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Intra-Industry Trade Potential in South Asia is Underutilised’

What is the current status of Intra SAARC trade? 

The intra-regional trade among the SAARC countries stands at 5 per cent of the bloc’s worldwide trade which has been the case for some time now. Intra SAARC trade has certainly increased over the years, however, there has been an increase in SAARC’s world trade too. Hence, the share of intraregional trade has remained constant. When compared to intra-regional trade in other trade blocs like ASEAN and EU, intra SAARC trade does look small. 


Why has SAFTA not been able to gainmomentum since its inception in 2004? 


SAFTA has not been able to take off because of political as well as economic reasons. It was also affected due to the political tensions between India and Pakistan. Among the economic reasons, it’s the sensitive list that has affected SAFTA most wherein it was decided to have such a list but the types of commodities under the sensitive list was not ascertained. A mammoth 53 per cent of tradable commodities had figured in the sensitive lists of different countries in the region. 


How can regional connectivity be improved to negotiate better transit and transhipment?

There are a number of issues related to regional connectivity that can certainly be looked at if there is a proper intent to do that. For example, India is suffering from Bangladesh’s denial to allow transit through its territory which could have made it easier to reach the north-eastern part of India. Even Nepal can export tea to Pakistan but it will not be profitable sending tea via air cargo. If Nepal can export tea by using the Mahendranagar border to Pakistan via Wagah in Punjab, surface transport can deliver goods in 12 hours flat. But there has been no concrete talk with India on this matter. 


India, being the centre of regional trade among the SAARC nations, could have played a more vital role in making the SAARC trade bloc effective. What are the reasons for India not being able to do so? 


It’s probably because they have analysed the cost and benefits and realised that it is better for them to look outside the region rather than concentrating their negotiating and political capital as well as resources in South Asia. India is not making any pro-active efforts to strengthen regional economic cooperation in South Asia whereas it should be actually promoting regional stability in South Asia which is eventually going to be in its own interest. 


Why is the trade in this region more oriented towards international trade rather than trading within the region itself? 


Historically, most of the developing countries while talking about exporting manufactured products, always have the European, North American, Japanese and Australian markets in their minds. This has been happening for over a century now. Another problem in South Asia region is that most of the countries compete for the same market internationally. 


Can South Asia region be the production house as well as the market and be self suffi cient for trade? 


Why not? I had actually proposed in one of my writings earlier that South Asia can become the textile and clothing production hub. I feel that intra-industry trade potential is not being utilised in South Asia to the extent possible. For example, Pakistan and India are among the best cotton producers in the world and we have state-of-the-art industries in the region that could process cotton into textile fabric. In Bangladesh, we also have one of the lowest cost manufacturers of garment in the world. The manufactured garments can then be sent to Colombo and utilising the shipping industry potential of Sri Lanka, they can be fast processed and shipped to markets abroad. This kind of modality can work in the region’s interest. 


As for consumption of goods produced within the region, we can take the example of India already importing textile and clothing products from countries like Bangladesh and Nepal. And it should import even more from within the region rather than importing from countries like Thailand and China. There should be an attempt to create an incentive for the partner countries in the region to be able to export to a country like India. However, bureaucratic hassles, nontariff barriers, rules of origin as well as 4 per cent special additional duty imposed on an arbitrary basis have created problems. 


What are the differences in provisions of WTO and RTA? How does it affect the intra-regional trade? 


Regional Trade Agreements (RTA) are meant to provide a platform for deeper level of integration when compared to WTO. You have to understand the fact that WTO actually does not actively discourage RTAs. By virtue of a legal provision within the WTO, it condones regional economic arrangements. In that sense, since SAFTA is deeper, trade within SAFTA should be higher than trade outside the region. By the same token, 67 per cent trade takes place within the region for EU while the figure is 60 per cent for NAFTA. It’s because they have deeper regional integration so there is no reason why SAFTA should not be able to replicate such successes. The regional economic arrangements are actually WTO plus. 

The only thing RTAs like SAFTA should learn from the WTO is that it should have a dispute settlement system that is fair, effective and credible. Due to the twotier (Panel and Appellate Body) system of dispute settlement in the WTO, any error of judgment by the panel can be corrected through appeal and actually, more than twothird of cases in the WTO are appealed.

As for effectiveness, the verdict of the dispute settlement body is almost invariably adopted because of the reverse consensus rules, which means that the verdict of the dispute settlement body would not be adopted only if there is a consensus not to adopt the report. The credibility factor comes into play because the threat of sanction imposed by the winning party through the decision of the dispute settlement body is plausible. There have been instances where sanctions have actually been imposed thereby forcing the losing party to bring its measures in conformity with the WTO rules. While advanced RTAs such as EU or NAFTA have very effective dispute settlement systems in the form of European Court of Justice and NAFTA Court, SAFTA does not have such a mechanism. This is one of the reasons why countries acting against the spirit of SAFTA also go scot free. 

(Published in:New Business Age)
By Ratnakar Adhikari