Pak-India trade potential $37b instead of current $2b: World Bank

ISLAMABAD: Highlighting flawed exchange rate and higher tariff barriers as major stumbling blocks for becoming part of global chains, the World Bank (WB) has estimated that there is potential of $35 billion trade between Pakistan and India on annual basis through opening up trade by removing all kind of barriers.

“There is missing trade of $35 billon on per annum basis as the current trade stands at $2 billion against potential of $37 billion between two giants of South Asia, Pakistan and India,” the visiting WB’s Director Macroeconomics, Trade and Investment, Carolina Freund, stated on the occasion of launching report titled “Glass Half Full: The Promise of Regional Trade in South Asia” here at the Bank’s office on Wednesday.

Flanked by lead economist and author of the report Sanjay Kathuria and WB’s Country Director in Pakistan, Illango Patchamuthu, on the occasion, the WB report states that many South Asian countries trade on better terms with distant economies than with their own neighbors. By reducing man-made trade barriers, trade within South Asia can grow roughly three times--from $23 billion to $67 billion.

Based on global trade data, the WB states that such an index generates an implicit tariff that measures a country’s tariff and nontariff barriers on imports. In India, Nepal, Pakistan and Sri Lanka, the indexes are two to nine times higher for imports from the South Asia region than for imports from the rest of the world. The costs of trade are disproportionately high within South Asia compared with other regional trade blocks. For example, the average costs of trade within South Asia are 20 percent higher relative to country pairs in the Association of Southeast Asian Nations (Asean) and over three times higher than the corresponding costs among the countries of the North American Free Trade Agreement.

On the CPEC, the WB exports said that the CPEC could benefit trade but reminded in the same breath that infrastructure and trade facilitation were equally important to promote trade. The WB’s Economist Sanjay Kathuria said that TIR (Transports Internationaux Routiers, International Road Transport) was expected to be ratified by Bangladesh and Nepal as well and then Kabul to Dhaka could be traded through road. Regional trade can create many more jobs and make the country prosperous if trade barriers with South Asia are removed says a new World Bank report. Pakistan’s trade with South Asia accounts for only eight percent of its global trade, despite the region being the world’s fastest growing.

However, intraregional trade in South Asia is among the lowest at about five percent of total trade, compared with 50 percent in East Asia and the Pacific.

The report documents what needs to be done to realise the full trading potential in South Asia. It was launched at the 11th South Asia Economic Summit, hosted by the Sustainable Development Policy Institute in Islamabad. It identifies four critical barriers to regional trade: tariffs and para tariffs, real and perceived non­tariff barriers, connectivity costs, and a broader trust deficit.

“Pakistan is sitting on huge trade potential that remains largely untapped,” said Illango Patchamuthu, World Bank Country Director for Pakistan. “A favourable trading regime that reduces the high costs and removes barriers could boost investment opportunities that are critically required for accelerating growth in the country.” Illango said that the South Asia was least integrated region and Pakistan could get benefit for promoting trade for creation of jobs for 10 million in next five years.

The report argues that the costs of trade are much higher within South Asia compared to other regions. The average tariff in South Asia is more than double the world average. South Asian countries have greater trade barriers for imports from within the region than from the rest of the world. These countries impose high para tariffs, which are extra fees or taxes on top of tariffs. More than one-third of the intraregional trade falls under sen­sitive lists, which are goods that are not offered concessional tariffs under the South Asian Free Trade Area (Safta). In Pakistan, nearly 20 percent of its imports from, and 39 percent of its exports to, South Asia fall under sensitive lists.

The report recommends ending sensitive lists and para tariffs to enable real progress on Safta and calls for a multi-pronged effort to address non-tariff barriers, focusing on information flows, procedures, and infrastructure. Policy makers may draw lessons from the India-Sri Lanka air services liberalisation experience, the report suggests, where liberalisation was gradual and incremental, but policy persistence paid off. Connectivity is a key enabler for robust regional cooperation in South Asia.