South Asia Development and Cooperation Report 2008
Report produced by Research and Information System for Developing
Countries (RIS), New Delhi, India, and published by Oxford University
The RIS has played a pioneering role in disseminating research on
South Asian Economic Cooperation and integration. Starting in 1990 with
the publication: “Economic Cooperation in the SAARC Region: Potential,
Constraints, and Policies”, RIS embarked on producing the South Asia
Development and Cooperation Report in the late 1990s. The report under
review is the fourth South Asia Development Cooperation Report after
1998/1999, 2001/2002, and 2004 issues published earlier.
There are nine Chapters starting with a snapshot of the global
economic environment, followed by the next three chapters which examine
the macroeconomic performance, trade performance and competitiveness,
and FDI flows and investment climate in South Asia.
The next four chapters are on deepening regional economic integration
beyond SAFTA with especial focus on trade facilitation, transport
networking, and energy integration. The last Chapter is on human
development and social infrastructure in South Asia.
The report argues that there are opportunities for ‘win-win’
cooperation in the region which still remains unexploited. The existing
pattern of intra-regional trade in South Asia fails to capture the
extent of complementarities in the region due to high incidence of
non-tariff barriers (NTBs) and informal trade.
The report argues that three-fourth of intra-regional trade potential
remains to be exploited, which SAFTA can hope to realize. By assisting
to create supply capacities in the lesser developed countries, regional
economic integration can provide new opportunities for trade creation
and fostering equitable development.
It is argued that this will take place by a process of efficiency
seeking industrial restructuring that involves building production and
supply capacities in relatively less developed countries through
In order to highlight the importance of the investment-trade nexus,
the report highlights cases of Indian investment induced trade from Sri
Lanka to India under the India-Sri Lanka bilateral FTA.
Of course, to reap similar benefits under SAFTA, South Asian
countries should remove NTBs and reduce the ‘negative list’.
Furthermore, Pakistan’s imports from India are still governed by the
positive list as Pakistan has not provided Most Favoured Nation
treatment to India. Thus, there is an urgent need for extending the
coverage of SAFTA to “substantially all trade” in the region as per the
The South Asian region has still not exploited the potential for
intra-regional FDI inflows, especially with Indian companies undertaking
relatively large investments in different parts of the world.
Intra-regional investment is tapped with the help of ASEAN FTA and the
ASEAN Investment Area in the ASEAN region, and South Asia should
seriously look at this model to exploit the investment-trade nexus in
The report also shows that unlike East Asian countries, South Asian
countries have been slow in upgrading their export profile in favour of
knowledge-intensive and high value added goods that are fast moving. The
production structure in South Asia is still dominated by labour-intensive,
highly price-sensitive, and low value adding goods such as textiles,
garments, leather goods, and primary products.
The report argues the case for regional cooperation through
intra-industry specialisation and vertical integration that has the
potential in strengthening the competitiveness in the region.
Even though India has emerged as a global hub for outsourcing of
Information and Communication Technology (ICT) services, other South
Asian countries are yet to exploit the full potential of trade in
services. In this context, some of the findings of the RIS study for the
SAARC Secretariat on ‘Potential for Trade in Services in the Context of
SAFTA ‘ that are summarised in the report are useful.
A noteworthy finding is that the trade in services within the region
was more balanced with smaller and less developed economies generally
enjoying surpluses with larger economies, thus helping to bridge the
asymmetries that exist in trade in goods in the region.
The report also shows how autonomous liberalisation in services in
the SAARC member countries has contributed to stimulating some trade in
services in the region. In the case of India and Sri Lanka, deepening
trade under the FTA has automatically triggered liberalisation in
services which has further contributed to stimulating trade in goods.
Countries in South Asia experience high trade costs due to inadequacy
in trade and transport facilitation. South Asian trade is constrained by
poor infrastructure, congestion, high costs, and lengthy delays.
These problems are particularly severe at border crossings, many of
which post significant barriers to trade. Thus, improving connectivity
to facilitate trade and investment flows in the region is important. In
regard to transport connectivity, the reports present the case for a
SAARC Regional Transport and Transit Agreement that would facilitate
surface transport links throughout the region.
It has been estimated that the potential transit revenue earned by
Bangladesh from Indian trucks transiting through its territory to the
North could be of the order of US$ 1 billion a year.
The report also makes the case for reviving an
Afghanistan-Pakistan-India-Bangladesh-Myanmar international corridor,
which could emerge as Asia’s new ‘silk route’ connecting Central Asia
with East Asia, besides facilitating intra-SAARC trade, and making South
Asia as the hub for Pan-Asia trade.
The report recommends a South Asian Common Transport Policy for
providing a comprehensive framework for facilitating regional
connectivity through different modes of transport.
The report also recommends a South Asia Regional Infrastructure
Development facility as a centre for cross-border infrastructure
projects, within the ambit of the South Asia Development Fund.
(To be continued)