Many experts put the burden of South Asia being least integrated on Pakistan and India, claiming that these are the two countries which can either make trade work for peace and development in the region or sabotage the whole potential of market integration (expansion) for regional welfare.

Mar 05 - 11, 2007

Trade as exchange of goods and services is a necessary condition for increasing peoples' choices and wellbeing in a world which is essentially an interdependent workplace. Under certain conditions, notwithstanding, this is the "trade" which can potentially be a source of conflict as well as cooperation amongst the nation states.

In attempts to find out reasons behind, many experts did put emphasis on trade-related disputes precipitating violent conflicts in the shape of two world wars in the last century. A legitimate response to such devastating conflicts and their hangovers were efforts geared to develop rule-based international systems which were supported by many nation states during the second half of 1940's to avoid violent conflicts in future. These efforts gave birth to GATT 1948, despite the fact that an attempt to set up International Trade Organization (ITO) had to eventually wait for the fateful year of 1995 to be born in an improved shape called World Trade Organization while incorporating new agreements and improving the GATT.

One of the main functions of the multilateral trading system in the shape of WTO is to facilitate a forum for negotiations in a structured and transparent manner to make rules work for increased predictability and stability in economic and business planning and implementation. A result of such efforts is actual and potential increase in expansion (and integration) of markets both in goods and services at the multilateral levels along with improved trade practices, primarily creating an environment for peace and avoiding violent conflicts amongst the nation states.

If we look at the actual and potential economic benefits of increase in trade at the global level and compare it with the South Asian region - the picture appears necessitating serious deliberations and soul searching. The WTO estimates speak volumes about the impact of the 1994 Uruguay Round trade deal which was estimated an addition of between $109 billion and $510 billion to world income. In terms of potential, economists estimate that cutting trade barriers in agriculture, manufacturing and services by one third would boost the world economy by $613 billion - equivalent to adding an economy the size of Canada to the world economy. Talking about one aspect of trade in services which is called Movement of Natural Persons or Mode 4, a discussion paper generated by the UNDP says, "a large number of developing countries would be greatly benefited by improved access to service markets by their workers. If entry quotas were increased by 3 per cent of OECD countries' labor force, the global welfare gains will be $ US 158-200 billion per year (IOM-OECD [2003]). In assessing the potential contribution of Movement of Natural Persons (MNP) to human development, one can examine the improved employment opportunities, the value of remittances for communities and families as a means of poverty alleviation and as a source of investment funds for SMEs. Likewise, there are many instances in which the facts show that the opportunities generated by market integration has been grasped-where freer trade has been healthy for employment. The EU Commission calculates that the creation of its Single Market means that there are somewhere in the range of 300,000-900,000 more jobs than there would be without the Single Market.

Now coming to the South Asia, let us look at the latest report "'South Asia: Growth and Regional Integration" of the World Bank. Amongst many other issues, the report claims that "South Asia is the least integrated region in the world'. The report goes further and portrays that many of South Asia's competitors have dramatically reduced customs and port clearance times. One manifestation of being least integrated is that the intra-regional trade in South Asia is less than 2% of GDP. Coming to trade in energy and volume of telephone calls one can see in the report that only India, Bhutan, and Nepal currently trade electricity while only 7% of international telephone calls are regional. It is worth mentioning that in East Asia, more than 20% (of GDP) trade in East Asian countries is regional, and more than 71% telephones calls originate for the same region. More startling fact is that the cost of trading across borders in South Asia is one of the highest in the world while South Asia ranks the last among all world regions in terms of road density, rail lines, and mobile tele-density per capita.

However, the report also claims, perhaps more in terms of potential, that the high growth, averaging close to 6 percent per year since the 1990s, is creating a new momentum for closer regional integration. The report recommends that closer regional cooperation can be an effective tool in addressing energy shortage, improving connectivity, increasing investment and promoting peace and stability.

While analyzing the regional integration potential, many experts put the burden of South Asia being least integrated on Pakistan and India and they claim that these are the two countries which can either make trade work for peace and development in the region or sabotage the whole potentials of market integration (expansion) for regional welfare.

As a matter of fact, a crass reality is that India and Pakistan have an erratic history of bilateral relations and perceptions. The relations and perceptions with and about one another keep changing from being at war, near-war, and then a more-often-than-not turn around towards efforts for confidence and peace building. It is also argued, notwithstanding, that in many instances, the perceptions of 'state' and 'civil society' about the other side of the border are not in sync with one another. However, in managing the relations between the two countries, the perceptions of 'state' emerge as a defining feature for the working of the foreign and interior offices of the respective governments.

One of the direct consequences of the above mentioned divergence in 'state' and 'civil society' perceptions about the other, the sub-continent has yet to explore the dynamism of 'hidden markets' awaiting innovative ways to be looked at. Apart from many commendable works on trade complementarity indexing and econometric forecasting about the 'trade dividends', the real stakeholders of trade i.e., consumers of goods (e.g., civil society and businesspersons) have not been part of the mainstream trade-related initiatives and evaluations.

As a result of the situation, the 'push for reforms' in bilateral trade as a likely precursor to regional integration is perceived to be from the outside and not from within or to be more exact from the bottom. When the 'talks' fail or the pace becomes painstakingly slow, the perception which normally emerges, mostly as a result of state-media coordination, sounds like 'nothing is possible' between the two important countries of South Asia. This perception also reflects badly on potentials of SAFTA in meeting trade and development promises while the World Bank report recommends, 'regional cooperation and integration can increase welfare by improving the regional political environment, thereby reducing conflicts and associated social and economic costs'.

The current state of affairs demands that the 'state' and 'civil society' of the sub-continent should look at the 'Beijing Consensus' like approaches for guidelines in resolving the bottlenecks in trade relations which can bring welfare and peace dividends in the final craft. The aim of such efforts should be to explore practical avenues which help increase trade by and between India and Pakistan so that the consumers and businesspersons make use of the emerging opportunities of globalization along with bringing peace dividends for the people of the Indo-Pak sub-continent. There is no exaggeration in the claim that an increased bilateral trade between India and Pakistan will set stage for increased regional cooperation as well.

Moving in the direction of 'Trade for Peace and Development', the two countries need focusing on two important points:

1. Innovation: In approaching the problems for solutions to make trade related reforms as frictionless as possible and most importantly make the processes knowledge/research-based.

2. Focus on Human Development and Institutions: While looking beyond economic indicators like changes in per-capita GDP and trade to GDP ratio, focusing more on quality-of-life which in terms of human development means SEEP i.e. sustainability, equity, empowerment, and productivity really seeping down towards the bottom.

In doing so, both Pakistani and Indian governments need to involve the civil society (CSOs and Business Community) in conducting serious policy action research on institutional arrangements for trade and economic cooperation. During the research, institutional arrangements and mechanisms should be looked into in detail and policy action recommendations need to be prepared for quantitative and qualitative changes in their working, efficiency and effectiveness. This aspect should cover the 'non-tariff barriers/measures' as well as targeting institutional changes for trade facilitation and related conflict resolution. The institutional effectiveness aspect needs to be emphasized because there is a sheer dearth of literature on 'institutions' which must be designed to actually facilitate trade between the two countries. Most of the research conducted so far is from either 'market' or 'trade per se' perspective.

Besides, in the policy action research on 'economic and social cost of non-cooperation' must be inculcated. Efforts should be made to develop policy action recommendations while juxtaposing the two countries so that a sense of coordination emerges and a total solution seems possible. Special focus should be made to link the research output with 'peace dividends' which the proposed solutions might tend to generate.

The ultimate aim of the policy action research output for policy formation and institutional adjustment should be to come up with innovative and knowledge-based (as opposed to ideology based) ideas and solutions/policy actions for both the governments (India and Pakistan) so that they may take civil society perspective(s) into account while initiating and managing institutional and trade facilitation related changes more effectively.

The earlier both countries start creating institutional harmony, it would be good for the whole South Asian region in saving the area from a 'spaghetti bowl' like situation resulting from multiple FTA/PTAs and increased interest in BIMSTEC type alternatives to SAFTA. To conclude, BIMSTEC can be a good trade-related alternative but it cannot replace SAFTA which has more potential for peace and development through trade in the South Asian region. Whether the governments of India and Pakistan want to use trade for peace and development or not is the question.

- The article is written in individual capacity and does not reflect the policies of employers i.e. UNDP and GoP.

The writer is the National Project Manager, UNDP-Trade Initiatives.