South Asia; Economic integration – A reality or fantasy?

South Asian Association of Regional Cooperation (SAARC) was initially formed in 1985 as an organisation aimed at political, economic, social and cultural cooperation and integration with seven member states such as Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. In 2007, Afghanistan too joined SAARC. SAARC has nine observers including EU, US, China and Japan. 

The federations and national chambers of SAARC countries formed SAARC Chamber of Commerce and Industry as an apex body of the SAARC chamber movement, which was accredited by the SAARC secretariat in Nepal in 1992. The big idea behind this move is to bring the private sector of SAARC countries under one roof to synergise the efforts of SAARC governments and its efforts in promoting trade and Investment among all SAARC countries. It was indeed a great news for a region divided and disputed over many political and social issues. 

On the part of the SAARC governments, another notable achievement was the signing of SAFTA (South Asian Free Trade Agreement) showing the courage, willingness and farsightedness to do business collectively within SAARC countries. It is also noteworthy to mention apart from the SAFTA bilateral trade agreements too signed between India and Sri Lanka followed by Pakistan and Sri Lanka. Later Trade agreements between Nepal and India and Bangladesh too came in to force.

SAARC governments in fact showed its continued commitment to the common cause and in 2014 SAARC Framework Convention on Energy Cooperation to facilitate cross border trade in electricity was signed in Kathmandu and this convention is yet to contribute fully towards its objectives. However, it’s to be noted that apart from this agreement some members have already entered in to bilateral arrangements for trading of electricity.  

We must also note that over a period of time some SAARC institutions have taken off the ground but have not reached their full potential yet. These include SAARC Development Fund in Thimphu, South Asian University in New Delhi, SAARC Regional Standards Organisation in Dhaka, SAARC Arbitration Council in Islamabad and SAARC cultural centre in Colombo. 

SAARC Summits in Male (1997), and Colombo (1998) endorsed the concept of sub regional cooperation, e.g. cooperation among three or more members on issues of interest to them. The slow progress in SAARC compelled some members to come together and form other forums for regional cooperation. One such initiative is BBIN, which is an informal grouping of Bangladesh, Bhutan, India and Nepal. However, one can question the ethics of forming such internal grouping when it happens within the main grouping of SAARC! 

Despite all these positive developments still the formal intra trade between SAARC countries cut a sorry figure amounting to 5% as opposed to similar power blocks such as ASEAN – 32% and APTA – 20%. So the progress in SAARC has undoubtedly been slow but let us not forget that it took more than 40 years for the European Coal and Steel Community to transform into European Union, adding members along the way and expanding the range of subjects to be dealt with at regional level. Brexit had come as a surprise, but it does not mean disintegration of the Union built up patiently, accommodating interests of members.

It’s a common knowledge that SAARC is engrossed in political, ethnic and social strife and receives the world attention on any given day and this creates a negative perception on the mindset of the reader on south Asia and the objective of this article is to have a look at the main issues and shed light on possibilities of working towards the initial objectives of SAARC. 

Hard facts about SAARC 

(a) Tension between India-Pakistan: The tension between two biggest economies within SAARC and inability to sort out political issues and border disputes have been creating a negative business environment filled with distrust, suspicion and misconceptions. Finally, these negative political sentiments between these two countries have spillover effect on the enhancement of broader regional economic co-operation in South Asia. Lack of any institutional framework for resolving disputes and consensus building based on SAARC Charter protract the standoff between two countries. The urgent need for such a mechanism cannot be underestimated due to the fact that both countries have the nuclear capability even though confrontation of that nature is so remote by all speculations. 

(b) Question of applicability of Most Favoured Nation (MFN) status for both India and Pakistan: The past practice between two countries implicate that both countries do hesitate to grant Most Favoured Nation (MFN) treatment to each other and imposition of heavy taxes by both sides further aggravate the depleted trade between two countries. This reason pushed traders from both countries to get engaged in informal trade activities through trading houses in UAE and individuals through other entry/exit points between two countries. 

The notable feature is India and Pakistan being biggest trading partners in the SAARC do record more unofficial trade than official trade, which is generally accountable for less than 25% of formal trade in other economies. In fact, traders from both countries do likely to forget the political and security issues, which quite often emerge as unresolved controversies in both countries. 

It’s also noteworthy to mention that even after the heavy armed conflict took place for two months, three weeks and two days (from 3 May to 26 July) in Kargil (1999) business leaders from both countries together with other SAARC business leaders met under the apex body of SAARC chamber movement (SAARC CCI) at the 15th executive committee meeting held on 17 August 1999 in Mumbai. Finally business interest triumphed breaking all the barriers and differences so the message is clear to the world – security divide SAARC but trade unite! 

(c) Poor air connectivity: The frequency of flights or access to neighbouring countries are very poor in the SAARC region. As a result, most of the travelling across SAARC is happening via Dubai or Qatar. Adding misery to this issue is no airline from SAARC countries serves all member countries or key destinations or capitals leaving no option for South Asian travellers but to depend on non SAARC Airlines. E.g. the passenger from Pakistan cannot reach Maldives or Bangladesh or Sri Lanka in the same day, which is equally true for Afghanistan passengers intending to travel to Nepal, Bhutan and Maldives and vice versa.

(d) Lack of land based transportation system among SAARC countries: In consequence to an agreement signed in 2015 among Bangladesh, Bhutan, India and Nepal (BBIN), subject to ratification by national governments, DHL Global forwarding was appointed to carry out a pilot run under the agreement the first cargo truck left Kolkatta on 1 November 2015 and the truck travelled 640 km to reach Agartala (India) via Dhaka (prior to signing of the BBIN motor vehicle agreement the truck would have had to travel 1,550 km through Indian territory to reach Agartala!

In August 2016, Bangladesh dispatched a truck with a load of garments from Dhaka to New Delhi. The truck received an electronic permit to enter India through online web based system instead of having to go through customs clearance at the border. The truck was fitted with electronic seal with GPRS tracking device at the border in India and the customs clearance was done in New Delhi. Since then the progress of BBIN was stalled due to the rejection of the BBIN agreement by the upper house of the Bhutanese parliament citing environmental and tourism related issues. Therefore, it seems that only viable option now is to skip Bhutan and implement the shorter version of the agreement between Bangladesh, Nepal and India. 

(e) Lack of efficient visa processing system: It’s evident that processing of visit and business visa in many SAARC member countries does take a longer period and some countries do not issue visa on arrival or even transit visa due to security reasons. 

(f) SAARC tourism: Tourism has virtually become one of the non-priority sectors under SAARC mechanism and Tourism Ministerial meeting does not take place regularly and this may be one of the basic reasons for relatively slow cooperation in the tourism sector. Tourism helps any traveller improve intra cultural and religious values of the region and in case of SAARC traveller understanding the south Asia, e.g. even though Nepal and Sri Lanka have a close relationship through Buddhism both countries do not consider developing religious tourism as a part of their strategic plan for development of tourism. 

(g) Lack of currency swapping and currency exchange: A mechanism does not exist in member states (except for Sri Lanka-India, India-Nepal and India-Bhutan), the money changers don’t convert currency of each other countries due to which travellers have to pay unnecessary commission for exchange of currency. In fact, Sri Lanka proposed to have a common currency system like the one in EU (Euro currency) sometimes back at a SAARC summit though not implemented. 

(h) SAARC countries do not have a proper system for exchange of information regarding credit and risk management: This has made difficult for traders, importers and exporters of SAARC countries to create credit for their customers. It is not a secret that the credit create businesses and trade volumes. Even though some SAARC countries have, a credit and risk management within their own countries standards may vary. In fact there is no reliable or trust worthy mechanism for stakeholders including investors within SAARC member countries to share credit and risk information with another stake holder from another country.

(i) Refugee crisis: South Asia has been witnessing a humanitarian crisis of migration and forced displacement due to unparalleled global, regional and internal disturbances. There are more than three million refugees in South Asia, and 90% out of them are victims and product of intra-regional migration. The SAARC countries are both refugee-producing and refugee-hosting nation-states. Pakistan has been hosting the most massive refugees of Afghan origin; India is home to the diverse groups of intra- and extra-regional refugees including latest addition of Rohingya refugees around 40,000, and rest of the SAARC nations are also bracing the refugee crises in the region. At present, the matters get further aggravated as the position of countries in SAARC varies regarding refugees, which includes the refugees of climate change. 

While climate change is a global occurrence, South Asia will likely be one of the hardest hit regions – the Global Climate Risk Index ranks Sri Lanka, Nepal, Bangladesh, and India 2nd, 4th, 9th, and 14th respectively in the list of nations most affected by extreme weather. In recent years, South Asia has seen an increase in the number of climate change-related natural disasters. Flooding in India and Bangladesh as well as earthquakes in the Hindu Kush regions of Pakistan and Afghanistan only serve as a few examples of this increase. India is already dealing with up to 1.5 million internally displaced people every year. 

UN special rapporteur on extreme poverty Philip Alston said in his report submitted to UN human rights council – The world is on course for ‘climate apartheid’ where the rich buy their way out of the worst effects of global warming while the poor bear the brunt! 

Overall 2019, was a year of much turbulence and mounting challenges for the SAARC with increasingly bitter tension between multilateralism and unilateralism. SAARC region also saw the emergence of nationalistic trends capturing the attention of the mass audience. Nevertheless, for whatever the reason no SAARC country so far said that SAARC is not needed despite the disappointing and far below performance against great expectations, which all SAARC countries had at the very outset. This clearly shows that not all hopes are lost and nearly 1.8 billion human beings in the south Asia to date believe that SAARC is a subsistence and encouragement for the forward march of the region. 

Unarguably each SAARC country has to understand that while the political situation in individual countries may keep on changing fast the economic situation does not change same way. It really needs a lot of commitment and efforts to improve the economic conditions and quality of life in the SAARC region. Looking backwards, for some critic writers SAARC economic integration is a fantasy and not a reality but a famous quote, ‘We need fantasy not to escape but survive in the reality’, replies to that thinking.

Very sincerely it is the spirit of justice, respect for humanity, openness, and inclusiveness, which can one day make SAARC moving ahead. 

Way forward 

(a) Understanding and accepting the asymmetry of economic powers by SAARC countries at trade negotiations: SAARC countries consist of smaller economies like Maldives, Sri Lanka and bigger economies like India and Pakistan. Given its size, population, market, GDP and location at the centre of SAARC, India has a critical role in the success of SAARC and regional development. As of today India is the world sixth largest economy eying for GDP of $ 5-6 trillion by 2020.Therefore Its important to understand and accept the asymmetry of economic powers on trade negotiations and liberalisation needs to be done very systematically while developing a proper mechanism to tackle Non-tariff Barriers and non-recognition of conformity standards. Stability and security are vital to create a positive environment for investments and all SAARC countries need to think of introducing an effective institutional frame work agreement under SAARC secretariat on subjects such as counter terrorism and smuggling, and poverty alleviation that frequently disturb the business environment in SAARC region. 

(b) Effective disbursement of SAARC development fund (SDF): All member countries have together contributed over $ 500 million to its capital base as of 2018 and therefore it’s important to make use of these funds for the development of each SAARC nation. In this context it’s important to introduce a more rational credit appraisal system for the purpose of evaluation of country proposals. From Sri Lankan point of view, the main barrier for disbursement of SDF is the rule that the project should deal with at least three countries, which is most of the time not possible due to trade barriers and non-recognition of conformity standards exist within SAARC countries or due to the nature of projects itself. 

(c) To implement SAARC, motor vehicle and railway agreement to improve trade and regional connectivity within the region: This arrangement very much serving land locked countries to reduce the cost and time of transportation. This agreement for which India and Asian Development Bank were keen to do funding was to be signed at the 18th SAARC summit in 2014 but was abandoned at the last minute since some of the SAARC countries deferred the decision to sign the agreement. The road way needs the construction and up upgradation of 558 km connecting Bangladesh, Bhutan and Nepal it’s estimated that this project will increase the regional trade by 60 % while that with rest of the world by 30%.

(d) Strengthening the mobility of business travellers: Even though all SAARC countries issue SAARC visa exemption, stickers it seems that at most of the SAARC countries at the immigration desks the clearance is slower than normal visa system. According to immigration officers a unified and standardised system is yet to be introduced and this matter was taken up a couple of times at the SAARC immigration meetings held two years ago and the developing of a software to integrate SAARC visa exemption scheme within all SAARC member countries were suggested but the implementation has not gathered up the momentum. 

However an encouraging factor is some airports in the SAARC region such as Chennai, Lahore, Dhaka have introduced a special clearance desks for those who travel with the SAARC visa exemption sticker but this has not yet become a standard practice at all SAARC airports. It’s best that in view of the complications experienced by SAARC business travellers and issuing authorities to think alternatively or concurrently to issue a SAARC passport similar to that of EU passport which may overcome most of the operational and security issues confronted by SAARC governments. 

(e) To introduce SAARC air service agreement: Aviation traffic rights 1 to 5 need to be facilitated within the region and at least flight operations connecting capital cities need to be initiated as priority concerns and can be later extended to other commercial cities. 

(f) To further strengthen the politically and institutionally weak arrangement to implement the SAARC climate declaration and an action plan on climate change: It recognises the need for regional trans-boundary cooperation to address the climate change displacement and migration and makes a case for the advocacy for an alternative regional regime on climate refugees.

(g) Role of SAARC chamber of commerce and Industry (SAARC CCI) and its allied chambers towards economic integration of SAARC: SAARC CCI has an important role in turning dream of SAARC economic integration in to a reality. Perhaps it may be the only institution that has the capacity and recognition to achieve this long-standing dream.

Unfortunately in my opinion SAARC CCI leadership then and now hardly focused strongly and continuously on any of the above mentioned common and key issues, which are really affecting trade. As a result, SAARC CCI failed to engage in any credible policy advocacy process or lobbying for removal of such barriers or creation of suitable institutional framework at SAARC government level.

Instead as a norm SAARC CCI confined its activities to awareness conferences on generic subjects such as E commerce, business startups, women empowerment, climate change only. In this context, it’s important that SAARC CCI and its chamber network to actively get involved strongly and continuously in prioritising the relevant issues which they are going to tackle thro sensible and rational policy advocacy and lobbying process. It is noteworthy to say that identification of areas for lobbying alone is inadequate and SAARC CCI should display a great deal of diplomacy, sensible assessment over each country capacity, tolerance and understanding and the firm adherence to the SAARC charter as these matters are key to achieving its noble objectives. 

Future role of SAARC CCI 

My personal opinion is SAARC CCI needs to get back to its basics now and should refresh its course of action to win the full confidence of all SAARC governments, related institutions and more importantly the SAARC chamber movement to support its vision. 

In fact, the best opportunity comes in the near future when SAARC CCI moves in to its new spacious headquarters in Islamabad, Pakistan largely due to the generosity of the government of Pakistan with a sustainable business model. SAARC CCI can restructure its management positions and can invite professionals/staff members from other SAARC countries to take up responsibilities. If done, such a move would greatly help SAARC CCI to improve its positioning as a truly regional and multi -cultural institution. The continuity of apex body status of SAARC CCI and regular meetings with SAARC secretariat is also of paramount importance for the effectiveness of SAARC CCI when synergising the efforts of SAARC governments.  SAARC CCI is bracing for a new leadership in the near future so the chances for a fresh beginning and probably a change of course of action are high. However, this change over should not be marred by emotions and subjectivity of memories good or bad. It is always a habit that fresh beginning gives hopes both positive and negative feelings to its stakeholders. It is up to the new leadership to act as a catalyst and raise above unilateralism and instil confidence in to its member chambers.  In brief, SAARC CCI need to immediately start delivering what they could not deliver so far and should engage in sensible and rational policy advocacy and lobbying process on following matters as a matter of priority, without delay.

(Disclaimer – Please note that the views and opinions expressed in this article do not necessarily reflect the official policy or position of FCCISL.)

(1) New disbursement methodology for SDF (SAARC Development Fund) among the private sector of SAARC countries and probable introduction of common currency unit for SAARC.

(2) Encouraging all SAARC countries to sign motor vehicle and railway agreement 

(3) Encouraging implementation of the roadmap adopted at the SAARC Tourism Ministerial Meeting held in May 2006 at Cox Bazar, Bangladesh for promotion of tourism 

(4) Encouraging the introduction of SAARC air services agreement 

(5) Encouraging implementation of SAARC climate declaration and an action plan on climate change: 

(6) Adaptation of code sharing facility by air lines operating within the SAARC region and calling for CEO forum of all airlines operating within SAARC region to develop a closer cooperation among airlines 

(7) Establishment of dedicated counters at immigration points for prompt and smooth clearance of SAARC passengers.

(8) Establishment of sharing SAARC credit and risk management information system. 

(9) Introduction of Ecommerce platform across SAARC member countries.

(10) Roaming facilities among SAARC countries to improve connectivity and encourage SAARC Roaming by introducing special discounted package through telecom service providers.  

(The writer is a banker turned corporate and has over 20 years’ exposure in banking, apparel, and personal care. He joined FCCISL in 2014 and got actively involved in activities related to SAARC CCI from 2014 to 2018 and also served as the sole representative of FCCISL at the constitutional reform committee of SAARC CCI in 2015-2016. He has widely travelled within Asia Pacific region and represented FCCISL at many international forums. He is also a writer and speaker on Free Trade Agreements. This article – South Asia; Economic Integration – A Reality or Fantasy? was written to mark the SAARC charter day that fell on 8 December 2019 and consists of three main parts namely – Hard facts about SAARC, way forward/improvements for governments, the role of SAARC Chamber of Commerce and Industry and its future course of action. For any comments or clarifications, he can be reached at [email protected] or [email protected].)