Business Economics $ Services Team (BEST)
SAARC Free Trade Zone -More Hype, a Non Starter
Ahead of the forthcoming Summit of the South Asian Association for Regional Cooperation (SAARC) to be held in Kathmandu shortly, a lot of news are in the public domain speculating on the agenda, outcome and things of that nature. Most hotly debated issues are the likely conclusion of two agreements -SAARC Motor Vehicle Agreement and pact on Railways. This is nothing new and has been going on for several years with almost zero results.
As a concept SAARC had caught up with the imagination of many leaders from the region. During Prime Minister Gujral's time, he took it as his pet subject and created a special cell in the PMO to deal with the SAARC region. His short stint at the helm of affairs was one among the several reasons for not making any headway in that direction. That time also a road route through Pakistan for exporting Indian goods to CIS countries was preferred. Lack of road connectivity forced Indian exporters to use Bunder Abbbas in Iran as a transhipment point for exporting to CIS, adding up to their transaction costs considerably. The project was shelved on account of the passive resistance from Pakistan.
Similarly, another plan was formed to bring the natural gas from Bangladesh to India to provide uninterrupted feedstock to Indian companies. Many grand plans were formulated and a number of US companies were keen to tap the gas from Bangladesh and to bring them through pipe into India for finding lasting solutions to India's energy defict. The project had to be shelled or remained as a non-starter allegedly due to the pressure exerted by China on Bangladesh.
Another project was floated for trapping the hydel resources in Nepal for electricity generation to be used by the Indian companies adjoining that area and the surplus to be sold to Bhutan, which has to depend on energy from Indian sources. Some of the hydel projects were identified. But the work did not start on account of the high cost of generation. Also, that was the time, many companies like Dabhol, Cogentrix etc had withdrawn from India on account of the high generation cost, which would translate into higher cost of energy for the consumers.
India had grand plans for Sri Lanka and many Indian companies had started their operations in that island country. Because of the huge availability of natural rubber, a few Indian Tyre companies had either evinced their interest in launching their operations and one or two among them really started their operations. Later these operations were wound up for one reason or the other.
Admittedly, all these concepts were floated during a time when regional cooperation was the talk among diplomats, economists, policy makers and political higher ups. NAFTA, ASIA Pacific Rim, ASEAN,Caribbean Cooperation Agreement etc. were exotic terminologies, close on the heels of formation of European Union (EU). Many thoughts that was the trend that would sustain. SAARC also inked the concept of free trade and prior to that, to increase the intra-regional investment and trade, SAPTA was evolved giving prefrential access to countries in the region for each others market. India unilaterally cut the tariff of many items to facilitate more imports from other SAARC countries, which were constantly complaining about the limited market access to the Indian market. A free trade zone was created between Sri Lanka and India for limited products like tea and rubber. Border trade was allowed between India and Pakistan to circumvent the smuggling and switch deals of Indian products through Dubai to Pakistan, increasing the transaction cost considerably. But that did not increase either the intra-trade or investment, which is roughly calculated at 5 to 6 percent of the total trade from the region. Whereas such figures for EU is more than 60 percent and ASEAN close to 40 percent.
Now the SAARC has come in focus again. What is important to keep the target and road map realistic. The first attempt should be to plug the trust deficit among the nations, which has not shown any marked improvement. Trade and investment flow only when there is peace in the sub-continent. Major diplomatic breakthroughs are needed in this regard particularly between India and Pakistan, two major players in the sub-continent. Basic to that is the evolution of a consensus for dealing with terrorism in an iron-fisted manner. Two, focus on low lying fruits initially rather than coming out with grand plans. The lowest lying fruit in this regard is promotion of intra-toursim, which is easier tap and will be beneficial to all countries in an equitable manner.
For more information and response: BEST E mail:jthac1234@gmail.com,jthac1234@yahoo.com
SAARC Free Trade Zone -More Hype, a Non Starter
Ahead of the forthcoming Summit of the South Asian Association for Regional Cooperation (SAARC) to be held in Kathmandu shortly, a lot of news are in the public domain speculating on the agenda, outcome and things of that nature. Most hotly debated issues are the likely conclusion of two agreements -SAARC Motor Vehicle Agreement and pact on Railways. This is nothing new and has been going on for several years with almost zero results.
As a concept SAARC had caught up with the imagination of many leaders from the region. During Prime Minister Gujral's time, he took it as his pet subject and created a special cell in the PMO to deal with the SAARC region. His short stint at the helm of affairs was one among the several reasons for not making any headway in that direction. That time also a road route through Pakistan for exporting Indian goods to CIS countries was preferred. Lack of road connectivity forced Indian exporters to use Bunder Abbbas in Iran as a transhipment point for exporting to CIS, adding up to their transaction costs considerably. The project was shelved on account of the passive resistance from Pakistan.
Similarly, another plan was formed to bring the natural gas from Bangladesh to India to provide uninterrupted feedstock to Indian companies. Many grand plans were formulated and a number of US companies were keen to tap the gas from Bangladesh and to bring them through pipe into India for finding lasting solutions to India's energy defict. The project had to be shelled or remained as a non-starter allegedly due to the pressure exerted by China on Bangladesh.
Another project was floated for trapping the hydel resources in Nepal for electricity generation to be used by the Indian companies adjoining that area and the surplus to be sold to Bhutan, which has to depend on energy from Indian sources. Some of the hydel projects were identified. But the work did not start on account of the high cost of generation. Also, that was the time, many companies like Dabhol, Cogentrix etc had withdrawn from India on account of the high generation cost, which would translate into higher cost of energy for the consumers.
India had grand plans for Sri Lanka and many Indian companies had started their operations in that island country. Because of the huge availability of natural rubber, a few Indian Tyre companies had either evinced their interest in launching their operations and one or two among them really started their operations. Later these operations were wound up for one reason or the other.
Admittedly, all these concepts were floated during a time when regional cooperation was the talk among diplomats, economists, policy makers and political higher ups. NAFTA, ASIA Pacific Rim, ASEAN,Caribbean Cooperation Agreement etc. were exotic terminologies, close on the heels of formation of European Union (EU). Many thoughts that was the trend that would sustain. SAARC also inked the concept of free trade and prior to that, to increase the intra-regional investment and trade, SAPTA was evolved giving prefrential access to countries in the region for each others market. India unilaterally cut the tariff of many items to facilitate more imports from other SAARC countries, which were constantly complaining about the limited market access to the Indian market. A free trade zone was created between Sri Lanka and India for limited products like tea and rubber. Border trade was allowed between India and Pakistan to circumvent the smuggling and switch deals of Indian products through Dubai to Pakistan, increasing the transaction cost considerably. But that did not increase either the intra-trade or investment, which is roughly calculated at 5 to 6 percent of the total trade from the region. Whereas such figures for EU is more than 60 percent and ASEAN close to 40 percent.
Now the SAARC has come in focus again. What is important to keep the target and road map realistic. The first attempt should be to plug the trust deficit among the nations, which has not shown any marked improvement. Trade and investment flow only when there is peace in the sub-continent. Major diplomatic breakthroughs are needed in this regard particularly between India and Pakistan, two major players in the sub-continent. Basic to that is the evolution of a consensus for dealing with terrorism in an iron-fisted manner. Two, focus on low lying fruits initially rather than coming out with grand plans. The lowest lying fruit in this regard is promotion of intra-toursim, which is easier tap and will be beneficial to all countries in an equitable manner.
For more information and response: BEST E mail:jthac1234@gmail.com,jthac1234@yahoo.com
