Regional Trade Agreements In South Asia

[11] Anderson and A. Ayres, “Economics of Influence: China and India in South Asia,” Expert Brief by Council on Foreign Relations, www.cfr.org/expert-brief/economics-influence-china-and-india-south-asia. This policy letter analyzes India`s trade data and China`s trade with Afghanistan, Bangladesh, Bhutan, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka, collectively referred to as “South Asia” or N8. Only Afghanistan, Bhutan and Nepal have a larger share of trade with India than China Over the past two decades, China has established itself as an important trading partner of South Asia. Beyond Pakistan, China invaded South Asia (N8) by becoming Bangladesh`s largest trading partner in 2015 and supporting trade and investment with Nepal, Afghanistan, the Maldives and Sri Lanka. [12] This reflects in particular the strategic importance of the region to China`s Belt and Road Initiative (BRI), particularly for small South Asian countries. [13] The lack of comparative advantages in the region also hampers the prospects for regional trade expansion, as envisaged under the SAFTA. [9] Specialization and value chains are key factors in international trade. Countries with different comparative advantages and product specializations would have more opportunities to benefit from each other`s trade than those with a high level of similar products and specializations. In South Asia, most countries in the region compete in their export markets in a limited range of products, namely textile and clothing exports. India`s main imports are mainly in semi-finished factories (due to the country`s import policy) for which neighbouring countries do not have a comparative advantage.

[10] This reflects India`s continued weakness in imports from its neighbourhood, as shown in Figure 1. [6] D. R. Kanth, “Global Trade Declines 13% to `16.5 Trillion in 2015,” LiveMint, April 7, 2016, www.livemint.com/Politics/t5GR5PqKbFLGt7K404LQ8L/In-2015-global-trade-declined-13-to-165-trillion-in-valu.html. There are several agreements to facilitate trade in the region. The SAARC Preferential Trading Arrangement (SAPTA) was signed in 1994, followed by the South Asian Free Trade Area (SAFTA) agreement a decade later in 2004 (which came into force in 2006). India`s bilateral trade with Myanmar is governed by the 1994 Indo-Myanmar-border trade agreement and the 2009 ASEAN-India Trade Agreement (AITGA). In addition, India and Sri Lanka signed the Indo-Sri Lanka Free Trade Agreement (ISFTA) in 1998. The agreement came into force in 2000. Improved cross-border infrastructure, such as integrated checkpoints (IDPs), road, air and rail links, is essential to facilitate trade in the region. Improved infrastructure will improve connectivity and strengthen production networks and value chains in the region.