Regional Cooperation
And The Need To Accelerate
Intra SAARC Trade

Regional trade groupings have come to stay as a hard reality on the global economic scenario with the establishment of Regional trade agreements (RTAs) like the North American Free Trade Agreement (NAFTA), the European Union (EU), the ASEAN Free Trade Area, the Central American Common Market, Latin American Free Trade Area, the Central African Customs and Economic Union, the East African Community, the Arab Common Market, the New Zealand-Australia Free Trade Area, and Common Market of the Southern Cone . Such RTAs are increasingly the norm in a globalizing economy and pose a possible challenge to the WTO's objective of global free trade since technically regional trading arrangements are violative of multilateralism. They range from preferential trading arrangement to economic union. The basic objective is to promote intra-regional trade among the member countries and thereby economic cooperation and development. One aspect of RTAs is much relevant for SAARC countries, since SAARC could not materialize the formation of South Asian Free Trade Area (SAFTA) by 2001; there is a possibility of marginalization of those countries, which are outside the group.

RTAs are legally permitted under Article XXIV of the General Agreement on Tariffs and Trade (Gatt). Experts allude to the following benefits of intra-regional trade expansion: larger markets and fuller utilization of production capabilities, transfer of suitable production technologies, comparative advantage and complementarities, economies of scale due to expanded markets and better utilization of entrepreneurial capabilities, capital, manpower and natural resources with which the partner countries are endowed in varying degrees.

South Asian Economy and Regional

SAARC region with just 3 percent of the world's area houses 21 percent of the global population and also it is the most densely populated part of the world with about 263 people for every square kilometer. The region is characterized by large income disparities, with 43 percent of its population living below the poverty line. South Asia’s economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services. SAARC, tragically, is the world's only region, which has failed to tap the potential for social-cultural exchange and economic cooperation, with the continuation of war and cold war in the region between India and Pakistan. Intra-SAARC trade is dismally as low as 4% and the collective share of the region in world trade was just 1%.

      Source : World Development Indicators, July 2001

But according to a recent World Bank report, "South Asia's Integration into the Global Economy," predicts South Asia will have "the world's fastest growth in exports" by 2028.

Formation of SAARC

At the first official meeting on 2 August 1983 the Foreign Ministers of today's SAARC member states (India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives) adopted a declaration on South Asian regional cooperation in which they defined their objectives and adopted an action programme which defines the areas of cooperation. The SAARC was formally founded at the first Summit Conference of 7 and 8 December 1985 in Dacca (Bangladesh. the SAARC was formally founded at the first Summit Conference of 7 and 8 December 1985 in Dacca (Bangladesh).

Economic Cooperation and SAFTA

The centerpiece of economic cooperation of the SAARC is the South Asian Preferential Trade Arrangement (SAPTA). It aims at the liberalization of regional trade by abolishing trade barriers and greater cooperation. Among the regional economic groupings SAARC is relatively one of the younger one, as it is just 16 year old. Whereas, regional economic groupings of its kind have gone through dramatic transformations in this period, bringing their members so closer in the chosen areas, such as trade and economic cooperation a heavy intra -bloc trade. Compared to 4% of Intra SAARC trade the intra bloc trade figures of other regions are as follows: NAFTA (North Atlantic Free Trade Area) 37 %, EU's (European Union) 63%, and ASEAN' 38 %.

It is estimated that about 60% world trade is channeled through RTAs. Two of the largest RTAs i.e. NAFTA and EU are destinations for more than 55% of India's exports as well as a major share of our south Asian neighbors. The South Asian countries exchange goods principally with countries outside the region. Their largest trading partners, accounting for more than 50 % of their total trade, are the major industrial countries in the European Union, along with the United States, Japan and 40 % with countries in the Asia-Pacific region.

And the just concluded Kathmandu Summit pledged to work towards early establishment of South Asian Free Trade Area(SAFTA) and directed the member governments to finalize the draft treaty framework for this purpose by the end of this year itself. (It was supposed to materialize by the end of 2001.)

Indo-Pak Relations and SAARC 

Problems in Indo- Pak relations are one of the major obstacles in the SAARC integration. India and Pakistan account for nearly 80% of the GDP of SAARC. Undoubtedly improvement of Indo-pak ties is crucial.

In the aftermath of partition, more than 70 percent of Pakistan's trading transactions were with India. Political compulsions, however, resulted in a decline of India-Pakistan official trade from Indian Rs.1,850,000,000 in 1948-49 to an all-time low of Indian Rs. 110,000,000 in 1965-66 which coincided with the second India-Pakistan war. The gradual severance of bilateral trading relations forced both Pakistan and India to adopt economic blueprints that undermined their self-sufficiency. Pakistan imported coal, steel, iron and even wheat from the West, China, and South Korea when it could have secured these commodities from India at half the price. India also incurred a considerable opportunity cost. For instance, areas more suitable for paddy cultivation were converted to jute cropping when Pakistan prohibited the export of raw jute to India. New Delhi imported pig iron and iron scrap from the region, although it could have been purchased from Pakistan at lower transportation costs.

Informal trade taking place between India and Pakistan is estimated to be more than 4 times of official trade. The size of this informal trade approaches Indian Rs. 20 billion per annum if supplies received by India and Pakistan through third countries are taken into consideration. This results in revenue losses also for both the countries.

WTO Negotiations and SAARC Region

Individual countries don't possess enough bargaining clout at multilateral forums. Group effort and cooperation on negotiating table will undoubtedly enhance the Bargaining strength. Issues like labor or environmental standards or rules like anti-dumping and anti-subsidy investigations are areas where SAARC can stand together. And it is already happening. SAARC Commerce ministers meeting held at Islamabad in 1998 April 29-30 took decision to set up a coordinating group of SAARC ambassadors at the WTO. This was fruitful as before the Seattle and Doha summits they could adopt common positions.

The South Asian region is blessed with exceptional diversities of natural and human resources including:

• Land forms and climatic regimes ranging from sea level to the highest mountains, and deep gorges; hottest plains to snow clad mountains; wettest to driest places; dissected green
  Valleys to coral islands;
• Thousands of rivers and immense hydroelectric potential;
• Mineral resources such as coal iron, natural gas etc; and
• Extensive diversities of forest resources including exclusive varieties of animals, herbs and timber.

Unfortunately, this vast stock of natural wealth of the region has not been optimally and efficiently managed and utilized for the benefit of the peoples of this region. India has a role to play in the development of region. Its strength in IT field can be used for the development of IT. Similarly, each can offer something to other. This requires collective and collaborative strategies and joint ventures by the countries of this region.

The primacy of politics over economics in South Asia largely explains the sluggish growth of regional trade and pronounced volatility of trade between the South Asian countries.

– Perumal Koshy
November 10, 2002

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