• Closer economic cooperation, better peace
  The News on Sunday, Pakistan, November 19, 2006

• Developing a closer Indo-Pak economic cooperation
  Financial Express, Bangladesh, November 14, 2006

• ‘EU wants more market access, transparency in India’
  Economic Times, November 09, 2006

• FTA with EU not linked to Doha debacle
  Financial Express, India, November 08, 2006

 In Media Archive...

Closer economic cooperation, better peace
The News on Sunday, Pakistan, November 19, 2006
 

By Pradeep S Mehta & Huma Fakhar

A recent action by the Pakistan government to increase the positive list of tradeable products from 773 to 1075 under the South Asian Free Trade Agreement (SAFTA) could result in the doubling of formal trade from $1bn to $2bn. But, this exchange can quadruple if only there is closer economic cooperation, and that could lead to better peace.

Whenever one speaks about the peace-promoting economic relations between India and Pakistan, skeptics opine that relations between the two are marred by the border dispute and terrorism across borders. Hence, to expect more peaceful relations between the two fast growing economies through trade is a dream. We do not agree.

Once, one of us had written to the US government to promote mutual trade between the two countries by offering duty free imports if one used the othersí inputs in their exportables to the US. The idea was received positively.

Until recently, we did not know that to promote peace in the Middle East, the US had adopted a similar scheme In 1996, the US Congress authorised designation of qualifying industrial zones (QIZs) between Israel and Jordan (1999) and Israel and Egypt (2004). The QIZs allow Jordan and Egypt to export products to the United States duty-free if the products contain a minimum level of inputs from Israel. The purpose of this trade initiative has been to support the prosperity and stability in the region by encouraging economic cooperation. It has worked well.

Since both India and Pakistan are currently preparing to or entering into various preferential trade agreements (PTAs, bilateral as well as regional) with other countries and regions (both with developed and developing countries) it would be sensible to include QIZs type of arrangement in some of the agreements particularly with EU, US and China and even within SAFTA and the proposed ASEAN-India FTA. Such arrangement would help both Indian and Pakistanis exporters/importers to reap benefits of free trade as well as promote greater cooperation.

Among other ways to promote economic cooperation is to look at cross-border infrastructure projects across the globe, which have been able to release limitations on free economic relations and therefore open prospects for economic benefits from cooperation. Regional cooperation projects have a potential for the improvement of the well being of all parties involved because of the scale economies they permit, the complementarities between the economies, and the externalities they induce (multiplier effects, attraction of foreign investment, diminution of gaps, etc).

The East-West Economic Corridor (EWEC), a 1500 km long highway project crossing six Greater Mekong Sub-region countries in South-East Asia connecting South China Sea to Indian Ocean and the Middle-East regional cooperation projects are some good examples. In the same vein, mega-economic projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help in promoting trust and regional economic cooperation between India and Pakistan.

Regional trading blocs may be an instrument for peace and prosperity. As the famous economist J.M. Keynes (1919) observed, "A Free Trade Union, comprising the whole of Central, Eastern and South-Eastern Europe, Siberia, Turkey, and (I should hope) the United Kingdom, Egypt and India, might do as much for the peace and prosperity of the world as the League of Nations itself".

Keynes reminds us that trade and commerce have been the most effective way of establishing peace between rival nations. History offers great many examples to support this viewpoint. The Second World War witnessed the worst enmity between the Allied forces led by the UK and the US, on the one hand, and the Axis powers, led by Germany, on the other.

The people of Poland, Holland and Russia still shudder with the bitter memories of the Nazi atrocities while relations between France and England could improve after several decades of the War. The formation of the European Union has given rise to higher levels of economic well being resulting from enhanced economic cooperation amongst the member states. Additionally, it has been instrumental in shrinking of war-generated ill-will in the minds and heart of most people, especially the generation which came of age by the 1970s.

It is hard to believe that Thailand was on the opposite side in the Vietnam war. Vietnam invaded Cambodia in 1975, Vietnam and China fought in 1979 and Thailand had a border skirmish with Laos as recently as 1988. Regional co-operation has come a long way since.

History provides ample evidence that no neighboring countries have ever survived and progressed on prolonged belligerent relations. "History repeats itself" is the saying going around for time and again. The famous economist Wilfred Pareto (1889) wrote, "customs unions and other systems of closer commercial relations (could serve) as means to the improvement of political relations and the maintenance of peace".

The Southern African Development Community originated in the 1980ís as a coalition opposed to apartheid in South Africa and has more recently turned to creating a free trade area. Some observers note that African customs unions and free trade areas are as active in areas such as conflict resolution as in trade liberalisation. Finally, many see relaxed tensions between India and Pakistan as the real payoff from the SAFTA agreement, regardless of what happens to trade barriers in the region (World Bank, Global Economic Prospects, 2005).

Many current studies also point out that RTAs that expand trade flows appear to have a substantial dampening impact on conflict. Mansfield and Pevehouse (2000) attempt to identify empirically the role of RTAs in ameliorating conflict. They found that, on an average, the likelihood of the outbreak of a militarised interstate dispute declines by around 50 percent if both belong to the same RTA. However, only RTAs that expand trade flows appear to have a substantial impact on conflict. In Africa, for example, RTAs that address the management of cross-border resource issues (such as water) are more effective in reducing military conflict than other RTAs.

Though both India and Pakistan are moving closer, it is at a snail’s pace and constantly encountering hurdles. Some of the above measures could divert attention from sticky matters and accelerate the speed of greater economic cooperation between the two nations through reduction (if not elimination) in tensions and mistrust and bringing in peace and tranquility in this region.

Pradeep S Mehta is General of CUTS international, a research, advocacy and networking group board in Jaipur, India and Human Fakhar is partner, Fakhar law international and Market Access Promotion, Lahore, Pakistan

This article can also be viewed at: http://www.jang.com.pk/

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Developing a closer Indo-Pak economic cooperation
Financial Express, Bangladesh, November 14, 2006

By Pradeep S Mehta & Huma Fakhar

A recent action by the Pakistan government to increase the positive list of tradeable products from 773 to 1075 under the South Asian Free Trade Agreement (SAFTA) could result in the doubling of formal trade from US$1.0bn to US$2.0bn. But, this exchange can quadruple if only there is closer economic cooperation, and that could lead to better peace.

Whenever one speaks about the peace-promoting economic relations between India and Pakistan, skeptics opine that relations between the two are marred by the border dispute and terrorism across borders. Hence, to expect more peaceful relations between the two fast growing economies through trade is a dream. We do not agree.

Once, one of us had written to the US government to promote mutual trade between the two countries by offering duty free imports if one used the others' inputs in their exportables to the US. The idea was received positively. Until recently, we did not know that to promote peace in the Middle East, the US had adopted a similar scheme. In 1996, the US Congress authorized designation of qualifying industrial zones (QIZs) between Israel and Jordan (1999) and Israel and Egypt (2004). The QIZs allow Jordan and Egypt to export products to the United States duty-free if the products contain a minimum level of inputs from Israel. The purpose of this trade initiative has been to support the prosperity and stability in the region by encouraging economic cooperation. It has worked well.

Since both India and Pakistan are currently preparing to or entering into various preferential trade agreements (PTAs, bilateral as well as regional) with other countries and regions (both with developed and developing countries), it would be sensible to include QIZs type of arrangement in some of the agreements particularly with the European Union (EU), US and China and even within South Asian Trade Agreement (SAFTA) and the proposed Association of South Asian Nations (ASEAN)-India Free Trade Accord (FTA). Such arrangement would help both Indian and Pakistanis exporters/importers to reap benefits of free trade as well as promote greater cooperation.

Among other ways to promote economic cooperation is to look at cross-border infrastructure projects across the globe, which have been able to release limitations on free economic relations and therefore open prospects for economic benefits from cooperation. Regional cooperation projects have a potential for the improvement of the well-being of all parties involved because of the scale economies they permit, the complementarities between the economies, and the externalities they induce (multiplier effects, attraction of foreign investment, diminution of gaps, etc…).

The East-West Economic Corridor (EWEC), a 1500 Km. long highway project crossing six Greater Mekong Sub-region countries in South-East Asia connecting South China Sea to Indian Ocean and the Middle-East regional cooperation projects are some good examples. In the same vein, mega-economic projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help in promoting trust and regional economic cooperation between India and Pakistan.

History provides ample evidence that no neighboring countries have ever survived and progressed on prolonged belligerent relations. "History repeats itself" is the saying going around for time and again. The famous economist Wilfred Pareto (1889) wrote, "customs unions and other systems of closer commercial relations (could serve) as means to the improvement of political relations and the maintenance of peace".

The Southern African Development Community originated in the 1980's as a coalition opposed to apartheid in South Africa and has more recently turned to creating a free trade area. Some observers note that African customs unions and free trade areas are as active in areas such as conflict resolution as in trade liberalisation. Finally, many see relaxed tensions between India and Pakistan as the real payoff from the SAFTA agreement, regardless of what happens to trade barriers in the region (World Bank, Global Economic Prospects, 2005)

Many current studies also point out that regional trade agreements (RTAs) that expand trade flows appear to have a substantial dampening impact on conflict. Mansfield and Pevehouse (2000) attempt to identify empirically the role of RTAs in ameliorating conflict. They found that, on an average, the likelihood of the outbreak of a militarized interstate dispute declines by around 50 per cent if both belong to the same RTA. However, only RTAs that expand trade flows appear to have a substantial impact on conflict. In Africa, for example, RTAs that address the management of cross-border resource issues (such as water) are more effective in reducing military conflict than other RTAs.

Though both India and Pakistan are moving closer, it is at a snail's pace and constantly encountering hurdles. Some of the above measures could divert attention from sticky matters and accelerate the speed of greater economic cooperation between the two nations through reduction (if not elimination) in tensions and mistrust and bringing in peace and tranquility in this region.

Pradeep S Mehta is General of CUTS international, a research, advocacy and networking group board in Jaipur, India and Human Fakhar is partner, Fakhar law international and Market Access Promotion, Lahore, Pakistan

This article can also be viewed at: http://www.financialexpress-bd.com/

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‘EU wants more market access, transparency in India’
Economic Times, November 09, 2006

By Amiti Sen

The European Commission is not wasting any time in getting its act together for the proposed India-EU trade and investment agreement. It has asked the Centre for the analysis for regional integration at Sussex, UK, to carry out a qualitative analysis of a potential bilateral free trade agreement (FTA) together with CUTS.

Jim Rollo from the University of Sussex - who has been roped in for the research work - to dig deeper into what the agreement holds for both the partners. Excerpts from an interview:

Since India and EU are on different levels of economic development, can a win-win situation emerge from an FTA between the two?

The high-level trade group conclusions point to areas like services where India has a distinct advantage. In services, India has cutting-edge technology and is not somewhere down the development curve. This razes the traditional view of developed versus developing countries.

Can the EU offer more in services in the bilateral agreement with India than it has already offered under the WTO?

I think issues related to mode 4 of the services negotiations dealing with the movement of professionals will present the same difficulties in the bilateral agreement as in the WTO agreement.

Problems exist on both the sides. On the other hand, there is also some convergence going on. India now has a lot more stake in mode 1 dealing with crossborder services, which was initially the EU’s area of interest.

Moreover, movement of skilled people is gaining importance for both the sides. These issues are becoming easier. But whether it translates into better offers remains to be seen.

What exactly is EU looking for in the trade and investment agreement?

The EU definitely wants more market access in services and investment. It is looking for more transparency in procedures. There are lots of approvals on EU investments which do not materialise on the ground. Then there are issues in government procurement which makes it difficult for EU firms to get engaged. In financial services, EU would be wanting more licences for European firms in areas such as banking, capital markets and investment banking.

Do you think that the FTA would bring about reduction in duties for products like textiles and leather where India has an advantage but duties in the EU are extremely high?

India and the EU have principally agreed that the FTA has to cover substantially all trade. What room there will be for sensitive products from both the sides still has to be explored. But, on the face of it there has to be something done about products like textiles and leather.

Just a couple of days before the India-EU summit in Helsinki, certain EU members said that issues such as labour and environment should also be included in the agreement. Is that being taken seriously?

We have not been asked to look into these issues in the research work that we are doing. I think we will have to wait and see what happens when we come to the discussions on the mandate for the commission. But at this stage there are no signs of the issues coming in.

This interview can also be viewed at: http://economictimes.indiatimes.com/

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FTA with EU not linked to Doha debacle
Financial Express, India, November 08, 2006

By Economy Bureau

The government on Wednesday said the negotiations to ink a free trade agreement (FTA) with the European Union (EU) was not linked to the failure of the Doha round of WTO talks.

“There is a clear understanding that India and EU is underway and failure of the Doha round has no influence on them,” Rahul Khullar, additional secretary, department of commerce said at a meeting on ’Challenges and opportunities from a possible India-EU FTA’.

Khullar added that it was just a coincidence that the report by the Indo-EU high-level trade group came immediately after Doha suspension. He said an Indo-EU FTA will help both the sides gain in terms of investment and trade. “This can work out as a win-win situation for both (India and EU) as we are talking of broad-basing trade and including goods and trade in services. This would, however, involve a mutual give and take,” Khullar said.

Speaking on the occasion, Francisco da Camara Gomes, head of the EC delegation to India said the FTA with EU could be beneficial to India as currently, the EU trade with India is a meagre 1-2% of its total international trade. This leaves enough room for more investment. At the same time, the investment from India to EU should increase. Gomes clarified that the FTA is no substitute to multi-lateral negotiations under WTO but supports them.

This news item can also be viewed at: http://www.financialexpress.com/

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