Bangladesh, Bhutan call for freer trade for South Asia's SAARC nations - LANKA BUSINESS ONLINE

Bangladesh, Bhutan call for freer trade for South Asia's SAARC nations

August 3, 2008 (LBO) - Bhutan and Bangladesh, tried to fan the flame of free trade in South Asia as dismantling trade barriers went off the agenda, when leaders of seven nations that make up a South Asian regional grouping met in Colombo.The agenda of the South Asian Association of Regional Co-operation (SAARC) was dominated by calls for action against terrorism and ways to counter an oil and food commodity price bubble, the worst the world has seen since 1973.Intra-regional trade in the grouping made up of Afghanistan, Bangladesh, Bhutan, India, Maldives Nepal, Pakistan and Sri Lanka is low largely due to high tariff barriers that block the movement of goods across the states.Bangladesh first mooted the idea of a free trade bloc for South Asia as early as the 1970s, and after SAARC was created in 1985 the foundation for a preferential trade deal was laid in 1993.Negative ListsIn 2006 it was extended with a deal on the South Asia Free Trade Area (SAFTA) which is expected to bring down tariffs by a modest 20 percent, but it is loaded with a 'sensitive' or 'negative' list.The 'negative' lists are in place to appease domestic producers who have long profited from selling goods to a captive domestic customer base, without competitive pressures forcing them to be more efficient.The helpless domestic consumer base includes half the world's poor, who are forced to buy unnecessarily expensive goods as a result of trade barriers which worsen their living standards.To help South Asians access the cheapest producers of the region, trade barriers need to be dismantled.In addition to improving living standards of consumers, bringing down the barriers would also reward the most efficient producers while punishing those that don't become efficient."Our goal in SAARC is to create new opportunities and to promote linkages for attaining better living standards for our people," chief advisor to the caretaker administration of Bangladesh, Fakruddin Ahmed said at the inauguration of the summit meeting Saturday."Despite SAFTA, non-tariff and para-tariff barriers, complicated and cumbersome customs procedures stand in the way of greater intra-regional trade."Similarly, long sensitive lists closed to preferential tariff and rigidities in other structural and policy frameworks stand in the way of our desire to have a fully integrated South Asia."Clearly there is a need to remove these hurdles to enhance intra-regional trade."EchoedThe appeal was also echoed by Bhutan, which is a landlocked country and is also highly dependent on overland transport links."The imperatives of economic co-operation and free trade in a highly globalised and interdependent world cannot be over-emphasized," Prime Minister Jigmy Y. Thinley said."Recognizing that the furtherance of intra-regional trade is the key to promoting and encouraging an environment of innovation, healthy competition and enterprise that will stimulate economic growth, create gainful employment and generate high income for our peoples, we have created SAFTA."But for this instrument to be meaningful, the number of items on the negative list must be reduced, non-tariff barriers removed and the trade facilitation measures implemented."At the same time liberalization of trade in services and investments must also be perused in earnest."The negative lists however allow barriers to come down at least on goods which are not in contention allowing entirely new trade to start in goods that were not even considered for export and import within the region earlier.Impatient with the delay in SAFTA, India has been striking bi-lateral deals with her neighbours with highly successful deals with Sri Lanka and several other nations.An enhanced economic deal with opening of services, was due to be signed between Sri Lanka and India on the sidelines of the summit.But it was aborted at the last minute after Sri Lanka got cold feet following protests from protectionist lobbies and Marxist political elements.Real LiberalizationMeanwhile, Sri Lanka's president Mahinda Rajapaksa laid the foundations for cheaper communication among the people of South Asia by calling for a reduction in international tariffs within the region.Telephone tariffs within the region are absurdly high, and in many countries it is cheaper to call Europe or North America than their neighboring nations due to artificially high call charges driven by an archaic tit-for-tat penal fee system."Although the numbers of mobile phone users in South Asia are rapidly increasing yet, our people remain distanced through the barrier of tariffs," President Rajapaksa said."I, therefore, propose that we actively promote a reduced tariff for IDD (international direct dialing) calls within the South Asian region to bring our people much closer, much sooner."Bangladesh also called for liberalizing investment within the region saying that intra-regional investment flows are very small in South Asia."Given the right kind of environment and confidence, the potential for increased intra-regional investment is huge," chief advisor Fakruddin Ahmed said."I feel that a restrictive investment regime is one of the inhibiting factors in attracting foreign direct investment."In this context it is important that the draft agreement on promotion and protection of investments in finalised at the earliest."While an incomplete liberalization agenda remains, new areas for action have been added, including terrorism, which is an acknowledged serious problem within the region - sometimes egged on with the help of sanctuaries in each others' countries - climate change and rising food and energy prices.The call of Bangladesh and Bhutan comes as critics compared SAARC unfavourably with the European Union and the Association of South East Asian Nations (ASEAN) pointing the two groupings' achievements on economic integration.

Bangladesh, Bhutan call for freer trade for South Asia's SAARC nations - LANKA BUSINESS ONLINE