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Regional economic cooperation
APR 21 -
Amidst the scepticism over the effective role and importance of South Asian Association for Regional Cooperation (SAARC) in economic cooperation and regional integration among South Asian countries, the 16th SAARC Summit is going to take place in Thimpu, Bhutan — the land of the thunderbolt — through April 28-29, 2010. Originally it was supposed to be held in the Maldives, but crippled by the world economic recession, the Maldives declined to host it.
SAARC, which was the brainchild of former Bangladeshi President Zia-ur Rahman, was established in 1985 and initially comprised of seven South Asian nations: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan became its newest member in 2005. The goal of the regional body was to promote the welfare and improve the quality of life of South Asian peoples as well as to accelerate economic growth, social progress and cultural development in the region.
In its initial years, SAARC’s main focus was enhancing cooperation on non-economic issues like sports, culture and education, as these issues create less political discomfort and are generally uncontroversial. The only tangible economic issue that the member states agreed on during the early days of the association was the need to combat poverty in the region, and it consequently set up an independent commission to look into the matter in 1991. Other than this, during the first decade of SAARC’s operation there were hardly any measures taken to promote economic cooperation in the region.
It was during the start of the second decade of SAARC that economic cooperation came into the agenda with the signing of SAARC Preferential Trading Arrangement (SAPTA) on April 11, 1993. But due to regional politics, the “positive list” approach, issues of non-tariff barriers and actively traded goods were left out of this preferential trade agreement; SAPTA was ineffective in stimulating intra-regional trade. Nonetheless, the South Asian Free Trade Area (SAFTA) was adopted in 2006 to further foster deeper integration and economic cooperation through higher levels of trade liberalisation.
But in spite of some positive developments and sincere efforts toward regional cooperation and integration, the agenda of full liberalisation and economic integration remains unimplemented owing to the region’s “burden of history”. South Asia’s 7.8 percent average annual growth rate for the period of 2003-2008 was the second highest in the world and exports have increased five-fold from 4.3 percent to 20.1 percent between 1990 and 2008. But the fact that less than five percent was intra-regional trade showed “the story of untapped economic opportunity and a very disproportionate bias toward extra-regional trade and investment.”
Despite the consolidated efforts of about 25 years, SAARC is still one of the least integrated economic blocs in the world, where 40 percent of its population still lives on less than US $1.25 a day. According to United Nation Conference in Trade and Development (UNCTAD), in 2007 South Asia’s share of total world exports was only 1.9 percent whereas it accounts for 3 percent of global GDP, and a mere 1.6 percent of world FDI inflows.
Though South Asia shares the geographic advantages of contiguity, proximity and familiarity, it has not been able to take full advantage of these factors for regional economic cooperation and integration, regarded as the “route toward economic prosperity.” Various studies and reports have suggested that non-tariff barriers on trade among the member states and prohibitive tariffs as well as the significant ‘negative list’ have hampered the implementation of SAFTA — a milestone towards economic union, in true sense and spirit.
Trade is the engine of economic growth and without trade integration, economic connectivity and regional integration is not possible. So, SAARC member states should be more serious about implementing SAFTA and abolishing any barrier that hampers the free flow of trade across the border.
Trade facilitation reforms can have significant trade and welfare gains, particularly for developing countries suffering from large non-tariff border costs. All members of SAARC should implement mechanisms to improve trade facilitation with the simplification and transparency of trade regulations and procedures. Besides this, expanding the SAARC visa exemption scheme, adopting the SAARC regional motor vehicular agreement, and promoting intra-regional investment and services can be effective mechanism for regional integration and harnessing business opportunities in South Asia.
In the South Asian region, India is the largest and most powerful economy. Long-term success of SAARC and SAFTA depends particularly on her attitudes and actions. If SAARC is to become a dynamic engine of growth, India needs to show magnanimity towards the economic development of this region.
Since 1989, SAARC has been designating themes of common concern for all member each year. The time the focus is on “economic agenda” and designation of the subsequent decade for regional integration and economic cooperation to achieve the ultimate goal of South Asian Economic Union by 2020.
Bhutan is holding the regional meet for the first time in the 25-year history of SAARC. Let’s hope Thimpu will be a place where leaders of South Asia “walk the talk” and realise a dream of making South Asia an economic power of the world.
(Shrestha is associated with Nepal Chamber of Commerce. Views expressed are his personal)
Posted on: 2010-04-22 08:41
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