South Asia needs economic integration

South Asia needs economic integration

 Md. Joynal Abdin

The Holiday on  April 24, 2009

 Though South Asia covers 4,488,300 sq kms of the world’s surface area with a population of 1.5 billion, still it has only a negligible share of the world’s total volume of trade. Most of the people of this region live below the poverty line. Only mutual initiatives towards economic integration can play a vital role in upgrading the standards of living of the poor people.

   Economic integration in general is a process of removing progressively the discriminations which occur at the national borders. Such discrimination may affect the flow of goods and services and the movement of factors of production either directly or through economic activity via the factor of production.

   This may have two outcomes, both positive and negative. Negative effects include the possibility that the infant industrial sector may not survive the open market competition or that the sick industries might face ruin. Apart from short-run benefits, there are also the long-run benefits such as greater technical efficiency due to greater competition, larger markets, higher consumer surpluses, and more foreign investments.


 Five main stages

  There are five main stages of regional integration such as free trade areas, customs unions, common market, economic union and total economic integration. The meaningful integration through increased participation in the global/regional economy generates a lot of benefits.

   a.      There is efficient allocation of resources due to the changing production patterns promoting comparative advantage;

   b.      Domestic competition gains international standards of efficiency;

   c.      Wider options are available to consumers;

   d.      The ability increases to tap international capital markets for smoothing consumption in the face of short-term shocks (as well as to achieve higher long-term growth; and,

   d.      There is exposure to new ideas, technologies, and products, etc.

    Our journey through South Asia Free Trade Arrangement (SAFTA) and some other existing initiatives to form more FTAs among the member countries created the awareness for economic integration. But there is a long way to reach the destination. Proper initiatives, commitments and timely actions are required to gain success.

   In south Asia, almost all the countries have some strengths and weaknesses. But all limitations can be overcome, if they share their strengths among themselves.

   Private sector is the only key player in this endeavour under the prevailing global economic dispensation.

   India-Sri Lanka, Sri Lanka-Pak BFTAs

   Only two bilateral free trade arrangements (BFTAs) are in operation in South Asia namely, India-Sri Lanka BFTA, and Sri Lanka-Pakistan BFTA. The proposals for establishing India-Pakistan BFTA, Pakistan-Bangladesh BFTA and India-Bangladesh BFTA are under consideration. The steps so far are encouraging but not up to the mark for economic integration.

   South Asian leaders should realise the importance of an effective SAFTA in the light of European Union (EU).

   Role of private sector: All arrangements of economic integration are bound to fail if private sector does not play its role effectively.

   Private sector has to play the final game because they are the doers. They have to guide the government about how they might achieve their expected benefit. They have to bring the problems they face to the notice of the government in doing trans-border business among the signatory states. Government will communicate these problems to be solved by the state concerned.

  Barriers: SAFTA through SAPTA

   SAFTA through South Asian Preferential Trade Arrangement (SAPTA): Introduction of South Asian Free Trade Area (SAFTA) was a historic action by the South Asian countries to facilitate trade liberalization and later formation of SAFTA.

   Inputs for any technical or business negotiation have to be supplied by the business community who are actually doers of the job. These inputs can be used as core text of the speech of the ministers concerned in the forum and taking necessary measures to farther advancement.

   [1] Barriers: Usually there are three types of problems in trans-border business. These are – tariff barriers, non-tariff barriers and non-routine barriers. Tariff barriers are getting removed according to the agreement declarations but non-tariff barriers may be more effective in some cases. First steps towards economic integration should be to remove all sorts of barriers to international business.

   [2] Negative list: A country must think of its own industries but those should not be used as barriers to the major exportable goods from other countries. If any common product is there, market should be opened up to face competition. We must have to remember that open competition increases efficiency.

   Some may argue that infant or sick industries have to be protected. Here comes the question of strategic advantage. If any industry has strategic advantage, it will have to continue; otherwise, it will die even after lots of subsidies. RMG is vivrant, but jute remained in infancy since the British period.

   [3] Rules of origin must not be more stringent than that prevailing under SAPTA. The Federation of Bangladesh Chambers of Commerce & Industry (FBCCI) therefore advocates non-restrictive and simplified rules of origin, based on value addition criteria.


   [4] Recommendations: The following trade facilitation measures should be implemented as an obligation to ensure enabling trade policy and governance for smooth and speedy movement of goods across the borders which can make FTA effective as well as work to build confidence among the nations, which can lead us towards the next step of economic integration.


   Bangladesh, India, Nepal, Bhutan

   Bangladesh, India, Nepal and Bhutan have to be connected through functioning roads and transit facility should be ensured. More generally, we can say that trucks from any country should have the right to enter any signatory state without prior permission with legal goods.

   Simplification of customs procedures do need to aim at cutting the time taken and cost of transactions at each customs point. Regional customs action plan should be implemented.

   An effective appeal procedure has to be put in place for customs and other agencies’ rulings must be in place.

   Effective measures should be taken to ensure cosmopolitan environment which will help to ensure more business transactions.

   Transport and communications infrastructures, port and warehousing facilities must be developed to benchmark levels within a time frame.


Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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