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| 18 November 2004 | Thursday | 05 Shawwal 1425 |
Trade ties likely to anchor peace: WB: India-Pakistan
ISLAMABAD, Nov 17: The World Bank says the gradual expansion of trade relations between India and Pakistan as a consequence of steps towards implementing the proposed South Asia Free Trade Area (Safta) agreement are likely to anchor the recent bilateral rapprochement.
In its report "Global Economic Prospects 2005 - Regional Trade Pacts Must Create - Not Divert - Trade to Reduce Poverty" said the Safta would spur intra-regional trade, provided that most products are included and the regional strategy is embedded in the larger trade strategy of gradually opening to international markets. Trade as a share of GDP remains smaller in South Asia than in any other developing region, it said.
Expanded trade creates new constituencies favouring reduced tensions. However, a lesson of the study is that regional trade agreements (RTAs) can only play this role if they are well designed and create trade rather than divert it. No South Asian country has a bilateral trade deal with a developed country. India has concluded, or is negotiating, limited arrangements with Mercosur and Thailand.
Apart from Sri Lanka, no South Asian country had liberalised trade or FDI rules prior to the 1990s. Removal of the most extreme forms of anti-export bias and gradual domestic reforms, together with textile preferences, produced a rapid expansion in garment and textile exports from South Asian countries. This prompted growth in overall exports since 1990, and in exports' share of South Asia's GDP.
The report said the South Asian exports as a share of world trade remained low up to 2000, as the region's countries maintained the world's highest levels of average applied tariffs.
But this is changing. Nepal launched trade liberalization in the early 1990s and Sri Lanka and Pakistan have begun reducing border barriers and increasing external trade. India began to reduce border protection in the early 1990s and in early 2004, announced up to one-third tariff cuts.
Bangladesh border protections remain among the world's highest, although reductions were announced in 2004. South Asia remains only minimally integrated in world capital markets. Net inflows of FDI, although higher than the early 1980s, are less than 0.8 per cent of GDP, the lowest among developing regions.
The report said the GDP in South Asia is estimated to have slowed down in 2004, if from a rapid pace, increasing by six per cent, down from 7.5 per cent in 2003. The slow-down has been attributed to adverse weather conditions and a decline in agricultural output due to poor rainfall.
India's services sector made strong advances, supported by productivity gains and greater market penetration. The manufacturing sector continued to post high growth.
Excluding India, growth in the region is projected to rise to six per cent in 2004 from 5.6 per cent in 2003, supported by robust manufacturing in Bangladesh and Pakistan, and strengthening services and agriculture sector growth in Nepal and Sri Lanka.
Donor assistance and incipient peace, combined with a recovery in agriculture after a prolonged drought, helped boost real GDP growth in Afghanistan by an estimated 16 per cent, excluding opium which accounts for about one-third of output.
Regional GDP is forecast to accelerate, expanding by 6.3 per cent in 2005, before moderating somewhat in 2006. The acceleration is largely driven by an anticipated recovery of agricultural growth in 2005, it is forecast despite slower GDP and trade growth elsewhere in the world.
Long-term growth in South Asia is forecast to average about 5.5 per cent during 2006-05 as the contribution to growth from the private sector accelerates. Per capita incomes are projected to advance significantly in the coming decades, expanding by an average of 4.1 per cent per year for the period 2006-15 as reforms quicken and begin to pay productivity dividends.
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