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  • Key Proposals for Harnessing Business Opportunities

    in South Asia

    Asian Development Bankand

    Federation of Indian Chambers of Commerce and Industry

    3 March 2010

  • Asian Development Bank and

    Federation of Indian Chambers of Commerce and Industry

    Prepared by

    Key Proposals for Harnessing Business Opportunities

    in South Asia

    3 March 2010

  • AsianDevelopmentBankAllrightsreserved.Published2010.PrintedinthePhilippines.ISBNPublicationStockNo.

    CatalogingInPublicationDataAsianDevelopmentBankandFederationofIndianChambersofCommerceandIndustry. KeyproposalsforharnessingbusinessopportunitiesinSouthAsia.MandaluyongCity,Philippines:AsianDevelopmentBank,2010.1.Businessopportunities. 2.SouthAsia. I.AsianDevelopmentBank.TheviewsexpressedinthisbookarethoseoftheauthorsanddonotnecessarilyreflecttheviewsandpoliciesoftheAsianDevelopmentBank(ADB)oritsBoardofGovernorsorthegovernmentstheyrepresent.ADBdoesnotguaranteetheaccuracyofthedataincludedinthispublicationandacceptsnoresponsibilityforanyconsequenceoftheiruse.Bymakinganydesignationoforreferencetoaparticularterritoryorgeographicarea,orbyusingtheterm"country"inthisdocument,ADBdoesnotintendtomakeanyjudgmentsastothelegalorotherstatusofanyterritoryorarea.ADBencouragesprintingorcopyinginformationexclusivelyforpersonalandnoncommercialusewithproperacknowledgmentofADB.Usersarerestrictedfromreselling,redistributing,orcreatingderivativeworksforcommercialpurposeswithouttheexpress,writtenconsentofADB.6ADBAvenueMandaluyongCity1550MetroManilaPhilippinesTel+6326324444Fax+6326362444www.adb.orgFororders,pleasecontact:[email protected]

  • Foreword

    In this increasingly interdependent world, many of the economic and social issuesconfrontingnationsareessentiallyglobalandregional.The forcesofglobalizationandregionalizationhavereshapedthecontoursoftheexistinginternationaleconomyorderandhavebroughtnewchallengestotheforefront.SouthAsiaisnodifferentstory.

    SouthAsiahas thepotential tobeaneconomicpowerby2025.Many inSouthAsia,however,stillfaceextremepoverty.Theregionishometohalfoftheworldspoor,with40% of its population living on less than $1.25 a day.While almost a quarter of theworldspopulationlivesintheregion,SouthAsiaaccountsforonly2.5%ofglobalgrossdomesticproduct,2%ofworldexports,and1.6%ofworldforeigndirectinvestment.

    Many institutionshavebeenestablished topromote regionaleconomicdevelopment,including the South Asian Association for Regional Cooperation (SAARC), the SAARCPreferential Trading Arrangement, and the South Asian Free Trade Area (SAFTA).Nonetheless, thereexistsa large tradeand investmentpotential inSouthAsia,whichremains to be unleashed. In particular, the region is affected by various barriers tooutwardorientedprivatesectorleddevelopmentandregionalintegration.

    If SAARC is to become a dynamic engine of growth, India may need to be moremagnanimous in itsapproach toward itsneighbors including thegrantingofunilateraltrade concessions to SAARCmembernations. SouthAsianneighboring countriesmayalsoneedtotakeadvantageofthegeographicalproximitytheyhavewith Indiawhichprovideeasyavailabilityofrawmaterial,economiesofscaleofalargeproductionbase,andabigmarket.

    Recognizing the potential for accelerating South Asian regional cooperation andintegration,theFederationofIndianChambersofCommerceandIndustryandtheAsianDevelopment Bank (ADB) joined hands to explore key issues concerning tradefacilitationandotherimpedimentstoprivatesectorleddevelopmentandintegrationinSouth Asia. This paper identifies these important issues and suggests actionableproposalsfordealingwiththem.TacklingtheseissueswouldofferapowerfulmeanstoharnessingbusinessopportunitiesinSouthAsia.

  • Acknowledgments

    FICCIandADBwere fortunateandhonored tohavegatheredadistinguishedbodyofgovernment officials and private sector players during theConference onHarnessingBusinessOpportunitiesforSouthAsianEconomicIntegrationheldon1718November2009 at the Federation House, FICCI, New Delhi (jointly organized with the SAARCChamberofCommerceandIndustry,SAARCSecretariat,andMinistryofExternalAffairsGovernmentof India).S.M.Krishna (MinisterofExternalAffairs,Governmentof India)gave the keynote address, and participants shared their experiences on keyimpedimentstoharnessingbusinessopportunitiesinSouthAsia.1Commentsandinputsprovided by the participants and the SAARC chambers of commerce are deeplyappreciated.Specialappreciationgoes toRajatNag (ManagingDirectorGeneral,ADB);AmitMitra(SecretaryGeneral, FICCI); Rajan Kohli (Advisor, FICCI); and SrinivasaMadhur (SeniorDirector,OfficeofRegionalEconomicIntegration,ADB)fortheirstrategicguidanceandsupport.This issuespaperwasprepared fortheconferencebya jointADBFICCIteammade up of GaneshanWignaraja (Principal Economist, Office of Regional EconomicIntegration,ADB),ManishMohan(JointDirectorandHeadSouthAsia,FICCI),GenevieveDeGuzman (ADBConsultant),AmeetKumar (AssistantDirector,FICCI);ShivaniBansal(Research Associate, FICCI); andWilhelmina Paz (Senior Economics Officer, Office ofRegionalEconomicIntegration,ADB).ItistheoutcomeofaseriesofconsultationswithvariousprivatesectorbodiesinSouthAsiaduring20082009spearheadedbyFICCIandADB. The conference and technicalwork for the issues paperwere financed by theregionaltechnicalassistance(RETA6432)onprivatesectorledintegrationinSouthAsiafromtheADBRegionalCooperationandIntegrationFund.

    1 SeeAppendix1fortheconferencereportandprogram.

  • Contents

    IntroductionandSummary 13Issue1:ExpandingtheSAARCVisaExemptionScheme 46Issue2:AdoptingaSAARCRegionalMotorVehicleAgreement 67Issue3:DealingwithNontariffBarriers 810Issue4:ImprovingLandCustomsStations 1113Issue5:PromotingIntraregionalinvestment 1417Appendixes14 1827FurtherReading 28

  • KeyProposalsforHarnessingBusinessOpportunitiesinSouthAsia|1

    INTRODUCTIONSouthAsiahasmadenotableeconomicprogressoverthe lastquarterofthiscentury,andthe

    private sectorhasplayedapivotal role in theprocessof transformation. SouthAsiasexport

    growth increased fivefold from 4.3% to 20.1% between 1990 and 2008. The region also

    witnessedanaverageannualGDPgrowthrateof5.9%from1980to2008.Ahostoffactors

    fallingtradebarriers,reduced logisticscosts, implementationofeconomicreforms, investment

    in infrastructure and modernization of agriculturehave contributed to the region's rapid

    growthandexports.Alongsideprogressinglobalmarkets,SouthAsiahasalsobegunaprocess

    of regional cooperation and integration. South Asia offers a potentialmarket of 1.5 billion

    people with vast opportunities for intraregional trade and investment and enhancing the

    region'sprosperity.TheSAARCprocessisalsoadvancingwithdiscussionofaservicesagreement

    asasecondstageofSAFTA.Nonetheless,levelsofintraregionaltraderemainmodestat4.8%in

    2008 compared with other regions. Residual issuesrelating to business travel, transit

    infrastructure,nontariffbarriers,andintraregionalinvestmentremainimpedimentstoprivate

    sectorleddevelopmentinSouthAsia.

    Whilebroad,longtermhurdlesexistforcountriesintheregiontoconsider(e.g.,poorphysical

    connectivity, cumbersome behindtheborder procedures), there are also specific strategic

    issuesthatcanbeaddressedintheshortandmediumterm.Thepurposeofthisissuespaperis

    to examine those large thematic challenges, and highlight targeted, actionable issues for

    improving the business environment for private sectorled integration in South Asia. In this

    paper,thefollowingissuesareconsidered:

    (i) expandingtheSAARCvisaexemptionscheme,(ii) adoptingaSAARCregionalmotorvehicularagreement,(iii) dealingwithnontariffbarriers,(iv) improvinglandcustomsstations,and(v) promotingintraregionalinvestment.

    Actionable proposals for dealingwith these issues are also presented under these headings.

    Tacklingtheseparticular issues isafirststeptofocusingregionaleffortsonprivatesectorled

    integrationandharnessingbusinessopportunitiesinSouthAsia.

  • 2| ADBandFICCI

    SUMMARYOFISSUESANDPROPOSALS

    Issue Challenges Proposals

    1. ExpandingtheSAARCvisaexemptionscheme

    Entitledpersonslistdoesnotincludebusinesstravelersandotherprofessionalgroups.

    Quotaonvisastickersleadstodelays.

    Periodofvalidityandscopeoftravelpermittedistoonarrow.

    Politicalrestrictionsimpedescheme.

    Enablebusinesstoprocurevisaexemptionsmoreeasily;expandentitledlist.

    Increasethenumberofvisaexemptionsissued.

    Increasevaliditytermsofvisaexemptionsandremoverestrictionsontraveldestinations.

    Movefromastickerschemetoanelectronicbusinesstravelcardandinstallelectronicreadersatairports.

    2. AdoptingaSAARCregionalmotorvehicularagreement

    Differentstandardsforacceptablevehicles.

    Cumbersomeproceduresandlackofknowledgeablestaff.

    Crossbordermovementisoftenrestrictedtoborderareasonly

    Establishspecialstationsorfastlanesdesignatedforgoodstransportvehicles.

    Harmonizetransitvehiclestandardsandcreatevehicletransitcards.

    Offerlowcostfinancingoptionstohelpbusinessupgradetruckfleets.

    Establishjointtruckingventuresbetweencountries.

    3. Dealingwithnontariffbarriers(NTBs)

    MeasuringtheimpactofNTBscanbedifficult.

    RegulatorymeasuresareofteninconsistentandnotmutuallyrecognizedamongSAARCmembers.

    Quotascontrolthequantityofcertainimports.

    MarshalconsensusonclassifyingNTBsforbetterregulatorycooperation.

    CreateNTBnotificationsystemsandbuildonlineinventoriesforbettermonitoring.

    StrengthenhumanandinstitutionalcapacitiesforcollectionandanalysisofdataonNTBs.

    Providetechnicalassistancetofirmstohelpmeettechnicalstandards.

    Establishadisputesettlementmechanism.

  • KeyProposalsforHarnessingBusinessOpportunitiesinSo

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