The member countries of the South Asian Association for Regional Cooperation
(SAARC) are called the Seven Sisters of South Asia, because of their
geographical proximity and relations based on culture, ethnicity and economics.
SAARC came into existence in December 1985, at Dhaka, Bangladesh.It has 8
countries as members, they are India, Pakistan, Sri Lanka, Bangladesh, Nepal,
Bhutan, Maldives and Afghanistan. Secretariat was located at Kathmandu. Main
Objectives of SAARC Charter:
To improve quality of life and promote welfare of the peoples of South Asia.
- To accelerate economic growth, social and cultural development in the
region.
- To promote self-reliance among the countries of South Asian Region.
- To generate mutual trust and understanding of each others problems.
- To strengthen cooperation with other developing countries.
- To cooperate on matters of common interest in international fora.
- To strengthen cooperation with regional and global organisations.
Population and Economic Potential: 1.4 billion people, one-fifth of the
World’s population. Home to one-fifth of the World’s consumers with an average
yearly income of $ 450. The SAARC region with a total market size of one and
quarter billion people offers enormous potential for Intra-regional trade and
cross-border investment. Intra-SAARC trade is less than 5 per cent. The SAARC
region is among the poorest regions of the world. The region has 44 per cent of
the World’s poor. According to a World Bank report, more than 500 million
people in South Asian region live below poverty line. The South Asian region
has more than 50 per cent of the total world population of child workers.
Analysts argue that in today’s world of compulsive global integration of
national economies. The SAARC countries continue to drift without showing any
pragmatic endeavour in regional cooperation. Regional economic integration has
been successful in many parts of the world including the European Union (EU),
regional economic organisations in South-East Asia, Latin America and North
America. The regional economic organisations around the world have been
successful in promoting intra-regional trade and external competitiveness. So
far, SAARC has not achieved much success in regional cooperation. For SAARC to
prosper the political animosities and suspicions of motivation should be kept
aside and a process of mutual trade cooperation should be started. The SAARC
Preferential Trading Agreement (SAPTA), which came into force in 1995 has been
replaced by the South Asian Free Trade Area (SAFTA) from January 1, 2006.
On July 1, 2006, the South Asian Free Trade Agreement (SAFTA) came into
effect for the South Asian Association for Regional Cooperation (SAARC) member
countries. SAFTA is aimed at providing free trade in goods among SAARC member
countries. It is expected to integrate the entire South Asian market paving the
way for an eventual single market in the region.
Significance of SAFTA Agreement:
- Analysts feel that the SAFTA agreement can be regarded as a landmark in
the evolution of SAARC. The agreement represents a movement away from tinkering
with tariffs under SAPTA to establishing a Free Trade Area in the region.
- Can Make South Asia a Competitive Economic Bloc: The SAFTA agreement has
the potential to attract foreign investments to South Asia leading to a
restructuring of the economies and making the region a competitive economic
bloc.
- Will Double Intra-Regional Trade: The SAFTA will double intra-regional
trade every five years from the current level of $7 billion. The agreement would
help in drastically reducing tariff barriers, which are still high in South
Asia compared to other regions.
- Major Confidence Building Measure: The SAFTA is seen as a major confidence
building measure to ease tensions in the region, particularly between India and
Pakistan. The treaty would enable South Asia to emerge as a global player in
trade,according to the Indian trade and industry.
- Enables Optimal Utilisation of Economic Potential of Member States:
Analysts point out that SAFTA can lead to industrial restructuring and help in
evolving the special economic potential of member states for their mutual
advantage. Thus, Sri Lanka could emerge as the rubber hub of the region,
Bangladesh for energy-intensive industries and Bhutan for forest-based industries.
Limitations of SAFTA:
- Makes no mention of the customs union or an economic union.
- Leaves out trade in services.
- Leaves unnegotiated far too many things critical for the success of SAFTA. These include the formulation of rules of origin, the preparation of sensitive or the negative list, the creation of a fund for compensating the LDCs for the loss of revenue from the elimination of customs duties.
- Does not subscribe categorically to phasing out the negative list or eliminating non-tariff barriers.
Impediments to SAARC’s Growth:
1. SAARC Summits - Mere Talking Shops: Analysts point out that the record of
SAARC in promoting regional integration has been dismal. The SAARC Summits have
become merely talk shops with little effect on the lives of the people of the
region.
2. Indo-Pak Tensions: One the main reasons for SAARC being a non-starter is
the strained relations between India and Pakistan. The effectiveness of this
forum to further regional cooperation has come under serious scrutiny because of
the disputes existing between India and Pakistan.
3. Pakistan Holding Back Economic Cooperation: Pakistan has been more
interested in bringing its bilateral dispute with India over Kashmir into the
SAARC ambit than in trade liberalisation. Pakistan insists that there can be no
economic progress unless political issues are resolved. This is the opposite of
what the other regional organisations have successfully adopted- expanding
economic cooperation despite political differences. Thus, Pakistan should no
longer be allowed to hold back the rest of the region.
4. Fears of India’s Dominance: India’s size and strength of its economy only
served to compound mistrust. Some members of SAARC fear that the organisation
could be used by India to dominate the South Asian market.
5. Fear of Trade Under Liberalised Conditions: Analysts point out that all
the larger economies in SAARC have survived on a diet of high import tariffs
and therefore fear trade under liberalised conditions.
6.
South Asian Economies Share Similarities: Another reason offered for the slow
growth of SAARC is that the South Asian economies share too many similarities
to benefit from trading with each other. Although this is true, more open
borders may encourage greater diversification and specialisation, according to
analysts.