South Asia FTA more about free talk than free trade

NEW DELHI - Trade experts say the South Asia Free Trade Agreement (SAFTA) is more about free talks than a real attempt at opening up trade flows among the SAARC seven. Trade experts point out that trade talks in the South Asian region are well ahead of intra-regional trade, and even implementation of existing trade agreements.

SAPTA – the South Asia Preferential Trade Agreement – was never fully operationalised but South Asian countries launched into a regional free trade agreement with the SAFTA. Now the SAARC countries are talking about a South Asian Economic Union while the SAFTA is yet to be fully implemented. Trade experts are more sceptical than hopeful.

“SAFTA negotiations started while SAPTA was still being negotiated. Now we are again talking about a South Asian Economic Union by 2020 while SAFTA is still not fully operational,” said Professor Upali Wickramasinghe, from the University of Sri Jayawardenepura speaking at a regional trade conference organised by the Centre for Trade and Development (CENTAD) in New Delhi, India last week.

“In the next few years we will see an agreement for an economic union, without implementing the free trade agreement, same as with the SAPTA. So we will see an agreement for an economic union without much tangible effect,” said Prof. Wickramasinghe.

While an Economic Union is expected to benefit the region by harmonising customs duties, its practicality is questioned given lack of effectiveness of existing trade agreements.

Trade among South Asian countries is still only around 5% of the region’s total global trade. Despite all the talk and trade agreements, South Asian countries also maintain a great many trade barriers against each other. These include high customs duties, non-tariff barriers like technical and health certifications and standards and also quantitative restrictions.

“All the countries in South Asia have many non tariff barriers and quantitative restrictions. However, there is no mechanism to eliminate quantitative restrictions even on goods getting tariff concessions and to eliminate non-tariff barriers within an agreed time frame as in the case of ASEAN,” said Prof. Wickramasinghe. Although the first round of tariff cuts under the SAFTA were introduced in July this year, SAFTA progress is painfully slow.

“Although SAFTA officially came into effect from the first day of July 2006, none of the member countries could enjoy the benefits, as the non tariff and para-tariff barriers remained obstacles to free trade. Thus the effectiveness of the SAFTA agreement has become a far cry,” said Professor Atiur Rahman from the University of Dhaka, Bangladesh.

Trade experts point to poor relations between Pakistan and India as a major road block to formal trade facilitation in the region.
“Geo-political and institutional issues such as the mistrust between Pakistan and India and Pakistan’s refusal to grant MFN status to India are the main constraints to greater regional integration,” said Prof. Wickramasinghe.

SAARC countries are also finding it difficult to trade with each other because of bureaucratic procedures and poor infrastructure like inadequate roads, ports and power supply in each other’s countries. According to the current free trade agreement, Pakistan and India are to complete implementation by 2012, Sri Lanka by 2013 and Bangladesh, Bhutan, Maldives and Nepal by 2015.

Hence the SAFTA would be fully operational only by 2016. However given the slow pace of movement and the lack of political will to drive the SAFTA, the benefits are doubtful.

Trade experts say India should take the lead in pushing the SAFTA and say concrete action in other areas like trade facilitation, harmonisation of standards and cooperation in setting up infrastructure, will do more to promote regional trade than more trade talks.