South Asian Association for Regional Cooperation (SAARC)
1. IntroductionThe South Asian Association for Regional
Cooperation (SAARC) is an economic and geopolitical organization of
eight countries that are primarily located in South Asia or Indian
subcontinent. The SAARC Secretariat is based in Kathmandu, Nepal.
The combined economy of SAARC is the 3rd largest in the world in
the terms of GDP (PPP) after the United States and China and 5th
largest in the terms of nominal GDP. SAARC nations comprise 3% of
the world's area and contain 21% (around 1.7 billion) of the
world's total population and around 9.12% of Global economy as of
2015. India makes up over 70% of the area and population among
these eight nations. All non-Indian member states except
Afghanistan share borders with India but only two other members,
Pakistan and Afghanistan, have a border with each other. During
2005-10, the average GDP growth rate of SAARC stood at an
impressive 8.8% p.a., but it slowed to 6.5% in 2011 largely because
of economic slowdown in India, which accounts for nearly 80% of
SAARC's economy. But driven by a strong expansion in India, coupled
with favorable oil prices, from the last quarter of 2014 South Asia
once again become the fastest-growing region in the world.The idea
of regional political and economical cooperation in South Asia was
first raised in 2 May 1980 by Bangladesh President Ziaur Rahman and
the first summit was held in Dhaka on 8 December 1985, when the
organization was established by the governments of Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Since then
the organization has expanded by accepting one new full member,
Afghanistan, and several observer members.The SAARC policies aim to
promote welfare economics, collective self-reliance among the
countries of South Asia, and to accelerate socio-cultural
development in the region. The SAARC has developed external
relations by establishing permanent diplomatic relations with the
EU, the UN (as an observer), and other multilateral entities. The
official meetings of the leaders of each nation are held annually
whilst the foreign ministers meet twice annually.
2. HistoryThe idea of co-operation in South Asia was discussed
in at least three conferences: theAsian Relations Conferenceheld
inNew Delhion April 1947; the Baguio Conference in thePhilippineson
May 1950; and the ColomboPowers Conference held inSri Lankain April
1954. In the ending years of the 1970s, the seven inner South Asian
nations that included Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan, and Sri Lanka agreed upon the creation of a trade bloc
and to provide a platform for the people of South Asia to work
together in a spirit of friendship, trust and
understanding.PresidentZiaur Rahmanlater addressed official letters
to the leaders of the countries of the South Asia, presenting his
vision for the future of the region and the compelling arguments
for region.During his visit to India in December 1977, President
Ziaur Rahman discussed the issue of regional cooperation with the
Indian Prime Minister Morarji Desai. In the inaugural speech to the
Colombo Plan Consultative Committee which met in Kathmandu also in
1977,King BirendraofNepalgave a call for close regional cooperation
among South Asian countries in sharing river waters.After
theUSSR'sinterventioninAfghanistan, the efforts to established the
union was accelerated in 1979 and the resulting rapid deterioration
of South Asian security situation.[19]Responding to
thePresidentZiaur RahmanandKing Birendra's convention, the
officials of theforeign ministriesof theseven countriesmet for the
first time inColomboin April 1981.The Bangladesh's proposal was
promptly endorsed byNepal,Sri Lanka, Bhutanand theMaldivesbutIndia
and Pakistanwere skeptical initially.The Indian concern was the
proposals reference to the security matters in South Asia and
feared thatPresidentZiaur Rahman's proposal for a regional
organization might provide an opportunity for new smaller neighbors
to renationalize all bilateral issues and to join with each other
to gang up against India. Pakistan assumed that it might be an
Indian strategy to organize the other South Asian countries against
Pakistan and ensure a regional market for Indian products, thereby
consolidating and further strengthening Indias economic dominance
in the region. However, after a series of quiet diplomatic
consultations between South Asian foreign ministers at theUN
headquartersin New York from August to September 1980, it was
agreed that Bangladesh would prepare the draft of a working paper
for discussion among the foreign secretaries of South Asian
countries.The foreign secretaries of the inner seven countries
again delegated a Committee of the Whole in Colombo on September
1981 which identified five broad areas for regional cooperation.
New areas of co-operation were added in the following years. In
1983, the international conference held byIndian Minister of
External AffairsP.V. Narasimha RaoinNew Delhi, the foreign
ministers of theinner seven countriesadopted the Declaration on
South Asian Association Regional Cooperation (SAARC) and formally
launched the Integrated Program of Action (IPA) initially in five
agreed areas of cooperation namely, Agriculture; Rural Development;
Telecommunications; Meteorology; and Health and Population
Activities. Officially, the union was established
inDhakawithKathmandubeing union's secretariat-general.The first
SAARC summit was held inDhakaon 78 December 1985 and hosted by
thePresidentofBangladeshHussain Muhammad Ershad.The declaration
signed byKing of BhutanJigme Singye,Presidentof
PakistanZia-ul-Haq,Prime Minister of IndiaRajiv Gandhi,King of
NepalBirendra Shah,President of Sri LankaJR Jayewardene,
andPresident of MaldivesMaumoon Gayoom.
3. Why is SAARC Important? It protects Intra-Regional trade from
outside forces. Establishes regional security. Helps to become
regionally and globally competitive. Deeper economic cooperation
among the South Asian countries can avoid high costs to consumers.
To integrate the SAARC countries and to get benefit from economic
interdependence. It can be used as a platform for the South Asian
development. Helpful for reducing the tariff barriers. Increases
the intra-regional trade as well as promotion of trade with other
part of the world.
4. Objectives of SAARCThe objectives of the Association as
defined in the Charter are:i) To promote the welfare of the peoples
of South Asia and to improve their quality of life;ii) To
accelerate economic growth, social progress and cultural
development in the region and to provide all individuals the
opportunity to live in dignity and to realize their full
potential;iii) To promote and strengthen collective self-reliance
among the countries of South Asia;iv) To contribute to mutual
trust, understanding and appreciation of one anothers problems;v)
To promote active collaboration and mutual assistance in the
economic, social, cultural, technical and scientific fields;vi) To
strengthen co-operation with other developing countries;vii) To
strengthen co-operation among themselves in international forums on
matters of common interest; andviii) To cooperate with
international and regional organizations with similar aims and
purposes.The Declaration on South Asian Regional Cooperation was
adopted by the Foreign Ministers in 1983 in New Delhi. During the
meeting, the Ministers also launched the Integrated Program of
Action (IPA) in nine agreed areas, namely, Agriculture; Rural
Development; Telecommunications; Meteorology; Health and Population
Activities; Transport; Postal Services; Science and Technology; and
Sports, Arts and Culture.The South Asian Association for Regional
Cooperation (SAARC) was established when its Charter was formally
adopted on 8 December 1985 by the Heads of State or Government of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri
Lanka.Afghanistan was added to the regional grouping at the behest
of India on November 13, 2005 and became a member on April 3, 2007.
With the addition of Afghanistan, the total number of member states
were raised to eight (8). In April 2006, the United States of
America and South Korea made formal requests to be granted observer
status.The European Union has also indicated interest in being
given observer status and made a formal request for the same to the
SAARC Council of Ministers meeting in July 2006. On August 2, 2006
the foreign ministers of the SAARC countries agreed in principle to
grant observer status to the US, South Korea and the European
Union. On 4 March 2007, Iran requested observer status. Followed
shortly by the entrance of Mauritius.5. SecretariatThe SAARC
Secretariat was established in Kathmandu on 16 January 1987 and was
inaugurated by Late King Birendra Bir Bikram Shah of Nepal.It is
headed by a Secretary General appointed by the Council of Ministers
from Member Countries in alphabetical order for a three-year term.
He is assisted by the Professional and the General Services Staff
and also an appropriate number of functional units called Divisions
assigned to Directors on deputation from Member States.The
Secretariat coordinates and monitors implementation of activities,
prepares for and services meetings and serves as a channel of
communication between the Association and its Member States as well
as other regional organizations.The Memorandum of Understanding on
the establishment of the Secretariat which was signed by Foreign
Ministers of member countries on 17 November 1986 at Bangalore,
India contains various clauses concerning the role, structure and
administration of the SAARC Secretariat as well as the powers of
the Secretary-General.In several recent meetings the heads of state
or government of member states of SAARC have taken some important
decisions and bold initiatives to strengthen the organization and
to widen and deepen regional co-operation.The SAARC Secretariat and
Member States observe 8 December as the SAARC Charter Day.6.
Regional CentersThe SAARC Secretariat is supported by following
Regional Centers established in Member States to promote regional
co-operation. These Centers are managed by Governing Boards
comprising representatives from all the Member States, SAARC
Secretary-General and the Ministry of Foreign/External Affairs of
the Host Government. The Director of the Centre acts as Member
Secretary to the Governing Board which reports to the Programming
Committee. SAARC Agricultural Centre (SAC), Dhaka, Bangladesh SAARC
Meteorological Research Centre (SMRC), Dhaka, Bangladesh SAARC
Tuberculosis and HIV/AIDS Centre (STAC), Kathmandu, Nepal SAARC
Documentation Centre (SDC), New Delhi, India SAARC Human Resources
Development Centre (SHRDC), Islamabad, Pakistan SAARC Coastal Zone
Management Centre (SCZMC), Maldives SAARC Information Centre (SIC),
Nepal SAARC Energy Centre (SEC), Pakistan SAARC Disaster Management
Centre (SDMC), India SAARC Forestry Centre (SFC), Bhutan SAARC
Cultural Centre (SCC), Sri Lanka
7. SAARC Recognized BodiesAs an organization, SAARC mainly
operates through six apex bodies which ensure regional cooperation
on multiple levels:SAARC Chamber of Commerce & Industry
(SCCI):The entity encourages intra-regional trade by creating
business linkages among the entrepreneurs. Its primary focus is on
the holistic growth of service sector and small & medium
enterprises.
SAARCLAW (South Asian Association for Regional Cooperation in
Law):The desire to establish an association within the SAARC region
to disseminate information and promote an understanding of the
concerns and developments prompted the birth of SAARCLAW in 1991.
This association of legal communities of SAARC nations was
established in Colombo.South Asian Federation of Accountants
(SAFA):In 1984, this organisation came into existence with an
objective of strengthening and serving the accountancy profession
in the South Asian Region.South Asia Foundation (SAF):A non-profit
and non-political organisation founded by UNESCO Goodwill
Ambassador Madanjeet Singh in 2000, SAF encourages regional
cooperation through UNESCO Madanjeet Singh Institutions of
Excellence. The institutions offer courses on varied subjects
ranging from Climate and Green Energy to Human Rights and Visual
Arts.South Asia Initiative to End Violence Against Children
(SAIEVAC):Founded in 2005, this regional forum aims at ending all
forms of violence against children in South Asia.Foundation of
SAARC Writers and Literature (FOSWAL):Its the first non-government
organization working towards nurturing and strengthening cultural
connectivity through interactions among SAARC nations.8.
Statistical Reports of SAARC8.1 Exports and Imports share of Major
Trade Groups
Figure-01: Exports and Imports share of Major Trade Groups (in
percentage)8.2 SAARC Countries Export in Worlds Total Export
Figure-02: Percentage share of SAARC countries export in worlds
total export8.3 SAARC Countries Import in Worlds Total Import
Figure-03: Percentage share of SAARC countries Import in worlds
total import8.4 SAARC Countries Trade in Worlds Total Trade
Figure-04: Percentage share of SAARC countries trade in worlds
total trade
8.5 FDI as a Percentage of Total Inflows to SAARC Countries
Figure-05: Country Shares of FDI as a Percentage of Total
Inflows to SAARC Countries8.6 SAARC in FDI Inflows
Figure-06: Share of SAARC in FDI Inflows (In Percentage)Sources:
Source: UNCTAD Handbook of Statistics-2011
9. South Asian Free Trade Area (SAFTA)
Figure-07: Countries under the South Asian Free Trade AreaSAFTA
was envisaged primarily as the first step towards the transition to
aSouth Asian Free Trade Area (SAFTA)leading subsequently towards a
Customs Union, Common Market and Economic Union. In 1995, the
Sixteenth session of the Council of Ministers (New Delhi, 1819
December 1995) agreed on the need to strive for the realization of
SAFTA and to this end an Inter-Governmental Expert Group (IGEG) was
set up in 1996 to identify the necessary steps for progressing to a
free trade area. The Tenth SAARC Summit (Colombo, 2931 July 1998)
decided to set up a Committee of Experts (COE) to draft a
comprehensive treaty framework for creating a free trade area
within the region, taking into consideration the asymmetries in
development within the region and bearing in mind the need to fix
realistic and achievable targets. The SAFTA Agreement was signed on
6 January 2004 during Twelfth SAARC Summit held in Islamabad,
Pakistan. The Agreement entered into force on 1 January 2006, and
the Trade Liberalization Program commenced from 1 July 2006. Under
this agreement, SAARC members will bring their duties down to 20
per cent by 2009. Following the Agreement coming into force the
SAFTA Ministerial Council (SMC) has been established comprising the
Commerce Ministers of the Member States.In 2012 the SAARC exports
increased substantially to US$354.6 billion from US$206.7 billion
in 2009. Imports too increased from US$330 billion to US$602
billion over the same period. But the intra-SAARC trade amounts to
just a little over 1% of SAARC's GDP. In contrast, inASEAN(which is
actually smaller than SAARC in terms of size of economy) the
intra-bloc trade stands at 10% of its GDP.10. The SAARC Visa
ExemptionThe SAARC Visa Exemption Scheme was launched in 1992. The
leaders at the Fourth Summit (Islamabad, 2931 December 1988), while
realizing the importance of having people to people contacts, among
the peoples of SAARC countries, decided that certain categories of
dignitaries should be entitled to a Special Travel document, which
would exempt them from visas within the region. As directed by the
Summit, the Council of Ministers regularly kept under review the
list of entitled categories. Currently the list included 24
categories of entitled persons, which include Dignitaries, Judges
of higher courts, Parliamentarians, Senior Officials, Businessmen,
Journalists, Sportsmen etc. The Visa Stickers are issued by the
respective Member States to the entitled categories of that
particular country. The validity of the Visa Sticker is generally
for one year. The implementation is reviewed regularly by the
Immigration Authorities of SAARC Member States. 11. Awards11.1
SAARC AwardThe Twelfth Summit approved the SAARC Award to support
individuals and organizations within the region. The main ends of
the SAARC Award are: To encourage individuals and organizations
based in South Asia to undertake programs and activities that
complement the efforts of SAARC To encourage individuals and
organizations in South Asia contributing to bettering the
conditions of women and children To honor outstanding contributions
and achievements of individuals and organizations within the region
in the fields of peace, development, poverty alleviation,
environment protection and regional cooperation To honor any other
contributions and achievement not covered above of individuals and
organizations in the region.The SAARC Award comprises of a gold
medal, a letter of citation, and cash prize of US $25,000. Since
the institution of the SAARC Award in 2004, it has been awarded
only once and the Award was posthumously conferred upon the late
President Ziaur Rahman of Bangladesh. 11.2 SAARC Literary
AwardSAARC Literary Awardis an annual award conferred by the
Foundation ofSAARC(South Asian Association of Regional Cooperation)
Writers and Literature (FOSWAL) since 2001which is an apex SAARC
body.Shamshur Rahman,Mahasweta Devi,Jayanta Mahapatra,Abhi
Subedi,Mark Tully,Sitakant Mahapatra,Uday Prakash,Suman
PokhrelandAbhay Kare some of the prominent recipients of this
award.[54]Nepalipoet, lyricist and translatorSuman Pokhrelis the
only poet/writer to get this award twice.[55]11.3 SAARC Youth
AwardThe SAARC Youth Award is awarded to outstanding individuals
from the SAARC region. The award is notable due to the recognition
it gives to the Award winner in the SAARC region. The award is
based on specific themes which apply to each year. The award
recognizes and promotes the commitment and talent of the youth who
give back to the world at large through various initiatives such as
Inventions, Protection of the Environment and Disaster relief. The
recipients who receive this award are ones who have dedicated their
lives to their individual causes to improve situations in their own
countries as well as paving a path for the SAARC region to follow.
The Committee for the SAARC Youth Award selects the best candidate
based on his/her merits and their decision is final.Previous
Winners: 1997: Outstanding Social Service in Community Welfare
Mohammed Sukur Salek (Bangladesh) 1998: New Inventions and Shanu -
Najmul Hasnain Shah (Pakistan) 2001: Creative Photography: South
Asian Diversity Mushfiqul Alam (Bangladesh) 2002: Outstanding
contribution to protect the Environment Masil Khan (Pakistan) 2003:
Invention in the Field of Traditional Medicine Hassan Sher
(Pakistan) 2004: Outstanding contribution to raising awareness for
TB and/or HIV/AIDS Ajij Prasad Poudyal (Nepal) 2006: Promotion of
Tourism in South Asia Syed Zafar Abbas Naqvi (Pakistan) 2008:
Protecting the Environment in South Asia Uswatta Liyanage Deepani
Jayantha (Sri Lanka) 2009: Outstanding contribution to humanitarian
works in the aftermath of Natural Disasters Ravikant Singh (India)
2010: Outstanding contribution for the Protection of Environment
and mitigation of Climate Change Anoka Primrose Abeyrathne(Sri
Lanka)12. AnthemSAARC does not have an official anthem like some
other regional organizations (e.g.ASEAN). A poem by
poet-diplomatAbhay Kumarspurred a search for a better SAARC
Anthem.Nepal's foreign minister has expressed the need for a SAARC
anthem to connect SAARC nations.Nepal at the 18th summit in
Kathmandu in November 2014 planned to introduce proposal for a
SAARC Anthem in the agenda of summit when heads of all member
states meet here. 13. Secretaries-General of SAARCAbul Hasan16
January 1985 to 15 October 1989
Kant Kishore Bhargava17 October 1989 to 31 December 1991
Ibrahim Hussein Zaki1 January 1992 to 31 December 1993
Yadav Kant Silwal1 January 1994 to 31 December 1995
Naeem U. Hasan1 January 1996 to 31 December 1998
Nihal Rodrigo1 January 1999 to 10 January 2002
Q. A. M. A. Rahim11 January 2002 to 28 February 2005
Chenkyab Dorji1 March 2005 to 29 February 2008
Sheel Kant Sharma1 March 2008 to 28 February 2011
Fathimath Dhiyana Saeed1 March 2011 to 11 March 2012
Ahmed Saleem12 March 2012 to 28 February 2014
Arjun Bahadur Thapa1 March 2014 to (present)
14. SAARC SummitsNoDateCountryHostHost leader
1st78 December 1985BangladeshDhakaAtaur Rahman Khan
2nd1617 November 1986IndiaBengaluruRajiv Gandhi
3rd24 November 1987NepalKathmanduMarich Man Singh Shrestha
4th2931 December 1988PakistanIslamabadBenazir Bhutto
5th2123 November 1990MaldivesMalMaumoon Abdul Gayoom
6th21 December 1991Sri LankaColomboRanasinghe Premadasa
7th1011 April 1993BangladeshDhakaKhaleda Zia
8th24 May 1995IndiaNew DelhiP V Narasimha Rao
9th1214 May 1997MaldivesMalMaumoon Abdul Gayoom
10th2931 July 1998Sri LankaColomboChandrika Kumaratunga
11th46 January 2002NepalKathmanduSher Bahadur Deuba
12th26 January 2004PakistanIslamabadZafarullah Khan Jamali
13th1213 November 2005BangladeshDhakaKhaleda Zia
14th34 April 2007IndiaNew DelhiManmohan Singh
15th13 August 2008Sri LankaColomboMahinda Rajapaksa
16th2829 April 2010BhutanThimphuJigme Thinley
17th1011 November 2011[62]MaldivesAdduMohammed Nasheed
18th2627 November 2014 NepalKathmanduSushil Koirala
19thTBA 2016PakistanIslamabad
Figure-08-09: Secretaries-General of SAARC and SAARC Summits
15. Free Trade AgreementOver the years, the SAARC members have
expressed their unwillingness on signing a free trade agreement.
Though India has several trade pacts with Maldives, Nepal, Bhutan
and Sri Lanka, similar trade agreements with Pakistan and
Bangladesh have been stalled due to political and economic concerns
on both sides. India has been constructing a barrier across its
borders with Bangladesh and Pakistan.In 1993, SAARC countries
signed an agreement to gradually lower tariffs within the region,
in Dhaka. Eleven years later, at the 12th SAARC Summit at
Islamabad, SAARC countries devised the South Asia Free Trade
Agreement which created a framework for the establishment of a free
trade area covering 1.4 billion people. This agreement went into
force on January 1, 2006. Under this agreement, SAARC members will
bring their duties down to 20 per cent by 2007.16. Areas of
Co-operationAt the inception of the Association, the Integrated
Program of Action (IPA) consisting of a number of Technical
Committees (TCs) was identified as the core areas of cooperation.
Over the period of years, the numbers of TCs were changed as per
the requirement.The current areas of cooperation under the
reconstituted Regional Integrated Program of Action which is
pursued through the Technical Committees cover:1. Agriculture and
Rural Development;2. Health and Population Activities;3. Women,
Youth and Children;4. Environment and Forestry;5. Science and
Technology and Meteorology;6. Human Resources Development; and7.
Transport.Recently, high level Working Groups have also been
established to strengthen cooperation in the areas of Information
and Communications Technology, Biotechnology, Intellectual Property
Rights, Tourism and Energy.Given the emphasis laid down at
successive Summits on the need to expand the areas of cooperation
and strengthen the regional cooperation, a number of other areas
have been included in the SAARC agenda. Several Ministerial level
meetings have taken place to give due emphasis in various fields.
The details of work Program under each agreed areas of cooperation
can be viewed by clicking the respective links.16.1 Economic
Co-OperationThe acceleration of economic growth is a Charter
objective of SAARC. Cooperation in the core economic areas among
SAARC Member Countries was initiated following the Study on Trade,
Manufactures and Services (TMS), which was completed in June
1991.Currently, the following important processes of SAARC are
promoting cooperation in the field of Trade, Economy and Finance
and related areas:i) Committee on Economic Cooperation: Overall
Coordination of cooperation in economic areas;ii) South Asian Free
Trade Area (SAFTA) Committee of Experts and SAFTA Ministerial
Council: Administration and implementation of SAFTA;iii) Finance
Ministers Mechanism: Cooperation in the field of Finance and
related areas;iv) Standing Group on Standards and SAARC Standards
Coordination Board: Cooperation in the field of harmonization of
Standards;v) Group on Customs Cooperation is dealing with issues
related to harmonization of Customs rules and procedures.
16.2 International Co-OperationSuccessive SAARC Summits have
acknowledged the importance of SAARC pursuing mutually beneficial
cooperation with regional, United Nations (UN) and other
international organizations in the areas of cooperation agreed to
in SAARC.A Memorandum of Understanding was signed with the United
Nations Conference on Trade and Development (UNCTAD) in February
1993 on UNCTAD Database on Trade Control Measures and Trade
Analysis and Information System (TRAINS).A Memorandum of
Understanding on cooperation between SAARC and the European
Commission was signed in July 1996 under which projects for
cooperation have been identified out of which some have already
been implemented.A Memorandum of Understanding (MOU) has also been
signed with the German Metrology Institute with regard to capacity
building for the harmonization of Standards among the SAARC
countries.17. Economic Relationship among SAARC NationsThe South
Asian Association for Regional Cooperation or SAARC was created to
promote economic integrity and cooperation among 8 South Asian
nations namely India, Bangladesh, Pakistan, Bhutan, Nepal,
Maldives, Afghanistan and Sri Lanka.The Association was formed in
1985 with the aim to ensure social and economic development of the
member countries. However, over the years it has been seen that
SAARC mainly worked towards development of economic relationship
among the SAARC nations. Attempts are also on to further trade
relations with the member nations of ASEAN (Association of South
East Asian Nations) and the European Union.In spite of lying in the
vicinity of one another, trading activities were restricted among
the SAARC nations. Over the years, there has significant
improvement in the trade relations among the seven SAARC
members.The focus has been shifted to get access to the markets of
the other members. Methods have also been devised to attract
foreign direct investments to strengthen economic infrastructures
of the SAARC nations. All these initiatives point towards an
improvement in the economic relationship among the 8 South Asian
countries.Despite the sincere attempts of the Association, there
are several factors that stand in the way of economic integrity
among the SAARC nations. The clashes between India and the
neighboring countries have prevented the SAARC members to make the
most of the economic benefits derived from the Association.This has
prompted the South Asian countries to go for bilateral trading
activities instead of getting involved in multilateral trade
agreements. However, the Association is expected to take more
proactive steps to improve the economic relationship among its
members.Besides devising policies for economic integration, SAARC
is supposed to function as a medium to facilitate discussions among
the South Asian nations. Seminars and conferences are going to be
helpful measures for promoting cross border trade and investment.As
an aftermath of globalization, Indian government has resorted to
open trade policy. The economic reforms of early 1990s have opened
an array of challenges for the Indian entrepreneurs. The growth
rate of the Indian economy was around 7% during the period from
1994-1997. The inflow of foreign fund also recorded substantial
increase.All these resulted from the flexible economic policies
adopted by the Indian government. The economic prosperity of India
prompted the other SAARC members to seek resort to international
trade as a platform for economic growth.Both Sri Lanka and Nepal
have shown their interests to enhance intra-regional trade.
Bangladesh is also following the same trend. With the increased
intra-regional trading activities, the economic relationship among
the SAARC nations is bound to be stronger in future.
18. Relationship between Bangladesh and Other SAARC
CountriesCountries19971998199920002001200220032004200520062007
BHUTAN0.080.040.030.030.030.020.010.010.000.000.00
INDIA19.6914.8212.376.6610.8813.4014.1611.3410.8610.3611.71
NEPAL0.150.160.070.010.000.020.000.000.000.000.00
PAKISTAN0.961.111.241.401.281.241.221.251.241.701.58
SRI LANKA0.200.120.120.130.120.010.090.080.090.100.09
SOUTH ASIA
TOTAL21.0816.2413.838.2212.3114.7015.5112.5912.2012.1613.39
REST OF THE
WORLD78.9283.7686.1791.7387.6985.3084.4987.4187.8087.8486.61
Figure-10: Share of Bangladeshs import from SAARC Countries in
its total Imports***Source: UN COMTRADL
Countries19971998199920002001200220032004200520062007
BHUTAN0.000.000.000.000.000.000.030.050.020.000.00
INDIA0.590.200.310.350.430.470.641.271.901.951.78
NEPAL0.130.000.000.000.020.010.010.010.010.010.01
PAKISTAN0.850.650.790.910.560.570.560.570.870.480.47
SRI LANKA0.120.030.070.100.060.040.090.120.130.110.13
SOUTH ASIA TOTAL1.690.881.171.361.071.091.332.022.932.552.39
REST OF THE
WORLD98.3199.1298.8398.6498.9398.9198.6797.9897.0797.4597.61
Figure-11: Share of Bangladeshs exports to SAARC Countries in
its total Imports***Source: UN COMTRADL In recent years, there has
been an increased interest in regional economic integration in
South Asia. Regional integration in South Asia got the momentum in
1995 when the South Asian Preferential Trading Arrangements (SAPTA)
came into force. In early 2004, SAARC member countries agreed to
form a South Asian Free Trade Area (SAFTA), which came into force
from July 1, 2006. Bangladesh is negotiating with India, Pakistan,
Nepal, and Sri Lanka for regional FTAs.In order to achieve rapid
economic development through intensifying trade relation by
gradually removing tariff, non-tariff and para-tariff barriers
amongst the member countries. An FTA among economies such as
Bangladesh-SAARC would likely maximize the gains from trade.SAPTA
was signed with a view to promoting and sustaining mutual trade and
economic cooperation within the SAARC region through exchange of
tariff concession. Since 1995, four rounds of negotiations have
been concluded and tariff concessions on around 5,500 products were
exchanged. Products coverage and extent of concessions granted by
the member countries under SAPTA to LDCs were not significant,
except those by India.Moreover, for SAARC countries, India had
removed in 1998 all quantitative restrictions that it maintained
till 2003 for others. The preferential tariff concession offered by
India for Bangladeshi export products was mainly for fertilizers,
sugar confectionery, biscuits, leather products, footwear, jute
products, cosmetics, soaps, ceramic products, textiles, artificial
flowers, electrical goods, clocks and watch, furniture, plastic
products, textiles etc.Until 1951, total intra-regional trade in
South Asia as a percentage of the region's total trade was double.
However, as South Asia became progressively more closed to the
world market, and as political rivalry between India and Pakistan
intensified over time, intra-regional trade came down to just 2% of
the region's total trade by 1967. The share began to grow during
the 1990's following multilateral trade liberalization in these
countries, and by 2002 it rose to 4.4% (Baysan et al. 2006).
Bangladesh is the second largest importer in South Asia. In 2007,
Bangladesh accounted for 26% of total intra-regional import.In
contrast, in 2007, Bangladesh's exports to the region accounted for
only 6% of the total regional exports, implying that it has a large
deficit in its trade with the region. Bangladesh's trade with other
SAARC countries is also highly unequally distributed. Bangladesh
trades very little with Bhutan, Nepal and Sri Lanka.In South Asia,
India is the major trading partner of Bangladesh with Pakistan a
distant second. But trade with India is one-sided, as the volume of
imports from India to Bangladesh is much larger than the volume of
exports from Bangladesh to India. Therefore, Bangladesh has a large
bilateral trade deficit with India which has increased over
time.Bangladesh exports constitute a miniscule (1%) share of
India's imports, a negligible share (1%) of its own exports and
cover only a small range of products (fertilizer and jute goods
made up two-thirds of exports), though ready-made garment (RMG ) is
the major export item for Bangladesh, very little is exported to
India.South Asia has not been a significant export destination of
Bangladeshi export products. In facts, over the last 10 years,
there has not been any major change in this pattern. In 1997,
Bangladesh's exports to the South Asian region accounted for only
1.69% of her total exports, which, by 2007, rose to only
2.39%.Figure 11 also suggests that over time, Bangladesh's
dependence on South Asia as a source of her imports declined. In
1997, Bangladesh's imports from South Asian region accounted for
21.08% of her total imports, which by 2007 declined to 13.39%. In
other words despite all the trade agreements to promote Bangladesh
within the region, it did not show much improvement between 1997
and 2007.The existing trade relation of Bangladesh with SAARC
countries implies that during the past decade trading in both
directions -- export and import -- has increased markedly. However,
having explored the implications of negotiating FTAs with SAARC
member countries, it appears that the possibility of an FTA with
India should be examined for all possible implications. At present
the trade gap with India compared to other SAARC countries is very
high. In this case, Bangladesh will have to look for broadening her
category of non-traditional items to increase export to SAARC
member countries.A recurrent theme for all trade negotiations is
the need for skillful negotiators. Unfortunately, Bangladesh has
not built up this capacity; our resources are few and far between.
Most countries we negotiate with have trained and experienced
negotiators.***Source: The Daily Star (Wednesday, October 19,
2011)19. Impact of SAARC on BangladeshThe formation of SAARC was
with the objective of helping each other in the growth. The mutual
understanding and the development of the countries with the similar
geosocial background, the resources available and the path of
development taken by each member with the cooperation and
collaboration of each other. The member countries are no doubt
benefited with this.Bangladesh economy, after independence in 1971,
followed a highly restricted trade strategy of high tariffs and
non-tariff barriers to trade. Moreover, the economy adopted more
overvalued exchange rate system or more comprehensive termed as
Import Substitution. The trade regime was shifted in the mid-1980s
and the fastest pace of liberalization took place in the period of
1991-95.Raihan(2008)conductedanumericalstudyto observe
therelationship incontext ofmanufacturing industries.He concluded
that, ingeneral, trade liberalization, in Bangladesh, has generated
employment in the major export-oriented industries where as labor
suffered in major import-substituting industries such as textiles
and paper products. Another study (Rahman, Shadat, & Raihan,
2007) concluded that sectoral and overall employment has
experienced negative growth particularly in agriculture and
industrial sector in the periods of 1991-95. Although employment in
the manufacturing did increase in the third phase of liberalization
(after 2000) but the sector failed to absorb the increasing labor
force as pointed out in low share of total employment. Another key
finding of this study depends on the wage and price stickiness. It
proposed that stickiness of wages during periods of rising
productivity in manufacturing sector would imply that workers were
not getting a share which might have led to a fall in
competitiveness as a trade-off with the real wage determination.
Thus, generally, trade liberalization has negatively impacted the
employment structure of Bangladesh. An alternative study
(Williamson, 1999) proposed that while trade liberalized reforms
have negatively impacted employment but it has potential to become
positive. So it has suggested formulation of trade reforms in those
sectors where Bangladesh has lagged such as financial sector,
infrastructure and privatization.Source:
http://www.academia.edu/20. Reasons for Slow ProgressThe problem
between the nations in the South Asian region dates back to the
late 1940s. The problem initiated with the separation of India and
Pakistan in 1947. From that tie onwards a very sensitive political
difference existed between India and Pakistan. Later with partition
of the East and West Pakistan the political difference between
Bangladesh and Pakistan also became significant. Political division
also existed between India and Sri Lanka regarding the Tamil Nadu
issue. Some political distance also exists between India and Bhutan
and India and Nepal. The formation of SAARC could not overcome this
problem and thus SAATC has become a platform with no action and
slow positive results.As already discussed India is the largest
country among the SAARC nations with the highest population, GDP
and most resources. Since most of the nations have a problem with
India, India is considered the bottleneck for growth and further
cooperation in the region. India is a vast country and it also has
political problems within itself. The seven sister states of India
is one of the most backward regions which receives very little
attention. The border trade has special significance to these
states due to their geographical location. With the exception of a
narrow area the rest of the border of these states are shared with
Bangladesh. These states however possesses significant amount of
natural resources which can be utilized for the growth of the seven
sister states, for India and for the region as a whole. The main
reason for the backwardness and weak links of these states with
mainland India is the high transport cost involved in moving goods
from mainland India to these states and the poor infrastructure of
the region. However, if a transport network is set out through
Bangladesh the transport cost of transportation will come down
significantly. Although the seven sister states possess natural
resources investment in the area is low by the Indian government.
The goods produced in mainland India also seldom reaches these
places since the price becomes too high since transport cost is
very high.The political tension between Pakistan and India has also
retarded the progress of SAARC. India often assumes that the
smaller nations of SAARC will join hands with Pakistan and become
stronger than India. On the other hand Pakistan seems to fear that
the SAARC is an Indian strategy to organize the other South Asian
nations against it.
21. Future Potentials that can be AchievedIn order for the
nations to come forward with more enthusiasm and enhance
cooperation they must have something to offer which their other
partners would be needing, be it a product or a service. Even
transit facilities for products having export potentials,
especially for landlocked countries could serve as a basis for
further integration. This would provide economic complementarity.
It would help countries to optimize the benefits which could be
derived from the exploitation of latent regional potentials.
Complementarity could also occur in the area of production,
available resources, technology and skills in the areas of
specialization of labour forces and even in geographical locations.
Thus, complementarity arises mainly from the differentials in
factor endowments and it is an important factor determining the
pattern of trade between and among nations.Geographical proximity
or contiguity is an important factor for countries intending to
cooperate with one another. Since cooperation means exchange or
transaction of something, a cost effective transaction among
countries is only possible if they are contiguous. The SAARC
countries can establish a multi-modal system of transportation
within the region to facilitate exchange of goods since they are
geographically in close proximity to each other. The proximity
factor and a better transport system within the region will lead to
increased interaction among the people of the nations which would
in turn lead to a more intense cooperation. The SAARC nations must
integrate their road and rail networks for improved transportation
within the zone. Smooth movement of different modes of transport
including the waterways and airways will facilitate exchanges of
all kinds. An improved transportation system will ensure lower
transaction cost. The countries within the region should also have
regional power and energy grids since the countries have natural
supply of energy and mineral resources. Similar integration in
other major infrastructure depending on the differences in factor
endowments would also enhance the growth of the economies and
ensure a harmonious relation between the nations.The potential of
growth also exists in exploiting the huge untapped resources of the
region including energy and mineral resources. Establishment of
common power and energy grids are possible which would ensure the
optimal use of the huge natural and mineral resources of the
region. Another important potential of the region is the huge
reserve of natural gas and coal in the West Bengal, Bangladesh
region. The free movement of labour and integration of
infrastructure would facilitate external trade and investment into
the zone. Technologies could be exploitable economically since
cooperation would bring in opportunities for economies of
scale.Lack of political will was a major hindrance to the success
of the planned free trade area. A major change in the mindset of
the political leadership of the countries is required in order to
ensure successful economic integration. An important pre-requisite
for establishing close cooperation is to have a shared perception
of common benefits. There has to be a feeling amongst the
governments as well as the people of the participating countries
that they are benefiting equitably, if not equally, from
cooperation. The distribution of the benefits has to be fair among
the member states. Lack of political will mainly generated from
lack of mutual trust at both government and non-government levels.
The strained relationship that exists between some of the SAARC
nations needs to be overcome in order for the SAARC to exist and
provide positive result for the region. Many view the normalization
of the bilateral relation between India and Pakistan as an
important prerequisite for successful regional integration among
the SAARC nations. Strong political will and commitment on the part
of the governments of constituent countries is a vital factor for
the success of a regional economic cooperation. All this can only
be done if the political tension between the SAARC nations can be
overcome with the vision of better life for the people of the
region and acceleration in the regions economies.At the present
time it is a challenge for the economic and business people to
bring in integration into the region. India has to realize that if
the SAARC platform cannot be strengthened they will lose out.
Excluding India, the countries within the SAARC region have about
50% of the population of the region. This huge population could
prove to be a potentially profitable market for India. If India
wishes to tap this market they have to share in the light of trade
theory and economic integration. The Seven Sister States is an
expensive area for India, since transport to that region is
expensive. In order to bring forward this region India needs to
integrate with Bangladesh in terms of transportation through
Bangladesh and this would improve relation with India. Seven
Sisters have a lot of untapped resource. Improvement of relations
between India and Bangladesh will help accelerate the efficient use
of these resources. Bangladesh can bring energy from Nepal and
Bhutan, price of energy would fall and it would benefit Bangladesh.
Nepal and Bhutan would also benefit since their resources would be
used more efficiently. Such integration and cooperation has to be
set out between all countries so that the benefit is reaped by each
nation.In recent years China has entered into the South Asian
market with its export of cheap goods especially electronic. China
has become competent in the production of all types of goods at a
very cheap rate and an acceptable quality. India on the other hand
is a vast country with a varied supply of natural resources. India
can easily produce products similar to China at almost equivalent
prices and good quality. However, in order to do that it may need
to integrate with some of its neighboring countries. If India does
not do this they will lose out the market in the SAARC regions who
are currently importing a lot of products from China. However, if
India moves ahead and integrates to produce the Chinese products
and sets up a free trade area with its partners China will lose the
market and India can tap a huge market in the region. The SAARC
nations would also be more eager to trade and cooperate with India
rather than with China. The nations are all developing economies
and they can only receive from China but have little to offer. For
most nations it is a one way track with China which is leading to
widening of the trade gap. But if similar products can be obtained
from neighboring countries and resources can be shared the nations
can give and take and be more competitive. This can lead to the
formation of and development of an economic hub in the region. The
region can grow to be a strong economic power which can compete
with other regional blocs. Sharing and exchange will be done and
political issues can be resolved. However, the above are proposed
and potential achievement that can be made. The edge line and risk
is whether SAARC will survive or not.22. Analysis on the basis of
Trade Theories22.1 Absolute AdvantageA country has an absolute
advantage in the production of a product when it is more efficient
than any other country in producing it. Each of the SAARC countries
has absolute advantage in the production on certain goods. Some
nations even have natural resources which gives them absolute
advantage in those goods. Some countries also have acquired
advantages on mainly industrial products. The ability to produce
the goods and services at the cheapest possible price in comparison
to the other nations has given the nations absolute advantage.
India has natural advantage in iron ore deposit of coal, manganese,
chromite, bauxite, mica, nickel ore, copper ore and gold mines. On
the other hand it has acquired advantages in automobile, basic food
items, textile, computer software and some heavy industries like
arms, ship manufacturing etcBangladesh has natural advantage in
shrimp, coal, natural gas, limestone, kaolin and alluvial clay,
glass sand, construction stones and mineral sand. It has acquired
advantage in textile goods, leather goods, jute products, cement,
pharmaceuticals and manpower. Pakistan has natural advantage in
antimony, bauxite, chromite, copper, gypsum, iron ore, limestone,
magnesite, marble, molybdenum, rock salt and sulphur. The country
has acquired advantage in clothing, cotton and cotton products,
rice, carpets and leather goods. Sri Lanka has natural advantage in
limestone, graphite, mineral sands, gems, phosphates, clay, pearls
and hydro power. They have acquired advantage in aqua fish, aqua
culture and sea food, coconut and coconut products, handicrafts,
gems and jewelries, rubber and rubber products, tea, toys etc.
Nepal has natural advantage and acquired advantage in tourism and
hydroelectric power. Bhutan on the other hand has natural and
acquired advantages in coal, dolomite, ferrosilicon, gypsum and
limestone. Maldives, being a very small country has natural and
acquired advantage in fisheries, tourism and cottage industries.
The traditional theory of absolute advantage explains:
A. India has a good market in the SAARC countries for:
Automobile industry Computer software Some heavy industries like
arms, ship manufacturing
India can penetrate the SAARC markets by: Materializing the
objectives of SAARC and SAPTA Solving border issues with Pakistan
will help India to capture the markets of Pakistan Moving from
basic industries and concentrating on heavy industries.
B. Bangladesh has a good market in the SAARC countries for:
Leather goods Jute products RMG Cement Pharmaceuticals Natural
gas
India and Bangladesh can come to an agreement so that Bangladesh
can enter the market of seven sisters with the products like:
Natural Gas Cement Pharmaceuticals
C. Pakistan has a good market in the SAARC countries for: Marble
Sulfur Carpets Leather goods.India can give Pakistan advantage in
the product like carpets and leather goods. On the contrary
Pakistan can open up for Indian heavy industries.
D. Sri Lanka has a good market in the SAARC countries for: Gems,
pearls Aqua fish, aqua culture and sea food Coconut and coconut
products Jewelries Rubber and rubber products Tea
E. Sri Lanka has potential in the SAARC region is for: Jewelries
in the market of other SAARC countries Rubber and TEA extensively
to Indian market by allowing India to utilize its automobile and
heavy industries in the Sri Lankan marketF. Nepal has a good market
in the SAARC countries for: Tourism HydroelectricityAmong the SAARC
countries Nepal has the unique advantage for hydroelectric project
because of its geography. Nepal can allow India: Establishing
Hydroelectric project in a joint ventureIndia needs to help Nepal
by giving free transit of its product using Indian land. Also,
Nepal can sell its energy to Bangladesh and hence the cost of
production of industrial goods will fall significantly in
Bangladesh, which in turn will be a contributing factor in
supplying the neighboring countries with good quality products at a
more competitive price. But before that, India must be economically
motivated to let Nepal establish the supply pass through it to
Bangladesh.F. Maldives has a good market in the SAARC countries
for: Fisheries India can establish joint venture in Maldives to
capitalize the natural opportunity.
22.2 Comparative Advantage/Factor Proportion TheoryAccording to
the factor proportion theory a country should concentrate on the
product where a relatively cheap input is required. The following
table shows recent export import patterns of the SAARC countries
and major partners.BANGLADESHBHUTANINDIAMALDIVESNEPALPAKISTANSRI
LANKA
1981N/A2.5005.30.3
1987N/A1.000.52.60
1991N/A1.400.72.30.4
1995N/A1.2N/A0.30.80.4
19990.021.1N/A0.10.60.2
Figure-12: Intra-Country Exports in the SAARC Region(As a
percentage of total exports)***Source: IMF, Direction of Trade
Statistics Yearbooks, IMF, 1988, 1992, 2002.
22.3 Product Life Cycle Theory of International TradeAccording
to this theory, the innovator country of a technology is initially
an exporter then it loses its competitive advantage. Its trading
partner may eventually become an importer of the commodity.This
theory has a good implication in the South Asian Economy. The new
booming sectors with high growth potential for the Indian economy
are: Software Business Indian Automobile sector Heavy machine
equipment
This business was once in the hands of the USA, EU and Japan.
The SAARC countries having a large demand for these products can be
good market for India. Already India has entered the Bangladesh
market with this business.
23. Promoting and Facilitating Investment in South AsiaThe seven
member states of SAARC (South Asian Association for Regional
Cooperation), Bangladesh, India, Pakistan, Nepal, Bhutan, Sri Lanka
and Maldives, collectively have a population of 1.5 billion,
approximately 22 per cent of the worlds population. It is also the
region in which a large majority (around 43 per cent) of the worlds
poor live. South Asias gross domestic product (GDP) is only 2 per
cent of the worlds GDP, indicating the low level of per capita
income in the region.Lack of investment capital accumulation and
regional cooperation are considered important reasons for the low
level of economic dynamism in South Asia. Unlike East and Southeast
Asia where regional cooperation initiatives have contributed
significantly to the economic growth of the countries in these
regions through an increase in inter-regional trade and investment,
regional cooperation in South Asia remains weak. An opportunity for
accelerated growth and further energizing the economies of South
Asia does exist by increasing investment through regional
cooperation. Therefore, enhancing investment cooperation and
facilitating investment among the countries in the region will be
crucial for the development of the economies in the region.A recent
study shows that there is considerable convergence between South
Asian economies. Both theory and evidence suggest that regional
integration arrangements may provide an important stimulus to
foreign investment. Besides attracting more foreign investment,
there are many areas, particularly the energy and transportation
sectors, in which South Asia can benefit through increased regional
investment cooperation given the existing complementarities.
Regional investment cooperation can also help lower transport
costs, generate more complementarities by expanding and
diversifying the production base and trade structure, diversify
comparative advantage, introduce appropriate technologies and
encourage competition.
Countries1980-85199019951998
Bangladesh-0.10.10.19.2
BhutanN/AN/AN/AN/A
India34.735.471.365.8
Maldives-0.2N/A0.20.2
Nepal0.11.30.20.3
Pakistan42.053.326.214.5
Sri Lanka23.59.41.910.0
Figure-13: Country shares of FDI as a Percentage of Total
Inflows to SAARC Countries
24. The Investment Scenario in South AsiaMost of the South Asian
countries have undertaken far-reaching economic reforms; they have
adopted industrial policies that encourage foreign direct
investment (FDI) resulting in an increase in FDI flows. However,
the amount of inflows attracted by the region remains relative to
East Asia and South East Asia quite insignificant. In 1998, it was
only US$ 3.43 billion, a mere 0.5 per cent of global flows. In
contrast, China received more than 10 per cent of all global
inflows. By 2002 although total FDI flows to South Asia had
increased to US$4.58 billion, this was still well below 1 per cent
of global FDI flows.
CountryGross Private Capital Flows (% of GDP) 1990 2000Gross
Foreign Direct Investment (% of GDP) 1990 2000
Bangladesh0.93.60.00.6
India0.83.00.00.6
Nepal3.54.80.00.0
Pakistan4.22.50.60.5
Sri Lanka13.17.60.51.1
Figure-14: Private Capital Flow and Foreign Direct Investment in
South Asia***Source: World Bank (2002) World Development Indicators
Table 6.1
FDI to the region is predominantly from outside the region. The
sectors that have attracted most foreign investment vary between
countries. In the case of Bangladesh and Sri Lanka, the textile and
garment sectors account for 28 per cent and 16 per cent
respectively of FDI, whereas 56 per cent of FDI has gone into
infrastructure projects in India. In the case of Pakistan, 40 per
cent of all FDI has gone into the power sector. While FDI from
outside the region has been far greater than intra-regional
investments, there are signs that intra-regional investments are
increasing. The major outward FDI flows are from Indian firms,
which have started to expand FDI both within South Asia and beyond.
Firms from other South Asian countries are also increasingly
undertaking FDI within the region and investing in a wide range of
sectors and activities.There are two SAARC countries, Nepal and
Bhutan, where FDI from India is the predominant source of FDI. On
the other hand, none of the SAARC countries are significant
investors in Pakistan though there is a very limited FDI flow from
the other countries in the region. India is the largest investor
among the SAARC countries in Sri Lanka, while Pakistan and Maldives
are respectively second and third to India as investors. In the
case of Bangladesh, firms from India, Pakistan and Sri Lanka have
in recent years invested US$418 million in 133 ventures covering a
wide range of sectors. In spite of Indias huge internal market,
investments from other SAARC countries have been quite
insignificant, both in relative and absolute terms, accounting for
less than one per cent of total foreign investment in India.
Bangladesh is the largest investor in India from the region,
followed by Sri Lanka, Nepal and Maldives.The Lafarge Surma Cement
plant in Bangladesh is the single largest cross-border investment
in the region involving a major multinational firm. Lafarge, a
French multinational, is one of the largest cement manufacturers in
the world. The plant is expected to go into production very
shortly. The raw materials, mainly limestone and shale, for this 2
10 million dollar joint venture cement plant in the district of
Sylhet, located in North-eastern Bangladesh close to the Indian
border will be supplied from a quarry in the bordering state of
Meghalaya. The plant, one of the largest in the region, and the
quarry are connected by a 17 kilometer (11 mile) cross-border
conveyor belt to transport the limestone. The plant will have an
initial capacity of 1.2 million tons of cement per annum although
this capacity is expected to be doubled in due course.Another
example of a successful joint venture is in the rubber sector in
Sri Lanka. The vertical joint venture was initially between an
Indian motor vehicle company, Associated Motorways Private Ltd and
the Sri Lankan subsidiary of CEAT for the manufacture of tyres. Sri
Lanka, which did not have a developed rubber-based industry, gained
greater access to the protected and growing Indian market, while
India obtained easy access to the supply of good quality natural
rubber. At the end of the day both countries benefited through this
joint venture.
25. Investment Opportunities in South AsiaGiven the existing
complementarities, there are many areas, particularly energy and
transportation sectors, in which South Asian economies can all
benefit through increased regional investment cooperation.
Establishment of joint ventures is crucial in this regard for the
economies of this region. Besides generating more
complementarities, these ventures help to expand and diversify the
production base and trade structure of the South Asian countries
and in the introduction of appropriate technologies. Some
investment opportunities in South Asia, in particular for
infrastructure and energy projects are discussed below.
25.1 The Energy SectorBangladesh, Bhutan, India and Nepal can
develop and utilize a combination of thermal and hydropower more
efficiently through a regional agreement. Such an approach would
enable India and Bangladesh to use their coal and gas reserves more
efficiently while allowing Nepal and Bhutan to develop their large
untapped hydro-power potential. All four countries could benefit in
the long term by optimally developing and scheduling their
generation capacities on an integrated basis through regional
cooperation. This will help the countries to avoid building
transmission grids across high mountains or major rivers. Trading
of electricity would widen the market for electricity in the region
and the resource base thereby leading to the least cost development
of larger hydro projects.A study conducted by the Asian Development
Bank (ADB) showed that sub-regional cooperation among the countries
of the Ganges-Brahmaputra-Meghna (GBM) basins could generate 25000
MW of power. A sub-regional growth quadrangle (since it would cover
four countries Bangladesh, Bhutan, India and Nepal) could be
established in the GBM area. The objective of the GBM quadrangle
would be (1) joint development and management of water and energy
resources (2) development of physical infrastructure mainly roads,
railways, ports, inland waterways and the GBM rivers and
tributaries and telecom (3) promotion of intra and inter-regional
trade and (4) promotion of cooperation in other areas such as
environment protection, tourism, and establishment of export
processing zones.Cooperation between India and Bangladesh can
commence with small-scale transfer of electricity (150-200 MW) from
East Zone of India to West Zone of Bangladesh, at the same time
Bangladesh may consider exporting 50 MW to Tripura from the eastern
grid of Bangladesh. A pre-feasibility study in September 2000 for
Bangladesh with USAID support established the viability of a 750 MW
power project in the western region of Bangladesh. It was envisaged
that 50 per cent of the power generated could be exported to
India.At sub-regional level, there are efforts to tap hydropower
potential. At a meeting sponsored by the ADB held in New Delhi in
March 2002, an Inter-Governmental Task Force of Energy and Water
Resources Secretaries of Nepal, India, Bhutan and Bangladesh agreed
to develop the hydropower resources of Arun Valley in Nepal.A
number of gas pipeline projects have also been recommended ranging
from the Iranian and Turkmanistan pipelines to pipelines from
Myanmar, Tripura and Bangladesh. Each of these proposals has their
advocates and also critics. The politics of energy cooperation
cannot be divorced from the other considerations. The key to moving
forward is to devise a win-win approach which will be acceptable to
all the countries in the region. As in the case of a seamless
electricity grid covering the entire region, consideration can also
be given to a similar gas grid. However, implementing such a
complex project will require time, money and expertise. The World
Bank and the multilateral agencies as well as the private sector
can play a key role in making such an ambitious project
possible.Non-Commercial energy sources like solar, wind, small
hydro, bio gas and biomass technologies could play an important
role in increasing access to electricity in rural areas. Regional
cooperation can provide the framework for such exchanges.More
recently, there is a proposal from the Tata group to invest two
billion dollars in Bangladesh in three projects: a steel mill, a
fertilizer plant and a power plant. A substantial part of the
production from all the three projects will be exported back to
India. Both the governments of India and Bangladesh have welcomed
this investment at the highest level. However, much will depend on
an agreement being reached between the Tatas and the government of
Bangladesh regarding the terms and conditions for the supply of gas
for the three projects. Should these projects be implemented they
will provide an enormous impetus to both bilateral and regional
cooperation.
25.2 Transport and CommunicationFor enhanced regional investment
cooperation an integrated transport network is essential(Discussed
in detail in the next section).Some of the recommendations for
improved logistics are as follows:1. Opening up borders and
improved border management2. Open sky policy for South Asian
countries3. Opening up ports (For example, Chittagong port of
Bangladesh can be used as a regional hub port to serve Eastern
South Asia as well as land-locked South West China which is keen to
have access facilities to a port in the Bay of Bengal, while Mongla
Port can be developed and modernized to take care of Nepals exports
and imports as well as those of Bangladesh4. Constructing a Trans
South Asian railway5. Building integrated roads and high ways6.
Integrating South Asias road and railway network with that of the
ASEAN countries and China7. Developing coastal shipping and feeder
networks in the region8. Improving infrastructure for
telecommunication9. Developing a cross-country transport system
linking Nepal, Bhutan, West Bengal, Bangladesh and the
NorthEasternStates of India together.
25.3 Information TechnologyConsidering the enormous potential in
the field of information technology (IT), particularly e-commerce,
promoting regional cooperation for the development of IT
infrastructure through sharing knowledge, experiences and expertise
needs to be emphasized. Information technology (IT) plays an
important role by increasing connectivity, communication and
transparency in the business process. It is also instrumental in
attracting FDI. Creating a South Asia wide information network will
buttress cooperation among member countries. For example, the lead
taken by India in attracting US outsourcing in the IT sector may
spill over to other SAARC countries through a common IT
infrastructure, technology transfer and knowledge sharing.
26. Current State of Transport Integration in SAARC
26.1 RailwaysBefore the partition of India in 1947, the
intra-sub-continental movements were mainly carried out by railway
with inland water transport carrying part of the traffic,
particularly between the states of Uttar Pradesh, Bihar, Bengal and
Assam. Until the 1965 war between India and Pakistan, Indian rail
wagons used to come well inside the then East Pakistan using rail
lines which crossed national boundaries (See Map 1). Although these
physical links are still there, very little cross-border movement
by rail is taking place today between India and Bangladesh. In this
connection, lack of coordination between gauge conversion in Indian
Railway (IR) and dualization in Bangladesh Railways (BR) could kill
prospects of uninterrupted flow in the future. Indian and
Bangladesh wagons have different coupling and breaking systems. BR
wagons do not cross the border because these cannot be connected to
Indian rolling stock without reducing the efficiency of Indian
trains. Possibilities of having unit trains of BR wagons could be
looked into as a solution. Currently, Indian rail wagons are pulled
by Bangladesh locomotives only over short distances inside
Bangladesh. Similarly, movement of Pakistani passenger train across
the Indo-Pakistan land frontier can move only up to in India.
26.2 Inland Water TransportToday, inland water transport (IWT)
movements between West Bengal, Bangladesh and Assam still continue
through with periodic interruptions, The class-I routes operate
throughout the year with a minimum draft of 12 feet (See Map 2),
However, shifting rivers and the increasing rate of siltation
(which requires continuous dredging) make it difficult to maintain
stable depths on the secondary routes within Bangladesh. The IWT
protocol which was signed between Bangladesh and India in 1972 is
being renewed every two years with improved provisions to stimulate
use of IWT routes. In spite of this protocol, India apparently, is
not making full use of these river routes transiting through
Bangladesh. Some of the problems which might be contributing to low
levels of IWT use may include: difficulties of round the year
navigation along certain major routes due to the draft limitation;
lack of sufficient ports of call; and absence of facilities for
night navigation.
26.3 Road TransportRoad transport development in the SAARC
countries has been very fast. Even in India, railways are facing
the tough competition from road transport (See Map 3). In
Bangladesh around 65 to 70 per cent of all goods and passenger
traffic are moved by road transport. Due to differences in the axle
load limit which is 10.2 tons in India vis--vis 8.2 tons in
Bangladesh and Pakistan, Bangladesh has not been allowing trucks
from other countries to travel on its roads. (Bangladesh has,
however, revised its axle load limit to 10 tons recently). India
has imposed similar restriction, but does allow trucks from Nepal
and Bhutan to operate on designated transit routes within India.
Indian trucks are allowed into Nepal but are given only 72 hours to
return to India.Considerable inefficiencies exist at the land
border crossings between SAARC countries. The basic constraints are
the lack of efficient customs operations, including lack of
transparency of procedures for inspection, informal payments, and
inadequate preparation of customs documents by the shipper, etc. An
unusually long time is taken for scrutiny, checking and completion
of documents and for completion of formalities with the banks.
Banking facilities are inadequate; medical, communication,
warehousing, security and firefighting facilities are deficient;
wayside amenities are absent. For want of truck terminals, vehicles
are parked on the road creating acute congestion. In most of the
border points there is only one exit both for passengers and goods
creating considerable inconvenience for users. A World Bank
publication prepared in 2001 by Uma Subramanian, and her team
identified key transport and logistics impediments that have left
the South Asian sub-region, comprising Bangladesh, Bhutan, eastern
India and Nepal, lagging behind in economic growth, by obstructing
the seamless flow of their goods and services to regional and
global markets. Detailed information on physical gaps and
constraints, policies, procedures, commodity type, and market
conditions helped to determine where improvements in the short term
can bring about significant returns in terms of efficiency
improvements.
27. Consequences of Non-CooperationSome of the consequences of
non-cooperation in South Asia are indicated below:
27.1 Movement between North East India, Bhutan, Nepal and
BangladeshDuring British India, the transport networks were all
radiating outwards from the international sea ports of Karachi,
Bombay, Madras, Kolkata and Chittagong. Subsequently, several new
ports have been developed in the sub-region which includes sea
ports near Karachi and Bombay, Haldia near Kolkata, and Mongla in
the south-west of Bangladesh. In the context of North-East India,
Bhutan and Nepal due to congestion at Kolkata port, Bangladesh
ports (Chittagong and Mongla) could have provided a very easy
access to the sea. The shipment of Assam tea to Europe on its
traditional route through Chittagong is not possible since it is
not covered by the current bilateral agreement. As a result, the
transportation cost includes a trucking route of more than 1400
kilometers to KolkataPort through the land corridor termed the
chicken neck between Bangladesh and Nepal (See Map 4). The
traditional route for Assamese tea via Chittagong port would have
cut the journey for export shipments by almost 60 per cent.
Third-country trade for both Nepal and Bhutan is also routed
through Kolkata port, with associated delays and cost. But their
export/import cargo could have moved more cost effectively through
Bangladesh ports.Agartala, the capital of Tripura state, is also
constrained by its weak transport links with the outside world as
well as with the mainland India. The southern border of Tripura
state is only 75 km from Chittagong port. But since access to
Chittagong port is not allowed under any agreement between
Bangladesh and India, goods from Agartala are required to travel a
distance of 1645 km to reach Kolkata, against a direct distance of
350 km across Bangladesh.If Bangladesh would have allowed Indian
cargo access to the sea through ChittagongPort, it could have
earned considerable foreign exchange for the services it would
render in terms of say railway charges, the port charge and transit
fee.
27.2 Movement between Nepal and BangladeshDue to lack of
political understanding with India, Bangladesh is not only losing
the chance to earn foreign exchange, but also paying a price.
Although India has allowed a route between Bangladesh and Nepal
across the Chicken Neck for bilateral trade, yet goods are required
to be trans-shipped at the Banglabandh land port. Since this route
cannot be used for third country trade of Nepal, its export and
import traffic cannot use Bangladesh seaports of Mongla, although
it has a direct broad gauge link with Rauxal, the Indian Rail head
at the India/Nepal border. Due to congestion at Kolkata port, Nepal
expressed an interest in using Bangladesh ports for its third
country trade, but India did not agree to this.
27.3 Movement between India and BangladeshIn the absence of a
clear political understanding among the countries of SAARC,
overland movement of goods and passengers among the member
countries has been very limited except between India, Nepal and
Bhutan. As a result, it takes 45 days to transport a container from
Delhi to Dhaka, because the container first moves to Tughlakabad
ICD, then to Mumbai (India) and Singapore (See Map 4). From
Singapore, the container is shipped to Chittagong port, and then to
Dhaka. According to a reliable estimate, the distance of around
2,000 kilometers between Dhaka and Delhi could have been covered in
two to three days by rail, similarly, the distance between Dhaka
and Lahore has also increased from 2300 km to 7162 km after 1947,
because overland movement across India is not allowed.
27.4 Movement between India and PakistanThe movement of goods
and people between India and Pakistan by road and rail remains
severely restricted. Goods movement by road is not allowed. One
passenger bus a week has been traveling across the border in either
direction since 1999, with occasional interruptions. Goods movement
by rail is not allowed. Pakistani passenger trains are allowed only
up to Attari in India opposite to Wagah in Pakistan. Passengers
going to Pakistan change their trains at that station. Direct
shipping between say Karachi and Mumbai port is also not allowed,
unless the ship touches a third country. All these restrictions
apply due to lack of any political understanding and expose both
countries to high transaction costs. The matter does not end there.
New Delhi and Teheran are cooperating in the development of a
transport corridor from India to Afghanistan and Central Asia
through Iranian territory (See Map 3). Since Pakistan has been
denying facilities for overland trade between India and
Afghanistan, this corridor has become the key to rapid expansion of
economic cooperation between New Delhi, Kabul, and Central
Asia.Iran is developing a new port at Chabahar (See Map 3) from
where a road will skirt the Pakistan border into Afghanistan where
it will link up with the garland road system that connects all the
major cities in that nation. India will help Afghanistan build the
road link from the border with Iran to its internal road system.The
Chabahar corridor will give India the much needed access to
Afghanistan and Central Asia, although through a much longer and
more expensive route. Had there been a more positive understanding
between India and Pakistan, it could have opened up much wider
avenues for economic cooperation involving other countries of South
Asia as well.
27.5 Visa RequirementsWith regard to visa requirements for
passenger movement between SAARC countries, there has been very
little improvement over the years. Citizens of SAARC countries
still need visas to visit each other except for travel between
India and Nepal, and India and Bhutan. Maldives is the only country
in the region which permits SAARC countries to enter without a visa
and it extends this facility to all countries. Recently, Sri Lanka
has permitted visa free entry to all SAARC countries, a move which
has not been reciprocated by its neighbors. However, visa less
travel has given a big boost to Indian tourists visiting Sri Lanka.
With regard to visa issuance between Pakistan and India, the
situation is more complicated. Visas are issued city wise, and
visitors are required to report to the police on arrival. Visas are
again restricted to a single port of entry and exit.
28. What Needs to be DoneConsidering the present unsatisfactory
state of transport integration and the political constraints which
are standing in the way of transport cooperation in South Asia, a
number of actions are required to address the situation. Indicated
below are some of the major actions which could be taken.
28.1 Strong Political CommitmentVirtually all the constraints to
improved transport connectivity in South Asia indicated above
remain political. Thus, the key to transport integration lies in a
change in political mind-sets. The declaration at the Islamabad
summit in January 2004 seeking to strengthen transportation,
transit and communication links across the region as well as
harmonization of standards and simplification of custom procedures
indicates a renewed political commitment to improve connectivity
across the SAARC countries. The challenge to the SAARC governments
will be to operationalize these commitments by dismantling the
political as much as the infrastructural barriers to improved
communications.Here civil society in South Asia and particularly
the business community can play a proactive role in pressing
governments to honor the commitments made at Islamabad. Serious
professional work identifying measures to integrate the transport
network of South Asia can be undertaken at the level of civil
society to supplement intergovernmental initiatives and to
accelerate official action in this area. Some ideas on the scope
for coordination of transport development and facilitation of
international traffic are presented below.
28.2 Coordination in Transport DevelopmentTraditionally,
development of transport system in the South Asian countries has
been considered only as a national issue and did not seriously take
into account the cross-border issues of compatibility, uniformity
of standards, infrastructure and equipment design, which are vital
to increasing movement of goods and people across national
boundaries. In this context, the following areas need urgent
attention.
28.3 Coordinated Development of Rail NetworkThe rail networks in
South Asia are a mix of broad (1.68 meters) and meter (1.00) gauge.
India is making a concerted effort to convert its network to broad
gauge and Bangladesh is currently undertaking some conversions of
meter gauge to dual gauge.In order to ensure that traffic can move
smoothly by railway between various countries of South Asia, there
is a need to coordinate the conversion program of Indian Railways
with the dualization program of Bangladesh Railways (See Map 6).
The coupling and braking system will also need to be standardized.
This would be essential for providing smooth rail corridors upto
Chittagong and MonglaPort for traffic to and from Nepal, Bhutan and
North-East India including Agartala, once the dualization of track
is completed up to Chittagong. However, to be able to face the
competition from road transport, it would be essential to achieve
significant improvements in rail operation if this mode is to
capture most of the inter-country traffic. To this end, use of
compatible rolling stock would be essential. Since dualization has
been completed up to Joydebpur near Dhaka, freight trains from
India on BG track can now move almost up to Dhaka, if required.
Once the dualization of the rail track is completed up to Dhaka a
regular train service between Dhaka and Kolkata could be
initiated.
28.4 Prospects of Road TransportMost of the movements by road
transport are taking place along the Highways, the majority of
which in both Bangladesh and India consists of roads with 2 lanes
(a width of 7.3 metre). To this end, India is yet to agree to a
shorter Highway route between Bangladesh and Myanmar through
Sutarkandi (Bangladesh), Karimganj and Silchar in India. The
present route between Sylhet (Bangladesh) and Tamu (India/Myanmar
Border) via Shillong, Dispur, Kotima and Imphal is 400 km longer
than the route mentioned above.Considering that road transport is
already a dominant mode of transport compared to railway and water
transport in most of the South Asian countries, it would be highly
undesirable to overburden the road transport which is already
contributing to growing environmental pollution. In addition,
considering the physical condition of roads in Bangladesh, and the
axle load limitation of Bangladesh and Pakistan, which is 8.2 tons
per axle, compared to 10.2 tons in India, Nepal and Bhutan, it
would be a bit premature to open Bangladesh and Pakistan roads to
any substantial movement of international traffic without
strengthening the road infrastructure. Although Bangladesh has
recently raised the axle load limit to 10 tons, it will take quite
sometime to upgrade the infrastructure to that standard. However,
for movement of high value and perishable goods trucks will
continue to play a dominant if not an exclusive role. Under those
circumstances, it would be desirable to encourage use of more and
more containers to be carried by multi-axle vehicles.
28.5 Using Full Potential of IWTInland Water Transport could
play a very prominent role in transporting low value bulk cargoes
that move between Kolkata and Northeast India, including Tripura
State. It is a mode of transport where no trans-shipment at the
border crossing is involved and its charges are the lowest per ton
km of freight. Even then it is still at a disadvantage because of
its low travel speed, in the range of 50 to 80 km per day due to
limited night navigation and drafts on certain routes. Lack of
sufficient ports of call may also be discouraging movement of
inter-country trade by IWT. The above mentioned issues need to be
jointly looked into by both the governments of Bangladesh and India
with a view to make water transport really competitive for low
value bulk cargo, with efficient logistics linkages to provide door
to door services.
28.6 Facilitation of International TrafficFacilitation of
international traffic covers movement of both goods and passengers.
As such these have been addressed separately:
28.6.1 Goods MovementTo facilitate movement of international
traffic, there are international conventions. Taking lessons from
European experience, UN-ESCAP resolution 48/11 of April 1992, urged
member governments to accede to seven international land transport
facilitation conventions mentioned in the resolution. Meanwhile, as
an interim measure, a number of sub-regional groups have started
adopting certain Transit Transport Framework Agreements (TTFAs).
Important provisions from the international conventions are being
included in the protocols of these TTFAs.In addition, it would be
essential to remove inefficiencies associated with documentation
and procedures involved in border crossing such as customs
inspection, excessive documentation and multiple signature
requirements, lack of transparency, informal payments, etc.
Emphasis also needs to be placed on human resources development to
deal with trade and transport facilitation issues as well as
customs management practices. Acquisition of such crucial
competency in the work force will be a major challenge for SAARC
member countries.
28.6.2 Movement of PassengersIn order to facilitate movement of
passengers between SAARC countries, it is essential to simplify the
visa requirements. Ideally, SAARC countries could approximate the
arrangements between India and Nepal where visa requirements have
been completely abolished. In case it is difficult for certain
pairs of countries to achieve this arrangement immediately, in the
interim period, visas may be issued free of charge on arrival, at
the port of entry, leading finally to the abolition of visa
requirements. In this context, it may be noted that in ASEAN
countries, visa-free travel for all ASEAN citizen has been in
operation for some years now. In Bangkok International Airport,
separate immigration counter has also been set up for ASEAN
passport holders. To facilitate visits to SAARC countries by
outsiders, an arrangement similar to the Schengen Visa could be
considered. With a Schengen visa, one may enter into one of the
member countries and travel freely throughout the Schengen zone.
Internal border controls have almost disappeared.The present state
of transport integration among SAARC countries is totally out of
step with the global trend towards regionalization. The South Asian
countries need to make a decisive departure from the present
situation in order to be fully integrated into the ongoing
globalization process. The economic pay off from such integration
would be correspondingly high. As regards the political impediments
to such integration, the SAARC countries should take some lessons
from other sub-regions where mutually beneficial economic exchange
are taking place in spite of political differences.In this context
a process of awareness creation about the mutual benefit of
transport integration, or cost of non -cooperation, based on a
comprehensive study referred to earlier, could go a long way in
persuading the political leadership about the importance of
transport integration. Unless rapid progress is make in this
direction, the South Asian sub-region will become the missing link
in an otherwise integrated regional and world transport network.
National transport systems are within the exclusive jurisdiction of
sovereign governments and their integration can be achieved only
when the national governments show a strong political commitment to
the goal of a more integrated South Asian community in general and
an integrated South Asian transport system in particular.
29. ConclusionSouth Asian countries continue to be characterized
by low per capita consumption of energy, poor quality of energy
infrastructure, skewed distribution and inaccessible and costly
energy availability. These countries have largely remained energy
importers and increasingly face a serious energy shortfall. All
these have adversely affected their productive activities, social
development and investment climate. There has been a realization
that availability and accessibility to energy can transform the
quality of life and work substantially, help raise health and
educational standards and slow down rural-urban and cross-border
migration by enhancing the level and pace of income and employment
generation.Creation of a South Asian energy market and cooperative
development of the available diverse energy sources in the region
can help increase the level of energy security in the region and
thus can subsequently contribute to achieving a sustained higher
economic growth. There are distinct advantages for South Asian
countries to cooperate in the energy sector. There have been
negotiations going on among the South Asian countries on the
possibility of power trading and gas pipelines. Given the demand
and supply situations in the sub-continent, it is rational to
believe that the trade in power and gas will be mutually beneficial
in terms of both economic and political gains. The studies
conducted to date reveal some important regional projects that
merit serious consideration. They also provide a range of
options.However, there are several challenges ranging from trust
and confidence building to investment and technology transfer,
demand centers locations, to really integrating the energy market
and sustaining the effort to match the regional aspirations with
such efforts. The 12th SAARC Summit held in Islamabad in 2004
clearly indicated the need to consolidate energy cooperation by
creating an energy ring. What is required is a breakthrough project
that can be set as an example for other regional energy and other
ventures. In all these efforts and stratification, the key element
should be understanding the neighbors, strengthening both the
traditional and freshly emerging ties with them and making a much
more concerted regional effort in consolidating a regional
identity. The projects need to be depoliticized through sensitizing
the general mass about the gains that accrue and providing options
and alternatives to the policymakers. An equally critical task is
to build the capacities of the policymakers in the energy sector
across the region by re-skilling and reorienting them to the
advantages of energy cooperation.At the same time the South Asian
countries should realize that cooperation is a goal-oriented action
wherein not only the goal but also certain resources are shared
together by the participants. This implies sharing of national
control over these resources which is taken as a loss of national
sovereignty. Whenever these countries have felt like this, they
have tended to withdraw from the regional cooperation process.
States are reluctant to cooperate on merely economic goals.
Therefore, tackling of this perception of national sovereignty
itself is a major question as it demands extending a new form of
cooperation, sacrifice and contribution which the countries in this
region invariably lack. That is why initiatives like beneficial
bilateralism and unilateral gestures have really worked in case of
the region