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COVER STORY |
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COVER STORY |
12th SAARC
SUMMIT Even after 18 years of
continuous efforts to form a strong regional alliance to uplift the lives of more than a
billion people, the South Asia is yet to see a genuine approach for regional cooperation.
Thanks to the personal initiative of Indian Prime minister Atal Behari Vajpayee, who is
facing the general elections later this year, a certain degree of hope for the beginning
of regional cooperation has been ignited. However, if the recent Indian approach has been
guided by its domestic politics alone, no one should be surprised if the whole euphoria
fizzles out one fine morning By KESHAB POUDEL They hugged, they smiled for photo ops,
they shook hands and spoke at length the rhetoric of regional friendship. The gallery of
the 12th SAARC Summit recently held in Islamabad, Pakistan was markedly different than the
one held in Nepal two years ago when journalists from all over the world came to see the
leaders of India and Pakistan shaking their hands amid brewing tension between the two
nuclear-armed rivals. “Together, we stand a better chance in
the world. This is not a mere slogan. It aptly expresses a profound truth, which South
Asia has still to grasp fully. We have to change South Asia’s image and standing in
the world. We must make the bold transition from mistrust to trust, from discord to
concord, and from tension to peace,” said Indian prime minister Atal Behari Vajpayee.
Although Indian prime minister has
displayed courage and boldness by throwing the hand of friendship in the region, it
remains to be seen how it will help to change the mindset in the Indian establishment.
Many influential retired Indian diplomats and some powerful senior Indian journalists have
already started raising questions over the newfound friendship. On that backdrop, one
finds it hard to comprehend how the situation would improve. Being the largest and the most powerful
country of the region with the immense potentials, India’s mindset will determine the
future of South Asian Association for Regional Cooperation. “India did not lead SAARC
in all these 18 years. I cannot predict the course in future,” said a foreign
relations analyst. “Although India’s civil service and media play very important
role in shaping their own democracy, they mostly encourage anti-neighbor sentiments when
it comes to foreign relations.” How these powerful branches of the Indian
establishment will act in the days ahead remains to be seen. Following the spirit of
global anti-terrorism drive, Bhutan and Myanmar have already launched the drive against
Indian terrorist outfits. Within the spirit of SAARC, Bangladesh seems to be taking
some kind of offensive against India’s insurgents. Pakistani president Parvez
Musharraf has expressed his firm commitment not to allow any terrorist group to use
Pakistani soil. How India will reciprocate these overtures remains to be seen. South Asia South Asia, which is a region home to more
than 20 percent of world’s population, is a region with diverse ethnic, religious
groups and culture. There are many internal contradictions and conflicts in the all the
countries of the region. Nepal is a Hindu Kingdom, Maldives and Pakistan are Islamic
Republics, Bhutan and Sri Lanka are Buddhist and Bangladesh is overwhelmingly a Muslim
country while India is a secular state. In terms of geography, India is the largest
country that shares border with four countries out of seven. Sri Lanka and Maldives are
island nations in the Indian ocean. Although the People’s Republic of China is not a
member of the SAARC, it also shares the border with four South Asian countries including
Bhutan, Nepal, India and Pakistan. Chinese premier Wen Jiabao in his message
to the chairman of the 12th SAARC Summit and Pakistani prime minister Zafarullah Khan
Jamali stated that the Chinese government is ready to work with the governments of all
South Asian countries to promote the cause of peace and development in the region.
According to the Xinhua news agency, Chinese premier Wen Jiabao said, “Since its
founding SAARC has played an active role in enhancing the economic development, social
progress and cultural exchange in South Asia thanks to the common efforts of its member
states.” As long as India does not sincerely support
the regional cooperation, there is no question of any kind of real cooperation among the
member of the SAARC. India holds the key of regional cooperation. By floating the proposal
for the single currency, India has shown a long-term vision for the south Asia’s
economic development. 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. Today two strong rivals of Europe, Germany
and France, are representing a single bloc with complete understanding. China has recently
singed non-aggression treaty with the member of Southeast Asian countries, which consists
of Philippines and Vietnam - both the countries are claiming their rights to the Spratley
Islands. Three major countries with vast economic disparity the Mexico, the United States
of America and Canada are doing business under the North American Free Trade Area. South Asian countries, which have many
diverse culture and religion, have many commonalities as well. If the countries of the
region emphasize on their commonalities of the relations, they will definitely move ahead
to improve the lives of more than half a billion population who are living under the
absolute poverty line. “Our region is full of prospects,
commonalities and potentials. But our region is also beset with problems, paradoxes and
differences. We have the largest concentration of poor in the world. Terrorism continues
to haunt us. We are among the least integrated regions in the world, yet very slow in
regional cooperation,” said prime minister Surya Bahadur Thapa summing up the
region’s problem. Economic Potentials If the South Asian countries agree to
develop a common market, it is going to be the second single largest market in the world.
However, the strong sense of nationalism and security interest prevalent among the member
states has always disturbed the possible way towards regional integration. In this region,
the industrialists and business lobby have little voice in formulating the policies. The countries of the region are following
the sense of security rather than economic cooperation. Whenever the agenda of economic
cooperation is mooted, security perceptions block it from getting translated into reality. Despite continuous efforts to build the
strong security network, the region houses more than 100 different kinds of small and
large groups of insurgents controlling swathes of land through the reign of terror.
Unfortunately, various states back and support such groups to destabilize other country. At a time when all different regions of the
world are showing the signs of economic prosperity, the time has come for the political
leaders of South Asia to make a major breakthrough. “As long as economic and industrial
forces do not have voice in the bi-lateral and regional relations, there is no hope for
genuine and constructive cooperation in the region,” said analyst. Region of Distrust The region has a long history of distrust
and mistrust. Following the split of the Indian sub-continent into India and Pakistan in
1947 and declaration of independence by Bangladesh in 1971,the region has seen several
rounds of wars. Despite the solution of almost all other territorial problems, Kashmir
remains a major point of discord between India and Pakistan. Long border disputes between India and
China are yet to be sorted out. The humiliating defeat of India by China in 1962 is still
haunting the mind of Indian mindset. The region has suffered a lot in the course of
distrust and mistrust among the nations of South Asia. Smaller countries like Nepal have
to suffer a lot. There is a distrust and mistrust among the nations. India is the largest country in terms of
geographical size, population and economy in the region while Maldives is the smallest.
Although Nepal is very small in size compared to India, she has almost all ethnic groups,
which India has. Interestingly, India has a stable and vibrant democracy but most of its
neighbors are yet to have a full-fledged democracy. 43 Point Charter The 12th SAARC summit has adopted 43-point
Islamabad Declaration, which calls for promoting peace, stability, amity and a vision for
a peaceful and prosperous South Asia. The Summit also decided to hold the next 13th SAARC
summit in Bangladesh in January 2005. Additional Protocol to the 1987 Convention
for the Suppression of Terrorism, the SAFTA Framework Agreement and Social Charter are the
major highlights of this summit. It also approved the Plan of Action on Poverty
Alleviation. The summit meeting stressed on strengthening transportation, transit and
communication links across the region for accelerated and balanced economic growth. Conclusion 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. SAFTA The ground-breaking
agreement to adopt the South Asian Free Trade Area (SAFTA) has opened a new chapter in the
economic relations of the South Asian nations. Despite being plagued with political and
economic tensions, the leaders of the South Asian region have agreed that they must open
up their economies for the betterment of the one-sixth of humanity who call this region
their home. The SAFTA is expected to improve the negligible intra-regional trade and lure
more investment even as challenges for weaker economies like Nepal remain. Moreover,
weaker economies like Nepal will now have to girdle up its loins to take advantage,
otherwise it could end up getting swamped by one-directional flow of free trade By SANJAYA DHAKAL Even the trade pundits and region-watchers
were astonished to see the smooth adoption of the South Asian Free Trade Area (SAFTA)
agreement at the 12th Summit of the South Asian Association for Regional Cooperation
(SAARC) in Islamabad, Pakistan on January 6.
Only a week ago, the commerce
secretaries as well as the SAARC Standing Committee had been unable to bridge the
differences among various member states regarding the draft SAFTA agreement. But the
Council of Ministers amicably resolved the differences and the agreement was formally
adopted by the Summit. Moreover, Indian Prime Minister Atal Behari Vajpayee went a step
ahead by calling for South Asia Union by 2015 as well as the common currency. At the end of the 12th SAARC Summit, the
foreign ministers of the seven member states signed a framework pact on the Free Trade
area in the region paving the way for the regional integration of economies. “We affirm our determination to create
an inclusive, just and equitable partnership for peace, development and prosperity.
Satisfactory progress has been made in SAPTA. The signing of the Framework Agreement on
SAFTA is a major milestone. It is important to maintain this momentum and move towards
further broadening of economic cooperation and to ensure equitable distribution of
benefits of trade and cater to the special needs of the small and LDC Member States by
providing them special and differential treatment. We reiterate our commitment made at the
11th SAARC Summit at Kathmandu in January 2002 for the creation of a South Asian Economic
Union. In this context, we underline that creation of a suitable political and economic
environment would be conducive to the realization of this objective,” stated the
Islamabad declaration signed by regional leaders. The agreement is to come into force from
the start of 2006. The developing countries of the region – India and Pakistan - will
have to bring down their custom tariffs to between zero and five percent within seven
years of the start of the agreement, Sri Lanka has been given eight years for the same
whereas the rest of the Least Developed Countries (LDCs) – Nepal, Bhutan, Bangladesh
and Maldives – will have ten years to do that.
As such the South Asia Free Trade
Area (SAFTA) treaty will come into force on January 1, 2006 and will be fully implemented
by December 31, 2015. Media reports from Islamabad stated that
the council of ministers has recommended that SAFTA will enter into force on the due date
upon completion of four procedural formalities: formation of sensitive lists; rules of
origin, revenue loss compensation mechanism and ratification by the all member states. In the framework treaty, it has been agreed
that all the seven member states can maintain two Sensitive List of Products, in which
tariff will not be reduced – one for developing countries and another for LDCs. This
list will have to be finalized between now and the date it enters into force. Likewise, the officials have also agreed
that issues like imposition of anti-dumping duties, countervailing duties and safeguard
measures will be dealt in accordance with the World Trade Organization (WTO) principles. The commerce ministers of the member states
will work out the details of the framework treaty. This body also known as Committee of
Experts can also work as Dispute Settlement Body (DSB) – to resolve differences at
times of dispute among member states. The body’s decision will be binding on all
member states. The council of ministers will act as Appellate body if any member state
differs with the decision of the DSB. It was also agreed that any country has the option
to withdraw from the arrangement whenever it likes, the media reports added. “The SAFTA is the historic agreement.
It will contribute to the economic progress of the whole region,” said Dr. Bhekh
Bahadur Thapa, ambassador-at-large. Dr. Thapa signed in the framework on behalf of His
Majesty’s Government of Nepal.
Even the private sector has been
surprised by the smooth adoption of SAFTA so soon. “It was felt that SAFTA would not
be adopted so quickly, but this happened and this is good. Since all members of SAARC
except Bhutan are members of the WTO, the regional cooperation will also be meaningful at
least to consolidate market access within SAARC,” said Rajendra Khetan, an
industrialist and convener –WTO Cell at the Confederation of Nepalese Industries
(CNI). Economic Potential SAFTA had been conjured way back in early
nineties. Even the introduction of South Asian Preferential Trading Arrangement (SAPTA)
was portrayed as stepping stone for the free trade area. But the apparent ineffective-ness of the
SAPTA has also made experts more cautious about the success of SAFTA. “Quite clearly,
the SAPTA did not work as desired by the regional countries. So, if it is does not dealt
carefully, even SAFTA could end up with the same fate,” said Dr. Bishwambher
Pyakuryal, noted economist and president of Nepal Economic Association. With billion plus population, SAARC
represents a huge market for the world. The way its behemoth member India is growing
– last heard of growing at over 8 percent – the region could soon become an
economic power to reckon with. But the political disputes have tied down
the pace of progress in the region. Take for instance the intra regional trade volume; the
intra-regional trade volume among SAARC countries stand at abysmal 4.46 percent of the
total trade of member states whereas the intra-EU trade is 55 percent, intra-NAFTA (North
American Free Trade Area) trade stands at 61 percent and intra-ASEAN trade is 25 percent
of its total trade. The total foreign direct investment in the SAARC region (2002) stood
at USD 4 billion whereas the same in China only for the year 2002 was USD 53 billion. The industrialists of both Pakistan and
India pushed for SAFTA this time around. While the Pakistani side was encouraged by a
recent report from Pakistan Institute for Development Economics – a think tank -
which had stated that SAFTA would not hurt its trade and commerce interest, the Indian
side hinged their hopes to grow cross border trade with Pakistan. At present, while the
official trade figure between India and Pakistan stand at USD 262 million, the illegal
trade is said to be worth anything between USD 1.5 to 2 billion. Jamil Mahboob Magoon, the Vice President of
the SAARC Chamber of Commerce and Industry (SCCI) told the media that the Chamber will
urge the member countries to relax visa restriction for businessmen, form commercial
arbitration council, harmonize standards and enter a multi-motor vehicular agreement
following the SAFTA agreement. Unclear Issues Since, not everything about the agreed text
of the SAFTA has been made public, experts are still unclear how the regional leaders
sorted out the four major areas of discord, which was seen earlier. The contentious issues like Rules of
Origin, Sensitive List, Trade Remedy Measures (anti-dumping duty, countervailing duty,
safeguards etc) and Balance of Payment Measures had obstructed the SAFTA sail in past
negotiations. Bangladesh had been clamoring for Trade Remedy Measure like anti-dumping
duty and had asked for other concessions from the developing countries of the SAARC. “I have not been able to find out what
came out of these debates - whether Bangladesh’s concerns was addressed or not. It
would be of utmost significance to analyze these issues before venturing into the success
or failure of free trade regime,” said Ratnakar Adhikari, an economist and editor at
the South Asian Watch on Trade, Economics and Environment (SAWTEE). Nepal’s Lack of Homework Even as Nepal has been actively advocating
for the SAFTA, it is yet to carry out an extensive study regarding its implications in its
own economy. For a weak economy like Nepal, free trade could also mean erosion in revenue
and collapse of its weak industrial base. Noted economist Dr. Bishwambher Pyakuryal
grimly points to trade deficit. “At present, we have trade deficit with almost all
SAARC countries. With India we have a serious deficit between Rs 20-25 billion. In such a
situation, we have to be very careful lest this deficit surges beyond control once free
trade takes effect,” he said. The revenue Nepal would lose could be
around half a dozen billion annually (compared to present statistics). “The
government would need to explore new avenues to fill this gap. Perhaps increasing the VAT
rate, say by two percent, could lead to additional Rs 2 billion as revenue. Then, there
are possibilities of bringing presently untouched sectors into the institutional net of
the tax and so on,” said Dr. Pyakuryal. His views are also shared by Dr. Ram Sharan
Mahat, former Finance Minister, who says, “As a weak economy, we could end up losing
our revenue base if alternates are not explored.” Another economist Ratnakar Adhikari,
however, does not see much damage due to loss in revenue. “What we lose as revenue
could be adequately, if not more, compensated by the increase in economic activities
because consumption would also rise if prices fall. And, of course, we already have VAT,
which is a very secular mode of taxation,” said Adhikari. Another problematic issue for Nepal could
be its weak industrial base. When goods and services from SAARC flow into the country, it
could sweep away what little industrial base we have. “There is an urgent need to
restructure our economy and identify the key areas where we have comparative and
competitive edge. We have been given around ten years by which time we must develop our
strong competitive edge to survive in the ocean of free trade,” said Dr. Narayan
Khadka, former vice chairman of the National Planning Commission (NPC). However, industrialist Rajendra Khetan does
not seem much scared. “We are confident that we can compete at the SAARC level. Even
now many of our products are being imported by India and other countries,” said
Khetan. “The SAFTA will create a regional
understanding on free trade of goods and services with a liberal market philosophy.
Obviously the trade and market for SAARC member states would be free. Hence the free
opening of SAARC market would be of great importance for Nepal since our market and
economy both are small,” added Khetan. “Besides, SAARC as a regional single
market should negotiate trade with global economies. In this case small countries like
Nepal can again benefit. In WTO regime specially because of MFN status the market access
has become more important. So both government and private sector should come closer in
identifying opportunities and threats so that our trade policy can ensure that Nepal
enjoys SAFTA benefits.” But Dr. Pyakuryal adds another caveat.
“I am not sure that there will be trade complementarities within the SAFTA because
the nature of products and production structure in all of the SAARC countries are
similar.” According to him, due to lack of such complimenting trade products, the
regional integration could face difficulties. Positive Note Despite many anomalies and possible
problems, SAFTA has been generally welcomed by all and sundry. “SAFTA is our
necessity. It is good that an agreement has reached even though belatedly. This will make
our region economically integrated and mutually dependable,” said Dr. Narayan Khadka. Dr. Mahat also says that economic
cooperation is a must for the regional cooperation. “Since Nepal had already
committed for SAFTA a couple of years ago, it must now work towards benefiting from
it.” So is Nepal ready for free trade, then?
Adhikari sees no reason to worry about it “Nepal is already on the path of unilateral
liberalization. It is one of the most liberalized economy in South Asia,” he said. He even quotes Sachs and Warner, renowned
economists, who have stated that open economies tend to grow 1.5 times faster than the
closed ones. “In the long run, Nepal will reap
benefit. The short-term problems like temporal high costs, adjustment costs and protection
of vulnerable communities are what we have to overcome. Once we tide over these problems,
there will be a smooth sail ahead,” Adhikari noted. As such, since SAFTA is now agreed upon,
there is no option than to deal with it headlong. Nepal could stand to benefit only if it
realizes its advantage and acts accordingly. Otherwise, it could be staring at a gigantic
tide that could sweep its whole economy away. At a time when regional leaders are calling
for South Asia Union and common currency, Nepalese leaders will now have to speed up the
country’s preparations to be able to become useful member of the Union –
whenever, if at all, it happens. |
Cover Story | Rpp | Pokhrel's Scandal | King-Nepal
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