Cooperation for economic integration of South Asia

Economic integration is unification of economic policies among different states through partial or full abolition of tariff and non-tariff restrictions.  The framework of the theory of economic integration was first laid out by Jacob Viner (1950). He introduced terms trade creation and trade diversion effects for a change in interregional flow of goods caused by changes in customs tariffs due to creation of an economic union. He considered trade flows between two countries prior to and after their unification and compared them with the rest of the world. His findings became and still are the foundation of the theory of economic integration.
The basics of the theory were summarised by a Hungarian economist Béla Balassa in the 1960s. As economic integration increases, barriers of trade among markets diminish. He believed that supranational common markets, with their free movement of economic factors across national borders, naturally generate demand for further integration, not only economically (via monetary unions) but also politically-and, thus, economic communities naturally evolve into political unions over time.
Why is economic integration important?  
1)    There are economic reasons:  
i.    For increase of trade between member- states.
ii.    For mass-scale production, higher productivity and economies of scale.
iii.    Ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another.
iv.    Technology transfer and replication of best practices.
2)    Political reason:
i.    United position on different international platforms.
ii.    Increase in exchange of culture, knowledge-sharing.
iii.    Reduction of armed conflicts.
STEPS TOWARDS REGIONAL ECONOMIC INTEGRATION: The degree of economic integration can be categorised into seven stages namely: Preferential trade agreement / area, free trade area, common market / customs union, complete economic integration, fiscal union, economic and monetary union, single market etc.  
South Asia covers 4,488,300 sq kms of the world's surface area with a population of 1.67 billion. Population dividend of the member- countries with 7.1 per cent economic growth over the past decade made its status unparalleled in the world.  At the same time, it is the most vulnerable region of the world due to political unrest, mistrust among nations, misguidance by political leaders, cross-border conflicts and security concerns. Therefore, it is one of the least economically integrated regions of the world.  As a result, intra-regional trade among the SAARC countries is less than 5.0 per cent while intra-regional trade among the Association of Southeast Asian Nations (ASEAN) countries is about 35 per cent and European Union (EC) countries is about 60 per cent.
Academics have predicted two opposite outcomes, both positive and negative. Negative effects include the possibility that infant industrial sector may not survive in an open market competition or too much competition may result in ruination of sick industries. On the other hand, positive effects in the short-run include inland 'trade-creation effects.' But that must outweigh trade diversion effects in order to achieve beneficial trade liberalisation. However, apart from short-run benefits, there are also the long-run benefits such as greater technical and managerial efficiency due to greater competition, larger markets, higher consumer surpluses and more foreign investments.
South Asian countries are involved with regional as well as bilateral initiatives for economic integration via tree trade agreements. A remarkable number of regional as well as bilateral trade agreements were signed by the South Asian countries. A few agreements are already in effect and the rest is on the negotiation table. Under such circumstances, political conflict between the countries, especially between India and Pakistan, made the flow inactive. But without a peaceful and cooperative South Asia, none of the countries could be a gainer even by signing thousands of bilateral free-trade / economic partnership agreements with hundreds of states.   
Regional initiatives for economic integration of South Asia and their current status are as following:
1.    South Asian Free Trade Area -- signed and in effect.
2.    Asia-Pacific Trade Agreement -- signed and in effect.  
3.    Preferential Tariff Arrangement Group of Eight Developing Countries -- signed and in effect.  
4.    Economic Cooperation Organization Trade Agreement -- signed and in effect.  
5.    Trade Preferential System of the Organisation of the Islamic Conference --signed but not yet in effect.
6.    Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area -- negotiations launched and  
7.    Regional Comprehensive Economic Partnership --negotiations launched.
    Bilateral economic integration initiatives of South Asia and their current status could be described as follows:  
1)     India-Afghanistan Preferential Trading Agreement --signed and in effect.  
2)     India-Bhutan Trade Agreement --signed and in effect.   
3)     ASEAN-India Comprehensive Economic Cooperation Agreement -- signed and in effect.  
4)     India-Afghanistan Preferential Trading Agreement --signed and in effect.  
5)     India-Chile Preferential Trading Agreement --signed and in effect.  
6)     India-MERCOSUR Preferential Trade Agreement --signed and in effect.  
7)     India-Singapore Comprehensive Economic Cooperation Agreement --signed and in effect.  
8)     India-Sri Lanka Free Trade Agreement -- signed and in effect.  
9)     India-(Republic of) Korea Comprehensive Economic Partnership Agreement --signed and in effect.  
(10)    Indo-Nepal Treaty of Trade --signed and in effect.  
(11)    Japan-India Comprehensive Economic Partnership Agreement --signed and in effect.  
(12)    Malaysia-India Comprehensive Economic Cooperation Agreement --signed and in effect.  
(13)    Malaysia-Pakistan Closer Economic Partnership Agreement -- signed and in effect.  
(14)    Pakistan-Indonesia Free Trade Agreement --signed and in effect.  
(15)     Pakistan-Iran Preferential Trade Agreement --signed and in effect.  
(16)    Pakistan-Mauritius Preferential Trade Agreement --signed and in effect.  
(17)    Pakistan-MERCOSUR Preferential Trade Agreement --signed and in effect.  
(18)    Pakistan-Sri Lanka Free Trade Agreement --signed and in effect.  
(19)    Pakistan-US Trade and Investment Framework Agreement --signed and in effect.
(20)    People's Republic of China-Pakistan Free Trade Agreement --signed and in effect.
(21)    Sri Lanka-Iran Preferential Trade Agreement --signed and in effect.
(22)    Pakistan-Bangladesh Free Trade Agreement --negotiations launched.
(23)    India-Gulf Cooperation Council Free Trade Area (FA) --signed.
(24)    India-Australia Free Trade Agreement --negotiations launched.
(25)    India-Canada Economic Partnership Agreement --negotiations launched.
(26)    India-Customs Union of Russia, Belarus, and Kazakhstan FTA --negotiations launched.
(27)    India-Egypt Preferential Trade Agreement --negotiations launched.
(28)    India-European Free Trade Agreement -- negotiations launched.
(29)    India-Indonesia Comprehensive Economic Cooperation Arrangement --negotiations launched.
(30)    India-Israel Preferential Trade Agreement --negotiations launched.
(31)    India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement --negotiations launched.
(32)    India-Southern African Customs Union Preferential Trade Agreement --negotiations launched.
(33)    India-Thailand Free Trade Area --negotiations launched.
(34)    New Zealand-India Free Trade Agreement --negotiations launched.
(35)    Pakistan-Gulf Cooperation Council Free Trade Agreement --negotiations launched.
(36)    Pakistan-Morocco Preferential Trade Agreement --negotiations launched.
(37)    Pakistan-Singapore Free Trade Agreement --negotiations launched.
(38)    Pakistan-Thailand Free Trade Agreement --negotiations launched.
(39)    Pakistan-Turkey Preferential Trade Agreement --negotiations launched.
(40)    Comprehensive Economic Partnership Agreement between Singapore and Sri Lanka --negotiations launched.
(41)    People's Republic of China-Sri Lanka Free Trade Agreement --negotiations launched.
From the above picture, it is evident that each of the South Asian countries recognised that coming days will be an era of free trade and economic partnership. As a result, every country is busy with negotiating respective free trade agreements at bilateral or regional level. The largest economy of the region i.e. India is involved with the largest number (28) of bilateral and regional free trade agreements / economic partnership followed by Pakistan 18, and Bangladesh 6. As the biggest player of the region, India has to take the lead role and responsibility to make the South Asian economic integration possible. India may have to do something extra in order to take Pakistan into confidence in this process. But this sacrifice could make it the regional leader in the long run.
Without peace in South Asia, the Indian dream of becoming an economic superpower will never materialise. In such a situation, the need for the region's leaders is to be proactive to make  regional cooperation further fruitful and progress into deeper integration under the umbrella of SAARC. The BIMSTEC, APTA or any other platform could help but none will be as win-win as the SAARC. Strategic geographic coverage is an essential part of regional cooperation.
The SAARC leaders should sit together in the greater interest of the mass people of this region. They have to overcome narrow political perspective to do something greater, effective, and fruitful for a long-term win for the sub-continent. They have to overcome existing challenges of tariff and non-tariff barriers, minimise the negative list, ease complexities related to the rules of origin and ensure free movement of people and goods by establishing transport facilities and withdrawing visa complexities for the SAARC citizens.  
Steps have to be taken to ensure easy transit facility, uniformity of documentation, quick and easy access to information, time-bound customs clearance and quick economic system of dispute settlement. Trade-related infrastructure has to be developed in border / port area with convenient transportation facilities. Private sector entrepreneurs (the real actors of international trade) have to be incorporated in negotiation to give the system teeth. Everything will not be responding if existing complex visa system is not withdrawn or eased. Only frequent interaction of citizens could make the system functional and worthwhile.   
The writer is Deputy Manager, SME Foundation
 [email protected]