Silk Road to the SoutheastThe two-day ministerial meeting of the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (Bimstec), that wrapped up in Kathmandu on 11 August has pushed for a free trade agreement among the seven member countries.
The two-day ministerial meeting of the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (Bimstec), that wrapped up in Kathmandu on 11 August has pushed for a free trade agreement among the seven member countries. The meeting has also agreed to deepen rather than widen the areas of cooperation among the members, who have been saddled by broader yet futile activities since its inception. In this regard, the understanding as reached at the meeting to speed up cooperation—explicitly in technology, energy, and trade facilitation—is laudable. This is an encouraging sign for a group that has been moving at a glacial pace since its establishment 20 years ago.
Apart from this, the Kathmandu meeting has shown Nepal to be an ardent supporter of free trade in Bimstec. Nepal was also the first country to ratify the South Asian Free Trade Area (Safta) agreement. Collaboration with partners is necessary to develop the alliance as a booster of intra-regional trade in general and a strategic market access for Nepal in particular.
Nepal’s full membership to Bimstec in 2004 coincided with it signing the Safta agreement and joining a South Asian free trade group, and its accession to World Trade Organisation, a multilateral trading system. However, even after more than 12 years of these dealings, Nepal has failed to make strides in trade. This is made evident by the contribution of export as a percentage of the country’s Gross Domestic Products (GDP), which plunged from about 8 percent in the early 2000s to just 4 percent in later years. The country’s trade deficit is even worse; it has gone from a mere Rs200 billion 10 years ago to a staggering Rs800 billion currently. That means the country’s trade deficit now accounts for more than one-third of its GDP.
Approaches to free trade
Out of Nepal’s six partners in the Bimstec coalition, the trade relation with India has also been based on a bilateral preferential treatment and the Safta agreement. The bilateral preference which is rooted deeply in Nepali policy and is partially reciprocal is more favourable than Safta and Bimstec for Nepal’s trade with India. Similarly, the trade ties with Bangladesh, Bhutan and Sri Lanka are also founded on Safta, liberalising trade among South Asian countries across-the-board, with the exception of some products as provisioned under a ‘negative list’ that each member country keeps as part of the agreement.
Unlike the Safta framework, Bimstec approaches free trade on a product-by-product basis which is rudimentary for trade liberalisation. Because of this latent Bimstec approach to free trade, Safta appears to be a relatively better channel for Nepal to enhance trade with the three partners mentioned above. However, it depends on their willingness to gradually reduce the number of products from their respective negative lists, which have been hindering free trade in South Asia since the implementation of Safta. From this perspective, Nepal’s affiliation to Bimstec can be particularly meaningful to expand free trade with Myanmar and Thailand, which are also members of the Association of Southeast Asian Nations (Asean), a free trade alliance among 10 Southeast Asian nations. And, through this connection, Nepal can smoothly build a strategic market access to thriving Southeast Asian economies.
In fact, this can be one of the core objectives of Nepal under the Bimstec affiliation. Although diversified, the coalition of countries in Southeast Asia has established itself as a successful regional grouping after the European Union. The region as a whole offers a huge market with a combined GDP of $2.5 trillion and is inhabited by almost 640 million people with per capita income ranging from $2,000 to above $52,000. However, the question is whether or not Nepal can exploit this opportunity within the existing Bimstec framework. It is not possible to gain from these prospects without Nepal taking aggressive steps in collaboration with Bimstec partners.
Ways to profit
One of the important steps is to use this overlapping regional alliance as a basis for developing products and services that are tradable with countries in both South and Southeast Asia. For this, Bimstec partners will be required to focus only on very specific areas of cooperation that complement the objective of strategic market access. The prioritised areas should be dynamic for the promotion of regional trade as a whole. Like in other regional alliances, trade as the engine of growth should remain central in the Bimstec agenda. In addition, all member countries must expedite tariff liberalisation even faster than as stipulated in the existing fast track approach. If the members in the alliance genuinely commit to these measures, they will have hope for the creation of trade between the overlapping regional groupings. Moreover, it can be an excellent start for languishing South Asian economies like Nepal to connect with the dynamic economies in Southeast Asia, such as Malaysia and Singapore, for the promotion of trade.
From this perspective, it is necessary to perceive that sticking to specific areas of cooperation among the Bimstec partners is as important as reducing the number of products in the negative list of Safta partners so this overlapping regional alliance flourishes for mutual benefit. This is also more valuable for the less developed countries in the grouping, including Nepal, that have been beset by poor performance in trade, while being tangled in the mushrooming regional alliances.
Shakya is an associate professor of economics at Tribhuvan University