South Asia has limited intraregional trade and the region is poorly connected with the rest of the world as far as the commercial activities are concerned, which was the main cause of poor trade performance of South Asian countries during last two decades.
"Exports from South Asia have only doubled over past 20 years, to approximately $100 billion. In contrast, exports in East Asia grew ten times over the same period," says a World Bank research report.
"South Asia's share of total exports from developing countries has declined due to relatively slow export growth in the regional countries," said the report that calls for facilitating intraregional trade in order to stabilise the economies of the region, which are currently vulnerable to external shocks.
Despite the fact that South Asian countries have signed Saarc Preferential Trade Agreement (Sapta) and South Asia Free Trade Area (Safta) Pact, it has been noted that South Asia's intraregional trade as share of its total trade volume has remained around 2 percent since 1980.
This is very low compared to approximately 15 percent for East Asia (excluding Japan). Overall intraregional trade in South Asia constitutes about 33 percent of gross domestic product (GDP), while it contributes to 71 percent of the GDP in East Asia.
According to the report, South Asia has been engaged in trade with major industrialised countries, especially with the EU members, the United States and Japan. The distances from these major markets impose significantly higher transport costs for exporters in South Asia. The region is likely to gain by expanding intra-regional trade through complimentary investments in infrastructure, continued regulatory reform, and other policy initiatives.
There are a number of barriers to promoting intraregional trade and expanding exports as a whole. Tariff rates are one of the highest among developing countries. They have been reduced in the past decade. However, they are still considered as constraints to growth. South Asia's low port efficiency ranking today is reflected in a number of problems. There is congestion in regional hub ports and regional seaports and the associated delays prevent exporters from guaranteeing "just in time" deliveries.
Apart from these there are non-tariff barriers, too. These include transaction costs and behind-the-border barriers. The lack of harmonised transport systems, frequent reloading of goods, port congestion affecting turnaround time for ships, complicated customs clearance procedures, and nontransparent administrative procedures at customs are often at the centre of trade constraints.
Each country requires different documents, such as transit, export, and import declarations. Exporters must prepare separate documents on each side of the border.
Furthermore, the region uses different product classification systems for commodities. The Standard International Trade Classification is used by Pakistan and the Harmonisation System (HS) by other countries. This contributes to a general lack of transparency and problems in product classification in trade.
These constraints are often more serious in developing countries than in developed countries. One study shows that for 168 out of 215 US trading partners, transport cost barriers outweigh tariff barriers. Until recently, trade facilitation generally referred to policy measures that aimed to reduce the costs of transportation. It now encompasses a broader set of interrelated factors that reduce non tariff barriers in order to lower the cost of moving goods between destinations and across international borders.
In 1985, India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal, and Bhutan formed the South Asia Association for Regional Cooperation (Saarc). This started with the Saarc Preferential Trading Agreement (Sapta). The Saarc member countries signed the South Asian Free Trade Area (Safta) pact in Islamabad. The pact has already taken effect from January 2006.
Security is also an important part of trade facilitation in modern commerce. Terrorism and threats to security can disrupt global supply chains across borders and damage economic progress, the report said.
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