South Asian economic cooperation

Daily Times, Pakistan

29 September 2004

VIEW: South Asian economic cooperation - Rashed Rahman

Despite the thaw in relations and the composite dialogue currently underway, there is so far little beyond good intentions to show for the flurry of activity. India would ideally like progress on trade issues independently of intractable problems like Kashmir, while Pakistan sees this with suspicion as a Trojan Horse to postpone meaningful progress on the Kashmir dispute

The three-day meeting of the South Asian Association for Regional Cooperation (SAARC) sub-group on Investment and Arbitration beginning today in Kathmandu seeks to further the understanding among member states to set up an investment regime and adopt a dispute settlement mechanism in order to increase economic cooperation throughout the region. However, despite progress in the SAARC Preferential Trading Arrangement (SAPTA) and the signing of the Framework Agreement on the South Asian Free Trade Area (SAFTA), South Asia still has a long way to go before the vision of regional economic cooperation can be achieved.

That vision derives from past SAARC agreements and understandings, as well as the commitments entered into at the Islamabad SAARC Summit held on January 4-6, 2004, including the creation of a South Asian Economic Union (SAEU). The Summit signed three agreements:

1. The SAARC Social Charter;

2. The Framework Agreement for SAFTA, and

3. The Additional Protocol to the SAARC Regional Convention on Combating Terrorism.

In addition, the Summit endorsed the report of the Independent Commission for Poverty Alleviation in South Asia and committed itself to the implementation of its recommendations.

The Summit also committed itself to intensify cooperation in the following areas:

1. Creation of a SAEU;

2. Energy cooperation;

3. Transportation, transit and communication links;

4. Harmonisation of standards and simplification of customs procedures;

5. Public and private sector cooperation through joint ventures;

6. Setting up a South Asia Development Bank;

7. Cooperation among Central Banks;

8. Development of tourism within South Asia;

9. Coordinating the member states’ positions in multilateral fora, and

10. Approval of the Finance and Planning Ministers’ Islamabad 2004 Plan of Action on Poverty Alleviation.

This is an impressive list. However, for it to become reality, this vision will have to be underpinned by the requisite political will amongst member states. Therein lies the rub. India, as the largest country and arguably the pre-eminent power in the region has disputes of differing seriousness with almost all its South Asian neighbours. It will have to find a new version of the Gujral Doctrine to allay the apprehensions of its neighbours concerning the Indian state’s hegemonic designs in the region and beyond.

On the economic front too, many problems begin and end with the mention of India. The SAFTA agreement is only the first stage on the road to deepening cooperation. Here, too, there is a legacy inherited from the past that militates against this goal. For a region that aspires to an Economic Union, we have one of the lowest levels of intra-regional trade. Prevailing trade barriers and the structural asymmetries in the regional economies limit the scope for trade. Despite that, intra-regional trade has increased significantly in the last decade mostly through imports by all countries in the region, except Pakistan, from India. But exports by the regional countries to India have not kept pace. The principal export destination of all South Asian countries remains North America and the European Union. This lack of commensurate progress in reciprocal regional export growth to India is due in some measure to India’s relatively restrictive import regime, but also to the structural rigidities in the smaller economies which yield little in the way of export surpluses destined for the Indian market.

If this imbalance is to be addressed, India must make the deepest concessions to open up its import regime to regional countries and help the smaller countries to enhance and diversify their production and export capacity to exploit market opportunities in India. Since the SAARC process has moved too slowly for this, bilateral free trade agreements (FTAs) have become the preferred option. India thus has entered into bilateral FTAs with Nepal, Bhutan and Sri Lanka. A bilateral FTA is under negotiation with Bangladesh. In return the smaller economies will be given more time to eliminate trade barriers to Indian exports. The relationship between the bilateral FTAs and the move towards SAFTA will have to be worked out. The former may not necessarily act as impediments but rather facilitate SAFTA since the doors to enhanced trade will already have been opened.

The exception to these developments is the Pakistan-India trade relationship. Despite the thaw in relations, the composite dialogue currently underway, and exchange of visits between Pakistani and Indian trade and business delegations, there is so far little beyond good intentions to show for this flurry of activity. India would ideally like progress on trade issues independently of intractable problems like Kashmir, while Pakistan sees this with suspicion as a Trojan Horse to postpone meaningful progress on the Kashmir dispute.

Irrespective of the Pakistan-India virtual trade impasse, SAARC will have to subscribe during the negotiations on SAFTA to the following principles if regional free trade is to see the light of day:

1. India must make the deepest concessions.

2. The most generous concessions must be offered to the SAARC Least Developed Countries (LDCs).

3. The negative lists must be reduced to a minimum in each country and particularly the bigger economies.

4. Financial support must be offered to the weaker members to enhance their trade capacity.

5. Financial compensation must be offered to LDCs facing significant import revenue losses due to trade concessions under SAFTA, and

6. Negotiations must be concluded within a short timeframe, preferably before the next Summit, if the region is to adjust to the looming WTO regime.

The writer, currently a freelance contributor, has held editorial positions in various Pakistani newspapers