Economic diplomacy: Obstacles and opportunities

As it stands now, our progress in international trading is blocked by factors both indigenous and extraneous as the enterprising skills evolve and get honed through trial and error due to the lack of requisite level of research to ascertain goals and strategies. New inventions and innovations elsewhere are constantly crowding out our traditional goods in a global market full of multiple choices.

We also face a major handicap by being South Asians. While geography made us neighbours, recent history lends little credence that we are coexisting as good neighbours. A solid proof of our 'bad neighbourliness' can be found in the pattern of intra-regional trade among SAARC countries as a percentage of world trade. Currently, it stands at 3.4% against 38.4 % in East Asia, 37.3% in North America, and 63.4% in the EU.

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Bilateralism within SAARC

As an economic entity, South Asia also suffers from the lack of internal cohesion, despite being home to one-fifth of the world's consumers. Once the SAARC members decided to devise a uniform strategy prior to the next September's World Trade Organization (WTO) meet in Cancun to coordinate what one might call 'better argument and bargaining power,' no hell broke loose to have the meet postponed at the last moment. The August 9 and 10 Dhaka meeting of SAARC commerce ministers and secretaries were postponed without any credible explanation.

The melodrama of this kind, centering the SAARC rendezvous, has by now degenerated into a tasteless facade. In recent months, another SAARC meeting--scheduled in Dhaka on April 19-20--too got postponed.

This shows that, unlike the EU members, SAARC members are pushing for free trade bilaterally. The practice is not uncommon among countries in other regions. By December 2002, 250 FTA were notified to the WTO. The number is expected to rise to 300 soon.

Yet, a fundamental difference in the South Asian euphoria for free trading is noticeable in the hidden intent of players for whom the free trade paradigm seems more like a convenient political slogan than an economic necessity that must be embraced and addressed.

Free trade or MFN?

Despite the WTO regulations being emphatic about granting of lowest tariff to all trading partners if such a facility is granted to one, Dhaka has been struggling for years to ring out such concessions from India.

And, the FTA members' being barred from the Most Favoured Nation (MFN) status pursuant to another WTO rule, Dhaka and Delhi should decide soon if the granting MFN status to Dhaka by Delhi will help reduce the 'Himalayan' trade deficits between the two neighbours and make it more congenial and viable to embark on free trading at a later stage.

This particular proposition seems lucrative due to the South Asian desire for free trading being as yet a hybrid version of globalization that pursues country- specific strategies to derive maximum economic benefits by overcoming constraints imposed by national political boundaries.

Although the trend is not in collision with the central supposition of globalization that posits that, the world's nations are economically interdependent, it however smacks an 'Orwellian notion' -- that some nations are more interdependent than the others. Interdependent they are in many aspects, but a bona fide recognition of that fact is hard to dawn upon regional protagonists.

Looking East, why not as a bloc?

Since the 1980s, the ASEAN members formed a vanguard grouping among developing nations to integrate their national economies. As a result, the ASEAN ratio of trade to GDP increased substantially between 1985-96. The block decided to increase both intra-regional and international trading as a complimentary move, not as one contradicting with-- and undercutting-- others' goals and capabilities.

In 1996, Singapore and Malaysia achieved trade GDP ratio of 281% and 150% respectively while Thailand and the Philippines trailed behind with 70% each. Trade GDP ratio with respect to Vietnam and Indonesia were respectively 82% and 42%. The phenomenal increases in merchandise exports, which grew 'double digit' during the period, bears testimony to the birth of an industrial revolution in East Asia.

The ASEAN countries are now preparing for free trade with the EU. South Asia too should have chosen trading with the ASEAN under the aegis of the proposed South Asian Free Trade Area (SAFTA). Quite to the contrary, the penchant for bilateralism had prompted India to seek free trading with others unilaterally. India is a member of the ASEAN Regional Forum (ARF) and Bangladesh seems hell-bent on following suit. The SAARC and SAFTA thus seem to have lost their relevance and fallen to disuse.

Meanwhile, SAFTA had three rounds of talks in October, November and December of 2002 to discuss over a draft treaty prepared by the Secretariat, only to wait indefinitely for responses from member states.

Among Bangladesh's immediate neighbours, Myanmar too is a member of the ASEAN. Following the signing of a general agreement for trade in August 1973, Bangladesh opened its market for border trading with Myanamar after signing a border trade agreement in May 1994. The progress however remains unsatisfactory.

Dhaka's desperation to look East via Myanmar also led her to discuss account-based trading modalities during Bangladesh commerce minister's visit to Yangoon in May 2002. As Dhaka and Myanmar move toward constructing a road link, Dhaka's entry to the ASEAN seems a near certainty. But the Indian linkage with the East remains as yet contingent upon Dhaka allowing transit and transshipment facilities to the former.

The cost of not acting as a bloc

The Indian dilemma is compounded by Delhi's lack of open communication with the seven North Eastern states abutting Bangladesh. Delhi, hence, expects to overcome these geopolitical and geo-economic handicaps by signing FTA with Dhaka outside the SAFTA. India's latest proposal to give birth to what it calls a 'South Asian Union (SAU)' further complicates the scenario and undermines the SAARC's mission in hand.

This hybrid blend of South Asian globalization is laced with an embedded apprehension that unbridled globalization might negatively affect the macroeconomic benefits and the cost of social adjustment in individual countries. The apprehension is based on spurious findings.

For, the concern for domestic adjustment derives its argument from the fear that too much of economic liberalization could displace millions of workers and farmers; that the burden of adjustment will not be shared equally or equitably; and the poor will be victimized.

Apprehensions of the like overlook the fact that a positive spurt towards increased per capita income--coupled with an egalitarian social distribution method--can quickly retrieve the region from the dark pit of poverty in which it finds itself.

Factoring in human resources

If South Asia acted as a block, it could argue more forcefully about exporting manpower to other economies. The globalization's emphasis on ensuring free movement of goods, services and capital can be logically extended to include free movement of labour who constitute the most worthwhile pool of resource in South Asia.

The same argument can be used to imply that, since Bangladesh receives 60% of its remittances from expatriate workers in the Middle East, it should be more focused in forging FTA with Middle Eastern nations to obfuscate heaped up trade imbalances.

While that prospect seems far- fetched, Bangladesh is unlikely to conduct balanced trade with any bigger economy unless our skilled and semi skilled labour can work in countries we choose to trade freely with. Regionally, Bangladesh's annual trade imbalance with India is nearly $1 billion now, with Pakistan $63.14 million, with Sri Lanka $14.55 million, with China $900 million, and with Thailand $ 170 million, to name but a few. As of now, globalization and immigration are in perpetual conflict and Dhaka has little hope of counting on foreign remittances (from countries with which trade imbalance is mounting) as an incoming trade dividend.

Another observable phenomenon is the degree of GDP growth as nations embrace the doctrine of free trading. With enhanced export earnings unleashed by free trading, the GDP growth does tend to move upward, but doesn't necessarily lead to a higher per capita income and a better standard of living; unless export gains are preserved to stimulate further saving, investment, employment and growth by reining in imports.

As well, mass employment is often a commonplace in 'un-calculated' free trading as domestic industries in poorer economies fail to compete with outsiders and get locked out. Should that come to pass, a huge army of jobless will join the annual influx of about 1.6 million newcomers seeking jobs in Bangladesh alone.

The scenario will be equally alarming for all nations of South Asia where unemployment rate now averages at 4.7% across the board. Add to this the prevalent asymmetry in the range of products among SAARC members. Bangladesh's main exports are jute, leather, ceramic, frozen fish, tea, and ready-made garments. The traditional markets for these products are in North America and in the EU nations.

But, we import more from beyond the region: 32% from the ASEAN combined (mainly from China, Japan, Singapore and South Korea) and 16.2% from India. India, on the other hand, imports most of its goods from the US, Germany, Japan and the UK. Much of the Indian exports too head to the same destinations. As India mainly imports capital goods and oil and oil products, it remains an uphill task for Bangladesh to gain a foothold for traditional Bangladeshi products in Indian markets.

The notion of free trading can not grow in a vacuum. It needs economic choreography and craftsmanship. It also needs an influx of huge Foreign Direct Investment (FDI) and setting of joint ventures to produce things in a place where it cost less.

As political differences often impinge upon such strategic decisions, South Asian traders and governments find themselves locked in negotiations that all sides take as irreconcilable. It's time they learn to deal with neighbours in a conciliatory manner and do things jointly to overcome global challenges.

Author and columnist M. Shahidul Islam is a senior assistant editor of this paper.