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South Asian Free Trade Area

South Asian Free Trade Area

The world is witnessing a new gesticulates of regionalism together with an escalation of efforts for setting in place a multilateral trading system. The concept of regionalism is emerging as dominant discourse in today’s   world. Many part of the world is benefiting by conceding to regionalism as it is a way to regional integrity which is seen as a mechanism to bring peace and harmony in the region. European Union is good example of such regional integration. South Asia has the largest population among all regional blocs in the world today With 1.47 billion people. The organization of the SAARC was an effort to bring about convergence in the region and to shun conflicting tendencies that arose in the post-Independence period in the region. It was Bangladesh PM by Ziaur Rahman who initiated the move and taken forward by other leaders of the region.SARAC was also set up with a aim to strengthen the regional integration which will lead to peace and regional economies, social and political integration of South Asia. As the region has a history of strong trade and cultural ties among themselves for centuries until 1947. In the late 1940s, there was sizeable trade among when most of the South Asian Countries were part of one political entity -British India. In 1947, more than half of Pakistan’s imports came from India and nearly two-thirds of its exports went to India. But, later on “as the two countries engaged in bitter disputes over territory, currency valuation, and water distribution, these shares declined.”

 

Thus In order to revive the past economic ties and to strengthen further the economic integration of the region, a summit was held in Islamabad in January 2004, in which seven members of the South Asian Association for Regional Cooperation (SAARC) agreed to establish a free trade area in South Asia. The “Islamabad Declaration” aims to launch the South Asian Free Trade Area (SAFTA) on January 1, 2006.The treaty was the realization of the fact that south Asia ample scope and rich potentials for much deeper economic integration. On a more positive note, while it is considered a major step forward in making a transition from SAARC Preferential Trading Arrangement (SAPTA) to a South Asian Free Trade Area (SAFTA) Treaty, which was signed in January 2004, several arguments are put forth for an intensification of the regional economic integration initiatives.it was acceptance the concept of regional economic cooperation in the region.

 

The Objectives of the SAFTA are to enhance and promote mutual trade and economic

Cooperation among Contracting States by, inter-alia.Secondly,  the agreement calls for removing barriers to trade and facilitating the cross-border movement of goods between contracting states; promoting conditions for fair competition; and establishing a framework for further regional cooperation. Governed by the principles of the World Trade Organization (WTO), reciprocity, and an awareness of the needs of least-developed SAFTA countries (Bangladesh, Nepal, Bhutan, Maldives).Thirdly, to encourage conditions of fair competition in the free trade area, and to make certain unbiased benefits to all Contracting States, taking into account their particular levels and model of economic development. Fourthly devising effective mechanism for the execution and application of this Agreement, for its joint administration and for the resolution of disputes; and

establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement is also one of important objective of the  SAFTA.

SAFTA also aims at providing technical assistance and cooperation arrangement to assist LDCs in expanding their trade with other Contracting States and in taking advantage of the potential benefits of SAFTA.

 

There are various benefits associated with the SAFTA for bringing prosperity in South Asia by adopting liberal trade policies and promoting regional trade mechanism. The SAFTA agreement is supposed to bring both political as well as economic benefit. In general, RTAs (Regional Trade Agreements) involving more than two partners are more fruitful than bilateral FTAs(Free Trade Agreements). This is because range of complementarities is extended and they present broader opportunities for industrial restructuring. However, RTAs are generally less ambitious and take longer to take off compared to bilateral FTAs because of participation of countries at different levels of development. It may also be argued that a regional trade arrangement is the sum total of various bilateral trade arrangements of one country. In this sense, bilateral arrangements would serve as a complement to other regional trading agreements than becoming a substitute for the latter.

 

Deeper regional economic integration assists in restructuring of industry across a region on a most competent basis so as to develop the economies of scale and specialization. Such efficiencies lead to generation of income and hence could be a spur for regional economic growth. Deeper regional integration benefits relatively poorer or lesser developed economies within the grouping because of migration of industry to them and thus helping their levels of economic development converge with those of more developed ones. for example , poorest economies of the European Union like   Ireland, Spain, Portugal and Greece have rapidly joined with more developed economies of the region such as Germany, France or the UK .like wise weak economies of Nepal,Bhuttan,Afganistan will be converge with comparatively stable economies of India Pakistan, Bangladesh and Sri Lanka.

 

Thus if the agreement is carried out successfully it will accelerate growth, deepen cross-border trade and investment, and further stabilize the region. It will also bring about deep structural changes in the regional economies. One of the greatest significance of   SAFTA is that benefits are greatest when countries have relatively liberal economies, thus emergence of significant new trade opportunities is expected if SAFTA is implemented effectively.

 

Development and peace are directly interrelated .SAFTA is expected to bring political coherence and peace arising from the growing economic interdependence. This was the case with EC where clearly political motivations were dominant over economical inspirations.”Its goal was to ensure that by integrating the French and German economies, Europe would no longer be embroiled in conflict.” Thus, it becomes more important in the South Asian case, where there is sufficient conflict amongst the two major economies of India and Pakistan. Involvement of both countries in such economic arrangements would increase the economic dependency between the nations which may override the political conflicts.

 

SAFTA needs to improve its implementing institutions to strengthen further regional economic

integration, capacity by accelerating  the implementation schedule for tariff cuts and reduce “sensitive lists” to broaden coverage, Defining  rules of origin that will facilitate regional integration without constraining the region’s growth opportunities, Broadening  liberalization commitments to encompass nontariff barriers, addressing  cross-border investment and movement of people across international borders. A regional framework would encourage such efforts. Opportunities for regional collaboration are significant in information technology services, some social services (e.g., education and health), and banking. Develop mechanisms for compensating for revenue losses and providing assistance, Strengthen the SAARC Secretariat, Agree on parameters for geographic expansion. Such measures will help in implementation of SFTA effectively which is bound to open new era of progress and prosperity in the impoverished region.

About Ali Tariq

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