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World Bank for Sino-India FTA

Financial Express, India

World Bank for Sino-India FTA

By Sanjay Jog

30 March 2007

MUMBAI, MAR 29: Trade within South Asia can be more than doubled if appropriate regional agreements on roads, rail, air, and shipping are put in place. A comprehensive report prepared by the World Bank ahead of the Saarc Heads of State Summit in New Delhi on April 3 to 4 has suggested that the instrumentality of South Asian Association for Regional Cooperation (Saarc) be deployed not in promoting South Asia Free Trade Agreement (Safta) but project by project cooperation in areas of mutual interest. Projects in areas of infrastructure, energy and trade facilitation are good candidates for such cooperation.

In so far as preferential trading is concerned, its goal should be an Asia-wide trade block for which the best starting point is an India-China FTA. These are growing economies and together reasonably large. Because of the highly competitive nature of China’s firms in many products on the worldwide scale, risks of trade diversion for India are much lower than in Safta.

An India-China FTA also offers the best prospects for forging the Asia-wide FTA eventually. “If Safta is implemented, it is not going to result in the kind of integration and impact observed among the member states of the European Economic Community (EEC). The EEC was a much larger market to begin with and chose the instrumentality of a customs union that eventually aimed to even introduce factor mobility. In contrast, so far Safta can only be seen seven years having limited credibility and it remains to be argued persuasively that the Safta is the best means to break the hostility between India and Pakistan,” the report observed.

On the ongoing stalemate over Doha Round, the report pointed out that developing countries have the greatest stake in bringing this round to a successful end and the negotiations were now largely limited to trade liberalisation, which offers win-win bargains. “Since India has the most trade concessions to give owing to its high level of protection, it has a pivotal role to play. Its importance in the negotiations is perhaps next only to that of the European Union,” the report said.

On the potential of energy trade among Saarc countries, the World Bank said Nepal has the potential to produce more than 40,000 MW of hydro power, most of which could be exported to India, generating $6-10 billion per year of revenues to Nepal. “India, which is one of the most energy hungry nations in the world, sits next to three energy surplus countries, Bangladesh, Nepal and Bhutan. Yet, except for Bhutan, energy trade between them is miniscule,” the report cited.

According to the report, in the eastern cluster the priority opportunities include expanding India’s bilateral electricity trade beyond Bhutan to electricity imports from Nepal and possibly gas and electricity imports from Bangladesh. In the western cluster, the priority options include expanding electricity imports from central Asia.