Let me start with a bit of information that only a handful of South Asians might be aware of. Before the Second World War, the volume of trade between South Asian countries accounted for 20 percent of world trade. In 1950, that fell to 4 percent. By 1967, it fell further to 2 percent. By 2010, there was a slight rebound—a rise to 5 percent.
This apathy towards intra-regional trade in South Asia has resulted in our region growing at a slower rate than Sub-Saharan Africa. A decade ago, if anyone had told us that Sub-Saharan Africa would outpace our region in economic growth in 2012, we would have laughed. Yet, that is precisely what has happened. According to The Economist, in the 10 years between 2002 and 2012, Sub-Saharan Africa grew faster than South Asia in “all” of those years, and grew faster than Asia in eight of those years.
When compared to regional trading blocs like the EU and MERCOSUR, the SAARC region fares very badly as far as facilitating trade among its members is concerned. Even the African trading bloc COMESA (Common Market for Eastern and Southern Africa) has made more progress than our SAFTA ever has, and has been able to lift millions out of poverty through trade. So, what happened to us in the last 60 years? How did we go from a “global force” in trade to become a mere footnote?
There are many bottlenecks to unhindered trade in our region. A dominant political inertia has meant that our regional politicians are vehemently protective of their domestic industries. This has bought them short-term political popularity, but has hurt the economic growth of the region. The leaders in European countries realized a need for a unified market where labor and capital moved freely. However, our leaders clearly have no intention of proposing and negotiating such arrangements in South Asia.
Even after reading about the harmful effects of import substitution in our economics textbooks, our leaders revel in it. All South Asian countries maintain ‘sensitive lists’ of products on which there are either tariffs or import restrictions. To garner votes, our politicians provide subsidies to the labor-populated economic sectors like agriculture. These discrepancies that our governments in the region have been creating constitute the main reason why illegal cross-border trade and informal (underground) markets are flourishing in South Asia.
How did South Asia go from being a global force in trade to become a mere footnote?
The members of SAARC, despite what the name might suggests, are anything but cooperative when it comes to removing cumbersome trade barriers. An import quota system imposed by India since 2006 has all but destroyed the Sri Lankan vanaspati ghee industry. The irony is that the very reason why Sri Lankan vanaspati ghee industry grew was because of initial heavy capital investments by Indian investors. And, now, all that investment, cooperation and goodwill has been endangered due to India’s insistence on quota on the product.
There are many non-tariff barriers (NTBs) that hinder our regional trade as well. The highways linking South Asian markets are poor, to say the least. Letter of Credit (LoC) issued by Indian banks is not accepted in Pakistan, and vice versa. Then there’s the vigilante factor. Indian custom law states that tea shipments from Nepal need to be tested only once every six months. Yet, last year, an Indian border agent refused to let Nepali tea shipments to pass through the Kakarbhitta checkpoint in Eastern Nepal because he insisted on testing those shipments “himself”. The standoff continued even after Nepali exporters showed him the test “certificate” given by the Indian government.
The region as a whole will lose out if we cannot address these problems. In this regard, the media can play a significant role. The media should highlight significant trade agreements made by, and between, the member states of this region. For example, the BIPPA that Nepal and India recently signed could have been better promoted in the media. Our media, for the greater benefit of the region, should learn to portray such regional dialogues and facilitations in a positive light. Yes, the details could be debatable, but importance should also be given to just the fact that there still “dialogues” and “agreements” being worked out between the countries in the region. The debatable details can always be fine-tuned, changed, or ironed out.
Also, the markets in our region should be interconnected. Transport infrastructure such as roads, highways and ports should be made more accessible; they should be better maintained and safeguarded through mutual cooperation. SAARC regional trade will receive a boost if India allows Nepal and Bangladesh use of Indian roads for direct trade, without having to load and unload goods in the Nepal-India and India-Bangladesh border points.
As happens in the developed world, we should look to integrate our equity markets as well harness our underdeveloped bond markets. We should make efforts towards such integration because it would help member states gain valuable access to capital. For example: if we had a regional bond market, an entrepreneur or a business in Bangladesh, Sri Lanka or Pakistan could borrow and use the excess liquidity from the Nepali financial market. In today’s business climate, such initiatives are not only desirable, but also necessary.
Our region should also learn from the “China syndrome”. Essentially, it means that salary, income and standard of living also grow when an economy grows. Increasingly, the Chinese workers are seeking better and higher-paying opportunities than those offered by manufacturing and agriculture. To prevent such problems from occurring in our region, there should be regional cooperation towards free flow of labor among SAARC countries, in the same way as goods and services do. A smooth flow of intra-regional labor ensures that no industry in any of the member countries will suffer from shortage of labor—quantity- or quality-wise.
Finally, most trade agreements in (and between) South Asian countries do not guarantee consumer rights with the agreements focusing on the supply side of trade. Because of this, protectionism reigns high in the region, which in turn marginalizes consumer welfare. In addition, there is a distinct lack of awareness among consumers in the region on the likely gains from intra-regional trade agreements. The media, therefore, needs to play an advocacy role in the region to highlight, and ensure, such gains to consumers.
The writer is an economist
mukhanal@gmail.com
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