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Trade facilitation under the SAFTA

Financial Express, Bangladesh

Trade facilitation under the SAFTA

By Shahiduzzaman Khan

3 June 2007

Business houses in South Asian region are seeking specific timeframe to remove bottlenecks that hinder trade and investment in the SAARC region. It is sad to note that whatever developments take place in the business and political forums; those are not implemented at the operation level.

The agreement on South Asian Free Trade Area (SAFTA) became effective on July 01 last year, but the countries could hardly enjoy the trade facilities under the agreement in about one year period. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) president pointed out the barriers to non-implementation of the facilities including non-tariff barriers (NTBs), para-tariff barriers (PTBs), negative list of products, standards and specifications of products.

A recent executive committee meeting of the SAARC Chamber of Commerce (SCCI) focused on strengthening the SAARC region’s trade body so that it can play a strong role in facilitating trade and investment within the region through removing the barriers, contributing to reduction in the region’s poverty. The meeting discussed how the SCCI could become a focal point of the businesses in the region to facilitate trade. If it is strengthened , trade will be facilitated in the region, SCCI president Dorji told a press briefing after the meeting. It also discussed how the regional trade body could enhance people-to-people contact and help SAFTA move forward. To strengthen the SCCI activities, it was decided that a permanent secretariat would be set up in Islamabad, Pakistan.

Meanwhile, leading stakeholders in the SAARC region’s trade viewed the Indian attitude as a major roadblock to boosting intra-regional trade. India’s mindset is to derive maximum benefit for them and corner others in the region through protecting their market by uniquely imposing NTBs. It is frustrating that India’s attitude is not favourable for others until today. India should remove the NTBs soon to show a genuine gesture for boosting regional trade, Indian Minister of State for Commerce Jai Ram Ramesh told the meeting.

However, it is evident that there has been a surge in interest in the SAARC, but it lacks reflection in trade. Although powerful states like the United States, Japan, South Korea etc. are taking so much interest in the regional club, intra-regional trade and business activities are yet to pick up. More importantly, all activities surrounding the South Asian Association for Regional Cooperation (SAARC) are apparently failing to deliver much in the fields of economy and politics in the region. Founded in 1985, the SAARC is derided as a club of impoverished nations, torn by political mistrust and antagonism.

According to the World Bank, South Asia remains the least-integrated region in the world, with the intra-regional trade hovering below 5.0 per cent. Indeed, 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. In fact, the potential for co-operation between the SAARC nations is enormous. The region has a potential market of 1.2 billion consumers, the largest middle class in the world, hard working low wage labour and tremendous potential to unleash the creative energies of chained economies.

There’s a general resonance in the SAARC that countries within the region will have tremendous political clout if a political framework is put in place. The business leaders should come up with a strategic vision to reap the benefits of economic cooperation in the South Asian region, given the maturity of the SAARC as a regional body.

The implementation of SAFTA (South Asia Free Trade Area) constituted the "first critical block" in regional economic cooperation. There are still hopes that an array of trade-facilitation measures taken by the SAARC would ultimately lead to a South Asian Economic Union in a planned manner. Such measures include harmonisation of customs procedures, setting up of a Regional Standards body and the proposed regional multimodal transport system.

However, there is a need for the government to take preparations for a time-bound implementation of the SAFTA agreement so as to ensure effective market access within the stipulated time-limit. Dhaka should urge upon New Delhi to withdraw all para-tariff and non-tariff barriers and also special duties and levies. Technical barrier to trade (TBT) and sanitary and photo-sanitary measures would continue to pose major hindrances.

South Asia, home to the poorest with 43.5 per cent of the world’s poor surviving on less than a dollar a day, is the most illiterate with some 400 million illiterate adults, the most malnourished with over 80 million malnourished children and above all the least gender sensitive region. Preventable diseases kill 3.2 million children each year. Girls and women form the vast majority of these deprived millions. The region has also emerged as the most poorly governed one in the world.

Though the estimates of the incidence of poverty vary widely in the region, the basic fact that all the seven countries in South Asia are deeply entrenched in mass poverty remains unchallenged.

The regional growth patterns in most of the critical sectors, including agriculture, industry, manufacture and services have not recorded any perceptible increase. With the regional average savings rate of 13.28 percent and investment rate of 18.65 percent, South Asia has been in the vortex of resource crunch. The ever-increasing balance of payment deficits has further affected the situation. With no immediate shift in the production and export structure of the region, this deficit dynamics will further deepen thereby aggravating the dependence on external finance. Presently the regions external debt exceeds $150 billion.

Despite the poor economic and social sector development, the spending levels on defence are very high, particularly in India and Pakistan, who together spend over $12 billion a year on defence. The international aid for social sectors development i.e. education, health and people’s empowerment is approximately 9.0 per cent— not an adequate level to ensure human poverty alleviation in the area.

As for Bangladesh, the huge trade deficit has become a political issue in the country. It is partly because many people see India’s dominance of the Bangladesh market as "exploitation" of a small country by a big country. The formal and informal trade between India and Bangladesh is almost $3.0 billion, while Bangladesh exports to India stand at about $100 million only. Furthermore, Bangladeshi products, including cement and fruit juices, reportedly meet strict non-tariff barriers such as government rules, regulations and certification from the Bureau of Indian Standards.

The requirement of 40 per cent value addition for export items from Bangladesh to India, to qualify for duty free access, is very difficult to meet for Bangladesh traders. India has been, so far, lukewarm toward granting preferential access to exports from Bangladesh.

India is a coal-rich country, Bangladesh is gas-rich, and Nepal is hydro-rich, with potentiality of 80,000 MW. It is expected that Bangladesh, India and Nepal should establish a common energy grid, and harness the water resources of the Ganges-Brahmaputra-Meghna (GBM) basin to utilise the hydropower potential.

Most of the previous SAARC summits looked like pageantry show. The summit declarations were largely "motherhood statements," and concrete action on key issues was absent. Against this backdrop, the regional leaders must re-invigorate the regional platform for their own benefit. Hard actions must follow the ceremonial declarations made in the last New Delhi summit.