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For harnessing South Asia’s trade potential

Financial Express, Bangladesh

For harnessing South Asia’s trade potential

4 June 2011


The South Asia Free Trade Agreement (SAFTA) has so far been long on promises but short on actions. It was envisaged to raise inter-regional trade in South Asia - which is one of the world’s least economically integrated regions - to $40 billion by 2015 from $11bn in 2007, shortly after it was agreed. But that now clearly remains a very tall promise. Only about 5.0 per cent of the region’s total trade takes place among its nations. Despite benefits of geography - proximity and density - and shared history and English, lack of market integration within and across countries has not made it possible to realise South Asia’s true growth potential, particularly in trade and trade-related investment activities. Inter-regional trade in Africa is now nearer 15 per cent, over far greater distances. In East Asia, trade within the region amounts to 50 per cent of the total trade. Furthermore, official capital flows across South Asia are slight, with much going undeclared.

Under such circumstances, the SAFTA has so far delivered the least to the countries of South Asia, in terms of actions aiming at trade liberation and market opening. In this region, some of the world’s highest trade barriers - tariff-, non-tariff or para-tariff- related ones - are, therefore, still stifling the potential for increased, wider economic cooperation. This situation has changed very little over long many years. At the time of launching of SAFTA, the leaders of the member-countries of South Asian Association for Regional Cooperation (SAARC) did robustly indicate the blueprints for a Customs Union in 2015 and an Economic Union in 2020. But such lofty promises and high ambitions have so far meant too little in actions. High tariffs, all other forms of barriers, inefficient customs and borders procedures, outdated infrastructures, high transportation costs, mismatched economics and, above all, sharp political differences at least between or among some otherwise ’big’ players, explain well the failures for achieving the desired progress of the SAFTA towards economic integration, in a win-win situation for the eight-member SAARC countries that are home to more than a quarter of humanity.

In this backdrop, the commerce ministers of the SAARC countries are scheduled to meet in the Maldives on June 13. There are many things for them to thrash out in the meeting, if the SAFTA is really to make any meaningful progress. For the latter, it should be their main lookout to increase the volume of regional trade substantially that would benefit each member-country on the basis of equity. For translating the goals and objectives of the SAFTA into some meaningful actions for facilitating trade and meaningful economic integration, the region’s main players, particularly India which is its dominant economy, have to be more pro-active. There is no denying that this region has a huge potential for intra-country trade and investment to help accelerate its economic growth as a whole with its positive effects on poverty alleviation, income increase, reduction of unemployment etc. But it is a pity that despite having this potential, the SAARC has failed to exploit the opportunities properly, even more than three decades after its establishment. This is strikingly much unlike the situation with many other regional organisations across the globe.

If the South Asian countries do really mean business about what they have promised earlier and what they still state publicly, they should demonstrate their seriousness by action. For that matter, political will is critically important. The member countries should consider the ways and means for facilitating dynamic trading activities in the region as a whole. For that to happen, all should make sacrifices. But understandably the greater concessions here must come from the bigger economies, for removing barrier to trade against each other.

For this, it is important to shorten their negative lists of goods which cannot be traded competitively because of application of various type of tariffs on them. Measures to do away with high customs duties, discriminatory non-tariff barriers such as some too rigid technical and health certifications and standards, quantitative restrictions etc., merit urgent consideration. The low income countries in South Asia in particular do deserve here some special and differential (S&D)treatment for ensuring a fair and reasonable deal for them. Only when such measures are taken in tandem, all member-countries of the SAARC will be placed in a win-win situation to benefit from expanding trade and shared economic growth and prosperity.