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Exploiting Potential of Regional Cooperation: Issues in Physical Connectivity and Other Areas of Cooperation

Regional Conference on Deepening South Asian

Economic Integration24 July 2008, New Delhi

Zone 4B, India Habitat CentreLodi Road, New Delhi 110003Tel: +91-11-2468 2177-180Fax: +91-11-2468 2173-74Web: www.ris.org.in

http://www.ris.org.in/

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South Asia has high trade potential Regional trade in South Asia is moving below potential

Intra-regional trade in 2006: US$ 10.48 billionIntra-regional trade potential: US$ 40 billion74% of trade potential is remained to be realized

Causes of high underutilization of intra-regional trade potentials are mostly economic in nature

Lack of supply capabilities of LDCsHigh trade barriers – both visible and invisibleInadequate trade facilitation measures Poor transportation links

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Poor infrastructure holding back South Asia’s growth

Infrastructure in South Asian countries is largely inadequate and generally of poor quality.Infrastructure gap in South Asia in terms of the index widened than narrowed.South Asia’s growth potential will be realized only if we can narrow the infrastructure gap, not only between them but also with the global best practice. Laggard areas (pocket of deficits) in South Asia needs utmost importance so that they can enjoy the opportunities created by regional trade liberalization and integration. Infrastructure attainment need to be addressed explicitly as a part of the programme of SAARC for promoting balanced regional development.

South Asia in Global Infrastructure Rankings: RIS Index

1991 2000 2005Index Rank Index Rank Index Rank

India 3.48 50 3.95 49 4.49 51

Sri Lanka 2.57 62 3.18 56 4.35 53

Pakistan 2.39 64 2.26 68 2.89 66

Bangladesh 1.83 73 2.12 71 2.5 74

Nepal 1.29 81 1.37 81 1.38 86

Countries

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High inland transportation costs High inland transportation costs making regional trade costlymaking regional trade costly

Composition of Inland and International Transport CostsEstimated Average Freight Rates in 2005

1656.50

1485.20

1675.80

828.70

110.10

1327.50

59.90

251.70

40.70

717.70

299.40

192.70

0.00 500.00 1000.00 1500.00 2000.00

Bangladesh

India

Nepal

Pakistan

Sri Lanka

South Asia*

Avg. Freight Rate (US$/TEU)

International

Inland

0

20

40

60

80

100

120

(% o

f tot

al c

ost)

International 3.49 14.49 2.04 46.41 73.12 12.10

Inland 96.51 85.51 97.96 53.59 26.88 87.90

B'desh India Nepal Pakistan Sri Lanka S'Asia*

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Crucial borders are congested Crucial borders are congested Transaction Time and Cost for India’s Overland Exports to Bangladesh

Subramanian and Arnold

(2001)

Das and Pohit(2006)

De and Ghosh(2006)

Survey year: 1998

Survey year: 2002

Survey year: 2005

Transaction costs (% of shipment value)*

- 10.38 16.80

Border crossing delays (days)** 2.5 3.63 3.92

Types of documents required at border (No)

29 - 17

Copies of documents required at border (No)

118 - 67

Particulars

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Full regional connectivity Full regional connectivity ––reducing reducing transportation costs hold the keytransportation costs hold the key

Transport costs incidence in South Asia is higher than tariff incidence.

South Asian countries are paying more towards trade transportation costs, compared to customs tariff,

The heavier the good larger the transportation costs in South Asia.

South Asian countries import higher weights, thereby implying frequent transport congestion and higher trade transportation costs;

Disincentives to regional transport and production networks

Low overland traffic High costs of movement of factors of production

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Deepening South Asian integration Deepening South Asian integration

South Asia has began to approach its second era of regional cooperation.To achieve Full Regional Connectivity

Integrated and improved cross-border transportation linkages – software + hardware

Reduce the trade transportation costs

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Emerging issues Need for higher investments in infrastructure Improve the efficiency of border corridorsPromote multimodal transportation and opening of South Asia Regional Transit Adopt South Asian Common Transport Policy

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Enhance infrastructure investmentsTo sustain 8% regional GDP growth, South Asia needs US$ 108 billion every year (about 12% of regional GDP) in physical infrastructure sectorSome suggestions:

Manage the infrastructure deficit through a regional infrastructure fundExchange of experiences in infrastructure financing and development

Infrastructure Investment Need

Annual Investment Need (2008-2012)Countries

Amount(US$ billion)

Share in GDP (%)

Bangladesh 11.55 11.24

India 74.68 9.56

Nepal 3.44 12.22

Pakistan 13.28 10.78

Sri Lanka 4.90 12.07

Total 107.85 11.64

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Strengthen cross-border infrastructureSouth Asia yet to make a major breakthrough in cross-border infrastructure projects (CBIP)

Latin America: US$ 68.27 billion by 2010 in CBIP

High potential of CBIP due to geographical contiguityIndia – Bhutan Partnership in CBIP (hydropower)Need to adopt a regional strategy to facilitate CBIP

South Asia Regional Infrastructure Facility (SARIDF)

Sector Countries ParticularDelhi – Lahore

Amritsar-Nankana Sahib

Amritsar – Lahore

Poonch - Rawalakot

Srinagar - Muzaffarabad

Kolkata – Dhaka India and BangladeshAgartala – Dhaka

Kolkata – PhuentsholingIndia and BhutanSiliguri – Phuentsholing

Delhi – Lahore

India and Pakistan Jodhpur - Karachi

India and Bangladesh Kolkata - Dhaka

India and BhutanEnergy (power trading) India and Nepal

Rail transportation (passenger train services)

Power transmission lines

India and PakistanRoad transportation

(passenger bus services)

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Improve efficiency of border corridors Efficiency of border corridors and land customs stations (LCSs) is an important factor for South Asia’s competitiveness and its trade prospects. The full regional connectivity in South Asia would likely to redistribute the regional trade and traffic among the existing corridors. An efficient corridor is thus very important in order to maximize the benefits of full regional connectivity. The renewed objectives of the trade facilitation measures would be to

Constantly improve the performance of border corridors and land customs stations (LCSs)Eliminate the asymmetry between the LCSs pairEffective coordination among border management authorities

Set-up SAARC Single Window [Customs]India’s LPA and ICPs forward looking step

Set-up South Asian Regional Standards Organization

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Regional transit – the need of the hourThe greater benefits of SAFTA and multilateral free trade are clearly contingent upon full regional transit.

Smaller countries (e.g. Bhutan, Bangladesh and Nepal) are having higher trade with the region. However, lack of transit trade is impeding their intra-regional trade and economic exchange to grow and integrate further.

Agreeing to a full regional transit a “win-win” gain for all the countries in the region. A regional transit will not only bring a steady revenue stream of transit fees but will also help develop industry and service enterprises in the border areas.

Transit would help grow SEZs at border areasSmaller countries to earn revenue from transit, which could be utilised for development of country’s social infrastructure and enterprises at border areas.

According to an RIS Study, Bangladesh can earn hefty revenue (over US$ 1 billion per annum) as transit fees from Indian vehicles plying to and from India’s North Eastern Region (NER) to rest of India using Bangladeshi soil using two corridors. The amount may rise if other corridors between India and Bangladesh are also counted. Similarly, transit arrangement between India, Pakistan and Afghanistan will fetch a hefty royalty to Pakistan for movement of vehicles between India and Afghanistan using Pakistani soil. There are also huge gains associated with energy conservation due to transit and efficient use of resources.

The full regional transit can be achieved either through GATT Article V or by forming its won regional arrangement in conformity with GATT Article V. Both could work well in case of South Asia. TIR Carnet (1965) also provides opportunities of regional transit

SAARC Regional Transport and Transit Agreement (SRTTA), covering road and railways, to start with.

There are some serious challenges like standardization of laws and regulations relating to transportation, security, maintenance of corridors, etc., which countries have to overcome through continuous dialogue and deeper cooperation.

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Regional transport and transit: Progress so far

Harmonization of standards and mutual recognition in transport sector has been the key issue in South Asia.

SAARC has Inter-Governmental Group (IGG) to advice on facilitation of transport in South Asia. There has been some progress in regional transportation in South Asia in recent years.

After the 14th SAARC Summit in 2007, the SAARC Ministers of Transport for the first time met in New Delhi on 31 August 2007.SAARC Transport Ministers agreed to accord a Regional Transport and Transit Agreement, and a Regional Motor Vehicle’s Agreement in 2008. Member States have been discussing on Motor Vehicles Agreement (MVA), and a final decision on Motor Vehicle Agreement will be made during the Second Transport Ministers Meeting, scheduled to be held in Sri Lanka in middle of 2008.

Following SRMTS, South Asian countries have decided to launch few pilot subregionaland regional projects:

Rail link - Birgunj-Kaatihar-Singhabad-Rohanpur-Chittagong with links to Jogbani, Biratnagar and Agartala; Rail link - Kathmandu-Birgunj-Kolkata/Haldia; Rail link - Agartala-Akhaura-Chittagong; Road link - Phuntsholing and Hashimara; Rail corridor - between Colombo and Chennai; Ferry link - between Colombo and Cochin and Colombo and Tuticorin; Air link - Malé-New Delhi and Islamabad-New Delhi; Establishment of modern border crossing facility at Phuntsholing.

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India’s initiatives in South AsiaIndia is providing assistance of Rs 7.47 billion for upgradation/construction of the 215 km long road from Zaranj to Delaram in Nimroz Province in Afghanistan. The project commenced in July 2004 and a major part is completed in June 2008. India has developed a 34-km road project (Pasakha-Manitar Road) to avoid the unstable area at Sorchen on Thimphu-PhuentsholingHighway has been completed and handed over to Royal Government of Bhutan in February 2008.India had upgraded the Tamu-Kalewa-Kalemyo road (160 km) in Myanmar across Manipur from 1997 to 2001 at a cost of Rs. 1.20 billion. The Government of India are presently responsible for upkeep of the TKK road in Myanmar. India and Myanmar signed agreement (March 208) to develop Kaladanmulti-modal transit transport project in Myanmar with an investment ofRs. 5.45 billion. It envisages connectivity between Indian ports and Sittwe Port in Myanmar, and road and inland waterway links from Sittweto India’s North Eastern Region (NER). The time-frame for the project is 5 years from the date of actual commencement of the project.

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APIBM corridor: Asia’s new Silk route

Starting Point

Country Ending Point Country Distance (km)

Road condition

Max. Axle Load (ton)

Kabul Afghanistan Torkham Afghanistan 224 Good 31

Afghanistan – Pakistan Border (Torkham Border)

Torkham Pakistan Wahgah Pakistan 607 Good 31

Pakistan – India Border (Wahgah – Attari Border)

Attari India Petrapole India 2042 Good 24

India – Bangladesh Border (Petrapole – Benapole Border)

Benapole Bangladesh Dhaka Bangladesh 168 Good 19

Bangladesh – India (NER) Border (Tamabil – Dawki Border)

Tamabil Bangladesh Dawki India 325 Good 19

India – Myanmar Border (Moreh – Tamu Border)

Moreh India Tamu Myanmar 606 Good 24

Tamu Myanmar Yangon Myanmar 1300 Partly good

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Total distance (Kabul to Yangon): 5272 km; No of border crossings (Kabul to Yangon): 5; Transportation time (Kabul to Yangon): 12 days.

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APIBM APIBM -- IMTTH IMTTH -- EWECEWEC

Delhi

Calcutta

Gwahati

Kabul

Lahore

Dacca GMS EWEC

Kathmandu

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APIBM corridor: Potential transport hubs in South Asia

Afghanistan

Pakistan

India

Bangladesh

Sri LankaMaritime Hub

Nepal Bhutan

Towards West Asia & Europe

Towards East Asia & Pacific

Myanmar

Maldives

Towards Central Asia

OverlandMaritime

China

Thailand

Towards Middle East

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VisionInfrastructure development leads to higher income in South AsiaA stronger domestic transport sector:

Strengthen domestic transport sector by enhancing domestic reforms

A Common Transport Policy for South Asia: Integrate surface connectivity and regional transport networkTransit MUST [avoid multiple handling at borders]Remove the barriers at borders – visible and invisible

Expand and link up South Asian overland linkages Asian Highway Trans-Asian RailwayOther regional transport corridors [e.g. BIMSTEC Highway]

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South Asia Common Transport Policy: Immediate priorities

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Tasks ahead

Harmonized & integrated road and railway network

Maritime & waterways network

Aviation policy

✓ ✓

✓

✓

✓

✓

SAARC

One ‘Customs’

Transit Competition Policy

EU (10) ✓ ✓ ✓

✓

✓*

✓

ASEAN ✓NAFTA * ✓ ✓

SAARC Next Stages: Customs Union (2015) => Economic Union (2020)

* Except US and Mexico

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Energy cooperation High complementarities in energy production among South Asian countries

High potentials in cross-border energy trade

Need to remove the barriers in energy trade Adopt South Asian Energy Charter Treaty (SECT)

Country OpportunityAfghanistan Energy transit

Bangladesh Gas

India Petroleum products

Nepal Hydropower

Bhutan Hydropower

Pakistan Energy transit

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Thank you