India Narrative, November 11, 2021
By Suresh P Singh and Swati Verma
In any discourse on regional integration in South Asia, one is bound to hear a cliché – in terms of intra-regional trade South Asia is the least integrated region of the world. Indeed, intra-regional trade in South Asia is just about US$ 23 billion, which is about five percent of total trade of the eight-country group.
However, is it true that just because of this low volume of intra-regional trade, the region is least integrated? According to a 2018 World Bank publication ‘A Glass Half Full: The Promise of Regional Trade in South Asia’, potential intra-regional trade in South Asia is US$ 65 billion, of which normalisation of India-Pakistan bilateral trade would account for about US$ 43 billion. Even if this is achieved, can we say that this region is better integrated? Full realisation of this potential will make intra-regional trade 7.7 percent of their total trade. Not much higher than the current figure.
This is not to say that we should not look at the level of trade-related integration in South Asia. Given the relative imbalance in the size of their economies and asymmetry in their economic and trade profiles, the region is less integrated not because we do less trade with each other but that the time and cost of doing cross-border trade is disproportionately high as compared to other regions of the world.
For example, as per the Doing Business 2020 report, average time taken for cross-border trade in South Asia is 53.4 hours as compared to Europe and Central Asia (ECA) 16.1 hours, and high-income OECD (Organisation for Economic Cooperation and Development) countries 12.7 hours. Similarly, the cost of border compliance in South Asia (US$ 310.6) is higher than other regions – ECA $150, and OECD high income countries $136.8. These are better indicators to assess the extent of integration in South Asia.
Thus, it is a no-brainer that seamless connectivity and efficient logistic support are two key factors, which are to be looked into, when one talks about the level of regional integration in South Asia. This is exactly what was kept in mind when the leaders of four eastern South Asian countries, namely Bangladesh, Bhutan, India, Nepal (BBIN), signed a Motor Vehicles Agreement (MVA) in June 2015 at Thimpu, Bhutan.
This Agreement is the most ambitious sub-regional connectivity initiative of its time and is regarded as a cornerstone for greater regional connectivity in the Bay of Bengal region. It is envisaged as an instrument for developing functional transport corridors, leading to the development of economic corridors in near future by exploring and strengthening cross-border value chains.
The Framework Agreement was to be ratified by the governments and then it is to be implemented by operationalising two protocols – one for the passenger traffic and the other for cargoes. However, the agreement is yet to see its implementation. This is primarily because of some apprehensions as expressed by stakeholders on the ground and also due to misperceptions. CUTS International, as part of its work on multi-modal connectivity in the BBIN sub-region, tried to understand those apprehensions and how they can be addressed.
First, there are apprehensions in smaller economies such as Bhutan, Nepal that the implementation of the Agreement would flood their local markets with foreign vehicles. This, in turn, would lead to clogging of transport corridors leading to environmental degradation, and would also result in disruption of the local sector. In this regard, the Agreement provides that only a specifically agreed number of vehicles of one country would enter into the territory of another country. Moreover, those vehicles would use specific routes and land custom stations, as mentioned in the Agreement.
Secondly, the implementation of the Agreement may result in compromising the rights of the Land Locked Countries, viz. Bhutan and Nepal. However, it clearly specifies that this Agreement would not impinge and affect the rights and obligations of the contracting parties, particularly with respect to ‘Rights of Land Locked Countries’.
Thirdly, the discourse about gainers and losers from the implementation of this Agreement got distorted on an assumption that bigger economies would gain and smaller countries would lose. However, irrespective of the size of an economy, our analysis of such agreements in other regions such as Southeast Asia suggests that seamless connectivity leads to increased flow of both people and goods, and thus, result in reduction in transaction cost, increase in intra-regional trade with positive multiplier effects on other economic activities. Such enhanced economic activities have potential to contribute towards an inclusive development and sustained economic growth in this sub-region too.
Fourth, there are also apprehensions among the stakeholders that there may be increased security risk arising from free movement of passengers and cargo vehicles. In this regard, the Agreement mentions that vehicles of one country entering into the territory of another member country will be subjected to the law of the transit or the destination country as the case may be. It also provides that any authorised officer of the contracting parties such as the Department of Customs, Land Port/Dry Port, police and other security agencies, transport authorities, will have the right to inspect and search vehicles, its luggage, passengers and goods.
Fifth, it is often pointed out that how can an agreement of four countries be implemented among three countries as Bhutan has opted out of ratifying the Framework Agreement for the time-being. Here, it is important to note that Bhutan has given its consent to implement the Agreement among the other three countries with Bhutan to join at a later stage. Furthermore, a Memorandum of Understanding has been drafted by the rest of the three countries, which was discussed in the last meeting of the BBIN nodal officers held in early 2020. Signing of this MOU would facilitate the implementation of the BBIN MVA among the three countries.
Sixth, apprehensions are also raised as to what will happen to the vehicles of one country passing through the territory of another country if there are unscheduled halt, vehicle breakdown and/or accidents. The Agreement clearly mentions that in such cases, the crew, or the authorised operator, shall immediately inform the local officer, who will ensure necessary arrangements for secure movement of passenger/cargo and crew, and ensure temporary admission of vehicles as provided in the Agreement.
Finally, there are concerns, primarily due to absence of awareness among the relevant stakeholders, with regard to inclusion and coverage of motor liability insurance. The Agreement provides that motor liability insurance subscribed by a vehicle operator in a home country will also be valid and recognised in a host country. It is also mentioned that a home country motor liability insurer shall either have a representative office in a host country or be represented by an insurance company established in a host country. Moreover, there is also a provision for third party insurance coverage. In case of an accident, causing losses to a third person, the person suffering the damage is entitled to claim compensation from the insurer of the operator.
Therefore, all these apprehensions are primarily due to information asymmetry between and among the relevant stakeholders including government agencies. While it is true that some of these apprehensions got amplified by local vested interests such as transport cartels, the governments of these countries should effectively address them by engaging with the relevant stakeholders and involving sub-national level political institutions.
This is an imperative, not only for a more robust local economic development to make the post-pandemic economic recovery more resilient, but also to send a strong message that South Asian countries can negotiate and implement regional cooperation initiatives for their own betterment and that of the rest of the world. This requires an appropriate mix of political will with a good understanding of local political economy factors. The time and cost of doing cross-border trade will be reduced significantly and we can call ourselves better integrated.
(Suresh P Singh is a Fellow at CUTS International. Swati Verma is Research Associate, CUTS International; a global public policy think- and action-tank on trade, regulation and governance. Views expressed are personal)
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