The Hindu Business Line : 14th SAARC Summit — Unleash the continental power

The trade liberalisation process notwithstanding, some troublesome matters threaten to upset the SAFTA applecart. Developing country members of SAARC should work at resolving these issues in the interest of equitable progress on the economic front so that the regional power of this subcontinental bloc is strengthened.

The South Asian Association for Regional Cooperation (SAARC), the sub-continental regional grouping of three developing countries and four less developed countries, is holding its 14th conclave of leaders in New Delhi today and tomorrow (April 3-4). A notable feature of the 14th Summit is the formal entry of Afghanistan into the SAARC fold, raising the hope that the safety in numbers would ensure some form of cohesive platform among the disparate groups in their dealings with the rest of the world.

It is ironic that when an unequal alliance such as the North Atlantic Free Trade Area (NAFTA), made up of the United States, Canada and Mexico, is doing fine, a group of countries with shared history and similar civilisations, and with contiguous borders in the subcontinent could not until recently see the benefits of creating a free trade area because of differences in perception on the degree of development among the constituents. The South Asian Free Trade Agreement (SAFTA) came into force from January 1, 2006, after several rounds of discussion at the experts level to arrive at a negative list of goods in which tariff concessions would not be exchanged.

Tariff Concession

As per the phased Trade Liberalisation Programme (TLP) under Article 7 of the SAFTA, all SAARC member-countries are required to reduce tariffs on all tariff lines to 0-5 per cent within ten years of SAFTA's coming into force, save those in each country's negative list. This TLP was implemented effective July 1, 2006 and all member-countries notified tariff concessions for the first phase to be completed by end-December 2007. Still, some contentious issues — such as rules of origin, dispute settlement, non-inclusion of services, and compensation to the less developing countries for revenue lost on tariff concessions — threaten to torpedo SAFTA, if due care is not exercised by the developing country members of SAARC.

In the case of Islamabad, its notification for tariff concessions of SAFTA has a rider that imports from India under SAFTA would continue to be as per Pakistan's Import Policy Order, which lists importable items from India, called the Positive List now consisting of 1,075 items. No wonder New Delhi dubs the partial accession to the Agreement by Pakistan, which is targeted entirely towards India and not towards other SAFTA countries, as against the letter and spirit of the Agreement.

New Delhi contends that it has given all SAFTA concessions to all countries, including Pakistan, and that Islamabad is also expected to implement SAFTA in full, without India-specific restrictions. But the latter has been arguing that all its agreements with India are to be treated as part of the composite dialogue Pakistan is engaging in with India and that even without the accord of Most-Favoured Nation (MFN) status to India and partial accession to SAFTA, Pakistan's trade with India has been booming this fiscal, compared to the whole of last fiscal.

Bilateral Route

There is some merit in what Islamabad is saying and, by and large, the SAARC members — be it another developing member, such as Sri Lanka, or the less developed countries such as Bangladesh, Nepal, Bhutan and Maldives — have found the bilateral route to regional cooperation more effective than the multilateral rate through SAFTA.

The South Asian Yearbook of Trade and Development, put out by the Delhi-based non-governmental think-tank Centre for Trade and Development (Centad), said in its 2005 edition that India's offer of early duty-free imports to Sri Lanka through the bilateral route, followed by Indian investment in Sri Lanka has facilitated the moderation of excessive trade imbalance between them.

Some Indian companies shifted production to Sri Lanka depending upon the comparative advantage for exports to South Asia and rest of the world, as evidenced by the tyre industry. This has led to substantial FDI (foreign direct investment) inflows form India to Sri Lanka, which is also spurring third country investments in Sri Lanka.

Similarly, India's import from Pakistan is rather limited, while its exports are booming despite the latter's curtailing the number of exportable items to 1,075. As the widening trade deficit with Pakistan is a matter of concern to that country, naturally it continues to keep a list of importable items into Pakistan, as it does not want its trade pattern to get skewed by an influx of imports from India.

So, even as Indian leaders have been calling on Islamabad to relent on its inflexible stance on not giving India the MFN status or stop making a positive list for imports without allowing free trade to flourish between the two, India, as a big country within SAARC, must show some magnanimity in accommodating the sensitivities and concerns voiced by the less-privileged members.

Gains and Privileges

Impartial experts and international trade analysts maintain that in any trade agreement with its South Asian neighbours, the advantages derived by India's neighbours would be much more than the advantages gained by New Delhi. This is in sync with the ground reality since India is a big market compared to the markets of many South Asian minnows. Unless the underlying and implicit gains and leverage India enjoys by dint of its being a big nation among the constituents are properly shared with other SAARC members, a truly free trade area will remain a pipedream.

No doubt, considering the immense potential of the region to grow through the integration route, the utilisation so far has been far too low. It is a pity that after more than two decades, intra-SAARC exports are still a mere 5 per cent of the total exports of the region. In comparison, in NAFTA, the intra-regional trade is nearly 52 per cent of total trade, while in the European Union it accounts for more than 55 per cent of the total, and in the Association of South East Asian Nations (ASEAN) it is a respectable 21.4 per cent.

Vast Opportunities

At a recent conference organised in New Delhi here by the Research and Information System (RIS) of Developing Countries, the External Affairs Minister, Mr Pranab Mukherjee, hailed the fact that the emergence of India as one of the fastest growing economies in the last few years offers vast opportunities for expanding markets, investments, technology and entrepreneurial resources for countries in the region.

He recounted some cases of how India's FTA with Sri Lanka helped the latter reduce its trade deficit with India.

Bhutan's co-operation with India in tapping its hydro-electric potential has helped in its economic advancement, while trade-creating investments in Nepal are yet another successful instance of spurring bilateral trade.

He also said India's growing purchasing power has helped boost tourism in Maldives, Nepal and Sri Lanka.

As New Delhi hosts the 14th Summit of leaders of SAARC, it should go the extra mile to extend a helping hand to other SAARC members in the integration process so that the power of this subcontinental bloc is enhanced by cross-country cooperation in trade, investment and industry.

This would go a long way in assuaging the terrible scourge of poverty that still haunts most SAARC nations, nullifying their developmental efforts and eroding their people's hope for a better standard of living.

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