Issues of Governance
- Stifling red tapism and rent-seeking practices in the government system increase the transaction costs enormously.
- Political instability as evidenced by derailing democratic process in Pakistan.
Distrust and suspicion
- Ethnic issues like Tamils in Srilanka, River water disputes & Border disputes create mutual suspicion among the south Asian economies.
- Power famine and inland road and rail transport constraints, archaic labor laws and inefficient trade infrastructure, particularly customs procedures and regulations.
- There is severe lack of efficient irrigation systems in the South Asian nations which are largely monsoon fed for their agro specific needs of water.
Imperfect trade mechanisms
- High level of protection that still prevails in the South Asian economies, particularly in Bangladesh, India and Pakistan. The countries of South Asia have long negative lists and their protective trade regimes inhibit free flow of goods. This would hinder the evolution of a common market. Such obstacles and restrictions have given rise to smuggling and unofficial trade.
- The member countries tend to trade far more intensively with the industrial economies, that is, the EU and the US, than with the neighboring sub-regional economies.
- Strong tendency among the members to exclude sectors from the FTA.
Lack of productive HR
- South Asian economies have a lower level of education and fewer natural resources relative to supply of labor.
All these flaws coalesced to retard productivity growth rate and rein in competitiveness of export sectors. Any future trade and development policy design must take these realities into account.