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Cost of Economic Non-Cooperation to Consumer in South Asia

South Asia Watch on Trade, Economics and Environment (SAWTEE), CUTS International, The Asia Foundation, and Commonwealth Secretariat jointly organized a two-day dissemination meeting on ‘Cost of Economic Non-Cooperation to Consumer in South Asia’ on February 3-4 in Kathmandu. The report is based on a recent study by CUTS International, SAWTEE and other research organizations in the region. It finds that increasing trade in South Asia at preferential rates on a range of products that have both high intra-regional trade potential and high prospects for improving consumer welfare could save at least US$2 billion per year.

Welcoming the participants, Dr. Posh Raj Pandey, Executive Chairman of SAWTEE, said that South Asia represents a puzzle as far as the issue of regional economic cooperation is concerned, where despite geographical proximity and cultural similarity, trade and economic interaction is extremely limited. The share of regional trade, which currently stands around 5 percent, is equivalent to what the region was able to achieve in 1950s, suggesting that we have made virtually no progress in the past six decades or so. “People put the blame on political factors, but there are also economic factors that have resulted in low volume of trade in South Asia”, he added.  

Speaking at the inaugural event of launch of the report, Lekh Raj Bhatta, Minister of Commerce and Supplies, said that the interests of consumers, who constitute the largest segment of stakeholders, should not be neglected while assessing the impact of trade liberalization. “While tariff liberalization increases overall consumer welfare, it also brings with it revenue loss, which might impact spending on crucial development activities. Hence, tariff liberalization should also be complemented with a robust and meaningful revenue compensation mechanism,” said Bhatta. He further added that “those who would have to make a net positive contribution to the compensation fund and may be loath to this idea should note that the contribution is aimed at facilitating and speeding up trade liberalization, which helps their own exporters.”

Similarly, Edwin Laurent, Advisor and Head, International Trade and Regional Cooperation, Economic Affairs Division of the Commonwealth Secretariat said that trade and investment nexus should be harnessed in order to benefit from trade liberalization in the region. However, it is necessary for the developing countries to be fully prepared before and understand the fine details before signing any investment treaty. Likewise, Nick Langton, Country Representative, the Asia Foundation, New Delhi expressed the view that tremendous potential exists for regional cooperation in South Asia, not only in the areas of trade in goods, but also in trade in services. He also emphasized that the need to focus on “low hanging fruits” if a broad-based regional economic cooperation is not possible because of the political challenges facing the region. 

Finally, Bipul Chatarjee, Deputy Executive Director, CUTS International informed that CUTS International initiated this project to enquire into the potential benefits of increase in intra-regional trade to consumers in the region, based on a hypothesis that ineffective and insufficient trade liberalization in South Asia is resulting in high cost by way of loss of consumer welfare. The purpose is to analyze reasons for economic non-cooperation among South Asian countries, assess the costs thereof in terms of loss of consumer welfare and derive recommendations for enhancing trade and investment relations in the South Asian region so as to maximize welfare gains from trade.
A perception survey—which was also a part of the study, held in Bangladesh, India, Nepal, Pakistan and Sri Lanka—revealed that though most of the stakeholders including government officials (dealing with issues of regional trade integration), politicians, trade and industry representatives, and consumer representatives believe in the merits of regional economic cooperation, optimism about economic possibilities is hidden in pessimism about political feasibility. Also, awareness about the benefits of imports and its potential for consumer welfare is very low among some key stakeholders.

The report notes that more objective discussion on economic benefits can discredit many unjustified belief about regional economic cooperation and bringing the dimension of consumer welfare gains into the ambit of such discussion can influence the course of future regional integration substantially, making it more inclusive, participatory and progressive.National and regional level campaigns are necessary to generate awareness about loss of consumer welfare on account of regional economic non-cooperation and enhance participation of stakeholder groups, especially consumer organizations, in trade policy making process and its implementation. Further studies on consumer welfare aspects of intra-regional trade particularly in respect to trade costs in South Asia and communication of the results thereof through a regular consultative mechanism are also needed to bring about a positive change.

During the event, Asia Media Forum released its Asia Media Report 2011, which focuses on Climate Change. About 40 national and international experts are participating in the two-day long event held in Kathmandu.

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