SAFTA and SAPTA

What do you think are the major challenges for small nation like ours in implementing SAPTA and SAFTA?

South Asian Preferential Trading Arrangement (SAPTA) was establishment to promote and sustain mutual trade and the economic cooperation among the contracting SAARC countries, through exchanging concessions in accordance with the Agreement. The member countries found slow trade development in the SAPTA, so (South Asian Free Trade Area) SAFTA was introduced by which they can maximize cooperation for development.
The main objective of SAFTA was Eliminating Trade Barriers, Facilitating Cross-border Movement of Goods, Promoting Fair Competition and Free Trade Area, Creating Mechanisms for Joint Administration and Resolution of Disputes, Establishing Framework for Further Regional Cooperation.

Even though SAPTA and SAFTA was established for regional cooperation, but there are many hindrance through which small nations has to go through.

The major challenges for small nations like ours in implementing SAFTA and SAPTA are as follows:

• Unequal Competition:
  

Least develop countries like Nepal have to face increased competition from larger member countries like India, Pakistan and Sri Lanka. Smaller countries have lesser competitive advantage in price and quality of products because production cost, technology, raw materials etc are imported from third country. It will be tough to attain sustainable competitive advantage for least develops country.

• Rules of Origin
  

SAFTA contains the rules of origin which restricts the reduction of tariffs to only some products which are produced by their own country and so hinders the expansion of intra-regional trade. In smaller country like Nepal , rules of origin is not favorable because most of raw materials are brought from abroad and processed in Nepal. Rule of origin doesn't allow to trade of such finished goods. So, this kind of agreement is not considered as productive to the extent expected for least developed countries.

• Limited capital and technology:
  

Lack of capital and technology for processing and manufacturing seems as a major difficulty for least developed countries. Due to lack of sound economic condition in the least developed and smaller countries lack advance technologies to process the raw materials available.

• Lack of transport and communication:
  

The important area to promote economic development and regional trade are transport, communication and energy. And all these are poor in small countries like Nepal. Nepal being a land –locked country faces an average of 50% higher transaction costs than equivalent coastal economies which adds on to the cost of the product. Also, the freight costs are higher.

 

• India's Unique Position
  

India has emerged as the region's unquestioned economic leader. The SAARC regional decision is largely influenced by India. So what ever decision is made in SAFTA and SAPTA is not much favorable to least developed countries like Nepal. It is mostly decided on Indian interest. Even if the decisions are made favorable it is not implemented properly and effectively

• Transit problems
  

Transit is another challenge that needs to be taken care of for least developed country like Nepal. There are several transit problems for Nepal and Bhutan. Due to being Landlocked country Nepal suffers from geographical disadvantage. The challenge is to remove these transits in order to flourish free trade.

• Entry problems
  

SAARC countries should simplify the formalities of entry problems at the borders which make the free trade concept more difficult for least developed countries like Nepal.

• Informal trade in the borders
  

Informal trade in the borders of the countries has been increasing. This has adversely affected the formal flow of trade between the countries. So there should be a governing body to monitor these flaws and make policies to control them because such cases can dilute the vision and mission of SAFTA. The effect of this kind of trade has greater impact on least develop countries.

• Not liberal
  

SAFTA had stood as a challenge for countries like Nepal as the bigger countries in the region are not as liberal as they should be. Referring to the blockage imposed by India on the export Nepali vegetable ghee into the Indian market. The heavy dependency on larger country like India for trade could be a hindrance to reap benefits from SAFTA for country like Nepal

• Weaker trade links
  

SAARC countries import products from non member countries though the product is sufficiently produced in the region. This indicates weaker trade links. The huge challenge is to maintain the link and strengthen it through various policies and actions.

• Lack of resources
  

Though least developed countries like Nepal have undergone major structural reforms and share of industrial sector has increased sharply, the industry is not lush with resources. They have to import requirements from the region which mainly consist of raw materials, capital goods and high-tech products from other larger countries like India. Least developed countries have insufficient and unreliable power supply, limited access to financing, inflexible labor market due to rigid labor laws and regulations, poorly defined property rights, inefficiencies at customs, and limited inland transport capacity.

In conclusion, SAFTA includes improving and strengthening the network of road and highways, railways and air and shipping agreements, harmonization of custom regulations, quality standards, easy visa regulations, dispute settlement mechanism, etc. SAFTA makes substantial provisions on simplification of banking facilities for import financing, transit facilities for the landlocked countries, removal of barriers to intra-SAARC investments, macroeconomic consultation, rules for fair competition and promotion of venture capital, development of communication systems and transportation infrastructure, easing foreign exchange controls on repatriation of profits, and simplification of procedures for business visa etc that may remove existing impediments to further expansion of intra regional trade. SAFTA protect a lot to the small nations to enhance their economic performances. But, there are many problems which affect the least developed countries which are unequal competition, rules of origin, limited capital and technology, India's unique position, transit problems, entry problems, informal trade in the borders, not liberal, weaker trade links and lack of resources.

 

 

 

 

 

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