South Asia preferential trade can save $2b p.a. for consumer welfare

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, according to a recent study done by CUTS International and its network partners in the region. That too was a static and conservative estimate and dynamic gains would be much higher.

The report, titled ‘Cost of Economic Non-Cooperation to Consumers in South Asia’, was launched at a dissemination meeting held in Kathmandu on February 3, 2012. The event was jointly organised by CUTS International, South Asia Watch on Trade, Economics and Environment, The Asia Foundation, and the Commonwealth Secretariat.

Speaking at the launch of the report, Lekh Raj Bhatta, Nepal’s Minister for 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 liberalisation. “While tariff liberalisation increases overall consumer welfare, it also brings with it revenue loss, which might impact spending on crucial development activities. Hence, tariff liberalisation should also be complemented with a robust and meaningful revenue compensation mechanism,” he said.

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 liberalisation, which helps their own exporters.”

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.

Bipul Chatterjee, Deputy Executive Director, CUTS International, informed that with support from The Asia Foundation and in partnership with a like-minded group of organisations, CUTS International initiated this project to enquire into the potential benefits of increase in intra-regional trade to consumers in the region, based on ahypothesis that ineffective and insufficient trade liberalisation in South Asia is resulting in high cost by way of loss of consumer welfare. The purpose is to analyse 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 maximise welfare gains from trade.

Nick Langton, Country Representative of the India Office of The Asia Foundation, 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 emphasised that it is the consumer that is going to benefit the most from any trade liberalisation efforts. He urged CUTS and its partners to conduct evidence-based advocacy on incremental benefits from trade liberalisation, especially focusing on non-politicised issues to highlight win-win situations.

Edwin Laurent, Advisor & 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 liberalisation in the region. However, it is necessary for the developing countries to be fully prepared and understand the finer details before signing any investment treaty. He urged the participants to look at a recently published Commonwealth Guide to International Investment Agreements.

A perception survey of stakeholders on what do they think about costs of economic non-cooperation revealed that though most of the stakeholders including government officials (dealing with the 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 challenge many unjustified myths 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.

Commending the study for its analytical clarity, M. A. Razzaque, Economic Advisor, Commonwealth Secretariat presented the need for doing further studies on consumer welfare aspects of intra-regional trade particularly in respect to services and investment liberalisation, non-tariff barriers and logistical costs of doing trade in South Asia.

In the Closing Session, Amitendu Palit, Head, Development & Programme and Visiting Research Fellow of the Institute of South Asian Studies, Singapore, underlined that perceptions about regional integration in South Asia is improving. The question is to what extent the results of the study can influence policies, he said. Conflict between consumer welfare gains and possible loss of government revenue is a bigger political issues, he added. He urged CUTS and its partners to package key learning and advocacy messages in a politically acceptable language and adopt a cohesive, integrated strategy to take them forward. Capacity building of consumer organisations to better comprehend their stake and role in trade liberalization should be a key component of future programme, he argued.

About 40 national and international experts including representatives from consumer organisations and business associations participated in the two-day long event, which came out with a forward-looking agenda for evidence-based advocacy to align consumer interests with those of producers and governments in national and regional trade policy-making processes and their implementation.

National and regional level campaigns will be launched to generate more awareness about the loss of consumer welfare on account of regional economic non-cooperation, and to enhance effective participation of stakeholder groups, especially consumer organisations, in trade policy making process and its implementation.