SAFTA and the benefit of free trade

The United States joins the world in congratulating the signatories of the South Asia Free Trade Agreement, an achievement that promises to have a positive impact on economic growth and development in the region.

The enthusiasm shown in each capital during the recent negotiations bodes well for the tough work that still lies ahead to successfully implement the framework. The US is optimistic that the nations of South Asia will exhibit the same spirit of cooperation that led to the signing of this important endeavour in 2004.

The potential benefits of SAFTA-type arrangements in the region are significant. Regional trade in South Asia now accounts for less than 6 per cent of total trade, compared to 22 per cent within the Asean Free Trade Area, and 65 per cent within the EU.

Free trade fuels economic growth. Free trade fuels investment, creates jobs, and raises incomes. Free trade lifts people out of poverty. This is not mere ideology. Recent World Bank studies show that developing countries that have embraced open-market strategies in the past decade have grown much faster than those that have not.

As President Bush said at the signing of the US-Australia Free Trade Agreement, "One of the great economic achievements since the end of the Cold War has been the success of free and fair trade in raising up the world's poor, bringing hope to the world's hopeless, promoting freedom among the world's oppressed, and creating jobs at home and abroad."

In fact, freer trade brings increased prosperity for all countries -- developed and developing, large and small. Trade and economic growth reinforce each other. In the US, for instance, as total trade as a share of the US economy has risen from 10 per cent to nearly 30 per cent, the economy itself has grown from about $1.6 trillion to over $11.7 trillion.

In our hemisphere, the benefits of the North American Free Trade Agreement with Canada and Mexico are clear. Total trade among these three countries more than doubled from $306 billion to almost $621 billion between 1993 and 2002.

For Mexico alone, exports to the US and Canada grew by over 200 per cent during this same period. With a strong, stable and transparent framework for investment, the region has attracted foreign investment at record levels, not just from NAFTA partners, but from around the world. At the same time, all three countries have experienced strong economic growth.

Chile and Jordan also provide two compelling examples of how economies can prosper with freer trade. Since the 2004 implementation of the US-Chile Free Trade Agreement, two-way trade has increased by over 30 per cent.

This includes a growth in Chilean exports to the US from $3.71 billion in 2003 to $4.73 billion in 2004. After only one year in effect, the agreement has already benefited workers and consumers in both countries.

In addition, since embracing free trade, Chile, which has signed more FTAs than any other country, has significantly reduced its domestic poverty rate. Under Jordan's free trade agreement with the US, its 2005 exports to the US are up 75 per cent since last year, accounting for millions of dollars in new exports and new jobs.

That growth is expected to continue as tariffs are lowered on more categories each year. Exports under this agreement already make up 16 per cent of Jordan's exports to the US and will continue to do so.

The numbers speak for themselves. Governments linked by trade and investment are working more closely and accomplishing more than ever before on issues that affect the daily lives of their citizens.

The US shares the awareness and concerns of the nations of South Asia that some of the opportunity and prosperity brought by freer trade can pose challenges for some producers. It is important to minimise these short-term disruptions and build capacity for a broad range of citizens to benefit from trade's increased opportunities.

The experiences of rapidly-growing developing countries, such as those in South Asia, demonstrate that continued protectionism only perpetuates inefficiencies and stagnation. Freer trade, by contrast, rewards ambitions across the board.

The challenge lies in finding ways to use the new resources derived from trade to expand opportunity -- that is, in improving government so that an entire economy, not just individuals and businesses, becomes more competitive.

Just as the Asean Free Trade Agreement resulted in both greater intra-regional trade and greater foreign investment among South-East Asian nations, so too will be the benefits of SAFTA.

The Indo-Sri Lankan Free Trade Agreement, one of the first bilateral agreements within South Asia, is a vivid illustration of two countries working together to overcome these challenges. The agreement has already brought economic benefits to both countries, contributed to greater cooperation, and created a sense of shared fortunes.

The SAFTA framework agreement carries the great promise of sustainable regional economic growth and development. It also promises to add momentum to the Doha development global trade negotiations, which the World Bank estimates can lift more than 300 million people out of poverty.

The US has every expectation that the nations of South Asia will continue the positive momentum they have created and realise this promise. The US stands ready to assist SAFTA countries expand their economies, lift people out of poverty, and achieve the prosperity they deserve.