SAARC in Asian Regionalism

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SAARC in Asian Regionalism

• Aparna Sawhney
• Centre for International Trade and Development,
  JNU

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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)

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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)

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Regional Shares in World Merchandise Exports,
1990, 2000, 2005
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Regional Shares in Commercial Services Exports,
1990, 2000, 2005
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• In particular, South Asias 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

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• 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
  Europes GSP regional cumulation - applies to
  SAARC member countries (EC regulation 881/2003)

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• Convergence of interests of Asian developing
  countries at the WTO negotiations
• gt 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

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• 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.

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Intra-regional Merchandise Exports, 2005(as
share of each regions 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
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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

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• Low economic interaction among SAARC Members.
• Even after accounting for informal trade, total
  intraregional trade constitutes less than 10 of
  S. Asias 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

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• 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.

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• 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.

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• 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

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Country Shares in Asias 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
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• For 22 years, Indias 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

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• Indias 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.)

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• 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

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• Increased efficiency in provision of public goods
  and services
• Considering South Asia as an integrated
  geo-ecological system cooperative approach in
  the management of energy, water, etc is optimal.
• Connectivity payoffs with rest of Asia
• A regionally integrated South Asian space will
  help realize trans-Asian connectivity

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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