by Titu Datta Gupta, Khawaza Main Uddin and Asjadul Kibria

The South Asian Free Trade Area was first envisaged as a successor to the South Asian Preferential Trading Arrangement, with high-sounding political pledges and popular expectations that it would avert the circuitous and slow progress that characterised the earlier trade pact.
   Unfortunately, SAFTA looks well set to miss its looming January 2006 deadline.
   One of the major drawbacks of the SAFTA agreement is that it pays little attention to the dismal performance of SAPTA and fails to take effective measures against the factors that inhibit growth in intra-regional trade.
   A major reason behind the non-progress of SAPTA is that the South Asian countries enjoy comparative advantage in a relatively narrow range of products. Out of 71 commodity groups, Bangladesh, Nepal and Pakistan enjoy a comparative advantage in seven, five and 12 groups respectively while India and Sri Lanka have comparative advantage in 26 and 21 product categories. None of the countries has comparative advantage in capital intensive and high value added products.
   The SAARC, even after two decades and a dozens of high profile summits, remains bogged down by mistrust and a sense of animosity, with India’s dominant posturing and her nuclear rivalry with Pakistan an inevitable damper on the proceedings.
   As a regional trading bloc, it lags far behind others in terms of trade among member states. Member states trade with the rest of the world more readily than with each other. Trade between India and China has jumped seven-fold in recent years.
   Moreover, with almost an identical export basket, they elbow each other out of the way to grab American and European markets for textiles, garments, tea and jute.
   Funnily enough, the region’s bigger players, particularly India, fear that the poorer SAARC nations, with their tiny production base, could flood their markets with cheap goods. On the contrary, some sections in Bangladesh that accounts for more than 40 per cent of India’s export to SAARC members, fear regional or bilateral free trade agreement (FTAO) would open the floodgates for Indian goods.
   Intra-SAARC trade constitutes a paltry 5 per cent or around $3 billion a year of the total trade by the member states, against 37 per cent for North Atlantic Free Trade Area, 38 per cent for Association of Southeast Asian Nations and 63 per cent for European Union.
   The slow progress of regional mechanisms encouraged the members to negotiate for bilateral arrangements within the region and outside. As the member-countries are pursuing bilateral trade relations in the region as well as in other regions, the trend has already undermined SAFTA as an agreement that will prepare the ground for an eventual South Asian Economic Union. The bilateral trade relations of member-countries need be subsumed under Safta.
   India and Pakistan, the region’s heavyweights whose attitudes matter in making or breaking the fledgling free trade zone, look more eager to have bilateral deals than to make regional arrangement work.
   India already has bilateral trade agreements with tiny neighbours Nepal, Bhutan and Sri Lanka. Trade between India and Sri Lanka has grown by 1.5 times within two years of signing the bilateral free trade pact. India is actively working for a similar pact with Bangladesh, which has so far not entered into such bilateral arrangement within the region. Pakistan has also been active to have bilateral free trade deals with Bangladesh and Sri Lanka.
   An IMF working paper titled “Patterns of Shocks and Regional Monetary Cooperation” said that ‘another key feature of SAARC is the significant role of India in the region which changes the dynamics of interaction among members. India has 72.58 per cent of land area, 78.98 pr cent of the GDP and 75.49 per cent of the population of SAARC as a whole. By comparison, no one country has the same weight in the European Union as does India in SAARC. The region is handicapped by disputes between India and the smaller states. SAFTA is mainly driven with the obsession of creating a free trade area without removing bottlenecks in the way. Trade cannot be increased without establishing its linkages with economic issues inhibiting economic integration in South Asia.’ Thus making SAFTA as an effective instrument mainly lies on India, as she is the largest partner in SARRC and should offer larger concessions both on economic and political fronts.
   An analysis by PHD Chamber of Commerce and Industry shows Sri Lanka has emerged as India’s largest trading partner in SAARC, posting a 64 per cent growth in bilateral trade and replacing Bangladesh as India’s biggest trade partner in the region till last year.
   Bangladesh accounted for 41 per cent of India’s total exports to SAARC countries in 2003-04, which dropped to 30 per cent in the first five months of this fiscal, the chamber said in its analysis on November 5.
   Though not large in volume, Bangladesh’s exports to India grew last year, outpacing the import growth.
   But all these developments took place through bilateral arrangements or other urgencies, not because of SAPTA or SAFTA.
   The concerns of the smaller countries regarding closure of industries producing goods at a comparative disadvantage have not been addressed in SAFTA. Again, possible balance of payment problems and revenue losses for individual countries are recognised by the Agreement, but the mechanism for compensation has been a contentious issue.
   Article 15 permits a unilateral provisional suspension of the concessions by a member-state subject to its approval by the Committee of Experts, which will ultimately create controversies among states and smacks of lack of trust in the institutional mechanism.
   An effective SAFTA would mean that SAARC members offer each other a combined market of 1.4 billion people. But a dozen more summits might not make any headway if the region’s bigger players, particularly India, don’t come forward with accommodating attitudes.
   Pledging trade concessions and preferential treatments for regional LDCs at summit level, and using every scope to block paltry exports of cement and batteries from Bangladesh would prove to be futile exercise year after year keeping the mindset unchanged.