Financial Daily from THE HINDU group of publications
Saturday, Aug 02, 2003
A bloc of misunderstandings
The major hurdle of course is the hostility that has persisted in India-Pakistan relations for over half a century that burst into wars and culminated in a nuclear and missile race in the subcontinent to make it one of the flashpoints in weapons of mass destruction.
The course of SAARC has so far been determined by the totally negative approaches of Pakistan, which has attempted to turn every summit into a forum for bilateral disputes, especially in relation to Jammu and Kashmir, and its relative indifference to issues of economic and social development in the region. While the SAARC Charter does not permit raising bilateral disputes, the summits have provided opportunities for political differences to be discussed by government leaders on the sidelines, Pakistan is unwilling to let economic issues like trade, in particular, proceed unhindered for the region to make tangible progress.
This was seen in its reluctance to contribute to the success of SAPTA (South Asian Preferential Trade Area), which was to be the prelude to the bringing into formation of a South Asian Free Trade Area.
India and the other five of the six members had exchanged lists of commodities for SAPTA, and India, as the largest economy, did offer some concessions for a larger number of goods though overall, the preferential trading arrangement, with all its limitations, has been totally unimpressive.
India's neighbours have reason to complain of their trade deficits with India, given the size of their economies, and bilateral trade rounds with Bangladesh or Nepal had often run into transit and other problems. Here again political issues creep in and limit the usefulness of the trade exchanges, leaving landlocked countries unhappy.
Smaller countries do tend to benefit more from intra-regional trade and, therefore, have a greater stake in SAARC than India or Pakistan notwithstanding their commitment to the concept of regional cooperation. More than trade, economic and social cooperation has become even more important in South Asia where 40 per cent of the 1.4 billion people are below the international poverty line (of less than a dollar a day) and is home to half of the world's poor.
For many years to come, therefore, SAARC will have to confine itself largely to social and economic cooperation, in the areas of poverty reduction, literacy promotion, common infrastructure projects which can benefit more than one country, trade, industrial and cultural cooperation.
Even this is possible only if countries such as Sri Lanka and Nepal are able to sort out the internal conflicts so that they can participate in regional cooperation under stable conditions.
With all its backwardness, South Asia was a fast-growing region in the l990s (averaging 5.9 per cent) with some gains in reducing infant and maternal mortality and improving health and education. In per capita terms, South Asia is the poorest region, with the highest illiteracy rates. The region must have enough growth for effective reduction of poverty without which it could miss the Millennium Development Goals for 2015.
Unless SAARC gives itself a well-focussed Economic and Social Agenda for 2020, with bilateral issues and conflicts abjured by countries concerned, there is little hope that it can have a worthwhile future. But if peace initiatives like the one India has taken vis-à-vis Pakistan and the dialogue now on between the Colombo Government and the LTTE in Sri Lanka succeed, South Asia can begin a dramatic transformation on the strength of political understandings. Meanwhile, none of the countries is giving up on SAARC with a slender hope for a possibly better outcome for the future.
India's agreement to attend the next SAARC summit in Islamabad in January 2004 is a positive development, in tune with the current confidence-building measures aimed at moving India and Pakistan toward a comprehensive dialogue to settle all outstanding issues including Jammu and Kashmir.
The normalisation of diplomatic relations and resumption of transport links plus the exchange of unofficial delegations have helped strengthen the forces of peace and understanding. Once this takes hold, South Asia will transform itself from a zone of conflict and tensions to one of development in a secure environment.
Be that as it may, it is time Pakistan realised that it must play by the rules of the multilateral trading system and not be in violation of the most-favoured-nation (MFN) principle in the case of India. Could not the two countries establish a working relationship on tackling common economic and social problems without making the Kashmir question hostage for cooperation. Pakistan's trade policy has become the litmus test for its professed desire for normalisation.
Unless Pakistan makes serious commitment to the economic agenda of SAARC, the regional body will get nowhere. It is out of disenchantment that the Prime Minister, Mr Atal Bihari Vajpayee's proposal in1998 for free trade arrangements was accepted by Sri Lanka and lately, a similar offer of free trade has been made to Bangladesh but it is hardly likely that it could be open-ended. Bangladesh has been sore with India not being generous enough to allow tariff free access for a large number of its products into the Indian market.
Relations with Bangladesh had not been on even keel, due to issues such as influx of Bangladeshi immigrants, deadlock in trade talks, Dhaka's rejection of New Delhi's request for transit facilities and reservation about supply of natural gas to India.
At a time of growing economic and military strength of India, which is increasingly recognised as a major regional power, it is in the interest of India to remove any apprehensions on the part of its immediate neighbours. There is room for India to be able to sort out in a more amicable way issues related to trade with some concessions.
Apparently, the transit and transhipment issue that India seeks for easy access to the North-East States has become a bargaining chip.
The External Affairs Minister, Mr Yashwant Sinha, has waxed eloquent about the primacy of economics in inter-state relations, especially India-Pakistan, and he has been talking even of a South Asian Union, which conceptually must be more than a trade bloc and has to be modelled on the EU.
But SAARC has had a chequered life, plagued by bilateral problems of member-countries. It has almost come to a stage when any meaningful advance will rest on how India and Pakistan, if at all, settle their disputes, and it maybe a long way off. Any undue optimism on SAARC prospects must be ruled out.
India, which accounts for three-fourths of the region's GDP of $600 billion, is in a position to lower tariffs for select products of its neighbours, other than Pakistan and this would go down well with them. The stage for a South Asian Union can only come once SAARC has established SAFTA (South Asian Free Trade Area), which was originally to have been launched in 2002. In the meanwhile, SAPTA must progress faster with more commodities traded, with Pakistan if possible and without, if necessary, to pave the way for SAFTA.
Unless new trade initiatives in the region materialise, there is unlikely to be any significant expansion in intra-SAARC trade which was worth a mere $3,094 million in 2001, 4.8 per cent of the total exports of all the seven countries ($64.93 billion of which India's share was $43 billion) and 1.1 per cent of world exports.
Although in value, the intra-regional trade increased from two billion to a little over $3 billion between 1995 and 2001, its share of total exports of the seven member-countries has remained steady at around 4.5 per cent, the lowest among regional groupings. More than a third of the world's trade, valued at over $6 trillion, takes place within regional trade blocs (APEC: Over $2 trillion and the EU: $1.4 trillion).
(The author is a former Chief News Editor, PTI.)
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