East Asia has increased. This growth is attributable to China’s relocation of global supply chains to Asia, South Asia’s reforms, and India’s realignment of its trade toward East Asia through its “Look East” and “Act East” initiatives.
- The total amount of trade in commodities between South Asia and East Asia increased by around 10% annually between 1990 and 2018.
- There could be 30 free trade agreements (FTAs) connecting the economies of East Asia and South Asia together by 2030.
- The COVID-19 pandemic has also caused regional trade in Asia to recover, which has offered South Asia additional chances to participate in global value chains and services trade.
Increased trade within Asia can be achieved by taking the following steps:
Changes to taxes:
- Regional commercial integration across Asia can be aided by progressively reducing barriers to the exchange of products and services.
- Import taxes and other non-tariff measures have never decreased in any of the South Asian economies since the global financial crisis of 2008. To get over this, South Asia’s commercial opening should be tempered with tax adjustments since trade taxes account for a sizeable amount of government revenue in some countries.
Functions of Special Economic Zones (SEZs):
- Steps should be taken to improve the performance of special economic zones (SEZs) and invest in services SEZs in order to promote industrial clustering and exports.
- In South Asia, there are more than 600 SEZs operational, including those in India’s Kochi, Mirsarai, Hambantota, and Gwadar (Sri Lanka). These SEZs have a conflicted history when it comes to fostering internal ties, generating employment, and exporting.
- In order to enhance SEZ procedures and outcomes in South Asia, it is essential to guarantee macroeconomic and political stability, apply best practises regulatory policies toward investors, give dependable electricity and 5G broadband cellular technology, and upgrade worker capabilities.
The purpose of free trade agreements (FTAs) is:
- Comprehensive FTAs that eventually result in the Regional Comprehensive Economic Partnership (RCEP) are necessary to ensure regional rules-based trade and prevent increasing protectionism.
- South Asian economies must make greater use of tariff preference by better educating businesses on how to handle the complex origin rules in FTAs and incorporating issues relating to global supply networks in prospective FTAs.
- South Asia is a late adopter of FTAs in comparison to East Asia, although it has made progress with the FTAs between Pakistan and Indonesia, Sri Lanka and Singapore, and Japan and India.
RCEP participation:
- Even if it left the talks in November 2019, India still has the choice to join the RCEP. If India joins RCEP, the rest of South Asia might be persuaded to do the same out of a sense of isolation and the potential for trade diversion effects.
- Additionally in 2022, India concluded FTAs with Australia and the United Arab Emirates. The confidence gained from these can help countries get ready for future membership in the Regional Comprehensive Economic Partnership by pursuing structural reforms to boost business competitiveness in supply chains and create more regulatory coherence with East Asia (RCEP).
Changes to BIMSTEC:
- A reinvented Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) with a trade focus can promote stronger economic ties and support for the concerns of smaller members.
- The revival of BIMSTEC depends on a number of factors, including the completion of the protracted BIMSTEC FTA, increased finance for its Secretariat, and the establishment of dialogue partner status to encourage open regionalism in Asia.
Conclusion:
- Due to the advent of increasingly complex geopolitics, even though extensive trade between South Asia and East Asia may be sought, this may be delayed for a while. Given this, a lesser geographic overlap between South Asia and Southeast Asia could provide the basis for more extensive trade integration throughout Asia.
- Expanding trade within Asia makes financial sense given the decline in global trade. Having the political will to implement pro-trade policies can improve the standard of living for Asians.
- India leads the G-20 and has the biggest economy in South Asia, making it a great place to start for these reforms.
