Speech by H.E. Dr. Iftekhar Ahmed Chowdhury
Hon'ble Adviser for Foreign Affairs
Seminar on Regional Cooperation in South Asia
Benefits from SAFTA and Way Forward
at BRAC Centre Inn Auditorium on 8 April 2008

Mr. Chairman
Distinguished guests
Ladies and gentlemen

I am truly delighted to have the opportunity to be present here today and I wish to thank CPD for inviting me to this event. The issue of today's seminar "Regional cooperation: Benefits from SAFTA and the Way forward" is not only topical but carries tremendous importance in the present context. I would like to commend ADB and UNCTAD for carrying out this very timely and extensive study on the subject. I would be remiss if do not thank CPD for organising this very important conclave.

The Agreement on South Asia Free Trade Area (SAFTA) was signed in 2004 and came into effect in January 2006. SAFTA was conceived as an agreement to enhance regional cooperation in trade, forge greater regional integration and promised to bring greater welfare and benefits for all members of South Asia. Almost two years after its coming into effect, it is only natural to reflect upon how this preferential trading arrangement has performed in delivering the promised goals.

While I believe, distinguish participants and experts would be analysing the outcome and findings of the study in greater length and depth, I would like to share a few thoughts on SAFTA.

Ladies and gentlemen

Over the past decades, two important phenomena have dominated world's economic horizon. One of course is the globalisation. The other is the growth of regional trading arrangements. The basic premise of preferential trading arrangement in a regional setting is that it leads to greater economic cooperation thereby stimulating accelerated GDP growth and resulting in higher level of development and economic wellbeing. As countries strive to attain greater level economic development, regional trading arrangements have been a useful instrument for achieving these goals. Not surprisingly, RTAs are assuming greater importance and it would be hard to find any country in world now which is not a member of one or more regional trading arrangements. SAFTA, I believe was born out of that conviction.

SAFTA makes headlines, often accompanied with a modicum of scepticism. In people's perception, SAFTA has not been able to live upto its expectation. Seminar like today's may be able to better respond to such critics and allay much of the misgivings that accompany SAFTA.

South Asia's position as a global player in trade appears to be paradoxical and in some respect unique. With a population of 1.5 billion, South Asia is home to one-fifth of humanity. Endowed with natural resources, vast human resource with commendable intellectual and technological skill and enviable zeal, creativity and perseverance of its people, it defies all logic and still remains at a very low-level of economic development. Despite registering a constant GDP growth rate of 6 percent in the last decade, the regions aggregated GDP is around 2 percent of the global average. Unfortunately South Asia has remained one of the least integrated regions of the world. Considering that 60% of global trade is generated through regional trading arrangements, intra-regional trade in SAARC is at about only about 5% of the global trade. These leave us to ponder and have a close look what has been done or not being done to tap on the huge potential that the region has.

In the past decade or so, South Asia GDP has grown at a consistent rate of around 6 %. Our own economy has also performed well reflected in the annual GDP growth rate of over 6 per cent mark. This has been possible because of significant structural and policy reforms in the trade, investment and in fiscal and financial sectors. The growth has led to increase in purchasing power of the vast middle class of South Asia estimated to be around 500 million. SAFTA agreement seeks to leverage the strengths of our countries.

Since coming into effect in July 2006, member states have sought to address some fundamental issues for creating a true preferential trading arrangement for South Asia. Although some notable work has been done for removing/reducing tariff barriers, relaxing Rules of origin, harmonization of custom rules and procedure, a great deal remains to be done. SAFTA ironically has not resulted in increased intra-regional trade, cross-border investment and freer movement of goods and services as has happened in cases of other regional trading arrangements.

Although, Bangladesh's share to the total intra-regional trade is 27 percent, its share in regional export is only 2.8 per cent. Our export to region is faced with a number of non-tariff and para tariff barriers, port restrictions, complicated and cumbersome customs procedures. The high level of protection clearly visible from long "sensitive list" which are not open to preferential tariff, and rigidities in other structural and policy framework contradicts our desire to have a fully integrated South Asia.

Clearly there is a need to remove the hurdles that impede further integration of the region. SAFTA is a powerful tool through which we can bring about positive change in our countries. This would require deeper cuts in tariff rates, removal of tariff and non-tariff barrier, wider product coverage through reduction in sensitive list, simplification of customs rules and banking procedures, mutual recognition arrangements and promoting cross-border investment. Increase in FDI flow would be an important means for regional integration. Attention would also be needed to correct the supply side constraints in our countries. Due to similar production pattern, we compete with each other particularly in manufacturing sector. Export product diversification that is, manufacturing products according to the demand of the importing country couple with easing of restrictions on which countries have competitive edge would boost intra-regional trade. Investment in joint-venture projects could be another way of turning trade competitiveness to trade complementarity. There is ample scope of such investment in sectors like tourism, ICT, generation of energy through harnessing of natural resources and so on.

Export of services offer huge potentials for the region. This sector has emerged as the most dynamic one averaging a growth rate of over 8 per cent annually. The thirteenth SAARC summit in Dhaka recognised the potential and directed for early finalisation of an agreement in this area. We are about to embark on negotiating such an agreement by early second half of this year. This should lead the way to further integration of the region. It would however, be important that such agreement creates a "win-win" situation for all the member States, based on real competitive advantage of each country.

The destiny of our people is interlinked. This is an interdependent world. We can only prosper if we act collectively. SAFTA's achievements may be modest in its first two years. Nonetheless not collaborating in a regional set up is not an option. Hope raised by this regional trading arrangement must be sustained. Also, nurtured. It is incumbent upon us to clearly chart out the road map for SAFTA's success. It is necessary for the greater prosperity and welfare of the peoples of South Asia. Indeed, it is the categorical imperative of our times.

I thank you.