Published Date: Dec 8, 2015
SAARC’s Feeble Trade
Almost twelve years since the South Asian Free Trade Agreement (SAFTA) was signed by all the SAARC countries, the results are astoundingly abysmal – intra-regional trade under SAFTA as a percentage of total SAARC trade has remained stagnant at the five percent mark since the agreement was signed in 2004! Compare that with the EUs 70 percent, NAFTAs 49 percent, or even ASEANs 16 percent to put things into perspective.These alarming figures were presented at the SDPI’s Eighth Annual South Asia Economic Summit, where the discussion was centered on SAFTA and the way forward. A host of reasons were identified for the resounding failure of SAFTA – lack of political will on the part of South Asian leaders, mistrust between countries, unstable policies, and non-tariff barriers such as strict border control and an overall lack of facilitation and other red tape. All these issues need to be addressed.
The consensus is that trade liberalization is the way forward and needs to be implemented in letter and in spirit. However, one elephant in the room is the unfortunate case of Pakistan; how can the country open up its borders to free trade when the government is bent on following a protectionist agenda? Our agricultural sector is surviving on support prices and our Finance Minister has imposed duties on every import under the sun in the name of revenue generation. The cost of doing business is too high, our exports are uncompetitive and a level playing field appears to be a distant utopian concept. Its an unfortunate reality, but opening the borders to free trade could destroy domestic commerce in the short run.Indeed, the transformation from protectionism to free trade can be long and painful, not to mention highly damaging to the domestic industry in the short run, one of the panellists from the World Bank told BR Research. Exactly what the damage will be and how long would the country have to endure, these are questions that need to be answered when discussing SAFTA.But trade in goods is just one side of the coin; the other being trade in services.
The SAARC Agreement on Trade In Services (SATIS) was signed in 2010 and has proven even more disappointing than SAFTA, with most of the member countries still negotiating terms! With the exception of Bhutan, the service sector of every SAARC country accounts for the lion’s share of GDP (Pakistans service sector contributes around 54 percent to GDP). Moreover, a liberalized service trade is important not only because it would bring in foreign exchange, but also because of FDI; services require personal contact between customers and clients, and such trade is largely made possible via FDI and movement in labour. Unlike goods, trade in services is not controlled by tariffs and is not restricted by borders – it is controlled through regulations. And as everyone knows, Pakistans FDI inflows have dried up and we are in need of investment. To liberalize trade in services is thus to bring in investment and labour.