Let’s Trade

Launched in 1985 with the am­bi­tion to repli­cate the Euro­pean Union, SAARC still gropes for ways to ful­fill its dream.

Southasia - - Front page - By S.G. Ji­la­nee

As SAARC coun­tries strug­gle with in­tra-re­gional trade, look­ing be­yond po­lit­i­cal ri­val­ries can usher in a golden age of eco­nomic well-be­ing for the re­gion.

The 17th SAARC sum­mit was held this Novem­ber in the Mal­dives. The dec­la­ra­tion talked about many things in­clud­ing em­pow­er­ing women, eras­ing fender in­equal­ity, com­bat­ing ter­ror­ism and so forth.

But, more im­por­tant is the ap­par­ent re­al­iza­tion among the mem­bers, of the vi­tal im­por­tance of in­tra-saarc trade. The South Asian Free Trade Agree­ment (SAFTA) was signed in 2004 and be­came oper­a­tional two years later. The dream was to make it the South Asian coun­ter­part of the NAFTA (North Amer­i­can Free Trade Agree­ment). How­ever, the or­ga­ni­za­tion re­mained hostage to the ac­ri­mony among mem­ber states, fore­most be­ing the abid­ing bit­ter­ness be­tween Pak­istan and In­dia, the two mem­bers with the high­est po­ten­tial for bi­lat­eral trade.

The ques­tion to ask is if the EU can con­duct has­sle-free trade with its mem­ber coun­tries and if Indo-china bor­der trade can be a huge suc­cess, why can’t the same be true of SAARC coun­tries? In­ter-eu trade is 55%, and IN­TER-NAFTA trade is 61%, but In­terSAARC trade stands at a mea­ger 5%. Why can’t it be im­proved?

South Asia’s mid­dle class pop­u­la­tion numbers more than 500 mil- lion. This is more than that of EU and North Amer­ica. This press­ing fact points to the enor­mous un­tapped po­ten­tial that In­tra SAARC trade could ben­e­fit from.

It was a hope­ful sign then, that SAARC mem­ber coun­tries agreed to di­rect the SAFTA Min­is­te­rial Coun­cil to in­ten­sify ef­forts to re­duce the sen­si­tive list and non-tar­iff bar­ri­ers to trade, as well as asked their re­spec­tive fi­nance min­is­ters to draft a pro­posal to al­low larger fi­nan­cial in­flows and in­vest­ments.

How­ever, for trade to suc­ceed within SAARC, com­mu­ni­ca­tion is

an es­sen­tial in­gre­di­ent. The SAARC sec­re­tary gen­eral has re­cently been in­structed to en­sure that the fi­nal prepa­ra­tions for the In­dian Ocean Cargo and Pas­sen­ger Ferry Ser­vice are com­pleted this year. Be­sides, mem­ber coun­tries have agreed to con­clude the Re­gional Rail­ways Agree­ment, con­vene the Ex­pert Group Meet­ing on Mo­tor Ve­hi­cles Agree­ment and es­tab­lish a South Asian Postal Union. Among these, the rail­way agree­ment holds the most prom­ise, due to the im­mense ben­e­fits ac­cru­ing from it for the main­land mem­ber states: Nepal, Bangladesh, In­dia, Pak­istan and Afghanistan.

The im­por­tance of the above de­ci­sions can be judged by the fact that “nearly three-fourths of in­tra-re­gional trade po­ten­tial in South Asia re­mains unuti­lized be­cause of tar­iff and non-tar­iff bar­ri­ers, poor trans­port in­fra­struc­ture and con­nec­tiv­ity, lack of trade fa­cil­i­ta­tion, poor bank­ing links and so forth.” How­ever, the first step to­wards boost­ing trade in the re­gion re­quires re­lax­ation of visa norms, be­cause, trade can­not pros­per un­less peo­ple can visit each other in the re­gion with­out im­ped­i­ments.

Keep­ing this in mind, some re­lax­ation has taken place. In­dia re­cently granted visas to 100 prom­i­nent Pak­istani busi­ness­men and has set up a cus­toms-free ware­house at the Wa­gah bor­der. In the bank­ing sphere, two Pak­istani banks will soon be set­ting up of­fices in In­dia and vice-versa. But, while these steps are wel­come they are less than enough.

The World Bank es­ti­mates that an­nual trade be­tween In­dia and Pak­istan is around $1 bil­lion and could grow to as much as $9 bil­lion if bar­ri­ers are lifted. How­ever, Pak­istan ob­ses­sively views ev­ery as­pect of Indo-pak­istan re­la­tions through the prism of Kash­mir that has been the great­est hur­dle in the way of bi­lat­eral trade.

In­dia ac­corded Pak­istan the ’most fa­vored na­tion (MFN)’ sta­tus in 1996. Pak­istan has de­layed re­cip­ro­cal ac­tion for fear that In­dian com­pa­nies would over­whelm lo­cal in­dus­tries. It is im­per­a­tive to dis­pel the fear and con­vince rel­e­vant quar­ters that IN­TRA-SAARC trade is about ‘ com­ple­ment­ing’ each other and not com­pet­ing with each other. More­over, a fact that is yet to be fully ap­pre­ci­ated is that be­cause IN­TRA-SAARC trade can run on ru­pee pay­ment in­stead of con­vert­ible for­eign ex­change, it of­fers the big­gest trad­ing op­por­tu­nity.

None­the­less, mu­tual trust is the key to mu­tual growth. SAARC mem­bers need to speak in one voice on such is­sues to achieve mu­tual pros­per­ity. Con­fi­dence be­tween buyer and seller is an­other key in­gre­di­ent for trade to pros­per. There­fore, in ad­di­tion to putting in more ef­fort on im­ple­ment­ing poli­cies, a com­mon code of con­duct for reg­is­tra­tion of prod­ucts across all SAARC coun­tries needs to be fol­lowed.

To ex­ploit the full po­ten­tial of re­gional eco­nomic in­te­gra­tion in South Asia, SAARC coun­tries need to ex­pe­dite their im­ple­men­ta­tion sched­ule and ex­pand their scope by re­duc­ing the sen­si­tive lists and re­mov­ing non­tar­iff bar­ri­ers.

In­ter­est­ingly, while the SAFTA has

Pak­istan ob­ses­sively views ev­ery as­pect of Indo-pak­istan re­la­tions through the prism of Kash­mir that has been the great­est hur­dle in the way of bi­lat­eral trade.

re­mained bogged down, In­dia and Sri Lanka drew up a sep­a­rate Free Trade Agree­ment. The re­sults are spec­tac­u­lar, which SAARC mem­bers should heed. In the first six or seven years of the im­ple­men­ta­tion, “bi­lat­eral trade has ex­panded rapidly, with In­dia’s exports to Sri Lanka grow­ing at an av­er­age an­nual rate of 34.5 per cent and those of Sri Lanka grow­ing at 132 per cent. Sri Lanka’s imports-to­ex­ports ra­tio fell from 10.3:1 to 3.3:1. Sri Lankan ex­port items to In­dia in­creased from 505 to 1,062 with a vis­i­ble shift in fa­vor of high-value added man­u­fac­tures.”

Po­lit­i­cal lead­ers es­pe­cially in Pak­istan need to re­al­ize that from pri­mor­dial times trade has been the key to bring­ing dif­fer­ent peo­ple to­gether. It has pro­moted mu­tual un­der­stand­ing and helped re­move the bar­ri­ers of color, re­li­gion, race and lan­guage. In fact, if there were freer trade and open mu­tual con­tact be­tween the In­di­ans and Pak­ista­nis they would have ceased to per­ceive each other as mon­sters. Maybe, Pak­istan’s core is­sue re­gard­ing Kash­mir could have been suc­cess­fully ad­dressed as well.

Re­cent ex­change of friendly over­tures be­tween the lead­ers of Pak­istan and In­dia there­fore au­gur well. Pak­istan has, in prin­ci­ple, de­cided to give In­dia the long over­due MFN sta­tus. Prime Min­is­ter Man­mo­han Singh has ac­cepted his coun­ter­part’s in­vi­ta­tion for an of­fi­cial visit to Pak­istan, while Pak­istan for­eign min­is­ter has said that Indo-pak­istan trust deficit has been re­duced to zero. If true, it is a most wel­come piece of news.

There is no ques­tion about SAARC’S bright fu­ture but it would need the will of the po­lit­i­cal lead­ers of the mem­ber coun­tries to set­tle on an even keel. The writer is a se­nior po­lit­i­cal an­a­lyst and former editor of Southa­sia Mag­a­zine.

Aus­tralia A$ 6 Bangladesh Taka 65 Bhutan NU 45 Burma KK a10 Canada C$ 6 China RMB 30 France Fr 30 Hong Kong HK$ 30 In­dia Rs. 65 Ja­pan ¥ 500 Korea Won 3000 Malaysia RM 6 Mal­dives Rf 45 Nepal Ncrs. 75 New Zealand NZ$ 7 Pak­istan Rs. 100 Philip­pines P 75 Saudi Ara­bia SR 15 Sin­ga­pore S$ 8 Sri Lanka Rs. 100 Thai­land B 100 UAE AED 10 UK £3 USA $ 4.99

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