Pen N Paper SHAON84 |
SAFTA
Yesterday, Today and
Tomorrow
By Benzir
Shaon
Background
South
Asian Association for Regional Co-operation (SAARC) was established in 1985.
The SAARC's member countries are
The SAARC summit
declaration of
South
Asian exports face a challenging external environment. World growth and demand
have weakened, commodity prices are expected to decline further, and the
phasing out of the textile quote system in 2005 will leave many of these
countries' exports more vulnerable to competition from other developing
countries. Export growth in the region has slowed; yet reviving export growth
will be crucial to boosting the region's sagging GDP growth rates, which have
fallen from about 7 percent in 1996, to 5 percent in 1997-1998, and are widely
expected to fall further in recent years. This agreement is expected to have
rather modest an economic impact, with some benefits for consumers and some
increased competition or domestic produces. Politically, it can help sustain
the improved political relations the region's leaders all say they want.
The
SAARC members' trade imbalances with
At Today
The
preponderance of the global economic powers in the field of trade and
development and the uncertainties about outflow of goods from countries of
The
agreement on South Asian Free Trade Area (SAFTA) becomes operational under a
pre-set tariff-cut roadmap aimed at boosting regional trade among the seven-nation
grouping.
Local
businesses, however, apprehended that non-tariff and para-tariff barriers would
be a stumbling block to reaping immediate benefits out of the agreement. They
said that it would not yield the desired results without removing the NTBs and
PTBs. “Even zero tariffs will not help achieve what we want from the SAFTA agreement,”
said a leading businessman.
In Future
Regional
groupings have proliferated around the globe. While some have been successful,
others have not. World Bank (2004) reviews the regional experiences around the
world and points out six broad conclusions for the success of such groupings of
free trade. Firstly, a regional trade agreement does not automatically result
in increased trade and growth. Whereas the intention at the time of formation
of the group is always to promote intra-regional trade and economic cooperation
in all the fields, a large number of interest groups emerge who on the grounds
of injury to their industry, call for exemption of reduction in the import
duties. The experience with SAPTA has been disappointing for this reason. SAFTA
allows a sensitive list and if the list is large, then it may not see higher
intra-regional trade. Whenever trade would be promoted, the industries in which
the country does not have comparative advantage will close down. Moreover,
agreements that kept in place high external border barriers, protect
inefficient activities and undermine the competitiveness of all countries.
Second,
the trading arrangements with unilateral efforts among members to reduce
external protection have been more successful. Reducing trade barriers
vis-à-vis the rest of the world creates an incentive for all members to export.
It augments competition that drives domestic productivity [see Muendler
(2002)]. When external protection is generally low, trade creation usually
dominates trade diversion, and so the risk that regional agreements will be a
drag on growth is substantially reduced. Indeed regional agreements where
members have had low external protection have enjoyed greatest success [see
Baldwin and Venables (1995) and Burfisher, et al, (2003)]. Third,
the agreements between the countries with different factor endowments have
shown more consistent success because of the opportunities to exploit different
comparative wage rates, capital availability, technological levels that give
rise to differing factor proportions in production [Schiff and Winters (2003)
and Lederman et al, (2003)]. However, this conclusion runs contrary to the
success of EU. The promotion of intra-industry trade would result in higher
growth even if factor endowments are similar. Fourth, a regional integration
framework that helps in trade creation and competition amongst regional
countries would help in lowering domestic prices and providing new technology.
It is impossible to have the benefits of a regional agreement without exposing
the member economies to new competition.
[Hoekman
and Schiff (2002)]
Fifth,
competition in services also results in successful integration. Lowering the
cost of telecommunications, finance, business services, and retail and
wholesale commerce would result in productivity gains. Finally, there is a need
to streamline borders transactions through trade facilitation. Increase in
efficiency within the region often spills over into trade outside the region as
well, because improving customs or improving efficiency of ports helps both
intraregional trade and international trade.
RIS
(2004) reports results of studies conducted in the framework of gravity model.
It suggests that complete elimination of tariffs under SAFTA may increase the
intra-regional trade by 1.6 times. It further suggests that in the dynamic
framework the gains from liberalisation are at least 25 per cent higher than
the static gains. However, these gains are grossly in view of SAARC's large
trade potential; it exists both in trade diversion from traditional sources
towards SAARC countries by removing the constraints and trade creation and
expansion by easing import restrictions on products which SAARC countries are
not trading in but are their major exports. While more than half the exports of
manufactured goods from South Asia consist of textiles and leather products,
they are subject to very high rates of import duties and/or quantitative
restrictions and even outright bans in
In
the short term, the economic impact of free trade within
Besides
the issue of trade linkages, these are several possibilities for enhanced
economic co-operation in the region, most notably in the energy sector. There
is also potential for
The
SAFTA has great potential and South Asian countries should accept the
short-term costs for long-term benefits.
Azimpur,
Submission
Date: July 10, 2006
An
Assignment For Mohammad Shariful Islam, Course Instructor, International
Business (ITB301), Department of Business Administration,
Reference
http://www.bilaterals.org
http://nation.ittefaq.com
http://www.southasianmedia.net
http://www.financialexpress-bd.com
http://www.blonnet.com
http://fecolumnists.expressindia.com/
http://www.saarc-sec.org/
http://www.himalmag.com
http://in.rediff.com
http://www.erd.gov.bd
http://www.centralchronicle.com/
http://www.sdpi.org/
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