Stalled trade negotiations under BIMSTEC
Financial Express, Bangladesh
Stalled trade negotiations under BIMSTEC
By Shahiduzzaman Khan
8 October 2006
The next meeting of the Trade Negotiation Committee (TNC) of BIMSTEC is hanging in the balance due to inability of the member countries to fix a date for reviewing the progress of the previous meetings. According to reports, the last TNC negotiations on the proposed free-trade accord on trade in goods of BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), was held in July 2006 in Colombo after a long stalemate since a meeting in February.
The next meeting of the TNC was scheduled to begin in Myanmar in September. But, according to a senior Commerce Ministry official, the inability of the member countries to fix a date held back the sitting. The meeting was supposed to discuss rules of origin and negative list under trade in goods. Bangladesh has submitted a total of 1,306 items under the sensitive list for the BIMSTEC.
Of the other issues, members had reached a consensus on dispute settlement mechanism under the deal. The framework agreement of the organisation that aimed at starting trade liberalisation from July 1 this year had remained unrealised because of the delay in completion of TNC negotiations.
The BIMSTEC, comprising Bangladesh, Myanmar, India, Sri Lanka, Thailand, Nepal and Bhutan, was established in 1997 to promote multi-sectoral cooperation. Although new, it is already making its presence felt in the eyes of the world. The outcome of the recent ministerial meetings is indicative of the signs that the BIMSTEC is going to emerge as a strong sub-regional force to reckon with.
According to reports, the recent ministerial meeting of the sub-regional grouping took one most important decision relating to introduction of free trade in the region. In the first phase, it will be trading in goods, then it will be in the services and investment under the free trade agreement (FTA) to be signed at the trade and economic ministers’ meeting early next year. The volume of intra-regional trade would be increased between $40 and $60 billion every year once complete trade liberalisation takes place under the FTA agreement. Basically, trade will lead to incremental investment, sharing of the benefits of economies of scale and external competitiveness.
The second area of cooperation will to do with combating terrorism and trans-national crimes. The BIMSTEC is already working to prepare reports on intelligence sharing and stopping of terror financing. Illicit trafficking of humans, drugs and explosive substances will also be checkmated on top priority basis as well. In addition to the six areas of cooperation originally identified, seven new areas have been added to the list. The new agenda include: poverty alleviation, agriculture, cultural cooperation, disaster management, public health and people to people contact.
However, the BIMSTEC provides a unique link between South Asia and Southeast Asia together having 1.3 billion people or 21 per cent of the world population, a combined gross domestic product (GDP) of $750 billion and a considerable level of complementarity due to geographical contiguity, differing levels of development and resource endowments. A study conducted in 2004 shows the potential of $ 43 billion to $ 59 billion trade under the BIMSTEC FTA.
Regional cooperation is no longer a matter of choice for South Asia. At a time when countries throughout the world are regrouping on the basis of economic blocs, South Asia can ill-afford to remain immobilised in political discord. On the economic front, South Asian countries have been more enthusiastic about opening their domestic markets to countries outside the region rather than to each other. Only 13.3 per cent of South Asian total trade is with in the region compared to over 55 per cent for ASEAN countries. A small step towards economic integration could translate into net benefits of nearly 1.5 billion dollars. Much greater cooperation as envisaged by the 1993 South Asian Prefrential Trade Agreement (SAPTA) could make these gains from cooperation even larger. This would also reduce the extensive smuggling of goods across borders.
Greater South Asian co-operation could lead to a substantial peace dividend, without sacrificing human security in the region. Civil society initiatives can also gain new impetus from greater South Asian cooperation. However, the potential benefits of BIMSTEC-type arrangements in the region are significant. Regional trade in South Asia now accounts for less than 6.0 per cent of total trade, compared to 22 per cent within the ASEAN Free Trade Area, and 65 per cent within the EU.
Just as the ASEAN Free Trade Agreement resulted in both greater intra-regional trade and greater foreign investment among South-East Asian nations, so too will be the benefits of BIMSTEC. The agreement carries the great promise of sustainable regional economic growth and development. It also promises to add momentum to the Doha development global trade negotiations, which the World Bank estimates can lift more than 300 million people out of poverty.
The intra-SAARC trade, at present, is a tiny 3.8 per cent of the region’s total trade. Can its members push it to 25 per cent which is still small compared to other regional groupings? Given the weak advancement of SAARC, it might be possible to push such trade. But in case of BIMSTEC, it sounds optimistic as the way it is advancing fast. Despite the geographic proximity and certain similarities of economic infrastructure of the South Asian nations, intra-SAARC trade still remains at an extremely unsatisfactory 5.0 per cent, compared with 38 per cent within the ASEAN.
The experiences of different regional groupings across the world suggest that industrial restructuring is an important outcome of regional economic integration. In Europe, the formation of a single European market in 1992, has led to a major process of industrial restructuring, where various enterprises re-engineered their production processes in such a manner as to exploit the economies of scale and specialisation.
Several rounds of task force meetings at the expert level on transport and communication led by India have been organised to create air, sea and land linkages. There is also a proposal for a deep sea port at Tavoy. The realisation in the BIMSTEC is that the group’s potentials will not be fully realised without development of infrastructural facilities like transport and communications. The BIMSTEC leaders tasked the ESCAP to prepare the feasibility of providing the missing links on the Asian Highway. However, in recent times, India-Myanmar Highway project has been launched and Thailand is expected to join the highway. Once the physical connectivity is established, next step should be developing the software of transport and communication, namely, rules and regulation facilitating the cross-country movements.
In the field of energy, mutual gains are enormous. The region combines countries having large gas reserves beyond their short and medium term domestic requirements such as Myanmar, and those with immense untapped potentials of hydroelectricity such as Nepal and Bhutan.
An issue of critical significance for Bangladesh is trade imbalance which stood at $ 873 million last year with the BIMSTEC countries. Bangladesh has balance of payments trade deficits with all the BIMSTEC countries. But while the gap is enormous with India, trade intensity with Myanmar and Thailand remains far less than the potentials. BIMSTEC FTA with Myanmar and Thailand may raise the level of trade with these countries and bring some moderation in trade gaps.
Indeed, regional economic integration in South Asia has the potential to become a new engine of growth by helping to exploit the synergies for mutual benefit.
