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SAARC summit and SAPTA.

It augurs well that seven member states - Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka - of SAARC (South Asian Association of Regional Cooperation) in a summit meeting in New Delhi between May 2 to 4 have agreed on preferential trade arrangement known as SAARC Preferential Trading Arrangement (SAPTA) to be ratified by November 8, so that it could become operational by December 8 - SAARC's tenth anniversary. The proverb "better late than never" is applicable here as at long last the leaders of SAARC countries have come to some understanding on mutual economic cooperation among themselves.

South - South cooperation has, no doubt, remained a fantasy notwithstanding the claim to the contrary. Each country of the South tries to woo the countries of the North in its economic relationship in order to derive benefits from their superior technology and does not hesitate in pursuing a beggar - thy - neighbour policy. SAARC's experience is no different as the bickering inherited from the colonial era still looms large.

When SAARC was established in 1985, not much hope, however, was pinned on its success nor any concrete actions were taken since then except annual ceremonial meeting of the heads of the government or state. With the recent shift in global environment encompassing the need of blocs like, North America Free Trade Area (NAFTA), European Union (EU), Asia Pacific Economic Cooperation (APEC) and Association of South East Asian Nations (ASEAN), tariff reduction and trade liberalisation moves, the SAARC leaders are now realising the need for economic collaboration as they have been outrun by emerging countries namely Korea, Taiwan and even Thailand. The combined export of SAARC countries is less than 42 per cent of that of Korea. The key economic indicators of SAARC countries given below will be helpful in pinpointing the deficiency in economic parameters:-

It will be observed that with an area extending over 4.5 million square kilometers and a population of 1.2 billion roughly one-fifth of the world, the region contributes only one per cent to international trade. The per capita income of member countries ranges between $170 for Nepal to $ 540 for Sri Lanka with India only $ 310 compared to $ 6,790 for Korea. In terms of literacy level, the position of all but Sri Lanka is worst. The reasons are not far to seek. The major factor is mutual acrimony which led to heavy defence spending. Because of heavy expenditure on defence, the share of education in total expenditure of India and Pakistan is only 2 per cent each. Second, SAARC like other countries of the South has always looked towards the North for trade as well as supply of weapons. The result is obvious.

Over one-third of the population in these countries falls below the poverty line. It is a happy signal that a pledge has been made to eradicate regional poverty by year 2002.

South Asia is endowed with abundant resources such as iron, coal, jute, cotton, fish, tea, timber, rubber and leather. Major export items of SAARC countries are as follows:-

Bangladesh: Jute goods, ready made garments, tea, fertilizer, newsprint and spices.

Bhutan: Timber, dolomite, spices, fruits and juices.

India: Fish, tea, iron, cotton fabrics, ready made garments, pearls, precious and semi precious stones, metal products, vehicles and machinery.

Maldives: Coconut palm and fish. Nepal - Cotton garments, carpet, jute, timber, oilseeds, medicinal herbs, hides and skins and potatoes.

Pakistan's: Cotton, cotton fabrics, yarn, leather goods, rice and fish.

Sri Lanka: Tea, rubber, copra and coconut oil.

The area is deficient in food items because of burgeoning population. Machinery, transport equipment, petroleum products and chemicals are main imports. Pakistan trade with SAARC is minuscule as detailed below:-
Pakistan's Trade with SAARC during 1993-94

 Import Export

Bangladesh 863 3,092
Bhutan 73 17
India 2,126 1,288
Maldives 3 29
Nepal 21 77
Sri Lanka 1,160 1,989

Total SAARC 4,246 6,492

Total Trade 258,250 205,499

Total import from SAARC formed 1.6 per cent of import and 3.2 per cent of export during 1993-94 which is small by any indicator. Main items of import from different countries are given below:-

Bangladesh: Tea, jute and sacks of jute

Bhutan: Motor car chassis

India: Ginger, tea, cardamoms, soyabean meal, iron ore, bidi leaves, phthlamic anbydrite, reactive dyes, catechu, cement, zinc ingots and industrial sewing machines.

Maldives: Reactive dyes and preparations

Nepal: Lentil and palm oil

Sri Lanka: Tea, coconut seed, black pepper, copra, rubber, betel leaves and broom sticks.

Major Export items to different countries are as follows:

Bangladesh: Rice, cotton, coal tar, yarn, cotton cloth and sugar machinery Bhutan - Yarn

India: Raisin, almond, dried dates, sugar, crude petroleum and tanned leather Maldives - Medicaments and yarn

Nepal: Poppy seed

Sri Lanka: Fish, rice, sugar, cotton medicaments, cotton yarn, cloth and fabrics.

It will be observed that the nature of Pakistan's trade with SAARC countries is very limited like the trade between other SAARC countries. The total intra - SAARC trade volume is only $ 3 billion annually.

SAPTA may inter alia consist of arrangements relating to:

(a) tariffs, (b) para-tariffs, (c) non-tariff measures and (d) direct trade measures. (a) means customs duties; (b) means border charges and fees other than tariffs on foreign trade transactions of a tariff - like effects which are levied on imports but not indirect taxes which are levied on like domestic products; (c) means any measure, regulation or practice other than tariffs and para-tariffs, the effect of which is to restrict import or to significantly distort trade; (d) means measures to promote mutual trade such as long and medium-term contracts containing import and supply commitments in respect of specific products, buy-back arrangements, state trading operations and government and public procurements.
Important Economic Variables of SAARC

 Per Adult
 Area Popula- Capita Illite-
 (000 Sq. tion GNP racy Export
 Km.) (Million) ($) (%) ($ Min.)

Bangladesh 144 114.4 220 65 1,903
Bhutan 47 1.5 180 62 -
India 3,288 883.6 310 52 19,795
Maldives 0.3 0.6 500 - 0.3
Nepal 141 19.9 170 74 369
Pakistan 796 119.3 420 65 7,264
Sri Lanka 66 17.4 540 12 2,487

Total:- 4,482.3 1,156.7 31,818.3

Source: World Bank Development Report, 1994.

The member states may conduct their negotiations for trade liberalisation in accordance with any or a combination of the following approaches and procedures:-

(a) Product - by-product basis

(b) Across the board tariff reductions

(c) Sectoral basis, and

(d) Direct trade measures.

SAPTA shall include all products, manufacturers and commodities in their raw, semi-processed and processed forms. There is a need to include services. In order to promote SAPTA, India has offered tariff concessions on 106 items out of 226 commodities traded among the SAARC countries. Pakistan and Sri Lanka have offered 35 and 31 items respectively. Maldives and Nepal have offered concessions on 17 and 14 items respectively. Bangladesh and Bhutan have offered concessions on 12 items each.

There is a need of political will and determination for SAPTA to succeed in order to promote intra - SAARC trade. Such a trade will not only make available relatively cheaper commodities but also help reduce freight cost. Freight cost of Pakistan alone amounts to around $ 800 million annually in foreign exchange. The total freight cost of the region is around $ 3 billion per annum which could be substantially slashed in the event of greater trade collaboration. In addition, joint ventures can also be established. In Pakistan, most of the chemical and engineering industries could not be established because of limited domestic market With SAPTA in the offing, it will be possible for such industries to be set up in Pakistan and similarly in other countries namely Bangladesh, Nepal, Sri Lanka, Bhutan and Maldives.

The argument of protection of domestic industries in the case of tax concessions and opening market to SAARC countries does not hold good. When Pakistan and also other countries could withstand the onslaught of smuggled goods worth billions of dollar annually, it would be naive to put forth protection argument. Free trade area promotes trade to the mutual benefit as it is based essentially on the concept of comparative cost.

South Asia economically lags behind the countries to the west and the east. West Asia is rich as it is endowed with oil with sparse population. East Asia, on the other hand, has succeeded in forging closer collaboration in the form of ASEAN and is on the road to rapid economic progress. Addressing the SAARC summit recently, President Farooq Ahmad Khan Leghari has aptly pointed out that South Asia has been left behind because of issues which are legacies of the colonial era and were nurtured during the cold war. Acrimony and bickering among SAARC countries have marred the prospects of free trade area so far, a redeeming feature of the developed countries. It is time that our political leaders get together and shed the legacy of the colonial era and forge economic cooperation among themselves.

SAARC countries have to evolve a common strategy for taking maximum advantage of the opportunities arising out of the post - Uruguay Round scenario. WTO has been established. On the one hand, developed countries are erecting non-tariff barriers like environment, human rights, child labour and intellectual property rights to stall market penetration of the developing world. On the other hand, WTO is demanding the developing countries for tariff reduction. As such, these countries will be exposed to all sorts of imports from the developed countries.

Mr. S.M. Inam, President, SAARC Chamber of Commerce and Industry has taken keen interest over the years in the promotion of the idea of SAPTA. It will be pertinent if studies are undertaken by the Chamber identifying the area of trade as well projects to be established in different countries. Such studies can serve as a guide to businessmen and investors.
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Title Annotation:South Asian Association of Regional Cooperation; SAARC Preferential Trading Agreement
Author:Asad, S. Hasan
Publication:Economic Review
Date:May 1, 1995
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