Intra-regional trade among SAARC member countries

Intra-regional Trade among SAARC Countries,

Potential and Constraints

Masaood MoahidMasaood Moahid PALB 2110

Sent on 14th April, 20144 replies

Overview of SAARC Introduction Core Objectives, Principles of SAARC, Major Agreements SAARC Economy Trade Openness & Share of SAARC Countries in World Exports,

Imports SAARC Interregional Trade India’s Bilateral Trade Relation with SAARC Countries Comparative Advantage Commodity Composition of SAARC Countries Price Integration Trade Potential among SAARC Countries: Measuring Trade

Intensities (Case Study) Trade Barriers Export Similarity Conclusion

Seminar Flow

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One of the developments in the post WTO scenario has been the growth of regional trading agreements across the globe as a complement to the multilateral trading system.

Economic theory argues for liberalization of trade through policy induced measures, by reducing and then eliminating tariff and non-tariff barriers.

Encouraged by theoretical suggestions and empirical evidences around the globe, countries started implementing trade policy liberalization.

South Asia has been the latecomer in regional trading arrangements in the Asia-Pacific region due to the relative inward-orientation of its economies, and to political mistrust.

Though countries in South Asia have traditionally been protectionist towards opening their economies to other countries, the region has recently been engaged in regional cooperation through signing PTAs and FTA, first, bilaterally and then multilaterally.

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In terms of population, SAARC is the largest with over 23% of world population. However, the total GDP of the SAARC member states is only 3% of the world total GDP.

SAARC is the least integrated. Intraregional trade in SAARC has been miniscule compared to other RTBs in this region.

Its intraregional export was 4.28 per cent during 2000, which marginally increased to 5.35 per cent during 2008. The situation was grim in the case of intraregional imports, which was 3.8 per cent in 2000 which declined to 1.88 per cent in 2008.

Although almost all the South Asian nations enjoyed a powerful and strong cultural tie among each other, the most efficient among them were India, Pakistan and Bangladesh who shared a common and integrated market and monetary system till 1947.

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Fig. 1 Members and Observers of SAARC

Membership: Eeighth members are: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

Observer countries are: Australia, Burma, China, European Union, Japan, Iran, Mauritius, South Korea and the United States.

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Purpose of the organization is collective economic, technical, social, and cultural development of member states.

The headquarters of SAARC are located in Kathmandu, Nepal.

website: www.saarc-sec.org .

All the SAARC members have joined the World Trade Organization (WTO), except Afghanistan and Bhutan.

Continue …

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South Asian Preferential Trade Agreement (SAPTA)

The Agreement on SAARC Preferential Trading Arrangement (SAPTA) was signed in the year 1993 by the members.

The objectives of the SAPTA are: a) To promote and sustain mutual trade, and b) To develop economic co-operation.

SAPTA provided a framework for exchange of tariff concessions and also for liberalization in non-tariff measures with a view to promoting trade and economic cooperation among the SAARC member countries.

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South Asian Free Trade Agreement (SAFTA)

Signed at the 12th SAARC Summit in Islamabad, Pakistan.

SAFTA facilitates free trade of goods, facilitating cross boarder movement of goods, promoting conditions of fare competition in the free trade area and ensuring equitable benefits to all members.

The countries agreed to reduce customs duties of all traded goods to zero by year 2016.

((A study conducted by the Consumer Unity and Trust Society International in 2010, suggests that complete elimination of tariffs under the South Asian Free Trade Agreement(SAFTA) may increase intra-regional trade by 1.6 times. ))

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• 1.6 billion population ,inequality in the distribution of income, 43 % of its people living below the poverty line.(SAARCSTAT)

• SAARC economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services.

• SAARC, tragically, is the world's only region, which has failed to tap the potential for social-cultural exchange and economic cooperation.

• Intra-SAARC trade is dismally as low as 4% and the collective share of the region in world trade is also low.

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Table 1: Macroeconomic Indicators of SAARC Economies: 2009

Items AFG BD BTIND#

MALD

NEP PAK SRL

Real GDP Growth, % 3.4 6.0 5.0 6.7 6.3 5.3 2.0 6.0GDP Per Capita (Current Prices US$) 438 522 1789 102

03653 455 102

21972

GDP (PPP) % of World Total 0.03

0.3 0.005 4.7 0.002

0.05

0.6 0.1

CPI Inflation, Average, % 26.7

7.7 8.3 8.4$12.3 7.7 12.022.6

Fiscal Balance, % of GDP, FY Basis -4.1 -4.7 -3.2 -6.0 -15.7 -2.0 -7.4 -6.8Merchandise Export, % Growth 18.

917.4

4.4 13.745.2 9.3 18.26.5

Merchandise Import, % Growth 12.1

25.6

27.4 19.426.6 24.1

31.224.0

Current Account Balance (US$ Billion)-0.2 1.9 -0.03 -28.7

-0.6 0.3 -13.9

-3.7

Current Account Balance, % of GDP -1.6 1.9 -2.2 -2.4 -51.4 2.7 -8.4 -9.4Reserves (Excluding Gold), US$ Billion, End-Period

3.5 6.1 0.6 242 0.2 2.5 8.6 1.8

AFG: Afghanistan. BD: Bangladesh. BT: Bhutan. IND: India. MALD: Maldives. NEP: Nepal. PAK: Pakistan. SRL: Sri Lanka.Source: World Economic Outlook, International Financial Statistics, IMF and Asian Development Outlook, ADB.

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Table 2: Salient features of economy of South Asian countries

ParticularReferenc

e yearBangla-

deshIndia Nepal

Pakistan

Sri Lanka

AFGH

Income rank in the world

2009 189 160 196 171 151 174 #

Arable Land (ha. Per capita)

2008 0.05 0.14 0.08 0.12 0.06 0.27

Poverty, people living on less than $1.25 a day

(%)

2004 -2007

49.6 41.6 55.1 22.6 7 44.8

Share of Agriculture in

GDP (%)2009 19 18 34 22 13 48

Workforce in Agriculture

2006-10 48.1 56.1 65.7 45.1 32.5 57.4

Agriculture value

added/worker (constant 2005

US$)

2009 426 600 263 1069 878 439

# 2013, IMFSource: World Development Indicators 2011, The World Bank, Washington DC, USANote: Workforce data taken from Key Indicators, 2011, Asian Development Bank.

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Table 3: Incidence of hunger and under nutrition in South Asian countries and world

CountryDietary Energy Consumption

(Kcal/person/day)

Prevalence of undernourishment in total population (%)

Number of undernourished persons (million)

1990-19922006-2008 1990-1992

2006-2008

1990-1992

2006-2008

Bangladesh1960 2270 38 26 44.4 41.4

India 2290 2360 20 19 177 224.6Nepal 2190 2340 21 17 4.2 4.7Pakistan 2210 2280 25 25 29.5 42.8Sri Lanka 2170 2370 28 20 4.8 3.9

South Asia2270 2360 22 20 267.5 330.1

Developing World

2440 2640 20 15 833.2 839.4

Total World2610 2790 16 13 848.4 850

Source: State of Food Insecurity, FAO15

Figure 2: (a) % age Undernourishment in South Asian Countries (b) Undernourishment in South Asian Countries (millions)

a b

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Table 4: Production and utilization of major food products in South Asia during 2007-2009, million

tonne

Item ProductionFood

consumptionOther

ConsumptionTotal

utilizationSurplus/deficit

S/D as % of production

Cereals - Excluding Beer 286.14 238.51 34.21 272.73 13.41 4.69Rice (Milled Equivalent) 136.17 114.96 10.96 125.92 10.26 7.53Wheat 103.4 94.92 9.03 103.95 -0.55 -0.53Pulses 15.98 16.58 3.1 19.68 -3.7 -23.13Vegetable Oils 8.72 11.07 4.29 15.36 -6.64 -76.22Sugar (Raw Equivalent) 29.57 26.19 0.03 26.22 3.35 11.32Vegetables 100.39 92.55 6.58 99.13 1.27 1.26Fruits - Excluding Wine 78.66 68.17 10.52 78.69 -0.03 -0.04Eggs 3.93 3.33 0.5 3.84 0.09 2.37Meat 8.75 8.14 0.01 8.15 0.61 6.95Milk - Excluding Butter 145.59 116.49 29.18 145.67 -0.08 -0.05Source: 1. FAO Food Balance Sheet 2009.2. FAOSTAT

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Figure 3: Production and S/D of major food products in South Asia during 2007-2009

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Table 5 Surplus/Deficit of major food items in South Asian countries during 2007-2009, million tonne

Item Rice Wheat Pulses Milk Meat FruitVegeta

bleSugar

Vegetable Oil

India 6.32 -0.31 -2.66 1.03 0.62 0.144 1.946 4.977 -3.575

Bangladesh

1.18 -1.91 -0.45 -0.37 0 -0.121 -0.194 -0.546 -1.168

Pakistan 3.18 2.58 -0.43 -0.12 0 0.071 -0.238 -0.548 -1.517

Sri Lanka -0.04 -0.89 -0.16 -0.58 0 -0.015 -0.174 -0.509 -0.334

Maldives -0.01 -0.02 0 -0.02 -0.01 -0.018 -0.008 -0.007 -0.004

Nepal -0.37 0 -0.01 -0.02 0 -0.093 -0.067 -0.019 -0.045

Source: Source: FAO Food Balance Sheet 2009.

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Table 6 : Per capita supply of various food items in South Asian countries, 2009, Kg/year

Item

Cereals

excl. beer

Rice (Mille

d Equivalent)

Wheat

PulsesVegetables

Fruits -

Excluding

Wine

Eggs Meat

Milk - Exclud

ing Butter

Sugar (Raw

Equivalent)

Vegetable Oils

India152.

6 70.9 60.2 12.9 64.8 45.1 2.1 3.3 68.7 17.3 8.2

Bangla-desh

180.9 159.7 14.7 4.8 19.7 20.7 1.3 3.6 16.2 5.3 6.2

Pakistan

129.8 14.5

106.1 8.1 30 36.5 2.4 13.4 159 23.9 11.5

Sri Lanka

143.5 97.3 44.1 8 40.1 27.2 2.2 6.8 36.1 24.6 4.1

Nepal171.

3 78 37.9 8.4 77.9 38.8 1 9.8 40.9 4.3 6.8

World146.

6 52.9 65.9 6.5 119.4 69 8.6 40.1 85.1 20.3 11.4

Source: Source: FAO Food Balance Sheet 2009.20

Table 7 : Trade Openness (Export and Import as per cent of GDP) in SAARC Countries (Per cent)

Country 1960 1970 1980 1990 2000 2008Afghanistan 11.2 21.7 … … … 87.0#

Bangladesh 19.3 20.8 23.4 19.7 33.2 47.0

Bhutan … … 50.4 56.7 76.2 146.0

India 11.8 7.8 15.6 15.7 27.4 54.0

Maldives … … … … 161.1 …Nepal … 13.2 30.3 32.2 55.7 45.0Pakistan … 22.4 36.6 38.9 28.1 34.0

Sri Lanka 62.4 54.1 87.0 68.2 88.6 63.0

#: For 2006. …: Not available. Source: World Development Indicators, World Bank.

Trade Openness Ratio is the trade-to-GDP ratio which is frequently used to measure the importance of international transactions relative to domestic transactions.

This indicator is calculated as the simple average (i.e. the mean) of total trade (i.e. the sum of exports and imports of goods and services) relative to GDP.

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Table 8: Share of SAARC Region in World Exports (Percent)

Country 1950 1960 1970 1980 1990 2000 2008

Afghanistan0.03

0.04 0.04 0.03 0.01 0.002 0.004

Bangladesh … … … 0.04 0.05 0.10 0.10

Bhutan … … … 0.001 0.002 0.002 0.003

India 1.85 1.02 0.64 0.42 0.52 0.66 1.10

Maldives 0.003 0.002 0.001 0.000 0.002 0.002 0.002

Nepal 0.002 0.01 0.01 0.004 0.01 0.01 0.01

Pakistan 1.23 0.55 0.29 0.13 0.16 0.14 0.13

Sri Lanka 0.53 0.30 0.11 0.05 0.05 0.08 0.05

SAARC 3.71 1.92 1.08 0.68 0.80 1.00 1.39

… : Not available. Note: Data for Pakistan during 1950, 1960 and 1970 includes erstwhile East Pakistan. Source: UNCTAD.

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Table 9: Share of SAARC Region in World Imports (Per cent)

Country 1950 1960 1970 1980 1990 2000 2008

Afghanistan 0.09 0.06 0.03 0.04 0.03 0.02 0.02

Bangladesh … … … 0.13 0.10 0.13 0.15

Bhutan … … … 0.002 0.002 0.003 0.003

India 1.70 1.68 0.64 0.72 0.66 0.77 1.79

Maldives 0.01 0.003 0.001 0.001 0.004 0.01 0.01

Nepal 0.03 0.03 0.02 0.02 0.02 0.02 0.01

Pakistan 0.91 0.72 0.45 0.26 0.21 0.16 0.26

Sri Lanka 0.38 0.30 0.12 0.10 0.07 0.09 0.08

SAARC 3.12 2.79 1.27 1.26 1.09 1.21 2.31

… : Not available.Note: Data for Pakistan during 1950, 1960 and 1970 includes erstwhile East Pakistan.Source: UNCTAD. 23

Figure 4: Trend in Merchandise Export and Import Share of SAARC in World Total

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The basic reason of ‘regional integration; is the ‘economic integration.

Economic integration is propelled by the competitive needs of different countries of the world to face the onslaught of globalization after the onset of the WTO.

In the new liberalized trade regime, it is pertinent for countries to be more competitive by reducing costs through removal of trade barriers.

Intra-regional trade of major trading blocs has grown tremendously over the last one and a half decades.

SAARC Intra-regional Trade

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Table 10: Intra-Regional Trade (Export) of Major Trading Blocks (%)

Groups

1990 1996 2000 2001 2002 2003 2004 2005 2006

EU 62.4 61.6 61.6 60.8 60.6 61.12 60.7 65.66 66.2

NAFTA46.2 55.7 55.7 55.5 56.6 56.1 55.9 55.95 53.8

ASEAN

24.6 23 23 22.4 22.7 22.2 22.2 25.62 24.9

SAARC

4.4 4.1 4.1 4.3 4.8 5.7 5.6 5.42 5.6

MERCOSUR

20.3 20 20 17.1 11.5 11.9 12.6 13.14 11.6

APEC 5 5.1 5.1 5.5 5.5 5.7 5.2 13.12 10.7

IOR 71.8 73.1 73.1 72.6 73.4 72.6 72 66.2 69.4

Source: COMTRADE Database26

Table 11 Intraregional Trade (Exports) of SAARC Countries, 1995-2008 (% of total trade)

YearBangladesh Bhutan India

Maldives Nepal Pakistan Sri Lanka

Afghanistan

1995 2.68 NA 5.02 22.63 9.23 3.15 2.66 11.1

1996 1.48 NA 5.07 18.53 20.58 2.57 2.67 -

1997 2.26 NA 4.67 16.08 25.37 2.61 2.59 -

1998 2.69 98.38 4.91 17.35 36.25 4.9 2.36 -

1999 1.91 99.16 4.06 19.56 29.36 3.56 3.09 -

2000 1.58 NA 4.2 18.14 42.9 3.18 3.47 19.7

2001 1.58 NA 5.38 22.19 47.78 2.87 3.34 -

2002 1.33 NA 4.98 15.5 60.22 2.31 5.48 -

2003 1.71 NA 6.08 13.92 53.98 2.86 6.82 -

2004 1.59 NA 5.54 12.69 58.48 3.72 8.8 31.3

2005 2.16 92.98 5.14 17.38 67.36 4.56 10.24 -

2006 1.88 NA 4.96 13.36 68.57 4.19 8.71 -

2007 2.34 NA 4.92 9.58 70.97 4.47 8.33 42.1

2008 3.06 98.8 4.88 8.78 73.89 4.48 8.39 -Source: 1) Regional Co-operation Strategy and Programme, South Asia (2006-2008), ADB.

2) www.CSO.gov.af27

2006-07

2007-08

2008-09

2009-10

2010-11

2010-11 (April-Oct)

2011-12 (April-Oct)

Exports

India’s Total126.4

1163.1

3185.30

178.75

251.13

123.17 170.11

% share of SAARC

countries5.12 5.91 4.62 4.69 5.13 4.65 3.76

Imports

India’s Total185.7

4251.6

5303.70

288.37

369.77

208.821 277.26

% share of SAARC

countries0.81 0.84 0.60 0.57 0.59 0.55 0.52

Table 12 India’s Total Trade and Bilateral Trade with SAARC Countries (Value in US $ Billion)

Source: www.commerce.nic.in28

Figure 5 : (a) India’s total exports and imports (Billions US$) (b) India’s total exports and imports to SAARC ( Billions US$)

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Afghanistan applied for the membership of SAARC in 2005

Dispute for its location, whether it is located in South Asia or not…

Afghanistan was inducted on 3-4 April 2007.

India & Afghanistan signed the PTA on March 6, 2003 in New Delhi. This agreement would remain in force till either party gives to the other a notice for its termination.

India has granted preferential tariff for 38 products from Afghanistan , whereas Afghanistan granted preferential tariff to 8 items from India

India’s trade with Afghanistan has increased substantially from US$ 201.09 million in 2005-06 to US$ 520.47 in 2008-09.

Bilateral trade with Afghanistan

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Source: www.commerce.nic.in

Year Exports ImportsTotal Trade

Balance of Trade

2006-07 182.11 34.37 216.48 147.74

2007-08 249.21 109.97 359.18 139.24

2008-09 394.23 126.24 520.47 267.99

2009-10 463.55 125.19 588.74 338.36

2010-11 411.78 146.03 557.81 265.75

2010-11 (April-Oct)

218.15 77.24 295.39 140.91

2011-12 (April-Oct)

287.99 65.33 353.32 222.66

Table 13 Bilateral Trade with Afghanistan (Value in US $ million)

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Year Exports Imports Total TradeBalance of

Trade

2006-07 1629.57 228.00 1857.57 1401.57

2007-08 2923.72 257.02 3180.74 2666.7

2008-09 2497.87 313.11 2810.98 2184.76

2009-10 2433.77 254.66 2688.43 2179.11

2010-11 3606.40 446.75 4053.15 3159.65

2010-11 (April-Oct)

1605.00 200.63 1805.63 1404.37

2011-12 (April-Oct)

1651.47 334.02 1985.49 1317.45

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(Value in US $ million)

Year Exports Imports Total TradeBalance of Trade

2005-06 99.17 88.77 187.94 10.4

2006-07 57.66 142.05 199.71 -84.39

2007-08 86.74 194.72 281.46 -107.98

2008-09 111.15 151.79 262.94 -40.64

2008-09 (April-Sept) 58.69 91.97 150.66 -33.28

2009-10 (April-Sept)* 44.21 64.83 109.04 -20.62

Source: www.commerce.nic.in 33

Table 16: Bilateral Trade with Maldives (Value in US $ million)


Year Exports ImportsTotal Trade

Balance of Trade

2006-07 68.68 3.05 71.73 65.63

2007-08 89.72 4.15 93.87 85.57

2008-09 127.91 3.97 131.88 123.94

2009-10 79.86 3.63 83.49 76.23

2010-11 106.66 31.38 138.04 75.28

2010-11 (April-Oct)

55.66 29.78 85.40 25.84

2011-12 (April-Oct)

55.62 13.28 79.98 53.41

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Trade

2006-07 927.40 306.02 1233.42 621.38

2007-08 1507.42 628.56 2135.98 878.86

2008-09 1570.15 496.04 2066.19 1074.11

2009-10 1533.31 452.61 1985.92 1080.70

2010-11 2204.40 513.40 2717.80 1691.00

2010-11 (April-Oct)

1144.10 301.10 1445.20 843.00

2011-12 (April-Oct)

1067.52 228.01 1295.54 839.51

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Trade

2006-07 1350.09 323.62 1673.71 1026.47

2007-08 1950.53 287.97 2238.50 1662.56

2008-09 1439.88 370.17 1810.05 1069.71

2009-10 1573.32 275.94 1849.26 1297.38

2010-11 2333.67 332.51 2666.18 2001.16

2010-11 (APril-Oct)

1066.90 201.16 1268.06 865.74

2011-12 (APril-Oct)

694.25 226.16 920.41 468.09

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Trade

2006-07 2258.30 470.33 2728.63 1787.97

2007-08 2830.43 634.96 3465.39 2195.47

2008-09 2425.92 356.57 2782.49 2069.35

2009-10 2188.01 392.19 2580.20 1795.82

2010-11 4039.90 501.73 4541.63 3538.17

2010-11 (APril-Oct)

1549.11 228.88 1777.99 1320.23

2011-12 (APril-Oct)

2500.63 466.25 2966.88 2034.38

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The trade liberalization and domestic reform in most of the SAARC countries in recent years have led to an increasingly competitive international environment. Thus, it is timely to examine the extent to which SAARC countries have become more specialized in various sectors.

The ability of a country, a firm or an individual to produce goods and/or services at a lower cost than other firms or individuals.

A comparative advantage gives a country or a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.

Revealed Comparative Advantage (RCA)

Revealed Comparative Advantage (RCA) index has been used to describe the tendency for countries to specialize and export those goods and services that they produce at a lower relative cost compared with other countries. RCA is the most frequently employed measurement of trade specialisation. This index was first proposed by Balassa (1965) and defined as:

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RCA

• The RCA measures a country’s exports of a commodity relative to its total exports and to the corresponding export performance of a set of countries.

• This index takes values between 0 and +1. A value of index greater than 1 denotes product in which country is relatively more specialised. On the contrary, a value less than 1 characterizes that country j is accepted not specialised in product i.

• If RCAi > 1, comparative advantage in good i. If RCAi < 1, disadvantage .

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Table 20 Revealed Comparative Advantage of Major SAARC Countries : 1995

Broad SITC Groups /Countries BD IND MALD NEP PAK SRL

Primary commodities, including fuels 0.63 1.16 3.45 0.42 0.77 1.11

All food items 1.16 2.08 8.22 0.87 1.31 2.08

Agricultural raw materials 1.00 0.49 0.28 0.42 1.46 1.62

Ores and metal 0.00 1.10 0.06 0.04 0.05 0.22

Non-ferrous metals 0.00 0.25 0.00 0.00 0.00 0.01

Fuels 0.06 0.24 … 0.00 0.14 0.06

Manufactured goods 1.13 0.97 0.34 1.11 1.10 1.00

Chemical products 0.32 0.86 0.00 0.13 0.07 0.10

Machinery and transport equipment 0.04 0.19 0.00 0.00 0.01 0.09

Other manufactured goods 3.00 2.14 0.94 3.06 3.04 2.63

Iron and steel 0.00 0.96 0.00 0.96 0.00 0.03

Textile fibers, yarn, fabrics and clothing

10.39 3.85 3.61 11.08 10.69 7.61

Source: International Journal of Economics,Commerce and Research (IJECR) COMPOSITION, DIRECTION AND INTRA-REGIONAL TRADE AMONG SAARC COUNTRIES(2008)

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Table 21 : Revealed Comparative Advantage of Major SAARC Countries : 2006

Broad SITC Groups /Countries BD IND MALD NEP PAK SRL

Primary commodities, including fuels

0.29 1.34 3.94 1.09 0.74 1.07

All food items 0.84 1.36 15.69 3.20 1.88 3.42Agricultural raw materials 0.86 1.30 0.00 0.76 0.80 1.38

Ores and metal 0.06 1.97 0.23 1.46 0.13 0.80Non-ferrous metals 0.02 1.31 0.00 1.07 0.03 1.08Fuels 0.03 1.13 2.08 0.00 0.38 0.01Manufactured goods 1.29 0.91 0.01 1.01 1.14 1.01

Chemical products 0.12 1.09 0.00 1.44 0.24 0.12Machinery and transport equipment 0.03 0.29 0.01 0.05 0.05 0.14

Other manufactured goods 4.20 1.98 0.00 2.57 3.58 3.05

Iron and steel 0.08 1.78 0.00 2.10 0.09 0.02Textile fibres, yarn, fabrics and clothing 17.84 3.25 0.00 7.52 13.96

10.60

Source: International Journal of Economics, Commerce and Research (IJECR) COMPOSITION, DIRECTION AND INTRA-REGIONAL TRADE AMONG SAARC COUNTRIES

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Fig. 5: RCA of India in 2006 and in 1995

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South Asian countries share similar socio economic conditions and they produce similar products and consume similar commodities.

Commodity compositions intra-regional trade of SAARC shows that the trade is confined to few traditional commodities.

This trade similarity makes trade possibilities limited.

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Table 22: Intra SAARC Trade Share of Top 20 CommoditiesProduct Name Trade SharePetroleum oils 7.84Cotton fabrics, woven 5.28Textile yarn 4.71Feeding stuff for animals (no unmilled cereals) 4.7Lime, cement, fabrica, constr. Mat. (excluding lass, clay) 2.98Sugar, molasses and honey 2.57Farics, woven, of man-made fabrics 2.25Fruits and nuts (excluding oil nuts), fresh or dried 2.21Wheat 2.15Vegetables 1.99Medicaments (incl. veterinary medicamens) 1.75Motorcycles and cycles 1.7Spices 1.57Tubes, pipes and hollow profiles, fitings, iron, steel 1.47Motor vehicles for transport of goods, special purpose. 1.43Ships, boats & floating strucures 1.41Rice 1.37Ingots, primary forms, of iron or steel; semi-finis. 1.3Motor vehicles for he transport of persons 1.23Source: UNCTAD Database

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Export Similarity Index

To compute this index, an export share of each product to total exports of each country is required.

S(ab,m) = 100{1−[Σi|Xi(a,m)−Xi(b,m)|]/2}

Finger and Kreinin, 1979

`

Export Similarity

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Table 23 : Export Similarity Index (EXS) for SAARC Countries, 2007

Country Finger and Kreinin's EXS Index

BD IND MALD PAK SRL

1 2 3 4 5 6

BD 100.0 20.4 35.8 32.7 57.8

IND 100.0 19.9 33.9 31.5

MALD 100.0 22.3 26.5

PAK 100.0 32.7

SRL 100.0

Source: International Journal of Economics, Commerce and Research (IJECR) COMPOSITION, DIRECTION AND INTRA-REGIONAL TRADE AMONG SAARC COUNTRIES

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Price and market integration was studied by examining association between producers prices during the period 2000 to 2009.

Producers prices represent overall price situation for the whole country and are thus not restricted to a single market.

Simple co-relation between producer prices between various pairs of countries in South-Asia was estimated.

Price Integration of major food items between SAARC Countries

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Table 24: Correlation coefficient between producers prices in South Asian Countries

Commodity Country India Nepal Pakistan Sri Lanka

I. Rice

Bangladesh 0.89 0.84 0.89 0.85India 0.67 0.74 0.88Nepal 0.8 0.56

Pakistan 0.65

II. WheatBangladesh 0.88 0.88 0.73

India 0.99 0.61Nepal 0.58

III Maize

Bangladesh 0.61 0.63 0.53 0.86India 0.74 0.76 0.85Nepal 0.73 0.75

Sri Lanka 0.6

IV. ChickpeaBangladesh -0.04 0.92

India -0.13 0.13Sri Lanka

V. GroundnutBangladesh 0.11 0.21 -0.1

India 0.36 0.91Sri Lanka 0.22

VI. MustardBangladesh 0.44 0.64

India 0.92

VII. Onion

Bangladesh -0.28 -0.43 0.07 -0.46India 0.91 0.74 0.69Nepal 0.66 0.89

Pakistan 0.49

VIII. Potato

Bangladesh -0.33 0.95 0.4 -0.14India -0.3 0.62 0.05Nepal 0.42 0

Pakistan 0.06

IX. Cow Milk

Bangladesh -0.2 -0.25 -0.17 -0.15India 0.73 0.85Nepal 0.74 0.84

Sri Lanka 0.53

X. Eggs

Bangladesh 0 -0.27 -0.1 0.16India 0.92 0.94 0.95Nepal 0.81 0.82

Sri Lanka 0.88Source of basic data: FAOSTAT

48

Case Study

49

Potential trade between home and a partner country is the maximum possible trade that can occur between them, given the ‘natural’ constraints.

Trade potential of any country can be measured by the intensity of its trade with its trading partners (Drysdale and Garnaut, 1982).

Bilateral trade relationships between SAARC countries help to identify how intensively the countries are trading with each other.

The trade intensity index (TII) is used to determine whether the value of trade between two countries is greater or smaller than would be expected on the basis of their importance in world trade.

In the bilateral trade flow of the SAARC countries the trade intensity statistic is the ratio of two export shares.

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Trade intensity index (TII) is defined as the share of home country’s trade with its partner country, divided by the home country’s share of world trade.

Based on the formula mentioned, trade intensity indices are calculated for different countries of SAARC.Table25 : Trade Intensity Indices of SAARC Countries (1995-

2008)

Year IndiaBanglad

esh Maldives Nepal PakistanSri

Lanka1995 5.77 2.88 24.4 9.95 3.37 2.911996 5.26 1.93 19.41 21.57 2.72 3.091997 4.68 2.39 17.04 26.87 2.76 2.811998 5.34 2.58 18.45 38.48 5.19 2.51999 3.89 1.96 20.15 30.61 3.68 3.182000 4.17 1.52 17.5 41.46 2.97 3.352001 4.36 1.5 21.01 45.38 2.71 3.172002 4.48 1.17 13.64 53.1 2.03 4.812003 5.5 1.48 12.02 46.81 2.78 5.892004 4.5 1.36 10.81 49.28 3.15 7.482005 3.95 1.65 13.44 51.31 3.49 7.842006 3.63 1.39 9.85 50.48 3.09 6.412007 3.84 1.73 7.11 52.35 3.32 6.172008 3.74 2.15 6.19 51.78 3.36 5.9

Source: Trade Potential among SAARC Countries: Measuring Trade Intensities by Swapan K. Bhattacharya & Gouranga G. Das (2009)

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Barriers mean anything that restricts international trade. These may be embargos, import duties, import licenses, distance etc. These barriers are the cause of low trade among SAARC states.

Trade can be constrained by :(1)Natural barriers(2)Unnatural” or “artificial” barriersunnatural barriers are:(1)Behind the border constraints (2)Beyond the border constraints 53

Non tariff barriers between countries in the SAARC region is the main obstacle for regional development (Annisul Huq, the immediate past president of the SAARC Chamber of Commerce)

Types of NTBs1. On the import side, import licensing, bans, and custom

procedures. 2. Prohibitions, and quotas are barriers on the export side3. Laws like product standards, quality specifications and

environmental standards.4. Disputes

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IndicatorsSouth Asia

ASEAN NAFTA EU25 World

No. of documents for export

8.38 7.69 4.50 4.82 7.22

Days for Export 32.88 29.13 20.50 28.80 28.80

Cost to Export (US$ per container)

1,221.10

732.50 1,101.50 875.301,232.0

0

No. of documents for import

11.31 9.31 5.17 5.64 8.68

Days for import 41.50 29.81 13.17 13.73 32.96

Cost to Import (US$ per

container)

1,449.

40

834.30

1,569.50

947.60 1,431.

00

Table26 :Trade Facilitation Measures Comparison of different regions in the world

Source: International Journal of Economics, Commerce and Research (IJECR)55

Bilateral dispute between Pakistan and India

Bilateral dispute

Figure 7: Map of South Asian Countries56

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Even after 28 years of existence SAARC failed to integrate well to take advantage of the opportunities. Intra-regional trade is very low.

The main reason for the low progress of SAARC integration is the low level of trade between two largest partners namely India and Pakistan. The immediate concern for the success of SAARC should be to remove the irritants between them.

Equally important is the development of supply chains. Apart from tariff rates and market access, trade facilitation measures should be carried out across SAARC for improving trade ties.

Also South Asian countries should abolish Non-Tariff Barriers (NTBs) so that free flow of trade happens unhindered.

Cooperation in the area of customs procedures and other regulations would certainly help to achieve the objectives of expansion of regional trade, investment and supply chain development.

CONCLUSIONS

59

Thanks

60

Business

Intra-regional trade among SAARC member countries