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SAARC rhetoric and economic realities

Sunday Times, Sri Lanka

SAARC rhetoric and economic realities

By the Economist

10 August 2008

The focus of this year’s SAARC Summit was on terrorism. Economic cooperation, regional food security and the perennial issue of poverty reduction were among the economic issues that were deliberated. SAARC summits have tended to be high on rhetoric and low on achievement. Once upon a time, NATO was described as No Action Talk Only. It must be admitted that SAARC deserves a somewhat better description, although much of what comes out of the Summit conferences are talk only. Admittedly there have been a certain amount of achievements and movements in the right direction. The South Asian Free Trade Association (SAFTA) and the South Asian Preferential Trade Agreement (SAPTA) may be cited as examples of limited achievement in economic cooperation, albeit very inadequate. Indeed the opening statements of several SAARC leaders impliedly, if not explicitly, admitted this when they mentioned the need to implement resolutions and concerted action. There was an acknowledgment that in the past SAARC was more speechifying than action.

SAARC rhetoric is quite extravagant. Most glaring was the resolution that was passed at the SAARC Summit of 2000 in Colombo , where the leaders resolved that they would eliminate poverty in three years. Eight years later poverty remains at almost the same levels as before. In fact although the proportion of the poor in South Asia has declined somewhat, the numbers in poverty have in fact increased.

This despite impressive economic growth in several countries in the region, particularly in India This year’s Summit recognised that a critical issue facing South Asia is the persistence of absolute poverty and disparate regional development in most South Asian countries, despite high rates of economic growth.

The Indian Prime Minister, Manmohan Singh, a renowned economist himself, noted this in his Independence Day speech last August when he said, “ India cannot become a nation with islands of high growth and vast areas untouched by development, where the benefits of growth accrue only to a few.” This is in economy, recording high growth rates of nearly 10 per cent in the last decade with so many of her economic indicators being exceptionally favourable. Despite India’s impressive economic performance in recent times nearly 30 per cent of her population still live below the official poverty line and close to half of all Indian children under the age of 3 are malnourished. A recent government study found that the majority of Indians live on half a dollar a day.

The situation in most other South Asian countries is not much better. For instance Sri Lanka is in no better way in respect to poverty. Although the level of poverty has declined from around 28 per cent to 23 per cent, rural and estate poverty is high at 24 per cent and 30 per cent, respectively. These may have in fact worsened since 2003 owing to the high level of inflation and exorbitant price of basic items.

onsidering the significant change in the structure of the Sri Lankan economy and change in ranking from a poor to a middle income country, it is paradoxical that we are still a country that has a high proportion of her population below the poverty line. This is so in nearly all South Asian countries in the region.

It is therefore not surprising that the final declaration said: “The Heads of State or Government while acknowledging the significant steps taken to alleviate poverty in the region, resolved to continue to combat poverty through all available means, including especially through people’s empowerment.

They committed themselves to continuing to share each other’s experiences and success stories of pro-poor poverty reduction strategies such as micro-credit systems, community-driven initiatives and the raising of the consciousness of the poor on their right to resources and development.” Will this too be only rhetoric?

Trade liberalisation has been another important issue. The SAARC leaders appear to have also acknowledged that the progress in trade liberalisation was tardy. Their final declaration underscores this. They recognised “the need to continue to address the major barriers hindering effective trade liberalization in the region, which include sensitive lists of items and Non-Trade Barriers (NTBs)”. Further, “they directed that the decision to revise the sensitive lists by the SAFTA Ministerial Council (SMC) be implemented early.

They also recommended that while revising the Sensitive Lists, special consideration be given to the LDCs. The Leaders directed the SAFTA Committee of Experts (SCoE) to expeditiously resolve the issue of Non Tariff Measures (NTMs) and Para Tariff Measures (PTMs) in order to facilitate and enhance trade under SAFTA.” Notwithstanding this resolve of the leaders, non-tariff obstacles are of a nature that resolutions and broad policy statements cannot solve. Sri Lankan exporters are only too well aware of the problems they have encountered at points of entry into India that have weakened efforts at increasing exports.

The final resolution of the Summit was strong in the resolve to liberalise trade in the region. It “emphasized their commitment to implement SAFTA in letter and in spirit, thereby enabling SAARC to contribute as well to the dynamic process of Asia’s emergence as the power house of the world.” It is especially significant that the resolution “underlined the need for taking concrete measures to improve trade facilitation in terms of the mutual recognition of standards, the adoption of common tariff nomenclatures, and the harmonization of customs procedures.” Further, “they directed the relevant SAARC bodies to expedite their work in these areas.”

There were other issues on trade liberalization, trade in services and investment promotion that were deliberated and decided on. Yet, given the past performance of SAARC one cannot avoid being sceptical about their implementation adequately and speedily. In as far as Sri Lanka is concerned it is vital that we approach these issues of trade liberalisation, a common currency for India and Sri Lanka and trade in services with a studied understanding of the diverse implications of these for the economy.

As Dr Saman Kelegama, who has studied these issues in depth has pointed out: we must negotiate with our neighbours in a manner that avails us of advantages and mutual gains, especially as there are wide differences in the size and capacities of two of our neighbours. In this view, Sri Lanka should move towards a mega configuration of nations rather than be satisfied with bilateral and South Asian arrangements. We cannot but concur with this observation.