South Asian Free Trade: Who’s the Villain?

ISLAMABAD, 17 January 2005 — South Asian free trade in a market of 1.4 billion people leads the way to larger business, industrial expansion and cutting down rising poverty.

South Asia is home to 21 percent of the global population, but shares less than 2 percent of global GDP. “It accounts for 1.3 percent of world exports, 1.0 percent of global tourism receipts, and 1.0 percent of global FDI inflows,” says Professor S.M. Naseem, formerly of Development Planning Division of ESCAP, United Nations Bangkok. The region has a big potential. Even India-Pakistan informal trade is $3 billion a year.

All stakeholders say, this huge region that ought to be the engine of Asian and global growth, is the poorest in the world. That is the dilemma economists, scholars, businessmen and thinkers were trying to grapple with this week in Islamabad. The occasion was the annual conference of Pakistan Society of Development Economists (PSDE), hosted by Pakistan Institute of Development Economists (PIDE). What emerged of its travails is: The politicians and regional tensions are the principal villains.

The consensus was that the people, specially its 500 million poor who live on a dollar-a-day, or less, should hammer down these realities into the stubborn heads of their governments and politicians.

The South Asian Association for Regional Cooperation (SAARC) is also trying to extend its business cooperation to the nine-member Economic Cooperation Organization (ECO) — a market of an additional 300 million that extends west from Turkey to Pakistan, and to Central Asian Republics in the north. Clubbed together, SAARC and ECO make a market of 1.7 billion, sprawling from Bangladesh to Turkey with all the natural resources ranging from oil to gold, and a manpower as varied as IT specialists and shipbuilders.

But, a multiplicity of trade arrangements have created what economist Jagdish Bhagwati calls “a spaghetti bowl of tariffs.” It has to be broken. Pakistan, for instance, is a member both of SAARC and ECO, “but the intra-regional trade has been around 4 percent of the total trade of SAARC and ECO, despite member countries receiving preferential treatment,” says region’s leading economist A.R.Kemal, president of PIDE and PSDE.

The Islamabad SAARC summit declared in January 2004 to establish South Asian Free Trade Area (SAFTA), effective Jan. 1, 2006, to boost business and economic cooperation among the region’s seven nations — Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan and Sri Lanka. ECO members, too, have taken key initiatives for greater business cooperation, and may hammer out arrangements of a similar nature.

However, SAFTA is already being dubbed as “too slow” to boost trade. Professor Indra Nath Mukherji, School of International Studies, Jawaharlal Nehru University, New Delhi, says, “the time frame set for attainment of SAFTHA is too long — nine years for non-LDCs and 12 years for LDCs — to be meaningful. Given the pace of multilateral trade liberalization, SAFTHA may gradually become irrelevant as most South Asian countries undertake multilateral trade liberalization in years ahead.”

The task of cooperation is formidable because the intra-SAARC trade rose from $ 1.210 billion in 1980 to only $6.537 billion in 2001. The world trade of SAARC countries, during the same period, rose from $37.885 billion to $139.585 billion. It means the share of intra-SAARC trade in world trade of SAARC countries crawled from 3.2 to 4.7 percent. The lack of interest among governments and politicians of big countries, and the tensions they have generated, especially among India and Pakistan, is reflected in their poor share in the intra-regional trade.

What’s SAARC’s new vision? It should be “seen as a bridge between East Asia, rich in its human resources and technology, and West and Central Asia, rich in natural resources and finance,” Prof. Naseem says. But, are the politicians of the region listening?