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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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)

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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)

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU Regional Shares in World Merchandise Exports, 1990, 2000, 2005

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU Regional Shares in Commercial Services Exports, 1990, 2000, 2005

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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)

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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 Shrimp-Turtle dispute – India, Malaysia, Pakistan & Thailand joint complainants against the US

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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….

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU Intra-regional Merchandise Exports, 2005 (as % share of each region’s total exports) Europe73.2 North America55.8 Asia51.2 SAARC 6.2* South-Central America24.3 Commonwealth of Independent States18.1 Middle East10.1 Africa * Computed from IMF DOTS data 8.9

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU  Low economic interaction among SAARC Members. Even after accounting for informal trade, total intraregional trade 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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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 139 th in the world “ease of trading across borders” compared to China at 38 th. All liberalization/ FTAs will fail to boost economic activities if conducting business is difficult.

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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.

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU Country Share of SAARC Regional GDP 2005, (US$ billion) Bhutan 0% Pakistan 11% Maldives 0% Nepal 1% India 79% Sri Lanka 2% Afghanistan 1% Bangladesh 6%

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU Country Shares in Asia’s exports of merchandise and commercial services, 2005 Merchandise XServices X Asia100.0% China Japan Korea, Rep. of South Asia/ SAARC India

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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.)

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU  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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU  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

ITC-ICRIER, 28th March 2007 Aparna Sawhney, CITD, JNU 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