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ADB urges Safta to exploit rich trade potential of member countries

August 16, 2016

ISLAMABAD: Terming ‘weak’ the regional integration in South Asia under South Asian Free Trade Agreement (Safta), the Asian Development Bank (ADB) has estimated that interregional trade possessed potential of jacking up agriculture exports by $14 billion per annum from existing level of $8 billion to $22 billion.

“The fact remains that, unlike other geographic regions such as South East Asia, Europe, and North America, regional integration in South Asia has remained weak,” the Asian Development Bank’s study titled “Food Security in South Asia”, states on Monday. This study of ADB has come on the surface at a time when Saarc Finance Ministers are scheduled to hold a two-day meeting in Islamabad from August 25, 2016 on special invitation of Pakistan’s Minister for Finance Ishaq Dar.

However, the study states that against the potential average intraregional trade of $22 billion per annum, the actual trade in South Asia has been only around $8 billion. The untapped potential for intraregional trade is therefore $14 billion per annum, i.e. 68%.

Intraregional trade has the potential to increase the existing trade by over 300%. India provides maximum scope for realising its potential trade given the very low actual trade levels with Bangladesh, Pakistan, Bhutan, and Nepal. Its actual trade levels with Sri Lanka are much higher than the estimated trade based on the gravity model (possibly due to the Indo Sri Lanka Free Trade Agreement (FTA).

“Pakistan too has the potential to increase its trade with almost all its partners. Sri Lanka, on the other hand, has surpassed its estimated trade with almost all its partners,” it added.

India is found to be a net exporter of rice, vegetables, eggs, meat, milk, and sugar. Pakistan is a net exporter of rice, fruits, eggs, and meat.

Gravity model estimates of processed food and beverages show that the potential intraregional trade in food processing industries can be increased by $5 billion per annum, increasing existing trade from $873 million on an average between 2000 and 2010.

Trade in this sector can increase by 150 per cent. “The maximum potential for trade is found between India and Pakistan, which can increase from around $200 million per annum to around $600 million,” it further states.

The maximum number of products with competitive advantages has been identified in India, which is not surprising given the large size and diverse climatic zones of the country. Out of the identified 112 potential agriculture export products, in 74 products there is no other competitive producer in the region.

These products can be potential exportable products to the region. Pakistan has 102 potential exports, while Sri Lanka has 83. Among the least developed countries (LDCs), 88 products have been identified for regional agriculture exports, of which 54 are from Bangladesh.

There is a list of products for each country where the global exports of the country are greater than the global imports of the region but the country’s regional exports are less than 75% of its total exports. These results tabulated showed that Bangladesh is the most competitive in the region in exporting dried leguminous vegetables.

Its global exports are $548,000 while regional exports are nil, although the region’s global imports are $73 million. For India, dairy products, meat products, soy beans, and tobacco and tobacco products are included in the list. For Nepal, dried leguminous vegetables can be a potential regional exportable, while for Pakistan, starches and indentured ethyl alcohols have high potential. For Sri Lanka, coconut and palm oil hold regional export potential.

Similarly, Pakistan has high regional export potential in natural honey, maize, other sugars, and un-manufactured tobacco. Sri Lanka also shows regional export potential in food preparation where its global exports are worth $21 million while regional exports are only 9% of its global exports. Other products for regional exports could be un-manufactured tobacco, beer, fruit juices, wheat or meslin fl our, and other live plants. Fish is one product where regional global imports are high, although countries like Bangladesh, India, Maldives, Pakistan, and Sri Lanka enjoy a competitive advantage.

Regarding regional integration, the study states that the role of regionalism in growth and development has been well established in both theoretical and empirical literature. But South Asia has yet to tap this reserve.

The growing demand in the region for agricultural products creates an opportunity for exploring new avenues of intraregional trade and investments in this sector. A formal attempt at promoting regional economic cooperation and trade in South Asia started with the South Asian Association for Regional Cooperation (Saarc) in 1985 involving seven countries namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. A regional trading bloc was formed in April 1993 with the signing of the Saarc Preferential Trading Agreement (Sapta) for giving preferential market access to the exports of the member countries in a limited way. These countries have moved toward achieving a South Asia Free Trade Area (Safta), and signed the Safta Pact in 2004. The agreement came into force on 1 January 2006 and the trade liberalisation process commenced from 1 July 2006, leading to an increase in intraregional trade. However, inter-country trade under Safta is far below its potential and a reduction in the size of sensitive lists is necessary to increase the quantum of regional trade. Due to this, progress in intraregional trade has not been commensurate with efforts at promoting preferential trade. Additionally, porous borders allow for unrecorded exchange of goods between neighbouring countries, particularly with India.

Although much has been written about regional integration in South Asia in terms of opportunities and constraints, few studies have taken a sector-specific approach to regional integration, especially in terms of potential supply chains in agriculture. There also exists a stream of literature, on food security in South Asia. Some studies have underlined the need for greater economic cooperation and trade integration in South Asian agriculture. Others have blamed low intraregional agricultural trade on multiple factors, including the inefficiency of customs and other border procedures, the presence of a large number of sensitive lists, high tariff rates, political frictions and fewer complementarities in production and consumption.

Underlining the limitations of the Safta agreement, the study notes that the agreement is an attempt to increase intraregional trade through the gradual dismantling of some tariff barriers, but it leaves out a large number of products denominated as sensitive, and it does not address non tariff trade barriers.

Highlighting the role of trade facilitation measures in improving the intra-Saarc trade in agriculture, Weerahewa (2009) observed that reducing trade costs in South Asian countries to the average values of best performers in South Asia can increase the value of agricultural trade by 18% and similar reduction in time delays can lead to an increase of 27%.