Model Answer
0 min readIntroduction
The South Asian Association for Regional Cooperation (SAARC), established in 1985, aims to promote economic and social progress, cultural exchange, and cooperation among its eight member states: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Despite its noble objectives, intra-regional trade within SAARC remains remarkably low, constituting only around 5-6% of the total trade of member countries. This stands in stark contrast to other regional blocs like ASEAN (around 25%) and the European Union (over 60%). Several complex and interconnected factors contribute to this underperformance, ranging from high trade barriers to political distrust and infrastructural deficits.
Economic Barriers
Several economic factors impede trade within SAARC:
- High Trade Barriers: Non-Tariff Barriers (NTBs) such as cumbersome customs procedures, varying standards, and quarantine regulations significantly increase trade costs. The South Asian Free Trade Area (SAFTA), implemented in 2006, aimed to reduce tariffs, but its implementation has been slow and hampered by sensitive lists – products excluded from tariff liberalization.
- Lack of Diversification: SAARC economies largely rely on primary commodity exports and have limited diversification in their export baskets. This leads to overlapping exports and limited demand for intra-regional products.
- Currency Convertibility: Restrictions on currency convertibility and limited use of a common currency hinder trade transactions. The absence of a robust regional payment system adds to the complexity.
- Small Market Size: While collectively a large market, individual SAARC economies are relatively small, limiting economies of scale and attractiveness for large-scale investments.
Political and Geopolitical Challenges
Political factors play a significant role in hindering trade:
- Political Distrust: Historical and ongoing political tensions, particularly between India and Pakistan, create an environment of distrust and impede cooperation on trade-related issues.
- Sensitivity Lists: As mentioned earlier, extensive sensitive lists under SAFTA protect domestic industries but restrict the potential for trade liberalization. These lists are often driven by political considerations rather than economic rationale.
- Lack of Political Will: Insufficient political commitment to fully implement SAFTA and other regional initiatives hampers progress.
Infrastructural Deficits
Poor infrastructure poses a major obstacle to trade:
- Inadequate Connectivity: Limited cross-border road, rail, and air connectivity increases transportation costs and transit times. The lack of integrated transport networks hinders the movement of goods.
- Poor Logistics: Inefficient logistics, including warehousing, port facilities, and customs clearance processes, add to trade costs.
- Energy Deficiencies: Energy shortages and unreliable power supply disrupt production and transportation.
- Limited Border Infrastructure: Insufficient border crossing facilities and inadequate infrastructure at border posts cause delays and congestion.
Other Constraints
- Information Asymmetry: Lack of readily available information on market opportunities, trade regulations, and potential partners hinders trade.
- Weak Institutional Capacity: Limited capacity of institutions responsible for trade facilitation and regional cooperation.
| Factor | Impact on Trade | Example |
|---|---|---|
| High Tariffs & NTBs | Increases cost of goods, reduces competitiveness | Sensitive lists under SAFTA protecting domestic industries |
| Political Tensions | Hinders cooperation, disrupts trade routes | India-Pakistan trade relations |
| Poor Infrastructure | Increases transportation costs, delays delivery | Lack of adequate road connectivity between Nepal and Bangladesh |
Conclusion
The low volume of trade within SAARC is a result of a complex interplay of economic, political, and infrastructural challenges. Addressing these issues requires a concerted effort from all member states, including reducing trade barriers, fostering political trust, investing in infrastructure development, and promoting regional connectivity. Strengthening SAFTA, exploring options for a regional currency, and enhancing institutional capacity are crucial steps towards realizing the full potential of intra-regional trade and fostering economic prosperity in South Asia. A renewed focus on pragmatic cooperation, prioritizing economic benefits over political considerations, is essential for SAARC’s success.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.