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Thailand, India Lead 4 Other Asian Countries to Create Free Trade Area - 2004-02-17


Thailand and India are leading moves to create a six-nation free-trade area that will open up a market of 1.3 billion people.

The trade deal is being seen as a bridge linking South and Southeast Asia. Foreign ministers from six countries in the area have started first step of what is expected to be a long process in lowering tariffs and increasing trade.

But experts warn the vastly different economies of the six countries in the pact may be a problem. India and Thailand, which are leading the push for a free-trade area, have large, robust economies, while Sri Lanka, Burma, Nepal and Bhutan are small and poor.

Asian Development Bank economist Rajat Nag says those economic differences could drag down efforts to create the trade zone.

That is because farmers and business leaders in the weaker economies may resist increased competition from the faster growing economies.

"The most important challenge I think is the uneven growth that these countries will face," he explained. "The smaller countries will have to resist the temptation of feeling left behind. And I think the larger countries will have to be generous in their approach to the other countries." The free-trade agreement is an outgrowth of the economic cooperation group known as BIMST-EC, which was formed in 1997. Its original members were Bangladesh, India, Burma, Sri Lanka and Thailand. Bhutan and Nepal joined the group this month.

Of the seven members, only Bangladesh stayed out of the trade agreement, largely because of fears it might harm its industries.

Foreign and commerce ministers from the seven countries met on the Thai island of Phuket early this month to begin the work on the free-trade zone.

Details about the plan, however, are scarce. A BIMST-EC statement says the six nations will start talking later this year about just what tariffs will be cut and when. In 2006, they will start reducing tariffs and by 2012, Thailand and India will eliminate tariffs on goods from the group's members. The smaller members have until 2017 to do so.

Both India and Thailand are eager to keep their economies growing by expanding regional trade, while the smaller countries hope to share in the growth their bigger neighbors have seen.

Another reason to create a regional free-trade zone is that global trade liberalizations under the World Trade Organization have stalled. As a result, many countries are trying to bolster bilateral and regional ties to lower trade barriers.

But Mr. Nag at the Asia Development Bank says the benefits of increased trade - higher employment and incomes - will only come if countries set aside rivalries.

"The challenge will be to keep a longer-term perspective, keep a feeling we're all benefiting, but some may benefit more than others and not let intra-regional rivalries or jealousies come into the way," he said.

Other economists warn that gains will come slowly. Marc Proksch, a United Nations trade and economic analyst in Bangkok, points out that Southeast Asia's free-trade area has yet to realize its potential, although the Association of Southeast Asian Nations began work on it 10 years ago.

"You see the problems that we have in ASEAN, for instance, whose integration is already much further advanced," he said. "So it's a long-term process but the potentials are great, the dynamic benefits are also significant."

Mr. Proksch says the key will be how the agreement interacts with other free trade pacts, especially those involving Asia's other economic powerhouse - China. China's rapid growth in the past few years has attracted vast sums of foreign investment and increased regional trade flows.

China is trying to establish a free-trade zone with Southeast Asian nations. In addition, the United States has recently sign trade deals with Australia and Singapore.

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