Regional Cooperation in South Asia was formally initiated with the establishment of South Asian Association of Regional Cooperation (SAARC) in 1985. The areas of regional cooperation under SAARC are but not limited to agriculture, poverty alleviation, economic cooperation energy, human resource development and trade. The component of economic cooperation was added to the political arrangements of SAARC in December 1992 and endorsed establishment of SAARC Chamber of Commerce and Industry as an apex body of SAARC.
South Asian Preferential Trade Agreement (SAPTA) was signed in 1993. Since the scope of SAPTA was limited, therefore SAPTA was expanded to SAFTA. South Asia Free Trade Agreement (SAFTA), adopted in 2004 by the 12th SAARC Summit held at Islamabad was expected to be a milestone towards taking initiatives to improve regional integration in South Asia and believed to open the avenues of development via boosting economic growth, alleviating poverty and enhancing the quality of life through regional trade integration. The SAARC Agreement on Trade in Services (SATIS) entered into force in late 2012, but it is yet to be fully implemented. There is a vision for establishment of Custom Union that would eventually pave the way forward to transform SAARC into an Economic Union.
These regional arrangements manifest that the South Asian governments have recognized to address the trade facilitation constraints, and ensure that trade incessantly supports socio-economic growth and benefits the poor. However, SAFTA’s success should be assessed in terms of its trade generating capacities. The region remains the most highly protected region across the world and lags far behind in opening the vistas of foreign competition, trade facilitation, free movement of goods and services and attracting foreign direct investment.
Today the exports of the SAARC member countries are mere 355 billion US $, half of the total exports of South Korea that are 526.9 billion US $. A comparison of Intra-SAARC region trade with other economic blocs portrays a dismal picture of economic integration of South Asian region. While most developed economic blocs of the world maintain around 65% of their world trade within their region, South Asia as a region just reached 5.4% of its world trade in the region.
The high protection levels reflected in tariff peaks, non-tariff measures and technical and non-technical barriers have made South Asia the most highly protected region in world. Serious behind-the-border constraints to private activity in infrastructure, economic governance, financial sector, and trade logistics have impeded productivity growth and hurt export competitiveness resulting in socio-economic deprivation, high unemployment and multifaceted poverty across the region.
According to the World Bank estimates, 36 percent of people in South Asia live on less than $1.25 a day. Home to 40% of poor of world’s population, South Asia accounts for only 6.6 per cent of the world’s GDP. Similarly, 44 per cent poor people of the world who live on less than a US$ 1.25 a day also belong to this part of the world.
However the region holds huge potential, as the combined economy of this region is the 5th largest in the world, with a combined GDP of $2.6 trillion in 2016. With population of more than 1.8 billion people, SAARC has become one of the most thriving and emerging markets of the world. Being such a huge market, the region, according to an estimate, has a trade potential at $85 billion. The regions intense geographical proximity is an opportunity to be unleashed.
In order to unleash the enormous potential of South Asian Region efforts are needed to address economic factors such as trade facilitation and infrastructure development. The South Asian economies must conceptualize integration as an evolving process. Indeed, this is reflected in SAARC, which has an explicit intent to move in the direction of an economic union. The growth of the South Asian countries offers prospects and challenges for deeper integration with the global economy, and integration under SAFTA is the first step in that direction.