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| Tuesday, 6 January 2004 |
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SAFTA to boost trade South Asia has one-fifth of the world's population. It is also one of the poorest regions of the world, attracting only a fraction of world trade. Despite abundant natural and human resources, South Asia has remained one of the least industrialised parts of the world because there was no free trade or sense of economic interdependence. Increased trade within the seven countries would thus help them to collectively move out of the abyss of poverty. This is exactly what the seven SAARC leaders, now meeting in Islamabad, have in mind as they look forward to 2006. Three years from now, SAARC will begin dismantling regional trade barriers in order to create a free trade zone. The proposed South Asia Free Trade Area (SAFTA) agreement will take effect from January 1, 2006 after approval at the current SAARC summit. The landmark agreement envisions a free trade regime among Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, home to one-fifth of the world's consumers who have an average yearly income of US$ 450, against a world average of US$ 7,000. The decision by the seven leaders to go ahead with a free trade pact echoes the Confederation of Indian Industry's (CII) recent call to SAARC to remove barriers to trade and coordinate their economic policies to pull the region out of poverty. The CII said the seven nations had the potential to double intra-regional trade every five years from the current annual level of six billion dollars. The SAARC Chamber of Commerce and Industry predicts a boost of up to four billion dollars. So far only five percent of the international trade of SAARC countries is within the region. In comparison, it is about 65 per cent in the European Union and 22 per cent in ASEAN. The CII said much of the responsibility for pulling South Asia out of poverty lay with India, Pakistan and Sri Lanka, which account for 89 per cent of the region's GDP. Sri Lanka and India must get the credit for inspiring the other countries to join a free trade framework, with their bilateral free trade pact. In fact, it was India's first-ever free trade accord with any other country. Later, Pakistan and Bangladesh joined the fray. The whole region will now reap the benefit of such free trade arrangements, though each country has been given a deadline for the elimination of tariffs. Pakistan and India will complete SAFTA implementation by 2009, Sri Lanka by 2010 and the others by 2013. There are fears that tariff removals could batter the weaker SAARC economies, although all countries will be allowed to keep a 'sensitive list' of protected goods. Nevertheless, SAARC nations should take a long-term view: Any short-term losses would be compensated by the opportunities gained from trade expansion under SAFTA. Member States could also opt for a compensation package for the smaller economies. SAARC should also consider the merits of a European-Union style common currency and borderless travel to add impetus to the free trade pact. A common currency, which has been proposed by India, will make South Asia a seamlessly integrated economic region and raise its profile in global trade. The seven countries should also consider having a single body to promote investment and tourism in the region. As SAFTA is implemented, Sri Lanka should capitalise on its strategic location vis-a-vis transport links to strengthen its 'gateway' status in South Asia. Sri Lankan Government authorities and the private sector must lay the groundwork now to meet the challenges of a barrier-free SAARC. |
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