Chapter 2 Introduction July 2020 This chapter should be cited as ERIA (2020), ‘Trade Connectivity’, in The India-Myanmar-Thailand Trilateral Highway and Its Possible Eastward Extension to Lao PDR, Cambodia, and Viet Nam: Challenges and Opportunities. ERIA Research Project Report FY2020 no.02a, Jakarta: ERIA, pp.2-1--2-53. Chapter 2 Trade Connectivity 2.1. International Trade of India, Myanmar, and Thailand Reflecting the differences in the sizes of their economies, India, Myanmar, and Thailand’s amounts of international trade also differ significantly. India carries out the most international trade, followed by Thailand and Myanmar (Figure 2.1). Both exports and imports have grown in all three countries at different rates of change. The compound average growth rates (CAGRs) are the highest in Myanmar, followed by India and Thailand. Myanmar’s CAGRs of exports and imports between 2010 and 2018 were 8.2% and 18.8%, respectively. The corresponding CAGRs between 2010 and 2019 for India were 4.2% and 3.6%, and those for Thailand were 2.6% and 3.0%, respectively. An important characteristic of India is its large and expanding trade deficit. Although exports have been growing faster than imports, India’s trade deficit widened from US$127.9 billion in 2010 to US$159.7 billion in 2019. In contrast, exports and imports for Thailand have relatively been balanced, with a moderate degree of surplus. In Myanmar, the CAGR is much higher for imports than exports, resulting in a reversal of the trade balance from a surplus of US$4.0 billion in 2010 to a deficit of US$2.7 billion in 2018. Figure 2.1. International Trade of India, Myanmar, and Thailand Source: Compiled based on Global Trade Atlas. Chapter 2-1 Tables 2.1 to 2.6 present the top-10 export and import partners for India, Myanmar, and Thailand, respectively, together with trade connectivity amongst the three countries and with neighbouring countries, namely the Lao PDR, Cambodia, Viet Nam, Bangladesh, Bhutan, Nepal, and Sri Lanka. Trade partners with positive but the smallest records of trade are also listed in each table to indicate the degree of diversification. India’s international trade is highly diversified. The numbers for export destination and import origin are more than 230 and 220, respectively, and the cumulative share of top-10 trade partners reaches 55.0% (Tables 2.1 and 2.2). Although Thailand has more trade partners, the cumulative shares of top 10 partners are more than 60%, indicating a higher concentration of major trade partners than India (Tables 2.5 and 2.6). In contrast, Myanmar’s international trade is not diversified, both in terms of the smaller number of trade partners and the higher cumulative shares of its top-10 partners, reflecting the smaller size and the backwardness of the economy (Tables 2.3 and 2.4). However, the changes in both figures between 2010 and 2018 and the CAGRs clearly indicate that Myanmar has been in the process of rapid growth and diversification of international trade, which was triggered most likely by the transition from military to civilian rule started in March 2011. Thailand and India have been very important trade partners for Myanmar, but the opposite is not true. Reflecting the large amount of natural gas exports to Thailand through pipelines, Myanmar’s exports to Thailand exceed US$3 billion, with shares of 35.8% in 2010 and 18.3% in 2018 (Table 2.3). Thailand is also the third-largest origin for Myanmar’s imports, comprising 9.6% in 2010 and 13.4% in 2018 (Table 2.4). India is the fourth-largest export destination, comprising 10.8% in 2010 and 3.4% in 2018 (Table 2.3). Myanmar’s imports from India increased rapidly at a CAGR of 25.4% between 2010 and 2018, resulting in a rise in the share and rank from 3.3% (8th) to 5.1% (4th) (Table 2.4). Despite being in close proximity, India’s trade with Myanmar is still very limited. As India’s export destination, Myanmar had a share of 0.1% and ranked 75th in 2010 and a share of 0.3% and ranked 52nd in 2019 (Table 2.1). As India’s import origin country, Myanmar shared and ranked 0.3% and 43rd in 2010 and 0.1% and 71st in 2019 (Table 2.2). Thailand has stronger trade connectivity with Myanmar in comparison with India. In Thailand’s exports, Myanmar had a share of 1.1% and ranked 22nd in 2010 and 1.8% (17th) in 2018 (Table 2.5). On the import side, the comparable figures are 1.5% (15th) and 1.4% (18th), respectively (Table 2.6). Chapter 2-2 India and Thailand enhanced their bilateral trade connectivity from the 2010s. The CAGRs of bilateral trade are higher in both directions and for both countries than the CAGRs of total exports and imports of the respective countries. India’s exports to Thailand grew at a CAGR of 8.2% between 2010 and 2019, which is higher than the CAGR of India’s total exports (4.2%), resulting in an increase in the share from 1.0% (29th) to 1.3% (21st) (Table 2.1). During the same period, India’s imports from Thailand grew at a CAGR of 6.6%, which is higher than the CAGR of India’s total imports (3.6%), resulting in an increase in the share from 1.1% (25th) to 1.5% (20th) (Table 2.2). On the other hand, Thailand’s exports to India grew at a CAGR of 5.8% between 2010 and 2019, which is higher than the CAGR of Thailand’s total exports (2.6%), resulting in an increase in the share from 2.2% (11th) to 3.0% (10th) (Table 2.5). Similarly, Thailand’s imports from India grew at a CAGR of 8.8%, which is higher than the CAGR of India’s total imports (3.0%), resulting in an increase in the share from 1.2% (19th) to 2.0% (13th) (Table 2.6). India’s trade relationship with Cambodia and the Lao PDR remains unexploited. In India’s exports, Cambodia and the Lao PDR ranked 116th and 171st out of 233 destinations in 2010 and remained 102nd and 158th in 2019. In India’s imports, Cambodia and the Lao PDR ranked 142nd and 122nd out of 222 origin countries in 2010 and remained 121st and 168th in 2019. The shares are almost negligible (Table 2.1). In contrast, India’s trade relationship with Viet Nam has been enhanced steadily during the last decade. The share and rank of Viet Nam in India’s exports rose from 1.1% (24th) in 2010 to 1.7% (14th) in 2019. The comparable figures on the import side are 0.3% (45th) and 1.5% (19th). Despite the geographical and political proximity, Myanmar’s trade relationship with the Lao PDR and Cambodia remains very weak, probably reflecting the weak complementarity in tradable goods. In 2010, the rank of the Lao PDR in Myanmar’s exports was 72nd out of 74 export destinations, and the amount was negligible. There is no record of exports to Cambodia in 2010. In 2018, even after the establishment of the ASEAN Economic Community in 2015, Cambodia and Lao PDR ranked 48th and 125th out of 138 export destinations for Myanmar (Table 2.3). The situation on the import side is more or less the same. Similar to the case of India, Myanmar has had an enhanced trade relationship with Viet Nam during the last decade. The share and rank of Viet Nam in Myanmar’s exports rose from 0.7% (13th) in 2010 to 1.3% (14th) in 2018. The comparable figures on the import side are 0.8% (13th) and 3.0% (8th) (Table 2.4). Chapter 2-3 Taking advantage of the geographical proximity and more advanced regional cooperation framework, Thailand has enhanced trade connectivity with Cambodia, the Lao PDR, and Viet Nam (CLV). During the last decade, the shares of CLV countries in Thailand’s exports have risen from 1.2% (19th) to 2.9% (11th) for Cambodia; from 1.1% (20th) to 1.6% (19th) for the Lao PDR; and from 3.0% (9th) to 4.9% (4th) for Viet Nam, respectively (Table 2.5). On the import side, the shares increased from 0.1% (51st) to 1.0% (25th) for Cambodia; from 0.4% (30th) to 1.1% (23rd) for the Lao PDR; and from 0.8% (26th) to 2.3% (12th) for Viet Nam, respectively (Table 2.6). All three countries have become more dependent on imports from China. China’s share in India’s imports rose from 11.8% (1st) in 2010 to 14.1% (1st) in 2019 (Table 2.2). The comparable figures are 19.8% (2nd) to 32.2% (1st) for Myanmar, and 13.3% (2nd) to 21.2% (1st) for Thailand, respectively (Tables 2.4 and 2.5). China is also an important export destination for all three countries, but only Myanmar has significantly expanded exports to China, with a CAGR of 46.6% between 2010 and 2018 from 2.9% (7th) to 33.3% (1st) (Table 2.3). Thailand’s exports to China grew at a CAGR of 3.4%, which is only slightly above the CAGR for total exports (2.6%). As a result, China expanded the share from 11.0% to 11.8%, but fell from first place as Thailand’s export destination (Table 2.5). During the last decade, India’s exports to China have shrunk in terms of value, from US$17,519 million in 2010 to US$17,128 million in 2019.