The objective of integration of the SAARC region would be facilitated through initiatives in trade and investment policies. Comparative advantages should be used to fuel growth, and the private sector should be the engine of growth. South Asia should reduce political distance to increase trade; studies show an inverse relationship between political distance and trade growth. This requires a combination of political and business leadership.
The SAARC region should take advantage of the growing international demand for manufactured oods by developing integrated regional value chains. Similarly, the SAARC region should encourage the growth and integration of services trade, which, in turn, will lead to greater people-to-people interaction, especially in sectors such as tourism.
The basket of traded goods in South Asia is quite concentrated. This is largely because of multiple reasons such as the large sensitive lists in SAFTA, restrictive rules of origin & preferences, protectionist policies and a host of tariff and nontariff barriers. There is a need to remove tradable goods from the sensitive lists and build in product diversification within the trade basket to fully exploit the region’s comparative and competitive advantage. In turn this will generate employment opportunities in the region.
Non-tariff policy barriers have gained importance as tariff-based barriers to economic cooperation gave generally declined. High transportation costs, poor institutions, inadequate cross-border infrastructure, and absence of a regional transit trade are some major factors penalising the region’s trade and integration.
Development of cross-border infrastructure, especially transportation linkages and energy pipelines, across the region, will contribute to the regional integration by reducing transportation costs and facilitating intraregional trade.
Poor physical connectivity remains one of the biggest stumbling blocks in the region which has caused the cost of trading across borders to be one of the highest in the world.
SAARC should look at ways to improve trade and transportation linkages, including cross border railway links, roads and civil aviation connectivity. Road, rail, air and sea links not only connect the entire region but can also connect South Asia beyond the region into South East and East Asia and the larger Indian Ocean region.
To provide for greater efficiency in movement of goods, a SAARC Multi- modal Transport system needs to be developed.