PROSPECTS OF COOPERATION IN SOUTH ASIA

SUBJECT TITLE: POLITICAL SCIENCE-II

Submitted to: Professor V C Vivekanandan Submitted by: Nupur Dutta (Id no: 2007-44) 2nd semester, 1st year.

NALSAR University of Law, Justice city, Shameerpet, Hyderabad-500078.

TABLE OF CONTENTS Topic 1. INTRODUCTION.................................................................................... 2. SAARC...................................................................................................... 3. ON ENERGY DEVELPOMENT........................................................... 4. ECONOMIC COOPERATION.............................................................. 5. SAFTA....................................................................................................... 6. TOWARDS INTEGRATION................................................................. 7. PROSPECTS OF PEACE IN SOUTH ASIA........................................ 8. CONCLUSION........................................................................................ BIBLIOGRAPHY Pages

INTRODUCTION Far-reaching changes have taken place in the world today causing a metamorphosis in the socio-economic and political structure of every country. The metamorphosis has been particularly evident in recent years making it incumbent on the part of every nation of the globe, in every nook and corner, to react to events with caution and responsibility. It has now been a common phenomenon to the countries of every region to join hands within a framework of collective cooperation to promote and safeguard their interests and priorities in the context of the emerging era of globalism. The regional frameworks in the throw of this global competitive context everywhere is being caught up, which is truly revolutionary in their spirit, dimension and development, whether it be LAFTA, NAFTA, EU, APEC, GULF Council, ASEAN, Arab League or OAU etc; all regional arrangements are gaining ground in their own way. The consolidation and expansion of ASEAN at our neighbourhood, establishment of BIMST-EC, the economic miracle of China and the burgeoning economic growth of India and her rapid and significant advancement in science and technology, specially in IT and biotechnology, have greatly enamoured the south Asian region.1 Against the backdrop of such tremendous upsurges in the horizon, Nepal, Bangladesh, Bhutan, Sri Lanka, Maldives, Pakistan and India, the seven nations of south Asia are grouped together to surge ahead to determine their future destiny. Over one fifth of the world population is concentrated in this region under SAARC umbrella, nearly half of which is gripped below poverty line. The region is afflicted by economic disrays, political instability, mal-governance, violence, racial discriminations, religious bigotries, environmental degradation and skyrocketing arms race. The refugee crisis, territorial disputes are some touchy issues which squarely imping upon the peace and prosperity of the region. These are indeed major challenges ahead for SAARC to surmount. Regional cooperation is intended to offset discontinuities imposed by national frontiers and thus increasing trade within the region, stimulating production, providing enhanced investment opportunities, and in some cases facilitating the movements of labour and capital as

http://www.ifa.org.np/pdf/prc/mplohani.pdf

well as goods. It needs to be studied from a long range prospective as well as from the economic angle and to deal satisfactorily with them2.

AIMS AND OBJECTIVES This project aims to study the prospects of cooperation in South Asia. Various International Organisations like SAARC, and SAFTA has been discussed. RESEARCH METHODOLOGY A brief study was done on the project. A number of sources of information were collected such as, the books available in the NALSAR library, online sources and World Wide Web in general. The research is purely doctrinal in nature, as it is based on resources previously generated and hence has no new found facts or principal in it and no new conclusion have been drawn.

Dr. Y.P. Pant, Problems of development: Regional Economic Cooperation p.187, Oxford and IBH Pub. Company, New Delhi, 1974.

CHAPTER-2 SAARC SAARC was born on December 1985 with the objective of Peace, freedom, social justice and economic prosperity in South Asia by fostering mutual understanding, good neighbourly relations and meaningful cooperation amongst the countries of the region. SAARC is entering into its twenty first year after completing its two decades of existence. Over the years, it moved meticulously ahead by identifying some areas of cooperation for the social and economic advancement of the region; many of which are included in the Social Charter. The adoption of the Social Charter is a historic achievement since it has accorded highest priority to poverty alleviation in South Asian region. The implementation of it should be treated as the great step forward towards raising the standard of living of the peoples of the region.3 The SAARC Plan of Action adopted by the 12th SAARC Summit at Islamabad together with Social Charter is another great milestone to tackle and implement the multi-dimensional aspects of development to achieve Millennium Development Goals (MDGs). It intends to execute 12 measures of internal and 4 measures for external policies to bring about a balanced and sustainable development of the region. The third significant achievement of the Islamabad SAARC Summit in January 2004 has been the adoption of SAFTA after a long and extensive discussions and deliberations held at the level of experts committee. The proposed unfolding of a new trading zone which is now underway is a complex task. Thanks to the committee of experts whose untiring and painstaking task has given a definite and purposeful shape to it, although some hectic last minute touches are being worked out before the 13th Dhaka summit4. The ministerial meeting of the SAARC Commerce and Industry ministers meeting held in Islamabad in November 2004 echoed towards the process of smoothening the free trade regime in South Asia. It also had proposed to a setting up of a high level economic forum

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http://www.ifa.org.np/pdf/prc/mplohani.pdf http://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation

emphasizing the need to ease the possible hindrances that may crop up in the process of implementing the free trade zone within the specific dateline in south Asia. The ten member country ASEAN, committed to complete the task of free trade zone by 2010, signed an agreement with China last year which was targeted to creating worlds biggest free trade zone, the objective to reducing average customs duties amongst them to between zero and five percent. China pledged to provide some special leeways or some extended time period to the poorer ASEAN countries like Vietnam, Myanmar, Laos and Cambodia5. In South Asia, we have two sets of countries rich developing side by side poor, weaker and least developed countries. Real meaningful climate for free trade zone will be less likely if the basic interests and the need priorities of the landlocked and LDCs (Less Developed Countries) are not properly addressed enabling them to proceed ahead hand in hand with their better-off partners. Only then SAARC can move ahead to grapple for a planned process to achieve the ultimate goal of South Asian Economic Union (SAEU) for the happy and prosperous future of South Asia in line with the trends as exemplified by the European Union (EU) of western Europe6.

S R Myneni, POLITICAL SCIENCE, 2nd ed. 2006, p. 563. http://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation

CHAPTER-3 ON ENERGY DEVELOPMENT South Asian region is a land of potential power resources which, if properly harnessed, would change the economic landscape of the whole region. The richly endowed natural resources such as water potential of Nepal, Bhutan, India and Pakistan, the natural gas of Bangladesh and Pakistan, and the coal of India are in abundance for the generation of power (energy) which can be of tremendous benefits to the region. An Indian state-run energy company has made the countrys biggest gas discovery, an offshore bubble big enough to double the countrys gas production. The find made early on June, 2005 by the Gujarat State Petroleum Corporation (GSPC) was estimated at 20 trillion cubic feet and to be worth about 50 billion dollars. As it has been emphasized by experts from different quarters, it would catapult the life style of the local peoples if these resources are properly managed and mobilized in a planned manner under regional or sub-regional level cooperation. The need for greater economic cooperation in this sector is particularly so acute for which SAARC would be an ideal framework through which collective endeavour could be initiated in a timely fashioned manner7. Presently, per capita consumption of energy amongst the South Asian countries is very low (lower than even that of the sub-Saharan Africa) and the energy shortage has resulted in the low growth equilibrium in South Asia. Development on the use of water resources, gas, coal and forests for the power generation at the level of regional power grid in South Asia is worth emulating following the South East Asian experience in this field. As it envisages high cost factor, the SAARC countries water projects, under joint development, supplement and complement the energy strength of South Asian countries to each other8. Nepals water resources, originating from the highest Himalayan mountain ranges of the world, extending over 2400 kilometres long from East Nepal to its Western part, has the capacity of generating 83000 mega watts of hydro-power potentiality, out of which Nepal has currently utilized generation of power which is less than 2 percent of its total production
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capacity. The availability of abundant water resources and the favourable geo-political features provide ample opportunities for the development of hydro-power in the region, for which Nepal proves itself as one of the second richest water resource country in the world. Generation of hydro-electricity with its multi-purpose uses, together with the maintenance of Himalayan ecology in line with the prescribed international guidelines within a framework of wellthoughtout water development planning strategy should be adopted. A new regional grouping BIMST-EC geared towards regional economic cooperation formed on June 6, 1997 is on the offing which has identified six specific sectors for cooperation such as trade and investment, technology, transport and communications, tourism, fisheries and energy to accelerate the economic growth and social progress in the sub-region through joint endeavours in a spirit of partnership and equality for the sake of tangible benefits of the peoples in raising their standard of living through the best use of their available synergies. The recently held foreign secretary level meeting of BIMST-EC held in Dhaka has come up with the idea of laying a gas pipeline to Bhutan and Nepal from across Bangladesh to meet the gas requirements of these countries is a significant positive feature of regional cooperation9. There have been negotiations going on between India and Pakistan on the power trading and gas pipeline connection between India and Iran and similar arrangements between India and central Asian countries through the territory of Pakistan. Given the demand and supply situation of this commodity in the sub-continent, the trade in gas power would be mutually beneficial to all these related countries.10

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http://www.boloji.com/plainspeak/077.htm http://www.ifa.org.np/document/saarcpapers/bishwa.pdf

CHAPTER-4 ECONOMIC COOPERATION The terms economic cooperation and economic integration are often used synonymously. But these two concepts are different. Regional economic cooperation is an evolutionary process consisting of several stages. Economic integration represents the most advanced or ultimate stage of economic cooperation. Regional economic cooperation, implies collaboration among a group of nations comprising the region on economic matters such that each member nation derives greater benefits than what would be possible in the course of normal economic relationship without cooperation. In a broad sense, the scope of cooperation can cover a wide range of economic issues like trade, tariffs, technology, investment, joint ventures, and fiscal and monetary policies. As the South Asian economies got integrated into the world market, their export performance became highly dependent on global changes. Thus, the question is how would South Asia achieve stability and prosperity. Regional economic cooperation, therefore, is pivotal for enhancing economic growth and development of individual countries. Even from the historical perspective, it is through regional arrangements that the countries of Europe, as well as those of South East Asia, secured additional benefits and eliminated the negative fallout of globalisation11. Moreover, with speed breakers encountered by the WTOs efforts to promote global trade on an equitable basis, countries around the world are now giving more emphasis to regional trade blocs and bilateral trade arrangements. SAARC members have also taken note and seem sensitised. But, even after adopting a number of strategies to increase this momentum, it is unfortunate that the intra-regional trade of SAARC has remained below five percent of the total trade, which is small as compared to other regional trade agreements (RTAs). South Asia has great economic strength in terms of its market potential, rich natural resources and human capital. Considering the huge comparative advantage that these countries have in certain export sectors, the poorly managed huge reserves of gas. However, due to unfavourable political environment in the subcontinent, this cooperation has, so far, not materialised12. Recently, a large reserve of gas has been found in the Arakan province of
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http://www.southasianmedia.net/conference/Regional_Cooperation/regional.htm Palmer Perkins, INTERNATIONAL RELATIONS, 3rd ed. 2004, rep. 2004, p. 462-465.

Myanmar. To tap this to India, a pipeline has to pass through Bangladesh. None of this is possible without smooth trade in the South Asian region; economic cooperation is a must. Besides the energy sector, economic cooperation is also required in the tourism sector. Effective coordination of public and private efforts will achieve necessary synergy in the development of this sector. A common marketing strategy, funds and human resource development, through intra-regional investment in hotel and aviation sectors, are a few steps that can be taken in achieving the desired results13. Regional cooperation is needed in the case of primary product exports, which would result in greater value addition. A good example of such cooperation and joint venture was the jute industry, when Bangladesh produced jute and India had processing mills. At another level, India is a significant dialogue partner of the ASEAN-10. The prospects for a new two-way wave of investment cooperation between the SAARC and the ASEAN would certainly improve in the coming years, with the expansion of ASEAN-6 to ASEAN-9 by the inclusion of Lao PDR, Myanmar, Vietnam and Cambodia. India has historical relationship with countries in the Greater Mekong Sub-region. This, therefore, requires that SAARC countries achieve a faster rate of economic growth, with greater orientation towards external trade and foreign direct investment (FDI). Hence, the prerequisite for developing successful inter-regional economic linkages between the SAARC and other regions would be predicted on the success of regional economic cooperation within the SAARC itself. The South Asian region has witnessed wide-ranging regional economic integration efforts. SAARC, as an institutional framework, was formed with the signing of its Charter by the Heads of Governments/States at Dhaka, in December 1985. Complementing the regional, bilateral and unilateral initiatives in the South-Asian Region are two other important subregional initiatives, viz., Bangladesh-Bhutan-India-Nepal Quadrilateral Growth Initiative (BBIN) and Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Cooperation (BIMSTEC). While the former is being pursued under the SAARC framework, the latter is outside the SAARC process and it includes two countries of the ASEAN. The growing popularity of RTAs has ignited South Asian countries to create SAPTA, in 1993, as the first step towards higher levels of trade and economic cooperation in the region. SAPTA contains provisions which grants Special and Favourable or Preferential Treatment to the least developed countries (LDCs) in the SAARC region. Although the actual exchange of
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preferences has remained extremely limited, since 1993, three rounds of negotiations have helped reducing tariff barriers across the region. Economic cooperation and integration will be the key pillar-of the region's future development. The dramatic shift toward greater market-driven development strategies - particularly in India and China - has become a major driver for dynamic growth in Asia, and indeed globally. It is estimated that 40% of incremental annual world GDP now emanates from India and China alone. This growth has led to a rapid expansion in intraregional trade and cross-border investment, and created opportunities for greater cooperation in areas like easing restrictions on capital flows and developing regional bond markets14. Asia's governments have embraced economic cooperation through various informal dialogues and formal ministerial and summit processes. The RIS High-Level Conference on Asian Economic Integration here just three weeks ago attests to India's commitment to the process. The road may be long but the benefits of closer cooperation will be tremendous. Increased productivity and competitiveness, less poverty, fewer income gaps among countries, improved risk sharing and greater connectivity within the region and with the world are just a few of the benefits that South Asia can anticipate by promoting regional cooperation and integration15. And, as the EU experience shows, cooperative leadership is key to building a regional agenda in international forums. All this is indeed appealing to build a stronger South Asia.

CHAPTER-5 SAFTA
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SAPTA paved the way for the creation of SAFTA. The signing of SAFTA in 2004 has changed the environment in South Asia. Now, every nation, big or small, is planning to increase its trade with other nations in its own way. For example, Nepal is planning a direct bus service from Kathmandu to Dhaka. The development of this land route can increase trade between Nepal, Bhutan and Bangladesh, which is, again, not feasible in a hostile environment. It is expected that SAFTA would not only expand intraregional trade, by legalising the substantial unofficial trade in the region and thereby boost revenue collection in the subcontinent, but also generate substantial new trade. SAFTA would be a vehicle through which all participants can gain by exploring their competitive advantages. Integration of economies in South Asia would lead to the emergence of a big market for investors. Industries can be located anywhere in the region, according to suitability. Increased trading activity will have a cascading effect on other segments of the economy, viz., the hotel industry, the aviation sector16. Though SAFTA has managed to get all the South Asian nations on board, everybody is not equally optimistic. Relatively developed economies like India, Pakistan and Sri Lanka are upbeat and hope to reap the benefits of SAFTA. But some of the LDCs are sceptical and fear the risk of the erosion of revenue and collapse of their weak industrial base, due to decrease in tariff. Contrary to this generally held belief, it has been experienced that lowering of import tariffs among SAARC member nations is likely to benefit them, as has been the case of FTA between India and Sri Lanka and the open border policy pursued by India with Nepal. There is no reason why the same experience cannot be replicated with other smaller economies of the region. If these countries fail to co-operate once again, the cost to commerce, industry and consumers would be immense. SAFTA is an achievement, though the following shortcomings need to be rectified and should be taken into consideration during the process negotiations:

1. The SAFTA treaty must reduce the value-addition requirements under the rules of
origin (RoO). Considering the economic realities of the region, more flexible RoO is required, so that trade diversion is minimised.

2. It should include a section on trade in services that would be more helpful to LDCs, as
they have minimal comparative advantage in exports, as compared to India and Pakistan. Simultaneously, visa restrictions must be made as minimal as possible for free movement of people within the region.

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3. The treaty has hardly any provisions relating to antidumping, subsidies and
countervailing measures, technical barriers to trade, and sanitary and phytosanitary measures. These issues are pertinent when a region moves into a free trade arrangement. In order to understand the preconditions for free trade in South Asia, it is necessary to analyse the factors impeding intra-regional trade expansion. For this purpose, reference can be made to bilateral trade agreements (BTAs) between India and Bangladesh, India and Nepal, India and Pakistan, and India and Sri Lanka.17 Taking account of the India and Bangladesh relationship, both possess a natural advantage in trading because of geographical contiguity. However, facts and figures show that this natural advantage is not fully utilised by either. According to a World Bank report, unofficial trade between India and Bangladesh and the volume and direction of unrecorded cross-border trade mirrored the pattern of official trade. Hence, it is high time that the two countries first solve the illegal border trade problem. The India-Pakistan relationship is one of the most crucial issues for economic cooperation in South Asia. Fluctuations in two-way trade between India and Pakistan can be attributed mainly to trade policies adopted by them. At present, Pakistan allows only 596 items that can be exported to Pakistan. The official trade between India and Pakistan stood at barely US$262mn in 2002-03, whereas unofficial trade is estimated at not less than US$1.5-2bn. A number of Indian products exported to Pakistan have been subject to not only customs duties but also para-tariff measures that must be reduced to enhance trade in this region. Although both countries are carrying out reforms of their economic policies, it would serve very little purpose in boosting bilateral trade, as long as restrictive trade policies are pursued. Both India and Pakistan are members of the WTO. While India has accorded Most Favoured Nation (MFN) status to Pakistan, the latter has not reciprocated. This goes against the WTO norms [(Article I of the General Agreement on Tariffs and Trade (GATT) 1994]. Adhering to the principle of bilateralism, India has not brought this up for discussions at the WTO. Thus, the objective of SAFTA would fail, if these two relatively developed trading partners fail to increase their mutual trade. In the north, Nepals trade policy has been to diversify trade away from India. The share of India in Nepals imports as well as Indias share in Nepals exports has declined. In the
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http://www.fessrilanka.org/pdf/pub/Impendiments/i-1.pdf

midst of Nepals policy of trade deflection, Indias own supply constraints compelled it to apply quota restrictions on the export of certain materials. Sri Lanka has been having a persistent adverse balance of trade with India. Simultaneously, there has been a slow utilisation of the line of credit offered by India to Sri Lanka, due to various factors such as inadequacy of export incentives in India for exports under the line of credit. Special measures on both sides are required to facilitate fuller and faster utilisation of the lines of credit in future programmes of cooperation between India and Sri Lanka. As in the case of other neighbouring countries, the Indo-Sri Lankan trade through legal channels is also affected by a substantial volume of unauthorised trade. The total volume of unofficial trade between Sri Lanka and India is Rs 9121.2mn, in 2000-01. These facts prove that free trade between the two countries would benefit both the countries. Hence, all these problems need to be resolved for enhancing economic cooperation as a precondition. Peace is essential for national as well as regional prosperity18. Being the two big powers of South Asia, India and Pakistan need to provide leadership and become major stakeholders in South Asian economic cooperation. Otherwise, it will be difficult for SAFTA to realise its potential. Pakistan should take regional cooperation seriously and not mix it with bilateral disputes. India has to show greater accommodation for smaller countries. In ASEAN, for instance, President Suharto of Indonesia offered its huge market to many other countries, without insisting on reciprocal action by them. India too has to develop a similar vision to accommodate the needs of the smaller countries of the region for common economic upliftment19. In order to achieve a better economic relationship in the region, tariff barriers should be dismantled. Joint ventures (JVs) between these countries are required in the field of infrastructure, development, banking, etc. And, the rules, regulations and procedures that are relevant to bilateral JVs must be simplified and standardised. For this purpose, substantial fiscal and institutional measures must be adopted. Among the SAARC countries, India happens to dominate the economic scenario and Indias hegemony is a lurking fear in the minds of other SAARC members. Hence, they are generally hesitant to commit themselves to cooperation in hard-core economic areas. Experts suggest that India can assist most of the other SAARC members in their developmental efforts
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by virtue of its diversified industrial base and relatively skilled manpower. For example, Nepal and Bangladesh could benefit in textiles and plastic products, while Bangladesh and Pakistan could substantially improve iron and steel production with cooperation from India. Sri Lanka and India can co-operate in exporting tea to the rest of the world, through a properly evolved set of guidelines. But, it appears that attempts to use SAARC as a platform to launch joint industrial or manufacturing ventures threatens the smaller states. Governments apart, the civil society, the intelligentsia, the business community, the NGOs, etc., must all emphatically promote awareness about the need and the advantage of regional cooperation. There ought to be a much greater interaction between the civil society and the political class across different countries of South Asia. Regrettably, such interaction is minimal. It would contribute significantly towards a quicker settlement of differences and a greater South Asian solidarity, which is essential for the progress and prosperity of all our people.20

CHAPTER-6 TOWARDS INTEGRATION This is not to say that a comprehensive pan-Asian "vision" or grand plan as was done in Europe is needed, or even desirable. Rather, I believe we should rely on a pragmatic step-bystep, bottom-up process that builds trust among what are the most diverse countries anywhere
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http://sdpi.org/tkn/cuts/BP2-2005.pdf

in the world. I also believe that Asia's "multi-speed" and "multi-track" approach to cooperation, whereby a few countries start working together on selected common issues, is quite appropriate in this context. Countries and subregions within Asia are already at quite different stages of regional integration and economic development. Southeast Asia-via ASEAN-has been at it the longest, and has thus made the most progress. ASEAN+3 has enhanced the momentum. Together, the region's economic authorities continue to work on initiatives to deepen integration-not only in infrastructure development, trade, and investment, but they have also begun the process toward monetary and financial cooperation21. And within East Asia itself, the Greater Mekong Subregion focuses primarily on enhancing connectivity, improving competitiveness, and building a sense of community. As you know, the South Asian Association for Regional Cooperation, or SAARC, has focused mainly in agriculture, rural development, and health. More recently, SAARC is delving into broader integration issues such as cross-border infrastructure and services, free trade agreements, financial and monetary cooperation, and regional public goods. The Central Asia Regional Cooperation Program, or CAREC, organized in 1997, promotes shared infrastructure projects and is working on improving the region's policy environment in priority areasincluding transport, energy, trade policy, and trade facilitation22. In all of these efforts, what is important is to build the concept of "ownership" and regional identity across borders. This will be just as true as regionalism expands among subregions as common denominators break through decades, even centuries, of distrust. It is also important to ensure that the integration framework is responsive to business needs. After all, it is the private sector and business networking across the region that is driving government-led cooperation initiatives in infrastructure, trade, investment, finance, and regional public goods. So what are the main elements that make up a workable framework for broader Asian cooperation and regional economic integration over the medium term? Clearly, physical connectivity should form the bedrock of regional cooperation initiatives in our region. The trends to date are encouraging. Intra-Asian internet connectivity, for example, is growing at twice the pace of the trans-Pacific internet. This offers enormous potential for the region to become more integrated through e-commerce - and creates a natural
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http://findarticles.com/p/articles/mi_m0JIW/is_3_58/ai_n15674369 I William Zartman and Guy Olivier Faure, ESCALATION AND NEGOTIATION IN INTERNATIONAL CONFLICTS, 1st ed. 2005, p. 213-215.

opportunity for India in the service sector. Similarly, intra-regional passenger traffic across Asia has almost doubled to 1 trillion passenger-kilometers a year over the last 20 years. The Asia Highway project has been revived, and the trans-Asian Railway has some new momentum. In East Asia, the number of air routes has doubled during that period as well. On trade, a framework to unify free trade agreements could help link together fragmented markets for goods, services, and capital. It would be natural to look at ASEAN as a regional hub for an eventual ASEAN+3-wide FTA, or even an ASEAN+6 (or East Asian) FTA. Intraregional trade now accounts for close to 60% of total trade in East Asia. With China and India's continued economic expansion, this is likely to increase further, as production centers throughout the region seek raw materials and intermediate goods from more accessible markets within the region itself. Turning specifically to South Asia, significant reforms have been made in trade, investment, industrial, and fiscal policies, along with financial liberalization. In recent years, the growth rates of South Asian economies have improved, poverty ratios have declined, and trade flows as a proportion of GDP have increased. Today, in terms of its trade flows, South Asia is much more open than at any time in the past. However, much remains to be done.23 The East Asian experience can offer some important lessons for South Asian regional cooperation. One such lesson is to give primacy to economic issues and not allow political differences to stand in the way. Within ASEAN and ASEAN+3, for example, there have been periods of significant political differences between Malaysia and Singapore, Thailand and Myanmar, China and Japan-to name a few. However, these have not been allowed by the political leadership to stall the process of economic cooperation. It does appear that South Asia is moving in this direction as well. I am reminded of Prime Minister Manmohan Singh's statement at the Federation of Indian Chambers of Commerce and Industry-just prior to last January's East Asia Summit-when he said - quote: "I dream of a day, while retaining our respective national identities, one can have breakfast in Amritsar, lunch in Lahore, and dinner in Kabul. That is how my forefathers lived. That is how I want our grandchildren to live." Wise words indeed. Given the significant benefits that will accrue to the people of South Asia, it is my sincere hope that the region's leaders will put their political differences aside and push forward the regional economic cooperation agenda. South Asia is a latecomer to the concept of regional cooperation, and the inwardlooking mind-sets of earlier years are still visible in some of its approaches to regionalism. It
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http://stinet.dtic.mil/oai/oai?verb=getRecord&metadataPrefix=html&identifier=AD0848055

would be a positive move, for example, if the large negative lists, limited number of products for tariff concessions, restrictive rules of origin, exclusion of services, exclusion of issues such as para-tariffs and non-tariff barriers in the South Asia Free Trade Agreement (SAFTA) could change in favour of greater openness. It is important to examine the depth and coverage of existing FTAs in South Asia, and their implications for private sector interests. Economic integration begins as a natural process of business expansion. The private sector has played a major role in the globalization process through the integration of production networks across countries. This, in turn, has provided considerable impetus to regional economic integration24. As the atmosphere of mutual confidence and trust is built, the region may then be ready for financial and monetary cooperation involving regional institutions. It may consider establishing a subregional liquidity arrangement to guard against any future liquidity crisis, with India and its expanding foreign exchange reserves taking the lead. In this regard, a formal finance ministers' process, similar to ASEAN+3 Financial Ministers Process, might be established. This could then become a starting point for interaction between South Asia and East Asia that could eventually end up moving toward an Asian Economic Community. I admit this is a long-term view. Looking ahead, there is indeed a strong opportunity for South Asian countries to benefit from intensifying regional ties. As a regional policy dialogue becomes stronger and barriers are gradually eliminated, or at least substantially reduced, economic integration will intensify in the next decade or two. This is partly due to the very low level of integration it starts from. For instance, intraregional trade in South Asia accounts for only 5.5% of total trade, as opposed to East Asia's almost 60%. As the region continues to build its economic infrastructure and new cross-border projects are implemented, these will not only intensify trade in goods and services, but also facilitate the movement of people. Easing existing cross-border impediments to trade and labour movements, will likely be the strongest economic driver over the coming decade. But the key to any experiment in cooperation and economic integration is political will.25

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CHAPTER-7 PROSPECTS OF PEACE IN SOUTH ASIA Approach to relations with Pakistan appears to have undergone a shift towards greater realism. If the outcome of the meeting of their Foreign Ministers at the recent SAARC conference is a reliable indicator, the emphasis now is on taking small steps. This is a welcome development because what we need is a policy which focusses on a slow but steady improvement in relations, and which recognises that Pakistan's insecurity about India is real but that it is unlikely to be removed by unilateral Indian concessions and gestures. It is more

important to recognise the real sources of Pakistan's insecurity so that we do not inadvertently add to these and we also understand our limitations in reducing it26. The failure to understand the real sources of Pakistan's insecurity is a leading cause for the inflated expectations and the consequent cynicism. The tendency is to identify the salient dispute of the day as the root cause of the problem. The current favourite is the Kashmir dispute. Despite Islamabad's claims to the contrary, Kashmir is not the root cause of the IndiaPakistan problem. Indeed, between the 1965 war and the outbreak of the Kashmir insurgency in the late 1980s, Kashmir was just another item in the laundry list of Pakistani complaints. Its centrality in bilateral relations in the 1990s was the result of Pakistan's diplomatic exploitation of the insurgency problem, not the result of any intrinsic merit in or importance of the dispute itself. Other disputes have at other times been as important as Kashmir is today. If Kashmir is identified as a threat because of its potential for escalation today, that potential was present in equal measure, for example, in the arms race in the subcontinent in the 1980s, an issue that is now all but forgotten.27 Pakistan's insecurity lies in the natural imbalance of power in South Asia. India is several times the size of Pakistan and in material terms, vastly better endowed. Pakistan's unremitting concern over the last half-a-century has been to correct this gross imbalance and its India policy has reflected this concern. It has tried to offset the imbalance through military alliances and disproportionately large defence budgets. But burdened as it is by fickle allies and a weak economy, such efforts have bred more frustration than promoting security. The IndiaPakistan conflict is the consequence of Islamabad's frantic quest for a balance with India, not the consequence of India's actions. This imbalance of power is also the source of the peculiar and often-expressed hope of the Pakistani elite that the apparent contradictions of a large, multi-ethnic society would eventually rend India apart. They have frequently pointed to similarities between India and the erstwhile Soviet Union, and drawn the apparently satisfying but mistaken conclusion that India's fate will be no different. India's disintegration has been perceived as being in Pakistan's interest because it would remove the primary cause of insecurity, a large and powerful neighbour. Pakistan has not been averse to helping in the process either where opportunities are available - supporting a plethora of anti-Indian insurgent groups, from the Nagas and Mizos in the 1960s to Kashmiri terrorists in the 1990s. But these efforts have borne little fruit.

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J N Dixit, INDIAS FOREIGN POLICY 1947-2003, 1st ed. 1998, rep 2003, p. 103- 107. http://findarticles.com/p/articles/mi_m0JIW/is_3_58/ai_n15674369

Concern over the imbalance of power can be seen in other Pakistani foreign policy choices also. In 1953, though the relationship was going through an unusually warm spell and despite the promise of real movement in resolving the Kashmir issue, Pakistan signed a defence agreement with the United States. An alliance with the U.S. rather than a solution to the Kashmir dispute seemed shortsighted, but it was only a reflection of the real source of Pakistani insecurity. The resolution of the Kashmir dispute might have been important, but it was secondary to Pakistan's concern at the imbalance of power, which it hoped to reduce with the alliance. Even a favourable resolution of the Kashmir dispute promised Pakistan no relief from the imbalance.28 Indian concessions at the Tashkent and Shimla peace talks failed for the same reason. India yielded hard-won and strategically important territory at Tashkent and returned over 91,000 Prisoners of War at Shimla, but it was frustrated by the consistent Pakistani failure to live up to the ``spirit'' of these treaties. Pakistan might have appreciated the concessions, but the treaties failed to resolve its basic problem of balancing Indian power. Indeed, the Shimla agreement, with its emphasis on solving disputes bilaterally, might have actually increased Pakistan's insecurity, for faithfulness to the accord would have forced it to abandon its reliance on external powers to balance India. However inconstant its allies were, Pakistan's relative weakness meant that it had little choice but to depend on them29. Pakistan's insecurity is difficult to remove because it has little to do with specific Indian actions or behaviour. It is not India's aggressiveness that lies at the root of Pakistan's fear, it is India's size and power. Concessions on specific issues and promises and acts of neighbourliness might be appreciated, but they will do little to remove insecurity. There are, of course, other good reasons to do so; nevertheless, India already follows the non-reciprocity principle in South Asia - it grants concessions to smaller neighbours without expecting them to grant the same privileges to India. This acknowledges the imbalance in South Asia and India's capacity to bear a disproportionate burden of the transaction costs of cooperation. As Pakistan's insecurity is tied to the imbalance rather than to specific disputes, even their resolution is unlikely to decrease its insecurity. Kashmir might be important, but more so, it is possible to argue, was the dispute over the sharing of the Indus waters, whose successful resolution led to no great change in Pakistan's sense of insecurity. Of course, there are other benefits, especially humanitarian, from resolving specific disputes but trying to

28
29

http://stinet.dtic.mil/oai/oai?verb=getRecord&metadataPrefix=html&identifier=AD0848055 Supra n.26, p. 356-362.

settle these disputes to achieve a reduction of Pakistan's insecurity is the surest way to further disappointment in India-Pakistan relations30. Nuclearisation of the subcontinent can partly help to compensate for the conventional military imbalance that so worries Pakistan. But there is little indication that the Pakistan Government and its military have thought through the implications of nuclear weapons for military strategy. Islamabad's nuclear strategy, as stated so far, is little different from its conventional strategy which emphasises the offensive, including pre-emptive attack. The full benefits of the nuclearisation of the subcontinent will be realised only when Pakistan's leaders recognise the defensive potential of nuclear arms. What all this suggests is that there are no quick solutions to the India-Pakistan conflict. Gestures such as the Prime Minister, Mr. A.B. Vajpayee's bus trip to Lahore are important because over time they can alleviate Pakistan's sense of insecurity. Indeed, there were more concrete benefits also such as the agreement on working towards additional ConfidenceBuilding Measures in both the nuclear and conventional areas, easing of visa restrictions and exchange of civilian prisoners. More important, it demonstrated that India and Pakistan could work together responsibly to deal with their common problems. But the bus trip was also accompanied by inflated expectations of a breakthrough'' in bilateral relations. Such inflated expectations keep India-Pakistan relations tied to a vicious cycle. The expectations, when unfulfilled, lead to mutual recrimination and another bad patch before the cycle begins again with another grand gesture and even grander expectations. There can be little hope of any real improvement in the relations as long as we remain tied to this vicious cycle.31 CONCLUSION Given the low level of mutual trust, spillover effects of the ethnic and religious conflicts, and the magnitude of bilateral disputes in South Asia, it is unrealistic to believe that any substantial growth of regional cooperation is possible without easing political tensions. To the extent that political tensions remain unresolved, SAARC is likely to experience only a "stop-and-go" pattern of growth in which limited pragmatic cooperation on specific technoeconomic issues is possible over a period of time. In the post-1990 period, there appears to be some realization among the South Asian leaders that the future of SAARC, like any other regional grouping, lies in concentrating on economic cooperation in specific areas. The
30

Brig G B Reddy, NATION IN CRISIS, 1st ed. 2001, p. 324-329. http://groups.google.co.in/group/soc.culture.pakistan/browse_thread/thread/8130a937fd1b163b/1be2ea538528 d43f%231be2ea538528d43f
31

SAARC leaders' renewed emphasis on increasing intraregional trade at three consecutive SAARC summit meetings (Colombo, 1991; Dhaka, 1993; and New Delhi, 1995), the ratification of SAPTA, and the discussion to create SAFTA in future are evidence of their growing willingness to enhance regional economic cooperation in South Asia. But how soon and to what extent they are going to achieve success remains unclear. Any realistic assessment of the prospects for the growth of economic cooperation and interdependence in South Asia must have to address several of the following issues. The first issue pertains to the role of the state in promoting regional cooperation in South Asia. Given limited political contacts and mutual security concerns arising out of a typical security complex in South Asia, a state-directed approach to economic cooperation is better suited to this region. Given the limited development of transnational market forces in South Asia, any prospect of the growth of regional economic cooperation driven exclusively by the market forces appears bleak. Besides, if regional economic cooperation is left to market forces alone, it would take decades. Therefore, conscious efforts at the political level and demonstration of political will by the South Asian leaders are absolutely necessary for the growth of regional economic cooperation in South Asia. The second issue concerns the development of a pragmatic economic interdependence in South Asia. Three points merit attention here. (1) Given the extensive heterogeneity in levels of economic development of South Asian countries how can they proceed to achieve economic interdependence? Clearly, the approach should be gradual and based on the economic capability of each state. In this context, the recent approach of operationalizing SAPTA appears promising. India, being the largest economy in the region, has agreed to offer tariff reduction on the import of 106 items from the South Asian region. Pakistan has offered tariff reduction on 35 items, Sri Lanka on 31 items, the Maldives 17, Nepal 14, Bangladesh 12, and Bhutan 7. (2) Regional cooperation should not replace, but only complement the existing bilateral trade and economic transactions between the South Asian countries. (3) The growing interest in operationalizing SAPTA as a prelude to the creation of a South Asian Free Trade Area (SAFTA) should not obscure the importance of the extra-regional and global economic cooperation that most of the South Asian countries are currently engaged in. For instance, it would be detrimental to the economic interest of India, Pakistan, and Sri Lanka if they do not seek access to the markets in Central Asia, Southeast Asia, the Gulf region, and the OECD countries. The key to the development of a pragmatic strategy to increase economic interdependence among the South Asian countries is to promote intraregional trade by lowering tariffs without delinking from extraregional and global economic relations.

Third, setting grandiose goals for intraregional trade is likely to be counterproductive. Instead, over the next ten to fifteen years, SAARC countries should pursue modest trade objectives and seek joint development projects of modest scale. In this context, the SAARC countries should negotiate with the United Nations Development Program (UNDP) and Asian Development Bank (ADB) for the development of joint projects. Fourth, conservation of the natural resource base should constitute an integral part of any economic development strategy. For decades, the South Asian countries have suffered from the degradation of the natural resource base and environmental pollution because of their overuse and often misuse of the natural resources. Efficient use of the natural resource base and environmental conservation should be given utmost priority by the South Asian countries to meet their growing needs of energy and to alleviate the health risks to their population. Finally, it is necessary to establish a South Asian Development Fund (SDF) in order to provide financial support to regional projects. The fund should not replicate the role of existing multilateral institutions such as the ADB and the World Bank in South Asia. Besides undertaking large regional infrastructure and environmental programs, which the purely project-oriented development banks cannot undertake, the SDF can focus on povertyalleviation programs, provide lending to a comprehensive human resources development program, finance joint ventures, support intraregional and extraregional trade by arranging finance for export credit and commodity stabilization, and support the existing regional institutions. Resources for the SDF can come from contributions of SAARC countries as well as from external sources.32 BIBLIOGRAPHY
Books

Brig G B Reddy, NATION IN CRISIS, 1st ed. 2001, Mehra Offset, Delhi. I William Zartman and Guy Olivier Faure, ESCALATION AND NEGOTIATION IN INTERNATIONAL CONFLICTS, 1st ed. 2005, Cambridge University Press, Cambridge. J N Dixit, INDIAS FOREIGN POLICY 1947-2003, 1st ed. 1998, rep 2003, Thomson Press (India) Ltd. Palmer Perkins, INTERNATIONAL RELATIONS, 3rd ed. 2004, rep. 2004, A.I.T.B.S Publishers and Distributors, Delhi. S R Myneni, POLITICAL SCIENCE, 2nd ed. 2006, Allahabad Law Agency, Faridabad.
Articles Dr. Y.P. Pant, Problems of development: Regional Economic Cooperation, Oxford and IBH Pub. Company, New Delhi.
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http://www.mtholyoke.edu/acad/intrel/dash.htm

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http://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation http://findarticles.com/p/articles/mi_m0JIW/is_3_58/ai_n15674369 http://groups.google.co.in/group/soc.culture.pakistan/browse_thread/thread/8130a937fd 1b163b/1be2ea538528d43f%231be2ea538528d43f http://sdpi.org/tkn/cuts/BP2-2005.pdf http://stinet.dtic.mil/oai/oai? verb=getRecord&metadataPrefix=html&identifier=AD0848055hhttp://web.worldbank. org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/0,,contentMDK:2154214 8~pagePK:146736~piPK:146830~theSitePK:223547,00.html

http://www.adb.org/Documents/Speeches/2007/ms2007088.asp http://www.boloji.com/plainspeak/077.htm http://www.ifa.org.np/document/saarcpapers/bishwa.pdf http://www.ifa.org.np/pdf/prc/mplohani.pdf http://www.fessrilanka.org/pdf/pub/Impendiments/i-1.pdf http://www.mtholyoke.edu/acad/intrel/dash.htm http://www.southasianmedia.net/conference/Regional_Cooperation/regional.htm