Role of SAARC in Economic Integration of South Asia.

Byline: Sarfraz Batool and Umbreen Javaid

Regional economic integration has become inevitable in current global free trade scenario. Economic integration requires joint venture of public and private sector institutions. From public sector, ministries of finance and commerce, planning and development commission and from private sector, trade and financial bodies are integral part of thisintegration process. An economically integrated region, the movement of factors of productions (especially labour and investment) from one partner country to another partner country is allowed without government's regulatory control.South Asian Association for Regional Cooperation (SAARC) is also struggling for economically integrated South Asia, though its pace is slow. This paper highlights the economic integration by flow of intraregional Trade and Investment in the purview of SAARC.


British politician Richard Cobden (1857) Said, "Free Trade is God's diplomacy. There is no other certain way of uniting people in the bonds of peace and prosperity".

Trade liberalizing policies are appreciated by the global think tanks due to the estimated positive effect of free trade over global economic growth. Free trade is also complemented for reducing economic disparities among nations and achieving the world peace. However, before the disintegration of Soviet Union, free trade trend was mainly confined to the Western Europe and North America, but the collapse of communist regime pumped up the capitalism all over the world. A significant number of regional and bilateral trade agreements came into being during that period. Economic integration at regional level became a hot trend. States were motivated by the success story of the integration of Europe. Primarily, South Asian countries showed reluctance to go into trade liberalization process. The main reason behind this hesitation is considered the endless rivalry between the two heavy weights (as both are nuclear powers) of South Asia -India and Pakistan.

Both states show antagonistic behavior to each other since they have got independence from British Empire, in 1947.The Massacre which occurred during migration, at the time of partition, and unresolved border issues (both countries have been fought war on Kashmir issue) have become the cause of deep routed mutual grievances. In addition, due to the realization of regional power asymmetries [as regional power balance is naturally in the favour of India because India constitutes the 70% territory of the region and carries relatively big economy and large military], Pakistan and rest of the other small regional states are excessively engaged in power balancing strategies i.e. spending more of its development budge on defense sector and hedging on extra-regional powers, to neutralize the potential threat of Indian domination in the region.

Moreover, it is noticeable there are some prerequisites to enter into economic integration i.e. strong and extendable private sector and the new management system. Economic integration can only be succeeded when national governments have limited authority over its economic subjects and private sector contributes on higher level in the state activities. In addition, financial cooperation and cross border free flow of trade and investment is an integral part of regional integration process. While, South Asian economies were not ready to adopt trade liberalization policies as the authoritative governments relied on conventional style of public administration which was much regulatory and centralized and had less space for private sector. Though, under the structural adjustment planes of IMF and World Bank Pakistan had brought macroeconomic reforms in its domestic setup since 1980s and became progressive toward foreign trade yet India remained protectionist for a long period of time.

However, under the rules of World Trade Organization (WTO) India also adopted the economic reform policies. The willingness of India for trade liberalization was necessary because except Pakistan and Bangladesh, most of the South Asian states were dependent on India for trade. For example, Nepal is a landlocked country its trade with Pakistan is impossible if India refused to give trade transit permit to Nepal. The same case is with Bhutan.

Evolution of Economic Integration in South Asia

The idea of regional cooperation in South Asia and formation of South Asian Association for Regional Cooperation (SAARC) was first mooted in 1980 by the president of Bangladesh. Later other countries also realized the importance of regional cooperation to make their macroeconomic indexes better, as they were inspired by the success stories of European Union (EU) and their neighbor regional organization-Association for South East Asian Nations (ASEAN) in this regard.So, after the series of ministerial level conferences and meetings of South Asian countries, SAARC was finally established in 1985 at Dhaka. The vision behind the creation of a regional intergovernmental organization was the socio-economic development of the region for the welfare of the people of South Asia (SAARC Charter, 1985).

"The main objectives of SAARC as stated in the charter are; a)to promote the welfare of the peoples of South Asia and to improve their quality of life; (b) to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potentials; (c) to promote and strengthen collective self-reliance among the countries of south Asia; (d) to contribute to mutual trust, understanding and appreciation of one another's problem; (e) to promote active and mutual assistance in the economic, social, cultural, technical and scientific fields; (f) to strengthen cooperation with other developing countries; (g) to strengthen cooperation among themselves in international forums on matters of common interests; and (h) to cooperate with international and regional organizationswith similar aims and purposes." (http: //

It is interesting to note that the Dhaka Summit in 2005 awarded observer status to People's Republic of China, Japan, South Korea and United States of America. While, in the 14th summit of association, Afghanistan became its 8th member. Soon after its establishment, SAARC had started to work on the terms of references to get the shared socio-economic goals of its member states, but the process was slow.At its 6th Summit meeting (in Colombo, 1991), SAARC created an Intergovernmental Group(IGG). The Group was mandated to work on the SAARC Preferential Trading Agreement (SAPTA) for enhancing the intraregional trade relations.However, the process of cooperation in economic sector was accelerated after the establishment of SAARC Chamber of Commerce and Industries (a regional apex body which is representative of the private sector) in 1992.

It helped to make the framework draft of SAPTAwhich was finally signed in 1993, much before its proposed time (its proposed time was 1997) and came into force in 1995. SAPTA was first step towards trade liberalization regime in South Asia. It was hoped that it would pave the way for free trade area, while the ultimate goal was the formation of Customs Union (complete economic integration in SouthAsia). But the SAPTA could not create a positive impact factor on economic growth due to its positive list approach toward trade which has limited scope for trade liberalization. In a positive list approach, countries prepare a list of specific products on which they gives tariff concessions or decrease non-tariff barriers. In case of SAPTA, intraregional free flow of trade was possible only in those merchandise which were enlisted in the positive list which was offered by the respective country.

For example, initially India agreed to reduce tariffs in 106 of 226 products recommended by the SAARC...

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