Jul 31, 2008

World - SAARC Chasm

South Asia discusses regional friendship

THERE may be some awkward pauses this week in Colombo, where South Asia’s leaders are due to meet to discuss, among other shared concerns, terrorism. It is not that they will be unprepared. Terrorism, with food security and energy, was long ago listed as a major talking point for the annual summit of the South Asia Association of Regional Cooperation (SAARC), which is being held in Sri Lanka’s capital. The problem is that there has been so much terrorism about, including a suicide attack on India’s embassy in Kabul in June, in which an Indian diplomat and general were killed, for which India and Afghanistan blamed Pakistan. All three countries are members of SAARC.
This indicates a sad truth about South Asia’s regional club. Several of its members, including the biggest (India, Pakistan and Bangladesh) don’t get on. And this makes one of SAARC’s founding objectives—“to contribute to mutual trust, understanding and appreciation of one another’s problems”—rather difficult to achieve. Take terrorism, for example: Pakistan, Bangladesh and Sri Lanka have all, at various times, exported it to India, so South Asia’s biggest country tends to suppose that its problem, in fact, is its neighbours.

This goes a long way to explaining why SAARC has spectacularly failed in its main task: promoting regional economic integration. According to a World Bank report released last year, South Asia is the least integrated region in the world. Trade between SAARC’s members accounted for less than 2% of their combined GDP. In East Asia, the equivalent figure was 20%.
A vast potential is untapped. The Bank estimated that annual trade between India and Pakistan, currently worth about $1 billion and routed mainly through Dubai, could increase nine-fold—if both countries would only withdraw an army of tariff and other barriers from their razor-wired border.
An Indian think-tank, the Indian Council for Research on International Economic Relations, cites another example: less than 4% of South Asian textiles and clothing is traded within the region. Over 80% of the fabric imported by Bangladesh and Sri Lanka, both major garment-makers, is imported from outside South Asia, even though India and Pakistan are net exporters of the stuff.
Bad governance is part of the problem. Sri Lanka’s impressive rag-makers, operating in high-value niches, may find China a more reliable source of fabric than corrupt, rowdy Pakistan. But bad politics, expressed in a clutter of tariffs, inspections and other needless regulation, is more to blame. SAARC was supposed to clear these. It has not, despite offering a probably-forlorn promise of regional free trade by 2012.
In part, this failure is a product of the club’s design, which supposes, almost by definition, that its members all have an interest in each other. In fact, India shares interests with its regional neighbours, and they, more or less, share interests with it. As South Asia’s dominant power—accounting for more than 75% of regional GDP—India has tended to see SAARC as little more than a means for the minnows to gang up on it. It has therefore preferred to conduct its regional business bilaterally.
With Nepal and Bhutan, Himalayan minnows, it has done so quite successfully. Both operate more or less open borders with India, though Bhutan levies some tariffs. And Nepal, much the bigger and trickier of the two, has proved hostile to Indian investment and political interference. With Sri Lanka, a smaller tiddler, India has also made progress. Since the two countries signed a free trade agreement in 2000, their bilateral trade has increased four-fold, to a still-modest $2.7 billion in 2007.

India and Pakistan, despite the latter's announcement this month that it would allow a greater range of imports from India, including diesel, have made no such progress. Pakistan has ratified the free-trade agreement, while limiting its concessions towards India. Bangladesh, under its unelected, military-backed government, has been more receptive to India’s invitations to boost bilateral trade, but only a bit.
The irrelevance of SAARC to these developments is rather depressing. In particular, it bodes ill for the prospects of regional progress on an issue where it is certainly needed—climate change. Poor, hot and largely agrarian, South Asia will suffer especially severely from rising temperatures. In Pakistan, India and Bangladesh, the loss of Himalayan glaciers will cause major disruption to the rivers upon which 600m people depend. By one estimate, climate change will cause a 30-40% drop in India’s agricultural output by 2080.
Rather belatedly, SAARC has noticed the problem. On July 3rd the club’s environment ministers met in Dhaka to announce a regional plan to co-operate against climate-induced problems. That was encouraging. Yet a suspicion remains that the region's climate may have to get dangerously hot before SAARC soars, phoenix-like into action.

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