IN ASIA

Weekly Insights and Analysis

Advancing the BBIN Agenda to Promote Sub-Regional Trade

April 27, 2016

By Amy Warren, Diya Nag

Over 30 years have passed since the South Asian Association for Regional Cooperation (SAARC) held its first summit. Despite efforts to economically integrate the region, including drastically cutting high tariff rates through trade pacts such as the South Asian Free Trade Agreement (SAFTA), intra-regional trade has remained at a dismal 5 percent, compared to over 25 percent in the Association of Southeast Asian Nations (ASEAN) region.

Despite efforts to integrate the region, intra-regional trade in South Asia remains low due to various constrains. Photo/Conor Ashleigh

Despite efforts to integrate the region, intra-regional trade in South Asia remains low due to various constrains. Photo/Conor Ashleigh

Even as tariffs on most goods have fallen to near zero, the past three decades have seen the rise of a range of insidious and pervasive non-tariff barriers (NTBs) that now serve as the main constraints to trade. NTBs present challenges at and behind the border, manifested through poor infrastructure, procedural infirmities, and inadequate human resource capacity. These are further exacerbated by mutual mistrust between neighbors and poor connectivity, resulting in a grim reality as far as intra-regional trade is concerned.

These challenges were highlighted at a recent public-private dialogue on “Promoting Trade in Bangladesh-Bhutan-India-Nepal (BBIN)” in Dhaka on April 2-3, organized by The Asia Foundation, the Metropolitan Chamber of Commerce and Industry (MCCI), and the SAARC Chamber of Commerce. The event brought together over 30 entrepreneurs, government officials, researchers, and chamber of commerce leaders to discuss potential ways to reduce NTBs affecting cross-border trade in the BBIN sub-region, and to develop an action plan to promote BBIN connectivity and economic integration. Using The Asia Foundation’s political economy approach to reform, the coalition of partners also launched an initiative to engage with political elites and the media to advance the agenda of regional integration and promote institutional reforms.

Though not a formal body, the BBIN initiative has served as an important sub-regional trade bloc, conducting meetings on trade, energy, transit, and water. In June 2015, the four countries also signed a Motor Vehicles Agreement, due to come into effect in July 2016 once it has been ratified by Bhutan. The agreement will permit member countries to use roadways to smoothly transport goods and people between them, allow greater numbers of border crossings of vehicles, and recognize driver licenses from neighboring countries. This will help reduce costs and eliminate the need for trans-shipments.

While this is a welcome step, even more initiatives and policy actions are needed along these lines. Participants stressed the need for stakeholders to consider the regional dimension in their national-level planning processes. There was also substantive discussion on how economic and trade diplomacy could replace traditional political and bureaucratic diplomacy, which has not necessarily prioritized trade facilitation. It was a source of concern for many that South Asian countries continue to ignore their immediate neighbors both as a destination and a source in a production or supply chain network and look instead at more distant countries. There are huge potentials for enhanced trade in the neighborhood.

Further, NTBs – such as cumbersome and perverse border crossing requirements, be it in the form of stringent quality control and testing or tedious paper work – continue to frustrate cross-border trade. One far-reaching step to promote trade would be to relax existing visa regimes, which hinder the movement of people and goods across borders. While India has liberal visa regimes in place with Bhutan and Nepal, this is not yet the case with Bangladesh. Without addressing this critical issue, BBIN as a trading area will continue to perform poorly.

Several participants also noted the lack of consistent, harmonized quality standards across the region as a major deterrent to enhanced trade in the region. This can lead to nonsensical circumstances such as fruit rotting at the borders while some far away laboratory tests their suitability to be let in, or Bangladeshi jamdani saris destined for nearby Kolkata, India, first being sent to Varanasi, India (almost 700 kilometers away) for testing. In addition, participants raised the concern that customs officials at times use “quality assurance” as an excuse to thwart trade.

The South Asian Regional Standards Organisation (SARSO), a special body set up to enhance cooperation among SAARC member countries by developing harmonized standards to facilitate intra-regional trade, has recently reported it has finalized seven standards. However, at the port level, operations are still fraught with inconsistencies and ambiguity, largely due to a lack of Standard Operating Procedures in place. To add to this, the SAFTA Sensitive List, which contains a list of products of special interest to each member country that are exempted from tariffs has not been reviewed in a long time, and it was recommended that this be done on an urgent basis to improve trade. Further, participants recommended SAARC create a dispute resolution mechanism to address conflict – similar to that of the WTO, which has proved successful.

Though macro- and policy-level dialogues are necessary, changes must also take place at the ground level. According to research conducted by CUTS International, infrastructural constraints at the ports and border crossings present a major challenge to enhancing trade. Roadways are ill equipped to handle the flow of trucks, customs procedures are tedious and involve multiple documents, and there is a lack of testing facilities at the ports so consignments must be sent long distances for clearance. It is encouraging that some procedural changes have been made to improve the process. For example, at Banglabadha, a major inland port in northern Bangladesh, immigration services are being offered as of February 2016. Located in West Bengal, India, and Panchagarh, Bangladesh, this would boost people-to-people as well as trade connectivity between the two countries.

Tariff liberalization through SAFTA has made a difference, but that is not enough. Despite efforts by the governments of Bangladesh, Bhutan, India, and Nepal, NTBs at the border level present significant challenges and continue to frustrate smooth trade between these countries. There is also a need to engage in advocacy at the political level to reduce the trust deficit, and countries need to reconcile the banal procedural details at the ground level to translate grand visions and aspirations into reality, ultimately benefiting the South Asian consumer.

Diya Nag is The Asia Foundation’s senior program officer in India and Amy Warren is a program officer in economic development. They can be reached at diya.nag@asiafoundation.org and amy.warren@asiafoundation.org. The views and opinions expressed here are those of the authors and not those of The Asia Foundation or its funders.

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