Published:The NEWS, Pakistan, November 20, 2005

By Bipul Chatterjee

At the 13th Summit of South Asian Association for Regional Cooperation (Saarc), held in Bangladesh’s capital Dhaka in the second week of November 2005, the participants came up with a usual statement of enhancing regional cooperation, etc. That sums up the progress that this regional (South Asian) entity has made over two decades.

The debatable question is when Saarc was formed in mid-1980s, was there any demand for such a body? Indeed it was a brainchild of the then Indian Prime Minister Indira Gandhi, who unfortunately could not live to see its formation. After her tragic assassination, her son Rajiv Gandhi took this initiative forward and Saarc was formed in 1985. The basis for its formation was regional cooperation and it was decided that only regional/multilateral (not bilateral) issues were to be raised/discussed at this forum.

If one analyses successive ministerial summits since its formation, one can see how little progress has been made so far. Except a secretariat at Kathmandu and Saarc Chambers of Commerce & Industry in Islamabad, no institutional development has taken place. There are various reasons for this.

First, there is little political will among the leaders of South Asian countries to take concrete steps to make this forum effectively operational. This may have something to with the fact that the nature of political environment and functioning of political governance are different in different countries.

Secondly, successful examples of regional cooperation from various parts of the world show that economic cooperation is the basis on which broader cooperation is achieved. For this to happen, many such forums started in a limited manner (such as European Union started with cooperation, that is, cross-border trade, in two commodities: coal and steel). South Asian countries have so far made no such attempts.

Thirdly, civil society (that is, entities dealing with public at large and non-state actors) plays a major role for successful cooperation among the nations in a regional bloc. There are examples (such as South African Development Community) which show the role that the civil society plays for successful political buy-in of such initiatives, especially at the local level. It has also been found how cross-border projects aimed at improving people’s livelihood can help in bringing people together and thus, reduce tensions. There are no such initiatives in pan-South Asian sense.

Fourthly, South Asian countries often take conflicting positions at international forums. There is little or no attempt to politically sell ‘South Asia’ at the international level. For example, we hardly see a common Saarc position on WTO (World Trade Organization) issues, whereas examples galore from other parts of the world.

Fifthly, of late political leaders and many others appear to believe that enhanced trade can bring necessary push for taking the Saarc forward. There are merits in this argument and Safta (South Asian Free Trade Agreement) is expected to be operational from January 1, 2006. However, there is no policy paper, collectively and/or from individual countries outlining the benefits and costs of such an agreement. The result is suspicion on the part of those who are expected to lose if and when Safta is implemented.

What could be the way out of the quagmire in which Saarc finds itself today? The region comprises of over one billion people, about one-fifth of the world population. In next five years, the region’s population will surpass that of China. But around 40 per cent of those living in South Asia live in poverty. The resource base is equally poor, as the region has only about three per cent of the world’s land surface and accounts for two per cent of the global output. Agriculture still accounts for 25 to 50 per cent of the national economic output of the region. Naturally, poverty is endemic and structural. The real challenge, therefore, is how to increase people’s income through productive employment. Saarc has to be seen in the light of this challenge. If something is successfully done on this issue, all the above-stated shortcomings can be overcome by transforming resolve into action.

The region can progress as a whole if there is well-functioning democracy in all the countries. In this context, democracy cannot be judged in terms of popular participation in elections alone. It is a much bigger issue. More efforts are required to show to the people the positive linkages between democracy and development.

Similarly, economic cooperation can be achieved by exploring specific sectors. Approximately 60 per cent people in the region are dependent on agriculture for their livelihoods. This sector is facing several challenges, including increasing industrialisation. Land for agricultural production, therefore, is being used for industrial purpose. At the same time, food security is becoming another major issue. The vulnerability of the region may increase if enough food is not produced. The challenges are many-fold and the key to overcome them is to increase agricultural productivity. There are successful examples of increasing agricultural productivity (including in difficult terrains such as flood-prone area, mountainous regions) in South Asian countries themselves. These examples can easily be replicated, provided concerted efforts are made with a clear vision and direction.

The development of the civil society is a mixed bag in South Asia. In some countries, it is well developed and entrenched and in some other it is at a nascent stage. Besides gathering popular opinion on diverse issues and enhancing accountability of the system of governance, in some South Asian countries (such as Bangladesh) the civil society is playing an effective role in empowering people to overcome challenges with respect to non-income aspects of poverty, such as low education level, health standards etc. Yet there are hardly any regional initiatives to overcome social barriers to poverty reduction.

It is true that there is diversity within South Asia and countries are at different levels of development. Four out of seven Saarc members are categorised as least developed by the United Nations, that is, they are economically most vulnerable. But at the same time, there are issues at the international level on which South Asian countries can take common positions. For example in WTO negotiations, there is no harm in taking a common position on agricultural subsidies being provided in the West, which are harming the poor countries (their consumers as well as farmers). Trade facilitation (with respect to simplification of customs procedures in particular) is another issue on which South Asian countries have largely common interest. But we are yet to see the emergence of ministerial forum of South Asian trade ministers, meeting before and after important events such as WTO ministerial conferences.

Safta is a step in the positive direction. Amit Mitra, Secretary-General of the Federation of Indian Chambers of Commerce and Industry says why: “If South Asia becomes an integrated market, it can draw much larger foreign direct investment (FDI). This will be another issue to be discussed. India has five billion dollars of FDI, the other countries have another billion, and some of the others have even less. If this region is integrated, it will have better economies of scale in the region.”

This statement points to several issues, which are to be considered for successful economic integration in South Asia. One needs to understand why trade takes place between countries. Trade theory tells us that countries with different factors of productions (land, labour, capital) endowments will produce different commodities at differential prices and will trade them. Secondly, there has to be a minimum market in order for countries to trade. Do these conditions hold true for South Asian countries?

First, most South Asian countries have similar factor endowments. Secondly, given the high level of poverty and the nature of economic activities, the South Asian market is not only small but fragmented as well. Thus, there may not be much scope to enhance trade in goods within the region. However, there are enough opportunities to explore complementarities in production chain. Some countries are good in producing a particular part of a final commodity, whereas others are good in producing other parts. Production of readymade garments is an example: while India and Pakistan are good in textiles, Bangladesh and Sri Lanka are good in clothing. There should be South Asian products in international markets.

On the other hand, there is huge scope to enhance regional economic cooperation through trade in services. Sectors such as transport, telecommunications and power are developing in the region and their demands are far away from reaching a point of saturation. Huge resources will be required to develop these service-oriented sectors so that consumers can have better access to them. Herein lies the importance of foreign direct investment. Many of these sectors are employment-intensive and with right policies in place they can absorb people from agriculture (with resultant increase in agricultural productivity), that is, into productive employment in manufacturing and service sectors (provided there is right human development policy for skills formation). Thus, there could be a multi-prong attack on poverty.

Unfortunately, there is no discussion to open up trade in services in the region. Foreign (as well as regional) investors would like to see South Asia as a market, so that economies of scale can be better achieved. Similarly, steps are required for trade in goods outside the region, so that consumers can taste South Asian products.

In short, concrete and time-bound actions are required in order to make Saarc a reality. The Saarc secretariat should be empowered to implement these actions in association with relevant stakeholders, including the civil society actors. Necessary political will for these actions can be generated only if civil society creates an enabling environment for effective implementation.

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