Cost of economic non-cooperation to consumer in South Asia high

Business and Economy, February 03, 2012

Increasing trade in South Asia at preferential rates on a range of products that have both high intra-regional trade potential and high prospects for improving consumer welfare could save at least $2 billion per year, according to a recent study done by CUTS International, South Asia Watch on Trade, Economics and Environment (SAWTEE) and other research organisations in the region.

Launching the report, ‘Cost of Economic Non-Cooperation to Consumers in South Asia’, at a meeting in Kathmandu today, minister of Commerce and Supplies Lekh Raj Bhatta said that the interests of consumers, who constitute the largest segment of stakeholders, should not be neglected while assessing the impact of trade liberalisation.

“While tariff liberalisation increases overall consumer welfare, it also brings with it revenue loss, impacting spending on crucial development activities,” he said, adding that tariff liberalisation should also be complemented with a robust and meaningful revenue compensation mechanism.

“Those, who would have to make a net positive contribution to the compensation fund and may be loath to the idea should note that the contribution is aimed at facilitating and speeding up trade liberalisation, which helps their own exporters.”

On the occasion, executive chairman of SAWTEE Dr Posh Raj Pandey said that South Asia represents a puzzle as far as the issue of regional economic cooperation is concerned, where despite geographical proximity and cultural similarity, trade and economic interaction is extremely limited.

“The share of regional trade, which currently stands around five per cent, is equivalent to what the region was able to achieve in 1950s,” he said, suggesting that the region has virtually made no progress in the past six decades.

“People put the blame on political factors but economic factors have also contributed in low volume of trade in South Asia,” he added.

A perception survey — which was also a part of the study, held in Bangladesh, India, Nepal, Pakistan and Sri Lanka — revealed that though most of the stakeholders including government officials — dealing with issues of regional trade integration — politicians, trade and industry representatives, and consumer representatives believe in the merits of regional economic cooperation, optimism about economic possibilities is hidden in pessimism about political feasibility. “Also, awareness about the benefits of imports and its potential for consumer welfare is very low among some key stakeholders,” the report noted, adding that more objective discussion on economic benefits can discredit many unjustified belief about regional economic cooperation and bringing the dimension of consumer welfare gains into the ambit of such discussion can influence the course of future regional integration substantially, making it more inclusive, participatory and progressive.

Similarly, advisor and head of International Trade and Regional Cooperation at the Economic Affairs Division of the Commonwealth Secretariat Edwin Laurent said that trade and investment nexus should be harnessed to benefit from trade liberalisation in the region.

However, it is necessary for the developing countries to be fully prepared before and understand the fine details before signing any investment treaty, he added.

Likewise, country representative of the Asia Foundation Nick Langton expressed the view that tremendous potential exists for regional cooperation in South Asia, not only in the areas of trade in goods, but also in trade in services. He also emphasised that it is the consumer that is going to benefit the most from any trade liberalisation effort.

The event is jointly organised by SAWTEE, The Asia Foundation, Commonwealth Secretariat and CUTS International that initiated the project to enquire into the potential benefits of increase in intra-regional trade to consumers in the region, based on a hypothesis that ineffective and insufficient trade liberalisation in South Asia is resulting in high cost by way of loss of consumer welfare.

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