Policy challenges and testing the scope for regional trade integration – a case of South Asia

Journal of South Asian and Middle Eastern Studies Vol. XL, No.3, Spring 2017 Locating the Loopholes of South–South Cooperation in South Asia: Can SAARC Deter Hostilities and Promote Cooperation? Zaglul Haider* Introduction Against the backdrop of growing inequality between the North and the South, and increasing infectivity of cooperation between the two, the importance of cooperation among the Southern developing countries of the world has increased to a significant extent. The strategy of South-South cooperation (SSC) is clearly endorsed by the principles of the United Nations. In the aftermath of increasing poverty, inequality and under development in South Asia, it is an imperative to expand SSC in order to change the condition of more than 1 billion underprivileged people in the region. The Global South in general and the countries of South Asia in particular, lack the managerial capacity to combat the major threats of internal security emanating from within the societies unlike the Western developed societies.1 The limited abilities of these countries to manage the emerging crises independently increase the necessity for SSC. The World Bank report shows that by 2008, South Asia experienced 36% extreme poverty 35 *Zaglul Haider is a Professor of Political Science at the University of Rajshahi. He earned PhD degree in Political Science from Clark Atlanta University, U.S.A. He obtained an L.L.M. from Osgoode Hall Law School. Currently, he is a PhD candidate in law at Osgoode Hall Law School. His book The Changing pattern of Bangladesh Foreign Policy was published by the University Press Limited, Dhaka, in 2006. His articles are published in The Security Dialogue, Asian Survey, The Round Table, Asian and African Studies, African and Asian studies, South Asian and Middle Eastern Studies, Regional Studies, Asian Profile, the Asiatic Society Journal, Journal of International Relations and in many South Asian academic Journals. 1 Mohammed Ayoob, "Security in the Third World: The Worm about to Turn?" International Affairs 60 (1983-84): 46. 36 where a person is living on $ 1.25.2 Given this scenario, SSC is an imperative for South Asian countries. Meaningful SSC is also important in order to preserve and protect their minimum core values i.e. political independence, territorial integrity, or the security.3 This paper argues that bilateral hostilities between India and most of the South Asian countries and Indian domineering role in South Asia created mistrust and misunderstanding between India and other South Asian countries. The South Asian neighbors consider India as a dominating state, given her political, economic and military power as well as hostile attitude toward them. This power politics of India is primarily responsible for the slow economic cooperation in South Asia. This paper further argues that within the existing Charter of the South Asian Association for Regional Cooperation (SAARC), where bilateral, political and contentious issues are deliberately denied formal discussion, SSC or regional integration in its fullest capacity is not feasible. Although SAARC emerged as an economic forum, economic cooperation does not work effectively, if deeply rooted political hostilities or rivalries among the partners do exist. Therefore, to promote SSC within the regional framework of SAARC, my approach is to incorporate all bilateral issues under the purview of SAARC. To this end, SAARC Charter needs to be amended. This will not only settle the existing political disputes but also accelerate SSC within the SAARC region. This paper is organized into five sections. Section1 introduces the paper, formulates the arguments, and shapes the structure of the chapter. Section 2 defines SSC, explains the evolution of SSC, rationale for SSC and the justifications for SSC in South Asia. Section 3 focuses on the loopholes of SSC in South Asia which includes political, economic and security challenges that limit the scope of SSC. Section 4 explores if SAARC at all is capable to promote regional economic cooperation and defuse tensions under its present charter. If not, why and how to make SAARC an effective regional instrument. In conclusion I summarize the main findings and recommend some policies for the promotion SSC in the region. 2 World Bank defines extreme poverty as living on $1.25 per day. The World Bank report is cited in Nikhilla Gill, "Extreme...

THE FORMATION OF THE SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION (SAARC) in December 1985 was hailed as a major diplomatic breakthrough in South Asia. But SAARC's slow progress and modest achievements over the past decade have evoked different reactions among different people. To some, SAARC is merely a talking shop, which can provide nothing more than a lip service to the various issues of peace and development in the region. To others, SAARC may not be a panacea to the region's problems, but its existence has certainly provided an opportunity for the policy makers, administrators, and experts to meet regularly and hold informal dialogues on important bilateral and regional issues. This practice of informalism and behind-the-scenes discussions among the political leaders on various SAARC forums has helped contain many difficult situations in the region and has contributed to the beginning of a confidence-building process in South Asia. Additionally, the ratification of SAARC Preferential Trading Arrangement (SAPTA) by all SAARC members in December 1995 and their decision to create a SAARC Free Trade Area (SAFTA) as early as possible have generated guarded optimism about the relevance of SAARC in promoting regional economic cooperation in South Asia.' Will economic interests drive the South Asian countries toward greater cooperation? If so, what is the potential for the growth of regional economic cooperation in South Asia? Given the decades of mutual hostility and distrust, to what extent will the South Asian countries be able to achieve economic interdependence? The answer to these questions requires a

Globalization polarized the world and made international trade very competitive. Each and every country is trying to exploit whatever trade opportunities are available. The World Trade Organisation (WTO) contracting countries are facing various barriers to trade promotion. Due to bureaucratic and time-consuming process of removing the barriers, many countries are now thinking of alternatives like regional and bilateral free trade agreements for duty-free market access for many of their products.The European Union (EU), considered a model of regional integration, has emerged an economic power. It acts as a unit in various international bodies like the UN and the WTO.The South Asian leaders formed South Asian Association for Regional Cooperation (SAARC) and adopted South Asian Preferential Trading Arrangement (SAPTA) and South Asian Freed Trade Agreement (SAFTA), keeping this in mind. The SAFTA came into effect January 01, 2006 for free trade among the eight SAARC member countries: Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan and Sri Lanka. South Asia is miles from the cherished goal of free trade. Bangladesh must study and analyse the opportunities and disadvantages of business under the SAFTA. The business community must strengthen their strengths to take opportunities of the SAFTA and prepare to overcome their weakness to avoid its disadvantages.Bangladesh does need to assess properly the possible effects of SAFTA on its trade with other SAARC member-countries, whether or not it would increase trade, if not why? Bangladesh should raise the issue of its major exportable products in the negative list in the next trade negotiations with the SAARC countries under the SAFTA. It should study the barriers its businessmen are facing in doing business with the other SAARC countries to pinpoint the measures to make SAFTA more effective.The study should concentrate on analysing the possible impact the SAFTA would have on Bangladesh's trade with the SAARC countries. It should identify Bangladesh's major exportable products in the negative or sensitive list of the SAARC countries, so that it can take up the issue in next trade negotiations under the SAFTA.

Like many developing economies, the South Asian countries are opening-up their economies with a view to accelerating their economic growth through greater trade and investment. In this context, attempts have also been made to encourage regional trade under the aegis of the South Asian Association for Regional Cooperation (SAARC). In particular, the South Asian Preferential Trade Agreement (SAPTA) provides for reductions in tariffs and other restrictions on specific commodities on a reciprocal basis, and the eventual objective is to integrate the South Asian economies into a free trade area through SAFTA, which would come into force on January 1, 2006. However, despite greater attention on regional economic cooperation initiatives, there has been little progress in regional trade expansion: intra-regional trade continues to be minimal, not exceeding 5 percent of the total trade of the South Asian economies. This paper highlights the importance of regional economic integration in South Asia as elsewhere, spells out the factors which have so far hampered economic cooperation in the region, and outlines a future course of action to achieve greater economic integration in South Asia. Section 2 provides a broad perspective on regional economic integration with a particular focus on the need to foster greater economic cooperation in South Asia. Section 3 discusses the factors that have impeded intra-regional trade and economic ties within the region. Section 4 spells out measures to enhance economic cooperation in the SAARC region, while Section 5 concludes the discussion.

The South Asian Association for Regional Cooperation (SAARC) as a regional economic grouping in South Asia has not emerged as a viable and an efficient regional block such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN). Despite taking several initiatives in this regard, it has not achieved the desired objectives set forth at the time of its establishment. Over thirty years, it has become hostage to the Pakistan-India adversarial relationship. Through interviews with key informants (KIs), this article investigates the causes for the lack of momentum of SAARC and explores how ASEAN's path might offer lessons for SAARC. Adopting qualitative methods and content analysis this research finds the dominance of the Pakistan-India conflictual relationship as the key reason for the relative weakness of the SAARC. Moreover, the lack of implementation of SAARC declarations, conflicting issues between India and other neighbouring countries and the strict SAARC visa regime are important barriers to the enhancement of regional co-operation in South Asia. The article recommends that SAARC countries follow the ASEAN model and focus on the augmentation of regional cooperation while managing bilateral conflicts between them. In this regard, Pakistan and India, being the largest economies in South Asia, should also perform a role in enhancing bilateral economic cooperation to avoid the potential for bilateral conflict. The article also finds that bilateral economic co-operation between Pakistan and India has a spillover effect on the enhancement of regional economic cooperation in South Asia. Keywords: Regionalism, SAARC, ASEAN, Pakistan-India, regional economic cooperation

South Asian regionalism—mainly represented by the South Asian Association for Regional Cooperation (SAARC)—has always been vulnerable to the influence of the long-standing bilateral disputes, and South Asian intra-regional trade and economic cooperation is limited. This article examines economic integration in Europe, from the 1950s to Britain’s decision to exit from the European Union (EU) in 2016, in order to identify possible lessons for the SAARC. In particular, this article makes use of Gürler’s model of economic integration to propose a way forward for economic cooperation through the SAARC. While the full implementation of the EU’s model of economic integration appears to be a distant reality for the SAARC, this article argues that a revitalized SAARC is nonetheless a suitable vehicle for pursuing a gradual process of economic cooperation in South Asia that may ultimately lead not only to economic integration but also the resolution of political disputes.

Most of the South Asian countries, namely Bangladesh, Bhutan,1 India, Maldives, Nepal, Pakistan and Sri Lanka formed a loose association SARC (South Asian Regional Cooperation) in the year 1980. Through various meetings and conferences spread over five years under the banner of SARC, an agreement was signed in December 1985 for the formation of SAARC (South Asian Association for Regional Cooperation. SAARC member-countries have chosen some areas of cooperation like, agriculture, rural development, meteorology, telecommunication, scientific and technical cooperation, health and cooperation activities, transport, postal services and sports, arts and culture. The most recent development that has taken place concerns the meeting of Group of Planners on a yearly basis to review the studies made under the aegis of SAARC in the following areas2 (i) Analysis of trade regimes vis-a-vis industrial protection policies of member countries; (ii) Quantification of the benefits of intra-regional trade expansion including transit problems of land-locked countries and mechanism for financing short duration trade imbalances; (iii) Studies to explore the possibilities of joint ventures in agriculture, industry and energy; and (iv) Studies of existing national systems of industrial promotion and regulation including assessment of design and consultancy capabilities and post-harvest technologies. Inspite of these, the subject of cooperation for intra-regional trade expansion still remains outside the SAARC programme. There is little cooperation in the SAARC region in the sphere of trade. Bangladesh, India and Sri Lanka (among other Asian countries) are signatories to the Bangkok Agreement under which each member country gives certain preferential treatment to the co-signatories in the field of trade. This Preferential Trade Agreement signed in July 1975, under the auspicies of ESCAP covered multilateral trade cooperation but has made very limited impact on expanding intra-regional trade among the three countries listed above. Apart from this, the SAARC countries are the members of Asian Clearing Union (ACU), set up in 1975, with a limited coverage of membership, transactions and credit facilities in this region. In spite of SAARC countries' participation in two major schemes of multilateral trade cooperation, the region lagged behind the rest of the world in expanding their trade. Over a period of time, the share of intra-regional trade in this region declined in comparison to world trade. The fall in the share of infra-regional trade can also be seen in a relative sense. Thus, the dependence of these countries upon developed countries has increased and foreign trade has failed to act as an engine of growth in this region. The aim of this paper is to examine: (i) Declining export and import growth rates of SAARC countries; (ii) SAARC countries' aggregate exports and imports share in world exports and imports and its burgeoning trade balances', and (iii) Intra-regional exports and imports share of SAARC countries and SAARC share in its total exports and imports to the rest of the world.

Introduction The inability of the World Trade Organisation (WTO) to broker a multilateral trading system acceptable to all its members has sparked a rising interest in regionalism. The first wave of regionalism in the 1960s was divided along North-North and South-South trading arrangements. In the 1980s, the second regionalism wave evolved into a North-South trading arrangement. (1) However, in a post-Cold War setting, regional groupings have responded to the volatility of the multilateral trading system by increasing regional cooperation and trade and various trade-driven groupings emerged such as the North American Free Trade Area (NAFTA), Asia-Pacific Economic Cooperation (APEC) and the European Union (EU). While South Asia has lagged behind other regions in creating a regional trade grouping, the formation of the South Asian Association for Regional Cooperation (SAARC) in 1985 is a step towards this direction. However, for economic and political reasons, SAARC has made relatively slow progress on expanding intraregional trade. The South Asian region contains a range of ethnic groups, religions and languages but governance has often centralized political power among a small elite, creating tensions by discounting the interests of the majority. (2) Various economic explanations have been presented to account for the inability of South Asian countries to trade more with one another. These range from South Asian economies producing similar types of goods, to government interference in economic development through the implementation of import substitution industrialization (ISI) policies and highly regulated economic policies. (3) The diversity of economies in terms of their size and complexities of using preferential trading policies has also contributed to slow intraregional South Asian trade. (4) Although cooperation among SAARC countries was supposed to be based on areas of mutual cooperation, with the exclusion of bilateral and contentious issues, it is the latter that have derailed SAARC meetings. The problem of Kashmir, present since the partition of British India into the Republic of India and the Islamic Republic of Pakistan in 1947, has been one of the main obstacles preventing the SAARC region from achieving its full economic potential as a regional grouping. (5) For example, the postponement of the SAARC Heads of State Summit in 1999 followed renewed tensions between India and Pakistan. Similarly, both countries' preferential imports from each other declined significantly from 1996 to 1998 following the nuclear tests in 1998 and the Kargil conflict in 1999. (6) The way forward for SAARC to achieve greater regional economic cooperation will mean dealing with bilateral and contentious issues such as the Kashmir dispute. This paper attempts to examine the process of rapprochement between India and Pakistan over the divisive issue of Kashmir and what this would mean for SAARC as well as Pakistan's ambitions to strengthen its ties with ASEAN. In this context, political will and a change of mindset is crucial to resolve economic obstacles like the Kashmir dispute if the SAARC region does not wish to fall further behind economically. The changing mindset among South Asia's policy-makers was reflected by India's Prime Minister Atal Bihari Vajpayee who pointed out that the increasing economic globalization has been accompanied by the consolidation and emergence of vast new economic groupings (7) such as the Asia Pacific Economic Cooperation (APEC). India being the largest and most influential economy in South Asia has encouraged the economic integration of SAARC by providing greater concessions but the slow progress of a South Asia Preferential Trading Arrangment (SAPTA) has seen a shift in focus towards bilateral trading agreements between SAARC member countries. (8) India has also kept its options open by being willing to conclude bilateral Free Trade Arrangements with those countries within the region intent on moving ahead faster. …

Like many developing economies, the South Asian countries are opening-up their economies with a view to accelerating their economic growth through greater trade and investment. In this context, attempts have also been made to encourage regional trade under the aegis of the South Asian Association for Regional Cooperation (SAARC). In particular, the South Asian Preferential Trade Agreement (SAPTA) provides for reductions in tariffs and other restrictions on specific commodities on a reciprocal basis, and the eventual objective is to integrate the South Asian economies into a free trade area through SAFTA, which would come into force on January 1, 2006. However, despite greater attention on regional economic cooperation initiatives, there has been little progress in regional trade expansion: intra-regional trade continues to be minimal, not exceeding 5 percent of the total trade of the South Asian economies. This paper highlights the importance of regional economic integration in South Asia as elsewhere, spells out the factors which have so far hampered economic cooperation in the region, and outlines a future course of action to achieve greater economic integration in South Asia. Section 2 provides a broad perspective on regional economic integration with a particular focus on the need to foster greater economic cooperation in South Asia. Section 3 discusses the factors that have impeded intra-regional trade and economic ties within the region. Section 4 spells out measures to enhance economic cooperation in the SAARC region, while Section 5 concludes the discussion.

South Asia is a latecomer with regard to regionalisom compared with other regions of the world and the Indian Ocean Region in particular, which have established at least one group in their respective regions. The South Asian Association for Regional Cooperation (SAARC)'s initial role as the representative of South Asian countries remained declaratory without delivering tangible political or economic benefits. Globalisation and regional market reforms by India and Pakistan ushered in a certain degree of seriousness among the member countries. Regional trade liberalisation agreements were signed to boost intra-regional trade, although these were limited in their scope. Nor did their performance result in tangible growth in trade among the members. The region's inherent political and economic problems inhibit SAARC's steady progress as an integrating body. However, as the South Asian countries are integrating more with the other regional trading blocs such as the Association for Southeast Asian Nations and the European Union, and as other countries and regional groups are also eager to affiliate with the SAARC, hopefully such combined regional vs. extra-regional interaction will push SAARC in the direction of more concrete actions. The role of non-governmental organisations is a very helpful input to foster the process of regional integration. Recent active interest in SAARC affairs by certain civil society groups also can help promote regional integration.

South Asian Association for Regional Co-operation (SAARC) was founded to achieve better standards of living through greater development in South Asia. SAARC has moved nearer in even though many of its member countries failed to realize the benefit of developing intra-regional trade. Despite the formation of a South Asian Free Trading Area (SAFTA) intra-regional trade performance is not satisfactory relative to South Asia’s total trade flow. The main objective of this study is to identify the impediments to boost the intra- to a status of a borderless market regional trade flow of South Asian Region. The study selected the qualitative research methodology where twenty in-depth face to face interviews were carried out with both local as well as regional stakeholders who engage in South Asian regional trade activities. Template analysis was used as the method of data analysis. Secondary data sources used to triangulate the interview data. The research identified four (4) major impediments as the Regional market structure, Regional social structure, Political and economic structure, and Tariff structure. Implications and recommendation developed as it was identified the attractiveness of niche markets, the suitability of localizing marketing strategies, the advantage of entering into strategic alliances between regional and outside companies, and suitability of developing a regional supply chain network and a regional brand name.

The member states of South Asian Association for Regional Cooperation (SAARC) share similar food habits with staple food rice is facing two challenges towards achieving food security and the promotion of regional trade. Trade engagement within South Asia, relative to Non-South-Asian countries, found to be low. Bangladesh, Nepal, Pakistan and Sri Lanka trade more with other South Asian countries compared to that among any two of them. The global food crisis 2007–2008 sheds light on the discrepancies between SAARC’s supposed objective of becoming an integrated economic community and its member countries’ continued tendency to put national economic interests above regional solidarity. At regional scale India contributes most in cereal production and export. However, to a large extent, the way in the crisis was handled at the national level not only contributed to further regional as well as global food price volatility, but also undermined the food security situation in the region. Bangladesh could not get rice to purchase during these critical days of 2007–2008 despite repeated attempts to pay as much as market demands. The diverse capacity of SAARC member countries to produce food, store and in distribution systems, food insecurity can be best tackled through a regional approach with differentiated responsibility for member states. This is the area where regional trade policy regimes need further integration so that it can withstand any sudden shock. It appears that many commodity markets within the countries and the South Asia region are not integrated. Integration of wheat and rice markets needs attention and action within countries and in region. These may be attributed to the lower number products of each country with surplus to export compared to Indian capacity for production and export. This chapter will try to investigate regional food trade (with some extent trade policies), barriers and opportunities and their implications to the regional and national food security in SAARC region.

ABSTRACTThis article investigates the effects of trade by observed economies on the intra-regional trade by South Asian Association for Regional Cooperation (SAARC) members using Poison pseudo maximum likelihood estimator (PPML) gravity models with panel data over the period 2008–2014. Eight SAARC members and eight observed countries, including the EU, are analysed in capturing the trade effect of observed economies on intra-regional trade in SAARC. This article provides an empirical measure of observers’ trade, FDI and Official development assistance (ODA) with SAARC if the exports and imports of observers to/from SAARC have positive or negative signs for intra-regional exports and imports. The results show that the exports and imports of observers to SAARC members have positive effects on bilateral exports among the members. The FDI of observers reduces the bilateral intra-imports in SAARC and ODA also has a negative effect on bilateral exports among the members. These results imply that the imports by SAARC members from observer countries increase intra-regional trade in the region. The FDI and ODA increase and decrease intra-regional trade in SAARC, respectively, implying that the policies for both FDI inflow from observers and efficient aid management are needed to increase regional welfare. The study also recommends that trade between SAARC members and its observers help to increase intra-regional trade in SAARC.

ABSTRACTThe South Asian countries formed the regional trade bloc namely South Asian Association for Regional Cooperation (SAARC) with the aim to promote regional economic cooperation through multilateral engagements. India which comes to be the largest economy in the SAARC has posted impressive economic growth in the last decades. As of now India stands major contributor to the exports and imports to/from South Asia, having trade surplus with all other countries from the region. In this backdrop, this paper presents the facts on India’s role in the economic development of South Asia region while testing the potential spillovers of India’s trade and economic growth. We utilize Autoregressive distributed lag (ARDL) bound test procedure for short and long run causal relations during the period 1990–2016, hence raising the quality of statistical inference. The results highlight that the economic growth and regional trade of India are found significant short and long run spillovers on the economic growth of Bangladesh, Sri Lanka, Nepal and Bhutan. The results are highly insightful for policy implication which raises the attention towards the greater degree of trade openness for balanced economic development in the region. India can act as engine of growth, and thus requires to play key role in pushing forward the SAARC objectives through political and diplomatic engagements.

PurposeThe purpose of this paper is to test the dynamic linkages among the stock markets of four South Asian countries (India, Pakistan, Bangladesh and Sri Lanka) in the backdrop of trade interdependency.Design/methodology/approachListed indices are used to serve the proxy of stock markets of four countries for the period: January 2000–December 2018. The study uses the autoregressive distributed lag model and Granger causality techniques in multivariate frameworks while focusing on intraregional trade as an exogenous factor for testing the long- and short-run causality in the given data set, hence raising the quality of statistical inference.FindingsThe results highlight that India and Pakistan are net exporters to the South Asian region, while Bangladesh and Sri Lanka are net importers from the region. While testing the stock markets linkages, the expanded intraregional trade volumes (exports plus imports) have occurred with the significant cointegration of stock markets of India and Pakistan with the other stock markets in the long run. In the short run, the stock markets of India, Pakistan and Sri Lanka report bidirectional causality without having significant spillovers of intraregional trade on the stock prices.Research limitations/implicationsThe study relies on the multivariate techniques with stock prices and regional trade share as the exogenous variables. Further the regulatory, political and economic conditions of sample countries are fundamentally different which in turn affect their degree of trade interdependency and integration between the stock markets.Practical implicationsNonsignificant cointegration of the stock markets of Sri Lanka and Bangladesh highlights the possibility of portfolio diversification in the long run, while the significant bidirectional causalities between the stock markets highlight the lesser degree of portfolio diversifications in the short run.Originality/valuePioneer efforts are made to examine the dynamic linkages between the South Asian stock markets while focusing on regional trade interdependency. The results provide new insight in the dynamics of stock returns of South Asian stock markets in the backdrop of intraregional trade.