Most observers do not have many expectations from the South Asian Association for Regional Cooperation (Saarc), and, indeed, the progress that the region has seen in bilateral or sub-regional cooperation over the last decade has not involved the association. But times are unprecedented, thanks to Covid-19.
Like last year, Nepal, the current chair of Saarc, plans to host a meeting (virtual) of the Saarc council of ministers during the 75th Session of the UN General Assembly in the third week of September. Is there anything that these ministers can meaningfully do through Saarc to help reduce economic hardship and, through some quick wins, create hope for greater stability in the region?
Despite its limitations, Saarc – if used effectively by Nepal and the council of ministers – may be able to add some value in the current turmoil, and, in the process, enhance its credibility and effectiveness.
Perhaps Saarc’s most-important role right now would be to provide a platform for dialogue. South Asia is fraught with a trust deficit that runs across many bilateral relationships. Even convening can be treated with suspicion. When India convened a meeting of South Asian trade officials in April, Pakistan did not participate. On the other hand, when SAARC was involved in the convening, as in the leaders’ dialogue (proposed by India) in March, all countries took part. They were possibly more at ease than if India had convened. Similarly, when Pakistan took the initiative and organised a Saarc-convened meeting of health ministers, all members participated. So, the first order of business is for member states to use Saarc to convene an inclusive dialogue, because the dialogue is the starting point for any collaboration.
The low share of intra-regional trade and investment in South Asia penalises its workers, consumers, and exporters. This piece suggests four specific areas where Nepal’s initiatives through Saarc can address the larger issues at stake. All four can be tabled and pursued simultaneously. And whether or not Saarc can nudge things along, the issues will remain, and failure to resolve them will reduce the economic opportunities for the people of South Asia.
Direct trade between India and Pakistan has slowed to a trickle since India imposed 200% duties on imports from Pakistan in February 2019 (after the Pulwama attack), and Pakistan banned trade with India in August 2019 (after the passage of the J&K Reorganisation Bill). This has exacted a severe toll on the thousands of families dependent on bilateral trade, as documented by Afaq Husain and Nikita Singla of BRIEF.
Through Saarc, if Nepal can bring all countries to the dialogue table to discuss trade, India and Pakistan might be willing to consider face-saving trade resumption on pre-2019 terms. Such face-saving could take the form of resuming trade subject to an annual certification by both sides to the effect that the other party has not taken actions prejudicial to its neighbour’s interest (the exact terminology and content can be decided between India and Pakistan).
This is reminiscent of the United States’ annual renewal of “Most Favoured Nation” status (same terms as any other trading partner) to China, throughout the 1980s and 1990s. The resumption of trade between South Asia’s two largest economies will not only help the traders, porters, truckers and other stakeholders on the border, it will also impart some much-needed motivation to the rest of South Asia, which often feels weighed down by the acrimony between India and Pakistan.
Afghanistan has long demanded that Pakistan allow it to import Indian goods via the Wagah-Attari border. Its trucks can currently transit across Pakistan and export to India via the Wagah border, as part of the Afghanistan Pakistan Transit Trade Agreement. But these trucks cannot bring back Indian imports and have to return empty to Afghanistan.
In the spirit of a Covid détente, could Pakistan be persuaded to allow these Afghan trucks to take back Indian goods? To address its domestic constituencies, Pakistan could insist that the import load be no more than the export load, at least to begin with and review the experience after a few months. Still, it will nonetheless earn enormous goodwill from India and, especially, Afghanistan. Nepal could offer to appoint a neutral mediator via Saarc to resolve contentious issues. As in the earlier case, a solution here would have positive ramifications for the countries involved and Saarc’s self-confidence, achievements that would go beyond the bilateral Afghanistan-Pakistan trade relationship.
E-commerce is a fruitful avenue to explore, given the Covid-19 induced increase in digitisation. A World Bank report (Unleashing E-Commerce for South Asian Integration) suggested ways of building on the informal intra-regional e-commerce that already exists. A practical and incremental approach is best suited to address the multiple hurdles. Issues include the lack of consumer access in some countries to foreign exchange for cross-border payments, and the absence of a predictable tariff regime for small value shipments, say up to a value of $100.
Nepal can suggest that Saarc be used as a forum for countries to thrash out the core issues between themselves; the World Bank report’s suggestions can be a starting point. The goal would be to kick-start an e-commerce counterpart to the South Asian Free Trade Area, with preferences to products with an explicit local value-added content. The onus on certifying value-added should be placed on the e-commerce platforms. Should such digitally-enabled trade take off, it could help micro and small enterprises, among others, to access cross-border markets and thus gain a vital additional source of demand.
To minimise Covid-19 induced disruption to trade, many countries have advanced on digitally-enabled trade simplification — a simple example is acceptance of electronic rules of origin certificates. Nepal can table some suggestions and perhaps help broker some agreed principles for trade clearances and simplification, many of which are already being implemented by individual countries like India, Sri Lanka, and Bangladesh. A recent paper by Prabir De for ESCAP has outlined some useful measures for digitising trade processes.
South Asia will always exist as a geographical entity. If it is collaborative, workers, consumers, and exporters in the region will benefit, irrespective of advances in other regional groupings. There is an existing institution – Saarc- that is mandated to facilitate regional cooperation. Making Saarc more effective will be a win for everyone, especially the people of South Asia. There are some significant trade issues that, if even partially addressed, can help Saarc become more credible and effective.
Is it wishful thinking? Perhaps. But times are not normal. That expands the boundary of the possible.
Sanjay Kathuria is senior visiting fellow, Centre for Policy Research, and former lead economist, World Bank
The views expressed are personal