December Issue 2014

The last minute handshake between Prime Minister Nawaz Sharif and his Indian counterpart Narendra Modi just about managed, it seems, to have saved the nearly 30-year-old, eight-country South Asian Association for Regional Cooperation (SAARC) from finally splitting up under the weight of escalating tensions between New Delhi and Islamabad.

During the two days of the summit (November 26-27), much attention was focused on whether the leaders of India and Pakistan would meet on the sidelines. But throughout the opening sessions, the leaders avoided making eye contact and kept busy meeting other SAARC colleagues. Nawaz was quoted as saying that the ball was in India’s court, after New Delhi cancelled the scheduled foreign secretaries’ talks earlier this year.

Despite the handshake, the mistrust between India and Pakistan — widely seen as the main obstacle to greater South Asian integration — appears unlikely to dissipate any time soon.

Sujeev Shakya, chairperson of the Nepal Economic Forum, was quoted by the media as saying that SAARC’s main problem was that it was basically about India-Pakistan relations, with the Afghanistan dimension thrown in. It’s time, therefore, he added, “to develop other regional groupings instead of getting bogged down by SAARC, where the conflict between India and Pakistan is a huge obstacle to progress.”

Perhaps mollified by the handshake, Pakistan agreed to sign a deal to create a regional electricity grid at the last minute, after having refused to do so earlier. But Nawaz stuck to his guns and refused to sign two other proposed pacts, on road and rail connectivity, on the grounds that these needed further technical scrutiny.

Hopefully by 2016, when the next SAARC summit is scheduled to be held in Pakistan, these two agreements will also be signed.

The Indo-Pak mistrust over the purpose of SAARC has dogged the alliance from day one. While the idea of SAARC was being conceptualised in the early 1980s in the capitals of relatively smaller countries of the region (Bangladesh and Nepal), India viewed the proposal’s reference to security matters in the regional organisation as an effort by its neighbours to regionalise all bilateral issues and to gang up against India.

Pakistan, meanwhile, assumed that it might be an Indian strategy to organise the other South Asian countries against it and ensure a regional market for Indian products, thereby consolidating and further strengthening India’s economic dominance in the region. Though the relentless behind-the-scenes diplomatic efforts by other countries did finally succeed in cutting through these suspicions and SAARC was launched in 1985, its progress has continued to be obstructed by the unending political bickering between India and Pakistan mostly over Kashmir on the one hand, and India’s range of disputes with Bangladesh, Nepal and Sri Lanka on sharing of water, borders, illegal immigration and trade and transit relations, on the other.

Since there is nothing much to show by way of progress on any vital regional matter even after almost 30 years of its existence, SAARC is viewed by many as a doomed organisation, incapable of becoming anything more than a talking club and an excuse for a social gathering of its members. Some, however, believe that the very fact that it did not break up despite all the impediments is in itself a great achievement and raises the hope that at some future date, it might achieve the objectives for which it was formed.

In any case, the outcome of the 18th SAARC Summit was a foregone conclusion, as it was held under the shadow of an unusually sharp deterioration in India-Pakistan ties. The Line of Control (LoC) and the working boundary are currently under attack almost round the clock, with the two countries accusing each other of violating the ceasefire. The hand of friendship extended by Prime Minister Nawaz Sharif,  first by attending Prime Minister Narendra Modi’s inauguration and secondly by not meeting the Hurriyat leadership, while in New Delhi, breaking a tradition which all Pakistani leaders have followed whenever in the Indian capital — a gesture considered by India as an interference in its internal affairs — was spurned by his Indian counterpart by cancelling the scheduled foreign secretary-level talks. This, just because Pakistan’s High Commissioner in New Delhi had earlier hosted a reception for the Hurriyat leadership at the High Commission. Nawaz retaliated by raising the Kashmir issue at the UN, which evoked a sharp verbal reaction from the BJP cabinet members who accused Pakistan of internationalising a bilateral issue. The new Modi government of the BJP was also seemingly making a bid to do away with Article 370 of the Indian Constitution, which makes it impossible for India to reintegrate Indian-administered Kashmir into its dominion as long as the Kashmir Legislative Assembly does not vote to approve such a move. And during his recent US visit, Pakistan’s Chief of Army Staff (COAS) General Raheel Sharif publicly accused India of hampering Pakistan’s efforts to clear its border areas with Afghanistan of all kinds of militants and militancy by forcing the Pakistan Army to keep looking over its shoulder all the time because of continuous violations of the LoC ceasefire.

Again, the factors that have impeded the progress of SAARC from the get go have remained almost intractable for obvious reasons. Both in size and population, India is much larger than all the other members put together. It is endowed with relatively larger deposits of coal, iron ore, salt and petroleum. Its economy is much larger than the combined economy of the rest. India has never concealed its intentions to translate its relative physical and economic dominance into political dominance. And it suspects that the efforts of smaller countries to develop closer relations with China and their attempts to bring Beijing into the SAARC fold are aimed at neutralising New Delhi’s bid for the leadership of the region. The Pakistan-India arms race, directly related to their bilateral Kashmir dispute and nuclear ambitions, has made the region into an international nuclear flash-point.

Both countries are spending an enormous amount on defence, diverting precious resources needed to expand literacy and health coverage and reduce poverty. The richest one-fifth of the SAARC region earns almost 40 per cent of the income and the poorest one-fifth less than 10 per cent. The region as a whole hosts over 500 million poverty-ridden people and over 400 million illiterate adults. The SAARC countries’ total GDP makes up about a paltry two per cent of the world’s intra-regional trade among the nations. The restrictive trade policies of SAARC countries, dominance of foreign capital, the competitive rather than complementary nature of economies, the communication gap and the lack of monetary cooperation are said to be the primary reasons for such low trade among SAARC countries. Indeed, most of the SAARC countries compete for markets in the rich countries and readily offer their markets to them in the trade-off, reducing the possibility of expanding regional trade almost entirely.

It is not possible to improve the situation on this front without creating the right environment for a natural growth of trade and economic ties in the region. The first and foremost step that is needed to be taken in creating a positive environment is to declare SAARC a visa-free zone for all its citizens and follow up with facilitating the convertibility of currencies of member countries, establishing regional insurance, banking, export financing and regional transport infrastructure.

The SAARC Agreement on Trade in Services was signed at the 16th Summit held in Thimphu in April 2010. It went into force in November 2012. Indeed, the most visible achievement of SAARC has been the progress so far made on the South Asian Free Trade Area (SAFTA) agreement, which in itself is not much to write home about. It was signed in January 2004 at the 12th Summit, came into force in January 2006 and is now operational. Under the SAFTA framework, the member countries are obliged to reduce custom duties on all traded goods to zero by 2016. Additionally, SAFTA required the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 per cent in the first phase of the two-year period ending in 2007. In the final five-year phase ending 2012, the 20 per cent duty was to be reduced to zero in a series of annual cuts. The least developed nations in South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and Maldives) had an additional three years to reduce tariffs to zero. India and Pakistan ratified the treaty in 2009, whereas Afghanistan as the eighth member state of the SAARC ratified the SAFTA protocol in May 2011.

The purpose of SAFTA is to encourage and elevate common contract among the countries such as medium- and long-term contracts, involving trade operated by states, supply and import assurance in respect of specific products etc. It involves agreement on tariff concessions such as national-duty concessions and non-tariff concessions. And the objective is to promote competition in the area and to provide equitable benefits to the countries involved. Under SAFTA, a sensitive list is maintained by every country which does not enjoy tariff concession. Each member country has a long list of such items and all seem highly reluctant to rationalise their list, which has impeded the process of reaching the zero duty regimes for all products within a reasonable time-frame.

Meanwhile, a meeting of the commerce ministers of SAARC countries considered and approved the report of the ninth meeting of the SAFTA Committee of Experts (Thimphu, July 22-23, 2014).  In particular, they endorsed the following recommendations:

Establishment of SAARC Development Bank; early finalisation of Draft SAARC Agreement on Promotion and Protection of Investments; Motor Vehicles and Railways Agreements; and introduction of currency swap arrangements and trading in local currencies of the member states.

The meeting also urged LDC member states to reduce their tariffs and sensitive lists for one another for faster movement towards economic integration; emphasised the removal of non-tariff barriers and enhancement of trade facilitation measures for free flow of goods under SAFTA.

The follow-up on the Kathmandu Summit would be closely monitored by the people of the region to see how soon the decisions taken at this summit and also those that relate to SAFTA are translated into action. To be sure, the region’s salvation lies in the economic integration of the SAARC countries.  For the teeming millions of the region to enjoy what are called the benefits of the Asian Century, the regional leadership must speed up the process of eliminating their respective trust deficits.

This article was originally published in Newsline’s December 2014 issue