SAARC in Asian Regionalism

1. SAARC in Asian Regionalism Aparna Sawhney Centre for International Trade and Development, JNU

2. 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) Aparna Sawhney, CITD, JNU

3. 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) Aparna Sawhney, CITD, JNU

4. Regional Shares in World Merchandise Exports, 1990, 2000, 2005 Aparna Sawhney, CITD, JNU

5. Regional Shares in Commercial Services Exports, 1990, 2000, 2005 Aparna Sawhney, CITD, JNU

6. 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 Aparna Sawhney, CITD, JNU

7. 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) Aparna Sawhney, CITD, JNU

8. 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 Aparna Sawhney, CITD, JNU

9. 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…. Aparna Sawhney, CITD, JNU

10. Intra-regional Merchandise Exports, 2005(as % share of each region’s total exports) Aparna Sawhney, CITD, JNU

11. 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 Aparna Sawhney, CITD, JNU

12. Low economic interaction among SAARC Members. Even after accounting for informal trade, totalintraregionaltrade 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 Aparna Sawhney, CITD, JNU

13. 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. Aparna Sawhney, CITD, JNU

14. 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. Aparna Sawhney, CITD, JNU

15. Afghanistan 1% Pakistan Bangladesh 11% Sri Lanka 6% 2% Nepal Bhutan 1% Maldives 0% 0% India 79% Country Share of SAARC Regional GDP 2005, (US$ 995.82 billion) Aparna Sawhney, CITD, JNU

16. 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 Aparna Sawhney, CITD, JNU

17. Country Shares in Asia’s exports of merchandise and commercial services, 2005 Aparna Sawhney, CITD, JNU

18. 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 Aparna Sawhney, CITD, JNU

19. 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.) Aparna Sawhney, CITD, JNU

20. 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 Aparna Sawhney, CITD, JNU

21. 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 Aparna Sawhney, CITD, JNU

22. 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 Sawhney, CITD, JNU