Implementing economic reform challenges South Asia region: outlook for U.S. commerce brightens in freer climate - 1993 World Trade Outlook

During the past year, trade and investment liberalization in South Asia passed some notable milestones. India and Pakistan further reduced tariffs on imports. Nepal and India made their currencies fully convertible for trade. Pakistan and Sri Lanka moved forward in privatizing state-owned enterprises.

Progress is tangible. There is increasing awareness of the benefits of market-oriented economies. Liberated from many stifling controls, South Asian entrepreneurs are expanding and modernizing--and seeking new technologies and equipment from abroad. Foreign investors are getting a warmer welcome because they provide access to needed capital and technology and can integrate their South Asian production into global marketing networks.

Still, the legacy of past policies is a major obstacle to implementing reform. Government regulators see no advantage in speeding deregulation. Industries and labor, shaped by highly protected regimes, resist changes that may jeopardize their continued functioning and jobs. Building a more internationally competitive economy also is expensive. In addition to modernizing industry and retraining workers, it requires investment in infrastructure. This adds up to a challenging agenda for the region's financially-strapped governments.

New export and investment opportunities emerging from all of these changes have stirred many U.S. firms to take a fresh look at South Asian markets. Large new power generation and telecommunications projects have attracted particular attention.

While new U.S. investment is significant, U.S. exports have not yet received a boost from trade liberalization. In fact, U.S. exports to South Asia in 1992 amounted to $3.2 billion, a 3 percent drop from 1991. This is due largely to declining U.S. assistance to Pakistan and the lingering effect of balance-of-payments-related import restrictions phased out by India during 1992.

The brighter prospects for economic growth in the region combined with trade liberalization should produce a stronger U.S. export performance this year.

COPYRIGHT 1993 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group