How does Safta impact Bangladesh's exports?
India also called off the Indo-Pakistan Foreign Secretary-level composite talks due to be held on July 21. Pakistan reacted sharply to these Indian allegations, demanded that India produce evidence about her involvement before leveling any charges against her, and expressed her readiness to cooperate in the investigations.
The just-concluded Saarc Foreign Ministers Conference, held in Dhaka, thus offered a good opportunity to both the sides to meet on the sidelines and resume their dialogue. The Indian and Pakistani foreign secretaries met and both sides agreed to resume the peace dialogue for "the benefit of the peoples of the two countries" though no date has been announced for the next round of bilateral talks. While the two sides showed restraint and statesmanship at their bilateral meeting, they clashed on the issue of the South Asian Free Trade Agreement (Safta) and accused each other of obstructing its progress.
For all latest news, follow The Daily Star's Google News channel. The creation of a free trade area is the sin qua non of any regional organization. After years of deliberations, the thirteenth Saarc Summit, held in Dhaka last November, had somewhat hurriedly launched the Safta, but various contentious issues remained unresolved. All these issues surfaced at the Saarc Foreign Ministers Conference.
The Safta, as per the last summit declaration, officially started from July 1, but it is mostly on paper. It was expected that the mid-annual Dhaka meeting would give the much-needed political boost for its smooth implementation. However, the sharp divergent perceptions of the two largest economies, India and Pakistan, were too deep rooted for the meeting to overcome.
After the first round of meetings of Saarc Standing Committee of Foreign Secretaries, the Indian foreign secretary, at a press conference, accused Pakistan of violating the Safta agreement. He alleged that "though Pakistan signed the agreement which covers all tariff lines excepting the sensitive (negative) list, it has issued a notification which limits Safta tariff concessions for India only on items on the existing bilateral positive list" and he thought that this action was a "clear violation of the Safta agreement's Article 23." Earlier, the Indian side had alleged that Pakistan restricted 773 Indian items despite having ratified the Safta without any reservation.
The Pakistani foreign secretary, at a separate press conference, countered the Indian allegation by saying that Safta has necessary institutional mechanism to resolve such bilateral trade disputes and that these disputes need not be politicized. He also maintained that their bilateral trade differences were in no way hindering the implementation of the Safta among other Saarc members.
The Pakistani foreign minister also claimed that despite inclusion of various items in their sensitive list, India's exports to Pakistan have increased manifolds during recent years but Pakistan's exports to India did not register any appreciable increase due to stiff tariff structure and non-tariff barriers applied by India.
Despite extensive discussions at the Foreign Minister-level, the issue could not be resolved. The meeting merely noted Indo-Pakistan divergent perceptions and passed it on to the Saarc commerce ministers to settle before the next summit.
Among other issues, the Dhaka meeting decided, in principle, to grant observer status to the United States, South Korea, and the European Union. They would be invited to attend the next Saarc Summit in India next April. The last summit had earlier decided to admit Afghanistan as a full member and China and Japan as observers. The Afghan foreign minister attended the Dhaka meeting as a special guest. The meeting also approved the Regional Poverty Profile 2005 for the eradication of poverty in the region, but there was no concrete progress in making the Saarc Development Fund (SDF), created about three years ago, operational.
How does Safta impact Bangladesh's exports? Well, it is necessary to examine sensitive lists of various members to assess our long and short term benefits. Currently, Bangladesh exports fish, vegetables, jute, tea, fertilizers, leather, readymade garments, handloom, medicines, processed food, consumer goods, cosmetics, handicrafts, and ceramics to other member countries. However, many of these items have been placed in the negative lists of various member countries. So for a longer term benefit, Bangladesh has to expand its very narrow export list. Our exporters have to be bold and innovative to capture the free trade market potentials of the region.
Bangladesh's principal trading partner in the region is India. As per India's sensitive lists, Bangladesh has been permitted to export jute and jute goods, leather and leather products, ceramics, fruit juice, fertilizers, vegetables under free trade. Furthermore, India has committed to allow about eight million pieces of readymade garments from Bangladesh under Tariff Rate Quota (TRQ).
Our exporters have alleged that non-tariff and para-tariff barriers and bureaucratic wrangling had significantly hindered Bangladesh's exports to India in the past. According to the Indian Department of Commerce's statistics for 2005-06, India's exports to Bangladesh amounted to $1.633 billion whereas Bangladesh's exports to India were only about $118.76 million. Thus there was a trade gap of some $1.5 billion. If the Safta provisions are implemented in its totality and Bangladeshi exports are given greater access to Indian market, then it should be possible to reduce the trade gap gradually.
Pakistan has placed virtually all our principal export items namely, jute, fabrics, woven and knitted garments, special woven fabrics, footwear and textiles on their sensitive list. As per our Export Promotion Bureau statistics, Bangladesh exported goods worth $46.17 million to Pakistan from July to March of FY 2005-06. The main export items were raw jute and tea. Hence, in the short term, Safta would not enhance our exports to Pakistan.
Sri Lanka has included fish, leather and footwear on her sensitive list, while Bhutan has placed all our principal export items, except tea, on her sensitive list. Likewise, Nepal has included almost all our major export items on her sensitive list. Maldives has also included three of our major items on their sensitive list. At the moment Bangladesh has limited trade ties with these countries and inclusion of our major export items in their negative lists means, in the short term, the implementation of the Safta would not boost our exports to these countries.
The intra-regional trade among the Saarc countries is still very low and is only about 4% of the overall trade of the member countries, compared to 37% among North American Free Trade Agreement (Nafta) members, 67% among European Union (EU) members, and 38% among Asean members.
Once trade complementarities are established among the Saarc members, the intra-regional trade will surely increase. As the predominant market player, India has to take the initiative in the matter. The regional countries import 5% of India's total exports, but only 1% of India's imports are from these countries. New Delhi should lead the way by removing all existing non-tariff and para-tariff barriers for implementation of the Safta in its totality.
Incidentally, all neighbours of India have been placed high on the latest "Failed State Index" (FSI) published by the Foreign Policy, a prestigious magazine, of the Carnegie Endowment and the Foundation for Peace, both based in Washington DC. Vulnerabilities of these states would surely have negative impact on India's development, and it would be in her own interest to make them more stable through strengthening the economic integration process under the Safta.
Institutionally, the Safta will take at least six more months to be fully operational as the member countries have not yet prepared specific rules for individual products under "the rules of origin" that determine the tariff line. Furthermore, most of the members have not even issued customs notification for the implementation of Safta. Since five out eight Saarc members are LDCs, it is necessary to finalize a mechanism to compensate them for the tariff reduction.
In this era of globalization, there is no substitute for regional cooperation and creation of a free trade area lies at the core of such cooperation. As other regional organizations have shown, Saarc will only succeed if all the member countries forsake their national interest for the greater benefit of the region. Safta will bring benefit to the entire region only when all its provisions will be implemented in letter and spirit. After all, the regional economic integration is a comprehensive package and not an "a la carte" menu where one could select only the items they like and overlook all other items.