Prospects for greater economic integration in the South Asian Association for Regional Cooperation (SAARC) – A critical analysis of the SAARC’s vision of achieving an economic union

RESEARCH PROPOSAL

Prospects for greater economic integration in the South Asian Association for Regional Cooperation (SAARC) – A critical analysis of the SAARC’s vision of achieving an economic union
Abstract

Regional integration has the potential to promote economic development in member countries irrespective of size and the level of growth. This potential can be exploited only through deeper cooperation. The South Asian Association for Regional Cooperation (SAARC) is striving to more closely integrate the economies of its eight member countries (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka). Globalization has helped spur progress and the Agreement on South Asian Free Trade Area (SAFTA), signed in 2006, marks an important milestone in regional cooperation and integration (RCI). However, despite these and other developments, South Asia is one of the least integrated regions in the world. Intra-regional trade continues to account for less than 5% of formal trade of the eight member countries. The objective of this study is to analyse the prospects and challenges for regional economic integration of SAARC as well as draw possible lessons from the experiences of well established economic unions like the European Union (EU).

Introduction

South Asia is one of the most populous regions in the world, representing about 24 per cent of the world’s population. South Asia was an important cradle of civilization and until a few hundred years ago one of the richest regions of the world. Today the region is home to about 600 million people who earn less than one dollar a day and contributes 3.3 per cent to the global gross domestic product. It is home to perhaps the largest concentration of poor in the world, accounting for nearly half the world’s total. Most countries in the region are in various stages of economic development, and aspire for regional economic integration.

SAARC was established in 1985 to promote peace, freedom, social justice and economic prosperity through extensive cooperation amongst the member states. It was set up as an expression of the collective belief that regional cooperation among the member countries would be mutually beneficial as well as desirable and necessary for promoting the welfare and improving the quality of life of the peoples of the region.

SAARC has long been working towards promoting economic cooperation among the member states as economic progress is the main foundation through which the welfare of the people could be promoted. To this end, the South Asian Free Trade Arrangement was signed in 2004 and began to be implemented in 2006 but progress has been slow. This was followed by the renewal of commitment by the leaders at the 18th SAARC Summit in November 2014, where they reiterated their commitment to achieve a South Asian Economic Union (SAEU) in a phased and planned manner through a Free Trade Area, a Customs Union, a Common Market, and a Common Economic and Monetary Union. A recent strategy adopted by SAARC is to engage in sub-regional cooperation between three or four members, with the aspiration to impart momentum for effective regional cooperation.

One of the biggest hurdles to the growth of regional trade in SAARC is the lack of connectivity, not to mention the political differences between the member nations because of the region’s difficult historical legacy. As SAARC marks its 30th anniversary this year, the question may well be asked – what has SAARC achieved so far and why is its long-cherished dream of an economic union still in doubt? One common view is that SAARC has failed to rise above the political challenges it faces and until this hurdle is overcome it can never achieve meaningful regional cooperation. The objective of my research paper is to analyze these critical questions in detail and speculate the prospects and challenges for greater regional economic integration in SAARC, by examining whether sub-regional cooperation between three or more member states would accelerate overall regional cooperation. In addition, the research will look at the experiences of well-established and successful economic unions like the EU and draw important lessons that could be applied in realizing the vision of an economic union in SAARC.

Research context and existing studies in the field

As enumerated above, one of the main objectives of SAARC was to strengthen intra-regional trade, with the ultimate aim of achieving an economic union. However, after thirty years of its existence as a regional bloc, it accounted for only five per cent of the region’s total trade. Despite the thrust for regional economic integration propelled by both SAARC and SAFTA, there are critical obstacles to an optimal economic integration in South Asia.

Firstly, the political scenario and the differences between the SAARC countries is one of the crucial factors that impedes effective regional cooperation. Secondly, the issue of security is also a critical component that hinders the realization of an economic union in the SAARC region. The ‘Kashmir issue’ between India and Pakistan, the differences between Sri Lanka and India over nationality of Tamils, distrust between India, Pakistan and Afghanistan etc. All of this indicates the absence of trust between the respective countries which influences their decisions in the process of planning and implementation.

The third is the absence of critical infrastructure such as roads and railway links, resulting in the lack of connectivity. High transportation costs, poor institutions, inadequate cross-border infrastructure, and absence of a regional transit trade are some major factors that adversely affect the process of the region’s economic integration.

Unlike the EU and the ASEAN, SAARC’s biggest country dwarfs the other members. India makes up over 70 percent of its land area and 75 percent of it population, and is poised to become one of the largest economic and military powers. India is centrally located in SAARC and has land or maritime borders with six other member states. Therefore, India’s physical size, economic strength as well as its geographical location is clearly an asset for SAARC. Pakistan is the second-largest economy in SAARC, although it doesn’t enjoy a robust economy like India. The other small nations in the region like Bangladesh, Bhutan, Nepal, Sri Lanka and Maldives are in much more politically stable conditions than they were before and, therefore, could both benefit and support a South Asian regional economic integration.

While there are several publications and research conducted on the subject of economic integration in SAARC, there is hardly any research done on the role of sub-regional cooperation in promoting greater economic integration, particularly in relation to SAARC. Furthermore, a comparative analysis between SAARC and EU has also not been covered widely by researchers and academia.

Some of the key existing publications related to SAARC’s economic integration as well as introduction to the EU integration are as follows:

1. A Study on Regional Economic Integration – Commissioned by the SAARC Secretariat (Phase I & II);
2. Economic Integration in South Asia, Research Department, International Finance Division, Nepal Rastra Bank;
3. Regional Integration and Economic Development in South Asia – Edited by Sultan Hafeez Rahman, Sridhar Khatri & Hans S. Peter Brumer;
4. Trade Reforms and Economic Integration in South Asia: SAARC To SAPTA – Dr. Mamata B. Chowdhury, School of Economics and Finance College of Law & Business University of Western Sydney, Australia;
5. SAARC: Changing Realities, Opportunities & Challenges – Rajiv Kumar, German Development Institute, Bonn, Germany;
6. SAARC: NOT YET A COMMUNITY, Atiur Rahman;
7. Economic Integration: An analysis of major SAARC countries – M. Rizwanulhassan & Shafiqurreh Man, Karachi;
8. Economic Cooperaiton in South Asia (Beyond SAFTA) – Edited by Sadiq Ahmed, Saman Kelegam & Ejaz Ghani, World Bank;
9. Economic Integration and Development in South Asia: A tale of unfulfilled promises – Pratip Chatterjee, Kalyani University, West Bengal, India;
10. National Identity & Regional Cooperation: Experiences of European Integration & South Asia Perceptions – H.S Chopra;
11. The South Asia Association for Regional Cooperation (SAARC): An emerging collaboration architecture – Lawrence Baez;
12. Transforming South Asia Imperatives for Action – Rajiv Bhatia & Swaran K. Singh;
13. Patterns of Shocks & Regional Monetary Cooperation in South Asia – Maskey & Nephil Matangi, IMF Institute, Washington DC;
14. European Integration – A Concise History – Mark Gilbert;
15. The Origins & Development of the European Union 1945 – 2008, Second Edition – Martin J. Dedman;
16. An Historical Introduction to the European Union – Philip Thody;
17. Understanding the European Union: A Conscise Introduction- John Mcormick;
18. Incentive for Regional Development: Competition Among Sub-National Governments – Kala Seethnaram Sridhar.
Research Question/Objectives

This sections aims to include the main research questions vis-à-vis the economic integration of SAARC. The two questions are as follows:

1. Can increased trade between India and Pakistan positively affect SAARC as a whole?

Hypotheses – Increased trade between India and Pakistan will not only be beneficial for the two countries involved but will also impart momentum to the process of SAARC as a whole. Being the two most populous countries and biggest economies in SAARC, there is immense potential for trade creation between the two countries. It is the researcher’s conviction that benefits from trade between these two countries will far outweigh the costs and thereby positively impact the entire region.

2. In what ways can SAARC make significant gains by learning from EU’s experiences?

Hypotheses – There is much that SAARC can glean from the EU’s economic integration experience. For instance, the way in which historical rivals like Germany and France decided to give preference to trade and cooperation over politics, is a clear example of how India and Pakistan can also bypass politics altogether and embrace the benefits of economic integration. It is the researcher’s opinion that SAARC could also adopt some fundamental steps taken by the EU, such as the formation of a SAARC Economic Community.
Research Methodology

This research will be a qualitative one in nature. It will use both primary sources such as the SAARC charter, declarations, agreements, treaties, etc. as well as secondary sources such as books, journals, articles and other existing papers on the topic.

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