Regional Cooperation in SAARC
Compiled from the speeches of one of theThank you for reading this post, don't forget to subscribe!
Former Presidents of FBCCI
The Economy of Regional Cooperation
The global economic environment is now marked by momentous changes. There are two apparently opposite trends developing simultaneously in the world. On the one hand, countries are moving towards global economic integration, particularly after the conclusion of Uruguay Round of GATT negotiations leading to establishment of World Trade Organization (WTO). On the other hand, developed and developing countries around the World are increasingly attempting at forming regional economic and trade blocs for intra-regional trade liberalization and economic integration. As the trend indicates, it is now widely recognized that global economic integration can best be achieved in a graduating or a step-by-step process through sub-regional and regional trade and economic cooperation.
Moreover “regional cooperation is fast becoming the key link” for success in the ever-continuing battle of mankind for its survival and prosperity. Countries with varying sizes, geographical features, and endowment of natural resources, with diverse religions, social complexities, political systems and different levels of growth and development are trying to find ways of establishing regional cooperation. In UNO’s efforts to achieve the goal of promoting social progress and better standard of life globally it is now increasingly felt that between the world today and its member states an intermediate stage is required to promote this objective.
Exploitation of the mutual advantages of trade and economic growth and of their link to geography has always been recognized as a vital tool for generating national and regional wealth.
The benefit of regional trade is an age-old reality and extensively dealt by Adam Smith even three hundred years before in his writing. He mentioned in his famous book “The Wealth of Nations.” I Quote
“The wealth of a neighboring nation, however, though dangerous in war and politics, is certainly advantageous in trade. A nation that would enrich itself by foreign trade, is certainly more likely to do so when its Neighbours are all rich, industrious and commercial nations. A great nation surrounded on all sides by wandering savages and poor barbarians might, no doubt, acquire riches by the cultivation of its own lands, and by its own interior commerce, but not by foreign trade”.
For smaller nations in particular, it is even more vital because foreign trade enlarges the market and increases the scope and efficiency of division of labor, thereby increasing wealth and economic growth. Indeed, small countries in any particular region usually gets privilege and advantages out of the economically developed larger neighbor in the modern world. In 1995, in the context of Europe, Belgium and Sweden, two smaller countries neighboring France & Germany achieved trade ratios of 143 and 77 percent of their GDP respectively. In North American context we can cite the similar example for Canada and Mexico.
Regional Cooperation in SAARC
Regional Cooperation has two independent elements: that is, regional trade and regional integration. Let us examine the case of Regional Cooperation in SAARC ‘from these two parameters’.
Although one-fifth of the world population live in South Asian countries, they hold an insignificant position in the global economy accounting for only 1.9% of global GNP. Poverty is pervasive, bulk of the people are below poverty line in this region. Our region’s share in global trade is only 0.96% of export and 1.3% of import. The trade within the region is hardly 3% of our global trade and our countries rely heavily on the industrial economies for both import and export. The low volume of trade among SAARC countries means that the multiplier effects get their way to other countries, denying the region the benefits of higher production and employment. In the process we are contributing to growth of the economies outside the region.
There are several global factors that underscore the need for expediting the process of regional trade and economic cooperation among the South Asian Countries, as for developing countries of other parts of the World. Firstly, the developing countries particularly the countries in our region are being increasingly marginalized in the international trading community. Secondly the powerful trading blocs like European Union, NAFTA, and APEC among the major economies would further marginalize the South Asian economies. Thirdly, regional cooperation is now-a-days used as a dynamic instrument of accelerating the pace of development and economic growth.
Most of the countries of the world are increasingly trading with their neighbors and in fact, intra-regional trade often forms the bulk of the total trade of many regions in other parts of the world. Fourthly, the prospects of rightful and adequate improvement of the market access conditions in the developed world for the export of developing countries such as textiles, and clothings, agricultural commodities, footwear, labour-oriented products, etc. are not encouraging in near future even after establishment of free trade regime under WTO. Trade barriers against the export of developing countries are being multiplied on the pretext of environment protection, labour standard and other non-trade issues.
On the question of Regional Cooperation in South Asia, Indian Prime Minister Mr. Vajpayee in a recent statement underlined the importance of close regional cooperation for the progress of South Asia, and visioned that regional trade is going to grow faster as because there is unexploited potential in the neighbourhood. It is also important to liberalize cross-border trade to check black-market and underground trade as trade restrictions have given birth to smuggling, money laundering and other transnational crime. So it shows that we have little option but to develop regional trade both for economic development and also for maintaining socio-economic order.
Unfortunately Intra-regional trade in South Asia is yet below 5% of the total trade and 1% of total investment, whereas regional trade in case of NAFTA is 49%, EU 78% and ASEAN 53%. Given the population size and GDP growth in the South Asian countries, there are immense potentialities for growth of regional trade. But unfortunately the biggest impediments to regional cooperation is continuing to be posed by historical disputes, mistrust, armed insurrections and warlike situations between countries and sometime within the country itself. We may reap the dividend of regional cooperation by putting aside mistrust and dispelling unwarranted suspicions.
Poverty and low income syndrome in the South Asian economies pose a major constraint. It is also mocked as a “poor man’s club”. Savings and investment gap drives them to donors for aid. This in turn makes them dependent on industrialized donor countries for capital goods and input procurements. Hence, those South Asian countries which are capable of producing these goods fail to supply due to lack of funding. Countries of South Asia rely heavily on foreign capital to overcome the resource and trade gaps, and foreign capital is usually tied to import from donors or their allies.
Availability of technical know-how and adequate research base plays a catalyst role in development of product and promoting efficiency and complementarities. At present these facilities are lacking particularly in the least developed countries of the region. forging of economic integration would require cooperation and collaboration in the development of technical know-how and adequate research base in the region.
There is also the fear of economic domination of India among smaller countries in the region because of its central location, size, relatively advance stage of industrialization, relatively richer endowment of resources and comparative advantage in most goods produced. India alone constitute 3/4th of South Asian population and about 84 percent of value added in manufacturing. Against these apprehensions about Indian dominance, India is striving for more stronger link with global markets and developed economies than the countries in the region. Consequently, its imports from within the region are negligible accounting for only 1 percent of its total imports.
There is a popular misunderstanding that the cooperation between a large country like India and neighboring small countries like Bangladesh, Bhutan and Nepal cannot be a win-win case or in other words beneficial to both the small and the giant partners. That economic cooperation can be beneficial to both the giant and the small partners is amply demonstrated by the success story of NAFTA among the giant USA, relatively small but developed Canada and small & less developed Mexico. These countries historically remained apprehensive of each other. Canada and Mexico had the fear that they would lose more than gain by cooperating with the giant USA. The actual results of NAFTA have proved otherwise.
Communication gap is another important constraint to enhancement of South Asian economic cooperation. People in South Asia do not have information about markets and export potentials of each other. The data base of each country has to be significantly improved and networks of exchange of information have to be developed much wider more frequent than the existing official channels.
Political conflicts between the two major partners India and Pakistan remains another major obstacle holding back operationalization of SAPTA.
There is ample opportunity of benefiting from expansion of intra-regional trade in South Asia considering:
- huge potential market of 1.3 billion people.
- availability of relatively less expensive manpower in the region at all levels of skill.
- availability of all varieties of natural resources shared in different degrees by the member countries;
- wide possibilities of finding out enough complementarities because of wide disparities in industrial structure and resource endowments;
As regional economic cooperation develops, the South Asian countries will also gain collectively if they work jointly to expand markets for their products in other regions. The larger economies will benefit because of increased market for their products in the very neighborhood while smaller countries will benefit immensely if they gain easier access to vast markets in the neighborhood. The LDC members will also gain if the promised tariff concessions and removal of non-tariff barriers, special facilities and concessions as well as technical assistance are materialized.
But smaller countries can only benefit from the opportunities created by SAPTA if they expand their production base and share of value-added in the industrial sector in GDP. In addition to trade opportunities this requires the provision of infrastructure, industrial manpower, better credit system and improved information flow.
For the success of regional trade regional economic integration is a must. We must frankly state that we have enough exchange of ideas on the benefit of regional trade arrangements, but have given scantly attention on regional economic integration. For forming a successful regional bloc we should systematically take stock of the elements of complementarities, product-wise in built capacity, natural endowment, adjustment of division of labour and capacity for an economic integration. Then only we can dream of common currency and burial of all suspicions. Otherwise the free trade conception is likely be translated into creating market for the stronger economy on the weak ones. So for the sake of the continuity of the regional cooperation, we would again underline the importance of economic integration through equitable growth.
We should take lesson from the little progress of SAPTA, where list of products were exchanged for tariff and non-tariff concessions. But the implementation of the concessions has not yet materialized. The major constraints to effective operationalization of SAPTA are :
- political conflicts between the two major member countries, India and Pakistan.
- restrictive and resistant mind-set of various actors viz; the bureaucrats, inward -looking vested groups.
Easing and removal of these snags under the given state of things would be a long-drawn affair though not insurmountable.
We should shake of our apprehension about regional economic integration through equitable capacity building and natural distribution of labour and also of geographical advantages and avoid competition in the global market. This will rather strengthen our bargaining power in the external markets. In fact, the bigger economies of the region should help obtain all possible international concessions, assistance and collaboration in Favour of the LDCs of the region.
The flora and fauna of the South Asian region are more or less common. So, the geographical indication made by an individual country should not apply to the other country of this region to export similar items in the international market.
So, SAARC nation’s strategic approach towards regional trade arrangement and economic integration need to be reassessed taking into consideration the hard realities in respect of slow progress of tariff arrangements and also of geo-economic conditions of the countries of the region specially the big ones with relatively vast population, high level of industrial & technological base, richer resource endowment, high prospect of natural complementarities and establishing infrastructural linkage. In fact, it is necessary to create an equitable free trade area (FTA) in the SAARC region for setting up a base to face collectively the challenges stemming from globalization.