TRADE REFORMS AND ECONOMIC INTEGRATION IN SOUTH ASIA

Applied Econometrics and International Development. AEID.Vol. 5-4 (2005)

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TRADE REFORMS AND ECONOMIC INTEGRATION IN SOUTH ASIA: SAARC to SAPTA

CHOWDHURY, Mamta B* Abstract As Globalisation and regionalism gained its momentum from the beginning of 1980s and the gain from open trade is realised by the pioneer East Asian nations (especially, the ASEAN countries), the South Asian countries also tried to catch up with the stream under the banner of South Asian Association of Regional Cooperation (SAARC). The objective of the study is to assess the liberalisation efforts by these nations. Our empirical results in terms of trade among the regional group suggest that the smaller countries, namely Bangladesh and Sri Lanka reap the higher gains from openness, whereas trade with other international partners, it took India and Bangladesh to gain international competitiveness until mid 1990s. Our study indicates Pakistan and Sri Lanka’s trade liberalisation efforts don’t seem to have much positive impact in terms of international trade. JEL Classification: F100, F470. Keywords: SAARC, SAPTA, SAFTA, Trading Bloc, Intra- and international Competitiveness, Real exchange rate, Openness in trade regime. 1. Introduction Global economy has witnessed a rapid integration beginning in the early 1980s. As globalisation and regionalism gained its momentum

* Dr Mamta B Chowdhury School of Economics and Finance College of Law and Business University of Western Sydney Blacktown Campus Locked Bag 1797 Penrith South DC NSW 1797 Australia. E-mail: [email protected] Acknowledgement: I would like to thank Khorshed Chowdhury, Department of Economics, University of Wollongong, Australia, for providing valuable comments that substantially improved this work. Of course, I am alone responsible for any errors.


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and the welfare gain from open trade is realised by the pioneer East Asian nations (especially, the ASEAN countries), the South Asian countries also tried to catch up with the movement under the banner of South Asian Association of Regional Cooperation (SAARC). The objective of the study is to assess the liberalisation efforts by this South Asian regional bloc. The imperative association between openness in trade regime and the greater economic integration of developing countries with the world economy has been emphasised by the economists over the years. Intra-regional trade expansion is one of the efficient ways of integrating to the much larger international economy as the countries become more competitive both in terms of input use and cost effective production of output. It not only provides a larger market and fuller utilisation of production capabilities, it also facilitates the technology transfer, fuller deployment of human, capital and entrepreneurial potential which in turn bring the economies of scale. Intra-regional trade expansion, in turn, is the “most direct and most influential form of regional economic cooperation” as emphasised by Guru-Gharana (2000:2). The successful experience of trade liberalisation and export led growth in the East Asian countries and gains from intra-regional trade expansion encouraged the South Asian countries gradually introducing wide ranging economic liberalisation and institutional reforms since the late nineteen eighties. SAARC has also taken another decisive step moving forward to intra-regional economic cooperation, the South Asian Preferential Trading Arrangements (SAPTA) following the success of European Union (EU), North American Free Trade Agreement (NAFTA) and Asian Free Trade Area (AFTA). SAARC members realise that trade liberalisation has important and far-reaching implication in the region. Cooperation among the neighbours not only strengthen the economic and financial sectors via optimal utilisation of natural and human resources but also enhances greater political stability and social and cultural cooperation between member nations. With a combined population of more than

Chowdhury, M. Trade reforms and economic integration in South Asia

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1.5 billion, SAARC has the potential to be emerged as another significant trading bloc followed by EU, NAFTA and ASEAN. This paper is organised as follows: Section II provides a brief over view of SAARC and its major member countries and indicates the progress of SAARC in terms of economic reforms and its efforts to develop into a preferential trading bloc and subsequently a free trade area. Section III illustrates the trends and directions of external trade of the region. Section IV summarises the findings and draws the conclusion of the study. 2. Economic Integration in South Asia: SAARC to SAPTA SAARC was formed in 1985 with the seven member countries of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka with the vision of welfare enhancement and opportunity to realise the full potential of the region. Dhaka Declaration of 13th SAARC Summit November 2005 includes Afghanistan in the forum as its newest member and agreed in principle to welcome China and Japan to be associated with SAARC as observers. The idea of regional cooperation was initiated by Bangladesh during 1977-801 and later these seven member countries formed the regional bloc to accelerate social and economic development through the concept of collective self-reliance, cooperation and harmony in certain areas of development. Initially SAARC’s primary focus was on technical cooperation, covering agriculture, environment and meteorology, communications, education, health and population activities, culture and sports, prevention of drug abuse and trafficking, tourism, transport, science and technology, rural development and women’s development. With the one fifth of world population, SAARC countries realised that economic as well as other social and cultural cooperation will create an opportunity for powerful developmental strategies for these nations while maintaining the territorial integrity and political independence. From relatively modest beginnings, SAARC members have been gradually expanding their cooperation to cover new areas of common 1 For detail discussion, see Bandara and Yu (2001).


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interest. Second stage of cooperation within SAARC was on the social agenda beginning about 1990 covering social issues such as eradication of poverty, promotion of literacy and development of women and children. Cooperation in core economic areas is the major focus of this bloc from the early 1990s. South Asian Preferential Trading Agreement (SAPTA) was lunched by SAARC in April 1995. This agreement is considered to be the major stepping-stone towards higher level of intra-regional trade liberalisation and economic cooperation among the member countries. SAPTA, was initiated by Sri Lanka’s proposal of strengthening the intra-regional economic cooperation, focusing mainly on the intra-regional preferential trading arrangements in terms of greater product coverage and deeper tariff cuts. The final goal of this trading bloc is intended to reach towards the South Asian Free Trade Association (SAFTA) to form a free trade area in South Asia with a favourable treatment towards the Least Developed Countries (LDCs) comprising Bangladesh, Maldives, Bhutan and Nepal. SAFTA’s draft treaty framework has been based on the abolishing the customs duties among the member countries2

preferably by year 2000 but not later than 2005. SAFTA will facilitate the free movement of goods and services across the member nations by dismantling all tariff and non-tariff barriers to trade in the region. The 13th SAARC Summit during 12-13 November 2005 finalises the implementation of SAFTA with effects from 1 January 2006. Dhaka Declaration 2005 envisions completing this trade liberalisation program by 2016. SAARC leaders also hoped that the successful launching and implementation of SAFTA would make an

2 SAARC has failed to meet the deadline to finalise the SAFTA treaty for the second time in December 30th 2002. The earlier deadline matured in December 31, 2001 and SAARC Secretariat-appointed Sri Lanka-based consultant, Institute for Policy Studies (IPS) to submit the final report by March-end, 2003. 13th SAARC Summit scheduled in Dhaka Bangladesh 2004 was postponed twice due to terror alert in the region.


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important milestone on the road to a South Asian Union in foreseeable future. First Round of SAPTA negotiations carried out on a product-by-product basis as agreed during the 6th meeting of the Inter-Governmental Group on Trade Liberalisation (IGG) in April 1995. During this negotiation, seven member countries offered tariff concessions ranging from 7.5 per cent to 50 per cent on total 226 items for intra SAARC trade, of which 101 items were limited to LDCs (Udagedera, 2001:21). The Second Round of Trade negotiations under SAPTA, which concluded in November 1996 was substantial with 1975 tariff lines covered under concessional tariffs out of 2034 items, where India offered concession for 911, Bangladesh for 206, Pakistan for 386, Sri Lanka for 102, Nepal for 377, Bhutan for 47 and Maldives for 5 items. IGG recommended a combination of approaches including product-by-product approach for this negotiation while reducing the tariff barriers ranging from 7.5 per cent to 100 per cent. The Third round trade negotiations concluded on 23rd November 1998 under SAPTA and was conducted mainly on a product-by–product basis while India, Pakistan and Bangladesh adopted a combination of different approaches including product-by-product, chapter-wise, sectoral and across the board (Udagedera, 2001). A total of 3456 tariff lines were covered under concessional tariffs and India offered more than half (1917 items) the concessions. Fourth Round of negotiation has already been undertaken by SAPTA on a product-by-product basis by November 2002. During this negotiation, Bangladesh agreed to reduce up to 20 per cent tariff on 13 products exported by Nepal. Sri Lanka agreed to cut tariff by 10 to 20 per cent for 57 export items from Nepal whereas Pakistan agreed to provide customs concession up to 30 per cent for over 200 Nepali products (Kathmandu Post, 27 November 2002). During the first three rounds of negotiation under SAPTA, the SAARC member countries have so far given concessions on as many as 4952 products to each other although a large proportion of these items under concession are not actually imported. Of these, India on 2402 items; Pakistan on 685 items; Bangladesh on 572 items; Sri Lanka on 212 items, Bhutan gave concessions on 266 items;


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Maldives on 390 items and Nepal on 425 items. Total trade among the SAARC member countries during the financial year 2001-2002 stood at $470.781 million against $573.789 million in 2000-01, a decrease of 17.95 per cent (SDNP Info, 2002). Table 1 Average Tariff Rates in Major SAARC Countries 1991-1999 (per cent, unweighted)

Countries 1991 1992 1993 1994 1995 1996 1997 1998 1999 Bangladesh 88.6 71.0 50.0 42.0 - 27.4 24.6 23.8 22.2 India 79.2 53.0 47.8 47.8 41.0 38.7 35.0 30.0 32.2 Pakistan 66.0 61.1 56.0 51.1 50.7 41.7 - 46.5 - Sri Lanka 26.9 25.0 24.2 26.0 20.0 - 20.0 - -

Source: Hoekman et al (eds) Development, Trade and the WTO, Appendix Tables. Note: ‘-’ denotes not available Tariff cuts for LDCs ranges from 7.5 to 100 per cent whereas they are restricted only to 10 per cent for non-LDCs over these negotiations. India offered the highest tariff cut in the First Round, ranging from 10 to 90 per cent for all, which declined to 10 to 40 per cent in Second Round and 10 to 20 per cent in the Third Round. The issue of non-tariff barriers are not addressed properly yet. Table 1 indicates that current level of tariff and non-tariff barriers are still substantially high in major SAARC nations. Although South Asia’s non-tariff barriers declined more than 85 per cent between the 1980s and 1990s (UNCTAD, 1994 and 1999), removal of existing tariff and non-tariff barriers on intra SAARC trade is considered to be an enormous task yet. Among the four major SAARC countries, Sri Lanka seems to start with relatively lower average rate of tariff. Both Bangladesh and India substantially cut it average tariff rates from relatively high rates between 1991 and 1999, whereas Pakistan is to lagging behind in its efforts to have a more open trade regime among these countries until the end of the century. There are, however, several other bilateral free and/or preferential trading arrangements that have been established in South Asia such as free trade arrangement between India and Sri Lanka negotiated in 2000 and another agreement between Pakistan and Sri Lanka was signed in August 2002.


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An Overview of Major SAARC Countries: SAARC countries differ enormously in terms of size, population and economic development. They share divergent economic, social, cultural and political arrangement. These divergences offer enormous opportunities as well as numerous difficulties and challenges in the formation of regional bloc. One of the structural characteristics of the region is the coexistence of least developed countries with relatively more developed country. India predominates the SAARC economic parameters including GDP and population. Table 2 Economic Indicators of Major SAARC Member Countries 1998 Indicator Bangladesh India Pakistan Sri Lanka Population (mil) 126.6 979.7 131.6 18.8 Area (sq km) 147570 3287253 796095 65610 Growth rate of GDP (%, 1995-98)

4.6 4.3 2.5 5.9

GDP per Capita (US$) 360 370 500 800 Agricultural Sector (% of GDP)

24.5 25.4 25.3 18.9

Manufacturing Sector (% of GDP)

16.1 14.5 14.7 14.8

Source: World Bank, World Tables 2002 and World Development Indicators, 1999. World Bank, 1997, South Asia’s Integration into the World Economy. Of the four major SAARC nations in this study, Bangladesh and Sri Lanka are small in territorial size and far behind in terms of industrialisation process compared to India and Pakistan. India is the largest country in the region and occupies 70 per cent of the landmass of the region. Its territorial and maritime boundary encompasses all the SAARC countries. Sri Lanka is an island country whereas both Bangladesh and Pakistan share vast territorial broader with India. India is well endowed with natural resources and minerals and some of these (eg. Uranium, iron ore, gold and silver etc) are exclusive to India only. In terms of population, India accounts for 90 per cent of the region’s population. India’s dominance is not restricted to size only - it accounts for nearly 73 per cent GDP and 64 per cent of the


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export trade of the regional bloc. In terms of manufacturing value added, India contributes nearly 80 per cent of the region’s manufacturing value added and also dominates the export and import volume of the region. Its exports to other SAARC countries have increased from 3.9 per cent in 1970 to 5.5 per cent in 1999 whereas import share declined from 1.4 per cent to 0.9 per cent over the same period. All these SAARC countries were colonies of imperial power at a certain stage in their political history. Although all countries have the democratically elected governments, armed forces of some of the countries have an over-bearing influence on policy making in this region. Some of the countries are involved in open hostilities as well as various other bilateral issues causing temporary tensions in the region. All these countries have some forms of ethnic problems since the countries are to a varying degree, ethnically heterogenous. The major traded items from and within SAARC countries are predominately primary agricultural and semi manufactured commodities. The primary exports of agricultural products includes rice, fruits, vegetables, nuts, spices, cotton, tea, fish while in manufacturers, textiles, textile yarn, knit crochet fibres, garments and carpet are the major exporting products. Some other major items exported from this region are leather products, footwear, pearls, gems and jewellery, iron, waste and scrap, stone, sand and gravel, synthetic chemicals, dyes and some light manufactures. One of the major SAARC countries, India, is increasingly exporting high tech products and motor vehicles. The share of manufactures in SAARC’s total exports increased from 53 per cent in 1980 to 76 per cent in 1996 (World Bank, 1999). 3. Trend in External Trade South Asia is the second fastest growing region in the world although 43 per cent of its population is living below the poverty line (UNDP 1997). With about 263 people for every square kilometre, South Asia represents the world’s most densely populated region (World Bank 1999). South Asia requires engaging its human as well as other physical resources into economic activities to secure the livelihood of this vast population. Trade is, therefore, vital for the


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economic growth of these countries. Although trade barriers are still high, recent economic reforms have lowered some barriers on trade and investment as discussed in Section II. Despite growing optimism for the region, SAARC’s share of global trade has remained only just over 1 percent while accounting for 2 per cent of world GNP. Intra-regional trade in goods, services and finance are also remained below 5 per cent. With recent economic reforms, countries in the region are taking some measures in promoting economic integration for their economic prosperity. The world merchandise trade share of the region has improved modestly from 1.25 per cent in 1995 to 1.45 per cent in 2001. Table 3A Intra and International Trade of Major SAARC Countries (1995-96, in million US$) Export Country Total SAARC Total World % of SAARC to World Bangladesh 83 3129 2.65 India 1544 30537 5.06 Pakistan 252 7991 3.15 Sri Lanka 104 3701 2.81 Imports Bangladesh 1151 6496 17.72 India 198 34456 0.57 Pakistan 169 11460 1.41 Sri Lanka 508 5874 8.65 Source: SAARCNET, Http://www.saarcnet.org/newssaarcnet/ Table 3B Average Intra Regional Trade Volume of Major SAARC Countries (Between 1992-2000, in Billion US$) Export Country Average

annual trade Percentage of overall intra- regional trade

Recent trend

Bangladesh 922 21 falling India 1884 40 raising Pakistan 479 11 falling Sri Lanka 706 17 fluctuating Source: United Nations Statistic Division 2004


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Tables 3A and 3B indicate that the smaller countries like Bangladesh and Sri Lanka increased intra-regional trade substantially from mid 1990s. Bangladesh accounts for 33.6 per cent of total intra-regional trade in 1995-96 and 21 per cent on average between 1992 and 2002, whereas India, being the largest country in the region shown to have limited trade with its neighbours. In terms of the proportion of intra-regional trade to international trade of these countries, Bangladesh has done much better than other member countries as its 20 per cent trade is directed towards the SAARC countries in 1995-96 compares to its world trade, where as India and Pakistan have only about 5 per cent trade with their SAARC member nations. However, the recent trade trend shows that the intra regional trade volume for India has been rising, fluctuating for Sri Lanka whereas it is falling for Bangladesh and Pakistan due to high level of border protection maintained by India and partly because these countries are trying to strengthening their trade with industrial countries outside the region (Pitigala, 2005). Table 4: Export Performance of Major SAARC Countries (millions of US dollars)

Country 1995 1996 1997 1998 1999 2000 2001 Av. (per cent)

Bangladesh 3129 3297 3628 3831 4520 5690 5736 11.9 India 30537 32325 33248 33437 39219 42375 44578 6.6 Pakistan 7991 9299 8632 8514 8439 9028 9170 2.1 Sri Lanka 3810 4097 4652 4330 4264 5430 4929 4.2 Source: Constructed from IMF, Direction of Trade Statistics Yearbook, various issues. Av.=Average annual growth rate (per cent) Exports from SAARC increased on average by over 12 per cent per annum during 1991 and 1995 with a large shift from primary agricultural products to manufactured goods and significant proportion of high-tech products from India (Regmi, 1999). Table 4 reveals that all major SAARC countries have recorded a positive rate of export growth over 1995 and 2001. Bangladesh shows highest export growth of 83.3 per cent between 1995 and 2001 with an average annual growth rate of 12 per cent. India also


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recorded an annual average growth rate of around 7 per cent over the period. Pakistan and Sri Lanka’s performances slowed down by declining export values between 1997 and 1999. Table 5: Export of Services From Major SAARC countries (millions of US dollars) 1995 1999 2000 Service exports as % of

GDP (1992) Bangladesh 698.2 777.7 815.1 2.0 India 1890.0 1844.0 1882.0 2.0 Pakistan 1857.0 1373.0 1380.0 3.7 Sri Lanka 819.2 964.3 938.7 7.0 Source: IMF, Balance of Payments Statistics Yearbook 2001, Vol.2. World services exports of US$1260 billion in 1996 is around 25 per cent of world export of goods and was growing at about 6 per cent over 1994. SAARC member countries together accounts for about only 0.8 per cent of the total world share of services export in 1990, whereas ASEAN countries represent 4 per cent of the total global services exports (Mukherjee, 1999). Some of the SAARC countries have great potential for trade in specialised services. In services sectors, travel and tourism, transportation, communication, insurance, manpower, medical, education, entertainment, computer and Internet related services are already contributing to the balance of payments of these countries as reflected by Table 5. Amongst the SAARC countries, Pakistan and Sri Lanka experienced the highest annual growth rates of services exports of 16.1 per cent and 15.8 per cent respectively over 1980-93. Although most of the SAARC member countries experienced deficit in services trade in general, the ratio of service exports to service imports is improving for Bangladesh in recent years (Mukherjee, 1999). From the early 1970s, major SAARC countries are receiving large private remittances flow exporting manpower services especially to the Middle Eastern countries.


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Table 6: Import Performance of Major SAARC Countries (millions of US dollars) Country 1995 1996 1997 1998 1999 2000 CGRate

(per cent)

Bangladesh 6496 6935 6863 6774 8352 8993 6.72 India 34484 36055 39017 42980 45038 49724 7.59 Pakistan 11461 12150 11611 9330 10297 11049 -0.73 Sri Lanka 4481 4740 5282 5905 6255 6688 8.34 Source: Calculated from IMF, Direction of Trade, various issues. CGRate= Compound annual growth rate (per cent) With the exception of Pakistan, all three major SAARC countries recorded positive import growth ranging from about 7 per cent to 8.3 per cent over the periods of 1995 and 2000 as shown in Table 6. Capital and intermediate goods represent the major imports by SAARC countries. These include petroleum and petroleum products, fertilizer, chemicals and machinery. Table 7: Destination of Exports from SAARC Countries 2000 Country US UK Germany Italy France Japan Hong

Kong Bangladesh 31.8 7.9 10.9 4.1 5.1 1.2 1.6 India 23.7 5.6 4.8 3.2 2.5 5.7 5.9 Pakistan 25.2 6.6 5.7 2.5 3.1 2.7 6.0 Sri Lanka 40.4 13.6 4.2 1.3 2.1 4.2 1.3 Source: Constructed from IMF, Direction of Trade Statistics Yearbook 2002. Although SAARC’s trading partners are diverse including Europe, United States, Hong Kong, Japan and Middle Eastern countries and European Union, United States remains the major destination for SAARC’s exports.


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Table 8: Intra and Inter-Regional Trade by SAARC (per cent) Year Exports

1995 Exports 2000

Imports 1995

Imports 2000

SAARC 4.41 4.46 2.36 3.90 NAFTA 20.93 26.70 10.89 7.33 European Union

29.18 27.14 24.59 21.14

ASEAN 6.39 4.67 13.91 13.74 N.E. Asia* 10.43 6.30 8.82 11.87 ROW 28.67 30.56 39.43 42.02 Source: IMF, Direction of Trade Statistics Yearbook, various issues. Note: *North East Asia: China, Japan and the Republic of Korea. ROW= Rest of the World Table 8 indicates the intra regional and international trade by the SAARC in recent years. Despite increasing growth in total exports, intra-regional trade in total trade shows moderate rise from 4.4 per cent to 4.5 per cent for export between 1990 in 2000. Intra-regional imports also increased by 1.54 per cent point over 1995 and 2000. The rise in the intra-regional trade during 1990s is mainly due to a large increase in imports by Bangladesh and Sri Lanka from India. The combined share of Bangladesh and Sri Lanka’s imports accounts for 72.4 per cent of total intra-SAARC imports, whereas India’s exports occupies about 70.6 per cent of total intra-SAARC exports in 1994 (Bhattacharyya and Katti, 2002). Despite the fact that intra-regional trade is in a rising trend at around 4 to 5 per cent of total trade of the region under SAPTA, it is negligible when compared with other regional trade blocs such as EU and NAFTA. Intra-regional trade ranges from more than 65 per cent in EU to 41 per cent in NAFTA and around 40 per cent in ASEAN (saarcdocuments, 1998). However, SAARC’s total trade share with rest of the world increases significantly over 1995-2000. SAARC’s exports to NAFTA increased despite a fall in imports share to the region. Imports from North East Asia to SAARC increased considerably whereas exports to both East Asia and ASEAN declined over the period.


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Table 9: Intra-Country Exports in the SAARC Region 1981 – 2001 (percentage of total exports) Bangladesh India Pakistan Sri Lanka Bangladesh 1981 --- 2.5 5.3 0.3 1987 --- 1.0 2.6 0.0 1991 --- 1.4 2.3 0.4 1995 --- 1.2 0.8 0.4 2001 --- 1.9 0.5 0.03 India 1981 0.7 --- 0.0 1.0 1987 1.3 --- 0.1 0.6 1991 0.9 --- 0.2 0.7 1995 3.1 --- 0.2 1.3 2001 2.4 --- 0.5 1.4 Pakistan 1981 2.0 2.3 --- 1.0 1987 2.2 0.5 --- 1.2 1991 1.5 0.7 --- 1.0 1995 1.9 0.5 --- 0.7 2001 1.6 0.7 --- 0.8 Sri Lanka 1981 0.2 2.8 5.1 --- 1987 0.7 0.5 2.3 --- 1991 0.2 1.0 1.5 --- 1995 0.3 0.8 1.1 --- 2001 0.2 1.3 0.6 --- Source: Constructed from IMF, Direction of Trade StatisticsYearbook, various issues.‘---’ denotes not applicable Intra-regional trade matrix in Table 9 and 10 indicate that both export and import flows are quite low within the region. An exception is Bangladesh, which has fairly large proportion of imports from India. India and Pakistan are the major exporters while Bangladesh and Sri Lanka remain the major importers within the region. India’s intra-regional exports accounts for 54 per cent of total intra SAARC exports whereas intra-regional imports by Bangladesh accounts for more than 52 per cent in 2001.


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Table 10: Intra-Country Imports in the SAARC Region 1981 – 2001 (percentage of total imports)

Bangladesh India Pakistan Sri Lanka Bangladesh 1981 --- 2.4 5.3 0.3 1987 --- 2.8 1.4 0.2 1991 --- 5.6 1.7 0.1 1995 --- 15.3 2.1 0.2 2001 --- 13.3 1.0 0.08 India 1981 0.1 --- 0.5 0.4 1987 0.0 --- 0.1 0.0 1991 0.1 --- 0.2 0.1 1995 0.2 --- 0.008 0.1 2001 0.1 --- - 0.2 Pakistan 1981 1.0 0.1 --- 2.2 1987 0.9 0.2 --- 0.9 1991 0.4 0.5 --- 0.8 1995 0.3 0.7 --- 0.4 2001 0.2 2.08 --- 0.2 Sri Lanka 1981 0.1 4.1 0.1 --- 1987 0.0 4.1 2.3 --- 1991 0.2 4.5 2.5 --- 1995 0.1 10.5 1.2 --- 2001 0.03 9.9 1.2 ---

Source: Constructed from IMF, Direction of Trade Yearbook, various issues. ‘---’ denotes not applicable It is also indicated from comparative economic and trade openness data in Table 11 that Bangladesh’s trade share in GDP has increased from mere 15 per cent in 1970 to over 60 per cent in 2000 and its intra regional trade has increased more than 3 percentage point from 7 per cent in 1990 to 10.35 per cent in 2000. Whereas India and


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Pakistan, two larger countries’ intra regional trade share has fallen at least by 2 percentage point over the same period. Table 11 Comparative Economic and Trade Openness Indicators Countries Trade Share of GDP Regional Trade Share 1970 1980 1990 2000 1990 2000 Bangladesh 15 12.3 31 62 7 10.35 India 8 7.0 27 29 67 64.94 Pakistan 22 32.7 37 64 16 14.2 Sri Lanka 54 50 80 100 9 8.5 Source: Constructed from World Bank, World Tables 2002 and IMF, Directions of Trade Yearbook, 2002. 4. Conclusion SAARC countries have taken a major leap into the social and economic development of South Asian nations. Despite significant trade liberalisation within the last one and half decade, the progress in both intra-regional and international trade has not been experienced at the desired pace due to a number of constraints including economic dissimilarity and political mistrust among the member countries. However, it is noteworthy to indicate that despite political problems and non-extension of most favoured nation (MFN) treatment by Pakistan to India, India -Pakistan trade is on the rise. Likewise, a substantial growth in Bangladesh’s exports to India has been observed in recent years, which doubled between 1995 and 2001. A similar trend is observable in Sri Lanka’s exports to India, which also doubled during the same period, though the base was fairly low to begin with. Nevertheless, a declining trend can be seen in Sri Lanka’s exports to Pakistan. Another distinctive development within the region is the highest growth rate in imports followed by imports from ASEAN (10), whereas imports from NAFTA have marginally declined in recent years.


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Thus, our study concludes that active participation by SAARC in liberalising its trade regimes would enable them to secure better market access for their exports. It should be noted that SAPTA represents only a small part of the regional trade. If implementation of SAPTA covering a large part of the regional trade with deeper tariff cuts and focused tariff lines and products can be ensured, then the desirable transition to SAFTA would no longer be a out of reach dream to the SAARC nations. Therefore, a brisk speed of regional integration would enable SAARC to fully integrate in the global trading system, while allowing them to meet their developmental goals. 13th SAARC Summit held in Dhaka Bangladesh was another opportunity for the leaders to analyse and consolidate the gains from trade over a decade of active trade reform as well as their effective cooperation in all level to realise the economic as well as social objectives of the forum. The leaders of SAARC nations reaffirmed their strong commitment to the implementation of SAFTA from 1 January 2006. Dhaka Declaration 2005 also reiterated the cooperation of gradual full trade liberalisation as well as other important social issues such as combating terrorism, AIDS/HIV, drug, child and women trafficking and protecting the interest of smaller member countries in the region. References Bandara, J. and W. Yu, 2001, How Desirable is the South Asian Free Trade Area? A Quantitive Assessment, Paper presented to the Fourth Annual Conference on Global Economic Ananlysis, Purdue University, Indiana, USA, June 27-29, 2001. Bhattacharyya, B., and V. Katti, 2002, Regional Trade Enhancement: SAPTA and Beyond, http://www.iift.edu/publications/paper3.pdf. Chowdhury, M., 2004, Resources Boom and Macroeconomic Adjustments in Developing Countries, Ashgate Publishing Limited, Gower House, England. Chowdhury, M., 1998, Resources Boom and Macroeconomic Adjustment: Theory and Evidence from Papua New Guinea, Ph.D Dissertation, Research School of Pacific and Asian Studies, Australian National University, Canberra, Australia. Hoekman, B., et al (eds), 2002, Development, Trade, and the WTO: A Handbook, The World Bank: Washington, D.C.


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IMF, 2001, Balance of Payments Statistics Yearbook 2001, Vol.2. IMF, Direction of Trade Statistics Yearbooks, various issues. The Kathmandu Post, 2002, Nepal Gets up to 30 per cent Customs Tariff Concession, Kathmandu, November 27. Mukherjee, N., 1999, Towards SAARC Preferential Trading Arrangement in Services, The Indian Economic Journal, Vol. 47, No.3. Nazneen, S., 2004, Prospect and Constraint of Free Trade in South Asian Countries, SAARC Civil Society, www.saarc.civilsociety.org/articles_5.htm Pitigala, N., 2005, What Does Regional Trade in South Asia Reveal about Future Trade Integration? Some Empirical Evidence, World Bank Policy Research Working Paper 3497, February 2005. Regmi, A., 1999, Trade Liberalisation and the South Asian Economies: Adjusting to the Challenges of Globalisation, Special Article, Economic Research Service, USDA. SAARCNET, 1998, Road Map to SAFTA, Http://www.saarcnet.org/newssaarcnet/ SDNP Info, 2002, Tariff relief on 400 items granted to four SAARC States,(http://lists.isb.sdnpk.org/pipermail/econo-list/2002-November/003106.html). Srinivasan, T.N., 1994, Regional Trading Arrangements and Beyond. Exploring Some Options for South Asia, Theory, Empirics and Policy, The World Bank, South Asia Regional Series IDP-142, July 1994. Udagedera, S., 2001, SAPTA Negotiations: Constraints and Challenges, in Impediments to Regional Economic Cooperation in South Asia, edited by Saman Kelegama, Institutie of Policy Studies of Sri Lanka and Coalition for Action on South Asian Cooperation in association with Friederich-Ebert-Stiftung, Colombo Office. UNCTAD, 1999, Trade Analysis and Information System, Version 6.02 (CD ROM). UNCTAD, 1994, Directory of Import Regimes. UNDP, Human Development Report 1997, 1 UN Plaza, New York, New York 10016, 1997. World Bank, 1999, World Development Indicators, Washington D.C. ____________________________ Journal published by the Euro-American Association of Economic Development. http://www.usc.es/economet/eaa.htm

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TRADE REFORMS AND ECONOMIC INTEGRATION IN SOUTH ASIA