Remarks by H.E. Dr Sheel Kant Sharma

Remarks by H.E. Dr Sheel Kant Sharma

Rt. Hon. Prime Minister of Nepal
H.E. Madhav Kumar Nepal,
Executive Director of SACEPS, Prof Khatri,
Hon. Deputy Minister of Finance of Sri Lanka,
Prof Gowher Rizvi,
Eminent Former Foreign Minister, Foreign Secretaries and Secretary General of SAARC,
Ladies and Gentlemen,

  1. I would like to thank SAWTEE and SACEPS for arranging this very significant event which, in the spirit of the changing times, is called Third regional cooperation and the problems therein. I would like to end by spelling out some areas where speedy action may help.
  2. South Asian regionalism had a slow start with setting up of SAARC in 1980s with a clear acknowledgement of interdependence in its Charter. It registered modest gains in the first few years. Subsequently, regional cooperation had to negotiate the road-blocks arising out of terrorism and its impact on bilateral relations. Economic liberalization and deregulation in the 1990s should have created a conducive atmosphere as action in the economic field moved out of government control – however, the policy frame needed inevitable official committees which took a long haul. Globalization and its benefits to South Asian economies in terms of trade, investment and remittances flow made India, Sri Lanka, Bangladesh and Pakistan register impressive growth indices in most of the last decade. The reason and purpose of South Asian regionalism got a fuller boost in the wake of this latest round of globalization around the turn of century. Studies on regional cooperation brought out political benefits for all, particularly to smaller countries, of better trade and economic cooperation. SAFTA emerged out of this in 2004. SAFTA’s entry into force was quick with ratifications coming forth from all countries, including India and Pakistan.
  3. The ensuing decade will be critical for South Asian regionalism. Not only in SAFTA but in other areas too, there is a fair amount on SAARC’s plate to chew on and energize regional cooperation – but progress at times is held hostage to issues in national infrastructure, governance and bureaucratic inertia. This also hampers exploiting the windows of opportunity offered by bilateral détente and relaxation of political situation. There is a clear need to understand the enormous value of the SAARC paradigm of independence, engagement and pursuit of mutual benefits instead of zero-sum policies. South Asia’s 1.5 billion population offers a formidable demographic challenge, but an opportunity too, if, and only if, SAARC and associated processes are viewed in enlightened self interest by Governments, civil societies and media. Costs of underestimating or neglecting SAARC or undermining regional cooperation are mounting by the year. The larger economies in the region have influential voices espousing rapid growth, despite the negative factors that imperil regional peace.
  4. In the past 25 years the paradigm of regional cooperation has been clearly accepted and even promoted through 16 summits, numerous Ministerial meetings and a whole range of cumulative activities sponsored by dedicated civil society organizations in diverse fields.
  5. Recent SAARC Summits however have increasingly focused on implementation and delivery. Implementation demands time-bound results and adequate empowerment of regional institutions – which is an investment of both faith and wisdom. We need to address ourselves as to how the institutional framework can be strengthened to meet the imperative of delivery? How to develop due ownership of empowered SAARC institutions including SAARC Secretariat, among its Member States in South Asia?

    6. Regional Institutions in South Asia

  6. South Asia requires institutions that would foster cooperation as institutions in other regions have done, institutions which are backed by also stronger ownership and commitment by Governments and broad-based stakeholders in all the countries. So far, regionalism has had to avoid foundering on the rocks of non-delivery and non-implementation.
  7. In other successful regions, wherewithal of regional cooperation also had ownership and support at the political level with active regular commitments of Governments. In South Asia, the active support of Governments has been mostly expected in a playing by the ear mode as a by-product of gradual evolution and is contingent on success shown by SAARC. SAARC as an institution was also seen somewhat through sufferance at various stages of its evolution in the past twenty-five years. Avoidance of political and divisive issues have been basic to SAARC’s viability, because disputes and deep-rooted political problems could wreck South Asian regionalism even before it commence. As a result, SAARC’s focus has been mostly on cooperation in the socio-economic fields and in tackling the common problems afflicting all South Asian societies, i.e., problems of poverty alleviation, trade and economic development employment generation, education, public health, empowerment and protection of women and children and energy. While on surface these areas might have the ‘who-will-object’ motherhood veneer, they have deep and extensive dependence on instruments of governance, i.e. line Ministries in Member States. So, SAARC institutions have to cope with challenges in governance impacting on implementation of SAARC programmes. Strengthening and empowering of SAARC and South Asian regional institutions is intimately connected with performance of line Ministries in the areas concerned.
  8. South Asia’s population and size make for a vast market in the world. The economies of the region vary considerably in their size and complexity and offer much greater room to coalesce than is normally realized.

    9. Current status of regional cooperation in different areas:

  9. In the past three years the areas that got focused attention and showed more promise were:
    • SAARC Development Fund
    • Trade Economy and Finance
    • Transport and Intra-Regional Connectivity
    • Environment, Forestry and prevention  of natural disasters
    • Agriculture and Rural Development
    • Energy
  10. In the age of liberalization and deregulation, trade promotion remains one fertile field for growth of regionalism. Optimism about SAFTA rests on stakeholders in the broader public domain outside Governments. Engagement of policy institutions has been ongoing towards norms-setting and legal frameworks in order to facilitate broader private sector stakes in regional trade. The entire gamut of trade relations in South Asia comprises not only policies about tariff and non-tariff barriers, customs harmonization, and harmonization of standards, but also physical transit and transport infrastructure, border controls, banking and investment. Success in trade, transit and transport and investment would have their impact all along the value chain. Therefore, trade, transport and related investment remain key to SAARC’s success. SAFTA has allowed us to take, if we like, regional view of trade linkages rather than only a national perspective. Initial figures of intra-SAARC trade under SAFTA have been encouraging. By end of 2009 total trade under SAFTA certificates of origin was about US$687 million, which is rather modest but significant for the initial years.
  11. Within the SAARC process, our effort has been two fold. One, rectify the technical flaws of SAFTA to smoothen its implementation. And, secondly to establish as early as possible a region wide trade facilitation regime that allows faster and more cost effective flow of goods, services and capital throughout the region. Let me just mention a couple of them.
    • Reducing the large size of Sensitive Lists under SAFTA: We have urged the SAFTA Committee of Experts that they should focus in taking out those products out of the Sensitive lists that have high regional tradability. The idea is to bring a larger percentage of goods under regional preferential trading regime.
    • A framework agreement on trade in services was concluded at the 16th SAARC Summit. Trade in services can spur additional lateral and vertical trade linkages and help open up new vistas.
    • Lack of physical and soft connectivity: Infrastructure constraints like power shortages, underdeveloped road and rail transport constraints; port congestion, etc. seriously hinder full realization of regional trade potential. Reduction in transport and infrastructure related costs have the same effect as tariff liberalization in providing stimulus to trade. For everyone percent reduction in cost, trade stimulus is about five percent. The good point is that this benefit is passed along the entire supply chain be they shippers, truckers, traders or end users.
    • Another illustration of deficiencies in soft connectivity is that only seven percent of international calls in South Asia are in the region whereas in East Asia the figure is 71 percent.
    • Need to strengthen trade related infrastructure in respective countries by national action to build infrastructure. Unless we are fully connected among ourselves in the true sense of the world, and better connected with the outside world, our collective efforts to knit together the region would only produce sub-optimal gains.
  12. One key feature of our recent focus with cuts to the root of regional cooperation is project-based cooperation through the modality of SAARC Development Fund, a US$300 million funding mechanism. This has been one of the main and visible achievements of SAARC in recent years. Development and implementation of greater number of projects that touch the lives of peoples of the region is now a key regional priority in SAARC.
  13. The goals of poverty alleviation, food security, employment generation etc. are also connected to progress in regional trade and investment. This explains that emphasis in the SAARC Development Fund on economy, infrastructure and social development as areas for project-based cooperation which would contribute to these goals.
  14. Another crucial aspect of our economic endeavors is work towards establishing short and long term food security for the region. To this end we have operationalized the SAARC Food Bank. Attempts are on to create a seed bank and a purse project to enhance agricultural productivity. There are five ambitious projects on the anvil where the Asian Development Bank (ADB) is involved and where benefits are likely to accrue to the grassroots people.
  15. Climate change issue is fast evolving globally. South Asian States forged a common stand in a statement given at the last CoP Meeting in Cancun. There is greater emphasis on adaptation and technology transfer in South Asian approach than the issue of mitigation.
  16. One area which in my view is critical to the success of regional economic cooperation and integration is the development of culture of cooperative thinking. Strengthened economic cooperation and integration in South Asia is a win-win situation. Both the wins are of SAARC Member States. In this context, the initiative to establish a South Asian University which has commenced its first session last month will go a long way in bringing together the academia and younger generations of South Asia.
  17. South Asia is poised at a critical juncture in its history. It is true that we face huge developmental challenges. But it is also a fact that we are one of the fastest growing regions capable of substantial economic achievements. Internationally too, climate is conducive to regionalism in South Asia.
  18. Good analysis and information in public domain about the benefits of regional cooperation is lacking in South Asia. Pride and prejudice have produced negative perceptions and misapprehensions about the consequences of increased cooperation.
  19. Regional cooperation has also suffered as being secondary to bilateral agenda, the latter being inevitably politically driven. Bilateral political approaches have done little to remove suspicions and misapprehensions about regional cooperation. The two success stories of regionalism, namely, European and ASEAN show that bilateral political constraints, historical disputes, need not hinder development of cooperation. Economic strengths of individual members of ASEAN have also varied considerably, but that has not prevented the 600 million population of ASEAN to have a combined GDP of 3 trillion dollars and intra-ASEAN trade taking a large share of the GDP.

    20. Looking at the future

  20. I would like to end with enumeration a few pertinent points:

    21. Benefits of market integration:

    • Small land-locked countries like Afghanistan and Nepal benefit most from improved access to the markets of others, from openness to overcome the handicap of size;
    • Geographical situation also provides benefits for sub-regions within a country from market integration;
    • Inherent advantages of other sub-regions can be tapped through specializing of diverse task which would produce vertical integration (even in specific areas such as textiles, there could be compatibilities too, not only competition);

    Pre- Conditions of markets integration:

    • Rapid growth may not take place in all regions and some may develop faster than others;
    • Lack of infrastructure would delay the evening out of the gains;
    • Given the stark poverty of several sub-regions in South Asia, a threshold level of development of capacities and capabilities is necessary;
    • The watchword if harmonious interaction, or coherence in improved trade, better physical and soft connectivity and convergence to institutions that would fast pace growth and bring benefits to sub-regions which are lagging behind;
    • Three priority areas for regional cooperation in infrastructure consist of internet and telecoms, energy and transport;
    • It is estimated that to sustain a growth rate target of 8 percent, the South Asian region would need investment in infrastructure up to 7.6 per cent of GDP.
    • A regional network can improve education, innovation, and health benefiting from better flow of ideas, technology, investments, goods and services. This could also help addressing regional problems such as flood control, disaster management, climate change and infectious diseases;
    • Regional vulnerabilities to climate change and disaster need to be looked at from the stand point of present-day technology and present-day dangers; Coping with these vulnerabilities requires trans-national coherence and synergy. National level actions by themselves may not prove sustainable in the long run without proper cooperation and coordination among regional countries. For instance, cross-border cooperation on water among India, Bangladesh and Nepal and the watershed management and storage on the tributaries of the Ganga in Nepal could, inter alia, provide flood mitigation to India and Bangladesh. Similarly, management of water in North East India could provide hydropower and flood benefits to India and Bangladesh.
  21. Success of institutional arrangements will rest on identification and pursuit of the core projects which could yield tangible results and these projects can be easily identified in the area of trade facilitation, removal of barriers, improvement of regional transport, removal of transit restrictions, opening up of port facilities and promotion of trade in energy in a comprehensive way comprising regional grids for electricity, hydro-power and gas pipelines. Cross-broader transactions must be depoliticized and pursued purely on economic terms. Wherever in SAARC these pursuits have gone into operation, such as India and Sri Lanka, between India and Nepal, India and Bhutan, private sectors have flocked to build up much greater promise of success. South Asian regionalism is in need of tangible success stories of a magnitude which is proportionate to its larger population.

Thank you.