After ten barren years, SAARC (South Asian Association for Regional Co-operation) has finally delivered a baby called SAPTA (South Asian Preferential Trade Agreement). New-born babies in the subcontinent often suffer from malnutrition, and I suspect SAPTA will be no exception.
Many folk might think from screaming newspaper headlines that the seven countries of South Asia are on the highway to forming sort of European Economic Community or ASEAN.
Prime Minister Narasimha Rao waxed eloquent on the possibility of SAPTA evolving into SAFTA (South Asian Free Trade Agreement). But I think Pakistani president Leghari was much closer to the mark in saying that SAARC could never achieve its full potential unless major political 1 Differences between members were settled.
History shows that regional economic integration can be successful only if the countries concerned establish a commonality of political purpose. France and Germany fought three titanic wars between 1871 and 1945, and one major driving force behind the EEC was a determination to forge closer links between France and\’ Germany to prevent the occurence of another world war. The Cold War gave Western European nations another urgent reason to band together economically to gain in strategic strength.
Finally, a basic EEC rule was that only democracies could become members (which is Spain, Portugal and Greece did not qualify till they shrugged of their dictatorships in the 1970s). This drives home the point that political harmonisation must precede economic harmonisation.
The same pattern is evident in ASEAN (Association of South-East Asian Nations) which was formed as a political grouping opposed to the threat of Communist expansion from Vietnam and China. This helped bind together ASEAN countries that were otherwise dogged by political disputes. Indonesia and Malaysia faced and overcame attempted communist coups, and even today the Philippines remains dogged by communist insurgency.
What is the situation in South Asia? India finds itself regarded as a hegemonic Big Brother by the other six, and bilateral disputes are especially acute with Pakistan, Bangladesh and Nepal. Indeed, the other six see SAARC as a forum for ganging up, the better to withstand Indian hegemonic pressure.
It seems to me that the other six have a perfectly good political basis to form a successful regional grouping, based on antagonism towards and fear of India. But including India in this group destroys its political rationale.
In 1993-94, India had a trade surplus with every country of the region, something they resent. Trade liberalisation will widen that surplus, and resentment. This is why the list of items on which preferences are being offered is small.
Besides, the preferences are so modest that they make little difference anyway. Trade between SAARC countries amounts to only 3 per cent of their total trade, and this will rise to just 3.3 per cent even if SAPTA boosts trade by one-tenth. In some long-term sense, that is still a desirable outcome. In the foreseeable future, it hardly matters.
Indeed, the real trade liberalisers on the subcontinent are not Mr Narasimha Rao or Ms Chandrika Kumaratunge but smugglers. According to Mr SM Inam, President of the SAARC Chamber of Commerce Industry, smuggling across the Indo-Pak border is of $ 1, 500 million annualy, against official trade of barely $ 100 million in 1993-94. Smuggling across the Indo-Bangladesh border could be $ 1, 000 million against official trade of $ 460 million.
So, while trade can indeed help bring together people riven by political differences, it seems Mr Dawood Ibrahim and Co. are doing such an excellent job in this respect that mere Prime Ministers cannot compete. Indeed, smugglers have gone far beyond preferential trade to free trade, making SAFTA a form of virtual reality.
There is a world of difference between a preferential trade and a free trade one. In a preferential agreement, each country still retains sovereignty over its import controls, and merely grants a few concessions. But a free trade area implies dismantling customs barriers, which means all SAARC members will have to agree to a common import policy, formally or informally.
If, after forming SAFTA, one country tries to retain sovereignty over import policy-say Pakistan insists on a 20 per cent import duty on steel when India imposes only 10 per cent-then, no Pakistani will import steel directly, and instead get it at a low import duty through India.
So, Pakistan\’s sovereignty will remain only on paper, undercut by the reality of free regional trade. Unless countries of a region enjoy considerable political harmony, they cannot possibly agree to surrender sovereignty over their import policy, especially in South Asia where the giant Indian economy will tend to dominate outcomes.
So, much though economic integration is desirable, we will first have to create a politically harmonious subcontinent, and that is a formidable task. It means settling issues like Kashmir, sharing Ganga waters with Bangladesh, renegotiating the 1950 treaty with Nepal, and much else. That could take time, maybe till the 22nd century.
