SAARC economic cooperation is being honoured more in the breach than the observance

The association’s seven member countries account for 20 per cent of the world’s population, but their share of global trade is only about one per cent and their combined gross domestic product constitutes only 1.5 per cent of world GDP
By Kaleem Omar

Back in January 2004, five leading South Asian think tanks, including the Lahore University of Management Studies, the Kathmandu-based Institute of Integrated Development Studies, the Dhaka-based Centre for Policy Research, the Colombo-based Institute for Policy Studies and the Delhi-based Confederation of Indian Industry, presented a set of policy proposals for a regional economic block to the foreign ministers of the seven SAARC member states at the summit conference in Islamabad.

In the four years since then, there have been several more summit conferences, lots of talk and pious declarations of intent, but the SAARC economic block is still a pipe dream, and is likely to remain so unless India – the association’s biggest member by far and South Asia’s biggest military power – gives up its hegemonistic attitude towards its smaller neighbours and learns to deal with them on the basis of sovereign equality.

The seven SAARC countries account for 20 per cent of the world’s population, but their share of global trade is only about one per cent. Their combined gross domestic product constitutes only 1.5 per cent of world GDP. By contrast, the combined GDP of the rich G-8 nations constitutes 60 per cent of world GDP. The SAARC countries are home to half the world’s 800 million poor.

Indicators such as these are stark evidence of the fact that the SAARC countries urgently need to get their act together to boost trade between member states, promote economic development across the region and tackle the problem of poverty.

SAARC has been limping along since its founding 22 years ago at a summit meeting in Dhaka in December 1985. A commentator has aptly compared SAARC to a salad dish, a valuable side dish but one not essential for sustaining life. Furthermore, to that commentator, SAARC looks like “a salad dish that has been left out in the tropical sun for too long.”

Sour relations between India and Pakistan have long been the main obstacle preventing SAARC from becoming a more effective body. But the recent improvement in relations between the two nuclear-armed rivals has raised hopes that the way could at last be clear for SAARC to promote greater economic cooperation and inter-regional trade among member states.

It is in this context that the policy proposals put forward by the five South Asian think tanks to the SAARC foreign ministers at the summit conference in Islamabad in 2004 need to be considered.

Proposals in the energy area include joint development of energy-related projects, and the trading and sharing of power. One proposal called for high-voltage interconnections between national grids. India, for example, is short of generation-capacity. Pakistan, too, is now short of generation-capacity.

Another proposal called for close cooperation among India, Pakistan and Bangladesh in building a pipeline to transport gas from Iran, Qatar and Turkmenistan. Tehran has proposed a pipeline to carry gas from Iranian fields to India via Pakistan. The proposal has been under consideration for more than six years now, but has yet to be firmed up due to India’s on-again, off-again attitude towards the project.

Another proposal calls for the sharing of experiences in the development and utilisation of appropriate alternative energy sources. The study on a common investment strategy for South Asia recommended facilitation of joint private sector projects for building a network of motorways and railways of international quality connecting major commercial centres, towns and cities within the region and with the economies of Central Asia, West Asia and East Asia.

The study discussed the building of new ports along the western and eastern seaboard and facilitating regional investment projects in a network of airports, cold storages, warehouses, dams and irrigation schemes aimed at increasing the efficiency of the network of canals and watercourses in the region.

Pakistan has alread built a new port at Gwadar, on its western Balochistan coast. China gave Pakistan $ 198 million in aid to cover part of the cost of the project’s $ 250 million first phase, with the rest of the money coming from the Pakistan government. The first phase was completed in March 2006. China has agreed in principle to give $ 500 million in aid to Pakistan to finance the second phase. Work on the second phase is expected to begin by mid-2008.

Gwadar has already been linked to Karachi by the new, 650-km Mekran Coastal Highway, which was built by the Pakistan Army’s Frontier Works Organisation and completed in 2004.

Discussions are now going on with Beijing for financing the construction of a highway linking Gwadar to the western China province of Xingiang. In addition to providing Xingiang with a land route for its imports and exports, the proposed highway would also give Pakistan a trade route to the Central Asian republics, via a 90-km highway to be built on the Chinese side of the Karakoram Highway linking the KKH to the Central Asian highway network.

Another think tank study stressed the need for treaties to eliminate double taxation in the SAARC region and an arbitration mechanism to handle intra-SAARC commercial disputes.

The study on free trade called for the South Asia Free Trade Agreement (SAFTA) to be completed by non-LDC (least developed countries) by 2008, instead of 2013 – as stipulated in the SAFTA framework agreement signed in Islamabad in January 2004. The study said the deadline for LDC countries should be 2010, instead of the 2016 deadline stipulated in the SAFTA framework agreement.

The study also called for the elimination of non-tariff barriers, particularly in respect of customs and technical barriers to trade standards and regulations and the inclusion of a safeguards clause to protect the interest of certain domestic producers. It also called for the creation of a review, monitoring and dispute settlement mechanism, and compensatory financing for weaker economies to address revenue loss.

The study also proposed the setting up of a task force on deeper integration and liberalisation of services and investment strategies in the SAARC region.

On the question of advancing the common interests of the SAARC countries in the World Trade Organisation, another study called for consultative meetings at least once a year at the level of SAARC commerce ministers.

The need for such consultative meetings has become all the more pressing in the wake of the collapse of the ministerial trade talks at the WTO meeting in Cancun, Mexico in September 2003 over the twin issues of agricultural subsidies given by the United States and the EU countries to their farmers and the demand by developing countries for greater access for their products in the markets of rich countries.

At Cancun, Pakistan joined China, Brazil, India and 18 other developing countries in creating the so-called G-22 group of nations to jointly press for greater market access and the elimination of agricultural subsidies by the US and the EU (which currently total a staggering $ 300 billion a year, or six times the total amount of aid given annually by rich nations to developing countries).

The think tank study on advancing common interests in the WTO called for a “de-minimis” agenda with respect to the Development Agenda agreed at the Doha round of the WTO talks in November 2001. It also called for the establishment of sector-specific expert groups among government officials, including those in Geneva and academics.

Sector-specific tasks recommended in the WTO arena include identifying common interests in agricultural subsidies in developed countries; commercially meaningful market access which SAARC countries can seek through reductions in high tariffs; tariff peaks and tariff escalations in particular products; and development box and rural development and food which they should be permitted to keep.

The study further called for identifying service sector issues, identifying market entry barriers, and demanding that developing countries and LDCs be asked to take lower commitments in GATS (General Agreement on Trade and Services) negotiations. Poverty reduction is the biggest challenge facing the SAARC countries, which are home to half the world’s poor. More than 400 million people in South Asia live below the poverty line, 300 million of them in India alone, as defined by the World Bank yardstick of a per capita income of less than a dollar a day.

The think tank study on poverty alleviation suggests joint projects in agricultural projects such as milk, vegetables, fruit, flowers and marine fisheries; a regional network of support institutions to enable small-scale industries located in regional growth nodes with specialised facilities such as heat treatment, forging, quality control systems and provision of marketing facilities on a regional basis.

The study also called for the creation of a SAARC fund for vocational training and another one in the area of health and education.