What are regional trade alliances? Why SAARC is struggling in 2024

What are regional trade alliances? Why SAARC is struggling: The Untold Story of Its Economic Hopes and Failures

Introduction:

The people of today’s world favor the formation of strong regional unions for trade, investment, and economic cooperation. Due to the formation of regional unions, the pace of regional development is accelerating. Despite the potential for economic development and strengthening of regional ties in South Asia due to geographic and cultural proximity, his results have been the opposite for the region. Experts blame political issues as the reason behind this. In addition, India and Pakistan’s counter-nuclear programs and the bilateral problems of the two big countries are the main reasons for the success of SAARC.

What are Regional Trade Alliances?

In today’s world, industry and technology are highly advanced, but no country is self-sufficient in meeting its own needs. All the countries of the world are more or less dependent on each other. And trade is created from this interdependence. Import duties are one of the major trade barriers.

Many countries impose high tariffs on imports of various products to control imports. Due to these reasons, international trade faces various challenges. Regional trade alliances are therefore formed to facilitate bilateral and regional trade.

Therefore, it can be said that when a trade alliance is formed with different neighboring or like-minded countries considering geographical, economic, and strategic aspects, it is called a regional trade alliance.

The main objective of regional trade alliances is to expand trade between member countries by reducing tariffs. Some notable among these alliances are NAFTA, APEC, AFTA, LAFTA, BIMSTEC, etc.

Background of the formation of SAARC as a regional trade alliance:

South Asian Organization for Regional Cooperation or SAARC is a cooperation organization consisting of 8 countries in South Asia. This organization was born on December 8, 1985, with the signing of the SAARC Charter by the Governments/Heads of State of 7 countries in Dhaka to create trust and confidence by eliminating the existing mutual doubts and misgivings between the countries of South Asia and improving the quality of life of the people.

A total of 17 summits of the organization have been held in the last 28 years since its inception. Martyred President Ziaur Rahman first took the initiative to form SAARC.

To this end, he presented his thoughts on the formation of a regional organization with South Asian leaders during 1977-80. At this time he wrote letters to the heads of state and government of the member countries. In November 1980, Bangladesh prepared a paper containing the proposal for the formation of South Asian countries and sent it to the governments/heads of state of various countries.

The first meeting of foreign secretaries of SAARC member countries was held in April 1981 and the first meeting of foreign ministers was held in August 1983. The SAARC Charter was drafted in 1984, which was adopted at the first SAARC summit held in Dhaka on 7-8 December 1985.

Purpose of formation of SAARC:

SAARC was formed with 8 goals and objectives in mind. The aims and objectives of SAARC are:

1. To improve the welfare and livelihood of the people of South Asia
2. To accelerate the economic, social, and cultural progress of the region, giving every person the opportunity to lead a dignified life and the full development of his personality;
3. Helping South Asian countries achieve self-reliance;
4. Helping to understand each other’s problems, mutual trust, and compromise;
5. Providing active cooperation in economic, social, cultural, technical and scientific fields;
6. Expanding areas of cooperation with other developing countries;
7. Development of cooperation in matters of mutual interest in international organizations;
8. To cooperate with other international and regional organizations to achieve these goals

Institutional Structure of SAARC:

The institutional structure of SAARC includes:

1. SAARC Summit;
2. Conference of Foreign Ministers;
3. Standing Committee;
4. Programming Committee;
5. Technical Committee;
6. Working groups and
7. Secretariat.

Areas of Cooperation of SAARC as regional trade alliances:

The areas of cooperation of SAARC are:

1. Agriculture;
2. Health and Public Services;
3. Posts and Telecommunications;
4. Prevention of drug trafficking and abuse;
5. The weather;
6. Rural development;
7. Science and Technology;
8. Education, Culture and Sports;
9. Travel and transportation;
10. Women’s Development;
11. Tourism;
12. Environment and Forests;
13. Poverty alleviation;
14. Exchange of CIRC audio-visual programs;
15. Women and children.

Besides SAARC has 5 regional centers.

These are:

1. CIRC Documentation Centre;
2. SAARC Agricultural Information Centre;
3. SAARC Center for Human Resource Development;
4. SAARC Meteorological Research Centre;
5. SAARC Tuberculosis Centre.

Besides, three more centers have been established. These are:

1. SAARC Cultural Centre, Kandy, Sri Lanka.
2. SAARC Coastal Zone Management Centre, Maldives.
3. SAARC Information Centre, Nepal.

Economic success of SAARC as regional  trade alliances:

Many of the world’s regional organizations have developed economically because of regional organizations. Regional organizations like the EU and ASEAN have reached the pinnacle of economic development today. SAARC has become known economically and commercially to the world through regional cooperation. SAARC member countries trade about 1.8% of the world’s total trade. Below are the aspects of the economic success of SAARC:

1. Free trade:

South Asian countries exported 4.5% of their total exports of goods to their regional countries. NAFTA tax 37%, EU 63% and ASEAN 38%. South Asia has become economically strong through regional organizations and rich in natural resources.

The regional development of SAARC has been boosted by the free trade of South Asian states and the provision of goods and services among themselves. As a result of regional trade, the smaller countries of South Asia are moving towards their regional economic progress.

2. SAPTA:

SAPTA or SAARC Preferential Trading Arrangement was signed at the seventh SAARC summit held in 1993 to increase economic cooperation between the member countries. It came into effect from 1995.

Some special benefits have been given to the member states like Bangladesh, Nepal, and Bir Bhutan in the SAPTA agreement. According to this agreement, the ‘principle of non-reciprocity’ is followed with LDCs.

That is, an economically weak country (e.g. Nepal) gets a trade advantage in the market of a strong country (e.g. India), but the weaker country does not have to give a trade advantage. This will balance the regional economy.

Also in 1995 through the SAPTA agreement, an agreement was made to reduce tariffs in some economic sectors during inter-regional trade to increase regional trade. As a result of this agreement, India has promised to reduce tariffs on 106 products and Pakistan on 35 products.

 3. SAFTA:

Adopted to make South Asia a free or free trade area SAFTA. It means South Asian Free Trade Area. One of SAARC’s achievements in the economic field is the signing of the SAFTA Agreement and ratification by all members. At the 12th SAARC summit held in Islamabad on January 4-6, 2004, the foreign ministers of the countries signed the SAFTA agreement to establish the South Asian Free Trade Area.

This agreement came into force on 1st July 2006. According to this agreement, India and Pakistan as developing countries reduced the tariffs by 10% on various products in the first phase. Later on 1 July 2007, India and Pakistan reduced the tariff rates to 30%.

In the third phase, by December 31, 2008, developing countries reduced the tariff rates on their goods to 5 percent. The other members – Bangladesh, Nepal, Bhutan, and Maldives – will reduce the tariffs to the same level within 10 years. Basically, as a result of this agreement, India has already reduced the tariff rates of 513 products.

4. European Union and SAARC:

The main goal of the European Union and SAARC is to strengthen their position in the field of international trade besides increasing regional trade. To this end, both the EU and SAARC are trying to increase trade between themselves. As a result, trade exchanges between the EU and SAARC have increased over the past few years.

5. Increase in rice exports:

An article titled ‘ASEAN and SAARC: Toward Regional Trade’ was published recently. The article shows that during the period 1990-2011, SAARC rice exports increased by 10 percent while ASEAN rice exports increased by only 2 percent. On the other hand, ASEAN rice imports increased from 10% to 14% during the same period. And SAARC’s rice import volume decreased from 5% to 3%. From this, it can be understood that the agricultural economy of SAARC countries is advancing rapidly.

6. Establishment of SAARC Food Bank:

SAARC Food Bank was established to ensure food security in South Asian countries. The total food stock in this food bank is 486000 metric tons. As a result of the establishment of this bank, various countries are receiving food aid during times of disaster.

For example: After the cyclone of 1991, Bangladesh used food grains from A Bank to meet its needs from the reserves of other SAARC countries beyond its reserves.

7. SAARC Seed Bank:

The economies of SAARC members are mainly dependent on agriculture. The SAARC Seed Bank Agreement was signed at the 17th SAARC Summit held in Maldives in 2011 to develop the agricultural economy. The main aim of establishing this bank is to provide regional support to ensure national seed security. As a result, the agricultural economy will develop properly.

8. SAARC Trade Fair:

In 1995, a decision was taken to start the “SAARC Trade Fair” program to increase the awareness of production materials and products among the SAARC countries. As a result of this fair, the people of one country are getting an idea about the products of other countries.

Also, trade cooperation between countries is increasing as a result of this fair. So far 11 SAARC trade fairs have been held. The first SAARC Trade Fair was held in 1996 (India). The last SAARC trade fair was held in Lahore, Pakistan in 2014.

The economic failure of SAARC as a regional trade alliance     :

Among the third-world countries, South Asian countries are developing countries. All South Asian countries have very low economic development rates, high population growth, lack of equitable utilization of human resources, high poverty rates, income disparity between men and women, food shortages, trade barriers, resource shortages, high cost of oil imports, and burdened with debt. and day-to-day problems like inflation etc. The failure of SAARC due to these problems is as follows:

1. Lack of investment:

One of the reasons for SAARC’s failure is the lack of investment and cooperative monitoring of trade and technology among SAARC countries.

2. Big Power Interests:

Among the SAARC countries, India is economically stronger, followed by Pakistan. India and Pakistan do not extend the hand of economic cooperation to the South Asian countries but they put economic pressure on other countries only for their interests.

As India is more economically powerful among the South Asian countries, India exports thousands of its products to all South Asian countries in the name of cooperation, but India allows very little import of other countries’ products.

As a result, India has become a hindrance to the economic development of SAARC. For example, about 800 Indian products are traded in the Bangladeshi market. But only 80-130 products from Bangladesh got the facility to go to the Indian market. As a result, Bangladesh is facing economic loss and India is benefiting.

3. Lack of bilateral trade:

On the other hand, Pakistan is the second most economically developed country in South Asia. Pakistan never wants bilateral trade with India. As a result of the conflict between the two big states of South Asia, the entire South Asian states are suffering economic losses. The economic development progress of SAARC has been stalled due to the India-Pakistan conflict. The mutual conflict between them did not allow the member countries to come to any agreement.

4. Economic Recession:

Globally today’s economic recession is happening in many countries, yet no steps have been taken to revive the economy in the SAARC summits. The economic recession has occurred in other countries including Bangladesh today. For example, the exports of Bangladesh decreased by 39%. On the other hand, the trade deficit is 23%.

5. Inflation is increasing:

Inflation is increasing continuously. This picture can be observed in Nepal, Sri Lanka Maldives, and Bangladesh. More than 23% of the world’s total population i.e. about 1.5 billion people live in South Asia while they enjoy only 2.3% of the world’s total GDP.

6. Trade Deficit:

Trade relations between the countries of the region have not improved much. Countries in the region account for a small fraction of their trade with the outside world. This trade is more pronounced in Bangladesh than in other countries. Compared to the export of products of Bangladesh, the import has increased almost 8 times. Mostly with India and Pakistan. But SAARC has no initiative in this regard.

And one of the major reasons for the trade deficit here is the unequal economy of these countries. The major economic power of this region is India. India accounts for 77.8% of South Asia’s total GDP, 40.3% of trade, and 75.8% of foreign investment. A study shows that India will be the largest economy in the world by the year 2050.

In such a situation, if the economy of Bangladesh or Nepal goes to compete with India, it will not be able to survive. Rather, the big economy will swallow up the small economy. As a result, India’s economy will dominate in the name of establishing economic equality in the region. Trade equality will not come if this uneven economic problem cannot be solved.

7. Poverty problem:

Another big problem in South Asia is poverty. About 54 percent of the total population of Bangladesh is still in poverty. According to 2004 statistics in India, the number of poor people was 27.5%. But it has increased continuously without decreasing and in 2010 its amount stood at 37.02 percent. Poverty is still so prevalent in some states of India that nearly 5,000 children die of malnutrition every day. No affirmative action by SAARC to reduce poverty has worked.

8. Energy problem:

Two South Asian countries Nepal and Bhutan are rich in energy but countries like Bangladesh cannot bring that energy very easily. In this case, India stood in the way. But India itself produces electricity with Nepal and Bhutan. But he dislikes multilateral production systems. As a result, the energy crisis in the region is intensifying for India’s interests.

Conclusion:

The aim and objective of the formation of SAARC was mainly to increase trade and economic growth among the countries of South Asia. However, due to the bilateral problems of the states, SAARC has been heading towards failure instead of success. With the implementation of SAPTA in 1995 and the implementation of SAPTA in 2006, South Asians hoped that trade would increase through SAPTA and SAFTA. But despite this SAARC could not bring much benefit due to the lack of proper implementation of SAPTA and SAFTA.