Central banks of South Asian countries will be consulted to develop a work programme to reduce delays and stop defaults on trade-related payments,” said L. Savithri, Director (Economic, Trade and Finance), SAARC Secretariat. She was speaking at a meeting co-organised by CUTS International and Federation of India Chambers of Commerce and Industry, which was held in New Delhi last Saturday, the 24th of May 2014.
It was organised part of a project on Financial Intermediaries and Trade Facilitation in South Asia, supported by The Asia Foundation. Lack of financial connectivity is one of the major components of cost of doing intra-regional trade in South Asia.
Speaking on the occasion, Muhammad Iqbal Tabish, Secretary General, SAARC Chambers of Commerce and Industry highlighted the importance of collective efforts. He reiterated that “think-tanks, civil society organisations, business and trading community need to come together to generate the demand for a new, simplified financial mechanism to facilitate intra-regional trade.”
Allen Chaote, Acting Country Representative of The Asia Foundation underlined that “there is an urgent need to address specific non-tariff barriers in a systematic and harmonised manner as they are hindering SAARC countries to realise the potentiality of intra-regional trade.” Currently, annual volume of intra-regional trade is about US$ 20 billion, whereas potential trade value is estimated to be US$ 80 billion annually. “Several low-hanging fruits are there. One has to identify and make sustained efforts to achieve practical results,” he added.
“For political manoeuvring by the private sector, confidence in the system has to prevail. Business houses should complement the efforts of central banks with their own,” said Majyd Azij, Former President, Karachi Chamber of Commerce and Industry.
Goutam Ghosh, Director & Head, South Asia & Arab Regions, Federation of Indian Chambers of Commerce and Industry argued: “In order to find long-term solutions to banking related problems faced by traders, it is not only necessary to facilitate cross-border presence of native banks of South Asian countries in each other’s territory, but also it is an imperative to introduce harmonised system of regulatory reforms for the betterment of quality of trade-related financial institutions and services.”
“Harmonisation of norms of trade-related financial transactions is very vital and is a first step in facilitating banking reforms in support of furthering trade transactions,” said Bipul Chatterjee, Deputy Executive Director, CUTS International. “While opening of native bank branches in all South Asian countries and creating a harmonised system of trade-related financial transactions should be part of short- and medium-terms goals of regional trade facilitation, over time, SAARC countries should do intra-regional trade in local currency as that would significantly reduce financial transaction costs of doing trade,” he added.
For many years intra-regional trade in South Asia has suffered because of lack of reliable means of financial payments made against trade transactions. There have been frequent complaints of delays in transfer of payments made by traders or even rejection of financial instruments furnished for such payments. Many traders have reported difficulties faced in inter-country transfer of funds, which have inflicted significant financial losses, leading to discouragement from entering into further cross-border commercial engagements within South Asia. This creates negative perceptions of doing intra-regional trade. Trade potentiality cannot be achieved unless such perceptions are addressed.
CUTS has advocated that the Ministerial Council of the Agreement on South Asia Free Trade Area should constitute a commission to function under the supervision of the SAFTA Committee of Experts, which has the mandate to assess and implement regulatory reforms required for facilitating access to reliable payment modes, instruments and service providers. A memorandum was presented to the representative of the SAARC Secretariat.
The participants also expressed their demand that the SAARC Chambers of Commerce and Industry be duly notified and entrusted with the responsibility of assisting reform initiatives in consultation with apex industry chambers of all SAARC Countries.
In addition, the idea of a regional mediation centre was mooted which would expedite the processing of line of credits and related financial instruments used in trade and act as a redressal body dealing with complaints related to trade-related payments.
While the South Asian trading community demands that the initiatives taken in this area are expedited, in the interim, a list of banks from each country should be identified and authorised by respective national financial regulatory authorities as nodal financial service providers with regard to intra-regional trade. Such nodal banks should be entrusted with the responsibility of fast-tracking reliable and transparent payment modes.
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