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Is There Any Hope for SAARC?

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The Pulse

Is There Any Hope for SAARC?

On its path to relevance, SAARC will have to address numerous challenges.

Is There Any Hope for SAARC?
Credit: Wikimedia Commons

The recently concluded 18th South Asian Association of Regional Cooperation (SAARC) summit in Kathmandu had many commenting that the association should emulate the EU or the ASEAN to become more relevant to the region and to the world at large. Unfortunately, this is something much easier said than done.

South Asia is a region with striking contrasts. On the one hand, it shows economic promise, with growth averaging 6 percent over the past 20 years, according to a World Bank report. South Asia is also a rich reserve of water resources for hydroelectricity, and it offers a huge pool of young human resource talent between the ages of 15 to 24 years.

And yet South Asia is grossly underutilized, economically disjointed, and accounts for only 3 percent of global output and 2 percent of global exports. Despite the South Asian Free Trade Association (SAFTA) being in force since 2006, intra-regional trade is at a dismal 5 percent — compared to 66 percent for the EU and about 25 per cent for the ASEAN.

This is a pity, especially in view of the huge potential that exists — including for sparring states like India and Pakistan, whose bilateral trade could reach $40 billion compared to a mere $3 billion today. India hoped to get Non-Discriminatory Market Access (NDMA, previously Most favored Nation or MFN) status from Pakistan. However, this process is now halted due to political differences.

Further, India, constituting about 70 percent of SAARC’s area and population, is also much more advanced economically than others in the region – a fact that intimidates India’s neighbors. In fact, smaller nations can use this disparity to their advantage by accessing India’s large markets and producing for the growing Indian middle-class – which could in turn fuel these smaller countries’ own growth. Unfortunately this has not been the case. India’s trade within SAARC is negligible, with exports of $17.5 billion to South Asian (accounting for 5.6 percent of India’s total exports) and imports of a mere $2.5 billion in 2013-14 (about 0.5 percent of the country’s total imports).

Political discord between member states has thwarted efforts for regional integration. Consider that the recent SAARC summit yielded just one deal – an energy deal to create a seamless electricity grid. Backed by India, there were two other deals related to road and rail connectivity that did not come through due to rejections by Pakistan. Islamabad cites a yet to be completed internal review process as a reason. However, observers say it is the Indo-Pakistani discord that is responsible for the impasse.

India and Pakistan, which have fought three wars since 1947, have disputing claims over the north Indian region of Kashmir. Though there has been talk of intensified bilateral interaction, especially after a meeting between Indian Prime Minster Narendra Modi and his Pakistani counterpart Nawaz Sharif earlier this year, India called off bilateral talks with Pakistan scheduled for August following Islamabad’s decision to meet separatist leaders of Kashmir. Since then, border violence has intensified between the two nations.

Border conflicts also engulf Afghanistan and Pakistan, which have competing claims over their common border called the Durand Line. There are also border tensions between India and Bangladesh, who share an international frontier measuring 4,096.7 km.

Political disparity is manifesting itself in economics too — and especially in terms of trade and commerce, with member states continuing too many tariff and non-tariff barriers along with strict visa regimes. This all tapers down the scope and potential of intraregional trade.

This being the state of affairs in South Asia, is there anything that the 30 year old association can do?

Yes. However, the necessary steps will have to be taken to implement and achieve this goal.

Above all, to make SAARC more relevant, it has to act as a platform for economic integration for the region by easing the business and trade environment and improving infrastructure for better connectivity.

Service trade between SAARC nations is a huge potential area for economic cooperation. But strict visa regimes make movement of people in the region a cumbersome affair. Though deals to hasten service trade among member states, such as the SAARC Agreement on Trade in Services (SATIS), have been enforced since 2012, SAARC leaders need to intensify effort toward effective implementation. In the recent summit India took some good steps (though outside the SATIS ambit) like the SAARC Business Traveler Card that grants visa for 3-5 years to SAARC countries.

An additional urgent requirement is addressing infrastructural bottlenecks. As per the World Bank, South Asia will need an investment of a whopping $2.5 trillion to close its infrastructure deficit. Most of Modi’s speech during the SAARC summit emphasized connectivity and infrastructure. New Delhi has already announced a credit line of $1 billion to Nepal.

However, the gap is too big for India alone to cover. The region will need external investors. China is an obvious choice, given its record of taking up huge infrastructural projects abroad and given the expenditures it has already made in the region. However, the inclusion of Beijing in this process poses two critical threats.

One is the risk of the already-grave political rift in the region growing wider. Pakistan has been lobbying for elevating China’s SAARC status from observer to a dialogue partner or even a full member – a move which could be Islamabad’s tool to counterbalance India. If Beijing wants to do so, it could easily use the rift between member states to its advantage. New Delhi and China are already at loggerheads over India’s northeastern border region. Beijing may use support of Islamabad and even Sri Lanka or Nepal (who also favor China’s upgrading at SAARC) to isolate India – thereby disrupting the current balance of the association.

The second risk is that while China has significantly invested in regions like Africa and Latin America, it doesn’t have a very good track record with environmental sensitivities or labor laws. With SAARC yet to build any effective clauses on either environment or labor, the region could be extremely vulnerable.

One solution, which gets around the China conundrum, could be intensifying work toward setting up a SAARC Development Bank. This institution could fund infrastructure projects, and foreign investments routed through it. However, for this to become a reality, strong political will is required. Unless bilateral issues, and especially those of its two largest nations India and Pakistan, are resolved, no concrete steps can come to fruition. Unfortunately, SAARC lacks a mature conflict-mediating mechanism. As per its charter, only multilateral issues are to be discussed, while bilateral matters are left to be sorted out by respective states.

Perhaps this is where SAARC could take a page out of the ASEAN book. ASEAN succeeded in resolving the Vietnam-Cambodian stalemate through political, economic, and diplomatic mediation.

Whatever the tool may be, political reconciliation cannot be found without creating economic interdependence in the region. Ultimately, all efforts have to start from the economics of South Asia for SAARC to be able to make political stability a compelling proposition for its member nations.

Jhinuk Chowdhury is a freelance journalist based in India with keen interest in South Asian affairs. She is also a contributing author for Follow her @jhinuk28.