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SAARC in negotiations to liberalise trade in services

The Island, Sri Lanka

SAARC in negotiations to liberalise trade in services

By Devan Daniel

30 March 2009

South Asia has commenced negotiations in to incorporating trade in services to the South Asia Free Trade Agreement (SAFTA) but a lack of data could slow things down, a senior Economist said.

"So far there have been three meetings and the possible initial lists for exchange have been identified without any commitments," Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies (IPS) told the Island Financial Review.

He said 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.

"This is the time we should be looking at developing intraregional trade with Asia expected to maintain healthy growth while traditional export markets in the US and EU are experiencing a slump," Dr. Kelegama said.

The economies of the South Asian Region are bolstered by the services sector contributing about 55 to 60 percent to the region’s GDP, far above manufacturing and agriculture, but trading of services between the countries is small.

"It only makes sense that the main source of economic growth is made tradable," Dr. Kelegama said.

He said the nexus between trade in goods and services was an important factor to consider as services such as banking, insurance, shipping and aviation go a long way in boosting the movement of goods and enhancing payment channels.

But the problem with the SAARC process is that political issues take precedence of economic matters.

For as long as India and Pakistan remain at loggerheads with one another, many economists in the region say SAARC will not be able to deliver the economic benefits to its people which is the ultimate objective of the regional grouping.

"Unfortunately, it is a characteristic of this part of the world where political interests come before economic interests," Dr. Kelegama said.

It is hoped that SAFTA would fully liberalise trade in the region by 2016.

But this may never happen as non-tariff barriers, high tariffs rates and the non availability of a mechanism to bind countries to their commitments has made SAFTA non-existent.

Last year Dushni Weerakoon, Deputy Director, Institute of Policy Studies, told Delegates of the1st South Asia Economic Summit that the lack of progress in implementing SAFTA is threatening to stagnate it, that in the worst case, could fragment the process as countries in the region pursue bilateral agreements.

According to the IMF, India’s trade with SAARC amounted to 2.8 percent of its total trade in 2006, while its trade with East Asia amounted to 24.9 percent.

Pakistan, Bangladesh, Maldives and Sri Lanka had more trade with the East Asian region than with SAARC.

Sri Lanka’s trade with SAARC amounted to 19 percent while trade with East Asia amounted to 22.1 percent.

Benefits to Sri Lanka...

Meanwhile, Dr. Kelegama said that certain service sectors have been identified which Sri Lanka has a comparative advantage over the rest of the countries in the region. They are the Shipping and Aviation, tourism, construction, banking and insurance sectors.

Strengthening regulation...

Dr. Kelegama pointed out that by liberalizing trade in services it would mean that proper regulatory frameworks would be in place, which is of paramount importance especially when it comes to international payment channels.

"There is no regulation of international payment channels and unlike trade in goods, finances can change hands within a matter of seconds and recent global and domestic experiences have shown us just how bad this problem is.

"But a trade agreement will have rules in place and this means better regulations at international level as countries improve their domestic regulations to facilitate trade," He said.

Keep talking...

Technocrats from the region will meet in Colombo over the next two days in a conference organized by the IPS and the UNDP Regional Centre in Colombo.

The conference is on ‘Broadening Economic Integration in South Asia: Incorporating Services Liberalization at a Time of Global Economic Crisis.

Dr. Kelegama said the outcomes of the conference, drawn from academics and businessmen, will go along way to keep policy makers abreast with the needs of the real economy.

"It is true that politics gets in the way but we need to keep the dialogue going because only then will policy makers know what it is the region’s private sector want," he said.