Nikita Singla

Consultant . International Affairs. Sciences Po Paris. Engineer. IIT Delhi. Solo Backpacker. Yoga Trainer

SAARC turns 29 – where does trade stand?

In all regions of the contemporary world, including Asia, market consolidation is growing rapidly through bilateral and regional trade arrangements. These arrangements strengthen economic cooperation, establishing a framework for further integration between countries. However, despite the institutional mechanism to support trade, South Asian economies have been unable to gear up and remain the least integrated region in the world with intra-SAARC trade at about 5% of region’s total trade. Going by the Gravity Model of trade, advantage of geographic proximity for South Asian countries holds the potential for a highly integrated trade, investment, and wider market, but little seems to have moved in comparison with this potential.

Several attempts have been initiated to boost South Asian economic integration through a number of trade pacts at bilateral and sub-regional levels like the South Asian Preferential Trading Arrangement (SAPTA), the South Asian Free Trade Area (SAFTA), and more recently the SAARC Agreement on Trade in Services (SATIS). Little has been achieved under these instruments. Even after a quarter of a century of existence of SAARC, the South Asian countries are bilaterally imposing policy restrictions which is hampering intra-regional trade and as a result, economies still depend heavily on markets outside the region as their export destination.

Evidence available to date suggests that the constrained regional and global trade expansion in South Asia can be mostly attributed to import-substitution industrialization and restrictive trade practices. This calls for South Asian nations to fast track economic liberalization to increase their current 2.5 billion USD worth of trade and catch up with East Asian nations by shifting priorities to promoting intra-regional trade. For this, it is important to undertake measures to facilitate trade and lower transaction costs in the region. Trade facilitation and transport logistics in the South Asian region encapsulate multiple design and implementation flaws, including non-tariff barriers, poor transport infrastructure, transit delays, poor communication networks, inadequate regulatory environment, inept service sector infrastructure among many more. Despite the recent additional controls in place, these issues are becoming more and more problematic to do trade in the region.

At the same time, complexities that the two demographic Asian giants are posing in the region cannot be ignored. With China continuing to institutionalize its network with South Asia through its systematic “good neighborhood policy”, India, being at the helm of the region, is also taking on the asymmetric responsibility to increase market access for its South Asian neighbors. The key measures include concessions to LDCs and non-LDC members, MFN Status to Pakistan and other steps to increase access into the Indian market. But the persistent notion in the South Asian region that India imposes barriers that restrict market access for its smaller less developed neighbors remains. The question is whether the changed policy regime has indeed paved the way for greater market access or whether India’s gamble has been simply to counter China and NTMs still continue to pose market access barriers into India.

Given the potential in South Asia, there is a yearning for something new which entails the member countries to adopt innovation in their approach to address these economic factors through amalgamation of political actors, economic stakeholders and civil society. It is expected that even modest reductions in the cost of trade transactions will have a significant impact on the volume of trade in the region. Closer economic links through normalized trade will encourage innovation by facilitating exchange of technical know-how, industrial integration and emergence of nascent sectors creating stable jobs and higher incomes, thus improving livelihood. With policymakers and business communities in South Asia showing increasing interest towards economic integration, it is desirable that the costs and benefits of trade facilitation are well visualized and analyzed to arrive at a consensus on policy decisions. All the identified policy changes on how scaling down tariff and non-tariff barriers will positively affect intra-bloc trade among South Asian economies need to be brought to the forefront.

By maintaining the primacy of economic integration, economically inter-dependent South Asian countries are paving the way not only for deeper integration with the global economy but also for a gradual and peaceful unification of the region. The potential is already there; effective implementation of trade policies backed by a strong political will is the first step in that direction.

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This entry was posted on December 30, 2013 by in Writings on international affairs and economics.

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