“South Asian consumers stand to gain hugely from enhanced intra-regional trade”, said Pradeep Mehta, Secretary General of CUTS International. Speaking on the importance of the forthcoming summit of South Asian leaders he said that annual savings of consumers could be as much as US$ 2 billion. According to a study undertaken by CUTS with support from The Asia Foundation and in collaboration with prominent think tanks from five major South Asian countries, the South Asian Free Trade Agreement holds the key to realise this gain.
The SAARC Summit to be held in Maldives in this week provides a good platform for South Asian leaders to renew their commitment toward greater regional integration.
Though South Asian economies have achieved significant growth in international trade, expansion of trade relationships has been mostly with trading blocs outside the region. There are many product categories in which imports are currently sourced by South Asian countries mainly from Europe, South East Asia and the Middle East, while they could resort to cheaper imports from regional trading partners who have export competence in such products.
One of the main reasons why intra-regional trade in South Asia failed to take off is lack of political will in taking the SAFTA negotiations to the next stage. Many products with regional trade potential are still kept out of bounds of the Agreement’s tariff liberalisation programme for fear of disturbance to domestic industries from import competition, Mehta added.
The CUTS study entitled Cost of Economic Non-Cooperation to Consumers in South Asia shows that in about 355 excluded products listed by SAFTA members, there exists very strong prospects for higher regional trade if preferential tariff rates under the Agreement are applied to them. Not only will consumers benefit from lower prices and wider choice, possibilities for scaling up of production in sectors like pharmaceuticals, textiles and mineral fuels will be thrown open.
The estimates further reveal that intra-regional trade at reduced tariffs on these products would amount to more than 30 percent cut in their current import bills, which translates to an absolute increase of about 50 percent in current volume of trade between SAFTA members.
A change in the attitude of South Asian countries toward more and better regional integration is an imperative to push the tariff liberalisation agenda forward, without which deeper economic integration will remain unattainable. The first step is to realise the importance of granting import concessions on a reciprocal basis, not only just as a policy tool to gain export markets but also as a significant source of economic benefits on its own.
The CUTS study also suggests that regional trade can be boosted with minimal risks to import competing sectors by selecting product categories diligently. Moreover, the estimates generated represent minimum static gains and the long-term potential of SAFTA to contribute towards economic growth and development in the region is even greater.
This is because once a minimum sustainable level of intra-regional trade flow is reached it would naturally create a greater momentum in trade relationship resulting in better trade facilitation measures, better returns from investments in trade-related infrastructure and additional incentives for private enterprises to explore regional markets. Substantial cuts in trade costs can surely be expected resulting in the beginning of a positive cycle of trade leading to more regional integration.
CUTS International is a Jaipur-based non-governmental think-tank doing policy research and advocacy on trade and regulatory issues. Enhancing regional cooperation in South Asia is one of its major areas of work. The organisation has created a dynamic network of South Asian think-tanks, academia, policy-makers, media representatives, etc to take forward this initiative
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