Welcome to free trade zone

• Close geographical location brings advantages and globally, multilaterlism has taken a backseat while regional cooperation is on an upswing, thanks to the collapse of WTO in two successive sessions at Seattle and Cancun.

Global trend

• NAFTA (North American Free Trade Area) — Nearly 52 pc of the exports in this region happen within NAFTA and only 48 pc to the outside world.

• European Union (EU) — 55 pc exports are to other EU countries and 45 pc outside it.

• ASEAN (Association on South East Asian Nations) — 21 pc exports from these countries are to other ASEAN countries.

• SAARC (South Asian Association for Regional Cooperation) — Only five pc exports of SAARC countries are within the region while in the rest of the world they have to face global competition.

India in Saarc

• India’s trade with SAARC countries was Rs 14,933 crore in 2002-03, only 2.71 pc of its global trade.

In simple terms

• Free movement of goods and services across the borders

• Free movement of people to work in other countries in the region.

• Common currency in the region at some stage.

• Access to cheaper goods from other markets — Pakistanis could import 30 to 40 pc cheaper Suzuki cars from India or Bangladesh IT engineers could seek better jobs in India.

• Forming joint ventures with companies in these countries.

We and WTO

• Bargaining powers of a regional group increases especially for under-developed countries like Bhutan, Nepal, Myanmar who could gain from being with larger countries like India.

• For India, it could mean even better bargaining position as it would always be a psychological leader in the region by virtue of its size and could then talk as a leader of a regional block besides being a large power.

India’s gains

• Exports of certain items could immediately go up like tea, automobiles and components, pharmaceuticals, entertainment, IT, healthcare and tourism.

• Cheaper inputs say natural gas from Bangladesh which has gas reserves but no funds for setting up large power plants.

• Freedom for Indian companies to find newer markets in these lesser developed countries rather than competing in the global world.

• Freedom to set up shop for a Haldiram or Nathu’s in countries like Pakistan through joint ventures.

• Registering official exports to countries like Pakistan directly (current level $ 750 million) rather than through third country of illegal smuggling (currently $ 2.5 billion).

But watch out

• Drag on its economic growth, thanks to the slower growing economies in the region.

• Influx of labour — skilled and unskilled — taking up employment opportunities which otherwise would have gone to Indians.

• Increase in cheaper imports, but this could be limited as the Indian economy is large enough to absorb this surge.

• Political compulsions within the region clouding investment opportunities and increasing the risk factor.