Analysing the export basket of South Asian Nations

 

ANALYSING THE EXPORT BASKET OF SOUTH ASIAN NATIONS: CHALLENGES AND WAY FORWARD

 

EXECUTIVE SUMMARY

             In the era of Globalisation, markets are not confined to regions instead it broadens without borders of nations. Therefore, for socio, political and economic integration of a region with the synchronised world, international trade has to be given prime importance. But while moving towards one world and one market, new challenges like ensuring justice, equitable and sustainable opportunities for all the nations and regions like the south Asia with multidimensional vulnerabilities have to be addressed. The sustainable development goal 12 nudges the world towards the same. Titled as ‘sustainable consumption and production ‘. It challenges the unsustainable patterns of the same. Paragraph 15 (Goal 12, Sustainable development goals, UN) specifies,

          "Encourage and promote the development of a 10-year framework of programmes (10YFP) in support of regional and national initiatives to accelerate the shift towards sustainable consumption and production to promote social and economic development within the carrying capacity of ecosystems".

 The phrase “within the carrying capacity of ecosystem” will lead our attention to analyse the process, production and distribution of principal commodities traded. This understanding of the trading patterns of the south Asian nations, reveals a critical dependence on the natural resources. This export of ecologically sensitive goods being a public good disproportionately impact the economically and socially vulnerable population. Also, this helps the developed nations to flourish with a cost of degradation of resources of developing regions. The article XX of GATT titled “General exceptions” specifically includes the justiciable grounds in which the trade can be restricted. Out of which, the trade restrictions for the conservation of the exhaustible natural resources are relevant for regions like south Asia. Because the question of sustainable growth of these developing countries remains as a challenge. This is aligned with the “limits to growth”, (Meadows et al., 1972) report regarding the unchecked consequence of economic and population growth with the finite supply of resources. But this natural resource intensive exports and trade cannot be justified by the environmental Kuznets curve. The inferences of a study by World bank regarding the expected turning points can be quoted as below.

               “Carbon dioxide emissions and municipal wastes continued to increase with economic growth. And even for those pollutants which seem to conform to an EKC the "turning points" are high enough, ranging from $2000 to $12,000 in income, to imply a considerable increase in pollution for most of the world's developing nations before any improvement would be noted. According to one EKC study, the estimated global "turning point" for Sulphur dioxide would not come until 2085, by which time global emissions would be 354 percent above 1986 levels; suspended particulate matter would peak in 2089 at 421 percent higher emissions, and nitrogen oxides in 2079 with 226 percent higher emissions.”

 

Therefore, scientifically restricting the principal export commodities in line with the environment standards are relevant. The monetary impacts of these restrictions are also providing a different picture. For instance, the climate costs could amount to 26.5% to the regional economy by 2050 (Higginbotham, 2021). Therefore, channelising the south Asian trade patterns to more ecologically justiciable goods and services basket, should be the interest of not only the trade community and environmental advocates but also of every responsible citizen.

 

INTRODUCTION

 Covering an Area of about 41,26,800 sq. Km and 25.2% of total world population, South Asian Countries, a sub region of Asia convenes incredible global attention in the 21^st Century. Characterised with an intraregional trade of just 23 billion dollars while estimated value being 67 billion dollars reveals the socio, economic and geographical challenges faced by the region (World bank, IBRD, 2021). But from SAARC to SAFTA and with better connectivity projects like BBIN initiative, BCIM Economic corridor, the south Asian countries gained higher levels of economic convergence and trade integration. The regions share of trade to GDP doubled between the period of 1998-92 and 2008-12. The Asian development Outlook (ADO) 2022, released by Asian development Bank also expects South Asia to expand collectively by 7.4% in 2023 which is higher than the predicted rates for central Asia, Southeast Asia, Pacific Economies, East Asia etc (ADB, 2022). Therefore, analysing the existing patterns of international trade amongst South Asian countries will help to upgrade and create a just platform of economic cooperation.

 

ANALYSIS

          The south Asian countries in its trajectory of economic integration strictly follows the theory of Comparative advantage and Heckscher-Ohlin model of international trade. Adam smith also says “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage” (Wealth of Nations, Book IV, Section ii, 12). Aligned with this theory, the exports of South Asia can be identified to be heavily dependent on natural resources or ecologically sensitive goods. The concept of ESGs – Environmentally sensitive goods evolved with the studies on trade off between trade and environment and is based on the criterions like Abatement cost, Emission intensity, and multiple criteria like degradation of natural reserves, ecosystems and biodiversity (Mohanty & Manoharan, 2002). 21.1% of the total exports and 17.3% of total imports among South Asian countries were contributed by ESGs according to the data from 1998-2002 by international trade centre, UNCTAD, Geneva. This reliance on exhaustible resources grew later on with the increased penetration of trade and demand from developed nations. To analyse the composition of exports of different South Asian countries, The data from Observatory of Economic complexity (OEC) is compiled as follows. The representation for India and SriLanka is given as images and other South Asian countries as raw data.

BANGLADESH

Knit T-shirts ($7.06B), Non-Knit Men’s Suits ($6.68B), Knit Sweaters ($6.32B), Non-Knit Women’s Suits ($5.41B), and Knit Women’s Suits ($3.54B)

NEPAL

Soybean Oil ($591M), Palm Oil ($252M), Non-Retail Synthetic Staple Fibers Yarn ($72.5M), Knotted Carpets ($71.9M), and Nutmeg, mace and cardamons ($47.5M)

PAKISTAN

House Linens ($4.63B), Rice ($2.26B), Non-Knit Men’s Suits ($2.03B), Knit Sweaters ($1.5B), and Non-Knit Women’s Suits ($1.37B)

 Afghanistan

Gold ($419M), Grapes ($197M), Tropical Fruits ($164M), Raw Cotton ($159M), and Other Nuts ($140M)

MALDIVES

 Non-fillet Frozen Fish ($77.7M), Fish Fillets ($36.6M), Processed Fish ($34.8M), Petroleum Gas ($32.7M), and Scrap Iron ($13.9M)

 

 

BHUTAN

Ferroalloys ($224M), Dolomite ($30.9M), Planes, Helicopters, and/or Spacecraft ($17M), Cement ($15.6M), and Gypsum ($15.1M)

 

          The principal exports of South Asian countries can be found out being critically dependent on natural resources. These production or extraction process also come with environmental costs. Thus, undermining the social cost compared to private cost will give a distorted cost benefit analysis.  For example, even though the export volume of petroleum products is high for every South Asian country, the associated Oil spillage, gas flaring etc. add concerns of toxic organic and inorganic pollutants, acid rain, climate change, contamination of air, water, and soil which in turn reaches the organisms inflicting serious health issues to human beings. The textile and leather Industry support the exports heavily and is also employment intensive. But this sector comes at a cost of Persistent Organic Pollutants, synthetic chemicals which will undergo accumulation rather than disintegration. During the whole process of bleaching, printing, dyeing, laundering etc. these toxic ‘forever chemicals' are causing water, air, and soil pollution as well as severely impact the health standards. The Ore and Mineral exports are also afflicted with several environmental, health and safety related problems. The large-scale impact of Kudremukh Iron ore company limited in the Western Ghats Mountain range can be understood as an example. The exports of chemicals like pharmaceuticals, cosmetics, plastic, rubber etc. As well as engineering goods, electronic goods pose similar challenges. According to CareEdge ratings, India’s pharmaceutical industry will likely hit 57 billion dollars by FY 2025. But it comes with challenges to fish and aquatic life, safe drinking water etc. Even the excessive exports of Agriculture, allied products and plantation crops causes burden on limited ecological resources. The unsustainable agriculture practices like excessive use of fertilizers and monoculture escalate this burden.

Source: Hindustan Times, 2015

 

Studies find a positive correlation of r=0.96 between the total CO2 emissions and export of principal commodities of India (Galvan et al., 2022). Thus, all the major exports of South Asia’s International trade are ecologically sensitive goods, which will make the trade unsustainable and unjustifiable. By the unchecked depletion of natural resources and less stringent rules and regulations, there is an ongoing drain of non-replenishable assets from developing south Asian countries to developed industrializing nations.

 

           Two factors which intensify these concerns are ' pollution haven hypothesis' related to South Asian countries and the embedded geographical vulnerability of the region. South Asian countries harmonising down the environment regulations is justified by their quest to secure market and comparative advantage but the environmental externalities are often neglected. This will reduce the expansion of trade to a limited phenomenon beyond which depleted resources will slowdown the entire process. These less regulations also make the south Asian countries prone to dumping of imports which are detrimental to the environment like the piling up of E wastes and trade of endangered species causing severe threats to biodiversity regardless of treaties like CITES. The correlated emissions of harmful gases like CO2, methane, nitrous oxide etc. make the entire region susceptible to global warming and climate change. World bank identifies this subregion, struggling with overpopulation, poverty, food insecurity etc. going through a ‘new climate normal’ with recurring heatwaves, droughts, floods, cyclones etc. Therefore, extensive and unscientific dependence on the natural resources for export expansion will easily succumbs to limits to growth.

 

POLICY RECOMMENDATIONS

 

          The concerted regional efforts of the subregion are needed to scale up the environment standards without affecting the export base. SAARC through environment action plan of 1997, convention on cooperation of environment on 2010 have initiated to consider ecological sensitivity along with the trade base. But SAFTA should also be proactive regarding the loot of environment goods through exports. NAFTA contains more comprehensive environmental provisions to inculcate trade friendly approach to environment protection. Lately, In the international sphere a gradual shift to more green trade than waste trade can be witnessed. The actions of EU on carbon border adjustment mechanism and carbon trade should enlighten south Asian countries to gradually relocate to sustainable trade practices. Starting from January 1 2026, the EU will impose a tax on select imports like cement, steel, aluminium, fertiliser etc. These goods getting listed as environmentally detrimental constitute a major chunk of south Asian exports. This will have pernicious impact on the exports of metals like iron, steel, aluminium from countries like India which valued around 8.2 billion dollars of exports on 2021 (Global trade research initiative, 2023). It is also high time to decarbonise the production as emissions from iron and steel sector alone stood at 135.420 million tonnes of CO2 in 2016 (MoEFCC, Biennial update reports to UNFCCC).

        Thus, trade policies should delve into upcoming opportunities of green and sustainable exports. There is an increased demand for organic and residue free products in the global market due to the escalated health and environment consciousness. This is reflected in the 13.7% compound annual growth rate of global organic food market (The business research company, 2023). On this context, the potential of south Asian regions has to be leveraged on promoting traditional environment friendly products and lifestyle. One such example is to introduce Sal leaves, a traditional south Asian alternative to plastics while the growing impediment of microplastics. Green products from fibres, Khadi and village industries etc. can also gain high demand from the market. It can also focus on exporting sustainable practices and technologies. For instance, the idea of plastic road construction with recycled plastics (idea created by the plastic man of India, Dr Rajagopalan Vasudevan), low-cost eco-friendly building techniques by IIT Madras etc can be scaled up to international markets. South Asia also has the potential to lead the renewable energy market with clean energy model and energy auditing. According to one sun, one world, one grid: energy integration in south Asia 2021, The region has only developed 3.8% of solar out of 939 GW solar energy potential, 3.05% wind out of 1289 GW wind energy potential and 18% hydro potential of total 350 GW. Therefore, renewable energy can constitute a major share of international trade amongst south Asian nations in the coming decades. International solar alliance of India along with France is an example.  Implementing and integrating the regional missions like green hydrogen, green steel to meet the domestic and international requirements have to be promoted. In the context of discussions on process and production method (WTO dispute settlement decisions on US-Shrimp and US- Tuna), transposing the principal export commodities to ecologically justifiable patterns of production are the need not only for environment but also for sustaining in the future markets. South Asia as an expanding player in the international markets cannot restrict trade in the veil of environment protectionism, but it has to transform its’ export basket into environmentally sustainable and justiciable.

 

REFERENCES

 

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