PROSPECTS OF TRADE UNDER SAFTA

Share Embed


Descrição do Produto

PROSPECTS OF TRADE UNDER SAFTA Muhammad Khalid Bashir, Khuda Bakhsh and Azid Imdad Faculty of Agricultural Economics and Rural Sociology, University of Agriculture, Faisalabad

ABSTRACT Under the WTO regime it was expected that both the developing and developed nations will benefit from the opening up of the markets in these countries. But uptil now the developing countries are at the suffering end. So theses were being encouraged to explore the regional markets and make some regional free trade areas. The countries of SAARC had decided to sign the SAFTA. Question arises that will it be a support to the economies of these countries? The general perception is that the countries with higher comparative advantage will out weigh rest of the countries. It is further being envisaged incase of SAFTA that there are three possible ways of the workability of it which are; pessimistic, optimistic and moderate. Different empirical evidences and theoretical perceptions are that the current political atmosphere in the region is supportive to the pessimistic outcome of SAFTA. INTRODUCTION The World Trade Organization (WTO) has been established with an aim to enhance international trade with the help of lower trade barriers and providing a forum to negotiate trade and business with agreed upon principles of the trading system. The WTO principles allow a free trading system with no discrimination against foreign products or services. The provision is also there that one country can not provide special treatment to a particular trading partner while other member countries are not given such privilege. Principles of the WTO aim to lower trade barriers to facilitate free trade among the

member countries. It is also promised in the WTO principles that a trading system should be predictable, with foreign companies and governments reassured that trade barriers will not be raised arbitrarily and that markets will remain open for all the countries. Promotion of competition is another principle of the WTO. It aims that trade among the member countries is open, and then it will encourage competition. The principles of the WTO intend to accommodate less developed countries by providing more time to adjust, greater flexibility and more privileges (Wikipedia, 2007). However, the facts of the previous years indicate that nearly all WTO decisions have not been implemented in full spirit due to one and other reasons. Issues relating to democratic restriction on trade, environmental problems, consumer protection, public health and human rights standards have not been resolved. Even when reasonable standards were applied equally to all domestic and foreign producers, the WTO has repeatedly struck them down as trade barriers, demolishing shelters that citizens have built against the stormy side effects of market forces (Costantini, 2001). It is perceived that free trade among member countries would not take place due to differences between developed countries and less developed countries. This perception leads to another alternative i.e. regional trade agreements (RTAs) in the WTO. Therefore, most of the countries either developed countries or developing countries are moving towards bilateral trade agreements or regional trade agreements. However, regional trade agreements and bilateral trade agreements among the countries show an increasing tread after the failed Seattle and inconclusive Cancun talks on WTO. It was expected that under negotiation regional trade agreements if concluded, would be 300 in number by the end of 2005. Compared to other regions, South Asia is far

behind in catching up with the trend prevailing in other regions of the world (Suleri, 2005). South Asian Countries have started to move towards regional trade agreements during 2004. The agreement on the South Asian Free Trade Area (SAFTA) is such an agreement aimed at to increase free trade among South Asian Association for Regional Cooperation (SAARC). This agreement was agreed upon on 12th SAARC Summit at Islamabad, on January 6, 2004. the purpose of this agreement to provide a platform for the creation of a free trade zone covering 1.4 billion people in SAARC countries. SAARC countries include Pakistan, India, Bangladesh, Nepal, Sri Lanka, the Maldives and Bhutan. Foreign ministers of the SAARC countries signed on SAFTA declaring zero custom duty on the trade of practically all products in the region by the end of 2012. This agreement came into being on January 1, 2006 and is expected to be operational following the ratification of the agreement by the seven governments. The SAFTA demands the member countries i.e. India, Pakistan and Sri Lanka to reduce their duties by 20 percent at the first instance of two year period ending in 2007. In the final five years phase coming to an end in 2012, the 20 percent duty will be reduced to zero in a series of annual cuts. Nepal, Bhutan, Bangladesh and the Maldives are provided additional three years to reach zero duty compared to other SAARC member countries (Wikipedia, 2007). This paper has been designed to examine success of prospects of SAFTA in the South Asia. Computable General Equilibrium (CGE) model is commonly used to determine impacts of various agreements on trade among the member countries. Many studies have been conducted to review possibilities of free trade in the scenario of regional trade agreements and bilateral trade agreements among various countries and in

various regions. Similarly, many studies have been estimated to determine prospects of trade under SAFTA in the South Asia. This paper reviews the prospects of trade under SAFTA in the South Asia. REVIEW OF STUDIES Bandara and Wusheng (2001) examined possible outcomes of free trade among the member countries of SAARC. Results conclude that free trade would not provide benefits to the region economically and that it is not possible to achieve a regional cooperation in economic and social matters among SAARC member countries. The possibility of free trade will not be operational without resolving political issues between member countries e.g. Kashmir conflict is the major hindrance between Pakistan and India to go into free trade. Kemal (2004) conclude that the SAFTA has the possibility of providing long run benefits on the expense of short-term costs and there exist great potential for free trade among the SAARC member countries. Making the SAFTA a success would lead towards economic development in the region. The reasons for success include problems in global market access and the higher transportation costs of producing for the world markets. Therefore, regional trade expansion, efficiency and improved quality of exports are expected to benefit the participant countries while taking into account regional cooperation. Economic performance of the South Asian countries would improve by the fast implementation of SAFTA. The process of liberalization under SAFTA needs to be credible and the stipulated time frame of implementation should be followed to benefit the SAARC member countries (Mohanty, 2005).

The natural trading partners hypothesis was used by Pitigala (2005) to determine the potential success of a South Asian trading bloc. It was found that unilateral trade liberalization efforts have contributed a lot in increasing both intra and extra-regional trade between the countries. Regional integration along with continuous progress in unilateral trade could help the South Asian countries to continue to diversify their narrow export bases and potentially result in new comparative advantages facilitating the successful implementation of SAFTA. Another study conducted by Baysan, et al. (2006) reveals that the SAFTA would be more successful in the sense if it is expanded to other neighboring countries, namely China and the member nations of the Association of South East Asian Nations (ASEAN). An Asian bloc could act as a potential instrument of changing incentives for the trade blocs in the America and Europe. This would result in multilateral free trade in the world. Chaturvedi, et al. (2006) found that SAFTA will result in horizontal specialization across the member countries. Sri Lanka would act as a center for rubber industry. Similarly, other countries could specialize in the production of tradable commodities having comparative advantage in the production of these commodities. It was also found that the SAFTA’s scope could be expanded by the creation of a SAARC Investment Area, reducing period of implementation of the program, and improving physical infrastructure in the member countries. South Asian Investment Band should be established to facilitate the funding needed for infrastructure development and other regional projects.

Rahman, et al. (2006) argued that Bangladesh, India and Pakistan would gain from joining the regional free tree agreement however, it is expected that Nepal, the Maldives and Sri Lanka would be negatively affected by regional free trade agreement. Hossain (2006) was of the view that the relationships between India and Pakistan are major hindrance for the success of any regional or unilateral trade agreements and conflicts between India and Pakistan threaten the future of SAFTA in South Asia. The New Nation (2006) pointed out uncertain future of SAFTA for the prospects of the growth of trade among the seven countries of SAFTA, especially from least developed member countries in the region. CONCLUSIONS The studies mentioned above contribute some valuable inputs about the future of SAFTA. Most of the studies indicate an optimistic view with a hidden pessimistic. Optimistic view can be understood in term of wishful thinking of ever one for the success of SAFTA. Pessimistic views can be explained in term of existing conflicts between member countries. Such conflicts are creating difficulties in the progress of SAFTA. Many studies reveal that regional trade agreement such as SAFTA is the need of the time to boost trade and thus economic development between member countries. South Asian countries are facing difficulties in exporting their commodities to developed countries on the ground of intensive competition and higher quality standards in the world market. One of the benefits of SAFTA is that efficiency and reduction in transportation cost of producing products for export purpose will benefit the member countries substantially. However, the success of SAFTA depends on the relationship between India and Pakistan being the larger economies in the region. Therefore, SAFTA

would be merely a dream unless conflicts between South Asian countries especially between Pakistan and India are settled. Free trade between these two countries will not be possible without resolving disputes. REFERENCES Bandara, J.S. and W. Yu. 2001. How desireable is the South Asian Free Trade Area? SJFI-working paper no. 16. Baysan, T., A. Panagariya and N. Pitigala. 2006. Preferential trading in South Asia. World Bank Policy Research, working paper, 3813. www.ppers.ssm.com/so13/papers.cfm?abstract_id=875665 Chaturvedi, S., J. Humphrey, N. Jumar and H. Schmitz. 2006. Asian economic integration: dynamics and impacts, seventh annual global development conference. Workshop on Asian and other drivers of global change, St. Petersburg. Costantini, P. 2001. What’s wrong with the World Trade Organization? Seattle. www.speakeasy.org/~peter/wtow Hossain, M.N. 2006. Indo-Pak relations obstacle for SAFTA: FBCCI, Hindustan Times, India. www.bilaterals.org/article.php3?id_article=5649 Kemal, A.R. 2004. Exploring Pakistan’s regional economic cooperation potential. The Pakistan Development Review, 43:4. Mohanty, S.K. 2005. Is South Asian economic cooperation sustainable? Strategy for meaningful transition from SAPTA to SAFTA. SAFTA paper GTAP conference.

Pitigala, N. 2005. What does regional trade in South Asia reveal about future trade integration? Some empirical evidence. World Bank Policy Research, working paper 3497. Rahman, M., W.B. Shadat and N.C. Das. 2006. Trade potential in SAFTA: an application of augmented gravity model. Paper 16, Center for Policy Dialogue (CPD), Bangladesh. Suleri, A.Q. 2005. SAFTA: way forward. SDPI research and news buttetin, 12:3. www.sdpi.org/help/research_and _news_bulletin/july_aug_05/safta.htm The New Nation. 2006. making SAFTA effective. The New Nation Bangladesh. http://www.bilaterals.org/article.php3?id_article=5176 Wikipedia. 2006. South Asia Free Trade Agreement. Wikimedia Foundation, Inc. USA. http://en.wikipedia.org/wiki/SAFTA Wikipedia. 2007. World Trade Organization. Wikimedia Foundation, Inc. USA. http://en.wikipedia.org/wiki/SAFTA

Lihat lebih banyak...

Comentários

Copyright © 2017 DADOSPDF Inc.