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Revitalising SAARC Trade

As India assumes the chairmanship of the South Asian Association for Regional Cooperation at the next summit in April, it is pertinent to review the potential gains in revitalising trade and commerce in the region, identify barriers to greater regional integration and charter a role for India in rejuvenating intra-SAARC trade.

Revitalising SAARC Trade

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Economic and Political WeeklyMarch 31, 20071082Table 1: Trade Restriction under SAFTASensitive ListCountryValue of ImportsNumberfrom SAARCof ItemsSubject to NLin NL(Per Cent)Bangladesh65.01254aBhutan–157India38.4884bMaldives74.5671Nepal64.01310cPakistan17.21183Sri Lanka51.71065Total52.9Notes:NL: negative list; a: For LDCs 1249 items;b: For LDCs 763 items;c: For LDCs 1301 items.Source:Adapted from Weerakoon andThennakoon (2006).Table 2: Commodity-wise Proportion of Tariff Lines in Sensitive ListShare of Tariff Lines (Per Cent)Commodity GroupIndiaPakistanBangladeshNepalSri LankaLive animals, animal products3.01.72.06.28.5Vegetable products20.24.23.510.819.1Animal/vegetable fats, oils, waxes3.62.40.51.33.5Prepared foodstuffs, beverages, spirits, tobacco7.63.05.97.815.4Chemical and allied industries3.86.34.94.32.1Plastics, rubbers10.79.85.35.87.9Wood pulp, paper, paperboard, scrap/waste paper1.54.04.54.54.6Textiles and textile articles34.224.131.636.91.9Footwear, headgear, umbrellas, walkingsticks, riding crops1.91.31.21.92.8Stone, plaster, cement, asbestos, mica, ceramic,glass, glassware1.05.02.13.43.4Base metals6.811.09.04.910.7Machinery, mechanical appliances,electrical appliances3.017.212.76.16.5Vehicles, aircraft, vessels, transportationequipment0.56.04.53.13.5Miscellaneous manufactured articles0.30.96.60.14.6Others1.82.95.92.85.6Total (per cent)100.0100.0100.0100.0100.0Total number of items in sensitive list8841183125413101065Note: Computed from negative list of SAARC member countries. Sensitive list includes items applicableto non-developing countries only.to India and may in fact comein the wayof its regional trading engagement with therest of the world. It is thereforein India’sinterest to invigorate SAARC trade.The significance of a robust SAARC inthe global arena is reflected in the keenparticipatory interest shown by China,the EU, Japan, South Korea and the US.WhileChina and Japan were given ob-server status at the Dhaka summit in 2005,the US and South Korea made formalrequests to obtain observer status in 2006,and the EU has indicated its interest in asimilar status. The Chinese interest in theregion should be of concern to India asChinese trade with India’s SAARC partnercountries has witnessed rapid growth inrecent years. Indeed, by 2004 China’sexports to India’s SAARC partners hadsurpassed India’s exports to them. In 2005,India’s exports to her SAARC partnercountries was $ 5.5 billion while that ofChina was $ 7.0 billion [IMF 2007]. In thelight of these developments it is importantfor India to re-visit the progress underSAFTA.Why Is Onus on India?India’s emergence in the world economicorder in the 21st century must be commen-surate with her image in the south Asianregion. Until now India has failed to incul-cate an environment of trust among SAARCpartners and commitment to free trade.India is perceived to be one of the mostprotected nations in the region. In particu-lar, until recently, India had loweredunilateral tariffs at a much lower rate thanits south Asian neighbours and has alsooffered the least amount of concessionsunder SAFTA in sectors of trade interestto the latter (agriculture and textiles).It is imperative for India to regain trustin the region, and unilateral liberalisationfor trade with SAARC partner countriescan be a first step in this direction. Second,only after India liberalises her merchan-dise market, can she ask for greater inte-gration in the region, including liberali-sation of services. India stands to gainfromtrade in all four modes of supply ofservices in various sectors, such as health,education, information technology,professional,etc. For instance, Indiacouldprovide health services throughtelemedicine, treat patients from othercountries,invest in hospitals in othercountriesand Indian doctors could travelabroad to provide services. Perhaps thelargest gain for India could be in theprovision of professional services thatwould be needed horizontally across allmanufacturing and service sectors. Simi-larly a greater integration of capitalmarkets, capital flows and associatedserviceswould create an enablingbusinessenvironment.Third, the north-eastern region of Indiaremains underdeveloped and lack ofconnectivity to the hinterland is one of themain reasons. Much of this is driven bythe denial of transit facilities. By offeringgreater trade concessions to its SAARCpartner countries, India could in turn askfor greater connectivity to the north-easternregion.Identifiable BarriersSome of the existing barriers to greaterintra-regional trade in south Asia are listedbelow. A possible role for India in easingeach of these obstacles is also delineated.Negative list/exclusion from tariff liberali-sation: The tariff liberalisation programmeunder the SAFTA allows members to retaina negative list of items that are not offeredfor concessional treatment. While on thesurface it appears that India has given thelargest concessions (amongst the largemembers) in terms of number of items inthe negative list, the same does not holdtrue when looking at value of importssubjected to the negative list (Table 1).Almost 53 per cent of the total import tradebetween SAFTA members has been sub-ject to the negative lists of the membercountries. Among the large member coun-tries, India and Sri Lanka have restrictedup to 38 per cent and 52 per cent respec-tively of their total imports by value fromthe SAFTA members under the sensitivelist category [Weerakoon and Thennakoon2006]. By contrast, Pakistan has excludedonly a little over 17 per cent of its imports(by value) from SAFTA members by valuefrom the tariff liberalisation programme(Table 1).The existence of a negative list hassignificantly limited the scope of theSAFTA regime. India could make agenuineattempt at ensuring that the pro-portion of imports (by value) of thenegativelist items in total imports frommember countries is lowered to 5 per centas is being considered between India and
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