• SAARC

SAARC

This paper attempts to understand the incentives for and progress towards greater economic integration among members of South Asian Association for Regional Cooperation (SAARC). It notes that the acceptance of the SAARC concept was slow. Success of similar regional trade and economic integration groups in other parts of the globe had provided an impetus to it and its charter was accepted by all the seven members in mid 1985. Regional cooperation that SAARC initially emphasised was at the political level and the possibilities of cooperation on economic and social issues were of secondary importance. However, instruments such as South Asia Free Trade Agreement (SAFTA) have been established later to facilitate better economic integration

The paper demonstrates that the economic case for SAFTA in the short-term is weak. In the short-term, it is not likely to emerge as an instrument of strong and cohesive regional trade and economic integration in South Asia. In the medium-term, with increasing income and expanding GDP and markets, the feasibility of a successfully operating a free trade agreement (FTA) is likely to improve. An FTA may emerge as a strong instrument of trade expansion and economic integration in the sub-region. Despite this the author argues that SAFTA is here to stay and it can still be helpful for the following reasons:

• creation of SAFTA will have the immediate benefit of a decline, even elimination, in transaction and increase in sub-regional trade volume
• South Asian economies have become laggards in following a global economic trend of entering into regional trade agreements. Policy-makers in these economies may well be interested in keeping up with a global trend
• Forming an FTA with the economies in their own sub-region may well be a balancing measure against trade diversion for the South Asian economies

To maximise SAFTA’s potential benefits, the paper suggests that the seven member countries can take several pragmatic policy measures—preferably in the short-term—which include:

• bringing down the tariff barriers and NTBs steadily to promote sub-regional trade in keeping with the comparative advantage and factor endowment of the individual member economy 
• gradually eliminating sectoral and product exclusion from the FTA
• making ROO requirements reasonable, simple and minimal and keeping them constant for all products
• have clear rules regarding tariff-rate quotas
  

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