The tensions between India and Pakistan and time to time escalation between the two nuclear arm neighbours has been main obstacle in the regional cooperation and integration between South Asian countries. India as the largest and most dominant country in South Asia can take the major share of the failure of SAARC.
The Indian attitude and its efforts to establish its hegemony in the region and to dictate terms have become a hurdle in the cooperation and integration. Because of its formidable position in South Asia, India bears the responsibility, more than any other country, for peace and prosperity in the region. Not only that, being a fast-growing economy, war is the last thing India can afford, as such an adventure would put a damper on the country’s growth momentum.
SAARC was founded in Dhaka, Bangladesh on 8 December 1985 to promote economic cooperation and regional integration. But SAARC never took off due to the rivalry between India and Pakistan. All the hopes of regional cooperation and integration in the SAARC countries have been shattered.
SAFTA was envisaged primarily as the first step towards the transition to a South Asian Free trade Agreement (SAFTA) leading subsequently towards a Customs Union, Common Market and the Economic Union.The SAFTA Agreement was signed on 6 January 2004 during 12thSAARC Summit held in Islamabad. But SAFTA was never implemented.
The Agreement entered into force on 1 January 2006, and the Trade Liberalisation Programme commenced from 1 July 2006. In 2012 the SAARC exports increased substantially to US$354.6 billion from US$206.7 billion in 2009. Imports too increased from US$330 billion to US$602 billion over the same period. But the intra-SAARC trade amounts to just a little over 1% of SAARC’s GDP. In contrast to SAARC, in ASEAN (Association of South East Asian Nations) the intra-bloc trade stands at 10% of its GDP.
SAFTA was envisaged to gradually move towards the South Asian Economic Union, but the current intra-regional trade and investment relation are not encouraging and it never realised. The SAARC intra-regional trade stands at just five percent on the share of intra-regional trade in overall trade in South Asia. Similarly, foreign direct investment is also dismal. The intra-regional FDI flow stands at around four percent of the total foreign investment.
The Asian Development Bank has estimated that inter-regional trade in SAARC region possessed the potential of shooting up agricultural exports by $14 billion per year from existing level of $8 billion to $22 billion. The potential average SAARC intra-regional trade of $22 billion per year, the actual trade in South Asia has been only around $8 billion. The uncaptured potential for intra-regional trade is therefore $14 billion per year.
South Asia consists of 3% of the world’s land surface, contains 24 percent of the world’s population Comprising 1.8 billion people, however, its share ($3.2 trillion) in the global gross domestic product (GDP) of $78.1 trillion is only 3 percent and shares 1 percent of the world’s trade.The region is characterized by poverty, representing half of the world’s poor, and frequently suffers from devastating natural calamities, border conflicts, and ethnic and religious disturbances. The region is home to the nations – Afghanistan, Bangladesh, Nepal, the Maldives and Bhutan – are counted among the least developed countries (LDCs) of the world.
The regional integration and economic cooperation can increase the trade among the SAARC member states. The regional trade and integration help many countries in different regions of Latin America, Africa, North America, Europe and Asia to develop their economies and create jobs and economic opportunities for poor and working class communities.
The process of globalisation has confronted the developing countries with many daunting challenges. The flow of development assistance is stagnating and is increasingly being linked to the promotion of the donor countries’ trade objectives. This has triggered an intense competition for foreign direct investment (FDI) among developing countries.
Under the Uruguay Round, rules governing intellectual property rights, subsidies, countervailing duties, trade-related investment, environment, and health issues would eventually be the same for industrial and developing countries. Therefore, the basic challenge facing South Asian Countries in this new regime is raising their economies’ efficiency and international competitiveness and implementing a “pro-poor” growth strategy to tackle pervasive poverty.
One of the ways to meet this challenge is to overcome regional apprehensions and constraints and move toward regional trade liberalisation, cooperation in investment, and economic integration, which will pave the way for the most efficient use of the region’s resources through additional economies of scale, value addition, employment, and diffusion of technology.
Although it is widely believed that any increase in intraregional trade as a direct result of liberalisation will be limited in South Asia, the indirect effects of intraregional trade liberalisation are likely to be significant. The economies of South Asia are likely to be substantially impacted by lower intraregional transport and transaction costs. Higher efficiency and technical competence from increased intraregional competition and cooperation.
There will be more active investment from outside the region because of an expanded market; and liberalisation of capital and human resource movement. Sustained regional integration can transform South Asia into a major economic growth zone of the world in couple of decades, as the region has the largest population concentration in the world with huge opportunities for economic growth because of the unsatisfied needs of the large number of poor people in the region.
Regional Integration will create exciting opportunities for exploiting synergies based on comparative advantages, investment in cross-border infrastructure projects, and coordinated programs to address challenges in governance, environment, social development, and other fields that spill over national boundaries.
An example of cross-border investment is the US$255 million Lafarge Surma Cement plant sponsored by the Lafarge Group of France. The plant is located at Chatak, Sylhet, in Bangladesh; the main source of raw material is a limestone quarry in Meghalaya, north-east of India, connected by a 17 km cross-border long-belt conveyer. The project is expected to create about 400 jobs in Sylhet and about 70 jobs in Meghalaya.
The region is locked into a set of common problems that can be resolved only through regional cooperation. Let’s take water issues among SAARC states, most of Nepal’s rivers flow into Uttar Pradesh and Bihar in India. Indeed the tributaries in Nepal that feed the Ganges join up in Uttar Pradesh and Bihar before entering West Bengal and Bangladesh. Therefore, in harnessing the waters of the Ganges, India needs Nepal’s active participation. Similarly, any program of water management by Bangladesh, whether for flood control or irrigation, will not be feasible without the ultimate collaboration of the upper riparian states of India and Nepal.
Pakistan and India has serious water issue. The Indian government is threatening to withdraw from Indus Water treaty. This dispute can lead to an armed conflict. But regional cooperation can help to solve this problem. With proper planning and investment, the water resources of the region could well be used for the generation of electricity, which could meet the energy needs of the entire South Asia region.
At present, highways, waterways, and rail links that traverse each country stop at national borders and thus are unable to service the region. The rebuilding of this physical infrastructure has been constrained by security-driven apprehensions, which the countries found impelling enough to sacrifice mutual economic benefits.
Despite the opportunities, progress in achieving regional cooperation in South Asia has been at best modest because of a host of economic and political factors. Although there is substantial informal trading, official trade among South Asian countries accounts for only 5 percent of the total trade volume, and intraregional investment is only 1 percent of the total investment.
In comparison, intra-trade in NAFTA is 54.6 percent, in the European Union it is 63.4 percent, and in the Association of Southeast Asian Nations (ASEAN) it is 22.2 percent. In terms of trade openness, South Asian countries are not as open as their counterparts in other regions of the world such as ASEAN. On average, trade (both exports and imports) equals less than 30 percent of the gross domestic product (GDP) in the South Asian region compared with more than 75 percent for ASEAN.
The lack of political will is considered to be the major hindrance to the success of regional integration. The tension between India and Pakistan, distorted perception of national interest and dictations of so-called security, and to a lesser degree, distrust of India by her smaller neighbors, and the chronic and huge trade imbalance with India have created an atmosphere that is not conducive to regional cooperation.
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20 July, 2019