CONSIDERED against a backdrop of waves of economic regionalism sweeping the world today, the South Asian nations look like laggards In forging closer trade and monetary llnkk. A scan of their track record on the occasion of a regional workshop revealed just that The workshop was jointly organised by the Centre for Policy Dialogue (CPD). one of our leading thinktanks and the Friedrich Ebert Stiftung (FES) a German research or ganiaation, on the theme of payments and monetary coop eration In South Asia, and was held in Dhaka last week

South Aslan nations note from their official records that tntru-regional exports come to just about $900 million. The figure pales into insignificance when they compare with the region's total global exports of some $32 billion. Perhaps they also worry that intra-regional commerce accounts for only 2 to 3 per cent of their total foreign trade. Yet. these nations do not act collectively to capture the nourishing cross-bor der informal transactions, within the region's official trade matrix. Market watchers reckon that cross-border informal trade In the subcontinent in a year runs to a billion dollar or more. A mechanism for open border trade as be tween each two of the countries concerned, still remains to be set up.

Of course. It cannot be gain said that a mechanism for bor der trading would generate additional trade in the region Perhaps all that would happen is that the level of intra-re gional trade would look more respectable — to the extent such a mechanism helps route informal cross-border transactions through normal trade' channels. In the process, governments will be able to capture some of the revenues from duties and taxes that get lost when trade flows through unauthorised channels. More Iastlng benefits from open

border trading arrangements will flow from the creation of an environment for freer trade in the region Synchronization of import liberalization pro grammes, tariff restructuring and realignment of exchange rates — even though carried out for the limited pi>poee of facilitating open trading at the borders — would nonetheless bring the economies of the region closer Distortions in Intra-regional financial flows will be substantially reduced, if not eliminated altogether Production activities will probably follow more closely the lines Indicated by comparative ad vantages existing within the region.

The Bangladesh Institute of Development Studies (BIDS) had carried out a study of Ilie gal international trade, between 1990 and '91 The study had focussed mainly on Illegal trade along the IndoBangladesh border The find Ings correctly identified an expansion of legal trade as an effective antidote to Informal transactions but saw little prospect for convergence In the area. Import regimes were different. Harmonization of customs duties and excise taxes with a view to reducing cross-border Informal trade also offered very limited possibilities. And exchange rates followed the path set unilaterally by each country.

A lot has happened since the time of the BIDS study and yet nothing much has changed Both the countries have embarked on trade liberalization but one has gone considerably further ahead than the other. Both are bringing their tariff rates down. However, one has Instituted much deeper cuts than the other. Both the currencies are now convertible on current account. Yet. traders set their own rates while

transacting business In Infor mal markets along the border The cross-border Informal trade continues to thrive as before, the pattern repeating itself in some other countries of the region too

True. Illegal foreign trade can also bring Increased welfare to Individuals and groups In the society at times. As the BIDS study points out. Illegal trade need not always be viewed as an unmixed evil. In restrictive trade and foreign exchange regimes, an informal market can work to the advan tage of the consumers by bringing them goods at lower prices through reduction of

distortions Induced by high tariffs, import controls and un realistic currency conversion rates. Under such conditions. Informal trade conveys, in ef feet, the whiff of a free market to the consumers.

All the same. Illegal foreign trade often hurts bonafide interests of domestic producers. It reduces state revenues which could have been spent to bring welfare to the society at large In addition to causing deterioration In the terms of trade, the Informal market generates cross-border financial flows, inducing capital flight. Such a market also Is the single most Important source of untaxed and unaccounted-for funds — better known as black money — which, in its turn, usually would Introduce severe distortions in the econdmy.

The CPD-FES workshop also considered the issue of in-

formal foreign trade, but only in the broader perspective of payments and monetary coop eration In the South Aslan region And it did recommend further studies on border trade in the region with a view to fa cilitatlng policy formulations In the area of payments and mon etary cooperation Incidentally a study on the subject made available at the workshop considered the issue of setting up clearing and payments ar rangernents to use domestic currencies to settle intra re gional transactions The sug gestlon was for the South Asian countries to consider entering into an agreement under

which they could convert their, currencies directly without using hard currencies Such an arrangement would also pave the way for open border trade In the region

The CPD-FES workshop considered possible measures for deepening payments and monetary cooperation In the South Asian region. To that end. it recommended, inter alia. that travel and other services account transactions should be included in the coverage of the existing regional clearing and payments rgpeha-nism. All the same, payments and monetary cooperation subsists primarily on trade transactions. Understandably, the workshop also recommended for Institutional arrangements for Improving export financing facilities. The idea Is that such a measure would promote tn-tra-reglonal trade and thus help raise the level of pay-

ments and monetary coopera lion

Needless to say strengthe ning of multilateral payments arrangement or improved ac cess to export financing would not suffice to ensure a speedy growth of trade in the region Given the existing Imbalances in intra-regional trade and the diversities in sizes of economies and manufacturing capacities, fresh Initiatives would be needed to establish a firmer base for mutually beneficial cooperation in the region. Efforts need be made to build new complementarities which would create trade Ap propriate modes of joint ven lures and sub-contracting in the region could be one way of doing just that. Even the benefits of higher levels of foreign direct Investment (FDD in some of the countries could probably be shared by others in the region through the subcontracting mechanism.

A regional alignment of trade regimes tariff policies and exchange rates, would help make trade cooperation more meaningful for the smaller countries tn the region. As noted earlier, in restrictive conditions, an informal market for foreign goods often serves as the surrogate for free trade. All the countries in the region now seem com mitted to open economies and principles of free trade. An exercise for regional alignment of Import, tariff and exchange rate regimes could start with border trade. The experience of the European Union (EU) could provide valuable pointers in this regard. Border trade should be made open, free and fair. Informal cross-border trade would probably outlive its purpose then Apprehensions of capital outflows would subside. This would ease the pro-

cess of full corrvertft>ihty of the region s currencies

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THE agreement of SAP TA — the SAARC Pre ferential Trading Ar rangemerit marks the first move for reducing barriers to intra regional trade However the policy of gradualism outlined by the accord, seems io have set a sedate pace for SAPTA Regional trade groupings on the other hand, are coming up fast both far and near NAFTA — the North American Free Trade Agree merit — linking Canada, the United States and Mexico be came operational in January this year The European Eco nomk Area fEEAl comprising of 17 countries of West Eu rope Including the EU. has also come into being. The six natlon Gulf Cooperation Council (GCC) has an agenda for unification of customs tariffs, freer movement of goods and currency alignment Pakistan a SAARC member, has also teamed up with Afghanistan Iran Turkey and six Centra) Asian countries to build ECO the Economic Cooperation Or ganizatlon — with an agenda which naturally Includes strengthening of trade links among its member The 18-member Asia Pacific Economic Cooperation (APECI forum, straddling four continents, pledged last ffionth to create a zone of free trade Meanwhile, the Association of South East Aslan Nations (the stx coun tries comprising it. are also members of APEC) would have the AFTA - ASEAN Free Trade Area. And 34 nations from North. South and Central America. including the Carlbbeans. have Just con eluded their Summit of the Americas In Miami. USA. Here too, the emphasis was on free trade tn their hemisphere.

SAPTA is due to become operational by Jan' 96. Given the global surge in economic regionalism. South Asia cannot afford to miss the deadline.