Regional Trade Agreements in South Asia: Trade and Conflict

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Regional Trade Agreements in South Asia Trade
and Conflict
October 16th, 2006 Sustainable Development
Policy Institute
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Study parameters and questions

• Three questions
• Do RTAs promote trade?
• Do RTAs mitigate or promote conflict?
• If neither, then how is conflict addressed?
• Literature and Research Answers
• There is a need to look at conflict mitigation as
  part of a larger regional integration process
  which includes both economic and non economic
  factors.

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Conflict in South Asia Political Stability
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Conflict in South Asia

• Interstate conflict
• 1985 India-Bangladesh - Muhurichar Island
  conflict
• 1987 India-Sri Lanka - Indian Peace Keeping
  Force (IKPF) sent to Tamil Nadu to disarm the
  Tamils
• 1988 India-Nepal - Transit Treaty issue leads to
  escalating tensions between the two countries
• 1989 India-Sri Lanka - Withdrawal of IPKF
  demanded by Sri Lankan government
• 1991 India-Sri Lanka - India boycotts SAARC
  Colombo summit
• 1998 India-Pakistan - Both countries test
  nuclear weapons
• 1999 India-Pakistan - Kargil conflict in
  Indian-held Kashmir
• 2001 India-Bangladesh - Pyrdiwah village border
  conflict
• 2002 India - Terrorist attack on Indian
  parliament blamed on Pakistan, leads to both
  amassing troops along the border

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Intra-state conflict

• Intra-state conflict
• 1983 Sri Lanka - Widespread anti-Tamil rioting
  following the deaths of soldiers in an LTTE
  ambush
• 1984 India P.M. Indira Gandhi killed by Sikh
  body guards after ordering troops to attack Sikh
  militants from Amritsar
• 1988 Maldives - Attempted coup thwarted (India
  assisted)
• 1990 India - Kashmiri separatist movement gains
  momentum
• 1992 India - Hindu-Muslim riots in Ayodhya
  following the demolition of Babri Mosque
• 1993 Sri Lanka - President Premadasa killed in
  LTTE attack
• 1999 Pakistan - Prime Minister Nawaz Sharif
  ousted in military coup led by General Pervez
  Musharraf
• 2000 Nepal Maoist uprising continues to impact
  state
• 2001 India Naxalite uprisings within various
  states
• 2004 Pakistan - Waziristan and Balochistan
  conflict

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Mapping South Asian RTAs The formal structure

• SAARC, SAPTA, SAFTA

SAARC Integration, regional cooperation and
non-trade issues
SAPTA
SAFTA
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The evolution of RTAs

• The South Asian Association for Regional
  Cooperation (SAARC) the first regional
  cooperation agreement in South Asia, was formed
  in December 1985
• The South Asian Preferential Trade Agreement
  (SAPTA) agreement was signed on April 11, 1993
  and entered into force on December 07, 1995,
• The South Asian Free Trade Agreement (SAFTA)
  agreement was signed during the twelfth SAARC
  summit in Islamabad on January 06, 2004.
• It was supposed to enter into full force, but has
  not since due to political wrangling.

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Trade concessions from SAPTA to SAFTA

• Under SAPTA, concessions on tariff, para-tariff
  and non-tariff measures were negotiated
  step-by-step and followed a product-by-product
  approach.
• The SAFTA agreement provides for multilateral
  concessions. Further, it seeks to completely
  eliminate barriers to trade by instituting a free
  trade regime.

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Trade/Economic complementarities

• Volume of informal trade exceeds legal trade
• Shows that complementarities exist and could
  result in the unleashing of value added trade.
• Tariffs, quotas, bans and disputes over sensitive
  lists for LDCs are trade inhibitors.
• Potential for leveraging, investment, joint
  ventures and the enabling institutional
  arrangements
• Problem is, that this competes with growing extra
  regional aspirations.
• Even if trade between SAARC nations grows, it
  will do so at a relatively small proportion of
  total trade.
• Inter and Intra state implications from dealing
  with conflict.

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From trade to conflict A recap and a question

• South Asia is conflict-ridden
• Trade complementarities exist in the region
• The RTAs are designed to capture these
  complementarities
• Language in the RTA has both inter and
  intra-state security implications

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Bilateral inhibitors of trade under SAARC

• The planned 1989 SAARC summit in Colombo was
  postponed due to Sri Lankan opposition to the
  presence of the Indian Peace-keeping Force (IPKF)
  on the Island at the time.
• The disintegration of the USSR placed concepts
  like ethnic rights, the right to
  self-determination and human rights higher up on
  national agendas.
• The India-Pakistan conflict over Kashmir rose in
  profile
• India and Sri Lanka went head to head in the
  on-going struggle for Tamil Eelam
• India and Bangladesh developed differences over
  the Farakka Barrage
• India contested Nepals assertion of greater
  political and economic independence.

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Bilateral inhibitors of trade under SAARC

• During the 1990s, when economic circumstances
  were favorable to progress under SAPTA, political
  differences between Pakistan and India stalled
  progress.
• Throughout the 1990s, India blamed Pakistan for
  supporting an armed insurgency in Kashmir thus
  creating domestic instability within Indian
  Kashmir.
• In 1998, Pakistan and India declared themselves
  nuclear weapon states which led to major military
  crises in 1999 and 2002. Differences between
  Pakistan and India were the major factor that led
  to a delay in finalizing SAFTA.
• The initial finalization deadline for the
  Agreement was 2001 (later revised to the current
  deadline of 1 January, 2006).

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What drives peace?

• RTAs have been unable to develop economic
  momentum due to persisting regional tensions and
  their ability to proactively mitigate conflict
  has been limited.
• However, concurrent bilateral processes are in
  evidence which aim to promote political
  stability.
• This however, leads to sub regionalism (SAGQ)
  which may then lead to trade inequities which
  will hinder progress on trade integration.
• Implicitly, equitable trade must combine with
  other aspects and avenues of cooperation in order
  to build peace.

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The Impact of External Influences

• India-Pakistan Conflation of events post 9/11
  driving composite dialogue
• US interest in Central Asia - Afghanistan
• Nuclear instability, the terrorist threat in
  South Asia
• India-Sri-Lanka
• Norwegian/World Bank/Asian Bank efforts to
  promote the LTTE-Sri Lankan peace process
• India-Nepal, Pakistan, Sri Lanka, Bangladesh
• The Sino-Indian territorial dispute sustains
  Chinas interest in the region
• Maintains political, economic and diplomatic
  relations with other South Asian countries to
  neutralize Indias coercive diplomacy and
  maintain a balnce in the region
• As a SAARC observer China may take on a formal
  role in conflict mitigation

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Summary of 3 Initial Questions

• Do RTAs promote trade?
• Yes, but as a small percentage of extra regional
  trade, the political benefits in peace building
  cannot be heard over the noise of larger partners
• Need to cut through the real barriers that would
  harness trade
• Tariff barriers
• Non tariff barriers
• Sensitivity lists
• Protectionism
• Many continue to accuse India of protectionism
  which has to stop.
• Real benefits not being felt by all

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Summary of 3 Initial Questions

• Do RTAs promote/mitigate conflict?
• Mixed
• Inequitable trade can contribute to intra state
  conflict (regions that are left behind find
  meaning in social movements, reverse nationalism,
  ethnicity, etc.)
• Equitable trade can mitigate conflict but only as
  part of a series of non economic factors that
  need to be addressed (political dynamic, etc.
• Trade between adjacent regions can generate real
  benefits for real people.
• How is conflict addressed?
• Reality within globalization a mix of
  internal/external forces
• Threats are from the institutionalization of
  conflict where too many gain from the reality
  of conflict.

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A look into the future

• Continuing with SAARC.
• Resolving outstanding non economic disputes
• Shared resource management
• Using social capital for peace
• Sustained external pressure for peace/equitable
  trade
• Bilateralism
• Tension between neighbors and India continue as
  benefits from trade are one sided and India
  imposes its will
• Pakistan understands this and refuses to behave
  like a Sri Lanka or Bangladesh and more so like a
  China.
• Encourage real cross border trade
• Rajasthan Sindh, Bangladesh West Bengal,
  Punjab x 2

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A look into the future

• Non economic Bilateral to economic Regional
• Sectoral inter dependence to Regional integration
• Benefit sharing between adjacent communities
• Benefit sharing beyond urban centers

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Questions
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Regional Dynamics
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Regional Dynamics Foundation Building
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Regional Dynamics Trade Channels
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Regional Dynamics Economic Growth
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Regional Dynamics Political Influence
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Regional Dynamics Bilateral Agreements
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Regional Dynamics Urban Rural Development
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Regional Dynamics Inter State Conflict
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Regional Dynamics Intra State Conflict
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Regional Dynamics Equitable sub regionalism
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Regional Dynamics Adjacent development
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Regional Dynamics Intra State Conflict