Outline the reasons for the low volume of trade in the SAARC region. (UPSC CSE Mains 2020 - Political Science and International Relations, Paper 2)
SAFTA refers to the “Agreement on South Asian Free Trade Area (SAFTA)”. This agreement was reached in 2004 in the 12th SAARC summit at Islamabad. The objective was to create a free trade area comprising Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. This agreement came into force in 2006 and is currently NOT fully operational.
Problems
- Geo-politics: especially the prevailing tensions between the two large nations of India and Pakistan and them not finding a reconciliatory solution for t.
- Fears: of economic domination of South Asia by the regional power house India.
- Laxity: in the implementation of agreements to foster trade including infrastructure projects, reduction in tariffs and exchanges of personnel.
- Non-starting: of many proposed schemes including those like the BBIN (Bhutan backing off recently) leading to lesser connectivity.
- Domestic politics: such as the Rohingya crisis, rise of radicalisation, Madhesi crisis, Sri Lankan crisis, Naxalism etc leaving countries with lesser resources to pursue trade.
- Professor Jagdish Bhagwati argued that a FTA in South Asia, due to its inherent characteristic of ‘trade diversion’ instead of ‘trade creation’, would in the long run hamper liberalization of trade at the global level. So, there is a need to concentrate in ‘trade creation’, apart from increasing overall quality of goods to global standards. This implies that the region needs infrastructure linking to facilitate easy flow of goods and making South Asia as transit point between East and the West.
- Lack of Strong Infrastructure: South Asian countries share some common features like cheap labour, low incomes, low value-added commodities and comparative advantage in the same commodities like tea and garments etc. The intraregional trade cannot be successful in such conditions where the trade and economic structure and industrial infrastructure is similar.
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