Legal and Non-Legal Barriers to South Asian Free Trade By © 2018 Md. Neyamul Islam (LLM in Business & Commercial Law, University of Hawaii at Manoa, U.S. in 2014 LLB, University of London, U.K. in 2011 MBA, University of Dhaka, Bangladesh in 2001 BBA, University of Dhaka, Bangladesh in 2000) Submitted to the graduate degree program in Law and the Graduate Faculty of the University of Kansas in partial fulfillment of the requirements for the degree of Doctor of Juridical Science. Professor Raj Bhala (Chairperson) Professor Michael Hoeflich (Member) Professor Virginia Harper Ho (Member) Professor Md. Ridhwanul Haq (Member) Date Defended: January 11, 2018 The dissertation committee for Md. Neyamul Islam certifies that this is the approved version of the following dissertation: Legal and Non-Legal Barriers to South Asian Free Trade Professor Raj Bhala (Chairperson) Date Approved: January 11, 2018 ii Dedication To My Mother Hasina Ahmed (Passed on August 01, 2014) & Mother in Law, Mahmudha Rahman (Passed on December 12, 2013) My Father Syed Ahmed My Brothers and Sisters My wife Moni And My Sons ‘Jim’ & ‘Sean’ iii Abstract The concept of commitment has emerged in international business literature especially in explaining importer behavior as a counterpart to the internationalization process. Importer commitment often plays a dominant role influencing relationships in the exporter-importer dyad and facilitating the internationalization process by imparting access to the international market. This dissertation’s primary data is a sample of 51 persons directly connected with various aspects of South Asian Free Trade. Asia is economically important as the forefront of global free trade agreement (FTA) activity. This spark concerns about the negative effects of Asian FTAs, including the “noodle bowl” problem. Asian regionalism is here to stay despite the World Trade Organization’s (WTO) Doha negotiations slow progress and the global financial crisis. The focus for policy makers should be how to minimize FTAs costs while maximizing benefits. Adopting a pragmatic perspective, this paper examines key trends and challenges to Asian FTAs. It provides new evidence from firm surveys, analysis on specific agreements, and computable general equilibrium estimates. This paper offers the following recommendations: strengthen the support system for using FTAs; rationalize and upgrade the administration of the rules of origin; ensure better agricultural trade coverage; forge comprehensive “WTO-plus” agreements; and encourage a region-wide FTA. Political economy considerations suggest Asia FTA consolidation by creating a People’s Republic of China–Japan–Republic of Korea FTA, combining it with ASEAN+1 FTAs, and then involving Australia, India, and New Zealand— followed by connections with North America and Europe. In conclusion, the analysis suggests adopting a bottom-up approach to a Doha Round Agreement. Geographically, the South Asian countries are close to each other. The positive things are uppermost growth in this region. This is mostly for of the inward-looking policies of the iv government, political strife, conflict, and ideological difference between members countries. South Asian economic growth rose to 6.9% in 2015 from6.7 % in 2014. The prediction is it will accelerate to 6.8% in 2017 and to 7.1% in 2018. India is the leading and largest emerging market economy in South Asia. South Asia attracts global attention because it has experienced rapid GDP growth since 1980, averaging nearly 6% per annum. Yet, it faces many challenges. First, South Asia is dynamic, growing rapidly, highly urbanized, and is advancing from global integration. The second South Asia is largely agricultural, land-locked, exhibits high poverty, suffers from many conflicts, and lags. The divergence between the two faces of South Asia is on the rise. Many policy and institutional constraints contribute to this dichotomy. One important constraint is regional conflict that has made South Asia one of the least integrated regions of the world. Despite progress in reducing trade barriers with the rest of the world, intraregional trade is 5 % of total trade compared with over 50 % in East Asia. The unique geography of South Asia, distance, and density, has the potential grow through increased trade. South Asia has the highest population density in the world. The distances between the cities and the border is low. These features naturally propel trade between countries but presently policy barriers hinder this. For example, Indian and Pakistan trade is currently US$ 1 Billion, removing trade restrictions could jump their trade to US$ 9 Billion. Similarly, estimates suggest that South Asia intraregional trade could increase from US$ 5 Billion to US $20 Billion if they remove restrictions on trading. The benefits of regional cooperation for South Asia are obvious. Yet a range of political constraints prevent cooperation from happening. The political dynamics needs to change as the opportunity cost of non-cooperation for South Asia's poor is large. A part of this change will come v from leadership from civil society in terms of much more informed knowledge and debate of the underlying opportunities, issues, and constraints. In developing and elaborating on that core thesis, this dissertation has six chapters, following an introduction that summarizes the significance, structure, approach, and terminology of the dissertation. Chapter one is the introductory chapter and presents the major issues for consideration for moving toward SAFTA. This chapter also provides an overview of the literature on South Asia regional integration. This chapter presents an overview of the approach for SAARC and SAFTA. The main part of this chapter offers relevant literature findings. These findings serve as the foundation and as starting point for further research as reflected in this dissertation. These literature findings helped formulate the two hypotheses proposed in this dissertation. The WTO legal regimen insufficiencies provide the possibility and necessity for WTO Members to indigenize WTO law by resorting to their own legal traditions and cultures. The second hypothesis is that the WTO Members’ practices in dealing with the WTO have demonstrated their willingness and efforts to indigenize WTO law. Chapter two, this chapter starts by reviewing legal fragmentation in international trade law. It also provides an analysis of GATT Article XXIV and other FTA legal areas. These include topics like the general character and structure of the WTO regime, specific trade mechanisms, the relationship between WTO law and domestic law, the relationship between WTO law and general international law, principles and interpretation of WTO agreements, the position of developing countries in the multilateral trading system, strategies pursued in international trade negotiations, domestic trade legislation, FTAs, dispute settlement mechanism, and domestic adjudication of trade issues. vi Chapter three provides an overview of SAARC and SAFTA main features including major articles of both agreement. This chapter includes sensitive lists, rules of origin, treatment of non- tariff barriers, and compensation and dispute resolution mechanisms. This chapter discusses South Asia overall trade performance and potential, including indicators related to overall economic conditions, the sectoral composition and direction of trade, and tariff and non-tariff protection. Chapter four examines how trade in services contributes to connectivity. It discusses the role of policies in services trade, looking at how these promote integration into the international trading system. This chapter outlines the key features and modalities of negotiations under SAARC Agreement on Trade in Services (SATIS), together with the opportunities and challenges of trade liberalization for a representative set of services (energy, telecommunications, tourism, and health). It also analyzes pattern of intra-regional trade and comparisons made with other regions and bilateral trade agreements in South Asia and investigates how these agreements could harmonize with SAFTA. This chapter details the importance of transit trade in South Asia and differentiates characteristics between formal and informal traders. Additionally, this chapter focuses on facilitating professionals and skilled workers movement to ease, reduce, or remove barriers and under trade agreements. Chapter five discusses the methodology of the research data collection and analysis. The first part surveys the key academic, professional, and official literature regarding a range of issues that are pertinent to this dissertation. This chapter examines the primary data compared with different secondary data. Most data collected is from different sources like ADB, WB, UNCOM Trade, SAARC, and SAARC member countries and provides a review on SAARC’s perspective on investment cooperation. This chapter includes a theoretical and empirical analysis of the interrelationship between regional integration and poverty reduction. vii Chapter six quantitatively assesses the implications of SAFTA full implementation, with and without sensitive lists, and the impact of deeper degrees of South Asia regional integration. This chapter addresses trade facilitation measures consistent with SAEU creation, reviews SAARC member countries performance in promoting trade facilitation, and examines the South Asia regional trades untapped potential. Chapter seven concludes this dissertation by summarizing the main findings