BARRIERS IN INTRA-SAARC TRADE
SHABBIR H. KAZMI
Sep 12 - 18, 2011
While the size of European Union has expanded enormously and Nafta and Asean have eased interregional trade policies, the real potential of the South Asian Association for Regional Cooperation (Saarc) has not been realized as yet.
This failure can be attributed to inability of two of its biggest members, India and Pakistan, to resolve the existing hostilities and restricting official trade. The size of unofficial bilateral trade has grown enormously.
An important reason of dismal official bilateral trade is many of the countries compete rather than complement each other. There is also a general perception among the member countries that entering into any preferential trade agreement will benefit the bigger countries and smaller countries may face closure of domestic industries ultimately. This perception seems partly right because of expansionist policies being pursued by India.
It may not be wrong to say that India has been trying to create its hegemony in the region. It has already become self-proclaimed superpower of the region.
In its endeavor, it has been previously supported by the USSR and now by the US. This support has come to strengthen India militarily and economically to contain Pakistan, Afghanistan, and China.
Lately, the US also lobbied for the permanent seat of India at the UN Security council. Since a lot of the US business is being outsourced to India, the country is also being showered with many blessings, the latest being supply of nuclear technology for the civilian use.
On the other hand, Pakistan has been denied the same despite being the frontline ally in the war on terror.
Experts say that India has received the technology as a reward for dragging the discussion for a long period and literally sabotaging Iran-Pakistan-India gas pipeline project.
They say that India has virtually killed the gas pipeline project on the instructions of the US. The hypocrisy of the two countries become even more obvious when one looks at the Iranian port Chabahar being constructed by India. These experts say that construction of the Port and rail and road links up to Central Asian countries passing through Afghanistan are aimed at undermining the importance of Pakistan in Afghan Transit Trade and Gwadar port constructed with the help of China in Pakistan.
Saarc is an association of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. It enjoys enormous potential for interregional trade but that is not happening. It has remained a matter of great concern to all the members because the trade potential has not been realized. In fact, as one said 'it is difficult to work under a culture of suspicion'.
The cost of intra Saarc trade is the highest in the world. It leads to lower and restricted trade among the countries in the region and limits positive impact of the cut in tariffs.
Reduction in infrastructure and transport costs has the same effect as tariff liberalization in boosting trade. According to some experts, for every one per cent reduction in cost, trade stimulus is about five per cent.
The benefit is passed along the entire supply chain shippers, truckers, traders and end users. Currently, the intra Saarc trade is estimated less than five per cent of South Asia's total world trade, significantly less than the figures of Asean, which is over 40 per cent, and European Union, which is over 65 per cent.
It is important to note that South Asia has a unique demography. In fact, the largest single lesson from the contemporary travails of the region is that cynicism or negativism of any kind might only aggravate problems in the short as well as long run, and that it is not possible to carve out a larger vision for the region.
The recent history shows negativism of any kind would grow out of control very soon among the teeming millions in South Asia, breeding more problems than solutions while deference to ideals of Saarc charter has a potential to succeed and may not do harm in any case.
Creation of free trade area among the Saarc members through implementation of Saarc free trade agreement (Safta) is the starting grid for the development of lateral and vertical linkages in other fields of regional cooperation.
Safta allows taking regional view of trade linkages rather than viewing them from national perspective. Initial figures of intra Saarc trade under Safta have been encouraging.
Total intra Saarc trade touched $687 million up to 2009, starting from a meager $14 million in 2006. With its large sensitive lists, in a technical sense, it might not be a perfect agreement but no one can deny its significance.
Large volumes of informal trade are also indicative of potential trade under Safta. The fact intra Saarc trade volume is far lower as compared to its real potential. This reflects structural problems of industry and infrastructure in the region.
South Asia's population and size makes it a vast market in the world. According to some of the experts, economies of the region vary considerably in their size and complexity and offer much greater room to come together than is realized by groups having vested interest. There are salient features of South Asian cooperation that promise good future. One key feature, which goes to the root of regional cooperation, is project-based cooperation through the modality of Saarc Development Fund, a $300 million funding mechanism. Set up at the 15th Summit in Colombo in 2008, this can become a visible achievement of Saarc in coming years.
It is imperative to focus on reducing the size of sensitive items lists under Safta, particularly for taking out products with high regional tradability to bring a larger percentage of goods under regional preferential trading regime. Efforts should also be made to accelerate tariff liberalization program.
The fundamental premise of regionalism among South Asian countries lies in the recognition that challenges confronting the region cannot be resolved through action in national domains alone.
It is imperative to develop and forge regional cooperation in different areas, even though implementation would primarily have to be done nationally.