SAARC in South Asia-I

REYAZ AHMED JAN
http://www.greaterkashmir.com/full_story.asp?Date=30_4_2007&ItemID=2&cat=11

The famous British Economist Alfred Marshal thought that trade was a major cause of progress and his successor Robertson called trade “the engine of growth”. Such opinions are based on the theory of comparative advantage which argues that if countries produce what they can do best and leave to other nations what they can produce with less efficiency, then real output, income and consumption will be higher than it would be in the absence of trade. Higher consumption as a result of trade means bigger domestic markets, increased specialization, greater economies of scale and higher capacity utilization. Economic integration is a process of eliminating restrictions on international trade, payments, and factor mobility. Economic integration thus results in the uniting of two or more national economies in a regional trading agreement. One such agreement is among the South Asian Countries, which gave birth to South Asian Association for Regional Cooperation (SAARC) organization.

South Asian Association for Regional Co-operation (SAARC) was formed in 1985 by the heads of States of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka to promote collaboration and mutual assistance in economic social, cultural, technical and scientific fields, and to strengthen cooperation among the member states in international fora on matters of common interest. The rationale was based on the success of similar regional groupings elsewhere and strength of the concerted action in international representation with enhanced competitive position ensued. In the recently held 14th SAARC Summit, Afghanistan was included as its 8th member. The EU, Iran, Japan, South Korea and U.S.A. were given an observer status which has broadened the scope of SAARC.

Since its inception the SAARC members have moved slowly towards economic cooperation. Following the Sixth SAARC Summit held in Sri Lanka in 1991, an Inter-Governmental Group was set up to prepare an agreement to establish a South Asian Preferential Trade Agreement (SAPTA) by 1997. The framework agreement on SAPTA was approved in 1993 and implemented in 1995, two years ahead of the scheduled time. SAPTA was a preferential trading agreement, which aimed at promoting and sustaining mutual trade and economic cooperation through exchange of concessions within the region through step-by-step approach. SAPTA was seen as a first step towards South Asia Free Trade Area. It was anticipated that SAPTA will facilitate greater specialization and cost reduction generating substantial trade creation in the region in the view of significant tariff reduction and removal of other non-tariff barriers, giving the existing compliments in resource endowments, technical know-how and expanding production capability.

SAPTA was envisaged primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA) leading subsequently towards a custom union, common market and economic union. In the 10th SAARC Summit held in Colombo, 29-31 July 1998, it was decided to set up a committee of Experts (COE) to draft a comprehensive treaty framework for creating a free trade area within the region. The agreement on South Asia Free Trade Area (SAFTA), drafted by COE, was signed on 6 January 2004 during the twelfth SAARC Summit in Islamabad (Pakistan). The agreement was to enter into force on 1 January 2006. The governing principle of SAFTA Agreement enshrined in Article 3 of the agreement clearly states that “SAFTA shall involve free movement of goods, between countries through, inter-alia, the elimination tariffs, Para tariffs and non-tariff restrictions on the movement of goods, and other equivalent measures”. Under the liberation programme scheduled for completion in ten years by 2016, the customs’ duties on products from the region will be progressively reduced. However, under an early harvest programme for the least developed member states, India, Pakistan and Sri Lanka are to bring down their customs duties to 0 - 5% by 1 January 2009 for the products from such member states. The least developed member states are expected to benefit from additional measures under the special and differential treatment accorded to them under the agreement. Under the agreement, Pakistan and India are to complete implementation by 2012, Sri Lanka by 2013 and Bangladesh, Bhutan, Maldives and Nepal by 2015. SAFTA replaces the earlier SAPTA and may eventually lead to a full-fledged South Asia Economic Union. The SAFTA agreement has not been fully implemented so far.

Owing to recent history of some member states as well as wide ranging diversity in the region in terms of size of countries and level of development, SAARC has not made significant progress in implementing a cooperation agenda on economic issues. India is the largest country followed by Pakistan in terms of surface area with 3287 thousand SqKm and 796 thousand SqKm respectively. The surface area of other members is Nepal (147 thousand SqKm), Bangladesh (144 thousand SqKm), Sri Lanka (66 thousand SqKm), Bhutan (47 thousand SqKm) and Maldives (0.3 thousand SqKm). As a result, SAARC’s intra-regional trade as a proportion of total trade has remained small and has increased marginally from 3.0% in 1985 to 4.2% in 2002. Intra-regional investment flows were also insignificant, and regional economies have not been able to reap any substantial benefits of regional cooperation. South Asia has one of the lowest levels of intra-regional trade anywhere in the world, primarily due to prevailing trade barriers. SAARC tragically, is the world’s only region, which has failed to tap the potential for socio-cultural exchange and economic cooperation, with the continuation of war and cold war between India and Pakistan. Unlike the European Union (EU) or Association of South East Asian Nations (ASEAN). However trade between the Seven SAARC states has remained limited despite the fact that all are located within the close proximity of one another and all are part of the world trade organizations.