Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Promoting Economic Cooperation in South Asia ii Promoting Economic Cooperation in South Asia Promoting Economic Cooperation in South Asia Beyond SAFTA Edited by Sadiq Ahmed Saman Kelegama Ejaz Ghani THE WORLD BANK © 2010 The International Bank for Reconstruction and Development / The World Bank, 1818 H Street, NW, Washington, DC 20433 All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2010 by SAGE Publications India Pvt Ltd B 1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India www.sagepub.in SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for SAGE Publications India Pvt Ltd, typeset in 10/12pt Minion by Star Compugraphics Private Limited, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Promoting economic cooperation in South Asia: beyond SAFTA/edited by Sadiq Ahmed, Saman Kelegama, and Ejaz Ghani. p. cm. Includes bibliographical references and index. 1. South Asia—Foreign economic relations. 2. South Asia—Economic policy. 3. South Asia—Economic integration. I. Ahmed, Sadiq. II. Kelegama, Saman. III. Ghani, Ejaz. HF1586.5.S67P76 337.1’54—dc22 2010 2009049003 ISBN: 978-81-321-0311-0 (HB) The SAGE Team: Elina Majumdar, Anupam Choudhury and Trinankur Banerjee The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Contents List of Tables vii List of Figures xi List of Boxes xiii List of Maps xv List of Abbreviations xvii Preface xxiii Part I The Imperative for Cooperation 1 A Perspective on Peace and Economic Cooperation in South Asia 3 Akmal Hussain 2 Making Regional Cooperation Work for South Asia’s Poor 30 Sadiq Ahmed and Ejaz Ghani Part II SAFTA and Beyond: Selected Cooperation Issues 3 SAFTA: Current Status and Prospects 71 Dushni Weerakoon 4 Bilateral Free Trade Agreements in SAARC and Implications for SAFTA 89 Deshal de Mel 5 Connecting South Asia: The Centrality of Trade Facilitation for Regional Economic Integration 110 Jayanta Roy and Pritam Banerjee 6 Transit and Border Trade Barriers in South Asia 139 Prabir De, Sachin Chaturvedi, and Abdur Rob Khan 7 Transport Issues and Integration in South Asia 174 M. Rahmatullah vi Promoting Economic Cooperation in South Asia 8 Harmonizing Regulatory Mechanisms: Options for Deepening Investment Integration in South Asia 195 Mark Andrew Dutz 9 Managing the Food Price Crisis in South Asia 209 Richard Vokes and Savindi Jayakody 10 Labor Migration, Employment, and Poverty Alleviation in South Asia 231 Sridhar K. Khatri 11 Promoting Tourism in South Asia 259 Renton de Alwis Part III Private Sector Perspectives on Cooperation 12 Regional Cooperation in South Asia: Bangladesh Perspective 279 Yussuf A. Harun 13 Regional Cooperation in South Asia: India Perspectives 300 Sonu Jain 14 Regional Cooperation in South Asia: Pakistan Perspective 321 Khalid Amin 15 Regional Cooperation in South Asia: Sri Lanka Perspective 348 Chandra Jayaratne Part IV The Political Economy of Cooperation 16 Weaker Economies in SAFTA: Issues and Concerns 373 Mohammad A. Razzaque 17 SAARC Programs and Activities: Assessment, Monitoring, and Evaluation 402 Mahendra P. Lama About the Editors and Contributors 422 Index 426 List of Tables 2.1 Population Mass, Economic Mass, and Poverty Mass: Bangladesh Districts Bordering India’s North-east and West Bengal, 2000 44 2.2 Industry and Manufacturing Share of Employment and GDP across Countries 57 2.3 Growth in Sectoral Value Added across Countries 57 3.1 Comparative TLP across FTAs in South Asia 75 3.2 Comparative Rules of Origin across FTAs in South Asia 76 3.3 Comparative Negative Lists across FTAs in South Asia 77 3.4 Trade Restriction under SAFTA 78 3.5 South Asia’s Bilateral Trade with India 81 3.6 Relative Share of India’s Trade with SAARC and ASEAN+3 83 3.7 Direction of Trade for South Asian Economies 84 3.8 Bilateral Trade Restriction under SAFTA 85 4.1 Tariff Reductions ILFTA 92 4.2 ILFTA Tariff Rate Quotas 93 4.3 ILFTA Rules of Origin 93 4.4 Duty Concessions of PSFTA 100 4.5 Comparison of Negative List Coverage between ILFTA, PSFTA, and SAFTA 105 4.6 Bilateral Trade Restriction under SAFTA 105 A4.1 Tariff Lines Exported by Sri Lanka Subject to Tariff Rate Quota under the Pakistan–Sri Lanka Free Trade Agreement 107 A4.2 Tariff Lines Exported by Sri Lanka Subject to Margin of Preference under Pakistan–Sri Lanka Free Trade Agreement 108 viii Promoting Economic Cooperation in South Asia 5.1 Key Trade Facilitation Concerns 111 5.2 Gain in Intraregional Trade from Capacity Development in Trade Facilitation 113 5.3 Transport Time via Transhipment Hubs 120 6.1a Nepal’s Trade with India and Bangladesh 142 6.1b Bangladesh’s Trade with India, Nepal, and Bhutan 142 6.1c India’s Trade with Bangladesh, Bhutan, and Nepal 142 6.1d Bhutan’s Trade with India 143 6.2a Intra-sub-regional Transit Trade 144 6.2b Extra-sub-regional Transit Trade 144 6.3 Trade and Transit Arrangements in Eastern South Asia 147 6.4 International Conventions and South Asian Countries 151 6.5 Matters Related to Goods in Transit 156 6.6 WTO Trade Facilitation Proposals and Status of Trade Facilitation Measures on Transit (Article V) in India 157 6.7 Status of Trade Facilitation Services at Border 161 6.8 Basic Assumptions in the DEA Model 165 6.9 DEA Scores 166 6.10 Relative Efficiency of Land Customs Stations 167 A6.1 Surveyed Border-crossing Corridors 169 7.1 Selected Regional Road Corridors for Priority Attention 182 7.2 Selected Regional Rail Corridors for Priority Attention 183 7.3 Selected Regional IWT Corridors for Priority Attention 183 7.4 Selected Regional Maritime Gateways for Priority Attention 184 7.5 Selected Regional Aviation Gateways for Priority Attention 185 9.1 Inflation Rate versus Food Price Inflation, March 2008 218 9.2 Macroeconomic Performance in South Asia, 2007 219 11.1 Country-wise Spread of Visitor Arrivals to the South Asia Region 263 11.2 Intraregional Travel between SAARC Countries, 2007 264 13.1 Indicators of Poverty and Mortality 301 14.1 Data Format for Measuring Progress with Economic Integration 336 A14.1 Major Items of Exports and Imports of SAARC Countries, 2002 345 List of Tables ix 16.1 SAFTA Members: Basic Indicators 378 16.2 Imports from India and the Rest of the World 381 16.3 Tariff Profiles of South Asian Countries 382 16.4 Tariff Lines and Value of Trade with India Affected by Improved Access by the European Union 390 16.5 Tariff Lines and Value of Trade with the European Union Affected by Improved Access by India 391 17.1 Poverty Alleviation-related Declarations in SAARC Summits since 1993 407 17.2 Prevention and Combating Terrorism-related Declarations in SAARC Summits since 1988 412 x Promoting Economic Cooperation in South Asia List of Figures 2.1 Real GDP Growth 31 2.2 Poverty Reduction in South Asia, 1970s–2000s 32 2.3 Growth–Poverty Correlation in South Asia 33 2.4 South Asia Per Capita Income, 2006 35 2.5 Per Capita Income in South Asia, 2004 36 2.6 Poverty Incidence in South Asia 38 2.7 Gini Coefficient (the Latest Available) and the Annual Growth Rate of Gini 40 2.8 Annual Growth Rate of Regional Inequality and the Pure Individual Effect for Selected South Asia Countries 41 2.9 Percentage of National GDP Damaged by Select Natural Disasters 49 2.10 Real Growth in Trade of Goods and Services 53 2.11 Trade Tariff Restrictiveness Index 54 4.1 Domestic Value Addition of Indian Investment in Sri Lanka 95 4.2 Trade between Sri Lanka and Pakistan 2003–07 102 4.3 Sri Lanka’s Top Five Exports to Pakistan, 2002 and 2007 103 5.1 Number of Documents Required to Export 115 5.2 Average Days Taken for Customs Clearance 115 5.3 Rate of Physical Inspection of Cargo 116 5.4 Lead Time to Import 117 5.5 Typical Charge for a 40-ft Container