saarc in asian regionalism aparna sawhney centre for international trade and development, jnu

SAARC in Asian Regionalism

Aparna SawhneyCentre for International Trade and Development, JNU

ITC-ICRIER, 28th March 2007

Aparna Sawhney, CITD, JNU

Format of presentation

I. Looking at Asia and SAARC from without - vis a vis the multilateral trading systems and other regional blocs

II. Looking at SAARC from within- Indian perspective (drawing on Sawhney & Kumar 2007)



I. Asia and SAARC from without

Perspective from a world bound by a myriad of bilateral, plurilateral and multilateral agreements.

Asia emerging as a major hub in world commerce – indicated by rising share of merchandise and services trade

(Data source: International Trade Statistics 2006, WTO)



Regional Shares in World Merchandise Exports, 1990, 2000, 2005

0

10

20

30

40

50

60

1990 2000 2005

Asia

N America

Europe

Africa

Middle East

South-CentralAmerica

CIS



Regional Shares in Commercial Services Exports, 1990, 2000, 2005

0

10

20

30

40

50

60

1990 2000 2005

Asia

North America

Europe

Africa

Middle East

South CentralAmerciaCIS



In particular, South Asia’s share in global trade is a little over 1%

Share in global merchandise exports increased from 0.9% in 1995 to 1.2% in 2005

Share in global commercial services exports increased from 0.87% in 1995 to 2.5% in 2005



Regionalism and production network across countries is increasingly reflected in the preferential rules of origin governing world trade:

- E.g. South Asia is recognized as a bloc in Europe’s GSP “regional cumulation” - applies to SAARC member countries (EC regulation 881/2003)



Convergence of interests of Asian developing countries at the WTO negotiations

=> potential for developing Asia to negotiate as a group in future

E.g. China, India, Pakistan, Indonesia, Philippines, Thailand are members of the G-20, the alliance that changed the axis of Doha negotiations.

E.g. 1998 Shrimp-Turtle dispute – India, Malaysia, Pakistan & Thailand joint complainants against the US



The world recognizes the potential strategic significance of a South Asian bloc

- keen participatory interest of the US, South Korea and EU in SAARC (to be observers, China & Japan became observers in 2005)

But in the regionalism race, SAARC is a veritable tortoise compared to the EU

- latter looked beyond political differences + promoted cooperation in target economic sectors….



Intra-regional Merchandise Exports, 2005(as % share of each region’s total exports)Europe 73.2

North America 55.8

Asia 51.2

SAARC 6.2*

South-Central America 24.3

Commonwealth of Independent States 18.1

Middle East 10.1

Africa* Computed from IMF DOTS data

8.9



II SAARC from within

Motivation for greater integration in S Asia – economic and non-economic gains (strategic, dynamic, ecological)

SAARC economies have been pursuing liberalization & looking towards greater Asia through bilateral FTAs



Low economic interaction among SAARC Members. Even after accounting for informal trade, total intraregional trade constitutes less than 10% of S. Asia’s total external trade;

+ direct investment among SAARC partner countries is negligible.

Despite slow progress of SAARC, launching of SAPTA and SAFTA in 1995 & 2006 resp. are political breakthroughs



Low level of intra-regional trade stems from

Restrictions contained in the trade agreements SAPTA & SAFTA (e.g. limited product coverage, existence of negative list, restrictive rules of origin and destination)

Difficult business environment – e.g. India is ranked 139th in the world “ease of trading across borders” compared to China at 38th.

All liberalization/ FTAs will fail to boost economic activities if conducting business is difficult.



Perceived asymmetry benefits among smaller SAARC partners – fear of deindustrialization

Size asymmetry akin to Gulliver and Lilliputs but the SAARC story lacks the symbiotic relationship on which Gulliver and Lilliputans thrived.



Country Share of SAARC Regional GDP 2005, (US$ 995.82 billion)

Bhutan0%

Pakistan11%

Maldives0%

Nepal1%

India79%

Sri Lanka2%

Afghanistan1%

Bangladesh6%



Services sector not covered in current trade agreements.

Yet in Asia, the South Asian sub-region has a relatively larger share in services export compared to merchandise



Country Shares in Asia’s exports of merchandise and commercial services, 2005

Merchandise X Services X

Asia 100.0% 100.0%

China 27.4 14.1

Japan 21.4 20.5

Korea, Rep. of 10.2 8.4

South Asia/ SAARC 4.2 11.6

India 3.4 10.7



For 22 years, India’s strategy in South Asian integration has been driven by her perception of gains, and based on “reciprocity”, despite her size advantage…

Positive experience in Sri Lanka-India FTA should encourage India to make a more aggressive move in promoting integration in South Asia



India’s perception of SAARC would change if it takes into account:

its own economic dynamism and size of its market

urgent need to alleviate persistent poverty (47% of South Asians live on less than $1/day) and combat the growing terrorist threat (development of the entire region necessary to improve living conditions – inclusive growth.)



scope for greater FDI for the SAARC countries with a more stable and business conducive South Asia.

all SAARC economies have been pursuing liberalization (minimizes risk of trade diversion)

dynamic trade gains & overall positive experience with bilateral FTA with Sri Lanka



Increased efficiency in provision of public goods and servicesConsidering South Asia as an integrated geo-ecological system – cooperative approach in the management of energy, water, etc is optimal.

Connectivity payoffs with rest of AsiaA regionally integrated South Asian space will help realize trans-Asian connectivity



Concluding Remarks Greater integration among SAARC

countries critical for integration with greater Asia (connectivity aspect)

SAARC nations have been looking outwards –evident from bilateral FTAs – for greater flow of trade, commerce and investment across Asia.

Opportunity for India to demonstrate commitment to regional cooperation as incoming chair of SAARC

saarc in asian regionalism aparna sawhney centre for international trade and development, jnu

Documents

wto aparna sawhney

usaparna sawhney

jnuaparna sawhney

sawhney kumar

global trade

saarc members

jnuii saarc

informal trade