South Asian economic integration
The earlier attempts of the South Asia for economic cooperation were frustrated by longstanding tensions between India and Pakistan. Though the two countries account for four-fifths of the regional economy the political differences between them made the regional economic cooperation difficult.
At present, the intra-South Asia trade constitutes less than 5 percent of the total trade of the member nations. By comparison, trade between member nations of ASEAN makes up 63 percent of Southeast Asia’s trade, and trade within the European Union accounts for two-thirds of the trade of its 15 member countries. The tariff barriers in south Asia are still high compared to what it is in other parts of the world impeding intra-regional trade and commerce.
To remove this handicap SAARC cuntries have taken a historic decision to implement the South Asian Free Trade Agreement on January 1, 2006. When the agreement is fully implemented on December 31, 2015 the tariff between the seven member nations will come down to between 0-5 per cent. Meanwhile, the member countries will complete four procedural formalities: Formation of sensitive lists, rules of origin, revenue loss compensation mechanism for the lesser developed countries and an arbitration council or dispute settlement body.
A number of reasons have now forced Pakistan to opt for SAPTA after blocking it to a considerable time. Now the Pakistani economy is in doldrums whereas India’s economy is booming. India has also been comparatively more successful in its attempts at regional/bilateral trading arrangements. As SAPTA was not moving, India opted for bilateral free trade agreements with the countries of the region. India has a free trade agreement with Sri Lanka and open borders with Bhutan and Nepal. It is also negotiating one FTA with Bangladesh. FTAs with Sri Lanka and Nepal are highly successful and beneficial for both the countries. Indian negotiation of FTA with Bangladesh made Pakistan somewhat apprehensive, as after this it would have been left almost isolated. As a result, Pakistan hurriedly started negotiating free trade agreements with Sri Lanka and Bangladesh. India has also been looking outside the SAARC region for trade and has made considerable progress with ASEAN. It is negotiating a Comprehensive Economic Partnership Agreement with Singapore and a free trade agreement with Thailand.
Now the regional economic cooperation and integration seems to be a worldwide trend. A number of trade groupings such as ASEAN, EU, NAFTA etc already exist. Besides, a large number of countries have opted for bilateral free trade agreements. In a situation like this there is very little chance for products of south Asian underdeveloped countries to compete. Hence to adapt their economies to this changing scenario these countries are now forced to think of alternatives and cooperate among themselves.
SAFTA is expected to benefit all the economies of the region immensely. It would enable Pakistan to import tea, auto parts, consumer durable, pharmaceuticals and films from India at cheaper prices. At present, Pakistan, which has one of highest per capita consumption of tea, imports 150 million kg of tea, mainly from Kenya, even though Pakistanis prefer Indian tea. Apart from cheap imports of these items from India, Pakistan could benefit by exporting cotton and textiles
to India.
Similarly, there would be benefits for the Indian economy too. With the signing of the framework treaty, Pakistan would have to automatically give Most Favoured Nation treatment to India, which has been a major stumbling block to promote trade in the region. Indian tea industry would find a nearby market to export its surplus, which has been rising in recent times due to increased production. Tea trade would benefit because of price competitiveness, easy transportation and popularity of Indian tea in the Pakistani market. At present, Indian tea is shipped to Karachi via Colombo, Singapore and Dubai, making it costly. Similar benefits might also flow to Indian auto and pharmaceuticals industry.
A free trade regime will considerably reduce the volume of illegal trade in the region. The illegal trade between India and Pakistan is estimated at around $1.5-2 billion while official trade stood at $262 million in 2002-03. The volume of illegal trade is also considerably high between India and Bangladesh.
Though the SAFTA would benefit south Asian economy as a whole, its immediate benefit would be to the Indian and Pakistani economy. The flow of direct trade between the two countries is expected to increase several-fold once the pact comes into being in 2006. SAFTA would double intra-regional trade every five years from the current level of $6 billion.
The major economies of the region like India, Pakistan and Sri Lanka are upbeat about the greater trade possibilities. But the weaker economies are still apprehensive that their small industrial base and limited export basket might suffer because of the free trade. Though SAFTA has made considerations to the Least Developed Countries (LDCs) they still have the fear that the goods of other nations might swamp their economies.
The signing of SAFTA agreement during the SAARC summit is seen as a major confidence building measure to ease tensions in the region, particularly between India and Pakistan. It might enable the South Asian region to emerge as a global player in trade. The acceptance of the SAFTA treaty has served the purpose of retaining the focus of the Islamabad summit on economic issues. The limited resumption of business exchanges and people-to-people contacts between India and Pakistan has already contributed to the rise of a new optimism in south Asia. For the moment, it appears trade is acting act as a lubricant in promoting peace and SAFTA would help towards this end. But, the agreement still has many loose ends that need to be tied, such as the rules of origin and product coverage issues. These issues will require lot of effort before the countries agree on them as they have close involvement with the national economies of member countries. Still SAPTA has created optimism in a region where poverty is a serious issue. Posted on: 2004-01-18 02:50
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Abin
His general strike is under way His group should follow their banda ...then mine... so you have to wait to announce a shutdown
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