Asia- Economic Development | Oxford Student ATLAS: Maps & Tests - UPSC PDF Download

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Asia- Economic Development 
 
 
 
Asia- Trading More Within Makes Economic Sense 
Introduction 
In today's dynamic global trade landscape, South Asia finds itself at a crucial 
juncture, prompted by a recent warning from the International Monetary Fund 
(IMF) regarding a significant slowdown in global trade. As the world braces itself 
for various challenges such as geopolitical tensions, supply chain disruptions, and 
the ongoing COVID-19 pandemic, South Asia must reevaluate its regional trade 
strategy within Asia. This article delves into the reasons why South Asia needs to 
foster greater trade relationships with the dynamic economies of East Asia, 
outlines the potential growth opportunities, and proposes key actions that need 
to be taken. 
South Asia-East Asia Trade: A Growing Partnership 
? The trade relationship between South Asia and East Asia has gained 
considerable momentum since the 1990s. India's strategic trade 
realignment towards East Asia, driven by its Look East and Act East policies, 
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Asia- Economic Development 
 
 
 
Asia- Trading More Within Makes Economic Sense 
Introduction 
In today's dynamic global trade landscape, South Asia finds itself at a crucial 
juncture, prompted by a recent warning from the International Monetary Fund 
(IMF) regarding a significant slowdown in global trade. As the world braces itself 
for various challenges such as geopolitical tensions, supply chain disruptions, and 
the ongoing COVID-19 pandemic, South Asia must reevaluate its regional trade 
strategy within Asia. This article delves into the reasons why South Asia needs to 
foster greater trade relationships with the dynamic economies of East Asia, 
outlines the potential growth opportunities, and proposes key actions that need 
to be taken. 
South Asia-East Asia Trade: A Growing Partnership 
? The trade relationship between South Asia and East Asia has gained 
considerable momentum since the 1990s. India's strategic trade 
realignment towards East Asia, driven by its Look East and Act East policies, 
Asia- Economic Development 
 
 
played a significant role in this shift. Additionally, South Asia's adoption of 
economic reforms and China's offshoring of global supply chains to Asia 
further facilitated this trade collaboration. 
? Between 1990 and 2018, the total merchandise trade between South Asia 
and East Asia witnessed an annual growth rate of approximately 10%, 
reaching $332 billion in 2018. Looking ahead, experts predict that this trade 
volume could reach $500 billion, a significant milestone. Furthermore, the 
number of free trade agreements (FTAs) linking economies in South Asia 
with East Asia may rise to 30 by 2030. 
? Notably, regional trade in Asia has shown signs of recovery following the 
COVID-19 pandemic, presenting new opportunities for South Asia to 
engage in global value chains and services trade. 
Key Measures for Enhanced Regional Trade Integration 
To leverage the potential benefits of regional trade integration across Asia, it is 
crucial to gradually reduce barriers to goods and services trade. Import tariffs and 
non-tariff measures have seen a rise in several South Asian economies since the 
global financial crisis of 2008, with limited reversals. South Asia must strive for 
trade opening calibrated with tax reforms, considering that trade taxes often 
constitute a significant portion of government revenue in some economies. 
Additionally, providing adjustment financing to sectors that may face negative 
consequences due to trade realignment, along with retraining workers, becomes 
essential to ensure equitable gains from trade and mitigate income inequality. 
Improving Special Economic Zones (SEZs) and Services 
Investment 
South Asia boasts over 600 operational SEZs, including locations such as Kochi 
(India), Gwadar (Pakistan), Mirsarai (Bangladesh), and Hambantota (Sri Lanka). 
However, the performance of these SEZs in terms of exports, job creation, and 
fostering domestic linkages has been inconsistent. While competitive fiscal 
incentives play a role in multinationals' locational decisions, it is crucial to strike a 
balance and avoid long tax holidays that deprive economies of vital tax revenue. 
Enhancing SEZ processes and outcomes in South Asia necessitates ensuring 
Page 3


Asia- Economic Development 
 
 
 
Asia- Trading More Within Makes Economic Sense 
Introduction 
In today's dynamic global trade landscape, South Asia finds itself at a crucial 
juncture, prompted by a recent warning from the International Monetary Fund 
(IMF) regarding a significant slowdown in global trade. As the world braces itself 
for various challenges such as geopolitical tensions, supply chain disruptions, and 
the ongoing COVID-19 pandemic, South Asia must reevaluate its regional trade 
strategy within Asia. This article delves into the reasons why South Asia needs to 
foster greater trade relationships with the dynamic economies of East Asia, 
outlines the potential growth opportunities, and proposes key actions that need 
to be taken. 
South Asia-East Asia Trade: A Growing Partnership 
? The trade relationship between South Asia and East Asia has gained 
considerable momentum since the 1990s. India's strategic trade 
realignment towards East Asia, driven by its Look East and Act East policies, 
Asia- Economic Development 
 
 
played a significant role in this shift. Additionally, South Asia's adoption of 
economic reforms and China's offshoring of global supply chains to Asia 
further facilitated this trade collaboration. 
? Between 1990 and 2018, the total merchandise trade between South Asia 
and East Asia witnessed an annual growth rate of approximately 10%, 
reaching $332 billion in 2018. Looking ahead, experts predict that this trade 
volume could reach $500 billion, a significant milestone. Furthermore, the 
number of free trade agreements (FTAs) linking economies in South Asia 
with East Asia may rise to 30 by 2030. 
? Notably, regional trade in Asia has shown signs of recovery following the 
COVID-19 pandemic, presenting new opportunities for South Asia to 
engage in global value chains and services trade. 
Key Measures for Enhanced Regional Trade Integration 
To leverage the potential benefits of regional trade integration across Asia, it is 
crucial to gradually reduce barriers to goods and services trade. Import tariffs and 
non-tariff measures have seen a rise in several South Asian economies since the 
global financial crisis of 2008, with limited reversals. South Asia must strive for 
trade opening calibrated with tax reforms, considering that trade taxes often 
constitute a significant portion of government revenue in some economies. 
Additionally, providing adjustment financing to sectors that may face negative 
consequences due to trade realignment, along with retraining workers, becomes 
essential to ensure equitable gains from trade and mitigate income inequality. 
Improving Special Economic Zones (SEZs) and Services 
Investment 
South Asia boasts over 600 operational SEZs, including locations such as Kochi 
(India), Gwadar (Pakistan), Mirsarai (Bangladesh), and Hambantota (Sri Lanka). 
However, the performance of these SEZs in terms of exports, job creation, and 
fostering domestic linkages has been inconsistent. While competitive fiscal 
incentives play a role in multinationals' locational decisions, it is crucial to strike a 
balance and avoid long tax holidays that deprive economies of vital tax revenue. 
Enhancing SEZ processes and outcomes in South Asia necessitates ensuring 
Asia- Economic Development 
 
 
macroeconomic and political stability, adopting sound regulatory policies, 
providing reliable electricity, implementing advanced technologies like 5G 
broadband, and upgrading worker skills. 
Pursuing Comprehensive Free Trade Agreements (FTAs) 
Although South Asia entered the realm of FTAs relatively late compared to East 
Asia, it has taken significant strides in this direction. Notable examples include 
The Japan-India FTA, The Sri Lanka-Singapore FTA, and The Pakistan-Indonesia 
FTA. South Asian economies must strive to enhance the utilization of tariff 
preferences by better equipping businesses to navigate the complex rules of 
origin within FTAs. Moreover, future FTAs should address issues relevant to global 
supply chains, as exemplified by India's recently concluded FTAs with the United 
Arab Emirates and Australia in 2022. The confidence gained from such 
agreements can pave the way for future Regional Comprehensive Economic 
Partnership (RCEP) membership, driving structural reforms, improving business 
competitiveness, and fostering regulatory coherence with East Asia. The fear of 
trade diversion effects and exclusion may incentivize the rest of South Asia to join 
RCEP if India becomes a member. 
Reinventing BIMSTEC for Stronger Trade Ties 
A reinvented trade-focused Bay of Bengal Initiative for Multi-Sectoral Technical 
and Economic Cooperation (BIMSTEC) can play a vital role in facilitating stronger 
trade ties and supporting the interests of smaller member countries. To achieve 
this, BIMSTEC requires better resourcing of its Secretariat, the conclusion of the 
long-running BIMSTEC FTA, building trade capacity in smaller economies, and 
introducing dialogue partner status to encourage open regionalism in Asia. 
Conclusion 
As global trade faces headwinds and uncertainty, it becomes imperative for South 
Asia to reassess its trade relationships and explore avenues for deeper integration 
within Asia. By trading more with the dynamic economies of East Asia, South Asia 
can tap into growth opportunities, participate in global value chains, and enhance 
regional economic cooperation. However, this journey requires concerted efforts 
in reducing trade barriers, optimizing SEZs and pursuing comprehensive FTAs.