Question

5. Read the following case and answer the questions given below:
SAFTA: So close, yet so far
The Tenth South Asia Economic Summit which was concluded in Kathmandu in
November 2017 had underscored deepening economic integration in the region. It is free
trade that drives the process of economic integration. It took more than two decades for
South Asian countries to reach the initial phase of a free trade area (FTA). The regional
FTA which took-off in the mid-1990s under the preliminary preferential trading system
(PTA) was transformed into the South Asian Free Trade Agreement (SAFTA) in 2004.
Although this transformation is a breakthrough for economic integration in the region,
progress has been slow due to two major reasons. While there is a lack of regional trade
connectivity among these countries, the South Asian counties are still under a restrictive
trade regime as reflected by relatively higher average tariffs among these countries.
As a result, South Asian intra-regional trade has grown from 3% when SAFTA
commenced to barely 6% of their total trade currently. Countries have failed to diversify
trade with other partners in the region except in the case of India, indicating an
extremely slow advancement in intra-regional trade compared to the progress made by
ASEAN – the South East Asian integration - which experienced a doubling of
intraregional trade between 1993 and 2003.
While the protective tariff regime has been an impediment to overall regional trading
system so far, intra-regional trade has also been hampered by the unrelenting non-tariff
barriers (NTBs) and the sensitive lists imposed upon partners within the region. The
solution to the persistent NTBs will be determined by devotion to harmonizing rules
relating to customs, standards, and environment. But, more importantly, there is no
possibility of a substantial growth in intra-regional trade without an earnest effort fromall countries to reduce the products in the sensitive list as it discourages trade
complementarily and intra-industry trade or trading of differentiated products.

The countries in South Asia can aim for a customs union which could be the next phase of
economic integration. Under this system, there will be a uniform tariff regime for trading
with countries beyond their alliance, in addition to free trade amongst themselves. On the
one hand, it will promote unrestricted trade among countries in the region. On the other
hand, it will protect the coalition from external competition through a uniform tariff
regime. Subsequently, the consolidated FTA and customs union should create the next
phase of economic integration or the system of common market and ultimately to the
economic union. The existing economic linkages between India and Nepal which reflects
a common market can be exemplary for shaping the idea within the region.
Review questions:
i. List and explain in brief the major impediments to the regional trade integration
among South Asian economies?
ii. Explain precisely, your suggestions to improve the intra-regional trade in South asia.

Answer 1

i) The major hindrances to the regional trade integration among South Asian economies include following protective tariff regime, unrlenting non tariff and barriers (NTBs) and the sensitive lists imposed upon partners within the region is adversely affecting intra - regional trade, large number of products being covered in sensitive list by all countries and less devotion by countries to harmonize rules relating to customs, standards, and environment.

ii) Some suggestions to improve the intra-regional trade in South asia are following free trade, following uniform tariff regime. This will promote unrestricted trade among countries in the region. Also, it will protect the coalition from external competition through a uniform tariff regime. The consolidated FTA and customs union could create the next
phase of economic integration or the system of common market and ultimately to the economic union.