Aparna

SAARC in Asian Regionalism

Aparna Sawhney
Centre for International Trade and
Development, 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)
ITC-ICRIER, 28th March 2007
Aparna Sawhney, CITD, JNU

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
60 Asia

50 N America

40 Europe

30 Africa

20 Middle East

10 South-Central
America
0 CIS
1990 2000 2005


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

50 North America
40 Europe

30 Africa
20 Middle East
10 South Central
Amercia
0 CIS
1990 2000 2005


 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 8.9
* Computed from IMF DOTS data

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.


Afghanistan
Pakistan 1%
Bangladesh
11% Sri Lanka
6%
2%
Nepal
1% Bhutan
Maldives
0%
0%

India
79%

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


 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 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


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

Aparna

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