***The forthcoming 13th Saarc summit, which is scheduled to be held on November 12-13 in Dhaka, is likely to deliver its best in breaking away most of the trade barriers in the South Asian region to usher in an era of prosperity, cooperation and development.***

THE seven nations of Saarc entered a new phase of its meaningful existence with the formation of the South Asian Free Trade Area (Safta). The 12th summit held in Islamabad witnessed a revitalisation of Saarc that led to a historic decision for wider trade and economic cooperation in the region by creating a free trade zone -- Safta. The Saarc declaration issued of January 4, 2004 reflected the shared desire of the member countries to promote free trade to help alleviate poverty in the South Asian region. The Safta framework agreement, which was signed in Islamabad in January last year, is scheduled to be formally launched on January 1, 2006. It will be followed in six months by formal launching of another regional free trade bloc -- Bimstec.

The fate of the proposed bilateral free trade agreements (FTAs) with neighbouring India, Pakistan, and Sri Lanka is still hanging in the balance, as the government of Bangladesh in a major policy shift, is now attaching more priority to regional economic and trade groupings like Safta and Bimstec. The governments of Bangladesh, India, Pakistan, and Sri Lanka earlier, in principle, agreed to sign FTAs among themselves after holding a series of bilateral meetings in a bid to enhance economic and trade relations between the neighbours. Bangladesh in recent days has realised the potentiality that the new trading blocs like Safta and Bimstec offer, and will not speed up the pace of bilateral trade negotiations in the South Asian region before the formal inception of Safta.

There is a lesson to draw from the history of creating similar trading blocs in other parts of the world. When discriminatory trade is practiced among a group of nations for mutual benefit, a preferential free trade zone gets created. There were as many as 24 FTAs, 6 Custom Unions (CUs), and 3 Common Markets (CMs) until 1991. The number of FTAs and trade blocs has increased substantially in recent years as the World Trade Organization (WTO) has taken a back seat following the Cancun meeting in September, 2003. Therefore, the necessity for creating trading blocs and signing FTAs has been brightened across the world. The existing arrangements of FTAs and trade blocs involved 45 countries in Africa, 26 in Europe, 32 in the American hemisphere, and 13 each in the Asia-Pacific and the Middle East regions. United Sates has already signed Trade and Investment

Framework Agreements (TIFAs) with Malaysia, Indonesia, Philippines, Brunei, and Bangladesh.

Moreover the Free Trade Bloc of American Hemisphere involving 34 countries is in the offing, which will be the world's largest free trade area with a market of some 800 million people and total trade of $3.5 trillion annually.

Intra-regional trade has grown better, particularly in the developed countries. In the competition for scarce resources, more cohesive and better organised grouping in

intra-regional trade have become I

able to back up their demand with i

stubborn negotiations. European Community (EC), North American Free Trade Agreement (NAFTA), and Association of South East Asian I

Nations' (ASEAN) role in the General Agreement of Trade and Tariffs (GATT) can be taken as an example for their collective strength in promoting trade and commerce. The South Asian and African regional

groupings, however, reflected their powerlessness externally and tenuous harmony of interests and reciprocal obligations internally, thus undermining their own bargaining position in the international regimes.

The European Union's impact on its member countries was not confined only to economic benefits. The European Common Market became the European Union (EU) in 1992 and is evolving a common defense and foreign policy. Asean has also developed the South Asian Forum, to involve the major powers from across the world into shared action to promote peace and also to counter any negative trends like global terrorism. The successful regional groups like the EU and Asean have not only been working for growth and development of trade and

commerce, but also been contributing to peace and stability. The EU also provided an economic environment in which small countries once they entered the Union, benefited enormously. Before becoming an EU member, Ireland was 38 percent poorer than the EU, today it is 21 percent richer than the other members. Asean has a population of about 500 million and a combined GDP of $737 billion.

Whether regional trade agreements like Safta would create more trade and investment in the participating countries doing away with the disadvantages of the current world trade regime, was the theme that featured the meeting of the World Bank's annual publication "Global Economic Prospects-2005," held recently in the city. Speaking at the launch of the report, World Bank Country Director Christine Wallich said Bangladesh's trade volume -both imports and exports -- have increased three times since early 1990 and the boost has essentially come from the liberalisation of the country's trade regime. She said as the South Asian countries are moving towards launching Safta, it is time they should take care of the trade exclusionary effects of such arrangement. Wallich speaking on

the issue also said that regional trade agreements such as Safta can better serve the consumers and producers of participating countries without discriminatory rules such as the rule of origin and the sensitive negative list.

The trade experts from Saarc countries met in Male, the capital of the Maldives, in March to negotiate various issues of Safta, including negative list and rules of origin, compensation package for tariff lost, and technical assistance for developing countries like Bangladesh, Nepal, and Bhutan. Bangladesh placed sensitive list of 1,306 items while India incorporated 927 items, Pakistan 1157 items, Sri Lanka 1065 items, Nepal 1315 items, Bhutan 132 items, and the Maldives 582 items. Although Bangladesh and other least developed countries (LDCs) in Saarc intended a value-addition of 30 percent, they however, agreed up to 35 percent value addition in the rules of origin criterion. The Sapta was a move that was launched in 1995 to ease such barriers that hinder trade and commerce. We are hopeful about working out a formula for finalising a common list of sensitive items, on which member countries do not have any reservation.

A conference on Safta Agenda for Trade Liberalisation" organised by the Saarc Chamber of Commerce and Industry and FBCCI in association with Friedrich Naumann Stiftung (FNST) held on June 27 in the city. The speakers at the conference stressed that India should play its due role for successful implementation of Safta. Bangladesh now faces a tough time in entering the Indian markets because of high tariff, para-tariff, and non-tariff barriers, though it is the third largest export destination for India. As consensus has emerged in the grand meeting of the businessmen of the Saarc countries in Dhaka, India will have to shoulder a bigger responsibility in making Safta effective.

The forthcoming 13th Saarc summit, which is scheduled to be held on November 12-13 in Dhaka, is likely to deliver its best in breaking away most of the trade barriers in the South Asian region to usher in an era of prosperity, cooperation and development. It was not possible for the South Asian region to contemplate any trade and economic cooperation among the countries of the region as long as India and Pakistan viewed each other with hostility. Many hurdles are yet to be crossed before Safta could become operational, since the interests of all the member countries have to be protected in order to evoke their spirit. This grouping of the South Asian countries shall have to negotiate for achieving a more equitable order for their members as the globalisation process picks up speed. An effective trading and economic alliance among the South Asian nations may also create a congenial political atmosphere in the region to discourage armed conflict.

The author is Assistant General Manger at Sonali Bank.