Regional integration is a process in which neighboring states enter into an agreement in order to enhance cooperation through common institutions and rules. Regional integration impacts on trade facilitation in several ways as it helps in inclusive growth and poverty reduction, reallocate capital and labor toward sectors holding comparative advantage, according to the editorial of the current News Bulletin (July-Sept’2017) of International Chamber of Commerce-Bangladesh (ICCB) released today.
Trade Facilitation and Regional integration and are two important factors for achieving the United Nations Sustainable Development Goals’ (SDGs). The beneficial links between trade and investment catalyzes economic transformation, job creation, and skill development—which support SDG 8 (promoting decent work and economic growth), SDG 9 (building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation), SDG 10 (reducing inequality within and among countries), and SDG 17 (revitalized and enhanced global partnership).
Strengthening regional integration for trade facilitation is particularly crucial for three reasons: it can foster economic diversification and transformation, increase resilience to global economic shocks, and generate significant economies of scale through the widening of markets. Trade facilitation has a direct impact on trade costs and an indirect impact on the price of traded goods; it increases trade flows and ultimately leads to higher growth. Trade facilitation eases the cross-border movement of goods by cutting costs and simplifying trade procedures.
Negotiations on the Trade Facilitation Agreement (TFA) were finalized during the WTO Ministerial Conference held in Bali in December 2013. However, it took almost three years for TFA to become effective on 22 February 2017, after two-thirds of the WTO Members ratified the Agreement. Implementation of the TFA is supposed to promote Customs improvements, cross-border cooperation through technical assistance and capacity building by determining implementation schedules and the type of assistance needed to meet them. One has to wait and see how long it will take to make the TFA operational!
According to experts, furthering the case for regional approaches, cooperation on many aspects of trade facilitation makes sense from an economic point of view. Experience from the Association of South-East Asian Nations (ASEAN) suggests that moving forward on a regional basis might be a viable option, through pooling resources, opening markets to private multinational actors, and judicious use of mechanisms like mutual recognition. Another economic benefit from regional cooperation is in the management of externalities — a cost or benefit, not transmitted through prices, incurred by a party not participating in the action--associated with international trade. Poor transit policies by neighboring costal countries is the most obvious example.
According to World Bank study, South Asia is one of the most dynamic regions in the world, with a population of 1.67 billion and economic growth of 7.1 percent over the last decade. But despite recent shifts, historical political tensions, trust deficit, cross-border conflicts and security concerns contribute to a low-level equilibrium. At present, South Asia is one of the least integrated regions. Intra-regional trade accounts for only 5 percent of South Asia’s total trade, compared to 25 percent in ASEAN. Intra-regional investment is smaller than 1 percent of overall investment.
The main reasons behind less integration in South Asia, according to the Bank are : high trade costs and investment restrictions, insufficient policy-relevant analytical work on gains of both trade and investment. The Bank has also pointed out skeptical mindset from previous failures in regional cooperation, relative asymmetry in size among the South Asian countries and limited transport connectivity, logistics and regulatory impediments. It is expected that with the gradual removal of these barriers, intra-regional trade in South Asia could increase from the current USD 28 billion to USD 100 billion!
After leading global growth for two years, South Asia has fallen to second place, after East Asia and the Pacific, due to temporary shocks and longer-term challenges slowing down growth. However, regional economic growth is expected to slow to 6.9 percent in 2017 from 7.5 percent in 2016, but growth could rebound to 7.1 percent in 2018 with the right mix of policies and reforms.Print PDF
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