Regional Trade Agreements in South Asia Trade and

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Regional Trade Agreements in South Asia: Trade and Conflict October 16 th, 2006 Sustainable

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

Study parameters and questions l Three questions: l l Do RTAs promote trade? Do

Study parameters and questions l Three questions: l l Do RTAs promote trade? Do RTAs mitigate or promote conflict? If neither, then how is conflict addressed? Literature and Research Answers: l 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.

Conflict in South Asia – Political Stability 100 93. 5 90 80 71. 9

Conflict in South Asia – Political Stability 100 93. 5 90 80 71. 9 70 60 51. 4 50 40 30 26. 5 22. 2 20. 5 20 15. 7 8. 1 10 0 Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka China

Conflict in South Asia l Interstate conflict l l l l l 1985: India-Bangladesh

Conflict in South Asia l Interstate conflict l l l l l 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

Intra-state conflict l l l 1983: Sri Lanka - Widespread anti-Tamil rioting following the

Intra-state conflict l l l 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

Mapping South Asian RTAs: The formal structure SAARC, SAPTA, SAFTA SAARC Integration, regional cooperation

Mapping South Asian RTAs: The formal structure SAARC, SAPTA, SAFTA SAARC Integration, regional cooperation and nontrade issues SAPTA SAFTA

The evolution of RTAs The South Asian Association for Regional Cooperation (SAARC) the first

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

Trade concessions from SAPTA to SAFTA Under SAPTA, concessions on tariff, para-tariff and non-tariff

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. l The SAFTA agreement provides for multilateral concessions. Further, it seeks to completely eliminate barriers to trade by instituting a free trade regime. l

Trade/Economic complementarities l Volume of informal trade exceeds legal trade l l Shows that

Trade/Economic complementarities l Volume of informal trade exceeds legal trade l l 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 l Problem is, that this competes with growing extra regional aspirations. l l l 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.

From trade to conflict: A recap and a question South Asia is conflict-ridden l

From trade to conflict: A recap and a question South Asia is conflict-ridden l Trade complementarities exist in the region l The RTAs are designed to capture these complementarities l Language in the RTA has both inter and intra-state security implications l

Bilateral inhibitors of trade under SAARC The planned 1989 SAARC summit in Colombo was

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. l The disintegration of the USSR placed concepts like ethnic rights, the right to self-determination and human rights higher up on national agendas. l l l 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 Nepal’s assertion of greater political and economic independence.

Bilateral inhibitors of trade under SAARC l During the 1990 s, when economic circumstances

Bilateral inhibitors of trade under SAARC l During the 1990 s, when economic circumstances were favorable to progress under SAPTA, political differences between Pakistan and India stalled progress. l l l Throughout the 1990 s, 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).

What drives peace? RTAs have been unable to develop economic momentum due to persisting

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. l However, concurrent bilateral processes are in evidence which aim to promote political stability. l This however, leads to sub regionalism (SAGQ) which may then lead to trade inequities – which will hinder progress on trade integration. l l Implicitly, equitable trade must combine with other aspects and avenues of cooperation in order to build peace.

The Impact of External Influences l India-Pakistan Conflation of events post 9/11 driving composite

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

Summary of 3 Initial Questions l Do RTA’s promote trade? l l Yes, but

Summary of 3 Initial Questions l Do RTA’s promote trade? l l 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 l l l 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

Summary of 3 Initial Questions l Do RTA’s promote/mitigate conflict? l Mixed l l

Summary of 3 Initial Questions l Do RTA’s promote/mitigate conflict? l Mixed l l 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? l l 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.

A look into the future l l l Continuing with SAARC. Resolving outstanding non

A look into the future l l l Continuing with SAARC. Resolving outstanding non economic disputes Shared resource management Using social capital for peace Sustained external pressure for peace/equitable trade Bilateralism l l l 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 l Rajasthan – Sindh, Bangladesh – West Bengal, Punjab x 2

A look into the future Non economic Bilateral to economic Regional l Sectoral inter

A look into the future Non economic Bilateral to economic Regional l Sectoral inter dependence to Regional integration l Benefit sharing between adjacent communities l Benefit sharing beyond urban centers l

Questions

Questions

Regional Dynamics

Regional Dynamics

Regional Dynamics – Foundation Building

Regional Dynamics – Foundation Building

Regional Dynamics – Trade Channels

Regional Dynamics – Trade Channels

Regional Dynamics – Economic Growth

Regional Dynamics – Economic Growth

Regional Dynamics – Political Influence

Regional Dynamics – Political Influence

Regional Dynamics – Bilateral Agreements

Regional Dynamics – Bilateral Agreements

Regional Dynamics – Urban Rural Development

Regional Dynamics – Urban Rural Development

Regional Dynamics – Inter State Conflict

Regional Dynamics – Inter State Conflict

Regional Dynamics – Intra State Conflict

Regional Dynamics – Intra State Conflict

Regional Dynamics – Equitable sub regionalism

Regional Dynamics – Equitable sub regionalism

Regional Dynamics – Adjacent development

Regional Dynamics – Adjacent development

Regional Dynamics – Intra State Conflict

Regional Dynamics – Intra State Conflict