Originally published under Opinions of the SARCist initiative website on 15 September 2014.
Eighth SAFTA Ministerial Meeting: Some Reflections
by Professor Mustafizur Rahman, Executive Director, Centre for Policy Dialogue, Dhaka
The 8th meeting of the SAFTA Ministerial Council (SMC) held on 24 July 2014 and hosted by Bhutan, the current Chair of the SMC, should be considered as an important milestone for the wide range of issues covered by the Ministers. Whilst statements made by the Ministers referred to many of the issues that had remained on the table for a number of years, this particular meeting was a departure for several reasons. First, the tone of the meeting transmitted urgency about the need to fast-pace implementation of the decisions taken at earlier SMC meetings. Second, the statements made by the Ministers evinced a growing recognition that if liberalisation of trade in goods is not paralleled by liberalisation in the services sector, much of the expected gains in terms of enhanced intra-regional trade will remain unattained. Third, the importance of trade facilitation was underscored with a willingness to go for some early harvest results. Fourth, the Ministers agreed that SAARC countries should set a strategy to identify a common position in the context of key negotiations in various international trade fora such as the WTO. Fifth, Ministers talked about deepening regional cooperation in a number of new areas with a view to moving towards the envisaged South Asian Economic Union (SAEU).
The 8th Ministerial meeting did recognise that the pace in terms of implementing many of the earlier agreements and decisions has been rather slow. As is known, an inability to speedily follow-up on agreed initiatives had been a major constrain in advancing the cause of SAARC-wide economic cooperation forward. For example, the Ministers noted that SAARC Agreement on Trade in Services (SATIS) could potentially serve as a ‘game changer in the pursuit of regional economic integration’. The prospects of energy, tourism, health, banking, IT enabled services, education and transport were highlighted in this regard. Members agreed that trade in goods and services are becoming closely entwined and SATIS has the potential to go a long way in harnessing the benefits of the SAFTA. However, as was noted, negotiations with regard to SATIS have not progressed at the pace that had been planned. Many members were yet to submit their final offer list; sector specific offers under SATIS are yet to be tabled by some of the member states. In view of this, India has proposed the deadline of end-November 2014 for tabling the initial offers.
The Ministers had put particular emphasis on trade facilitation and underscored the importance of signing the proposed SAARC Motor Vehicle Agreement and SAARC Railways Agreement. Indeed, there is a general agreement that weak transport connectivity inhibiting smooth cross-border movement of goods is undermining the interests of all key stakeholders involved—producers, consumers, exporters, importers and service providers. This results in significant cost escalation and higher lead-time, leading to loss of competitive edge on the part of entrepreneurs and business people in the region. Cross-border investment flow within the SAARC region is also negatively impacted because of lack of transport connectivity, with the result that comparative advantage driven value and supply chains are not emerging in the SAARC region. Consequently, the move towards regional integration in SAARC has been faltering at a time when other regional bodies are widening and deepening intra-regional cooperation at an accelerated pace. SAARC economies are not being able to take advantage of opportunities of strengthened global integration by building on deeper regional integration. In this context, Ministers emphasized the need for deepening economic collaboration through joint exploitation of natural resources such as hydro-electricity and development of regional energy grid.
Ministers were keen to advance the interests of greater market access in the region through the SAFTA. Members took note of the implementation of the earlier decision to bring down respective sensitive lists of Members under the SAFTA, by 20 per cent or more. Reduction of the lists as per the plan under Phase-II was a welcome achievement. Pakistan stated that there will be a separate shorter sensitive list for the LDC Member States. The proposal for establishment of SAARC Development Bank was endorsed at the Meeting; the idea of currency swap arrangements was mooted. It was noted in this connection that, the transaction and arbitrage charges by foreign banks impose a burden on South Asian business to the tune of about $25.0 billion. It is also to be noted that, South Asian Regional Standards Organisation (SARSO) has been established in Dhaka and Agreements on Multilateral Arrangement on Recognition of Conformity Assessment and the Agreement on Implementation of Regional Standards have been signed. The task now is to make SARSO operational. There is a need to undertake timely follow-up steps so that business and commerce are able to take advantage of the potential benefits of the institutional developments and Agreements which would help address many of the non-tariff related concerns.
The Ministers at the eighth SMC discussed about the vision of a South Asian Economic Union, an ambition that was articulated at earlier SAARC Summits. However, this would require common customs tariffs to be accepted by all members and would call for close coordination of fiscal-monetary policies and regulatory regimes. Viewed from now, the SAEU appears to be a long journey and distant destination. However, such a vision could serve as a beacon to help accelerate implementation of the decisions that SMCs have taken over all these past years and through many meetings. If SAEU is to be realized on the ground, a road map will need to be chalked out with time bound intermediate goal posts. Realisation of this will, however, critically hinge on the resolve of the political leaders to implement such a vision. Hopefully, the 18th meeting of the SAARC Heads of States, to be held in Nepal in November, 2014, will provide a good opportunity to take concrete measures towards realization of such a vision.
Prof. Rahman can be reached at mustafiz@cpd.org.bd