Easing Trade, Investment Barriers Can Unlock South Asia's Vast Potential - Report

MANILA, PHILIPPINES - Reducing visa restrictions and non-tariff barriers, and improving customs procedures, are among a host of steps South Asian countries can take to boost private sector-led growth, unlocking the region’s vast economic potential, says a report prepared by the Asian Development Bank (ADB) and Federation of Indian Chambers of Commerce and Industry.

The report, Key Proposals for Harnessing Business Opportunities in South Asia, follows a conference held in New Delhi in November 2009 which looked at challenges to increased trade and investment links in the region, along with possible solutions. The conference was co-organized by ADB, the Federation, India’s Ministry of External Affairs, and the South Asian Association for Regional Cooperation.

South Asia, with a potential market of 1.5 billion people, has significant comparative advantages in industries ranging from textiles and garments, to tourism, pharmaceuticals and information technology. But it is also home to half of the world’s extreme poor, with 40% of its total population living on less than $1.25 a day. Intraregional trade remains modest compared to other parts of the world, and numerous impediments prevent the private sector from taking a bigger economic role.

Cutting nonphysical barriers to trade and improving the climate for investment across borders will encourage greater private sector activity, lifting growth, cutting poverty and strengthening regional integration, the report says. Among the steps it suggests are liberalizing a South Asia visa exemption scheme, adopting a regional motor vehicular agreement to speed up the passage of goods vehicles across borders, and streamlining procedures at land customs stations.

It notes that while South Asia has made steady progress in cutting tariff barriers, it still needs to address non-tariff issues such as inconsistencies in regulations, and the imposition of product quotas.

"Unlocking South Asia's potential lies in the 'god of small things' - small steps that can have an enormous impact. This joint ADB-FICCI report outlines small, actionable steps in eliminating trade and investment barriers that will go a long way in deepening South Asian economic integration and bettering the business environment," said Srinivasa Madhur, Senior Director of ADB's Office of Regional Economic Integration.

Creating a database and notification system for monitoring non-tariff barriers, improving the capacity for data collection, giving companies’ assistance to meet product standards, and establishing a disputes settlement mechanism would all help improve the situation.

The report also highlights the need for South Asia to remove barriers to intra-regional investment, and to promote cross border investments in areas such as hydropower, and other energy sector projects, which could support regional trade in energy and aid integration.

It suggests allowing foreign direct investment in excluded, or sensitive, sectors in specific cities, urges countries to conclude bilateral investment treaties and double tax avoidance treaties, and calls for a study into the establishment of an umbrella investment body for the region.