Jan 05 - 11, 2003



By the time these lines are written a major breakthrough, long overdue as is, has been made to help transform the fledging South Asian Association for Regional Cooperation (Saarc), the biggest trading bloc in the world in theory at least. The Council of Ministers, comprising foreign ministers of the seven member states responsible for formulating the policies, met in Islamabad and agreed on the 2nd of this month ahead of the 12th Summit to set up a free trade area thereby paving way to replace Preferential Trade Agreement (SAPTA) with Free Trade Area (SAFTA).

Saarc houses over 1.38 billion people representing around 23 per cent of the humanity within the confines of a collective region which represents only about 3.5 per cent of the total world area. Despite staggering economic inequalities, the level of which differ from member state to member state and acutely low side when compared with the developed West, the sheer population offers unique benefits for trade within the region. However, since its inceptions 18 years ago, the Saarc has remained more or less dormant showing little signs of trading activity during the first half of 1990s. The series of nuclear explosions in May 1998 by Indian and a befitting response by Pakistan, the same month straining the relations between the two leading members made a bad situation even worse with particular reference to Saarc.

The Kargil war in Kashmir and the decision to terminate air, rail and road links by India in January 2002 and its amassing of troops on the Pakistani borders, particularly along the province of Sindh later the same year, further strained the relationships between the two countries. The things have started to improve recently helped in a big part by non-official channels such as the trading of people-to-people delegations. The air links have already been re-established and the rail links would be opened on the 15th of this month.

The most prominent sign of the thaw is that the Indian Prime Minister Atal Behari Vajpayee would attend the 12th Saarc Summit in Islamabad on the 4-6 of this month. He will be arriving in Islamabad January 3. The foreign secretaries arrived a few days ago and so were the foreign ministers of the seven member states who agreed the draft of South Asia Free Trade Area and also the Additional Protocol to the Regional Convention on Suppression of Terrorism.

Let's get back about how Saarc has failed to implement its charter the primary focus of which is to promote regional cooperation as its name suggests. Let us discuss facts first: despite immense potential, the seven member states of Saarc India, Pakistan, Bangladesh, Nepal, Maldives, Sri Lanka and Bhutan play an insignificant role in the global economic activities contributing a negligible collective share of 1.3 per cent in the total global output. Half of world's poor live in the Saarc region which reels from staggering economic disparity evident from the per capita GNP which fluctuates wildly within the member nations with Maldives at the top and Nepal at the bottom.


The sheer size of the collective population and the proximity of the member nations promise immense economic benefits for the seven member states. However, Saarc still much remains more a symbolic organisation having failed to achieve the much promised mandate of promoting regional cooperation since the idea was first floated 33 years ago in 1980. All that may change with the adoption of Free Trade Area by the heads of the seven member states.

The foreign secretaries of the seven countries which now are Saarc members met for the first time in Colombo in April 1981. A few later a committee identified five particular areas for regional cooperation. The first meeting of the foreign ministers of the seven countries was held in New Delhi in August 1983 in which a declaration on South Asian Regional Cooperation was adopted and an Integrated Programme of Action was formally launched in the 5 areas agreed perviously, namely agriculture, rural development; telecommunications; meteorology, and health and population. Transport; postal services; scientific and technological cooperation; sports, arts and culture were added to the IPA later on.

Saarc was officially born in December 1985 when the First Saarc Summit was held in Dhaka on the 7th and 8th the same month. It was attended by the heads of the state or the government of the seven member states who adopted the Charter to formally establish the South Asian Association for Regional Cooperation (SAARC).



Much water has passed under the bridge since the Saarc was formally established 18 years ago. The organisation, however, has failed to fulfil its primary mandate of facilitating regional cooperation to boost trade activities among the member nations despite immense economic benefits that it offers. In theory, Saarc remains the biggest trading block anywhere in term of the sheer strength in term of numbers. In practice, it has little to show in term of performance. It has failed to channel the common values shared by a people bonded together with history, culture and language, albeit in varying degrees, into mutually benefiting trade.

The primary reason for the Saarc's failure to play its mandated role can be attributed to the geo-political realities of the region where it exists. The tit-for-tat Pakistani response to Indian nuclear explosions in May 1998 aggravated the long prevalent mistrust among the two countries which collectively make up 90 per cent of the area and about 83 per cent of the population in the Saarc region.

The fact that the Saarc charter does not allow the member nations to discuss bilateral and other contentious issues is the major detriment to help build confidence among the member nations, particularly among its two nuclear powers Pakistan and India. The Kashmir dispute, the bone of contention among the two countries, has also been a major hurdle to peaceful, not to talk of brotherly, relations between the two countries. The sealing of borders adjacent to Sindh province by India and their extended stay worsened an already bad situation. The strained, and at times dangerously animus, relations between the two nuclear neighbours took a heavy toll on an already inactive Saarc taking the spirit of cooperation that the "c" in Saarc represented. However, there are many who believe that ineffectual as it has been for the most part of its existence, the Saarc has nevertheless succeeded to at least provide a platform to discuss regional cooperation at the highest level and even if it has not lived up to its mandate it certainly has not made the life worse for the member states. They argue that the mere presence of Saarc as is offers promises as evident from the latest Summit hosted by Pakistan where the idea of common currency floated by India has been discussed by the Council of Ministers.

The relevance of Saarc stems from one of primary objectives of the promotion of welfare and the betterment of the quality of life of the people living in the region as prescribed in its charter. As stated above, about half of the world's poor live in the Saarc region and any and all attempts to improve the quality of their life through enhanced trade between the seven member states should take priority over other matters. Political indifferences, thus, should not be allowed to overshadow the economic benefits that the member states could drive if Saarc is allowed to play its due role facilitating vibrant trade activities among the members.

Let us also discuss how the activation of Saarc is necessary for the national economies without which illegal trade would keep on flourishing to the detriment between the two leading members of Saarc Pakistan and India.

The 6th Saarc Summit held in Colombo in 1991 decided to establish a SAARC Preferential Trading Arrangement (SAPTA) laying the foundation of cooperation in the vital area of trade. The Agreement was subsequently signed in Dhaka in April 1993 at the Seventh Saarc Summit providing an umbrella framework of rules for step-by-step liberalization of intra-regional trade backed by and periodic rounds of trade negotiations for exchange of trade concessions on tariff, para-tariff and non-tariff measures. However, the commodity-to-commodity approach to allow tariff concessions Pakistan reduced duty on 700 items while India reduced duty on 500 items hardly made any difference as these items were not frequently traded between the two countries. The selective approach was a major detriment to promote trade between the member nations. It also highlighted the need to replace "preferential trade" with "free trade" the grounds for which has been laid down by the clearing of the draft for the same by the Council of Ministers in Islamabad recently.

The government's role as the facilitator of the trade with other countries can hardly be over-emphasised despite the fact that trade is conducted by the businessmen and not by the government. That explains the reason why the businessmen on both sides of border of the two Saarc members who could, and should, have played the leading role to promote trade in the region keen to play the legal trade were forced to find illegal channels to push their goods into the respective markets. The lack of official trade facilitation and the ever increasing closure of borders, and at times it altogether sealing, in addition to selective tariff reduction only encourage illegal and unofficial trade between the two countries depriving them millions in revenues.

It also resulted in large gray areas whereby Indian goods kept finding their way into the market to a level where it superceded official trade by a wide margin. Primarily, the trade between Pakistan and India can be divided into three main categories formal, informal and illegal. The formal trade make up imports/exports through recognised port of entries be it airports, seaports, railways or trucks/buses. The informal trade, on the other hand, is conducted through the third countries from where it is re-exported to either of the two countries. The illegal trade is conducted either directly across the border or through other countries the prime example of which is that of the abuse of the Afghan Transit Trade facility resulting in more imports over-and-above the demand in the land-locked country which were actually meant for the Pakistani market. After Pakistan put over two dozen items on the negative list of the ATT the unscrupulous trade continued through the Iranian Port of Bander Abbas to Islamqila in Afghanistan and ultimately across the Chaman border in the province of Balochistan into the country.

Illegal imports from India far exceeded legal imports by one-to-four thereby not only depriving Pakistan billions in revenue but also causing an irreparable damage to a number of industries. The massive smuggling of bus/truck tyres, most of it of Indian origin, not only discouraged the legal imports but also destablised the local tyre manufacturing. The similar has been the case with many electrical and elctronics items, particularly television which forced a number of multinationals to altogether close or scale down their local production operations.

The establishment of the Free Trade Area, as envisioned by its expected adoption by the Head of States of the seven member nations at the 12th Saarc Summit later this week, is the dawn of a new era. Hopefully, it would help facilitate intra-regional free trade in the years to come and help liberalise it presently to help improve the quality of life of some 1.38 billion people who call South Asia their home.