Cooperation essential for economic integration of South Asia
As economic integration increases, the barriers of trade between markets diminish
Md. Joynal Abdin
Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. The framework of the theory of economic integration was laid out by Jacob Viner (1950) who defined the trade creation and trade diversion effects, the terms introduced for the change of interregional flow of goods caused by changes in customs tariffs due to the creation of an economic union. He considered trade flows between two states prior and after their unification, and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration.
The basics of the theory were summarized by the Hungarian economist Bla Balassa in the 1960s. As economic integration increases, the barriers of trade between markets diminish. Balassa believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economically (via monetary unions) but also politicallyand, thus, that economic communities naturally evolve into political unions over time.
Why economic integration is important?
1) There are economic reasons:
i. For the increase of trade between members states.
ii. For mass scale production, higher productivity and economies of scale.
iii.Ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another.
iv. Technology transfer replication of best practices.
2) Political reason:
i. United position in different international platforms.
ii. Increases exchange of culture, knowledge sharing.
iii.Reduces armed conflicts.
Steps towards regional economic integration: The degree of economic integration can be categorized into seven stages namely; Preferential trade agreement / area, Free trade area, Common market / customs union, complete economic integration, Fiscal union, Economic an d monetary union, Single market etc.
South Asias Journey to Economic Integration:
South Asia covers 4,488,300 sq kms of the worlds surface area with a population of 1.67 billion, population dividend of the member countries, and 7.1 per cent economic growth over last decade made it unparalleled around the world. At the same time it is the most vulnerable region of the world due to political unrest, mistrust among the nations, misguidance of the political leaders, cross border conflicts and security concerns. Therefor it is one of the least economically integrated regions of the world. As a result intra-regional trade between the SAARC countries is less than 5% per cent while intra-regional trade between the Association of Southeast Asian Nations (ASEAN) countries is about 35 per cent and EU countries is about 60 per cent.
Academicians have predicted two opposite outcomes, both positive and negative. Negative effects include the possibility of infant industrial sector may not be survived in an open market competition or much competition may result in sick industries might face ruin. On the other hand, positive effects in the short-run include inland trade-creation effects. But that must outweigh trade diversion effects in order to achieve beneficial trade liberalization. However, apart from short-run benefits, there are also the long-run benefits such as greater technical and managerial efficiency due to greater competition, larger markets, higher consumer surpluses, and more foreign investments.
South Asian countries are involved in regional as well as bilateral initiatives towards economic integration via tree trade agreements. A remarkable numbers of regional as well as bilateral trade agreements were signed by the South Asian Countries. Few of those agreements are already in effect and rests of those are in negotiation table. In such a circumstance political conflict between the nations especially between India and Pakistan made the flow not responding. I have full confidence that this not responding situation will be overcome by our leaders and policy makers over time. But the sooner is the better in this case. Because without a peaceful and cooperative South Asia none of the countries could be gainer even by signing thousands of bilateral free trade agreement / economic partnership agreement with hundreds of states.
Lets try to know the regional initiatives toward economic integration of South Asia and their current status are the followings:
1. South Asian Free Trade Area; Signed and in effect.
2. Asia-Pacific Trade Agreement; Signed and in effect.
3. Preferential Tariff Arrangement-Group of Eight Developing Countries; Signed and in effect.
4. Economic Cooperation Organization Trade Agreement; Signed and in effect.
5. Trade Preferential System of the Organization of the Islamic Conference; Signed but not yet in effect.
6. Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area; Negotiations launched.
7.Regional Comprehensive Economic Partnership; Negotiations launched.
Bilateral economic integration initiatives of South Asia and their current status could be described as follows:
1) India-Afghanistan Preferential Trading Agreement; Signed and in effect.
2) India-Bhutan Trade Agreement; Signed and in effect.
3) ASEAN-India Comprehensive Economic Cooperation Agreement; Signed and in effect.
4) India-Afghanistan Preferential Trading Agreement; Signed and in effect.
5) India-Bhutan Trade Agreement; Signed and in effect.
6) India-Chile Preferential Trading Agreement; Signed and in effect.
7) India-MERCOSUR Preferential Trade Agreement; Signed and in effect.
8) India-Singapore Comprehensive Economic Cooperation Agreement; Signed and in effect.
9) India-Sri Lanka Free Trade Agreement; Signed and in effect.
10) India-[Republic of] Korea Comprehensive Economic Partnership Agreement; Signed and in effect.
11) Indo-Nepal Treaty of Trade; Signed and in effect.
12) Japan-India Comprehensive Economic Partnership Agreement; Signed and in effect.
13) Malaysia-India Comprehensive Economic Cooperation Agreement; Signed and in effect.
14) Malaysia-Pakistan Closer Economic Partnership Agreement; Signed and in effect.
15) Pakistan-Indonesia Free Trade Agreement; Signed and in effect.
16) Pakistan-Iran Preferential Trade Agreement; Signed and in effect.
17) Pakistan-Mauritius Preferential Trade Agreement; Signed and in effect.
18) Pakistan-MERCOSUR Preferential Trade Agreement; Signed and in effect.
19) Pakistan-Sri Lanka Free Trade Agreement; Signed and in effect.
20) Pakistan-US Trade and Investment Framework Agreement; Signed and in effect.
21) Peoples Republic of China-Pakistan Free Trade Agreement; Signed and in effect.
22) Sri Lanka-Iran Preferential Trade Agreement; Signed and in effect.
23) Pakistan-Bangladesh Free Trade Agreement; Negotiations launched.
24) India-Gulf Cooperation Council Free Trade Area (FA); Signed.
25) India-Australia Free Trade Agreement; Negotiations launched.
26) India-Canada Economic Partnership Agreement; Negotiations launched.
27) India-Customs Union of Russia, Belarus, and Kazakhstan FTA; Negotiations launched.
28) India-Egypt Preferential Trade Agreement; Negotiations launched.
29) India-European Free Trade Association Free Trade Agreement; Negotiations launched.
30) India-European Union Free Trade Agreement; Negotiations launched.
31) India-Indonesia Comprehensive Economic Cooperation Arrangement; Negotiations launched.
32) India-Israel Preferential Trade Agreement; Negotiations launched.
33) India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement; Negotiations launched.
34) India-Southern African Customs Union Preferential Trade Agreement; Negotiations launched.
35) India-Thailand Free Trade Area; Negotiations launched.
36) New Zealand-India Free Trade Agreement; Negotiations launched.
37) Pakistan-Bangladesh Free Trade Agreement; Negotiations launched.
38) Pakistan-Gulf Cooperation Council Free Trade Agreement; Negotiations launched.
39) Pakistan-Morocco Preferential Trade Agreement; Negotiations launched.
40) Pakistan-Singapore Free Trade Agreement; Negotiations launched.
41) Pakistan-Thailand Free Trade Agreement; Negotiations launched.
42) Pakistan-Turkey Preferential Trade Agreement; Negotiations launched.
43) Comprehensive Economic Partnership Agreement between Singapore and Sri Lanka; Negotiations launched.
44) Peoples Republic of China-Sri Lanka Free Trade Agreement; Negotiations launched.
From the above scenario that each of the South Asian states recognized that coming days will be the era of free trade and economic partnership. As a result every country is busy with negotiating respective free trade agreements in bilateral or regional level. The largest economy of the region i.e. India is involved with 28 the largest number of bilateral and regional free trade agreements / economic partnership followed by Pakistan 18, and Bangladesh 6. As the biggest player of the region India has to take the lead role and responsibility to make the South Asian Economic Integration possible. India may have to do something more sacrificing to bring Pakistan into its confidence in this process. But this sacrifice could make him regional leader in long run. Without peace in South Asia Indian dream to be economic Super Power will never be in reality. In such a situation how could be believe that our leaders will not be proactive to make the most required regional cooperation further fruitful and progress into deeper integration under the umbrella of SAARC. With due respect to all party I would like to state that, BIMSTEC, APTA or any other platforms could bring forward but none will be as win-win as the SAARC. Because of strategic geographic coverage is an essential part of the regional cooperation.
SAARC leaders should seat together for greater interest of the mass people of this region. They have to overcome narrow political perspective to do something greater, effective, and fruitful for a long term win win benefit of the sub-continent. They have to overcome existing challenges like root out of the tariff and non-tariff barriers, minimizing the negative list, Ease the complexities related to the rules of origin, and ensure free movement of people and goods by establishing transport facilities and withdrawing visa complexities for the SAARC citizens.
Cordial steps has to be taken to ensure easy transit facility, uniformity of documentation, quick and easy access to information, time bound customs clearance, quick and economy system of dispute settlement.
Trade related infrastructure has to be developed in border / port area with convenient transportation facilities. Private sector entrepreneurs (the real actors of international trade) have to be incorporated in the negotiation table to make the system useful. Everything will be not responding if existing complex visa system could be withdrawn or ease. Only frequent integrations between the citizens could make the system functional and worthwhile.
The writer is Deputy Manager,
SME Foundation
