SAARC and SAFTA
With one of largest concentration of poor, South Asia intra-regional trade stands at less than one third of its potential. Regional economic frameworks are rather impediments than a facilitation in the region. Irrational sensitive lists, non-tariff and para tariff barriers, existence of more welcoming and responsive bilateral trade agreement coupled with very weak infrastructure and nonexistence of political will to support cross border trade. SAFTA’s implementation in true spirit to boost intra-regional trade has become indispensable for the South Asian region to deepen the regional market integration to tap the economic and commercial potential being the most potent solution to eradicate widespread disparities in form of poverty, illiteracy and unemployment. The viable and doable way of enhancing intra-regional trade is strengthening and extending the SAFTA.
The South Asian countries singed the SAARC Charter in 1985, and framed South Asian Association for Regional Cooperation. Realizing the need for greater economic integration. To reduce the existing trade barriers, SAARC nations signed SAPTA in 1995.
The SAARC member nation moved a step further, and enacted South Asian Free Trade Agreement (SAFTA) in 2006 for a deeper regional economic cooperation, to promote intraregional trade among the South Asian member nations The study reveals, SAFTA has made a little progress and has generated a little enthusiasm in expanding intra-regional trade with an intra-regional trade of mere, unlike the neighbor economic bloc ASEAN. The ASEAN Free Trade Agreement was signed on January, 28th 1992 that has commendably enhanced intra-regional trade volume in ASEAN region. The total intra-regional exports of the South Asian countries in 1989 were 0.412 Billion US $, that grew to 25.9 Billion US $ in 2014 against estimated potential of 60 Billion US $, whereas in 2018 the total intra-regional trade was mere 29 Billion US $, against the total potential of around 70 Billion US$. The neighboring trade bloc ASEAN has significantly enhanced their volume of intra-regional trade. Since the adoption of AFTA, the ASEAN region has increased the volume the total exports to 348 Billion US $ in 2018, from 23 Billion US $ in 1989 with an average growth rate of 10% over 29 years. Intra-regional Trade in ASEAN is about 11 percent of the GDP, whereas the share of intra-regional trade in South Asian economies is just 1%. SAFTA even after fourteen years of coming into force, has yet to approach to achieve it purpose and goal of making South Asian a tariff-free trade area.
Huge gapes exist between the potential and real intra-regional trade in South Asia due to prevalence of trade barriers. Moreover, SAFTA has highly been undermined by a long list of goods that have been exempted from the tariff liberalization program, the Sensitive List. About 10-40% of these sensitive lists, contains potential importable goods or products that are being imported from the neighboring South Asian country. There are several other Bilateral and Multilateral FTA’s in the region, undermining the existence of the regional framework of trade liberalization, and always raises the issue of as to whether which FTA should be incorporation, or not. Some FTA’s have no sensitive list, or negative list, and in case of conflict which one of the two should be applied or accepted.
Strengthening region economic integration in the South Asian region has become more relevant today, given the wide spread poverty and unemployment despite economic growth of the member nations individually. Trade barriers, both tariff and non-tariff result in market distortion and force South Asian consumers to buy the same goods from other regions or pay higher prices for goods from within the region. Due to nonexistence of regional value chains; resources are either sub-optimally allocated or still awaits to be untapped and to increase the intra-regional trade. The viable and doable way of enhancing intra-regional trade is strengthening and extending the SAFTA. Effective implementation and extension of SAFTA rules will not only enhance the intra-regional trade, rather will accelerate the process of regional integration. To overcome the shortcoming of SAFTA, the SAARC countries should accelerate and strictly follow the schedules for tariff cuts, gradual reduction of the item in sensitive lists to broaden the scope and coverage of SAFTA.
To implement SAFTA in its true spirit, the study recommends the following: The Article 7.3 (b) of SAFTA enacts that the sensitive list shall be revised after four years, however, such the reductions in the sensitive list made so far has not made any impact on the intra-regional trade.
The tariff cuts in SAFTA should be at least equal to that of bilateral trade agreements of the member countries SAFTA needs to be more flexible as compared to the existing bilateral trade.
The Writer is Director, Research and Development.
SAARC Chamber of Commerce and Industry
