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BOLSTERING INTRA-REGIONAL TRADE

NEARLY TWO DECADES after its formation, the South Asian Association for Regional Cooperation (SAARC) is unable to shake off its fetters and ensure the early implementation of the South Asian Free Trade Agreement (SAFTA). The meeting of Commerce Ministers last week in Islamabad marks another step in the struggle to enhance intra-SAARC trade. It is true other regional trade groupings have taken their own time to make headway in forming a Free Trade Area. Many of them have set target dates, but gone in for soft options to protect some of their "sensitive" domestic producers. But the problem in SAARC seems to be more political than economic. While India and a couple of other countries feel that progress in economic cooperation will harmonise political equations, Pakistan wants to see substantive progress in its political relations with India before it can make tangible concessions on the trade front. This is why SAFTA is fumbling and it is up to SAARC leaders to break loose from the political shackles and see that all member-states comply with the requirements of SAFTA deadlines.

The problem, it appears, is that some of the SAARC countries are intense competitors in global trade because of their largely similar export baskets. Instead of looking at closer markets in the region, most of them look to the West for export opportunities, the United States and Europe remaining the major markets. As Union Commerce Minister Kamal Nath has noted, it is unfortunate that intra-regional trade in South Asia is just about $6 billion out of the region's total global export of $200 billion. Likewise, the South Asian countries still prefer to import most of their requirements from the West and the east rather than sourcing it from within the region. The earlier attempt to encourage intra-regional trade through a South Asian Preferential Trade Arrangement (SAPTA) failed to boost trade among the member-states. This is probably why India has gone in for a parallel exercise to sign bilateral Free Trade Agreements (FTAs) with its neighbours, including Sri Lanka, in the South Asian region. The bilateral FTAs seem to be working better than the regional agreements because the latter necessitate the participation of all member-states.

At a time when the agreements and commitments under the umbrella of the World Trade Organisation are forcing countries to open their doors to free trade, it will be in South Asia's interests to break down the barriers and encourage intra-regional trade. It will be much more cost-effective for governments and consumers to source their import requirements from neighbouring countries rather than from the U.S. or Europe, if non-trade barriers are removed and duty rates brought down to realistic levels. India, Pakistan, and Sri Lanka are not only the major players in the region but are also competitors for a share in world trade in some goods such as tea, garments, gems, and jewellery. Sri Lanka has repeatedly suggested the formation of trade cartels and joint marketing in third countries, an idea that merits serious pursuit. The possibility of value addition within the region, by sourcing raw materials or products from neighbouring countries can also be considered. South Asia must learn a few lessons from South East Asia and ASEAN. SAARC must also look at the advantages of forging closer links with its eastern neighbours.

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