Though South Asia Free Trade Agreement (SAFTA) was operationalised from July 2006 the intra regional trade increased at a snail space from 3.2% in 1980s to only 5.5% in 2008, which is far below when compared with 58% in NAFTA, 54% in European Union, 25% in ASEAN and 22% in COMESA.
Several bottlenecks like poor infrastructure and trade facilitation measures, inadequate connectivity, non-tariff barriers and lack of political will have come in the way of faster integration.
SAFTA was launched under South Asian Association for Regional Cooperation (SAARC) which is an eight-nation body consisting of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal , Pakistan and Sri Lanka.
The Indian minister for external affairs, SM Krishna addressing a conclave jointly organised by the SAARC Chamber of Commerce and Industry, Asian Development Bank and FICCI in Delhi on Tuesday said that the region has become captive to the security situation. Issues such as cross-border terrorism and incidents of anti-India activities from terrorists of our neighbouring countries have impacted on the process of regional economic engagement, connectivity and people-to-people contacts.
He, however, committed that India would fulfil its responsibilities in SAARC in an asymmetric and non-reciprocal manner for the benefit of the countries in the region. The need of the hour for South Asia is to move beyond security issues that shackle it, into an era of mutual trust and mutually reinforcing growth and development.
United, the South Asian countries can swim and smoothly tide over obstacles like global financial crisis, he said.
Krishna disclosed that a draft Agreement for Trade in Sercives would be finalised for signature in the next SAARC Summit scheduled in Bhutan in 2010. Discussions are also ongoing in SAARC to strengthen financial integration with a view to move towards a regional Customs Union.
The SAARC Food Bank is now operationalised with a total stock of 243,000 tonne contributed by all member states. The South Asian University is likely to set up on a 100 acre land in Delhi in July, 2010. Also the SAARC Textiles Museum would be set up in Delhi.
Krishna was, however, satisfied that SAARC brand was emerging as an indicator of progress, particularly through regional projects funded by SAARC Development Fund. He said that a SAARC Regional Task Force has recently finalised the Standards Operating Protocol on Trafficking of Women and Children.
He said physical connectivity of the region would be strengthened based on the recommendations of the SAARC Transport Ministers Meeting which includesidentifying three road corridors from SAARC member states through Pakistan to Afghanistan via the Attari-Wagah border with India, early commencement of Colombo-Kochi sea link, running of a demonstration container train from Pakistan to Bangladesh through India and Nepal, early commencement of direct air linkage between Delhi and Male and constitution of an expert group to finalise Motor Vehicles and Railway Agreements.
As a mark of Indias commitment to regional integration, regional projects in telemedicine, tele-education, solar rural electrification, seed testing laboratories, rainwater harvesting projects have already been initiated.
The SAARC Secretary General, Dr Sheel Kant Sharma said that SAFTA technically may not be a perfect agreement but it stands for commitment of our leaders to creation of an operational free trade area in South Asia.
Regionalism in South Asia has developed as an addendum to a strongly entrenched and historical network of bilateral linkages. Bulk of trade in South Asia is accounted by volumes of trade between India-Bangladesh, India-Sri Lanka, Bangladesh-Pakistan, India-Nepal, India-Pakistan, India-Bhutan, Afghanistan-Pakistan and increasingly between Pakistan and Sri Lanka.
The trade between India and Sri Lanka increased after signing of an FTA.
Sharma said that there was a large volume of informal trade in the region which reflects the potential for increasing formal trade under SAFTA. A study done by the ADB pegs the potential for trade under SAFTA at $ 85.1 billion.
He said that the intra-SAARC trade suffered heavily from high costs among highest in the world. This has encouraged informal trade in the region. With every 1% reduction in cost, the stimulus to official trade would be about 5%, he said
Sharma suggested pruning of Sensitive List for SAFTA trade, removal of non-tariff and para-tariff barriers, improved trade facilitation, development of adequate infrastructure, regional motor vehicles and railway agreements to facilitate trade. Creation of regional supply chains and fixing of export targets. He also suggested harmonisation of trade and investment policies in the region.
As part of political commitment to build connectivity, the countries of South Asia may offer, on reciprocal basis, transit facilities to third countries connecting each other, also establishing links with larger Asian neighbourhood, including West, Central and South-East Asia, he said.
The President of SAARC Chamber of Commerce and Industry, Tariq Sayeed alleged that the SAARC Visa Exemption Scheme had not worked well. It is limited to 100 leading businessmen from each country with restriction on visit to three cities in India and Pakistan, while bilateral visa allows the holder to visit eight cities. Besides the port authorities are not familiar with the SAARC Visa Exemption Scheme. He suggested that the SAARC Visa Exemption stickers should be increased from 100 to 300 and issuance of 500 multiple Business Visa for 5-years .
Regarding investment, he said that no investment treaty exist between India and Pakistan. Pakistan as a gesture of goodwill has allowed investment from India on case-to-case basis. He suggested the need for an Investment Treaty for the region.
Sayeed said that due to poor trade facilitation in the region World Bank has estimated that it took 34 days and eight documents for export and 42 days and 13 documents for imports, making South Asia the second least trade-friendly region in the world.
Apart from regional agreements on Motor Vehicles and Railways, construction of inter-city expressways and highways, connecting borders would be needed to flourish long distance trucking operations, he said and added that South Asian Regional Standards Organisation should speedly address the issues of standards, particularly sanitary and phytosanitary standards.
The Managing Director General of Asian Development Bank, Rajat M Nag said that while the industrialized world has had to confront the worst recession in 70 years, the developing Asia, particularly countries with large domestic and consumer demand, were leading the world back to economic expansion. Monetary and fiscal stimulus appeared to have worked and the region was showing a V-shaped recovery.
There are 18 concluded FTAs which aim to link the regions economies together and with global markets. The enhanced SAFTA is now also more inclusive with provisions such as sequenced tariff liberalization, flexible rules of origin and greater technical assistance, he said.
He said that ADB that fostering regional integration in South Asia was one of the three strategic agenda of ADB under long-term strategic plan Strategy 2020 the others being inclusive growth and environmentally sustainable growth.
According to Nag ADB is focusing more on private sector and in the next decade ADB would boost its role as a catalyst for investment that the private sector might not otherwise be willing to make. It would invest in infrastructure and advise governments on the basics of a business-friendly environment, including reliable rules, regulations and policies that attract greater private sector enterprise. ADBs tools include direct financing, credit enhancement, risk mitigation guarantees and new innovative financial instruments. It would increase its share of annual operations by a target of 50% by 2020.
ADB would also share its experience in Mekong region, ASEAN and Central Asia.