The Hindu Business Line : Chasms in South Asia

Speaking at the Second SAARC (South Asian Association of Regional Cooperation) Business Conclave in Mumbai last week, Mr Graeme Wheeler, Managing Director of the World Bank, stressed on the potential for South Asian inter-regional trade; between India and Pakistan trade could climb to $9 billion in five years from $1 billion today, he said. Mr Wheeler has not said anything original for the potential is well recognised by the countries in the region. The South Asian Free Trade Area (SAFTA) was flagged off last January precisely to sort out trade impediments among the SAARC members. But the philosophy behind the SAFTA and indeed SAARC, laudable as it is, has yet to move beyond rhetoric to a level of operation on the ground to make it realisable in any meaningful way.

Most regional cooperation agreements work best between countries with similar levels of economic growth or among nations that accept the division of labour implicit in cooperation between unevenly developed countries. The Association of South-East Asian Nations (Asean) is an example of the first type. Indeed, part of the interest that Asean evinces in China has much to do with the region's potential for rapid growth that stems from a shared belief in cooperation among the countries constituting the union. The European Union and the North American Free Trade Area exemplify cooperation between comparatively unevenly developed economies with Spain, Portugal and, now, the east European members, and Mexico accepting the role of being recipients of west European and American capital respectively while providing cheap labour for sub-contracted manufacturing in return. With India the fastest growing economy and Pakistan not far behind, the NAFTA or the EU model would appear to be the best way for South Asian integration. But the history of the sub-continental politics muddies the picture greatly compounded by divergent performance among member countries on the question of tariff reform, as for instance Bangladesh, which has put in place a more liberal tariff structure than India .

At the core of the SAFTA's protracted quest for integration of the region lies the uneven levels of Customs duties and the desire of the countries to protect their industries against perceived dangers, especially from the fastest growing economy in the region. The fact that Pakistan denies India Most Favoured Nation status while granting it to other SAARC members highlights additionally, the political nature of the problem. On the ground, however, there are welcome signs of inter-regional integration. Indian businesses, as diverse as healthcare, telecom and autos, are eyeing the entire SAARC region and that perhaps bodes well for the area. But till cooperation against drug trafficking or terrorism that generates mutual hostility is achieved, regional integration will not move beyond rhetoric.

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