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Regional Cooperation and the need to accelerate Intra SAARC Trade
|by Dr. P Koshy|
Regional trade groupings have come to stay as a hard reality on the global economic scenario with the establishment of Regional trade agreements (RTAs) like the North American Free Trade Agreement (NAFTA), the European Union (EU), the ASEAN Free Trade Area, the Central American Common Market, Latin American Free Trade Area, the Central African Customs and Economic Union, the East African Community, the Arab Common Market, the New Zealand-Australia Free Trade Area, and Common Market of the Southern Cone . Such RTAs are increasingly the norm in a globalizing economy and pose a possible challenge to the WTO's objective of global free trade since technically regional trading arrangements are violative of multilateralism. They range from preferential trading arrangement to economic union. The basic objective is to promote intra-regional trade among the member countries and thereby economic cooperation and development. One aspect of RTAs is much relevant for SAARC countries, since SAARC could not materialize the formation of South Asian Free Trade Area (SAFTA) by 2001; there is a possibility of marginalization of those countries, which are outside the group.
Source : World Development Indicators, July 2001
But according to a recent World Bank report, "South Asia's Integration into the Global Economy," predicts South Asia will have "the world's fastest growth in exports" by 2028.
Formation of SAARC
It is estimated that about 60% world trade is channeled through RTAs. Two of the largest RTAs i.e. NAFTA and EU are destinations for more than 55% of India's exports as well as a major share of our south Asian neighbors. The South Asian countries exchange goods principally with countries outside the region. Their largest trading partners, accounting for more than 50 % of their total trade, are the major industrial countries in the European Union, along with the United States, Japan and 40 % with countries in the Asia-Pacific region.
And the just concluded Kathmandu Summit pledged to work towards early establishment of South Asian Free Trade Area(SAFTA) and directed the member governments to finalize the draft treaty framework for this purpose by the end of this year itself. (It was supposed to materialize by the end of 2001.)
In the aftermath of partition, more than 70 percent of Pakistan's trading transactions were with India. Political compulsions, however, resulted in a decline of India-Pakistan official trade from Indian Rs.1,850,000,000 in 1948-49 to an all-time low of Indian Rs. 110,000,000 in 1965-66 which coincided with the second India-Pakistan war. The gradual severance of bilateral trading relations forced both Pakistan and India to adopt economic blueprints that undermined their self-sufficiency. Pakistan imported coal, steel, iron and even wheat from the West, China, and South Korea when it could have secured these commodities from India at half the price. India also incurred a considerable opportunity cost. For instance, areas more suitable for paddy cultivation were converted to jute cropping when Pakistan prohibited the export of raw jute to India. New Delhi imported pig iron and iron scrap from the region, although it could have been purchased from Pakistan at lower transportation costs.
Informal trade taking place between India and Pakistan is estimated to be more than 4 times of official trade. The size of this informal trade approaches Indian Rs. 20 billion per annum if supplies received by India and Pakistan through third countries are taken into consideration. This results in revenue losses also for both the countries.
Individual countries don't possess enough bargaining clout at multilateral forums. Group effort and cooperation on negotiating table will undoubtedly enhance the Bargaining strength. Issues like labor or environmental standards or rules like anti-dumping and anti-subsidy investigations are areas where SAARC can stand together. And it is already happening. SAARC Commerce ministers meeting held at Islamabad in 1998 April 29-30 took decision to set up a coordinating group of SAARC ambassadors at the WTO. This was fruitful as before the Seattle and Doha summits they could adopt common positions.
Unfortunately, this vast stock of natural wealth of the region has not been optimally and efficiently managed and utilized for the benefit of the peoples of this region. India has a role to play in the development of region. Its strength in IT field can be used for the development of IT. Similarly, each can offer something to other. This requires collective and collaborative strategies and joint ventures by the countries of this region.
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