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SOUTH Asian countries have a long history of pursuing inward-looking trade policies with a basic goal of protecting their import-substitute domestic industries. Until the early 1990s, they were, to a great extent, averse to competition in the global market place having strong bias against exports. The over-valued exchange rates, higher tariffs and other controls restricted access to inputs that were very much essential for boosting exports. More importantly, the leaders of this region failed to understand the fact that trade could be an effective tool to boost growth and reduce poverty.
The trade policies of South Asian countries discriminated more against intra-regional trade than trade with the rest of the world. The inter-regional trade which was 19 per cent of the total trade of the South Asian nations in 1948 came down to 4.0 per cent in 1971. However, it increased marginally to 4.9 per cent in 1998, mainly due to renewed international emphasis on global trade integration. Studies have found that potential for increased regional trade is not bright compared to that with the rest of the world for a number of factors. Sadly enough, that limited potential also has not been exploited under a free, fair and balanced trading arrangement. The South Asia Preferential Trading Agreement (SAPTA) was signed at the seventh South Asian Association for Regional Cooperation (SAARC) summit in Dhaka in 1993 but it has so far left a very limited impact on intra-regional trade. Whatever growth that has taken place in the regional trade has been primarily due to limited liberalisation efforts on the part of the individual countries.
In the backdrop of such a dismal intra-regional trade scenario, the SAARC council of ministers in 1995 decided to form the South Asia Free Trade Area (SAFTA) not later than 2005 with the principal objective of expanding the scope of tariff concessions and thereby promoting regional trade. After a lot of foot-dragging, the South Asian leaders at their 12th summit in Islamabad signed a free trade agreement on January 06, 2004. The agreement comes into effect from January 1, 2006. In this context, the postponement of the 13th SAARC summit in Dhaka at the insistence of India and deferment of the expert-level meeting on SAFTA in Male in February following Pakistan's inability to attend it had been unfortunate. Such development had created a sense of frustration among many who are eager to see increased economic and trade interactions among the South Asian countries. However, the successful outcome of the expert-level meeting that ended with an agreement on the rules of origin (ROO) issue would now surely take away much of their frustration. Actually, in spite of much resistance from India, the SAARC council of ministers at its meeting in 1999, the value addition requirement was reduced to 40 per cent for the non-LDC (least developed country) members and 30 per cent for LDC members. The SAFTA framework agreement also provides for gradual harmonisation and eventual reduction of import tariffs on trade within SAFTA to the 0-05 range. Yet then uncertainties about the SAFTA becoming a reality are very much real.
It is worthwhile to note here that the sensitive lists of individual countries that are exchanged at the last expert-level meeting are still too long. Unless such lists are shortened and some other weakness in the SAFTA agreement -- including the one relating to the use of anti-dumping and safeguard and countervailing duty actions -- are addressed well in time, the SAFTA might turn out to be as ineffective as the SAPTA. Here, the role of India, the giant trading partner of other regional countries, is considered very crucial. It needs to be more responsive to the trade and economic well-being of the relatively weaker regional economies. If New Delhi decides to go along that line, much of the hurdles to the auspicious launching of the SAFTA would be removed.
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