Towards SAFTA: Some Thoughts
Considering the global trend of building regional trade blocs, the
efforts of the SAARC nations to forge an economic and trade alliance have
been rather slow. The SAARC Preferential Trade Arrangement was signed just
over three years ago, but the progress towards building up a mutually
dependent economic area has been sporadic, especially when viewed against
the speed with which the advanced regions of the world are consolidating
their trade and economic bonds. The journey towards SAFTA therefore
appears to be uncertain at this point when some of the countries are still
preoccupied with political conflicts and rivalries and are only at the
stage of exchanging product lists for deciding on tariff concessions. They
should have been taking decisions on off-the-board tariff concessions by
now. The South Asian Free Trade Area being the ultimate goal, it is
imperative that the major nations in this grouping - India and Pakistan
work towards a convergence of trade and economic policies to serve the
interests of the region.
Despite all its natural and human
resources, the SAARC grouping is one deficient in capital. Industrially
too, it is only India which can be said to be an advanced nation in this
region with Pakistan following at a distance. Most of the rest of the
members have yet to cut their teeth industrially. Again, with the
exception of India and to some extent Pakistan, the whole group is largely
dependent on outside sources for its capital goods and technology. And,
again, most of the SAARC members look to the few advanced regions of the
world for their markets. The export basket of the members too, with some
exceptions in the case of India and Pakistan, consist of raw material and
commodities, and largely traditional products. Some of the members, again,
are competitors in the markets of advanced nations in the matter of both
raw materials as well as low value products like readymade garments,
handicrafts etc. In other words, the SAARC nations suffer an inherent
disadvantage in their efforts to build up a trade bloc. Unlike the EC,
APEC, or NAFTA countries, the SAARC countries cannot make the grouping
self-dependent in any way, and the least, technologically. They have
always to seek industry-oriented technology from groupings of advanced
nations. As such, one sometimes wonders whether, considering the disparate
resources and economic conditions of the members, is it worthwhile to
attempt a trade bloc.
Very wisely, the concept of SAPTA and later
the SAFTA has been based on encouraging complementarities among the
members, thereby enabling sharing of resources and capabilities among
themselves as a group in their trade with the rest of the world. The first
step in this direction, SAPTA, was taken to promote the ultimate free flow
of goods and services by initial reduction of tariffs on selected
products, to be followed by abolition of tariffs on many of them. There
have been, as an initial step, exchange of lists of products among the
different members for reducing tariff on them. However, with just two or
three nations in a position to offer a substantial number of products,
this effort too appears to be infructious. India, Pakistan, Sri Lanka and
Bangladesh can exchange a sufficiently large number of industrial products
and raw material. But Nepal, Bhutan and the Maldives cannot offer much in
this direction. This is just to illustrate the kind of large differences
in available resources and economic conditions that exist in this grouping
which inhibits convergence of trade and economic interests. One has only
to look at APEC, NAFTA, or EC to see the difference.
In addition to
these wide disparities on the economic and trade front, there are the
obvious political differences which make further movement towards SAFTA
difficult, if not uncertain. We know that the political differences
between India and Pakistan are of such a nature that they constitute
strong impediments to cooperation on the trade and economic front. It is
only after a great deal of hesitation that Pakistan has agreed to expand
the list of items permitted for import from India from 579 to 650. It has
also agreed to give lower tariff on 120 items. But the essential condition
of any trade bloc, that members must accord Most Favoured Nation (MFN)
status to one another has not been implemented by Pakistan. India thus
does not enjoy the MFN status in Pakistan, despite all the high talk of
trade and economic cooperation in the region.
On the other hand,
India has always adopted positive attitude for working towards realisation
of the South Asian Free Trade Area (SAFTA) by 2000 AD. Infact, Indian
Commerce Secretary perceived the SAFTA to evolve on the lines of the
European Union with exchange of Free Trade among the member countries. The
member countries must create an atmosphere in the region for expanding
trade by bringing down trade barriers. The success of the Latin American
Countries in increasing their volume of trade in the region by forging
regional trade grouping speaks the success of the grouping where countries
like Bolivia and Chile are showing keeness to join the trade group in
their region. The trading in Latin America had increased its share in the
world trade from 3 per cent in 1987-88 to above 12 per cent
currently.
Similarly, SAARC countries should take advantage of
their geographical location and enhance co-operation. In other words, the
South Asian Association for Regional Co-operation countries must build up
the momentum for expanding the list of items for lowering tariff levels so
that SAARC countries can take advantage of the market conditions in other
countries and capatilise on the opportunities.
The forth and the
final round of inter-governmental group from SAARC countries will be very
crucial as the list of commodities for the tariff concessions under SAPTA
will be expanded. It is believed that the consences over 1200 items will
be opened for tariff reductions amongst these nations. Incidentally, India
has offered a maximum number of items for tariff concessions and rest of
the countries including Pakistan seem to have adopted the positive attitue
to ensure the implementation of the SAPTA. I may like to add here that the
tariff cuts offered by the Member States have started showing positive
results. India's exports to these countries increased by 50 per cent and
imports by 58 per centin 1995-96. The trade with these countries has gone
up by 4.62 per cent to 5.36 per cent in 1995-96. India accords importance
to the Kathmandu meeting as it expects the Pakistan would announce plans
for liberalising trade with the SAARC states and on the issue of Most
Favoured Nation status to India. India, however, had according MFN status
to Pakistan wayback in the late 1970's.
There is also the
disinclination on the part of some of the members to allow access to land
and inland water routes. Exaggerated strategic considerations and rigidity
arising out of internal political compulsions have led to the denial of
normal courtesies which promote trade between nations. However, the silver
lining is that despite the inhibiting political factors, members are
endeavouring to push through each other's trade and economic interests
with the assumption that as economic benefits flow, political stands may
soften. In the immediate future, as far as the Indian sub-continent is
concerned, this does not seem possible.
By virtue of its economic
strength and agricultural and industrial prowess, there is apprehension in
Pakistan, particularly that India may well come to dominate the region
economically to the detriment of their domestic industries. We therefore
see the phenomenon of that country importing many consumer durables at a
higher cost from distant countries, rather than obtaining the same at
almost half the cost from its neighbours. The situation in which India is
placed at present in the context of SAARC is thus: Its economic
development continues apace on the basis of its own inherent strengths,
and it is in a position to raise its share in the trade and economic
sphere in the SAARC countries. At present, India's imports from SAARC are
of very low value. Its imports from the member-countries constitute just
0.7% of its total imports. Similarly, bilateral trade with other members
is also negligible, as most of the members are pre-occupied with trading
with advanced countries. Taking each member individually in the matter of
imports, we find that India's imports from Pakistan are just 0.3% of its
total imports. The same is the case in imports from Nepal. India's imports
from Sri Lanka and Bangladesh constitute 0.1% of its total imports.
India's exports to SAARC nations constitute 2.8% of its total
exports during the last 5 years. Individually, India's exports to Pakistan
were 0.2% of its total exports. To Nepal, India's exports comprised just
0.5% of its total exports, while Sri Lanka's share in India's exports
accounted for barely 0.9% of the latter's total exports. India's exports
to Bangladesh constituted 1% of its total exports. India thus is in a
position to raise its imports from the SAARC region substantially if there
is a serious effort on the part of the members to enhance intra-group
trade. India's exports to the individual member countries are varied -
ranging from fruits, vegetables, sugar, coffee, paper, to cotton, cotton
yarn, cotton fabric, light engineering goods and pharmaceuticals, etc.
Most of its trade, as that of other members of SAARC, is this confined to
food items, textiles, basic minerals etc. There seems to be no demand as
far as India is concerned for high-tech products from it among its fellow
member-nations.
Members of SAARC are by now more or less clear on
each other's strengths, and also the ways and means by which they can
share them i.e. identify complementarities to raise trade among
themselves, and also to join hands to promote the region's trade with
blocs of advanced nations. The ratification of SAPTA indicates a consensus
on preferential treatment in the matter of tariffs, trade measures such as
buy-back arrangements, Government contracts etc. This, of course, is
within the purview of the conditions specified by the United Nations under
which some of the members, like Bangladesh, Nepal, Bhutan and Maldives
fall in the category of least developed nations.
With SAPTA taking
off, it is time serious thought is given to impart it the desired momentum
which will help it to achieve its objectives. By this time, the setting up
of the Secretariat, dissemination of information, and promoting of social
and cultural interaction has been initiated to some extent. The first
SAARC Trade Fair organised in New Delhi in January 1996 was a step in this
direction which is being followed by another SAARC exhibition, in
Pakistan, in January 1997. It is now time to come to grips with the major
impediments to the growth of intra-region trade - the political
differences. The rivalries that exist will have to pave way to economic
cooperation.
While that would be an ideal situation which may or
may not come about, the SAARC countries should realise that coming
together for trade and economic cooperation is almost imperative now with
the World Trade Organisation calling the shots, and advanced countries,
which constitute major markets for them, introducing extraneous non-tariff
barriers like the so-called `social clause' which lays down the minimum
wage and living conditions that a worker has to have the so-called child
labour problem, the increasing insistence on eco-friendly products suited
to their environment, and so on. In addition, conditions for bilateral
investment are being mooted by advanced countries which may as well lead
to dilution of sovereignty, if allowed to pass.
The global trade
and economic conditions are changing rapidly with regional blocs,
especially of industrially advanced countries, acquiring enormous clout in
global trade. Under these circumstances, regional groupings of the SAARC
kind will have to consolidate and develop strong bonds if they have to
contend with the global market forces increasingly manipulated by advanced
nations.
