Regional Trade Agreements in South Asia: Trade and Conflict October 16th, 2006 Sustainable Development Policy Institute
Study parameters and questions • Three questions: • Do RTAs promote trade? • Do RTAs mitigate or promote conflict? • If neither, then how is conflict addressed? • Literature and Research Answers: • There is a need to look at conflict mitigation as part of a larger regional integration process which includes both economic and non economic factors.
100 93.5 90 80 71.9 70 60 51.4 50 40 30 26.5 22.2 20.5 20 15.7 8.1 10 0 Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka China Conflict in South Asia – Political Stability
Conflict in South Asia • Interstate conflict • 1985: India-Bangladesh - Muhurichar Island conflict • 1987: India-Sri Lanka - Indian Peace Keeping Force (IKPF) sent to Tamil Nadu to disarm the Tamils • 1988: India-Nepal - Transit Treaty issue leads to escalating tensions between the two countries • 1989: India-Sri Lanka - Withdrawal of IPKF demanded by Sri Lankan government • 1991: India-Sri Lanka - India boycotts SAARC Colombo summit • 1998: India-Pakistan - Both countries test nuclear weapons • 1999: India-Pakistan - Kargil conflict in Indian-held Kashmir • 2001: India-Bangladesh - Pyrdiwah village border conflict • 2002: India - Terrorist attack on Indian parliament blamed on Pakistan, leads to both amassing troops along the border
Intra-state conflict • Intra-state conflict • 1983: Sri Lanka - Widespread anti-Tamil rioting following the deaths of soldiers in an LTTE ambush • 1984: India – P.M. Indira Gandhi killed by Sikh body guards after ordering troops to attack Sikh militants from Amritsar • 1988: Maldives - Attempted coup thwarted (India assisted) • 1990: India - Kashmiri separatist movement gains momentum • 1992: India - Hindu-Muslim riots in Ayodhya following the demolition of Babri Mosque • 1993: Sri Lanka - President Premadasa killed in LTTE attack • 1999: Pakistan - Prime Minister Nawaz Sharif ousted in military coup led by General Pervez Musharraf • 2000: Nepal – Maoist uprising continues to impact state • 2001: India – Naxalite uprisings within various states • 2004: Pakistan - Waziristan and Balochistan conflict
Mapping South Asian RTAs: The formal structure SAARC, SAPTA, SAFTA SAARC Integration, regional cooperation and non-trade issues SAPTA SAFTA
The evolution of RTAs • The South Asian Association for Regional Cooperation (SAARC) the first regional cooperation agreement in South Asia, was formed in December 1985 • The South Asian Preferential Trade Agreement (SAPTA) agreement was signed on April 11, 1993 and entered into force on December 07, 1995, • The South Asian Free Trade Agreement (SAFTA) agreement was signed during the twelfth SAARC summit in Islamabad on January 06, 2004. • It was supposed to enter into full force, but has not since due to political wrangling.
Trade concessions from SAPTA to SAFTA • Under SAPTA, concessions on tariff, para-tariff and non-tariff measures were negotiated step-by-step and followed a product-by-product approach. • The SAFTA agreement provides for multilateral concessions. Further, it seeks to completely eliminate barriers to trade by instituting a free trade regime.
Trade/Economic complementarities • Volume of informal trade exceeds legal trade • Shows that complementarities exist and could result in the unleashing of value added trade. • Tariffs, quotas, bans and disputes over sensitive lists for LDCs are trade inhibitors. • Potential for leveraging, investment, joint ventures and the enabling institutional arrangements • Problem is, that this competes with growing extra regional aspirations. • Even if trade between SAARC nations grows, it will do so at a relatively small proportion of total trade. • Inter and Intra state implications from dealing with conflict.
From trade to conflict: A recap and a question • South Asia is conflict-ridden • Trade complementarities exist in the region • The RTAs are designed to capture these complementarities • Language in the RTA has both inter and intra-state security implications
Bilateral inhibitors of trade under SAARC • The planned 1989 SAARC summit in Colombo was postponed due to Sri Lankan opposition to the presence of the Indian Peace-keeping Force (IPKF) on the Island at the time. • The disintegration of the USSR placed concepts like ethnic rights, the right to self-determination and human rights higher up on national agendas. • The India-Pakistan conflict over Kashmir rose in profile; • India and Sri Lanka went head to head in the on-going struggle for Tamil Eelam; • India and Bangladesh developed differences over the Farakka Barrage; • India contested Nepal’s assertion of greater political and economic independence.
Bilateral inhibitors of trade under SAARC • During the 1990s, when economic circumstances were favorable to progress under SAPTA, political differences between Pakistan and India stalled progress. • Throughout the 1990s, India blamed Pakistan for supporting an armed insurgency in Kashmir thus creating domestic instability within Indian Kashmir. • In 1998, Pakistan and India declared themselves nuclear weapon states which led to major military crises in 1999 and 2002. Differences between Pakistan and India were the major factor that led to a delay in finalizing SAFTA. • The initial finalization deadline for the Agreement was 2001 (later revised to the current deadline of 1 January, 2006).
What drives peace? • RTAs have been unable to develop economic momentum due to persisting regional tensions and their ability to proactively mitigate conflict has been limited. • However, concurrent bilateral processes are in evidence which aim to promote political stability. • This however, leads to sub regionalism (SAGQ) which may then lead to trade inequities – which will hinder progress on trade integration. • Implicitly, equitable trade must combine with other aspects and avenues of cooperation in order to build peace.
The Impact of External Influences • India-Pakistan Conflation of events post 9/11 driving composite dialogue • US interest in Central Asia - Afghanistan • Nuclear instability, the terrorist threat in South Asia • India-Sri-Lanka • Norwegian/World Bank/Asian Bank efforts to promote the LTTE-Sri Lankan peace process • India-Nepal, Pakistan, Sri Lanka, Bangladesh • The Sino-Indian territorial dispute sustains China’s interest in the region • Maintains political, economic and diplomatic relations with other South Asian countries to neutralize India’s coercive diplomacy and maintain a balnce in the region • As a SAARC observer China may take on a formal role in conflict mitigation
Summary of 3 Initial Questions • Do RTA’s promote trade? • Yes, but as a small percentage of extra regional trade, the political benefits in peace building cannot be heard over the noise of larger partners • Need to cut through the real barriers that would harness trade • Tariff barriers • Non tariff barriers • Sensitivity lists • Protectionism • Many continue to accuse India of protectionism which has to stop. • Real benefits not being felt by all
Summary of 3 Initial Questions • Do RTA’s promote/mitigate conflict? • Mixed • Inequitable trade can contribute to intra state conflict (regions that are left behind find meaning in social movements, reverse nationalism, ethnicity, etc.) • Equitable trade can mitigate conflict but only as part of a series of non economic factors that need to be addressed (political dynamic, etc. • Trade between adjacent regions can generate real benefits for real people. • How is conflict addressed? • Reality within globalization – a mix of internal/external forces • Threats are from the institutionalization of conflict – where too many gain from the reality of conflict.
A look into the future • Continuing with SAARC. • Resolving outstanding non economic disputes • Shared resource management • Using social capital for peace • Sustained external pressure for peace/equitable trade • Bilateralism • Tension between neighbors and India continue as benefits from trade are one sided and India imposes its will • Pakistan understands this and refuses to behave like a Sri Lanka or Bangladesh and more so like a China. • Encourage real cross border trade • Rajasthan – Sindh, Bangladesh – West Bengal, Punjab x 2
A look into the future • Non economic Bilateral to economic Regional • Sectoral inter dependence to Regional integration • Benefit sharing between adjacent communities • Benefit sharing beyond urban centers