Connectivity for South Asia Economic Union

Prabir De

RIS, New Delhi

Plenary Session III

7th South Asia Economic Summit (SAES)

5-7 November 2014

Vision of a Single Market

Harmonized & integrated road

and railway network

Maritime &

waterways network

Aviation policy

One ‘Customs’

Transit Competition Policy

EU ✓ ✓ ✓ ✓ ✓ ✓

ASEAN ✓ ✓ ✓ ✓

NAFTA * ✓ ✓ ✓ ✓* ✓

SAARC

SAARC Integration Next Stage: Economic Union

* Except US and Mexico

What is economic corridor?

Transport corridor

Institutional infrastructure

Communication infrastructure

Trade corridor

Human infrastructure

GMS EWEC

Sub-regions (e.g. GMS, IMT+, BIMP+), which include multiple industrial corridors connecting countries/regions at different development stages in order to effectively utilize economic dynamism.

Three tiers of development strategies.

• Tier 1: middle-income countries/subregions Innovative and value-added cluster (Less congestion and

better business environment.)

• Tier 2: countries/regions close to industrial agglomerations Push out the frontier of production networks (Creation of new development center)

• Tier 3: remote countries/regions yet to start development process Employ logistics infrastructure as a trigger for a new perspective of industrial development. (Create critical mass of economic activity)

PB: production blocks SL: service links

Agglomeration and dispersion in new economic geography

PB

PB

PB PB

PB

SL

SL

SL

SL

SL

Large integrated factory

The fragmentation theory

Fragmentation

Conceptual framework of economic corridor

Source: Adapted from Umezaki (2013)

Stages of development of economic corridor

•An EC an be national (e.g. Tokyo-Osaka corridor), subregional (e.g. GMS corridors), regional (e.g. TEN-T corridors), or international (e.g. submarine telecom cables). •Trade facilitation and logistics services are the main catalysts in its development. •EC helps strengthen industrial (or, services) agglomeration over time through establishment of industrial zones (or, SEZ). •EC facilitate cluster-type development of enterprises.

Transport

corridor

Logistics

corridor

Economic

corridor

Catalysts: Trade

facilitation, logistics

services, a.o.

Source: Srivastava (2011)

Stages of development

Transport corridor

Trade corridor

Economic corridor

SASEC / South Asia

CAREC / Central Asia

GMS / Southeast Asia

South Asian integration over time: slow but steady

SAARC, 1985

SAPTA I, 1995

SAPTA II, 1996

SAPTA III, 1998

SAPTA IV, 2002

SAFTA, 2006

SAEU, 2020

36 years

US$ 0.65 bln.

US$ 20.29 bln.

1985 2012

Infra-SAARC Trade US$

41.52* bln.

2020

*Forecast based on a polynomial trend

CAGR: 10.33%

CAGR: 9.36%

US$ 76.15**

bln. TF-adjusted

**Forecast based on a gravity model

Regional trade without regional trade facilitation

Period Regional trade* (US$ billion, %)

Trade liberalization Trade facilitation

1980-89 0.98; 3.11

Nil Nil

1990-99 1.73; 4.15

SAPTA Nil

2000-09 8.04; 5.96

SAPTA, SAFTA Nil

2010 - 12 19.05; 5.80

SAFTA + SATIS** Nil

*In terms of exports

Source: Calculated based on IMF DOTS

**To be implemented

Elements holding back South Asia’s integration

1. Inadequate infrastructure – national and regional (inadequate & poor stock and link of infrastructure)

2. Absence of regional transit trade (no regional transit)

3. High NTMs (complicated and non-transparent)

4. Poor institutions and governance (no regional mechanism)

5. Lack of coordination at border authorities

6. High trade transaction costs (transport costs slow down regional integration)

1. Lack in simplification and harmonization of trade procedures, more particularly at border.

2. Absence of modern corridor management techniques in selected corridors

3. No fast track lane and priority of goods in transit to cross the border

4. Lack of SOPs at border 5. Unequal or absence of

testing facilities, banks, etc. 6. Costs at border exceed cost

behind border in many cases

At Macro Level At Micro Level

Recent developments on regional connectivity (strong impact on South Asian integration)

1. Regional connectivity and TF between India, Bangladesh, Nepal, and Bhutan (SASEC)

2. Integrated check posts (ICP) – Attari in Punjab, Moreh in Manipur, Agartala in Tripura,

Petrapole in West Bengal, and Raxul in Bihar

3. Higher use of ICT in trade transactions and Customs modernization

– EDI system of India (ICEGATE), higher involvement of private sector of Bangladesh, a.o.

4. India – ASEAN connectivity projects, particularly MIEC and Trilateral Highway

Asian Highway network

Country Asian Highway, 2011

Length (km) Share (%)

Afghanistan 4247 16.79

Bangladesh 1762 6.97

Bhutan 170 0.67

India 11810 46.69

Nepal 1314 5.20

Pakistan 5340 21.11

Sri Lanka 650 2.57

South Asia 25293 100.00

Source: UNESCAP

Asian Highway classifications, 2011

Country Primary Class I Class II Class III Below

Class III

(km)

Afghanistan 0 10 2519 0 1718

Bangladesh 0 68 1574 32 83

Bhutan 0 7 116 0 47

India 90 4069 1675 5699 117

Nepal 0 0 34 1243 37

Pakistan 357 1116 254 2475 1138

Sri Lanka 0 49 435 166 0

South Asia 447 5319 6607 9615 3140 Share in South Asia (AH) (%) 1.78 21.17 26.29 38.26 12.50

Source: Calculated based on UNESCAP Asian Highway Database

Trans-Asian railway

Country Trans-Asian Railway, 2011

Length (km) Share (%)

Bangladesh 904 4.00

India 17432 77.19

Nepal 12 0.05

Pakistan 3160 13.99

Sri Lanka 1076 4.76

South Asia 22584 100.00

Source: UNESCAP

SAARC RMTS

• 10 regional road

corridors/gateways • 5 regional rail

corridors/gateways • 10 maritime

gateways • 7 aviation gateways • Policy measures to

improve transport & trade facilitation

Source: ADB

SAARC regional corridors

Source: ADB

Rail Corridor 1

Rail Corridor 2

Rail Corridor 3

Rail Corridor 4

Rail Corridor 5

(click on the colors)

SAARC rail corridors

Source: ADB

Inter-regional links

Source: ADB

India’s emerging national corridors

Source: SARD/ADB

Source: Indian Railways MIEC

MIEC – Connecting industrial space

MIEC

Phnom Penh SEZ

Sricity

Dawei SEZ

Tidel Park coimbatore

ASCENDAS IT Park

Nanguneri SEZ

Ennore SEZ

Perambalur - SEZ

Auto City SEZ

Bio - Pharmaceuticals SEZ

Bio Tech SEZ

IT & ITES SEZ

TEXTILES SEZ

Food Processing SEZ

Tamil Nadu

Karnataka

Biotech SEZ

IT/ITES SEZ

Pharmaceutical SEZ

Apparel Park

Textile and Apparel

Semiconduct SEZ

Andhra Pradesh

Bangkok Agglomerated Area

HCM Agglomerated Area

South Asia Economic Union: Focus of TF and connectivity

1. Strengthening production networks – regional and global

2. Production network, industrial restructuring, export sophistication and competitiveness

3. Regional and global integration through improved connectivity

Rationale for South Asia economic corridor

• The nature of the corridor: linking the region together through open borders, developing infrastructure networks and facilitating trade and investment

• Cooperation on pooling and sharing resources, improving business environment, networking supply and demand chains

• GMS, CAREC, and other sub-regional cooperation all provide valuable experiences

SAEU - tasks ahead

• To promote multimodal transportation and logistics

• To encourage express delivery system

• To improve the efficiency of border corridors

• To move towards a single customs (one customs) at land border

• To adopt paperless trade

• To enhance investments in infrastructure

• To strengthen cross-border infrastructure

Corridor Development Policy

Stage Corridor Policy Measure Role

1 Transport corridor

Trade facilitation

Integrated trade facilitation

Customs cooperation

Government Private sector

2 Trade corridor

Trade liberalization

Border policies Behind-the-border

policies

Government

3 Economic corridor

Economic development

Corridor value chains Corridor township

development Cross-border

investments

Government Private sector

Regional transit

• Objectives: Seamless movement of vehicles – Transit and paperless trade

• Transport agreement being negotiated

• Select road and rail sector can be operationalized – India – Bangladesh – Nepal –

Bhutan transit is a financially viable project.

• Transit would transform South Asia from least integrated to highly integrated region.

Source: ADB

Overland transit arrangements

Bangladesh-India Agreement

No route officially announced Not working

India-Nepal Agreement 12 routes Working with restrictions

Bhutan-India Agreement Four routes Working with restriction

Bangladesh-Nepal Agreement

Banglabandha (Bangladesh)-Phulbari (India)-Khakarbitta (Nepal)

Working

Bangladesh-Bhutan Agreement

Burimari (Bangladesh) - Changrabandha (India) - Jaigaon (India) -Phuentsholing (Bhutan)

Working

Pakistan – Afghanistan Agreement

• Karachi – Peshawar – Torkhum • Karachi – Chaman – Spin Boldak

Working with restrictions

Selection of corridor

DMU / Corridor Input-saving Output-oriented

Normal

(CRS)

Change in

Tech. (VRS)

Normal

(CRS)

Change in

Tech. (VRS)

SAARC Corridor 1 1.00 1.00 1.00 1.00

SAARC Corridor 2 0.85 1.00 1.12 1.00

SAARC Corridor 3 0.64 1.00 12.11 1.00

SAARC Corridor 4 0.48 1.00 10.01 1.00

*Corridor with scores <1 is inefficient in input-saving, whereas corridor with scores >1 is inefficient in output-oriented.

Baseline technical efficiency scores, DEA

Source: De and Kumar (2014), SWATEE, Forthcoming

Regional transit: current progress

• SAARC’s Inter-Governmental Group (IGG) to provide advice on the facilitation of transportation

– Harmonization of standards and mutual recognition in the transport sector are key issues

• Negotiation ongoing

– Regional Transport and Transit Agreement

– Regional Motor Vehicles Agreement

• SAARC Expert Group finalized the text of the Regional Agreement on Railways

• India’s ICPs in Attari, Petrapole and Akhaura completed

Some specific recommendations

1. Accept subregional and subsequently regional transit 2. Fast track lane and priority of goods in transit to cross the border 3. Set-up SAARC Single Window (Customs) (pilot run of authorized

economic operator, AEO; and mutual recognition agreement) 4. Simplification and harmonization of trade procedures, more

particularly at border. 5. Strengthen cross-border infrastructure (move from road corridors

to economic corridors) 6. Introduce modern corridor management techniques in selected

corridors 7. Promote multimodal transportation (with rail transit, regular

container train in the region) 8. Improve the efficiency of border corridors (both side of border

improvement in ICP project in parallel) 9. Effective project coordination among government stakeholders 10. Stronger institution (public-private interface) for trade facilitation

is urgently needed.

South Asia new model

• The development of Economic Corridor should follow new development model:

– inclusive and people oriented agendas

– SMEs friendly

– environment friendly

• Social support is crucial for all agendas.

• Transparency should be guaranteed for any large project relating to resource developing and people’s welfare

Dealing SAARC observer countries

• Engage them in regional infrastructure projects

– ACCC in ASEAN for implementation of MAC

• Financing projects, technical assistance, training and capacity building, etc.

WTO TFA 2013: Implications for South Asia

• The trade facilitation is a legally binding agreement

• Section I is comprised of 13 Articles, Section II has S&DT provisions for developing country and LDC members; and 3 categories of countries – Three distinct provisions for: (i) faster and efficient

customs procedures, (ii) paperless trade, and (iii) technical assistance and capacity building.

• TFA aims to build common standard(s) mandatory for all countries.

• Aid for Trade and TF: – To assist developing countries and LDCs in meeting the

TF commitments

ASEAN Community APSC AEC ASCC

Enhance rules and good governance

Enhance integration and competitiveness

Enhance well-being of ASEAN citizens

Narrowing the Development Gaps

People-to-People Connectivity

Tourism, Education, Culture

Physical Connectivity

Hard Infrastructure Transportation, Logistics

Facilities, ICT, Energy (Power Grid and

Pipelines), Special Economic Zones

Institutional Connectivity

Soft Infrastructure Trade facilitation, ASEAN

Single Window Investment facilitation, Services Liberalisation,

Regional Transport Agreements, Capacity-building programmes

ASEAN Connectivity

Resource Mobilisation

Source: ASEAN

Thanaleng (Lao PDR) and Nonkhai (Thailand)

Source: Banomyong (2012)

Where ASEAN leading in 2025?

Way toward SAEU, South Asia TF – an outline

• Simplification and harmonization of trade procedures and where possible, eliminate unnecessary ones

• Facilitation of flow of information that controls the movement of goods throughout the transaction (e.g. by applying information and communication technology)

• Simplification and coordination of administrative procedures at border crossings

• Simplification, standardization and harmonization of documents required for a trade transaction

• Simplification of payment systems (post-shipment)

• On-arrival visa, SAARC Business Travellers Card for facilitation of trade and investment, etc.

• Intermodal connectivity – Air Services Agreement (single ticket to fly between SAARC nations)

Recommendations • Moving trade across land and/or multimodal use of

transportation would be economically advantages

• Cross-border infrastructure in the form of economic corridor important for production networks

• Development of border infrastructure, SEZs, ports, and regional transit, and paperless trade

• Greater involvement of development bank (e.g. ADB) and dialogue partners of SAARC (e.g. Japan)

• India has to do a lot to reduce ‘service link’ cost – – Domestic transportation costs

– Network set-up cost through reduction in NTMs

– Improvement of trade infrastructure such as development of economic corridor, border infrastructure, a.o.

• Complete a master plan of South Asia economic corridors and an action plan for implementation by SAARC Secretariat