Regional Integration in South AsiaTrio94

PART ONE:

A CASE FOR REGIONAL INTEGRATION

PRESENTER: NAOWAR MOHIUDDIN

The Region That is South Asia▷ South Asia is a term used to

represent the southern region of the Asian continent, namely Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

▷ S outh Asia Vs Rest of the World:

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What is Regional Integration?

Economic Growth

By improvement in efficiency through exploitation of comparative advantage.

Economiesof Scale

By gaining access to larger markets, firms can raise output and thus lower their LRACs.

▷ Regional integration is a process in which neighboring states enter into an agreement in order to upgrade cooperation through common institutions and rules, e.g. EU, ASEAN, NAFTA etc.

▷ Benefits of Regional Integration:

Standardof Living

Via wider consumer choice and higher quality products due to increased competition.

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The Theory of Comparative Advantage

▷Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.▷A hypothetical example:

Country

Opportunity Cost (OC) of:

Cotton Textile Fibres

Bangladesh 4 ¼

India 2½

▷Here, Bangladesh has a lower OC of producing textile fibres and India has a lower OC of producing cotton. Thus they should specialize in those.

Economies of Scale

▷ Economies of scale occur when its Long Run Average Costs (LRAC) fall with increasing output, as fixed costs are spread out over more units of output.

▷Therefore increasing production leads to increasing returns to scale and there is greater efficiency.

▷ Larger population (22%) creates larger markets, allowing firms to lower LRACS and charge lower prices to consumers.

▷Higher output also translates into a rise in GDP.

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Level of Output

Eco. of Scale

Constant Returns to Scale

Diseco. of Scale

Long-Run ATC

Standard of Living (SoL)

▷SoL refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area. It is closely related to quality of life.

▷ The baseline measure is real national output per head of population or real GDP per capita.

▷Consumers benefit from cheaper imports, wider choice of products and higher quality output, due to greater competition and if LRAC cost savings are used for product development.

Analysing the affects to Mexico as a projected resemblance to Bangladesh.▷Maquiladors (Mexican assembly plants that take in imports components and produce goods for exports) sector have increased by 15.5% after the implementation of NAFTA in 1994.

▷From 1994 to 2001, exports increased by 9.4% and imports increased by 6.9%.

▷According to Economic Policy Institute, 700,000 jobs have been created in Mexico due to NAFTA.

▷FDI has increased manifolds.

A real life comparison with a similar FTA deal -NAFTA

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Regional Integration in South AsiaTrio94

PART TWO:

THE JOURNEY SO FAR...

PRESENTER: AVINNO FARUK

8 membersAfghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan & Sri Lanka

SAFTA TLPA commitment towards a top-down reduction of tariffs.

SAFTASouth Asian Free Trade Agreement (2006); Key Features:Trade Liberalization Programme (TLP), Treatment of Sensitive Goods & Rules of Origin (ROO).

South Asian Association for Regional Cooperation (SAARC)

▷SAFTA TLP Overview:

Country Category

1st Stage 2nd Stage

LDCs(BGD,BTN, MDV, NPL)

From existing tariff to 30% over 2 years

(By 2008)

From 30% or below to 0-5% over 8 years (By 2016)

Non-LDCs(IND,PAK,

LKA)

From existing tariff to 20% over 2 years

(By 2008)

From 20% or below to 0-5% over 5 years

(By 2013)

▷Lack of explicit commitment regarding negative lists & Non-Trade Barriers (NTBs), unlike ASEAN.▷Confined only to trade in goods, need to incorporate trade in services and investment.

Sources: Weerakoon, D. (2010). SAFTA: Current status and

prospects. Promoting Economic Cooperation in South Asia:

Beyond SAFTA. Washington, DC: World Bank and New Delhi:

Sage Publications India Ltd; Raihan, S. (2008). SAFTA and the

Bangladesh Economy: Assessments of Potential Implications.

Dhaka, Bangladesh: South Asian Network on Economic

Modeling (SANEM), SANEM Discussion Paper, (3).

Key FeatureAround 49 per cent of the SAARC intra-region trade is BBIN intra-region trade.

The DealAny member nation will be allowed to use roads of other members to transport goods and passengers paying fees and charges to be fixed later.

BBIN MVAMotor Vehicles Agreement for the Regulation of Passenger, Personal and Cargo Vehicular Traffic Between Bangladesh, Bhutan, India, and Nepal.

Bangladesh, Bhutan, India, Nepal (BBIN) Initiative

▷A six-month action plan,July’15-Dec’15.Takes effect from Jan’16.

▷30 economic corridors (7 in Bangladesh).

▷This will potentially increase intraregional trade within South Asia by almost 60% & with the rest of the world by over 30%.

▷Expected to help land-locked Nepal and Bhutan to get access to Chittagong, Mongla and Kolkata sea ports.

▷Bangladesh’s strategic location could make it a land bridge between South Asia and economically vibrant Southeast Asia.

▷Large amount of investments in infrastructural development will shift PPC curve outward.

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BBIN MVA Overview

7 membersBangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka & Thailand.

Big Numbers▷ A market of 1.6 billion people,

about a fifth of the global population.

▷ Intra-BIMSTEC trade was US$ 74.63 bn (2013), up from US$ 25.16 bn (2005).

OriginIt stemmed from India’s Look East policy and Thailand’s Look West policy.

Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)

▷Effective Implementation of BIMSTEC FTA will make trade go up by US$43 bn to US$59 bn.

▷65 projects to be implemented costing around US$15 Billion(16 in Bangladesh).

▷Roads are a priority in the BIMSTEC region as 70% of trade here moves by road and the roads are bad. Railways need to be standardized & deep waters ports need to be constructed.

▷Urging reduction or elimination of NTBs.

▷Economic and nationalistic considerations still prevent trade relations from blossoming.

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Key Features & Scope

6 membersBangladesh, Bhutan, India, Maldives, Nepal & Sri Lanka.

Priorities▷ Energy, Transport & Trade

Facilitation.

▷ Also supports regional initiatives in ICT.

SecratariatAsian Development Bank (ADB)

South Asia Subregional Economic Cooperation (SASEC) Program

▷34 regional projects.

▷SASEC investment since 2001 amount to more than US$6 Billion.

▷Under SASEC program funded by ADB, Chittagong port has improved its container handling facility.

▷Freight movement to Kolkata and Haldia ports in West Bengal has been eased.

▷US$100 Million SASEC assistance to improve airports.

▷However, lacks sub-regional characteristics in many ways. For instance, two island countries are there who couldn't be connected through land or rail links.

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Major Achievements

Regional Integration in South AsiaTrio94

PART THREE:

WHAT’S NEXT?

PRESENTER: SADMAN SHAFIQ

Outlook▷In the last quarter of 2014 South Asia was already the fastest-growing region in the world.

▷Regional growth is projected to steadily increase from 7% in 2015 to 7.6% by 2017 through maintaining strong consumption and increasing investment.

▷Largest concentration of youth (aged 15-24, as defined by the UN),representing 45% of the population.

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Barriers:1. Traditional Trade Regime 2. Investment Climate is behind Border Issue3. ConnectivityInference: Lack of concrete achievements, points to the need for greater political will and clarity of purpose.

Barriers & Challenges

“Trade potential of the four countries has been limited by inadequate trade infrastructure, dearth of supply chain network, tariff and non-tariff barriers and absence of regional cooperation.”

Important Arguments Against Integration:

SAARC is neither integrated, nor do the economies complement one another. In many areas, in fact, they compete in global markets.

For instance, Bangladesh’s apparent lack of comparative advantage viz a viz India.

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As per Philippe Le Houérou, Vice President for the World Bank’s

South Asia Region

DCCI President Hossain Khaled

Some Future Prospects I:South Asia’s Currency Union

Reduced risks

Low Transaction costs

Discipline &

Transparency

Macroeconomic stability

Boost for trade

FDI & Jobs

SoL will improve for over a billion people.

Benefits

However, apart from loss of policy autonomy, having a common currency does not necessarily promote greater economic integration, nor does not having one prevent integration.

Sources: The Wall Street Journal; Saxena, S. C. (2005). Can South Asia adopt a common currency?. Journal of Asian Economics, 16(4), 635-662; Bdnews24.com.

Some Future Prospects II:Jt Venture Power for BBIN

▷Nepal and Bhutan have significant untapped hydropower potential, while Bangladesh and India are two energy starved countries.

▷Bangladesh can import 8,000-megawatt (MW) power, especially hydropower, from three BBIN countries Bhutan, India, and Nepal by 2035.

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▷JICA has proposed and offered support to Bangladesh for joint venture investment in power production in BBIN.

▷If the JICA helps, it will be easy for Bangladesh to invest in the BBIN countries for generating power aimed to ensure energy security of the country.

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Few Proposed Solutions

▷Proactive participation of Pakistan

▷Enhance connectivity to exploit supply chain potentials

▷Enhance opportunities in investment & servicesectors

▷Explicit agreement to lower NTBs

▷Appointing influential observer states

Conclusions▷South Asia’s intra-regional trade accounts for just 5% of total trade, compared to 25% in ASEAN.

▷Regional integration could enhance stability in this volatile region -- which is home to 44% of the world’s poor.

▷Reducing intra-regional trade costs (85% higher than those in East Asia) can lead to a 250% increase in intra-regional trade.

▷Comparative advantage is not static and is changing all the time.

▷From SAFTA, the region can achieve considerable gains due to enhanced bargaining powers.

▷In reality, the progress is very slow.

▷Overall, we believe, although integration might bring few drawbacks for Bangladesh, it can be inferred from the data provided that the benefits are even greater.

Sources: World Bank; The Huffington Post; Bangladesh-Bhutan-India-Nepal Motor Vehicles Agreement: Unlocking the

Potential for Vibrant Regional Road Freight Connectivity by Pritam Banerjee, CUTS International; Ali, E., & Talukder, D. K.

(2009). Preferential trade among the SAARC countries: prospects and challenges of regional integration in South Asia.

JOAAG, 4(1), 47-59; Weerakoon, D. (2010). SAFTA: Current status and prospects. Promoting Economic Cooperation in

South Asia: Beyond SAFTA. Washington, DC: World Bank and New Delhi: Sage Publications India Ltd.

Credits

Special thanks to all the people who made and released these awesome resources for free:▷ Presentation template by SlidesCarnival

▷ Photographs by Unsplash

▷ Map of South Asia with Countries - Single

Color by FreeVectorMaps.com