Implementing Steps for Consolidating and Growth of SAARC

1. Implementing Steps for Consolidating and Growth of SAARC Saman Kelegama Institute of Policy Studies of Sri Lanka

2. SAFTA Trade Liberalization Programme (TLP) • The TLP stipulates 0-5% tariffs for Non-LDCs by 2013 (SL 2014), LDCs 2016 • Danger of SAFTA losing relevance due to competing RTA/BTAs • Article 7.2 allows countries wishing to move faster to do so unilaterally • Better approach to include fast track for heavily traded goods in SAARC

3. NTBs and Trade Facilitation • The 15th SAARC declaration stated to reduce the negative list and remove NTBs and para-tariffs expeditiously. It also referred to implementing trade facilitation measures • But time frames were not fixed and they were not made binding commitments • Challenge is to identify the easy NTBs to remove and trade facilitation measures that could be immediately implemented.

4. Trade Facilitation • South Asia plagued by transaction costs • Trade facilitation increasingly important for modern trade, benefits resonate beyond SAFTA • SAFTA agreement has extensive list of TF measures without binding commitments • TF measures have high fixed costs, benefits felt in medium-long run, thus little political will to implement

5. Dispute Settlement Mechanism (DSM) • Effective DSM essential for effective rule based system • SAFTA DSM too long, 330 days. ASEAN 290, MERCOSUR 265, NAFTA 310 • Excess time in 1st stage, accused can delay consultations by a month • Time allowed for compliance 90 days in SAFTA. 30 days in ASEAN, MERCOSUR

6. DSM • Length of DSM attributed to LDC requirements. • Better to use differentiated time periods for LDCs and Non-LDCs • Voting on consensus basis, problematic considering heterogeneity of interests • Consensus to block or simple majority system are alternatives to consensus basis

7. Trade in Services • SATIS framework now in place • Start liberalization of items already committed with the WTO, like tourism and then move onto other services • 15th SAARC Declaration refereed to a comprehensive action plan for tourism which includes: ““facilitating the movement of people through improved travel infrastructure and air, sea, and land connectivity among the SAARC countries……and promotion of SAARC as a common destination through public-private partnerships and joint campaigns”

8. Promoting Tourism • Visa issuance and monitoring • Improved air connectivity – member states should offer 5th freedom to designated regional airlines • Innovative methods: “ASEAN Air Pass”, “ASEAN Hip Hop” – a visit to one member country qualifies the traveller a concessionary rate to the other member country • Twining of SAARC cities • Annual South Asian Tourism Events Directory • Promotion of Tour Circuits: Ramyana Trail, Buddhist Circuit, etc. – under PPP

9. SAFTA needs to implement: • Investment Liberalization • Creating Special Development Funds

10. Investment Liberalization • SAARC EPG report argues for creating a SAARC Investment Area • Intra-regional investments can assist in creating supply capabilities • Investment integration can facilitate industrial restructuring to assist in building supply capabilities in relatively smaller and lesser developed economies

11. Investment led Supply Development • There is substantial potential in increasing intra-regional trade and efficiency-seeking restructuring of industry and creating supply capacities in relatively lesser developed members • South Asia Scenario: Emergence of regional hubs: Sri Lanka for rubber-based industries; Bhutan for forest-based industries; Bangladesh for energy-intensive industries, India for IT, etc (RIS, 2008)

12. Investment led Development • By facilitating development of supply capabilities in smaller and lesser developed countries in the regional groupings, the industrial restructuring leads to more balanced regional development • ASEAN Investment Area, ASEAN Industrial Cooperation, etc., are partly based on this idea

13. Investment led Development • Less developed countries (viz. Spain, Portugal, Greece, Ireland in EU) are the key beneficiaries of integration through industrial restructuring and building of supply capabilities • Sri Lanka has benefited from Indian investment in increasing export and supply base development • Faster growth and convergence of levels of development can be achieved

14. Development Fund • SAARC EPG Report (1998) recommended US $ 500 mn for establishing a South Asia Development Fund [SDF] (with major contribution from the more developed member countries, and possible outside sources) • SDF now established with major contributions from India. Funds could be utilized for supply-side development of LDCs • EU – Fund was available for Ireland, Portugal, etc. • GMS under ADB support for supply sector development of Southeast Asia

15. Development Fund • SAARC ‘observers’, they can be invited to contribute to the Development Fund • In the proposed Indo-Lanka Comprehensive Economic Partnership Agreement’s there is an ‘Economic Cooperation’ window where India will assist Sri Lanka through concessional credit lines to develop the supply side

16. Way Forward • SAARC is the only inter-governmental framework available to expedite economic cooperation and it has to fast track the trade liberalization programme and initiate investment liberalization without further delay to reap the benefits of deep economic integration • Thank you • www.ips.lk