Editorial»
Common SAARC currency
JAN 03 - There are few things that a politician cannot do but a poet can. A few weeks ago, poet Atal Bihari Vajpayee, in one of his rare ‘can fetch the moon for you’ mood, proposed a common currency for South Asia. It will be naïve to assume that the Prime Minister of India is unaware of the slow pace of regional economic integration in South Asia and he sincerely believes that the region can have a common currency in the near future. Nevertheless, even if the statement came from the poet and not the politician, it has given a new fillip to South Asian Association for Regional Cooperation (SAARC) and should be welcomed for this matter.
South Asia will have to wait for at least a few decades to make Vajpayee’s dream of common currency come true. Regional economic integration is a long process and can be broadly divided into two phases, shallow integration and deep integration. The first stage of shallow integration is the formation of Preferential Trading Area (PTA). In this stage trading partners offer preferential tariff to each other. SAARC Preferential Trading Arrangement came into existence in 1995 and at present members have reduced tariff on more than 6,500 products. This, however, has not resulted in a substantial increase in intra-regional trade because the reduction on tariff is not significant and the products on which reduction have been offered are not those that have high trade potential for other members.
The next stage of shallow regional integration is the formation of Free Trade Area. In this stage members remove all tariff and non-tariff barriers among themselves but are free to fix their own tariff rates on imports from non-members. Architects of regional integration in South Asia envisioned having SAARC Free Trade Agreement (SAFTA) by the end of 2002. This though could not be achieved and now the officials are working hard to finalise the draft in the forthcoming twelfth SAARC Summit in Islamabad. The eleventh SAARC Summit held in Kathmandu in 2002 had proposed various dates for moving towards the establishment of an economic community in South Asia. It proposes that the least developed members remove all tariff and non-tariff barriers by 2010 and other members by 2008 so that SAFTA will be fully established by 2010.
The third stage of shallow regional integration is the formation of a Customs Union. In this stage members, in addition to removing all tariff and not-tariff barriers among themselves, also set a common level of tariff for non-members. The architects of regional integration in South Asia envision having a South Asian Customs Union by 2015.
The next stage towards regional integration and the first step of deep integration is the formation of a common market. This stage is characterised by the harmonisation of some institutional arrangements and commercial and financial laws. In addition to the free movement of goods and services, a common market will also have free movement of capital and labour.
The final stage of regional integration is the formation of an Economic Union. This stage involves the integration of national economic policies including tax and a common currency. The eleventh SAARC Summit held in Kathmandu in 2002 proposed that measures to establish South Asian Economic Union (SAEU) be completed by 2020.
Regional integration in South Asia is still in the first stage and its entry into the second stage is proving difficult. This was evident from the failure of officials to finalise SAFTA draft before the twelfth SAARC Summit to be held in Islamabad from 4-6 January 2004. Given the fact that the performance in the first stage has not been encouraging, it is questionable whether the dates proposed by the eleventh SAARC Summit in Kathmandu for various stages of economic integration within South Asia will be realised. In this light, Prime Minister Vajpayee’s proposal has taken many by surprise.
It is needless to say that the progress of regional integration in South Asia will depend on how seriously India takes SAARC. It has been evident to all that SAARC has been a low priority for India and it has not given SAARC the strategic importance it deserves. Be it India’s attempt to get membership of the Association of Southeast Asian Nations (ASEAN) or its preference for bilateral trade treaties with other SAARC members, it is clear that India has been circumventing SAARC.
Imposition of quantitative restrictions and quarantine checks on some Nepalese products give a telling story of how serious India is to accelerate the process of regional economic integration. This has recently been amplified by India’s refusal to grant special concessions in SAFTA to the least developed members of SAARC.
And what to say of the effect of the Indo-Pak rivalry on SAARC? Of all the things that have reduced SAARC to what it is now, this has been the dominant factor. Happenings in Pokharan and Kargil have derailed the progress of SAARC. Is Vajpayee’s comment an indication that India is willing to accelerate the regional economic integration in spite of its problems with Pakistan? If it is so, then it could be a new beginning for SAARC.
Regional economic integration is not an easy task and it requires commitment and political will from all members. The economic and political benefits that accrue are not always equally favourable for all the members. India, as a dominant trade partner in the region, will have to show magnanimity and take leadership if it is indeed serious about having an economic union and a common currency in South Asia.
This will require that India and its leadership are honest and transparent in matters relating to SAARC and are able to win the confidence of other members including Pakistan. This task is formidable and given India’s performance in the past, seems almost impossible. But there are many things a poet cannot do but a politician can, especially if he happens to be the Prime Minister of India.Posted on: 2004-01-04 05:18
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