Implications of South Asian free economic zone
DR AYUB MEHAR
A proposal for the formation of South Asian Free Economic Zone to solve the rapidly growing economic problems is being discussed in the media these days. ..........According to Benazir Bhutto, who has recommend this proposal, the Central Asian States and Iran should also be included in the zone. (According to the economic division by the international institutions, Afghanistan is the part of South Asia). According to Ms Bhutto, when the zone will enter into the second stage of its evaluation, it will represent the 50 percent population of the world if China, joins the zone. At that stage, a common currency, joint central banking, joint defence and a common presidentship system can also be adopted. The proposal has received both the appreciation and criticism from the statesmen and economic institutions at large. ..........Before this proposal for setting up a free economic zone Arabian Business leaders in a conference held in Jaipur have emphasised that Middle East was prominently suitable for Indian investment. According to them, the centuries-old economic and social relationship should restart with a new dimension. The foreign minister of United Arab Emirates, the ambassadors of Egypt and Morocco and a business executive from Bahrain were among the leaders who attended the conference. The conference informed that Bahrain was the third largest free economy of the world (First two were Hong Kong and Singapore). ..........A new regional economic block for trade and economic affairs has two important implications: economic considerations and social and political effects. It should also be remembered that today the formation of an economic zone does not have the same meaning as it had fifty years ago. Now, the countries in an economic zone have to scarify their freedom up to a large extent. The sacrifice of freedom not only covers the trade, industry and other economic branches, but also the constitutional, social and political set-up. ..........The social and economic aspects will be discussed next week in the same column. In the present column, we are discussing the formation of a regional block from the economic point of view. ..........At present, there are 23 economic zones in the world. A country in a zone will be considered as net gainer if its growth rate, trade balance, investment and exchange rate parity is improved. Such a goal can be achieved only after the following two conditions are fulfilled: ..........1) There are many similarities in the economic cultures and the economic problems of the countries in a zone. ..........2) The countries have strong and significant mutual trade relations and their requirements depend on each other. ..........The countries in South Asia fulfil the first condition. They have similar economic problems like inflation, unemployment, poverty, low investment and deficit financing. But, the countries do not qualify to form a free economic zone, because of the second condition. The mutual trade of South Asian countries is only 4.3 percent of their global trade. The countries in South Asia do their 95.7 percent trade with the countries outside the South Asia. Only 2.98 percent of Pakistani trade belongs to the South Asia. The same position is in labour and capital mobilisation. ..........South Asia is in a weak economic position as compared to Euro-11 and Japan. If we see the corporate sector in Japan, the market capitalisation is much greater than the number of listed companies. We have more than 800 small companies listed on the stock exchange and their market capitalisation is far below the international standards. Such small companies create excess competition in the financial market and, no doubt, the excess competition is dangerous from the investors' point of view. ..........So, it is absolutely a misunderstanding that Pakistan economy can be improved through free trade with South Asian countries. The prime ministers of Pakistan and India have approved the proposal of a common chamber of commerce and industry. The chamber will be authorised to issue trade visas. But, despite this, it has been accepted that mutual trade could grow up to Rs 5 billion which is less than three percent of the total Pakistani trade. ..........The trade policies of Pakistan have been softer than those of India in the past. As a result, dependency on imports has been increasing in Pakistan. Now, it is expected that in case of a free trade policy, Pakistan will import machinery and spare parts from India. So Indian industry will grow. On the contrary the major part of Pakistani export will go to raw material including cotton. As a result, the prices of basic goods will increase in Pakistan. On the basis of past experiences, it can be predicted that foreign exchange would not come to Pakistan through exports to India, because, to maximise the profits, Pakistani exporters will import Indian products. ..........The formation of a free economic zone has no direct relation with the economic benefits. The benefits, which are being mentioned, are not the solution to the economic problems. Similarly, the so-called benefits are not much important from the quantitative point of view. However, they have much importance from the social point of view. Indian media has been publicising the cultural, not economic, benefit of free trade zone. Gone are the days when the production of Calcutta's jute mills depended on Bangladesh's (Former East Pakistan) jute; when the agricultural production of Pakistani Punjab depended on the Indian rivers and the supply of Pakistani currency depended on the share of Pakistan in Indian Reserve Bank. ..........Now, the problem is cultural. Indian press and scholars are trying to convince that the peoples of Pakistan and India have the same history, same geography, and the same psychology. They speak the same language, have mutual kinship and similar culture. From the birth place point of view, at least, two former prime ministers of India belonged to Pakistan. Similarly, the prime minister of Pakistan was born in India. All the arguments are being emphasised to prove that Pakistan is not a part of the Muslim block; it is a part of the Hindu block. Professor Hungton of the Harvard University has used the term of "Hindu Block" for India and Nepal. The basic economic problems of Pakistan are because of social attitudes. The society has been diverted to mass consumption before the take off stage. We are facing a negative trade balance with India since 1989 and now, even the trade with Afghanistan is also in deficit. The mass consumption is the only reason for this deficit. .......... ========================================================= Mutual trade of regional blocks ========================================================= Regional blocks Mutual trade as percentage of total trade ========================================================= Asia Pacific Economic Cooperation 73.1 European Union 61.5 North American Free Trade Association 47.5 Andean Group 10.4 Central American Common Market 15.7 Caribbean Community 12.9 Latin American Integration Association 16.5 Southern Common Market 22.8 Organisation of Eastern Caribbean States 11.6 Economic and Monetary Community of Central Africa 1.9 Economic Community of Great Lake Countries 0.5 Common Market of Eastern and Southern Africa 9.3 Economic Community of Central and African States 1.9 Community of West African States 8.7 Menu River Union 0.0 Southern African Development Community 10.4 West African Economic and Monetary Union 9.3 Association of South East Asian Nations 23.2 Bangkok Agreement 2.3 Economic Cooperation Organisation 6.7 Gulf Cooperation Council 4.6 South Asian Association for Regional Cooperation 4.3 Arab Maghreb Union 3.4 =========================================================
.......... ========================================================= Pakistan's trade share ========================================================= Region/Group Share in Share in Exports (%) Imports (%) Industrialised countries 59.4 47.6 Eastern Europe and Russian Federation 0.7 0.9 Developing countries 39.9 51.5 --------------------------------------------------------- Total: 100 100 --------------------------------------------------------- Share of South Asia 2.9 2.2 =========================================================
.......... ==================================================================== Comparison of economic status ==================================================================== Zone Population GDP Per Growth Unemployment Inflation (million) (equivalent capita rate (%) (%) (%) purchasing income power) ($) (billion $) ==================================================================== Euro-II 290 5942 20490 2.6 11.6 1.8 USA 268 8080 30149 3.8 4.9 2.4 Japan 126 3002 30825 0.9 3.4 1.7 South Asia 1266 1924 1520 4.6 18.0 7.2 ====================================================================