25 October 2004	Monday	10 Ramazan 1425

Will South Asia be put on a path to become eventually a single economic unit when South Asian Free Trade Agreement (Safta) is put into effect 15 months from now in 2006?

South Asian economic unity means free flow of trade, harmonization of customs, fiscal and exchange policies, integration of infra-structure facilities warranting a network of well-laid roads and an efficient and over-land transportation system that will run through Torkham in Pakistan to farthest corner of Nepal and Sri Lanka, a modern shipping centre, a common energy grid, common gas and oil pipelines in all the seven member countries of Saarc?

It also means close integration of capital markets and opening of investment opportunities in such a way as to create economic linkages in industry and trade in all the seven member countries.

But trade moved very slowly in last 10 years when the SAPTA was put into effect in 1995. Concessions were granted on 226 products. Some 4,700 products out of 6,000 were brought within the preferential concessionary tariff framework by the year 2,000. India offered concessions on more than 2,500 products: Pakistan about 500, Bangladesh more than 500, Sri Lanka about 200, Nepal 490, Bhutan 230 and Maldives, 180.

"Despite the concessions to a large number of products, there has hardly been any increase in the intra-regional trade'' Dr A.R. Kemal, a well-known economist observed in his analysis. According to him, the tariff cuts under SAPTA were not enough and he mentions India which offered concessions on many products and the margins are maximum but its Most Favoured Nation (MFN) rates are typically higher than those of its partners, as such the concessions have very little impact. He also found that the products that were offered concessions were not much in trade.

The economic analysis found that international trade of SAARC member countries increased from $104 billion in 1995 to $139.58 billion in 2002. During this period the share of intra-Saarc trade increased by only 0.6 per cent from 4.1 per cent in 1995 to 4.7 per cent in 2001. In 1995 intra-Saarc trade was worth $4.22 billion which increased to $6.53 billion in the year 2001.

During all these years from 1995 to 2000, India absorbed the lowest share of only 0.7 per cent of the intra-regional importS and Pakistan's share was 2.3 per cent. In exports, India maintained the highest share of about 5 per cent. It was 4.98 per cent in 1995 which jumped up to 5.46 per cent in 1998 but came down to 4.43 per cent in 2000. The five smaller member countries of the SAARC were found to have more regional bias in their trade but Pakistan and India show anti-regional bias.

"Unless all the trade partners benefit from trade liberalization, trade expansion in SAARC will remain elusive'', notes Kemal in his analysis in a paper which was read out at seminar in Dhaka in August. The analysis showed that India's trade has not only anti-region bias, the index of trade balance for India falls short of unity.

India's exports have invariably been higher than its imports. On an average, Indian imports from SAARC countries have been less than its exports to the region. Pakistan, on an average has trade balance less than 0.5 per cent while other countries have trade balance greater than one.

A host of factors have been found to be responsible for restricting growth of trade in the Saarc. Identical comparative advantage in a very narrow range of products among the member countries is one of the constraints but the unending political differences between Saarc's two major members-India and Pakistan-are being blamed to have undermined efforts to foster the regional economic cooperation.

"India and Pakistan, the two large economies of the region, have not been able to realize the full potential of their bilateral trade owing to various political compulsions'' is the bottom line of an analysis that gives a dismal picture of economic cooperation in South Asia.

In this utterly disappointing and hopeless backdrop the initiatives being taken by the political leadership of Pakistan and India to go in a big way for talks on al the issues give some hope of the success of Safta when it would be put into effect from 2006.

Under Safta, the import duties in Pakistan, India, and Sri Lanka will be reduced to 20 per cent from 2006 onwards to between 0 to 5 per cent by 2013.The four less developed member countries Bangladesh, Bhutan, Nepal and Maldive have been given 2016 deadline to bring down their tariff rate to 0 to 5 per cent.

In a recent meeting of experts these four less developed member countries are demanding financial compensation from three relatively more developed countries for the loss they would suffer because of lowering of their tariffs. These countries also want their senior partners to invest in their infrastructure. Then there is the problem of negative list of items that member countries have given on which they are not prepared to give any concession.

Market analysts say that growth in intra-SAARC trade is painfully slow. In this extremely slow trade growth, India is emerging the beneficiary as it is exporting more and importing less or rather discouraging Saarc member countries to market their goods. Not only that there are Pakistanis to take notice of this trading pattern quite many Bangladeshis were also not very happy with the trade imbalance they were having with their big neighbour.

In the Pakistan market, the Indians took initiative and the giant business house Tata introduced a branded tea with media glare and fanfare. Latest reports suggest that an India auto maker is also exploring Pakistani market. "It has created fears of Indian invasion of goods'', a leading auto maker remarked.

"India exported over one billion dollars of goods to Bangladesh in 2002 but in return imported hardly $50 million '' a leader of the Dhaka Chamber of Commerce and Industry informed this correspondent when he was in Dhaka in August. Indians are not bitter on the flak they receive from Pakistani or Bangladeshi businessmen. 'India is a very big country and there are reasons to fear and to grudge the big neighbour by small countries'' an Indian journalist remarked who is convinced that anti Indian feelings will eventually die down when there will be free cross border movement in the region.

Political leadership and businessmen in Bangladesh and Pakistan blame India's 'big brother' attitude, arrogance and a complex system of import tariff that is becoming a big hurdle in promotion of intra-SAARC trade and promotion of economic activities.

"India has four types of tariff'' an official in the commerce ministry said and pointed out that India has a basic duty, special basic duty, additional duty and special additional duty. There are seven basic tariff levels in force which are 5 per cent, 15 per cent, 25 per cent, 35 per cent, 40 per cent, 100 per cent and 210 per cent.

More than 90 per cent of Indian tariff line attracts a maximum duty of 35 per cent which is below the bound levels of 40 per cent committed by India. In general, capital goods attract the lowest duty rates followed by raw materials, intermediaries and finished goods.

A Bangladeshi businessman complained that their goods encounter tariff at the main entry port, then there are provincial taxes and the local taxes which render them incompetitive in the Indian market.

The big question is whether South Asia can be transformed from one of the biggest 'poverty pockets' on the globe with as many as 1.4 billion souls which it is at present, to become a happy home of those people who are confident of a prosperous tomorrow for them and their children.

It looks like a day dreaming. Intra-Saarc trade is now hardly 4 per cent of total international trade of the seven members of the Saarc. The actual growth of this trade in last ten years, when South Asian Preferential Trade Agreement (SAPTA) was put into operation in 1994 till this year is hardly 1.5 per cent.

The big Saarc countries, India, Pakistan, Bangladesh and Sri Lanka depend on Europe and North America for their exports and trade with their neighbours is still an issue of relatively secondary importance.

Trade in Saarc countries and economic activities are not picking up to the expected levels when on a rough average committees of the experts from SAARC countries or the ministers are now meeting more frequently than ever before either in Pakistan, India, Bangladesh, Sri Lanka or Nepal. But these experts have failed to lay down a system for smooth trade and investment facilitation in the Saarc.

All these issues are bound to come up before the top political leaders of SAARC when they meet in Dhaka next January for a summit. This summit will provide them an opportunity of stock-taking of the headway they have been able to make on the road-map laid down only a year before in Islamabad. The Islamabad summit signed three agreements. These were the SAARC Social Charter, the Framework agreement for SAFTA and Additional Regional Protocol to the SAARC convention on combating terrorism .

The summit leaders laid down a 10 point declaration to announce the setting up of a South Asian Economic Union, energy cooperation, transportation, transit and communication links, harmonization of standards and simplification of customs procedures, public-private cooperation in joint venture, the South Asia Development Bank, cooperation among central banks, tourism development, coordination among member states in the multilateral forums and the setting up of a poverty alleviation fund.

South Asia has remained far more backward than many parts of the world mainly because of the short-sightedness of its political leadership. It remains a region where the largest number of illiterates live, where the infant mortality rate is one of the highest and the number of poor is more than 500 million.