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SAARC SUMMIT

Towards strong economic cooperation

By AMANULLAH BASHAR
Sep 01 - 07, 2003

The Summit of the South Asian Association of Regional Cooperation (SAARC) is being held this time at the advent of WTO regime which is about to come into force with effect from January 2005.

Despite having a market of over one fourth of world's total population, the Saarc region unfortunately lags in grabbing its due share out of the global economy.

This is the time that the people at the helm of affairs should work together to consolidate the available resources and use them productively to change the fate of a vast majority of the people who have been pushed below the poverty line in all the member countries of the SAARC region.

Although the member countries of Saarc had decided at the time of its inception in 1985 to develop an atmosphere of harmony among the member states and resource mobilization for the good of the people, yet the cooperation and harmony is the most missing element in this organization so far.

Contrary to the uncertain situation prevailing in the Saarc region for the last 5 decades, the people of the European countries have set an example unity and spirit for economic cooperation before the world by developing a strong economic bloc namely European Union which is no doubt emerging as the strongest economic zone on the world map.

Unfortunately, this spirit could not be demonstrated in this region mainly because of the political differences between India and Pakistan due to Kashmir dispute allegedly created by the British rulers while leaving the sub-continent 56 years ago.

Consequently, this region could not achieve the desired level of socio-economic growth and the people of the two countries are in the trap of huge foreign debt. India owes over $117 billion and Pakistan around $36 billion to the international lenders.

It is the high time that the disputes among the member countries should not be allowed to prolong in the larger interest of the people as well as the region.

It sounds amazing that Pakistan's balance of trade with Saarc countries was on the negative side when compared the figures of trade during the year 2001.

According to break down of the trade figures, Pakistan's exports to Bangladesh were estimated at $133.89 million, imports $33.27 million with a trade balance of $100.2 in favor of Pakistan. The volume of trade was estimated at $53 million with Bhutan during that said year. Out of the total trade exports from Pakistan were estimated at $28 million against the imports worth $26 million from Bhutan indicating a $0.02 million in favor of Pakistan. While glancing at the trade volume of India during 2001, the exports were estimated at $55.43 million against the imports estimated at $238.33 million, tilting highly in favor of India. Trade with Sri Lanka was estimated around $110 million. Out of the total volume of trade $75 million were exports from Pakistan and imports worth $35.18 million from Sri Lanka. The trade with Maldives and Nepal were insignificant. The total volume of trade with Saarc countries was estimated at $576 with a negative sign of $39.55 million.

The major items of exports to the Saarc countries were including textile yarn and fabrics, vegetable and fruits. Rice, fish, dried salted, cotton, sugar, cane etc.

Major items of imports from Saarc countries include sugar, cane, organic chemicals, oil-cake residue of soya beans, tea, jute, iron ore, dying, tanning materials, plastic in primary form, rubber manufacturers, betal leaves, coal, vegetable and fruits, jute cutting, transport vehicles and equipments, iron and steel.

SAPTA

The Saarc states approved the establishment of an Inter Governmental Group to launch the South Asian Preferential Trading Agreement (SAPTA) in order to promote business among themselves under the concessionary tariffs agreements. The idea began to take shape, when SAPTA was signed in 1993, in the wake of SAARC summit. SAPTA was formally launched on December 8, 1995. Three rounds of trade negotiations have so far been completed under SAPTA: The first round of negotiations under SAPTA was symbolic in nature and covered only six per cent on the intra-regional trade. A total of 226 items were offered for concessions by all the contracting states in SAPTA-I comprising 106 concessions made by India, 35 Pakistan, 31 Sri Lanka, 17 Maldives, 14 Nepal, 12 by Bangladesh and 11 by Bhutan.

Pakistan also allowed duty relief on as many as 35 commodities including essential items like spices, fibers, textiles, pulses medical and medical herbs, leather, chemicals and other goods being imported from Saarc countries.

The second round of negotiations (SAPTA-II) concluded in November 1996 and resulted in concessions being exchange on 1871 tariff lines by all the member states reflecting an increase by almost ten-fold over SAPTA-I. This comprised 902 concessions by India, 363 by Pakistan, 233 by Nepal, 226 by Bangladesh, 95 by Sri Lanka, 47 by Bhutan and 5 by Maldives. These concessions have become operational from March 1, 1997. Unlike the first round, the second round of SAPTA covers both tariff and non-tariff and was expected to increase the intra SAARC trade exponentially.

The third round of trade negotiations commenced in 1997 aiming to further expand the list of products, deepen tariff concessions and remove non-tariff barriers. In SAPTA-III, trade concessions were increased to 3456 commodities reflecting almost a doubling over SAPTA-III. It maybe recalled that in the first and second round, trade negotiations were conducted on product to product basis. However, in the third round, the negotiations were conducted chapter-wise.

The Central Board of Revenue (CBR) in Pakistan announced new concessions duty rates on the import of 685 items from the seven Saarc member states including India in June 2002. The duty concessions granted under the SAPTA on the 685 items, if imported from the developed countries of Saarc (India and Sri Lanka) would range between 10-20 per cent of the existing tariff and if imported from the least developed countries (LDCs) i.e. Bangladesh, Nepal, Bhutan and Maldives, would range between 10-3 per cent.

SAPTA-IV first meeting of Inter-Governmental Group on trade liberalization to initiate the fourth round of trade negotiation under SAPTA was held in March 2002. For the fourth round, it has been decided that the negotiations would, as far as possible, be conducted on chapter-wise, sectoral and across-the-board basis.

One of the core principles of the SAPTA agreement is that there should be special treatment for LDCS through the consideration of additional measures. It was accordingly decided in 1999 to reduce the domestic content requirement further under the SAPTA rules of origin to enable the smaller and least developed countries to benefit equitably from economic liberalization. This reduction would apply to all products covered so far in the trade negotiation.

SAFTA

SAPTA was envisaged primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA) leading subsequently, towards in customs union, common market and economic union. In 1995, the sixteenth session of the council of ministers held in Delhi agreed on the need to strive for the realization of SAFTA and to this end an Inter-governmental Expert Group was set up in 1996 to identify the necessary steps towards moving into a free trade area. The Male Summit in 1997 recognized the importance of achieving a Free Trade Area by 2001, however, the objective of a free trade area is still in the pipeline.

ISSUES

Earlier, the Saarc Summit had formally set South Asian Free-Trade Area (SAFTA) as an eventual goal and reached an agreement to transform the region into a free trade zone at least by 2005.

According to Economist London a more ambitious trade agreement on a common market of the whole region, originally due to be agreed, this year now looks unlikely to come into force before 2007.

In fact, Saarc has not been able to make much of headway due to worsening bilateral relations between member countries. Progress is possible only if there is a manifestation of strong political will in the member countries to forge ahead notwithstanding the problems of bilateral relations.

The progress has been hamstrung by specific interest of individual members and perceived fears of losing market if concessional trade is open up. However, it must be clearly understood that international trade is not a zero-sum game. Where one country?s gain in another?s loss; but a vehicle through which all participants can gain by exploring their competitive advantage. SAFTA will provide enlarged captive market for exporters of member countries, thus enabling them to compete in the international marketplace more effectively.

Apprehensions have also been expressed in some circles, that the trade prospects under SAFTA are limited due to similarities in the structure of production in Saarc countries. This is a rather myopic approach, as the Customs Union Theory amply demonstrates that in cases where the economies are competitive, individual members, by specializing in the products and product categories in which they can produce of comparatively lower cost, can enhance the total welfare of the region by trade creation. European Union which started off with six countries with similar production structure is a successful case in point. In case of product categories where economies are complementary, the productive activity can be accelerated through subcontracting and induction of technology made feasible by extension of the market.

POLITICAL DEVELOPMENT

Indian prime minister Atal Behari Vajpayee said that he would attend the Saarc summit in Islamabad in January and that he wanted bilateral talks with Pakistan also not be pointlessly delayed.

Pakistani politician Maualana Fazalur Rehman who recently visited India said that he urged Vajpayee to take the next bold step after initiating the fresh peace moves. In his remark Vajpayee said that we had tried to sort out our differences by war. It did not solve the problems.

Soon after saying the Simla agreement could be the basis of talks between the India and Pakistan.

BACKGROUND

South Asian Association of Regional Cooperation (SAARC) was signed in December 1985. The member countries are Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The region has more than 25 per cent of the entire world's population with a combined GDP of $300 billion.

Today, the share of SAARC in world trade is hardly 1 per cent while the share of intra SAARC trade is only 3 per cent of its global trade. India exports to the SAARC region in 2000-01 amounted to paltry 4 per cent of its total export trade while Pakistan's were a mere 3 per cent. This compares very poorly with 63 per cent intra Europe trade, 37 per cent for North America and 38 per cent for East Asia. These figures speak volumes on vast scope for trade expansion, which is also evident from the trade worth billions of dollar taking place through unofficial channels.

The basis of cooperation of SAARC community was to promote peace, harmony and stability in the region. But, later on, there seems a shift in its objective i.e. to build cooperation in the economic sphere as well. Thus, it was decided that there should be trade interaction between the member countries.

In 1987, the representatives of the National Planning Organization met for the second time in Islamabad and recommended that in view of the adverse international economic situation facing the region, there was a need to pool resources for long-term regional cooperation.

Recognizing asymmetries at the development levels and the fact that the share of SAARC in world trade was relatively small, the meeting recommended that analytical studies need to be carried out in the first instance to facilitate identification of priority areas for economic cooperation. As a result of this recommendation, a consultant was commissioned to carry out a study on trade, manufacturers and services (TMS) in the South Asian region. The TMS study, which was completed in 1991, considered economic cooperation among the countries of the SAARC region as an inevitable imperative for promoting all-round development of the region. In May 1991, the council of Ministers at their North Session at Male endorsed the Study and established a high-level Committee known as the Committee on Economic Cooperation (CEC) comprising Commerce/Trade Secretaries of the SAARC member states.

The CEC was mandated to formulate and oversee implementation of specific measures, policies and programs within the SAARC framework to strengthen and enhance intra-regional cooperation in the fields of trade and economic relations. With the creation of the CEC, regional economic cooperation was formally institutionalized.

Over the years, the CEC has emerged as one of the most important groups within the SAARC having a mandate over economic and trade issues. The CEC has provided recommendations and guidance in identifying new areas for cooperation on economic and trade related matters as well as considering reports of constituted groups.

In fact, the mandate of the CEC includes monitoring cooperation in areas such as standards and measurement, customs and the harmonization of procedures, preferential trading arrangement, rules of origin, agreements for the promotion and protection of investments within the SAARC region as also for the avoidance of double taxation; Setting up of a SAARC Arbitration Council, sharing information on economic and trade related matters; taking note of special circumstances of Least Developed Countries (LDCs) within the region; and formulation of joint strategies to be adopted in multilateral negotiating for the recommendations of the CEC are submitted to the Standing Committee (of Foreign Secretaries) and through it to higher bodies, namely the Council of Ministers and Summit.

INTEGRATION

SAARC has also initiated action on a series of practical measures to facilitate the process of economic integration. A group on customs cooperation was set up in 1996 and so far has held three meetings. It was inter-alia decided to harmonize HS lines and customs rules and regulations, simplify procedures for intra-regional exports; upgrade infra-structural facilities and provide training facilities. A customs action plan was drawn up in Islamabad in April 1997 and agreed by all member states.

The need to improve the transport infrastructure and transit facilities in the region was recognized and the 11th session of the SAARC Council of Minister in Colombo directed the CEC to take appropriate steps in this regard.

Accordingly, a study was commissioned to assess the existing transport infrastructure and transit facilities, including procedural and documentation issues in the region in relation to volume and composition of the existing trade in the region and to make recommendations for their improvement, with a view to enhancing trade within and outside the SAARC region. The study made far-reaching recommendations.

In the area of trade and tariff which are critical to individual member states and to the region as a whole, particularly those relating to multilateral negotiations in World Trade Organization (WTO), World Customs Organization (WCO), World Intellectual Property Organization (WIPO) etc; regular consultations are held not only at the headquarters of such international organizations, such as Geneva, but also in the member states themselves, so as to effectively coordinate, project and protect their collective interests. This process of consultation has been intensified so that wherever possible, a regional position may be taken which is compatible with the overall principles of SAARC, and which reflects the needs and requirements of the LDCs in the region through the provision of special and more favorable concessions.

In this regard, SAARC commerce ministers issued a declaration on the eve of the second WTO Ministerial Conference held in Geneva 1998. Consultations were also held with regard to the WTO ministerial Conference held in Seattle in 1999 and the SAARC commerce ministers issued a preliminary joint statement on the issues likely to be considered at the meeting.

11TH SUMMIT

The 11th SAARC Summit was held at Katmandu (Nepal) in January 2002. In the declaration, the Heads of State or government agreed to accelerate cooperation in the core areas of trade, finance and investment to realize the goal of an integrated South Asian economy in a step-by-step manner. Recognizing the need to move quickly towards SAFTA, they directed the council of ministers to finalize the text of the Draft Treaty Framework by the end of 2002, which in fact, was due to be finalized by the end of 2001 as per decision at the 10th SAARC Summit. They also directed that in moving towards the goal of SAFTA, the member states expedite action to remove tariff and non-tariff barriers and structural impediments to free trade. They also instructed to conclude him meeting of on trade liberalization for fourth round of trade negotiations under SAPTA as early as possible.

Conscious of the magnitude of poverty in the region, and recalling also the decision of the UN Millennium Summit 2000 to reduce the world poverty in half by 2015, they made a review of the SAARC activities aimed at poverty alleviation and decided to reinvigorate them in the context of the regional and global commitments to poverty reduction. It was agreed that a special session on poverty alleviation at the ministerial level should undertake a comprehensive review and evaluation of the status of implementation of poverty eradication policies and programs carried out so far, and to recommend further concrete measures to enhance e effective cooperation at the regional level to the 12th SAARC Summit.

They also called for an early realization of a rule-based and non-discriminatory world trade regime. In this context, they appreciated the positive elements of the 4th WTO ministerial conference held in Doha and called upon the developed countries to fulfill their commitments to address the particular concerns and needs of the developing and the least developed countries.

CHALLENGE

This time the Saarc Summit is being held in Islamabad at a time when the implementation of WTO rules for globalization of free trade is approaching fast. While the developed world in order to protect their economic interests has already developed regional economic zones, the South Asian Region was still in the process rather limping towards that important goal to refuge its developing economies under the umbrella of a common market.

Hopefully, the heads of the states of the seven countries would realize the challenges which are in the store under the garb of WTO.

Our region has a huge market, enormous resources and a sizeable volume of common trade. Time has come that we should pool our resources and consolidates our economic interests like others elsewhere in the world.