Is There Any Potential in Service Trade of South Asia?

Date01 August 2020
Published date01 August 2020
Is There Any Potential
in Service Trade of
South Asia?
Sandeep Kaur1, Sangeeta Khorana2
and Manpreet Kaur1
Like many developing economies, services have emerged as crucial economic
activities in South Asia; yet, this cannot increase the rapid growth in the intra-trade
in the region. To find out the service trade potential in the region, this article uses
revealed comparative advantage indices to assess the comparative advantage and
the indicative trade potential of different South Asian countries in various services
sub-sectors. The study reveals that there stands complementarities in the trade
of services as Pakistan and Sri Lanka have a competitive advantage in Transport
Services, while India has a competitive advantage in Computer and Information
Services and Other Business Services. In travel services, Maldives and Nepal possess
competitiveness, while Bangladesh in Government Services. The study reveals that
competitive services have not explored the potential yet. India being the most
robust economy of the region must provide a pivotal role in making negotiations
and commitments under the South Asian Association for Regional Cooperation
(SAARC) Agreement on Trade in Services (SATIS), particularly in competitive
JEL: F1, G2, F5
Trade, Services, SAARC, Regional Trade Agreements
1 Department of Economics, Central University of Punjab, Bathinda, Punjab, India
2 Bournemouth University, Business School, Executive Business Centre, Bournemouth, UK
Corresponding author:
Sandeep Kaur, Associate Professor, Department of Economics, Central University of Punjab, Bathinda,
Punjab 151001, India.
Foreign Trade Review
55(3) 402–417, 2020
© 2020 Indian Institute of
Foreign Trade
Reprints and permissions:
DOI: 10.1177/0015732520920469
Kaur et al. 403
South Asian countries have attempted to achieve economic integration through
the formation of the South Asian Association for Regional Cooperation (SAARC)
in 1985; the original member countries were Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka. In a bid to accelerate the growth of trade among
South Asian countries, the South Asian Preferential Trading Agreement (SAPTA)
was concluded in 1995.The formation of SAPTA did little to develop trade among
the countries in the region. Hence, the South Asian Free Trade Agreement
(SAFTA) was signed in 2006. The main aim of the SAFTA was to reduce tariffs
over 10 years. As in the case of other initiatives, the agreement did little to foster
trade among the countries in the region. This was followed by the signing of the
SAARC Agreement on Trade in Services (SATIS) at the 16th SAARC summit
held in Thimpu in 2010. The agreement entered into force on 29 November 2012
in accordance with Article-V of General Agreement on Trade in Services (SAARC,
2010, 2017). This Agreement has taken nearly 2.5 years for the specific commit-
ments’ conclusion, which reveals a slow move towards economic integration in
South Asia (Kelegama, 2015). Various SAARC meetings and summits have raised
the issue of acceleration of economic integration in goods and services in the
region. More specifically, the 18th SAARC Summit stressed the need for ‘the
elimination of all non-tariff and para-tariff barriers and smooth and efficient tran-
sit of transport to accelerate the process for South Asian Economic Union (SAEU)
in a phased and planned manner’. Two SAARC–Asian Development Bank (ADB)
special meetings focused the issue of trade facilitation, reduction in sensitive lists
and the SATIS among other issues. The 8th meeting of SAARC finance ministers
focused on a review of the progress in the implementation of their earlier
decisions (SAARC, 2017).
There have been significant structural changes in South Asian economies
partly resulting from globalization. This has resulted in the rapid growth in the
services sector of the region, particularly in India where the contribution of ser-
vices to overall growth has been significant and which has attracted substantial
foreign direct investment (FDI) into the sector (IBEF, 2017). Despite the struc-
tural changes in South Asian economies over the past decade, the region has
remained inward-looking (Nyatanga, 2017). In particular, trade among South
Asian countries has remained much below potential, partly because of tariff and
non-tariff barriers (Kaur & Nanda, 2010). According to the World Bank’s Services
Trade Restriction Index, increasing trade within the region will require the elimi-
nation of tariff and non-tariff barriers, leveraging of private and interregional
investment, investment in efficient connectivity and border crossings and liberal-
izing services: logistics, shipping, air travel, etc. (World Bank, 2017a). This arti-
cle attempts to find out the competitiveness and the potential for services trade
and explore the possibility of improving and diversifying service trade in the
South Asian region. The article is divided into four sections, including the present
one. The second section explains the performance and competitiveness of services
trade in South Asia. The third section reviews General Agreement on Trade in
Services (GATS) negotiations, which South Asian nations were party to, and the

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