Connectivity for South Asia Economic Union Prabir De RIS, New Delhi Plenary Session III 7 th South Asia Economic Summit (SAES) 5-7 November 2014
Vision of a Single Market Harmonized & integrated road and railway network SAARC Integration Next Stage: Economic Union Maritime & waterways network Aviation policy One Customs Transit Competition Policy EU ASEAN NAFTA * * SAARC * Except US and Mexico
What is economic corridor? Transport corridor Institutional infrastructure Trade corridor Human infrastructure Communication infrastructure GMS EWEC
Conceptual framework of economic corridor The fragmentation theory Large integrated factory Agglomeration and dispersion in new economic geography Fragmentation PB SL PB SL PB SL PB: production blocks SL: service links PB SL PB SL 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) 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 Source: Srivastava (2011) Catalysts: Trade facilitation, logistics services, a.o.
Stages of development Economic corridor Transport corridor SASEC / South Asia Trade corridor CAREC / Central Asia GMS / Southeast Asia
South Asian integration over time: slow but steady 36 years SAARC, 1985 SAPTA II, 1996 SAPTA IV, 2002 SAEU, 2020 SAPTA I, 1995 SAPTA III, 1998 SAFTA, 2006 US$ 0.65 bln. CAGR: 10.33% Infra-SAARC Trade US$ 20.29 bln. 1985 2012 *Forecast based on a polynomial trend **Forecast based on a gravity model CAGR: 9.36% TFadjusted US$ 41.52* bln. US$ 76.15** bln. 2020
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 **To be implemented Source: Calculated based on IMF DOTS
Elements holding back South Asia s integration At Macro Level 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) At Micro Level 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
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 (km) Below Class III 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
Source: ADB SAARC regional corridors
SAARC rail corridors Rail Corridor 1 Rail Corridor 2 Rail Corridor 3 Rail Corridor 4 Rail Corridor 5 (click on the colors) Source: ADB
Source: ADB Inter-regional links
India s emerging national corridors Source: SARD/ADB MIEC Source: Indian Railways
MIEC Connecting industrial space Tamil Nadu Tidel Park coimbatore ASCENDAS IT Park Nanguneri SEZ Ennore SEZ Perambalur - SEZ Auto City SEZ Bio - Pharmaceuticals SEZ Andhra Pradesh Biotech SEZ IT/ITES SEZ Pharmaceutical SEZ Apparel Park Textile and Apparel Semiconduct SEZ Dawei SEZ Karnataka Bio Tech SEZ IT & ITES SEZ TEXTILES SEZ Food Processing SEZ Sricity MIEC Bangkok Agglomerated Area HCM Agglomerated Area Phnom Penh SEZ
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 3 Economic corridor Trade liberalization Economic development Border policies Behind-the-border policies Corridor value chains Corridor township development Cross-border investments Government 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 Bangladesh-Bhutan Agreement Pakistan Afghanistan Agreement Banglabandha (Bangladesh)- Phulbari (India)-Khakarbitta (Nepal) Burimari (Bangladesh) - Changrabandha (India) - Jaigaon (India) -Phuentsholing (Bhutan) Karachi Peshawar Torkhum Karachi Chaman Spin Boldak Working Working Working with restrictions
Selection of corridor Baseline technical efficiency scores, DEA 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. 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 Narrowing the Development Gaps Enhance well-being of ASEAN citizens Source: ASEAN Physical Connectivity Hard Infrastructure Transportation, Logistics Facilities, ICT, Energy (Power Grid and Pipelines), Special Economic Zones People-to-People Connectivity Tourism, Education, Culture Resource Mobilisation ASEAN Connectivity Institutional Connectivity Soft Infrastructure Trade facilitation, ASEAN Single Window Investment facilitation, Services Liberalisation, Regional Transport Agreements, Capacitybuilding programmes
Thanaleng (Lao PDR) and Nonkhai (Thailand)
Where ASEAN leading in 2025? Source: Banomyong (2012)
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