China has established itself as a major trade partner of South Asia. This mainly reflects the region’s strategic importance for China’s Belt and Road Initiative.
Despite geographical proximity and the existence of bilateral and multilateral free trade agreements (FTAs), South Asia is one of the least economically integrated regions in the world. Owing to protectionist policies, high logistics cost, lack of political will and a broader trust deficit, intra-regional trade in South Asia remains well below its potential at 5% of the region’s global trade.
This makes South Asia one of the most disconnected regions in the world, especially when compared with other regions such as East Asia and the Pacific, where intra-regional trade accounts for approximately 50% of total trade, and Sub-Saharan Africa, where intra-regional trade has improved over the years to 22% due to the steps taken by governments to create transparent mechanisms for trade facilitation. Intra-regional trade in the South Asian region (including Myanmar) amounts to only 5.6% (2017).
Enhancing intra-regional trade is necessary to increase connectivity in the South Asian region. Facilitated by the flow of goods, services, people, and knowledge, such an initiative would provide access to new markets as well as attract foreign direct investment (FDI) in diverse sectors. The ensuing economic growth would also play a key role in bridging the trust deficit in the region and raise the opportunity cost of conflict.