Increasing intra-regional investment, trade and finance requires regular dialogue and collaboration among various stakeholders in the region.
--BY PURUSHOTTAM OJHA
The South Asian Association for Regional Cooperation (SAARC) is in hibernation due to the long drawn out political and strategic rivalry between India and Pakistan. This regional organisation has not been able to produce tangible output over a period of three and a half decades. The effort in advancing economic cooperation was initiated with the signing of the South Asian Preferential Trade Agreement in 1993 which became effective in 1995. This agreement embraced trade liberalisation through a positive list approach which means only the selected products notified by a member country would get tariff preferences in import from other member states. In view of the growing zeal to intensify economic linkages, the head of states or government during the tenth summit held in Colombo in 1998 decided to set up a Committee of Experts to negotiate the free trade agreement for South Asia. The Committee of Experts completed the task of negotiating the text of the free trade agreement of SAFTA in seven rounds of negotiations and the agreement was finally signed during the summit in Islamabad in 2004.
The agreement on SAFTA was considered to be the precursor of deeper economic integration between South Asian countries. The agreement not only laid out a road map for tariff liberalisation but also outlined measures to facilitate cross border trade and investment through increased connectivity and facilitation of transit, macroeconomic consultation, removal of non-tariff barriers, customs cooperation and harmonisation of standards and reciprocal recognition of tests and certifications, among other issues. Over the years, the implementation of identified measures for deeper engagement was weak and frivolous. Hence, the cursed phrase of "least integrated region of the world" has been haunting South Asia over the last two decades or so.
Paradox of vision and progress
The report of the Group of Eminent Persons (GEP) constituted by the SAARC leaders during Ninth SAARC summit held in Male, Maldives in 1997, articulated the vision of transforming the region into an Economic Union in the EU model by 2020. This means SAARC will move towards introducing a common visa, currency and common economic policies, going beyond the deeper trade integration. The elements of deeper integration such as common customs tariff, integration of labour markets, seamless connectivity, and common energy markets were to be achieved before making forays into the economic union. But this vision has now turned into a fiasco as the member countries are still struggling to achieve a fully-fledged implementation of a South Asian free trade area, an entry point for further integration of economies.
A cursory look at the SAARC summit declaration and outcome of ministerial meetings so far shows a rosy picture of regional cooperation giving the impression that south Asia was the most integrated region of the world. But this turns out to be a paradox as the region is nowhere comparable to other emerging regional organisations in Asia, Africa and Latin America.
The area of cooperation under this regional process exceeds 10 which ranges from agriculture to trade, social affairs, education, and transport and poverty reduction, among others. However, the progress achieved till now remains far below expectations. For example, SAFTA was signed with great fanfare in 2004 but its goal of trade integration is yet to be realised. Member countries are still hankering for tariff protection for a large number of products by putting them on the sensitive list on the one side while a huge number of non-tariff measures are being taken as new trade barriers on the other. Little progress has been made in the area of reducing trade costs and facilitation of cross-border trade. The agreement on trade in services is just reflected on paper without making much progress on market access negotiations. Some key elements like facilitation of cross-border investment, customs harmonisation, and mutual recognition of test and certifications are still lingering with no breakthrough in sight.
Bringing life to the waning regional process is a big challenge that needs honest commitment and synergy of action among SAARC leaders. First, there should be a realisation of a politico-economy dichotomy in dealing with bilateral relations. This requires a broader understanding and commitment not to crucify the economic agenda in exchange of achieving a strategic goal which is unfortunately happening in South Asia. Being in contiguous locations and common borders in many cases, there could be various sorts of problems between the countries, but they should not be weaponised to hurt the economy of the others.
However, control of cross-border illegal activities including the protection of people and national sovereignty and security are the indispensable rights and duties of every nation. These are sacrosanct to any country and activities to impinge upon these issues should be avoided in all spheres of bilateral relations.
India and Pakistan, as the bigger economies of the region, bear the salience in driving the regional process forward. However, the efforts made till now are not encouraging as the geo-political rivalry between the two countries has overshadowed the limited achievement of SAARC. The regional body is now engaged in limited dialogues and discussions at a technical level whereas the political level meetings have been on hold for a long time. The long pending regional investment promotion and protection agreement and the aborted regional motor vehicle agreement are glaring examples of this. A high-level webinar about dealing with the pandemic was organised in March this year under the aegis of the Indian Prime Minister who announced to set up a regional fund for fighting the Covid-19 pandemic with a contribution of USD 10 million from India. Unfortunately, the fund has not been operative due to differences of opinion on how to process and mobilise it.
Countries around the world are facing challenges in dealing with the menace of the corona virus. In a situation of crisis, cooperation among South Asian nations is called for more than ever. India, as one of the leading countries of the world in development of vaccines and pharmaceutical products, has a role to play in fighting the disease in collaboration with the neighbours.
Secondly, the South Asian nations should strive to bring convergence on trade and investment policies in order to increase intra-regional trade. One of the unexplored areas of trade is the work on the regional value chain. There are possibilities of expanding trade in parts and components in manufacturing and services. Currently,a value chain on a limited scale has been introduced in garment manufacturing between India and Bangladesh. This can be further linked with Nepali garment manufacturers. Besides, there are possibilities of creating value chain linkages in medical products, traditional medicines, and tourism services. However, this needs to be supported by connectivity, border crossing formalities, mutual recognition of test and certifications and other facilitation measures.
A third important element is seamless connectivity. Some positive developments are taking place in South Asia under the banner of multimodal connectivity in BBIN sub-region. Improvement of road and rail infrastructures and border posts are being carried outunder the bilateral cooperation and multilateral financing. River transportation agreement between India-Bangladesh and Nepal-India are the new developments in the diversification of modes of transport. Power trading arrangements between Nepal-India, Nepal-Bangladesh and India-Bangladesh have provided a new fillip to integrate the power sector in the region.
Fourth, special economic zones (SEZ) may be the game changer in forging better economic cooperation and integration in the region. SEZ can facilitate the regional value chains as it helps in strengthening the supply capacity of the smaller countries. Development of cross-border economic zones in contiguous locationswill help facilitate export and improve the export performances of a country. All neighbouring countries face trade deficits in their trade with India. Special economic zones could be one of the best instruments in achieving complementarity in trade.
SAARC as a regional organisation has faced several roadblocks in the past and has moved at a very slow pace mainly due to the geo-political rivalry between India and Pakistan. Often the organisation is criticised as being just the talk shop of heads of state or governments who do no substantive work or make progress. As the emerging global power, India has the onus of taking the lead in making SAARC a vibrant and meaningful organisation. The areas of trade, transport, investment, finance and people to people interaction have the potential to transform the economies of the region. This requires understanding the idiosyncrasy of each country for security, peace and development. Building trust and confidence among each other is the primary task in this process.
Increasing intra-regional investment, trade and finance requires regular dialogue and collaboration among various stakeholders in the region; from the government to academia, think-tanks, private sector and business organisations.
All countries around the globe are now facing the crisis of a pandemic. Least developed countries in South Asia are affected from the menacing virus disproportionately due to their weaker health system. This calls for a collective action in availing vaccines and essential drugs atthe earliest possible time on the one side while ensuring food security to a large number of people on the other. This also means increasing agricultural production and lowering barriers on trade in essential goods and services. The time is now ripe for resurrecting the stalled regional process for the common benefit of the people in South Asia.
Ojha is a former Commerce Secretary. The views expressed in this article are his own.