South Asia Free Trade Agreement
The South Asia Free Trade Agreement (SAFTA) includes Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. It became operational in 1 January 2006 with the purpose of reducing tariffs for intraregional trade among the member nations. Implementation will be on a sliding scale with Pakistan and India to fully implement by 2012, Sri Lanka by 2012, and the remaining countries by 2015. SAFTA replaces earlier South Asia Preferential Trade Agreement (SAPTA), and many speculate that it may lead to a South Asia Economic Union in the future (SAFTA, 2006).
Purpose of SAFTA
The purposes and aims of SAFTA are to "promote and enhance mutual trade and economic cooperation among Contracting States by
• eliminating barriers to trade in, and facilitating the cross-border movement of goods between the territories of the Contracting States
• promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development
• creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes
• establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement" (Agreement on South Asian Free Trade Area, 2004)
Association of Southeast Asian Nations
The Association of Southeast Asian Nations (ASEAN) was established in 1967 and includes the initial member nations of Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined in 1984, Vietnam in 1995, Laos and Myanmar in 1997 and Cambodia in 1999.
Purposes of ASEAN
The purposes and aims of The ASEAN Declaration are:
• to accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian nations,
• to promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter (Overview, 2005).
Major Differences
The ASEAN and SAFTA present some significant differences. For one, ASEAN nations are more economically and developmentally diverse than those of SAFTA. For the past thirty years, ASEAN has attempted to reduce the inequalities in income and wealth distribution among its member nations, particularly its newest members, Cambodia, Laos, Myanmar and Vietnam (the CLMVs) (Bridging the Development Gap among Members of ASEAN, 2005).
Indonesia and Singapore both boast a "significant industrial workforce" (Roberts, 2003). Indonesia has established a modern export sector, and Singapore is based on finance and trade. However, they differ vastly on the issue of agriculture; Indonesia relies upon it, and Singapore has none. These differences are exacerbated by the addition of even less developed economies such as those of Laos and Cambodia (Roberts, 2003).
While not equals by any consideration, SAFTA nations are more economically similar than those of ASEAN. Thus, its members can conceivable reap more economic benefits through cross-border trade. India is its most economically substantial member, but it needs to generate more money and develop more technology to truly step into a leadership role. Now "because of high tariffs and cumbersome customs procedures, much trade is taking place illegally--through smuggling, for instance" (Majumder, 2004).
Trade and investment is uneven between nations within each agreement region and from outside investors. India is the biggest exporter to Sri Lanka, accounting for 10-15 per cent of its imports, Bangladesh (35 per cent), Bhutan (over 80 per cent) as also Nepal. By contrast, the major export destinations of these countries are the US and Europe. It is surprising that despite this trade pattern, SAFTA has become reality (Majumder, 2004).
Many doubts exist that a common South East Asian market will actually materialize. "ASEAN's inability to agree on any date sooner than 2020 has reinforced the view in international financial circles that it is too divided and ineffectual to provide the basis for the economic integration of the region" (Roberts, 2003). While ASEAN fared much better in the decades preceding 2000, it has taken several giant steps backward.
"In the 1980s and 1990s, ASEAN 'economic tigers' such as Malaysia, Indonesia and Thailand experienced rapid economic growth, as well as expanded trade relations with Japan, North America and the European Union (EU) as a result of investment by transnational corporations and the establishment of export industries" (Roberts, 2003). However, as China's currency experienced its devaluation, global monies were diverted there. Money from global investors dropped from $93 billion in 1996 to $12 billion in 1997 as a result. "In 2001, ASEAN nations received just 1.7 per cent of available global foreign investment. By contrast, China received nine percent—five times ASEAN's share" (Roberts, 2003).
Japan is ASEAN's most important trading partner and biggest investor, but its two-way trade with ASEAN nations has also dropped by about $22 billion dollars. Likewise, exports to the US and EU dropped almost $40 billion. Now, the ASEAN countries regard China as their primary export market of the future (Roberts, 2003). This union can create some political problems that will be discussed later.
SAFTA's nations seem more prone to bickering and dispute despite their relatively successful trade and economic considerations. India began looking toward the East as a prospect for trade and economic partnerships when the Soviet Union dissolved. In addition, China also looked economically attractive as a result of the previously discussed devaluation of its currency. However, India has created some suspicions as it branches out in its trade agreement initiatives, especially those with Singapore, Thailand and China (Majumder, 2004).
The region has a long history of distrust and suspicion. After the sub-continent split into India and Pakistan in 1947 and Bangladesh declared independence in 1971, the region has been fraught with war. "Despite the solution of almost all other territorial problems, Kashmir remains a major point of discord between India and Pakistan" (Poudel, 2004). While economically more sound, the inter-regional relationships of SAFTA seem lacking.
Indeed, as a leader, India seems to be making more friends from afar than from home. India has remained paranoid about liberalizing its trade too much, even for the benefit of its trading partners. Economists criticize that "The two salient features of SAFTA -- the Rules Of Origin (ROO) and the Sensitive List -- illustrate how paranoid India has become of its domestic industries; the negotiators did not display much enterprise in clinching the clauses for FTA in proportion to the size and scale of the India's economy and its diversified nature" (Srinivasan, 2006). Under the ROO instated by India, to give preferential access to the SAFTA member countries, the goods exported to India have to undergo "a substantial manufacturing process in the exporting countries" (Srinivasan, 2006).
In addition, India has kept 884 tariff lines on the Sensitive List for non-Least Developed Countries (LDCs), and it has kept 763 tariff lines on the Sensitive List for LDCs. "Predictably, India's sensitive lists include mainly goods from the agricultural sector, the textile sector, chemicals and leathers, and sectors reserved for small-scale industries" (Srinivasan, 2006).
This seems to indicate its lower confidence in its own products as it is using the tariffs to not only protect its own industry, but sadly, to refrain from fulfilling the objectives of SAFTA.
In the South Asian region where India is the leader cruising on a high growth trajectory with foreign exchange reserves running at $140 billion dollars, its officials tend to be parsimonious at trade negotiations by withholding benefits to deserving and not equally well-placed neighbors when it comes to giving.
(Srinivasan, 2006)
Politically, ASEAN's purpose statements seem to indicate that its focus is not just economic, but also political and perhaps even social. This is probably a good thing because many of the ASEAN countries seem to be operating at cross purposes. Singapore has no agricultural industry at all, but instead of buying from Indonesia, it signs an agreement with the US for agricultural products (Roberts, 2003). "Opening Indonesia's agricultural markets to outside competitors, however, would threaten the livelihood of large numbers of peasants, with unpredictable social consequences" (Roberts, 2003)
However, ASEAN claims to want to use its "political and security dialogue and cooperation" to "promote regional peace and stability by enhancing regional resilience. Regional resilience shall be achieved by cooperating in all fields based on the principles of self-confidence, self-reliance, mutual respect, cooperation, and solidarity, which shall constitute the foundation for a strong and viable community of nations in Southeast Asia" (Overview, 2005). It seems that some of the countries are not abiding by these principles.
Cultural Influences
Culturally, these two areas of the world are very different from both each other and from the rest of the world. SAFTA is primarily composed of Western Asian nations while ASEAN is composed of Eastern Asian Nations. South Asia is a region which more than twenty percept of the world's population calls home. It is a region rife with diverse ethnic, cultural and religious groups. However, many internal conflicts and contradictions threaten to stall the cooperation necessary to achieve the goals of SAFTA and ASEAN (Poudel, 2004).
Religion is one of these. Nepal is predominantly Hindu; Maldives and Pakistan are Islamic Republics; Bhutan and Sri Lanka are Buddhist; and Bangladesh is overwhelmingly Muslim while India is primarily a secular state. "Regional cooperation is never an easy task. It took more than four decades in Europe for the total economic integration together with single currency. Europe, too, is a continent with diverse groups and military powers. But they decided to pursue the economic cooperation rather than their own security concerns" (Poudel, 2004)
Another such cultural delineation is the perception of globalization itself. Globalization, as a force, allow for the international flow of just about everything – tangible and intangible. Most western countries view globalization as a terrific force that can bring wealth and prosperity to nations. Others view it as something less spectacular. In a speech to a group of participants at an economic forum in New Delhi, Indian, Dr. Surakiart Sathirathai, Minister of Foreign Affairs of Thailand, warned that India might be missing the "darker side of globalization:"
The borderless world of globalization brings about the free flow of people, free flow of goods and services, free flow of financial funds and the free flow of information technology. And as long as we benefit from them we all seemed to take them for granted until, one day, we run ourselves into crises such as that of the 1997 Asian financial crisis, the 9/11 tragedy, the scourge of epidemics such as SARS and the Bird Flu, as well as the surge in oil prices. Then we started to learn how to manage the dark side of globalization.
(Sathirathai, 2004)
Dr. Sathirathai insists that globalization helps some people and hurts some people and therefore must be managed accordingly.
This statement reflects the cultural belief that money and wealth is not the driving force that it is in the Western World. He also brings up a noticeable divide between the regions of SAFTA and ASEAN. He accuses ASEAN nations of focusing only on larger countries of China and Japan, and even the notoriously combative North Korea. He warns that "the movement towards an East Asian Community will have wide-ranging and long-term impact in Asia and beyond. However, it cannot be right and should not be right to assume that Asia's growth engine is found only in East Asia" (Sathirathai, 2004)
The President of Sri Lanka, Chandrika Kumaratunga focuses on the preservation of the culture of her people while not allowing culture to be used as a dividing line for all Asian nations. She warns that all Asian nations face the "danger of marginalization in the global economy" and the "risk of regression in the spheres of economic and social development" (Kumaratunga, 2004). Asian people of Sri Lanka are not ready to give up their own cultural heritage for a slice of the economic pie as many people who are critical of ASEAN nations (and even of Indian) seem to be suggesting:
Needless to say, that we have to take into account our own specific civilizational ethos, our cultural traditions and value systems, when aligning our economies with the rest of the world. It is important to note that globalization does not mean the continued hegemony of the richer nations imposed upon the poorer ones. Globalization should afford the space and freedom to developing nations, in order that they become active partners of the globalised economy, while recognizing the specific conditions and thereby the needs of developing countries and their right to make their own economic policy choices (Kumaratunga, 2004).
Kumaratunga goes on to stress some specific areas of concern that more developed nations do not share. These are the role of women and women's advocacy and the horrific practice of child and women trafficking for pornography. She stresses that these nations not ignore solving their own social problems in exchange for joining the race to global gold.
Conclusion
The words of Poudel aptly echo the title of his article in reference to the hope of a unified Asian market sector, which, if realized, would be the second largest in the world:
Despite differences and skepticism, one can see some ray of hope in the regional cooperation. If the leaders continue to show the warmth, it will help to enhance the economic opportunities in the region. However, frustrated at frequent witnessing of warmth suddenly melting away and turning into hostility caused by small frictions and old mind-set continuing to hijack the agenda, one cannot firmly predict that the situation has been improved for good (Poudel, 2004).
The success of SAFTA and ASEAN face more obstacles than most due to lower economic levels of their member nations, intra-regional conflicts and suspicions, and the desire to keep the homogeneity of culture intact. However, the desire to make economic partnerships has proved to be beneficial in some ways.
According to multiple reports from the World Trade Organization, free trade fuels economic growth, investment, jobs, and income. Free trade reduces poverty. Clearly, most developing nations need help in decreasing poverty. SAFTA and ASEAN are slowly accomplishing this. SAFTA has seen a 6 percent increase in total trade which ASEAN, that has been in operation much longer, has increased its total trade 22 percent (SAFTA and the benefit of free trade, 2004). Hopefully, this trend will continue for the nations involved.
