How best could South Asia expedite its integration with the world economy

Expanding SAARC Horizons to Asia Pacific Economic Cooperation (APEC):

By Rosanne Koelmeyer Anderson

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‘A comprehensive study on the South Asian Episode of Economic Liberalization enabling South Asia to integrate with the world economy has been proved that Sri Lanka is not far from reaching great economic heights.

In the wake of the prestigious SAARC Summit in Sri Lanka the week ahead, it would be fitting to cite this comprehensive study which would open new vistas for Sri Lanka’s economic progress’ says economist and author of the study, Punyasiri Subasinghe a product of the University of Wollongong, Australia who is a member of the Sri Lanka Administrative Service and presently the Senior Advisor to the Ministry of Public Estate Management and Development.

Having served in the rural social milieu of Sri Lanka for a decade Mr. Subasinghe was responsible for implementing many agro based projects. Subsequently, during his tenure at the Development ministries: Food and Cooperatives, Plan implementation, Industrial Development, Finance and Planning, Science and Technology and the Sri Lanka Industrialization Commission he was also involved in the development of policy and projects and their execution.

Mr. Subasinghe was the hand behind the success of Sri Lanka’s National Program, the Integrated Diary Development Project which helped the nation becoming self sufficient in the Milk utilizing Extensive Estate Network in the wet and intermediate climatic zones and Tank Fodder Lands (thawalu) network in the Dry zone to establish model dairies with Out-Grower Farmer Dairies in Sri Lanka.

He firmly believes that these two growth oriented sustainable projects which are presently facing some setbacks due to lack of resources for their execution could make a real difference in the poor rural milieu, both at estate and village level achieving the Millennium Development Goals of the United Nations if closely scrutinized.

‘The countries of South Asia, virtually all without exception have in recent years changed their domestic economic policies in the direction of greater liberalization and openness to the world outside with the hope of accelerating growth rates and catching up with the fast growing economies of the East and South East Asia.

The dynamics of structural change in the Asian economies and their impact on trade flows, the shifting pattern of competitiveness in the Asian region in response to factors such as changes in wage costs, exchange rates and technological capabilities where only selected countries enjoy preferential treatment are important aspects that have to be dealt with cautiously for Sri Lanka’s economic progress’, Mr. Subasinghe expressed.

He is of the view that this comprehensive study which states that Sri Lanka in particular and other SAARC member countries too have increasingly developed trade and investment links with the member countries of Asia-Pacific Economic Cooperation (APEC) should be ideally cited and take appropriate decisions to open wider vistas for member countries at the forthcoming SARRC Summit’, he pointed out.

‘In this scenario, the SAARC Summit is a good opportunity to emphasize the importance of a supportive global trading environment for the success of the new policies being pursued by the South Asian countries and the region, which should be understood and given serious consideration by South Asian statesman, strategists and businessmen about the possibility of reaping tremendous benefits integrating with the broader regional cooperation, APEC.

‘Moreover, they could understand that working together in their respective intra and inter regional forums would enable them to effectively mould their future especially integrating with the Open, Non-Discriminatory Asia-Pacific Economic Cooperation (APEC) for the benefit of South Asians’.

‘On the other hand the SAARC has to enhance trade relations and strengthen its traditional links with Europe encouraging the Free Trade Regime and minimizing trade diversions emerging from their inward looking policies is the need of the hour’, Mr. Subasighe said.

The implications

‘The economist says that this comprehensive study has examined the evolution of the pattern of trade of five South Asian countries: India, Pakistan, Bangladesh, Sri Lanka and Nepal and for the SA-5 as a whole during the 1970-89 period. Important findings in a broader perspective highlighting policy related aspects of South Asian Trade have many contributory factors’.

‘The policy shift from Import Substitution Industrialization and Trade Strategy to an Export Oriented Open Economic Policy was backed by Economic Liberalization: the deregulation in trade, industry, financial and capital markets in the late 1970s and 1980s.

This caused a transformation of the production structures transferring resources from agriculture to manufacturing, and within manufacturing from capital intensive to labour intensive manufactures in the 1980s in accordance with South Asia’s comparative advantage stemming from abundant cheap labour’.

‘Only India had some strength in other manufactured exports after a heavy depreciation in the 1980s. Reflecting the anti-export bias arising from higher tariff levels, India has not shown such progress during the period as other South Asian countries in Unskilled Labour Intensive (ULI) manufactured exports.

Of all developing countries(DCs), especially the nearby steadily growing Asian Developing Countries(ADCs) have been of prime importance to SA-5 countries and with the ‘Multiple Catching Up Process’ in the Asian DC region initiated by Japan, followed by the Asian Newly Industrialized Countries (NICs) and now by other ADCs : ASIAN and South Asian DCs’.

‘In the face of protection barriers erected against competitive human capital intensive manufacture exports from Japan and NICs experienced a drop in their exports in the 1980s and they were compelled to ratify a series of Orderly Marketing and Voluntary Export Restraint Agreements with North America and Western Europe. Stringent Western European discriminatory trade measures were adopted to limit third country exports’, Mr Subasinghe further explained.

‘Moreover, the negative trade impact of economic transformation presently underway in Western Europe under the Single European Act (EEC but influencing all Europe) which will bring about total economic unification and the impact of political and economic transformation in Eastern Europe could negate the improvement in South Asian export trade intensities vis a vis W. Europe.

But, South Asia has increased trade links with the Asian-Pacific region in developing trade interdependencies during the last two decades as a consequence of the erosion of South Asian trade with both Europes and so it is with other Asian- Pacific countries which shows that South Asia has already placed itself heavily in the Asia-Pacific region in the 1970 and 80s, he added.

‘As Peter Drysdale the much renowned Australian Professor (!988) has stressed ‘open, non-discriminatory Asia-Pacific Economic Cooperation based on market integration could be strengthened by open trade and investment policies in a confident economic regime guided by accepted ground rules which could resolve conflicting interests arising among the different countries.

In an identified common approach and concerted guided planning, developed along the GATT principles could develop reconciliations for the divergent positions of the different trading partners benefiting all’.

‘Hence, the inclusion of South Asia in the initial stages of the Asia-Pacific Economic Cooperation (APEC) will be of benefit to all trading entities within the region improving their comparative advantage based on their different endowments.

Its exclusion will develop inefficient structural deficiencies within the Asia-Pacific region hindering mutual development.

As expected in regional cooperation, South Asian interests could be safeguarded and could improve interdependences benefiting all trading parties’.

Mr. Subasinghe further states that sound macro and micro economic policies dismantling trade barriers, lessening restrictions in industry and trade and improving market mechanisms, South Asia could make an appropriate base to attract Asian Pacific foreign investment.

In the face of declining European investments with the diversion of their capital towards Eastern Europe, the attraction of capital exporters including Asian NICs, Japan and the United States to South Asia could sustain its export oriented program carried out in the recessionary 1980s with some success by accelerating productivity and initiating new product lines to expand exports.

‘The moderate success seen in Pakistan and Sri Lanka through vigorous macro and micro reforms along with strong trade liberalization, improving trade interdependencies, expanding their exports to ICs and improving trade balances bears witness that the export oriented economic strategy is not outmoded provided appropriate policy reforms are successfully launched with a strong political will’.

‘Their successful initial stage provides strong support for the school of thought whose researches prove that the success of the Export Oriented Development Strategy which provides grounds for lifting of trade barriers, thus liberating trade within South Asia so that the SA-5 could expand it further through exchange with other regional groupings to enrich the weakened global free trade regime enhancing world welfare’, he added.

Hence, it is the duty of the Pacific Industrial countries to strengthen this trend that has emerged in Asian Developing countries, by correcting their own macroeconomic policies and currency misalignments to allow room for structural adjustments and thereby remove trade restrictions particularly those against developing country exports.

This could accelerate particularly the South Asian Integration into the World Economy improving the welfare of all, Mr. Subasinghe expressed.