The Island, Sri Lanka
Countries should be allowed to withdraw agreements
By Devan Daniel
10 April 2009
South Asian Economists and Academics said that integrating the region through services liberalization would require a flexible approach that permits special and differential treatment of least developed countries in the region and also of countries least prepared to open up their services for trade.
Delegates at an international conference on ‘Broadening Economic Integration in South Asia: Incorporating Services Liberalization at a Time of Global Crisis’ called for an increase in trade within the region and possibly with the ASEAN bloc.
"Existing asymmetries in levels of development, degree of maturity and preparedness across countries in different services require a flexible approach that permits special and differential treatment of the least developed countries and less prepared countries, provisions for withdrawal or modification of commitments made, periodic reviews and impact assessment and less than full reciprocity," said a document released after the conference highlighting the outcomes and way forward.
The consensus was that a positive list approach used in GATS (the World Trade Organization’s General Agreement on Trade in Services) would be more appropriate with gradual phasing out of commitments and willingness to expand scope and depth of commitments.
The conference highlighted the need to include services such as tourism, IT, telecommunications, transport, energy, health, education and professional services in the negotiation process of the South Asia Free Trade Agreement (SAFTA).
However, it was noted that bilateral agreements between members would be a better approach eventually leading to the integration of the entire region.
"Once bilateral agreements are achieved, this can lead to other bilateral agreements and eventually to regional agreements. India and Sri Lanka are already working on the aforementioned, and other likely candidates could be invited to join," the post-conference statement said.
"Moreover, cultural and historical relations pave the way for a smooth functioning in bilateral negotiations," it said.
Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies (IPS) told the Island Financial Review that now was the best time to incorporate trade in service in to SAFTA which would facilitate the trade in goods and strengthening the regions economy though enhanced integration now that the world is engulfed in a global economic crisis.
He said three meetings have already been held and the possible initial lists for exchange have been identified without any commitments.
The unavailability of data, Dr. Kelegama, said is one reason why negotiations could be slow.
According to available data, growth of the region’s exports of services had declined to 11 percent in the last quarter of 2008, as against 19 percent in the first nine months.
"Despite the initiatives, the proportion of intra regional trade and investments in South Asia is still quite modest. In 2001, the intra-regional trade was only 4.9 percent of the total trade (with members and non-members) of the SAARC countries while intra-regional trade in ASEAN and Mercosur (Mercado Común del Sur or Southern Common Market, a Regional Trade Agreement (RTA) among Argentina, Brazil, Paraguay and Uruguay )was around 22.4 percent and 20.8 percent respectively and in 2006, intra-regional trade constituted less than 2 percent of GDP against 20 percent in East Asia," the conference statement says.
The conference highlighted the fact that comparative advantages in different services sectors in SAARC countries have economic rational for boosting inter regional trade in SAFTA.
"For instance, in transport services, Pakistan and Sri Lanka have competitive advantage, India has a competitive advantage in construction services, computer and information services and other commercial services, Maldives and Nepal are found to be more competitive in travel services, and Bangladesh has a higher competitive edge in financial services," the post-conference statement said.
In South Asia, the transportation and infrastructure services sectors have been under state monopolies where privatization is a recent phenomenon.
While foreign service providers could erode domestic investments to these services, the conference pointed out that the hindrance was in not being able to regulate the quality and prices of the services provided.
Paradoxically, there is also a perception that "services sectors in South Asia continue to be over-regulated and as a result, South Asia is not fully realizing its growth potential."
While governments have agreed to the establishment of independent regulatory commissions in key infrastructure services sectors, in many cases domestic regulations are still not in place.
The conference also brought out the fact that Domestic regulations may lead to higher prices of services that were earlier available at a subsidized rate under public-private ownerships.
"These rises in prices may translate into higher inflationary pressures reducing the overall welfare of the economies. To circumvent such spirals it is important for the region to have appropriate domestic regulations in place, which will assure better quality of services at affordable prices. Clear domestic regulations will also increase the transparency in the system and encourage foreign direct investments," the post-conference statement said.
The need to conduct more case studies on services sectors was also deemed necessary.
"Detailed case studies on selected sectors in each country quantifying incidence of regulatory barriers, creating indices or other measures of restrictions in services to understand sectors and related issues will facilitate an effective liberalization in the services sector.
"Case studies require addressing data issues through national and regional efforts identifying the kind of information needed (bilateral, sub-sectoral, modal) and approaching relevant institutions. There is also the need to examine services and benchmark sectors where cases for trade and investment complementarities, common interests, and synergies exist," the statement said.
A problem that prevented the Comprehensive Economic Partnership Agreement between Sri Lanka and India last year was due to allegations thrown in by some industrialists that there were not enough stake-holder inputs in the agreement.
The conference addressed this issue of stake-holder consultation in the SAFTA process saying that services negotiations must receive early inputs from industry delegations and lawyers at drafting legal texts and frameworks and in ensuring coherence in provisions.
During the First South Asian Economic Summit, a legal expert criticized SAFTA for not including legal experts in the negotiation process.
"It is important to get a multi-stakeholder consultation in making the initial assessment at national and regional levels: involvement of private sector, industrial associations, professionals, civil society groups, academics and researchers.
"The discussions should identify opportunities and constraints, initiatives on the ground and their progress, practical issues of implementation, possible solutions, priority areas, and sensitive areas. Additionally, business surveys are required to recognize the nature and incidence of regulations, relative importance and ranking in terms of priority areas," the post-conference statement said.
At last year’s Economic Summit several economists and academics voiced their skepticism of the region’s ability of achieving economic integration, however, the language used in the post-conference statement indicates that the technocrats are always learning and will continue to take forward discussions.
The conference was organized by the Institute of Policy Studies, Sri Lanka and UNDP Regional Centre in Colombo.