Background

The Heads of State/Government in its 16th Summit Meeting in Thimpu declared that 2010-2020 should be the “Decade of Inter Regional Connectivity in SAARC”.  Soon, thereafter, the SAARC Chamber of Commerce and Industries (SAARC CCI), Islamabad got going with various interaction programs to seek ways and means on how this may be achieved from the perspectives and participation of the region’s private sector. This article seeks to present these views.

Prologue

The SAARC CCI is firmly of the view that free regional trade will bring prosperity with inclusion to South Asia. However, even with Zero Tariffs this will not materialize if South Asia continues to be riddled by its Sensitive Lists (SLs), Non Tariff Barriers (NTBs) and Para Tariff Barriers (PTBs).

It is heartening indeed that the 17th Summit has, in its Declaration, underscored further the need to expedite the execution of SAFTA by removing SLs as well as, additionally, by harmonizing customs procedures and standards.

Let’s assume that the Council of Ministers, as directed by HOS/HOG , succeeds in reducing to Zero all SLs, NTBs and PTBs will free trade ensue? The short answer is that it will not, if there is no regional cooperation in Trade Facilitation (TF). 

In fact, more regional trade can take place with efficient TF in place than without simply due to the fact that the multiplier effects of a reduction in transport, trans shipment and/or transit cost by 1% is more dynamic that a comparable 1% reduction in tariffs.  TF impacts production structures by working on the supply side whereas Tariffs, NTBs, PTs primarily impacts consumption structures working on the demand side. 

Production complementarities is embolden by TF rather than just trade complementarities as  with SAFTA that is simply restricted to trade matters . (It is to the credit of our negotiators that, unlike most regional trade treaties of the past, our negotiators have been farsighted by incorporating TF in the SAFTA Treaty 2005 as when Article 3 says “SAFTA shall entail adoption of trade facilitation and other measures , and the progressive harmonization of legislation by the Contracting Parties in the relevant areas…” with Article 8 going as far as to consider TF as a complementary --and not just a supplementary measure).

The axiom of TF may be said to be this: more regional Trade will be in effect if there is more regional TF than even with the existing trade barriers/ constraints to implementing SAFTA. Such is the vital importance of TF towards integrating South Asia.  However, it must be underscored here that by TF we mean not just transport, but trans-shipment and transit infrastructure and facilities. 

Therefore, the SAARC CCI calls for a framework Regional Treaty of Transit along with another on Transport and Trans- shipment in the context of all means and modes for regional connectivity. The Goals of TF are (1) to minimize transaction costs– transit, transport, communication, logistics administration (2) to be transparent, predictable, cordial and swift in all decision taking  and (3) swift and speedy resolution of all disputes.

The Meaning of TF

It can be visualized as negotiations that are concerned with what may be called “behind borders trade” or BBB.  By way of difference, SAFTA negotiations is all about bringing good across borders-- into the territory of the SAARC nations.

Whereas TF is about negotiating measures to take these goods beyond borders or BBB -preferably on a door-to-door basis to enhance South Asian global competitiveness, the scope of BBB can be visualized narrowly or broadly thus:

• Narrow: refers  to the commonplace functions such as  policies and procedures for simplification and harmonization of banking, trade, transport, transit ,insurance, health, customs, documentation; diverse logistics  functions such as warehousing , distribution,  survey and insurance, stevedoring, clearing and forwarding and packaging as well as loss and damage control and prevention etc  Not least, are such vitally important TF functions such as information and communication (ACYCUDA, EDI), immigration, security and safety measures.

• Broad/Strategic: will include investments in infrastructure  that extends to factors and forces that create supply chains  such as by having Dry Ports,  Special Economic Zons (SEZs),Export Promotion Zones ( EPZs), Export Promotion Villages (EPVs), Bonded Warehouses, Pipelines, Power Grids, Waterways, Cold Storages etc. It also includes investment  in  Human Capital  by way of vocational and professional education and training.

If we wish to regionally integrate the South Asian economy then SAARC should and must adopt the broader/strategic meaning of TF as it is in this manner that through supply chains production complementarities can be created regionally and sub regionally.

Investment Needs and TF

TF does not come cheap. Investment needs are massive. Airports, ports, railways, roadways, pipelines, gas lines, power grids, airlines, ICT; Human Capital Development; Systems Development, Laboratories; development of common norms, standards and procedures.

It is heartening that in the 17th Summit the HOS/HOG in its Declaration directed “the SAARC  Finance Ministers to chart a proposal that would allow for greater flow of financial capital and intra-regional long-term investment; and to undertake a comprehensive review of all matters relating to SAARC’s engagement with Observers, including the question of dialogue partnership, before the next Session of the Council of Ministers in 2012.

The SAARC CCI would go further to call for innovation in financing TF infrastructures by considering all financial instruments like bonds, debentures, equities, debt and also barter like trade arrangements.

The SAARC CCCI welcomes the 17th Summit Declaration to conclude the Regional Railways Agreement and to convene the Expert Group Meeting on the Motor Vehicles Agreement before the next Session of the Council of Ministers; and to direct the early conducting of a demonstration run of a container train (Bangladesh – India – Nepal).

Similarly, the SAARC CCI welcomes the strategic direction for the conclusion of the Inter-governmental Framework Agreement for Energy Cooperation and the Study on the Regional Power Exchange Concept as also the work related to SAARC Market for Electricity: Together with recognition of the need for SAARC mechanisms and institutions to develop and implement regional and sub-regional projects, as appropriate, in agreed areas s an integral part of the 17th SAARC Declaration.

Specific SAARC CCI Recommendations

Apply E carnet  system; Introduce Single Electronic Window System;Promote management innovations and R &D in all areas of logistics; Professionalize the human capital therein with quality vocational and technical certification; Create a Regional Energy  Bank; Develop South Asia’s Waterways; Adopt Open Sky Policy; Introduce Single SIM card; Develop the Asian Highway and  Railway networks as a priority; Develop Bagdogra Airprot as a Regional Transport Hub; Develop Wagha Border Point as the Regional Transit Dry Port;  Create Regional SEZs, EPZs, EPVs in all countries

SAARC CCI Priority Recommendations For Country Specific Execution

• Nepal: electricity; Bangladesh: electricity, corruption, tax administration, customs inefficiency, poor infrastructure quality; payments irregularity; Pakistan: tax rates, tax administration, customs inefficiency,, electricity, policy uncertainty and corruption; poor infrastructure quality; payments irregularity; India:  change political and bureaucratic mind set to recognizing that transit is required by all nations – land locked and coastal and that there cannot be regional integration without TF and that 

EPILOGUE

• Economic Integration of South Asia is possible only when TF takes off. TF necessitates People to People connectivity just as much as Transport and ICT. Ideally, there should be freedom of labour movement founded on Trade in Services.

• However, this requires a proactive attitude from the Indian political and bureaucratic leaders  since it is , after all, the TRANSIT COUNTRY par excellence for the Region.

• Should SAARC adopt WTO norms and standards in TF? Not yet: as costly and will erode competitive advantage; should do so only after its own common regional standards are executed in tandem with its  development level; and should do so AFTER or IN TANDEM  removal of all agri- subsiies by the Industrial Countries.

• Th.  UN’s Almaty Programme of Action for Least Developed Land Locked Countries will have to be redrawn in 2013. It would be ideal if the SAARC Secretariat could do a regional review of its implementation based on the principles and guidelines as laid down therein. And then come forth with a regional perspective and approach for the next decade. In doing so, it should revisit its own Multi Modal Transit Transport Study already completed.

A Final Word

For Nepal, it is paramount to henceforth, strategically and geo psychologically, view itself a Transit Nation between South and Central Asia through Tibet by air, rail and road given the emergence of Asia geo politically and geo economically; and the expected integration of Euro Asia through the leadership of Turkey and Russia as a consequence.    

Rana is a Professor South Asian Institute of Management  and  Former Finance Minister of Nepal.