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South Asian economies are aiming to undertake trade facilitation measures that will greatly reduce current physical and nonphysical barriers to transportation and transit—by means of both visible infrastructure (such as multimodal corridors and terminals) and invisible infrastructure (such as reformed policies, procedures, and regulations). Due to lack of adequate research on trade facilitation in South Asia, not much information is available on the existing profile of trade facilitation measures (both at the border and the capital) in South Asia. This is a research area that needs special attention from policymakers and researchers in South Asia.
With an increased emphasis on administrative reform, governance, and security, the need for an efficient and effective customs administration is felt urgently. Customs is an intrinsic element of any cross-border movement of goods and services, and yields significant influence on the national economy. It is the unique point where the supply chain and routine access to trade intelligence and data meet. Beyond facilitating trade, customs performs other important functions such as revenue collection and protection against dangerous goods. The time taken for clearance of goods has an impact on the competitiveness of countries in the global context.
One of the major reasons for the high transaction costs of India’s exports to Bangladesh is cumbersome and complex cross-border trading procedures. Complex requirements in crossborder trade increase the possibility of corruption. For example, at the key border-crossing point between India and Bangladesh, as many as 1,500 trucks queue on both sides of the border with waiting times varying between one and five days to complete documentation requirements. Expediting customs clearance procedures reduces the discretionary power of customs officials, thus reducing the scope for corruption. An efficient, friendly, and corruption-free customs can help boost trade and investment. The goods carried by road from India are subjected to transshipment at the border. Similarly, goods carried by rail are subjected to inland transshipment. As far as maritime transport is concerned, there are no direct sailings. The transshipments at the land customs stations impose serious impediments. In fact, they determine the level and the efficiency of international trade between the two countries. The position is further compounded by lack of harmonization of technical standards for rolling stock and infrastructure, both road and rail.
Considering this region’s emergence as a free trade area from 2006 onward, reform in the transport sector will help South Asian countries assess potential benefits of moving to a deregularized transport sector under a liberal trading regime when the transport sector is one of the prime instruments for promoting intra-regional trade. Hence, countries in this region should take immediate steps in not only integrating their transport system but also in reforming the entire system so that the transport system functions as the engine of growth rather than as a trade deterrent. The Government of Bangladesh should try to remove the structural asymmetries in the rail and maritime transportation sector, which are found to be quite significant.
There exist severe transport and transaction cost barriers for effective cross-border trade between India and Bangladesh. These two countries, along with other South Asian partners, should develop a regional transportation and transit system that offers efficient transportation options and low transaction costs that are competitive with those found elsewhere. As the "full life" of many new products becomes shorter and shorter with emerging production networks across borders, and the spatial distribution of supply and demand points changes rapidly in such a system, what is transported, how it is transported, and to and from where it is transported are all rapidly changing. For admission to this dynamic global system, a region needs a transportation and transit system that offers an exporter short time spans between order and delivery, and predictable and reliable deliveries. To plug into this wealth-creating machine, India and Bangladesh must develop a transportation and transit facilitation system that will greatly reduce current physical and nonphysical barriers to transportation and transit by means of both physical infrastructure (such as multimodal corridors and terminals) and nonphysical infrastructure (reformed policies and procedures, regulations, and incentives for efficient transportation and transit).
India, being large, has a special role to play in deepening bilateral economic cooperation with Bangladesh through the transport infrastructure sector. First, India may invest in inland and border infrastructure as a response to serious bottlenecks taking place due to an expansion of the domestic private sector. This, however, would lead to a passive strategy of transport infrastructure following private investment. Another option is that the governments of India and Bangladesh use transport infrastructure as an engine for bilateral and regional development. This implies an active strategy where transport infrastructure is leading and inducing private investment. Although both approaches have some pros and cons, many countries have used the latter approach to attract private investments vis-à-vis regional development.
Trade liberalization is a necessary condition, but not a sufficient one. To achieve any substantial progress in bilateral and regional trade among the countries in South Asia, the utmost priority should be given to developing infrastructure facilities. Added to this, complementary policy reform in the transport sector, accompanied by improved procedural and operational efficiency, is essential to support trade liberalization in South Asia.
Finally, subregional or bilateral regional cooperation will contribute, through trade creation, to structural reforms in participating countries. In turn, these reforms will facilitate regional or multilateral trading systems and economic cooperation. Therefore, bilateral economic cooperation between Bangladesh and India certainly has a great potential to enhance South Asian regional cooperation.
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