SAARC by South Asian Media Net

Contributors to South Asian Studies, vol. XIII Ratnakar Adhikari is executive director of South Asia Watch on Trade, Economics and Environment (SAWTEE), Nepal. Khaled Ahmed is a political analyst, as well as consulting editor at The Friday Times and contributing editor at the Daily Times, Pakistan. Abul Ahsan is a former secretary general of the South Asian Association for Regional Cooperation (SAARC). Imtiaz Alam is editor of the South Asian Journal and secretary general of the South Asian Free Media Association (SAFMA). Dr Rashid Amjad is Director, Policy Planning, Employment Sector at the International Labour Organization, ILO, in Geneva. Shaukat Aziz is currently Prime Minister of Pakistan. Suresh Babu is a senior research fellow at the International Food Policy Research Institute, Washington, DC. Feyza Bhatti is a senior research fellow at the Mahbub ul Haq Human Development Centre in Pakistan. Dr Shantayanan Devarajan is Chief Economist of the South Asia Region of the World Bank. Iqbal Haider is a former member of the Pakistani Senate and secretary general of the Human Rights Commission of Pakistan. Dr Ishrat Husain is former governor of the State Bank of Pakistan.

Dr A R Kemal is a senior economist and former director of the Pakistan Institute of Development Economics (PIDE) in Islamabad. Dr Mahendra P Lama is Professor of South Asian Economies at Jawaharlal Nehru University, India.

o u t h i a n t u d i e s s A S S Volume: XIII

Rita Manchanda is a journalist and human rights activist involved with the South Asian Forum for Human Rights (SAFHR) in New Delhi, India. C Raja Mohan is strategic affairs editor at the Indian Express and a member of India's National Security Advisory Board. Prof. S D Muni teaches at the School of International Studies, Jawaharlal Nehru University, New Delhi, India. Shazra Murad is a research fellow at the Mahbub ul Haq Human Development Centre in Pakistan. Dr Ijaz Nabi is Sector Manager of the South Asia Region of the World Bank. I A Rehman is a leading human rights activist and senior journalist, as well as director of the Human Rights Commission of Pakistan. Dr Hasan-Askari Rizvi is a political and defence analyst based in Lahore, Pakistan. Dr Preet Rustagi is a senior fellow at the Institute for Human Development, New Delhi, India. Dr Salman Shah is currently Special Assistant to the Prime Minister of Pakistan on Finance and Economic Affairs.

Dr Akmal Hussain is a senior economist and social activist based in Lahore, Pakistan.

Dr Karin Astrid Siegmann is a research fellow at the Sustainable Development Policy Institute (SDPI) in Pakistan.

Ramaswamy R Iyer is an honorary research professor at the Centre for Policy Research (CPR) in New Delhi, India.

Prof. Rehman Sobhan is a senior economist and chairman of the Centre for Policy Dialogue (CPD) in Dhaka, Bangladesh.

Dr Saman Kelegama is executive director of the Institute of Policy Studies, Sri Lanka.

J Ravikumar Stephen is a management consultant and peace activist based in India.

South Asian Association for Regional Cooperation

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© 2006 Free Media Foundation All rights reserved. First printing June 2006 Editorial collective: Imtiaz Alam (series editor); Dr Akbar S Zaidi (series coordinator); Zebunnisa Burki and Maheen Pracha (copy editors); Muhammad Adeel (publication designer). Produced and designed at the Free Media Foundation and South Asian Free Media Association (SAFMA), Lahore, Pakistan The findings, interpretations, and conclusions expressed in this book are those of the authors and do not necessarily reflect the views of the South Asian Journal or the South Asian Policy Analysis (SAPANA) Network. The South Asian Journal and Free Media Foundation encourage use of the material presented herein, with appropriate credit. ISBN 969-9060-12-3 South Asian Policy Analysis Network (SAPANA) 9 Lower Ground Floor Eden Heights, Jail Road Lahore, Pakistan www.southasianmedia.net

Volume XIII, “SAARC” of the South Asian Studies series was prepared by members of one of the 14 research groups established under the South Asian Policy Analysis (SAPANA) Network, and assigned to examine the workings of SAARC (South Asian Association for Regional Cooperation) against the backdrop of the challenges that South Asia faces. The volume also contains articles previously published in the South Asian Journal to supplement this analysis.

About SAPANA

ogether with the South Asian Free Media Association (SAFMA), the South Asian Journal conceived a research programme in 2005 to develop a “virtual” think-tank comprising an interactive network of scholars from across South Asia. From this initiative emerged the South Asian Policy Analysis (SAPANA) Network - an autonomous, independent, and crossdisciplinary research and analysis platform for initiating informed policy debates, undertaking fresh research, critically evaluating existing research and public policy, and proposing alternative policy measures in South Asia. As a first step, 14 working groups were set up under SAPANA to carry out research and propose policy alternatives on issues crucial to the region. The groups presented more than 80 draft research papers at a conference organised by the South Asian Journal, titled “Envisioning South Asia”, which was held in Islamabad (Pakistan) on 29-30 April 2006, and attended by more than 150 eminent scholars from across the region. After incorporating the feedback generated by the conference, these papers have been collated for publication as a 14-volume series titled South Asian Studies. The series is intended for public perusal, media review, public debate, and the consideration of policymakers. When SAPANA was formed, the need for “yet another think-tank” was questioned, given that there are already numerous institutions involved in similar work. We, at SAFMA and SAPANA, have found that most current research in South Asia is either too departmentalised or too technical for it to be accessible by a nonacademic audience; and that it is greatly influenced by official and dominant technocratic paradigms.

SAPANA will endeavour to undertake critical, independent, objective, practical, and pro-people research to pursue an alternative policy agenda for sustainable development and the empowerment of people. It will also engage the public and policymakers along with other major stakeholders in order to sustain informed and constructive dialogue between the state and civil society. In collaboration with SAFMA, SAPANA will bring its research-based findings within the domain of public discourse, rather than leave it to the mercy of dust or termites. The next phase will begin with formally establishing a board of advisors comprising prominent and able academics and researchers from across South Asia. It is hoped that SAPANA will establish itself as a leading think-tank in South Asia within the first five years of its inception. The major tasks that lie ahead are: (i) building a comprehensive database of scholars and researchers who are either based in South Asia or based overseas but specialise in the region; (ii) planning research themes for subsequent years, arranging workshops on these themes, and publishing the findings that emerge; and (iii) organising a larger conference every two years to bring together new themes, new research, and emerging scholars. Apart from these tasks, SAPANA will design projects and commission research that is of public and policy interest, and will liaise with policymakers and governments through the media. As a “virtual” institution, it will engage scholars and researchers on specific undertakings, and thus set a new direction for the South Asia of our hopes.

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Contents Preface: How can SAARC work?

Evolving a South Asian Fraternity Imtiaz Alam

A Vision for South Asia Dr Akmal Hussain

A Roadmap for South Asian Cooperation Prof. Rehman Sobhan

SAFTA: A Critique Dr Saman Kelegama

SAFTA and Economic Cooperation Dr A R Kemal

Repositioning SAFTA in the Regionalism Debate Dr Saman Kelegama and Ratnakar Adhikari

A South Asian Economic Powerhouse Shaukat Aziz

South Asian Economies: Future Challenges Dr Ishrat Husain

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Windfalls of Economic Union Dr Salman Shah

118

SAARC: Problems of Regional Cooperation Dr Hasan-Askari Rizvi

125

SAARC Secretariat: A Critique Abul Ahsan

142

Hindrances to South Asian Cooperation Khaled Ahmed

150

Food Security in South Asia Suresh Babu

167

A South Asian Parliament S D Muni

179

A Human Rights Code for South Asia Iqbal Haider

194

Remittances and Development in South Asia Dr Rashid Amjad

204

A Currency Union for South Asia J Ravikumar Stephen

215

Human Rights in Conflict Situations I A Rehman

228

Integrating Stakeholders in Energy Cooperation Dr Mahendra P Lama

237

South Asian Water Concerns Ramaswamy R Iyer

257

Crisis of Minority Rights in South Asia Rita Manchanda

281

Women and Development in South Asia Dr Preet Rustagi

309

Gender and Globalisation in South Asia Dr Karin Astrid Siegmann

326

Cooperative Security in South Asia C Raja Mohan

345

Health Conditions in South Asia Feyza Bhatti and Shazra Murad

357

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Acknowledgments

Charter of the South Asian Association for Regional Cooperation

380

SAARC Social Charter

385

Agreement on South Asian Free Trade Area (SAFTA)

398

SAARC Plan of Action on Poverty Alleviation

414

SAARC Regional Convention on Suppression of Terrorism

419

Additional Protocol to the SAARC Regional Convention on Suppression of Terrorism

425

South Asia and the Millennium Development Goals

434

Economic Growth in South Asia Dr Ijaz Nabi and Dr Shantayanan Devarajan

439

SAPANA Conference Declaration (Islamabad, April 2006)

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The South Asian Policy Analysis (SAPANA) Network would like to thank all the contributors to this volume - their insight into and understanding of a tumultuous region and the challenges it faces provides a myriad of insights that could help define new options for and approaches to tackling South Asia's most pressing issues. Contributors to the volume include (in alphabetical order): Abul Ahsan and Prof. Rehman Sobhan from Bangladesh; Dr Karin Astrid Siegmann from Germany; Suresh Babu, Dr Shantayanan Devarajan, Ramaswamy R Iyer, Dr Mahendra P Lama, Rita Manchanda, C Raja Mohan, Prof. S D Muni, Dr Preet Rustagi, and J Ravikumar Stephen from India; Ratnakar Adhikari from Nepal; Khaled Ahmed, Imtiaz Alam, Dr Rashid Amjad, Prime Minister Shaukat Aziz, Feyza Bhatti, Iqbal Haider, Dr Ishrat Husain, Dr Akmal Hussain, Dr A R Kemal, Shazra Murad, Dr Ijaz Nabi, I A Rehman, Dr Hasan-Askari Rizvi, and Dr Salman Shah from Pakistan; Dr Saman Kelegama from Sri Lanka. SAPANA gratefully acknowledges the SAARC Secretariat and Economic and Political Weekly for permission to reprint various SAARC documents and "Economic Growth in South Asia", respectively. SAPANA would also like to acknowledge the contribution of the series coordinator, Dr Akbar S Zaidi; and the editorial and design collective at the South Asian Journal, Lahore - Zebunnisa Burki and Maheen Pracha for their hard work and editing, and Muhammad Adeel for designing the volume - without which this volume could not have been published. Finally, SAPANA is immensely grateful to the Royal Netherlands Embassy and Royal Norwegian Embassy for their generous support, without which the production of this series would not have been possible.

Preface

How Can SAARC Work?

here is an increasing urge among the peoples of South Asia to move hand in hand towards the shared aspirations of becoming one of the most developed and prosperous regions of the world and get rid of endemic poverty. South Asia is buzzing with ideas of regional cooperation and developing a South Asian fraternity. Thanks to shared history, similarity of cultures, contiguous geography and cross-border ethno-lingual relationships, trade and communication linkages, South Asia has more similarities than any other region of the world. Even, more than recent hostilities, they have longer traditions of fraternities across ethnoreligious and national divides. As globalization penetrates even most inaccessible regions and regional economic groupings make an overriding economic sense, South Asians wonder why did not they took the lead in developing a vibrant economic grouping of their own. Why have South Asia lagged behind Southeast Asia and other trading blocks that had much heavier historical baggage? Presently, the GDP in most South Asian countries is growing around or above six per cent a year and economic managers are ambitiously aspiring to catch up with the Southeast Asian GDP growth rates of 710 per cent. Certain leading economists are also projecting that in the next three decades South Asia can emerge as a second largest economic powerhouse in the world, after China, if current growth rates are increased to the levels of Southeast Asia and sustained over a longer period of time. Yet, South Asia remains a least integrated region, despite multiple proximities and contiguities. The percentage of intraregional trade in its share of world trade, as compared to

European Union (61 per cent), North American Free Trade Area (NAFTA) (56 per cent) Association of Southeast Asian Nations (ASEAN) (23 per cent), among the member countries of SAARC remains abysmally low (six per cent). More than 20 years have passed when South Asian Association for Regional Cooperation (SAARC) was created in 1985 on the initiative of the leader of a smaller countryformer President of Bangladesh Ziaur Rehman. Barring few bilateral political interruptions, SAARC has been regularly holding its summit meetings and issuing declarations of good intent and signing various protocols. An agreement to create South Asian Preferential Trade Area (SAPTA) was ratified way back in 1995 to boost intraregional trade. But, due to longer negative lists, higher tariffs and non-tariff barriers, and above all inter and intra state conflicts, the intraregional trade could not move ahead. Then after some delays, member countries signed a framework agreement on establishing a South Asian Free Trade Area (SAFTA) at the 12th SAARC Summit, held in Islamabad in the first week of January 2004. This was no less a landmark achievement to make relatively more developing countries and least developed countries (LDCs) agree on a tariff structure, a time frame for reduction in tariffs and a formula for the loss of revenue by the LDCs. Despite SAFTA's ratification in 2006, intraregional trade is yet to take a big leap. Preferred mode of trade remains through bilateral free trade agreements at the cost of regional trading while inter and intra state conflicts and overwhelming security concerns remain high on the agenda. SAFTA is clueless about how to make adjustment or reconcile with the bilateral treaties, such as Indo-Lanka Bilateral Free Trade Area (BFTA), Pak-SL BFTA, Indo-Nepal BFTA, BIMSTEC-FTA, growth quadrangle (India, Nepal, Bangladesh, Bhutan) and triangles (India, Maldives and Sri Lanka). Despite all these arrangements the project of intraregional trade is not moving forward. Although 12th SAARC Summit set the goal of creating South Asian Union, nothing substantial has come out of most positive pronouncements, essentially because of a lack of follow-up actions and security-related apprehensions and paranoia prevailing in both big and smaller neighbors in South Asia. Southeast Asia, where serious territorial disputes between Indonesia,

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Malaysia and Philippines existed and who had little commonality in culture and languages, preferred to put their territorial conflicts behind in order to move on the path to progress through evolving their own trading block. While the biggest country of ASEAN, Indonesia, opted to alley the apprehensions of its regional trade partners, other countries of the region instead of ganging together against their big neighbor preferred an even playing field in the sphere of trade and investment and competed for their due share in the regional and international markets. Although SAARC charter, like ASEAN's, committed its members to remain confined to the agenda of economic, social and cultural cooperation, most of the member countries remain locked in mutual suspicions and inter and intra state conflicts that often overlapped and spilled across borders. SAARC has neither worked as India's smaller neighbors' joint negotiating platform with the 'big brother', nor has India as a regional power having borders with five of SAARC member countries succeeded in luring its regional partners in accepting it as a binding force behind an otherwise India-centric regional grouping. If India deeply suspected its neighbors while, being a regional power, aspiring to keep them as its area of influence under a sort of 'Monroe Doctrine', the other states looked for outside support to compensate for their worries of living next to a big neighbor. The role model of India-Bhutan tutelage relationship, propounded by New Delhi, could not be extended to even Nepal, nor was it acceptable to Bangladesh, which owed its birth as a new state to New Delhi, or Sri Lanka that looked towards India to keep its territorial integrity while deeply suspecting ethnic connections between its Tamil secessionists and a sympathetic Tamil Naduone of India's most progressing states in the South. The conflict between the two powerful countries of the subcontinentIndia and Pakistanhas in fact kept the region a hostage to their mindless rivalry. Since Pakistan was too much India-centric, it was not much interested in the region, except playing on the cleavages between India and its smaller neighbors. Both during and after the Cold-War, Pakistan sought extra regional support to counter-balance what it saw as 'Indian hegemony' in the region and continued to focus its energies on changing the status quo on Kashmir by 'other means'. India, on the other hand, considered Pakistan as an aberration of history and apprehended its periphery

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in league with foreign powers to destabilize India. The Nehruvian and nationalist legacy suspected United States and India's neighbors in cohorts with Washington. However, with India emerging as a largest functioning democracy and a fast growing economy, New Delhi finds itself in a different league and strategic partnership with the US after signing the nuclear deal with the Bush administration. With Pakistan in the forefront of fighting international terrorism and India tacitly aligning with the US, both the former adversaries are in the same league: looking towards the US for not only a preferential treatment, but also its favor in solving their bilateral disputes. The crucial mediation by the US in separating the two from going to a full-fledged war at most critical junctures has encouraged the two countries to explore new equation within the region and with the sole super-power. In the meanwhile, with China emerging as yet another economic power keen to keep its economic interests above everything else, an erstwhile Pakistan's friend is no more in enmity with India asking Islamabad to take cue from its approach to the border disputes with New Delhi. Now, international and regional environment for peace and Indo-Pak amity are far more conducive than they ever were in the last six decades. There is a sea change in public minds on both sides who want to burry their past enmities. A broader consensus is emerging in both countries not only to fight terrorism jointly, but also resolve their disputes peacefully. Yet there are differences in the priorities, calibrations and linkages of the two sides. But that should not hinder the peace process, nor should it scuttle the SAARC process. If India and Pakistan agree to put their act together behind the SAARC and India fulfills its promise of being an opportunity for its neighbors, the regional trading block can become a reality in the near future. For that to happen both should not hold SAARC back whenever they get bogged down in the quagmire of their bilateral relations. However, if SAARC can agree on an Additional Protocol to the SAARC Regional Convention on Combating Terrorism, why can't it agree on a conflict resolution mechanism for various inter and intra state disputes in the region to avoid intervention by extra regional forces? Indeed, as Pakistan and India have agreed to establish an â&#x20AC;&#x153;Institutional Mechanismâ&#x20AC;? to jointly fight out terrorism, they can also agree to extend it to the regional level, instead of taking

xiv

adversarial positions in one or the other conflict in the region. To make SAFTA effective and all encompassing, SAARC must follow the model of ASEAN Free Trade Area. It should include investment, regional development projects, services, create trade-investment nexus to balance trade deficits through investment flows, jointly undertake trans-regional communication, energy and water projects, build physical infrastructures and connectivity, develop a more educated, trained workforce, attract foreign direct investment (FDI) to raise the current low ratio of investment to GDP and establish South Asian sub-regional investment areas. To emerge as a real free trade area, tariff and non-tariff barriers will have to be removed; it must harmonize the standards and simplify customs procedures while moving towards a tariff and customs union and allowing greater coordination among central banks for macroeconomic coordination. By establishing a South Asian Development Bank and South Asian Fund, SAARC can undertake trans-regional transport, communication projects and an energy grid. Instead of jumping around various marginal projects, the SAARC should focus on areas that can provide a solid basis for regional partnerships, such as in energy, tourism, highways, communication, information, education and health and poverty eradication. As compared to middle and low income countries, who spend six and 4.6 per cent of their GDP on health, respectively, spending on health has averaged one or less than one per cent of the GDP in South Asia. Except for Sri Lanka, record of most countries of South Asia on health and education is quite shameful. Wasting its scarce resources and spending more on security and conflicts, South Asia faces a worse poverty scenario, on many social indicators, than even SubSaharan Africa. Instead of being obsessed with military security, India and Pakistan and other countries of the region must divert their resources to eradicate poverty. It is no lesser a crime against the humanity, if 400 million people live below poverty line or one US$ per person a day and 40 per cent of the undernourished people live in this region. Spending on education is also not any different. And poverty remains a great challenge for South Asia to handle as a major priority. SAARC Charter does not include the issues of human rights and women rights and they can't be raised from its platform. Unlike EU,

SAARC doesn't have its human rights code or a regional court. It is imperative for South Asian countries to agree to a uniform human rights code and set up institutions according to Paris Principles. Since without the participation of the peoples' representatives the fraternity of South Asian people cannot be strengthened, steps need to be taken in moving towards the establishment of a South Asian parliament. It is quite pathetic that, despite committing to move towards a South Asian Union, three countries of SAARC, India, Pakistan and Bangladesh, have a most prohibitive and disgusting visa regime. Without free movement of people and free flow of information across borders, the dream of having a regional grouping will remain totally meaningless. The SAARC Charter will have to be extended to expand its scope in the years to come. These are all enormous, but quite palpable tasks before this regional grouping to become meaningful and substantive. They require more dynamic and efficient structures and institutions than the present structure of the SAARC. The current SAARC Secretariat is powerless and ineffective. Under the SAARC mandate, Secretary General is appointed by the member countries by rotation and, similarly, the directors are also nominated by the respective foreign offices. All powers are concentrated in the hands of the Standing Committee, consisting of foreign secretaries of member countries, the Council of Ministers and the Annual Summit Meeting. To strengthen SAARC, its structure, and the Secretariat in particular, the Secretariat will have to be empowered. Its officials, including the Secretary General, should be selected on merit and through an open competition. Similarly, its capacity will have to be strengthened to undertake such enormous responsibilities. Moreover, SAARC must allow greater space and freedom to its associated and apex bodies, if the process of SAARC is to be rooted in our respective civil societies. SAARC must adopt the model of European Commission and the ASEAN Secretariat to become an effective regional body.

Imtiaz Alam

Evolving a South Asian Fraternity Imtiaz Alam

rofound changes are taking place in Asia, which will allow it to take centre-stage for the first time in modern history. In the next 25 years, Asia will have the two largest economies of the world, with China in first place, followed by India as the world's third-largest economic power. In the South Asian context, the region as a whole could become the hub of the second-largest economy, leaving even the US behind. With China bordering four states of the Subcontinent, China and South Asia together could become the largest economic regional grouping with no comparable rival. The centre of economic gravity will, for the first time, tilt in favour of South Asia, should China also join this grouping. Consequently, the dynamic of current globalisation that favours the more developed countries of the West will turn to serve Asia. The 21st century belongs to Asia and, in the next two decades, South Asia and China can together reshape history with half the world's population residing here. But are we prepared for the role that this century will assign to us? Sceptics who live in the past may drag their feet, but there is an historic opportunity to be grasped by those who see history moving to their side. The time has, for once, come to support formerly colonised peoples. Given our common history of national resistance to colonialism, history should not repeat itself as â&#x20AC;&#x153;colonialism-in-reverseâ&#x20AC;?. As the most contiguous region of the world, and one that shares a common history and similar cultures, South Asia has less baggage to shed than Europe or the Far East. South Asia is now booming with the ideas of regional cooperation, as

reflected by the South Asian Journal conference on "Envisioning South Asia", and the South Asian Policy Analysis (SAPANA) Network. Significant sections of intelligentsia, economists, experts, journalists and peace activists have begun to take a holistic approach towards the collective good of the region as they increasingly find state-centric and security-centered approaches inconsistent with the interest of our 1.4 billion people. The conference reflects the urge of our intelligentsia and the people to outgrow the past and take a leap into a future which is ours. Certain stages of history can be skipped, so can various evolutionary stages through which, for example, the European Union had to pass in the 20th century. The road to evolving a South Asian fraternity is quite easy, if viewed purely from our people's viewpoint and ecological harmony; it is far more complicated, if taken from the perspective of bureaucratic establishments or merchants of hate. Indeed there are disputes, and there have been wars, that hinder progress towards our real goals of freeing our people from the yoke of poverty and backwardness. But there could be no cause greater than the emancipation and progress of our people. The conflict over disputes, such as on Kashmir, must give way to reconciliation and resolution that must at the same time allow, rather than hinder, regional cooperation to address the demands of our common destiny. The lines of conflicts must change into the bridges of friendship and the ironed-barred borders must melt before the urge of South Asians to become a fraternal and indivisible community of people with nation states joining hands in submitting before the will of their real sovereigns -- the people. Steps can be simultaneously taken towards a South Asian Free Trade Area, South Asian Union (water/energy/communication/ information/tourism/economic), South Asian currency, South Asian Parliament and South Asian collective security. However, to take a leap forward, there will have to be no hegemon, nor a ganging up by the small against the big-one. A new paradigm of equitable partnership must evolve to reshape our relations. The landmark agreements reached at the 12th Summit of South Asian Association for Regional Cooperation (SAARC), at Islamabad, have spurred efforts at collectively tackling the real issues faced by the people while meeting the demands of globalization and the WTO regime at the regional level. The agreement on South Asian Free

Trade Area (SAFTA) requires effective implementation, expanding the space for trade and, more importantly, economic collaboration and development. If South Asia's economies are to be integrated, it presupposes development of transnational infrastructure and monetary cooperation involving greater coordination among the governments and the central banks. Despite limited complementarities in trade-able items, due to similar comparative advantages, expansion of trade warrants vertical and horizontal integration of industries and investment in joint ventures by public and private sectors. However, trade and investment will not move ahead unless tariffs are lowered, the negative-list kept to most minimum, para and non-tariff barriers removed and standards harmonized. This will, subsequently, translate into a South Asian customs union which may lead to a common exchange rate policy that will, eventually, result in adopting a South Asian currency underwritten by macro-economic management at the regional level. No less important is the cooperation in the transport and communication sectors envisaging an integrated transport infrastructure that allows uninterrupted travel across and beyond our region and communication highways facilitating free flow of information. Increasingly, the governments and concerned institutions are realizing the necessity to address acute shortage of energy and water, incidence of drought and floods that often bring miseries to the people and states into conflict. The distribution and management of water resources, though quite a divisive issue among the upper and lower riparian regions, needs to be undertaken amicably in the spirit of riparian rights without depriving the lower riparian regions of their due. In this regard, energy cooperation should evolve into a South Asian energy grid with integrated electricity and gas systems. As India and Pakistan now agree, and they must, the gas and oil pipelines can run from Central Asia and Iran, through Pakistan and Afghanistan, to whole of South Asia and beyond. Given its low rate of investment to GDP ratio, South Asia must create attractive environment for investment in high value-added manufacturing lines and trans-regional projects. Enhanced investment flows, both from within and outside the region, would culminate in production facilities located across the region through

integrated production systems. Shares of both national and regional companies would be quoted on our stock exchanges as capital moves without hindrance across national boundaries to underwrite investment in any part of our region through a South Asian Development Bank. However, economic cooperation, investment, development of transnational physical infrastructure, transportation, communication, energy grid, equitable sharing of water and efforts at poverty alleviation would not produce tangible results unless the concerns of least developed countries (LDCs) are genuinely addressed, the negative-list is minimized, tariffs are substantially brought down and non-tariff and para-tariff barriers lifted, the economies are gradually opened up with a recourse to investmenttrade linkage that takes care of trade deficits between partners through investment flows and capital account, vertical and horizontal integration of industries that benefits from relative advantages and economies of scale. To realize this immense economic transformation, interstate and intrastate conflicts and attendant security threats and perceptions of political hostility will have to be addressed. The main obstacle to regional cooperation and economic integration remains political and strategic. The prevailing barriers to cross-border movements make neither commercial nor logistical sense and originate in the pathologies of interstate, as well as domestic, politics. Therefore, the political leadership in the countries of South Asia, whether in government or opposition, must show courage, flexibility and statesmanship to resolve interstate and intrastate conflicts and dismantle political barriers to regional economic takeoff and elimination of the scourge of poverty. They should get out of the straitjacket of enmity and look beyond the traditional notions of security and focus on integrated South Asian cooperative security that recognizes interdependence that binds South Asia. The states ought to act in their enlightened self-interest to resolve their conflicts and differences through peaceful means and to the mutual benefit of our people. The choice is often, erroneously, posed between regional cooperation and conflict resolution. We urge all states to simultaneously move forward to address long-standing political disputes and intensify economic cooperation and people-to-people contact. Beyond cooperative security, South Asian nations must ultimately

move towards South Asian human security by placing people--their well being and rights to peaceful life and development--at the centre of security concerns, rather than continuing with the arms race. To include the excluded, governments of South Asia take concrete steps to implement the SAARC Social Charter and give priority to poverty eradication. It is imperative for the South Asian countries to agree to a South Asian Human Rights Code and set up institutions under the Paris Principles and purposefully set about creating the required mechanisms. There is an urgent need to allow greater interaction among the policy-makers, parliamentarians, businessmen, media practitioners, professionals and the leaders of civil society. To enable this to happen, it is necessary that India, Pakistan and Bangladesh, who have the most restrictive visa regimes, drastically revise their visa policy and remove impediments to free movement of people. To overcome information deficit about the countries of the region, it is essential that all restrictions on access to and free flow of information are removed forthwith and media persons and products are allowed free movement across frontiers. In this regard we refer to SAFMA's protocols on 'Free Movement of Media Persons and Media Products' and 'Freedom of Information' which must be adopted by the national legislatures/governments and at the next SAARC summit. The media, on their part, should give special attention to coverage of the countries of South Asia that remain under-reported. Similarly, all scholars, academicians and researchers should be freed from visa restrictions and allowed joint researches in every conceivable field. The scope of collaboration in the sphere of culture, sports, tourism, education, research, human resource development, poverty alleviation and environment is infinite. Let a South Asian fraternity defy all restrictions imposed by the past and usher in a new era in which our people could become the master of their destiny while contributing tremendously to the progress of whole humanity regardless of geography, ethnicity, nationhood, gender, creed and color. Let us put together our collective wisdom to evolve a South Asian vision and join hands to evolve a South Asian fraternity. Imtiaz Alam is editor of the South Asian Journal and secretary general of the South Asian Free Media Association (SAFMA).

A Vision for South Asia Dr Akmal Hussain Presented at: SAFMA's South Asian Parliament, May 15-20, 2005

outh Asia is at a historic moment of unprecedented potential for transforming their economic conditions and together with other Asian countries playing a key role not only in the global economy but also in the development of human civilisation in the 21st century. For the first time in the last 350 years, the global economy is undergoing a shift in its center of gravity from the continents of Europe and North America to Asia. If present trends in GDP growth in China, US and India respectively continue, then in the next two decades China will be the largest economy in the world, US the second largest and India the third largest economy. However, if South Asian countries develop an integrated economy, then South Asia can become the second largest economy in the world after China. Given the geographic proximity and economic complementarities between South Asia on the one hand and China on the other, this region could become the greatest economic powerhouse in human history. Yet the world cannot be sustained by economic growth alone. Human life is threatened with the environmental crisis and conflicts arising from the culture of greed, from endemic poverty and the egotistic projection of military power. Societies in this region have a rich cultural tradition of experiencing unity through transcending the ego, of creative growth through human solidarity and a harmony with nature. In bringing these aspects of their culture to bear in facing contemporary challenges, the people of this region could bring a new consciousness and institutions to the global market mechanism. In so doing South Asia and China can together take the 21st century world on to a new

trajectory of sustainable development and human security. It can be an Asian century that enriches human civilisation. South Asia and the New Paradigm of Policy The policy paradigm underlying the last three centuries of economic growth within nation states and political relations between states has been characterised by two propositions that are rooted in conventional social science theory: 1.

Maximisation of individual gains in terms of continuous increases in production and consumption, within a competitive framework ensures the maximisation of social welfare at the national as well as global levels. 2. The economic and political interests of a nation state are best achieved by translating economic gains into military power. The assumption here is that a state can enhance national welfare by initiating, or being part of an initiative for projecting imperial power over other states. These propositions now need to be questioned because of the increased interdependence of people and states on each other and on the ecology within which they function. Let us briefly critique each of these propositions to lay the basis of proposing an alternative paradigm of policy, as this region develops a leadership role in the world: First, the idea that competition alone ensures an efficient outcome may not be necessarily true in all cases in view of the work by Nobel Prize winning economist John Nash, who proved mathematically that in some cases the equilibrium, which maximises individual gains, could be achieved through cooperation rather than competition. The Nash Equilibrium solution may be particularly relevant in the context of India-Pakistan relations. Consider. India, if it is to sustain its high growth rate, will require sharply increased imports of oil, gas and industrial raw materials from West and Central Asia, for which Pakistan is the most feasible conduit. Similarly India's economic growth which has so far been based on the domestic market will in the immediate future require rapidly increasing exports for which Pakistan and other South Asian countries are an appropriate market.

Thus the sustainability of India's economic growth requires close cooperation with Pakistan. Conversely, peace and cooperation with India is essential for Pakistan, if it is to achieve a GDP growth rate of 8 to 9 per cent, overcome poverty and build a democracy based on a tolerant and pluralistic society. It is clear therefore that governments in India and Pakistan will need to move out of the old mindset of a zero-sum game, where gains by one side are made at the expense of the other. Now the welfare of both countries can be maximised through joint gains within a framework of cooperation rather than conflict. The missing dimension of the relationship between competition and welfare in conventional economic theory is that of institutions. The recent work of another Nobel Prize winning economist, Douglas North has shown that if competitive markets are to lead to efficacious outcomes, then they must be based on a set of underlying institutions. He defines institutions in terms of constraints to behaviour for achieving shared objectives within an appropriate combination of incentives and disincentives. We can apply Douglas North's principle to the role of new emerging economic powers for seeking a broad framework of cooperation for the efficient functioning of a competitive global economy. Our proposed logic of locating competitive markets within broader institutional structures of cooperation at the regional and global levels is necessitated by the integrated ecology of the planet. Global cooperation in environmental protection, poverty reduction and defusing the flash points of social conflict and violence will become the essential underpinning of sustainable development and human security in this century. The second proposition from conventional social science theory and political practice, that the economic welfare and political influence of a nation state can be best achieved by translating economic gains into military power is also questionable. In the new world that is now taking shape, the influence of an emerging power will be determined not by the magnitude of the destruction it can wreak on other countries but by its contribution to enhancing life in an interdependent world. Thus it is not the military muscle of a state that will be the emblem of status, but its contribution to meeting the challenge of peace, overcoming global poverty and protecting the

planet from environmental disaster. Meeting these challenges will require a deeper understanding of the processes that shape nature and human societies, as well as a deeper awareness of our inner self and the shared wellsprings of human civilisation. Concretising the Vision of South Asia: Some Specific Policy Actions South Asia stands today at the cusp of history: between a past darkened by poverty, disease, illiteracy and conflict, and a bright future when the great potential of its human and natural resources, and the shared humanity of its diverse cultures can be actualised. The global environment provides a historically unprecedented scale of private capital flows, trade opportunities, information and technology, which if utilised can dramatically transform the material conditions of life of the countries of South Asia. A vision is efficacious to the extent that it can be concretised. This requires bringing to bear the new consciousness of South Asian cooperation to undertake specific policy actions. Apart from implementing the decision at the Islamabad SAARC Summit to establish a South Asian Free Trade Area, three broad areas for deepening economic cooperation can be identified for purposes of specific policy action: 1. 2. 3.

Energy cooperation within south asia Increased investment for accelerating economic growth Restructuring growth for faster poverty reduction

Specific policy actions for each of the above three areas are as follows: Energy cooperation within South Asia In the context of developing energy markets of these resources, power trading in the region calls for establishment of high voltage interconnections between the national grids of the countries of the region. India, Pakistan and Bangladesh should, also cooperate closely in establishing gas pipelines in South Asia for transporting gas from Iran, Qatar and Turkmenistan and even Myanmar. Specifically the ongoing official negotiations on transporting oil and gas from Iran through Pakistan to India should be brought to an early and successful conclusion. To strengthen the mutual inter dependence

between India and Pakistan the recent proposal by Mr. Mani Shankar Aiyar1 for transporting diesel fuel from Panipat to Lahore should also be taken up quickly. The precondition to create a competitive power market is to allow freedom to generators to produce electricity and distributors to sell in the market. In this context joint developing, trading and sharing of energy should be pursued. Increasing investment within South Asia through joint venture projects The key joint venture projects that can be undertaken to increase investment and growth in the region are as follows: 1. Facilitating private sector joint projects in building a network of motorways and railways at international quality standards through out South Asia. These modern road and rail networks would connect all the major commercial centers, towns and cities of SAARC countries with each other and with the economies of Central Asia, West Asia and East Asia. 2. Facilitating regional and global joint venture projects for developing new ports along both the western and eastern seaboard of South Asia, and at the same time up-grading existing ports to the highest international standards. 3. Facilitating regional investment projects in building a network of airports, together with cold storages and warehouses that could stimulate not only tourism but also export of perishable commodities such as milk, meat, fish, fruits and vegetables. Restructuring growth for rapid poverty reduction 1. Generating employment and incomes for the poor: Economic growth must not only be accelerated but restructured in such a way that its capacity to alleviate poverty is enhanced for given growth rates of GDP. In this context of achieving pro-poor growth, three sets of measures can be undertaken at the country as well as the regional levels: a) Joint venture projects need to be undertaken to rapidly accelerate the growth of those sub sectors in agriculture and industry respectively which have relatively higher employment elasticities and which can increase the productivity and hence put more income into the hands of the poor. These sub sectors include production and regional

export of high value added agricultural products such as milk, vegetables, fruits, flowers and marine fisheries. b) Regional network of support institutions in the private sector can be facilitated for enabling small scale industries located in regional growth nodes, with specialised facilities such as heat treatment, forging, quality control systems and provision of skill training, credit and marketing facilities in both the country specific and regional economies. c) A SAARC Fund for vocational training may be established. The purpose of this Fund would be to help establish a network of high quality vocational training institutes for the poor. Improved training in market demanded skills would enable a shift of the labour force from low skill sector to higher skill sectors and thereby increase the productivity and income earning capability of the poor. It would at the same time generate higher growth for given levels of investment by increasing factor productivity. 2. SAARC Educational Foundation A SAARC Educational Foundation in South Asia may be created on the basis of contributions by individual SAARC member countries and more substantially by multi lateral donor agencies. The purpose of this Foundation would be to create a network of high schools at an international standard in selected districts in each of the countries of South Asia. These SAARC schools could act as role models and set the standards for both the private sector and the individual governments to follow. 3. SAARC Health Foundation2 In South Asia as much as 43 per cent of the population lives in absolute poverty3. The majority of the poor suffer from diseases requiring urgent medical care but are unable to afford it. The high costs of medical care for those on the poverty line that somehow manage to access it, push them further into debt. Others, who cannot access health care, suffer an income loss due to reduced productivity or loss of livelihood resulting from illness. Indeed illness in South Asia is a major factor that pushes people into poverty, and those already poor into deeper poverty4. Therefore provision of preventive and curative health facilities would be a strategic intervention for poverty reduction, human development and economic growth in the region. In this context

I have proposed that a SAARC health foundation may be instituted as a private-public partnership with the following objectives. It can be financed primarily by the private sector, with contributions by regional governments and multi lateral donor agencies: a)

SAHF District Hospitals: To start with, SAHF would establish 25 general hospitals located in the relatively low income regions (districts) and distributed across each of the countries of South Asia, according to an agreed criterion5. Each hospital in terms of the professional standard of medical care and the quality of humanity with which it is given, would set standards for others in the private/public sector to follow. The doctors, nurses, medical technicians and some of the administrative staff of the SAHF hospitals in a particular country could be drawn from other South Asian countries to signify the commitment of the South Asian community, to the people of each country in the region. The healing and humanity in these hospitals would stand as a living symbol of both the promise and fulfillment of South Asian cooperation. SAHF Community Based Preventive Health Care: Each SAHF district hospital would initiate community-based campaigns for preventive health care. These would include facilitating community-based campaigns for hygienic drinking water, sanitation and inoculation campaigns. They would also design and disseminate information packages on disease control during periods of epidemics, and also vital information regarding hygiene and health measures at the household level. SAHF Network of Basic Health Units: Each hospital would have a network of 10 Basic Health Units (BHUs) to give maximum coverage of population and convenience of access over a modest sized but flexible health care system. The basic health units in the hinterland of the SAHF district hospital would provide initial assessment of the nature of the disease and filter out patients who have minor illnesses treatable at the BHU level, while referring those with more serious medical problems for treatment at the SAHF district hospital. The BHUs would also act as conduits for SAHF district hospital initiatives in community action and

information dissemination for preventive health care. The BHUs inspite of the limited scope of their medical service would, like the SAHF hospitals, set new standards of professionalism and humanity in their medical care. d) SAHF Mother and Child Health Clinics: Each hospital would also have a network of 10 Mother and Child Health Clinics in its hinterland region. These clinics would provide reproductive health care, pre natal and post natal care to mothers and basic pediatric services to infants. Conclusion If South Asia is to play a leadership role in the new world that is taking shape, then it must undertake specific initiatives within a new policy paradigm for pursuing peace, overcoming poverty and protecting the life support systems of the planet. However this requires that governments move out of a mindset that regards an adversarial relationship with a neighbouring country as the emblem of patriotism, affluence of the few at the expense of the many, as the hallmark of development, individual greed as the basis of public action, and mutual demonisation as the basis of inter state relations. We have arrived at the end of the epoch when we could hope to conduct our social, economic and political life on the basis of such a mindset. This is a historic moment when the people of South Asia have recognised that they have a new tryst with destiny. They are affirming that their security and well being lies not in inter-state conflict but in peace and cooperation. Let the governments hearken to the call of their people. Dr Akmal Hussain is a senior economist and social activist based in Lahore, Pakistan. Endnotes 1 This proposal was made by H.E. Mr. Mani Shankar Aiyar, during his key note address at the SACEPS seminar on Regional Cooperation in South Asia in New Delhi, 31st August 2004. Also see Akmal Hussain, ‘A New Beginning in the Peace Process’, Daily Times, September 28, 2004. 2 For a more detailed discussion of this concept see, Akmal Hussain, ‘South Asia Health Foundation’, A Concept Note, 8th November 2004. Note presented to the South Asia Centre for Policy Studies. 3 Mahbub ul Haq, Human Development in South Asia, Oxford University

4 5

Press, Karachi, 1997. Akmal Hussain, Pakistan National Human Development Report 2003, UNDP, Karachi: Oxford University Press, 2003). This could be either in terms of the proportion a particular country has of the total poor population of South Asia, or the prevalence of disease as a percentage of the national population, or in terms of a broad inter country balance in the distribution of the hospitals, or a combination of the above.

Islamabad Summit. It is useful to see what emerged out of the Summit for charting the future direction of South Asia. The Summit signed three agreements: i) The SAARC Social Charter, ii) The Framework Agreement for a South Asia Free Trade Area, iii) The Additional Protocol to the SAARC Regional Convention on Combating Terrorism and the Summit endorsed the report of the Independent Commission for Poverty Alleviation in South Asia (ISACPA) and committed itself to implement its recommendations.

A Roadmap for South Asian Cooperation Prof. Rehman Sobhan

he paper is designed to address the prospect of South Asian cooperation in the aftermath of the 12th SAARC Summit held in Islamabad, what may immediately emerge out of the Summit and explore the future direction for South Asian cooperation. The Islamabad Summit took some far reaching decisions deepening cooperation and went as far as to commit itself to the creation of a South Asian Economic Union. Para (3) of the Islamabad declaration states that: `We reiterate our commitment made at the 11th SAARC Summit at Kathmandu in January 2002 for the creation of a South Asia Economic Union. In this context, we underline that creation of a suitable political and economic environment would be conducive to the realisation of this objective'. The Summit articulated a bold vision while recognising the political and economic environment which needs to be established to attain this goal. This vision was influenced by the Report of the SAARC Group of Eminent Persons established by the 9th SAARC Summit in 1997 at MalĂŠ. This report, SAARC: Vision Beyond the Year 2000, was submitted to the 10th SAARC Summit in Colombo in 1998. The report was never fully discussed, nor endorsed by the SAARC Summit, but its recommendations and suggested roadmap for future cooperation in South Asia have found expression in the agendas of subsequent summits and are adopted, to some extent, by the

The Summit also committed itself to intensify cooperation in a number of areas which include: l Reiteration of the commitment made at the 11th SAARC Summit

at Kathmandu in January 2002 for the creation of a South Asian Economic Union. l Energy cooperation. l Strengthening transportation, transit and communication links across the region. l Harmonisation of standards and simplification of customs procedures. l Public and private sector cooperation through joint ventures. l Setting up a South Asia Development Bank. l Cooperation among Central Banks. l Development of tourism within South Asia. l Discussing, coordinating and exchanging information with a view to adopting common positions, where appropriate, at multilateral fora. l The Summit gave special recognition to the challenge of poverty alleviation by approving the Plan of Action on Poverty Alleviation prepared by the Finance and Planning Ministers at their meeting in Islamabad in 2004. Deepening Cooperation in South Asia The key Summit decisions indicate a commitment towards deepening cooperation in South Asia. The SAFTA agreement is only the first stage in deepening cooperation. However, if South Asia's trade is to be integrated, it will require integration of the infrastructure of the region. This would point to cooperation in the areas of energy as well as the strengthening of transportation, transit

and communication links across the region. This would further require harmonisation of standards and simplification of customs procedures. Trade cooperation would point to monetary cooperation thereby suggesting the need for greater coordination among Central Banks. Sustaining trading links would require investment cooperation involving public and private sector cooperation through joint ventures. Investment cooperation would need to be underwritten by financing through a prospective South Asia Development Bank. It would follow from such levels of cooperation that the governments would discuss, coordinate and exchange information with a view to adopting common positions, where appropriate, at multilateral fora. In each of the above-mentioned areas, there would be scope for deepening cooperation. The Free Trade Area could evolve into a Customs Union with a common tariff barrier with the rest of the world. The Customs Union could lead to a common exchange rate policy and eventually a common currency underwritten by coordination of macro-economic policy across the region. Energy cooperation could evolve into a common energy grid across the region with integrated electricity and gas systems as is the case in Europe today. Transport cooperation would lead to an integrated transport infrastructure which permits uninterrupted travel from Peshawar to Chittagong and from Kathmandu to Colombo as in the European Union. Investment cooperation would culminate in regional corporations with production facilities located across the region within vertically and horizontally integrated production systems. Shares of both national and regional companies would be quoted in the stock exchanges across the region as capital flows without hindrance across national boundaries to underwrite investment in any part of the South Asia region. Within such a framework of cooperation, the goal of poverty reduction enunciated by ISACPA would evolve from a regional goal implemented at the national level into a regional agenda to eradicate poverty across South Asia. The noble goal of a South Asian Social Charter would move beyond a set of pious declarations made in Islamabad into binding commitments for charting out the social obligations of each of the member states enforceable across the

region. Moves towards deepening cooperation would have to take the ultimate step, which today binds Europe, by integrating our labour markets. Today in Europe any European can move across national boundaries to seek work anywhere in the region. We would need to aspire to a similar situation in South Asia after making due allowances for our prevailing social and political realities. Towards a Free Trade Area The first stage in deepening cooperation would be to enhance trade. For a region which aspires to an economic union, we have one of the lowest levels of intra-regional trade anywhere in the world. While this originates from prevailing trade barriers in each country, the more substantive constraint lies in the structural asymmetries in the national economies which limit the scope for trade. Moving towards SAFTA is the first phase in a process of deepening economic cooperation. The problems to be faced at this stage remain less severe than may be apparent at first glance, but we should not underestimate the enormity of the challenge. Intra-regional trade has increased significantly in the last decade, mostly through imports by all countries in the region, except Pakistan, from India. While South Asia is a fast growing destination for Indian exports, it remains marginal as a source of India's imports. The principal export destination of all South Asian countries remains North America and the European Union (EU). Trade liberalisation with South Asia has, thus, largely served to stimulate Indian exports within the region but with low levels of reciprocal export growth to India. This owes in some measure to India's relatively more restrictive import regime compared to its neighbours, but it also reflects the structural rigidities in the smaller economies who have relatively little to export to India. Thus a primary goal of trade cooperation in South Asia has been to encourage India to open up its import regime to imports from its neighbours through significant trade concessions and to help the smaller countries to enhance as well as diversify their production and export capacity to exploit emerging market opportunities in India. While SAFTA was seen as the route to opening up trade, it always

needed to address the problem of trade asymmetry in the region. To the extent that the SAARC process moved too slowly to address these issues, bilateralism became a preferred option to stimulate intraregional trade. As of today, India has entered into bilateral free trade agreements with Nepal, Bhutan and Sri Lanka. In the case of Bangladesh a bilateral free trade agreement is under negotiation with India. It is expected from the negotiations that India would offer accelerated market access to Bangladeshi exports as has been permitted under the Indo-Lanka Free Trade Agreement (ILFTA). In return the smaller economies would be given more time to eliminate their trade barriers to Indian exports. There is some apprehension amongst economists in the region that the bilateral FTAs may compromise the move towards SAFTA. It could, however, be argued that these FTAs may facilitate the move to SAFTA since they have already opened up the doors for enhanced trade in the region. Negotiations have already begun through the SAARC Secretariat on working out the details of SAFTA. These negotiations will have to factor in the implications of the bilateral FTAs in place within the region or under negotiation. The countries of the region should agree on these guiding principles for official negotiations. (a) India must make the deepest concessions. (b) Generous concessions must be offered to the SAARC LDCs. (c) The negative list principle should be used to accelerate agreement; this list must be reduced to a minimum in each country and, particularly, the bigger economies. (d) Provision must be made to provide financial support to the weaker members to enhance their development and trade capacity. (e) Provisions must be made for financial compensation to those LDCs such as Maldives who are likely to face significant import revenue losses due to trade concessions under SAFTA. (f) A final agreement reached as early as possible, preferably by the time of the next Summit. Investment Cooperation The move towards SAFTA will be meaningless unless the issue of stimulating investment in the region, particularly in the less

developed areas, including Sri Lanka, is accelerated. The substantive point of a free trade area is for small economies with narrow markets, such as Bangladesh, Nepal and Sri Lanka, to be able to use the incentive of the larger South Asian and particularly Indian market to stimulate enhanced investment from within and without. In Bangladesh as in Sri Lanka, it is widely believed that the expectation of servicing a market of one billion people in India will open up new investment horizons. Domestic entrepreneurs seeking to access global financing and foreign enterprises, particularly from East and South East Asia looking for entry into the large and growing Indian market, will be encouraged by SAFTA to rethink their investment plans. Given the opportunities for unrestricted access to an integrated South Asian market, deep structural changes in their production capacities which can expand and diversify the basket of goods available for export are essential to transforming the fortunes of the smaller economies of South Asia. Structural changes have the potential of transforming the dynamic comparative advantage of an economy and can, therefore, never be adequately captured in the static gravity models used to forecast gains from regional cooperation. Business houses in India and outside investors could also be expected to adjust their production base by locating plants to serve South India in Sri Lanka or Northeast India and Eastern Bangladesh rather than servicing them from Mumbai or Haryana. New patterns of vertical and horizontal integration, with plants located across the region, could serve to restructure the manufacturing landscape of South Asia. To realise such a transformation in the investment climate in each of these countries, preconditions will have to be created where perceptions of political hostility and the attendant security threats to investors, particularly from India, will have to be put to rest. While some of these apprehensions may be addressed within a possible SAARC investment guarantee scheme and/or the use of the globally facility known as MIGA, the real apprehensions remain invisible and originate in the mindsets both in India and the host country. It is the primary responsibility of the host governments, major political parties, the business community and the media of these countries, to create the preconditions whereby investors will feel secure.

Allowing for improvements in the social environment for investment the major task will be to put in place the necessary financing facilities to service the emerging investment needs. Within India there is no shortage of private or public institutions which can underwrite investments across regional boundaries. But such facilities will need to be encouraged by changes in the laws governing capital market convertibility. While each South Asian country will take time to open up its capital account, India can take the initiative of moving to restricted convertibility by lifting all policy restrictions to capital flows within the region. The proposal for a dedicated South Asian development fund may also be encouraged. The Fund was endorsed by SAARC at least a decade ago but has been virtually stillborn. The Fund's mission needs to be clarified and new life needs to be breathed into the organisation. There is some confusion as to the scope of this fund and whether it will cover both financing of infrastructure projects as well as private investment. Here it is suggested that two funds may be developed. One fund should be dedicated to financing infrastructure development projects mostly located in the less developed countries. As in the case of the European Union, a special fund is needed to enhance the development capacity of weaker countries to enable them to enhance their competitiveness in an integrated market. Billions of Euros were invested through the EU in such funds, to finance investment in Spain, Portugal, Greece and Ireland when they entered the EU, to enable them to upgrade their infrastructure and enhance their competitive capacity. A similar fund, underwritten from within SAARC but supplemented by aid resources from outside the region should be established to enable Bangladesh, Bhutan, Maldives, Nepal and Sri Lanka to invest in infrastructure projects. Investment which modernises and enhances capacity in transport and communications as well as energy, perhaps with a special focus on regional connectivity but not exclusive to it, will enhance the attractiveness of these economies to prospective investors. A second fund should be established as an Investment Fund, serviced by both public and private capital, to finance private sector investment projects within the weaker economies, which involve cross border investment as well as projects for serving regional markets. This should attract prospective investors from India and

Pakistan and could be used to leverage further private investment from outside the region which may even cover private investment in infrastructure projects. Integrating the Infrastructure The Islamabad Summit quite appropriately identified energy, transport and communications as important areas for cooperation. Of these, the need for transport integration is perhaps the most urgent since it is integral to the operationalisation of a free trade area. South Asia inherited an integrated transport infrastructure from the British who were themselves bequeathed a road network by the Mughal Empire. This infrastructure was fractured not by the partition of India but by its political aftermath and now needs to be rebuilt within the context of greater political harmony in South Asia. Across the mainland of South Asia the original transport infrastructure is already in place, but in many areas has fallen into disuse or needs upgrading. The main obstacle to improving connectivity is political. The barriers to cross-border movements make neither commercial or logistical sense and originate in the pathologies of inter-state as well as domestic politics. The political leaders of South Asia will therefore need to first dismantle the political barriers to transport integration. Once this is done, procedures for facilitating cross border movement of people and goods will need to be harmonised (visas, customs facilities) and system connectivity will have to be established (linking metre gauge rail systems with broad gauge systems). Infrastructure where fractured will have to be rebuilt or upgraded to sustain a heavier traffic load and capacity will need to be expanded to accommodate the enhanced traffic emanating from intra-regional movements. In some cases new investment would be needed to build transport links where none exit today. So far SAARC has done very little to address the issue of transport integration. Some meetings have been convened by the SAARC Secretariat to look at the issue of standardising the transport infrastructure but there is no strategic vision to guide the integration process largely because of the underlying political tensions which constrain issues of transport connectivity. Whatever dialogue on improving linkages has taken place owes either to the enterprise of

multilateral bodies such as the World Bank, Asian Development Bank or UNESCAP or civil society initiatives. The mandate from the Islamabad Summit has inspired the SAARC Secretariat to place the issue of improving transport linkages on its work programme. However much work is needed to both design an underlying vision and then translate it into programmes and projects which free up movement of traffic across South Asia. Energy Cooperation South Asia is, in aggregate, an energy deficit area largely because India is emerging as one of the world's largest energy markets. In contrast, Nepal and Bhutan retain the potential to emerge as major sources of energy exports though harnessing the vast hydro power potential in their rivers. Indeed power is already Bhutan's largest source of export earnings directed to India which has helped to make it the only country in the region with a trade surplus with India. However, Nepal's export-oriented hydropower projects have been tied up in protracted negotiations with India, its principal prospective market for power. These negotiations have acquired political overtones which have strained bilateral relations and have also become a major issue in domestic politics in Nepal. Bangladesh has a potential for exporting natural gas to India but is reluctant to do so because of domestic political opposition to such exports on the grounds that its gas reserves are insufficient to justify such exports. Pakistan remains a potential transit point for connecting the vast energy reserves of West and Central Asia to South Asia but has not been able to benefit from its strategic location because of its political tensions with India. This politicisation of what would in most other regions have been viewed as economic or commercial decision derives from the political perspective guiding the development of the energy sector in every country. The idea that the supply and demand for energy must be balanced within a country is not very meaningful in a region where some countries are major importers of energy and others see it as their principal export. In such circumstances, it would make sense for South Asia to move away from conceiving of its energy security as a national project and will have to redefine its market in regional terms. If South Asia's energy scenario were to be redefined within a regional context its energy needs would expect to be served through a

common distribution system integrated within a single energy grid of power and gas lines extending across the region. Such an integrated system would need to resolve quite complex problems of crossborder pricing, harmonisation of standards and equipments and the role of external players as sources of supply (Iran, Central Asia) or as corporate investors. The SAARC governments have already recognised the need for cooperation in the energy sector. The Summit in Islamabad reaffirmed this interest. A meeting of SAARC ministers was held in Dhaka in 2003 to explore the scope for cooperation. But so far very little has been done to work out the economics or explore the political implications of such cooperation. At the level of civil society, SACEPS set up a Task Force to explore the scope for cooperation. Its report identified the attendant benefits as well as the complex issues of politics, ownership, pricing and management associated with building energy linkages in the region. This report was presented to the SAARC Summit in Islamabad. Another study by the Coalition for South Asian Cooperation (CASAC) and the CPD, Dhaka, has taken the work of the SACEPS Task Force forward and completed a more comprehensive study on energy cooperation. There is a need for both SAARC and civil society institutions in the region to come together to draw a substantive and implementable programme for energy cooperation which can be discussed more comprehensively by the SAARC governments before concrete proposals for cooperation are placed before the Summit. Harmonising Macro-economic Policies Any move towards an Economic Union cannot limit itself to a free trade area. SAARC will sooner or later have to explore the scope for a Customs Union. This issue will not be as complex as it might have appeared some years ago. Under the pressure of the WTO convergence in tariff levels across the world is the order of the day. Since all SAARC countries have been lowering their tariff rates, mostly under pressure from the World Bank/IMF structural adjustment reforms, the deep disparities in tariff levels which once characterised the region are less apparent toady. It, therefore, makes sense to open up discussion on adopting a common tariff policy visĂ -vis the rest of the world. However, this task is also problematic. It is the smaller economies who have reduced their tariffs rather faster

than India or Pakistan. However, this is not a problem which can persist over a long period of time due to the WTO rules of the game. It would therefore make sense to initiate work on the implications of a Customs Union within South Asia in order to see when, under what circumstance and at what pace such a Union can be put in place. Deepening integration will involve moving beyond trade to address the broader issue of harmonising macro-economic policies. This would cover such areas as fiscal, monetary and exchange rate policies. Such a level of cooperation would demand coordination amongst SAARC finance ministers to ensure that their budget deficits, inflation, exchange and interest rates maintain some element of alignment. Such issues have never been discussed at any level within SAARC. Coincidentally, such macro-economic indicators, with episodic variations, have in recent years not significantly diverged across the SAARC countries. However, this cannot always be the case so that some consultation, if not coordination, amongst finance ministers would be in order. The more advanced move towards a common currency lies even further ahead. The available professional work on monetary cooperation carried out by IPS, Colombo, and at RIS, New Delhi, on behalf of SACEPS, has examined the implications of moving towards exchange rate harmonisation and eventually a common currency. Both studies have recognised that any move in the direction may be premature. However, what has emerged out of these civil society consultations is the suggestion that a parallel currency rather than a common currency may be put in place largely to underwrite trade and investment transactions in the region. So far little or no discussion at the official level has taken place among SAARC finance ministers on macro-economic policy. Even though the finance ministers are expected to meet every year such meetings have been episodic and have limited themselves to safe subjects such as poverty. Integrating Labour Markets It makes little economic sense to talk of globalisation though integration of factor markets, in the form of commodities and capital, while omitting all discussion of labour which is a recognised factor of production. Freeing of the movement of labour across national

boundaries is not discussed either at the WTO or the SAARC fora. In the WTO the SAARC countries come together to support the inclusion of the movement of natural persons in any discussion on trade in services. It is preposterous for the U.S. and the Europeans to include such issues as the liberalisation of banking, insurance and consultancy services as part of the negotiations on the services sector at the WTO without any reference to labour services which are a major export from Bangladesh, India, Nepal, Pakistan and Sri Lanka. In contrast to South Asia's strong position on the subject in international fora it is verboten to discuss the issue of movement of natural or any other variety of persons in any SAARC fora. The truth is that the issue of labour flows across borders, whether at the WTO or in South Asia, is discussed as an issue of immigration, usually illegal, by ministries in charge of internal security rather than those responsible for trade and economic affairs. To the extent that SAARC governments may remain inhibited about discussing the problem of labour flows it is suggested that at the level of civil society serious discussion of the issue should take place. These dialogues would need to be backed by major research on the underlying economics, the social implications in the receiving and sending countries and the political fallout from this process. Such an exercise should recognise that important issues of human rights as well as national security are involved along with the criminal dimension associated with human trafficking of women and children. It is hoped that out of such research and consultation, a realistic and humanatrian policy will emerge which can serve to formalise the process of labour flows and integrate this into the process of economic cooperation in South Asia. Such an exercise will need to recognise that if a South Asian Economic Union is to emerge labour market integration will have to be a central component of the process. Trade in Services South Asia has a fast and growing trade in services. Large numbers of South Asians cross each other's borders as tourists, pilgrims, professionals, students and health care seekers as well as providers. Nepal, Maldives, Sri Lanka and India are major tourist destinations both globally and within the region. India is a major attraction for students and health care seekers while Indian nurses and doctors are

much in evidence in a number of hospitals in Bangladesh, Nepal, Maldives and Bhutan. Managers and professionals from India are in service in Nepal and Bhutan just as Indian and Pakistani managers are running textile mills in Bangladesh while Bangladeshi cooks and waiters are ubiquitous in Maldivian tourist resorts. With the enhancement in the quality of service delivery across the region this trade in services will grow and may do so exponentially, since this is an area where South Asia has some comparative advantage. There is, however, no reason why the market in services should be monopolised by India. Pakistan, Sri Lanka and Bangladesh can invest in their education and health-care sector both directly and though collaboration with India, to attract service seekers from within the region as well as globally. Pakistan already has some excellent hospitals and institutions of educational excellence such as the Lahore University of Management Sciences which attract clients from overseas. It would not take much effort to upgrade such service sectors in these countries to serve a regional and even global market. India is now emerging as one of the major exporters of IT services at the global level. There is an expectation that this could grow to US$ 50 billion. Here again Sri Lanka, because of its level of educational attainment, Pakistan, Bangladesh and even Maldives have the potential to share in the fast growing IT market. Here India, in particular, can play and indeed is beginning to play, a crucial role in enhancing capacity as well as investing in these sectors in all the countries of the region to enable them to connect with the global and regional IT market. SAARC initiatives in the service sector have not moved beyond some consultations related to the tourism sector. Much more work, again possibly at the level of civil society, needs to be done to estimate the extent and nature of this market as well as its underlying dynamics. Such studies can then be used to open up dialogue at the official level to see how the issue of services should be integrated into the SAFTA process. Since much of this trade in services is informal and hence unrecorded, this trade will continue to expand through the play of market forces. It may be counterproductive for SAARC to interfere with the market but the SAARC process should be used to explore ways to enhance the export capacity in services of the weaker SAARC

member countries. Social Integration South Asia is united by its poverty. It contributes the largest share of the world's poor, illiterate, hungry and medically deprived, though Sri Lanka and Maldives contribute little to these numbers. Any move to integrate South Asia cannot, therefore, bypass this defining social reality. It was, therefore, appropriate that the Colombo Summit of 1991 set up the Independent South Asian Commission on Poverty Alleviation (ISACPA). A quite creative document on how to alleviate South Asia's poverty was prepared by ISACPA and placed before the SAARC Summit in Dhaka in 1993. The Summit indeed set 2002 as the date by which poverty would not just be alleviated but eliminated from South Asia. However between 1993 and 2002 not much was done at the national level to honour this commitment nor was any attempt made at successive SAARC summits to take account of progress in this area. The emerging global compact in the wake of the Millenneum Summit of 2000 has focused attention on poverty reductions and has led to the formulation of the Millennium Development Goals (MDG) which are expected to be realised in each country by 2015. This global emphasis on poverty as much as the awareness that poverty was still endemic in South Asia even after 2001 seems to have excited the Kathmandu Summit of 2002 to revisit poverty. The Summit accordingly commissioned an ISACPA-II to address the issue of poverty again. The ISACPA-II report was submitted to and endorsed at the Islamabad Summit. It set itself the more modest goal of alleviating rather than eliminating poverty which was rewarded by the Summit that perpetuated the life of the ISACPA to oversee the implementation of its goals. The main goals of ISACPA-II, however, appear to be mostly committed to monitoring the poverty trends and progress towards the Millennium Development Goals (MDG) in the South Asian countries and in sharing experiences and best practices across the region. These are modest goals which could well be realised even within SAARC. Eradicating or even alleviating poverty remains a national task which is supposed to be addressed by each SAARC country, except India, within the framework of a Poverty Reduction

Strategy Paper (PRSP) which is the new global development framework initiated by the World Bank and IMF. India has not taken the PRSP route claiming that its current Five Year Plan incorporates its own PRSP. Obviously there is very little SAARC can do to alleviate poverty since this task remains the paramount obligation of the member countries. However, poverty reduction is not just an exercise in development budgeting but is integral to the political economy of the concerned society. Given the salience of political and social variables, it is less clear how far ISACPA can discharge its role as a watchdog of the progress in poverty alleviation in South Asia without major backup from both the political parties and civil society of South Asia. SAARC Social Charter A prospective coalition of civil society institutions needs to be established to evaluate the progress towards poverty eradication as well as to see how far South Asian governments are meeting their obligations towards implementing the provisions of the SAARC Social Charter which was signed at the Islamabad Summit. This role of a civil society monitor for the Social Charter is even more important because there was no such entity as ISACPA which prepared the SAARC Charter and can now oversee its implementation. The Social Charter was prepared almost as an afterthought, by bureaucrats convened by the SAARC Secretariat, with little or no consultation either with SAARC governments or civil society. Very little is known about the SAARC Social Charter within most governments who have exercised little ownership over the final document. The signing of the Charter by the SAARC Summit was thus largely a proforma exercise since neither the foreign ministers or the presidents/prime ministers who endorsed the Charter are aware of its contents let alone its implications. Notwithstanding its origins, the SAARC Charter is an ambitious document influenced by similar documents in other parts of the world. However, unlike its role model, the European Social Charter, the SAARC Charter is long on exhortation but makes few binding commitments to which governments can be held accountable. Addressing such provisions of the Social Charter as the right to food, work and health-care, will demand strong action by civil society. SAARC governments have signed many such international covenants

to which they pay little more than lip service. As long as South Asia remains a region mired in poverty and injustice, exposed to growing income inequality and social disparity, the Social Charter must serve as an instrument of advocacy on behalf of the deprived and excluded. It is the responsibility of civil society across South Asia to hold their governments accountable for correcting these injustices. This will demand an alert, informed and committed civil society which will need to bond together within each country and across the region to build a collective identity that can empower them to play the role of both advocate and custodian for the rights of the deprived majority of South Asia. Conclusion: The Role of Civil Society There is a strong and growing demand within civil society for greater cooperation within South Asia. However, the constraints to cooperation in virtually every area originate in the tendency of member governments to politicise issues for reasons of domestic expediency. Citizens in the region do want to trade with each other, travel across borders as freely as do the citizens of the European Union or ASEAN and to live without the threat of war or fear of terrorism. The leaders of the SAARC countries need to respond to the needs of their citizens and demonstrate the statesmanship to resolve their short and long term conflicts. These conflicts can be more readily addressed within a framework of open regionalism where borders and nationality do not become constraints to the intercourse of people and commerce. Such a perspective on South Asian cooperation appeared to have emerged out of the Islamabad summit but needs to be sustained by the commitment of the SAARC leaders and incorporated into the institutions governing inter-state relations. While South Asia needs visionary leaders who can perpetuate the spirit of Islamabad Summit, it needs a strong civil society that can project the needs of the people of the region before these leaders. These needs are already reflected in the commitment of the leaders to reducing poverty and upholding the rights of the excluded through the SAARC Social Charter. But for these rights to be realised South Asia has to be transformed into zone of peace where its scare resources are not exhausted in building security establishments, which become obstacles to cooperation in the region. The process of South Asian cooperation thus needs to become a shared project

between the political leadership and the citizens of the region. This social compact must draw upon the involvement of an engaged civil society, bound by a shared commitment to live as a community. It is these citizens who will not only need to hold their governments' accountable for working together to build a common future but will have to assume a vanguard role in recreating a South Asian community. Prof. Rehman Sobhan is a senior economist and chairman of the Centre for Policy Dialogue (CPD) in Dhaka, Bangladesh.

SAFTA : A Critique Dr Saman Kelegama

AARC is well reputed for limited achievements on core issues. The fact that the South Asian Free Trade Area (SAFTA) agreement was signed at the 12th SAARC Summit in January 2004 is in itself an achievement. SAFTA was long overdue, the turbulent South Asian regional politics having often delayed its finalisation. In fact, there was a time when it appeared that SAFTA would remain only a vision (Kelegama, 1996, Mukherji, 2002). SAFTA was first mooted at the 8th SAARC Summit in Delhi (1995), it was suggested then that it should come into operation by 2005. This date was revised at the 9th SAARC Summit in Male (1997), where it was declared that SAFTA should come into operation by 2001. However, the 9th SAARC Summit also took a decision to appoint a Group of Eminent Persons (GEP) to draw up a vision and a roadmap for SAARC. Obviously, the GEP had to look at SAFTA and its feasibility by 2001. At the 10th SAARC Summit in Colombo (1998), the GEP report was presented which stated that a more realistic timetable for SAFTA is 2008 and, for the least developed countries in South Asia this date was extended to 2010 (GEP, 1998). At the Colombo Summit, the date for SAFTA was postponed without specifying any time bound target, but a decision was taken to have a 'Framework Treaty' by the year 2001. Due to regional politics, the preparation of the Treaty got delayed and it finally came into shape by January 2004. In this paper, an attempt is made to examine the SAFTA agreement

that was signed by the Foreign Ministers of the SAARC member countries at the 12th SAARC Summit. First, a brief survey is made in Section II on SAPTA. Section III then makes an assessment of the SAFTA agreement in the light of the GEP report recommendations. Section IV has some concluding remarks. SAPTA to SAFTA While the debate for the SAFTA timetable was going on, there was some progress in the South Asian Preferential Trading Arrangement (SAPTA) which came into operation in December 1995. By the time of the 10th SAARC Summit in July 1998, two rounds of SAPTA had been completed and close to 2,126 products were under tariff preferences but the progress had been slow (IPS, 1999: 22). It adhered to four modalities for tariff negotiations, viz., (a) productby-product approach, (b) across-the-board tariff reduction, (c) sectoral tariff reduction and d) direct trade measures. The third round of SAPTA was completed by November 1998. By early 2000, the results were far from satisfactory, and a case study for Sri Lanka observed: 'SAPTAâ&#x20AC;Śhas had no significant impact in changing the existing trade pattern of Sri Lanka vis-Ă -vis its South Asian partners' (Weerakoon and Wijayasiri, 2001: 21). Mukherji (2002: 98) concluded: 'Except for India, none of the other contracting states has conceded meaningful tariff cuts. The effects of trade liberalisation are thus modest.' The progress of economic cooperation under the SAPTA umbrella and the design of a SAFTA agreement got delayed during the period 1999-2001 due to the deterioration of Indo-Pakistan relations1. An attempt was made in December 2000 by a newly formed South Asian Citizen's Commission to pressurise SAARC member states to get the SAFTA 'Framework Treaty' by late 2001 but to no avail. A Summit could not be held during this three-year period and the 11th SAARC Summit took place in January 2002 in Kathmandu. In this summit, a decision was taken to have the SAFTA Treaty ready by the 12th SAARC Summit. The SAARC Secretariat coordinated the work of the commerce ministries of the respective SAARC member countries in preparing the SAFTA agreement. Meanwhile, the 4th round of SAPTA negotiations took place in October 2002. The four rounds of SAPTA had resulted in coverage of over 5,000 tariff line items (SAARC, 2002). Studies have shown that the SAPTA

process contributed very little in stimulating intra-regional trade (Mukherji, 2002, SACEPS, 2002a, and others). Due to the slow progress of the regional initiative of promoting trade, a number of SAARC member countries decided to embark on bilateral free trade agreements (BFTA). The Indo-Lanka BFTA was signed in late 1998 and came into operation in early 2000. Long existing Indo-Nepal treaties were formalised as a BFTA in 1996 (RIS, 2004: 53). A number of other sub-regional initiatives such as growth quadrangles (Bangladesh, Bhutan, Nepal and India) and triangles (Sri Lanka, Maldives, South India) were mooted and some of them were initiated. These sub-regional initiatives were not considered for preferential trading but for sectoral cooperation. In addition, several South Asian countries joined wider regional groupings in Asia such as the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC initiated in 1997) and BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation initiated in 1997). Both these groupings were not preferential trading blocs- IOR-ARC was based on open regionalism where unilateral trade liberalisation was advocated, while BIMSTEC was initially based on sectoral cooperation. Membership in such panAsian regional groupings was obtained by some South Asian countries in the hope of gaining more economic benefits, which the SAPTA process was not delivering. Clearly, the SAFTA agreement has come at a time when the trading environment in South Asia is complicated by the slow progress of SAPTA and a number of parallel regional and pan-regional initiatives are in place. It would, therefore, be pertinent to examine whether the SAFTA agreement has taken into account the factors governing the slow progress of SAPTA and the complications created by parallel initiatives. The SAPTA framework was basically guided by the 'positive list' approach, though there were instances where sectoral tariff preferences were considered between member countries2. The process adopted by SAPTA was extremely time consuming and slow. Moreover, at least in the first two rounds of SAPTA, non-tariff barriers (NTBs) were not considered for removal with the granting of tariff preferences. In a nutshell, besides these problems: (1) the tariff cuts were not deep enough, (2) a wide range of goods was not subject

to preferential tariffs and (3) some actively traded goods were left out from preferential tariffs. These problems were visible in the first preferential trading arrangement in Asia, i.e., the Bangkok Agreement (BA) and were highlighted before SAPTA came into operation but the same mistakes were repeated3. SAFTA Treaty and the GEP Report Jean Monet spoke of European integration in the 1950s and some ridiculed him as a dreamer at that time. However, Monet's dream was realised in a 40-45 years' time period. Likewise, some commentators have expressed various reservations on the GEP vision of a South Asian Economic Union by 2020. However, it is not an impossibility as the realisation of the European Union clearly indicates.4 The GEP Report on 'SAARC Vision Beyond the Year 2000' still awaits adoption by the SAARC Council of Ministers. This is in contrast to other regional groupings such as APEC, where their GEP Report was adopted and put into practice soon after its submission. The SAARC GEP Report has many suggestions, and with regard to movement towards a free trade area, the report, after taking cognizance of the problems encountered by SAPTA, recommended a 'negative list' approach for tariff reduction with an annual 12.5 per cent tariff reduction by member states, removal of all NTBs within a time frame, and a number of other trade facilitating policies. The SAFTA agreement is a far cry from the recommendations of the GEP Report. The tariff reduction process, timetable, additional measures (or direct trade measures) etc., differ significantly from the GEP recommendations. Moreover, there are inherent shortcomings in the agreement.

developed countries (LDCs) should reduce their tariffs to 30 per cent in two years and thereafter should bring down the tariffs to 0-5 per cent within an eight year period. If however, tariffs are below 20 per cent for non-LDCs, it is stated that an annual 10 per cent reduction should be made for two years. And for LDCs, if tariffs are below 30 per cent it is stated that an annual 5 per cent reduction should be made for two years. There is a 10-year period commencing 01 January 2004 for the FTA to become fully operational. Once the existing tariffs are reduced in accordance with the above format and completed by 01 January 2006, the subsequent tariff reduction process is aimed at achieving 0-5 per cent tariff rates by the end of eight years for LDCs and by the end of six years for the non-LDCs. The non-LDCs (and LDCs) are encouraged to adopt reductions in equal annual instalments of not less than 15 per cent (and 10 per cent for LDCs) annually. The above format of tariff reduction is a substantial departure from what is recommended in the GEP Report and is somewhat close to what the SAARC Chamber of Commerce and Industry (SCCI) suggested5. The problem with this format of tariff reduction is that, despite reduction of average tariffs, distortions will prevail in the form of high tariffs in particular products in some countries. Perhaps it would have been more efficient if convergence was achieved before embarking on lowering tariffs further. In order to ensure that the benefits incur to all member countries, achieving convergence as in the case of the ASEAN-FTA is always better.

Many important items critical for the success of SAFTA are left for negotiations such as the rules of origin (Article 18), negative list, areas for technical assistance, etc. This could cause considerable delay and might make it difficult to have the SAFTA process fully operational by 01 January, 2006 (the declared date).

Although Quantitative Restrictions (QRs) will be removed as soon as the tariff levels reach 0-5 per cent, it is not clear from Articles 06 & 07 (4 & 5) whether other NTBs will be removed with the QRs. Moreover, if the Treaty is going to strictly adhere to this method of removal of various NTBs, it will be difficult to exploit the full gains from various phases of tariff reductions, thus defeating the objective of preferential tariffs. There is no reference to a movement towards a Customs Union after the FTA in the SAFTA agreement- a key recommendation of the GEP Report6.

It is stated in Article 07 that for non-least developed countries (nonLDCs) the existing tariffs should be reduced to 20 per cent in two years and thereafter in a five year period, tariffs should be reduced to 0 - 5 per cent (Sri Lanka is given a period of six years). Least

Article 7.3 (a & b) refers to the negative list. It is stated that the number of products in the negative list shall be subject to a maximum ceiling that is mutually agreed upon among the member states and will be reviewed every four years. There is no deadline for

determining the negative list and there is no format for phasing out the negative list over the years. All these issues seem to have been left for discussion by the SAFTA Ministerial Council established under Article 10. If the negative list becomes too long, the agreement may not become compatible with Article XXIV of GATT. In fact, SAPTA comes under the Enabling Clause of the GATT, which is considered by some commentators as non-serious in commitment for it to cover 'substantially all the trade' as stipulated in the GATT (Kelegama and Adhikari, 2002). When items critical for the success of an FTA are left for negotiation, the finalisation can get delayed. This was the case with the Indo-Sri Lanka BFTA where the negative list was open for negotiation. Consequently, it took nearly one year and two months for the agreement to become effective after it was signed. Various disagreements had to be sorted out before finalisation. The phasing out of the negative list could have been based on the ASEAN FTA model where there was a clear strategy with a tariff line classification based on an Inclusion List, Temporary Exclusion List, Sensitive List and a General Exception List for implementing a Common Effective Preferential Tariffs (Mukherji, 2002; SACEPS, 2002a). This dimension has been completely ignored in the SAFTA agreement. In addition to the differential tariff reduction format, the agreement makes a number of provisions for according special and differential treatment to the LDCs in the region (Article 11). There are provisions for non-LDCs considering direct trade measures in favour of the LDCs, such as long and medium-term contracts containing import and supply commitments in respect of specific products, buy-back arrangements, state trading operations and government procurement. LDCs will get special consideration for technical assistance, in particular, to compensate for revenue shortfalls from tariff reductions. These measures do not go far enough to ensure that LDCs will be able to derive equitable benefits from SAFTA. It was this concern that made Bangladesh hesitate till the last minute before signing the agreement. Bangladesh wanted non-LDCs to refrain from imposing anti-dumping and countervailing measures against LDCs, and rightly so, since no such provision exists in any other existing FTA. This concern was partially accommodated by stating: 'The Contracting States shall give special regard to the situation of LDCs when considering application of anti-dumping and

countervailing measures'. [Article 11 (a)] The agreement does not consider the suggestion of the GEP for creation of a large fund for development of infrastructure, human resources and improvement of export supply capacity of LDCs. Without significant structural changes in the production structure, LDCs are unlikely to derive equitable benefits from SAFTA. SACEPS (2002a) has shown that in the EU for raising the level of development in the less developed member countries such as Spain, Portugal and Ireland, the European Commission had created a development fund for each of them amounting to 3- 5 per cent of their GDP. Such arrangements have not been considered in the agreement, perhaps due to reservations expressed by non-LDC member countries. It would be imperative to ask at this juncture why many SAARC members shy away from preferential tariff reduction. The first reason is rigid factor markets- in particular, labour and capital- prevalent in most SAARC member countries. These factors of production find it difficult to move out due to tight legislation governing them when the industries are subject to restructuring as result of tariff liberalisation.7 Consequently, instead of industry restructuring, what takes place is closing-down of industries with serious social and political consequences8. This is an issue for economies where the small and medium scale enterprises dominate the industrial and agricultural sectors in terms of employment. Thus, considerable structural adjustments also have to take place, particularly in LDCs to face tariff reforms with a greater degree of confidence. Second, there is a fear among the smaller countries that the main beneficiary from tariff liberalisation would be the larger countries9. Irrespective of the theoretical viewpoint10, the perception of smaller countries needs to be recognised, and it was this realisation that led to the 'Gujral Doctrine' to be introduced by India in 1997/98. However, there is some dilution of the doctrine in recent years and giving vent to this, an editorial of the Economic and Political Weekly (EPW) stated: 'It is for India to ensure that smaller members of the region have a growing stake in regionalism â&#x20AC;Ś. This responsibility India has not taken seriously'. (EPW, January 10-16, 2004: 119) To reduce the cost of structural adjustment, 'additional measures' are

required. Additional measures in Article 8 do not measure up to the GEP report, where reference has been made for an establishment of a South Asian Development Bank, South Asian Development Fund and a South Asian Energy Grid. The GEP report has strongly recommended the creation of a SAARC Investment Area and vertical industrial integration. None of these receive mention in the agreement and it does not provide for creation of a mechanism for pursuing additional measures under Article 811. There is a sizeable body of literature on South Asia Energy Grid (SACEPS, 2002b; RIS, 2002; and others). A SAARC Investment area has also been looked at in recent literature (SACEPS, 2002c; RIS, 2002; and others). In fact, the trade-investment nexus has come into effective operation in South Asian bilateral FTAs and RIS (2004) shows how the large trade deficits between two countries have been compensated by the capital account through significant investment flows. In the context of investment flows, horizontal and vertical integration of industries of South Asia becomes important to face the global competitive pressures12. Even though a multitude of literature is available on these crucial issues, the agreement has completely overlooked these areas and solely focused on trade facilitating measures in Article 8. Finally, the agreement is silent on how SAFTA is going to integrate the existing bilateral free trade agreements between some SAARC countries (such as the Indo-Lanka BFTA, Indo-Nepal BFTA, and the ones that are under consideration, for example, Pakistan-Sri Lanka BFTA and Indo-Bangladesh BFTA) into the SAFTA agreement. If integration is not an option, will SAFTA operate parallel to the existing treaties?. This seems to be most likely and will create a 'Spaghetti Bowl' type of phenomenon (a la Bhagwati, 2002) with parallel preferential tariffs, rules of origin and negative lists13. Thus the Customs and Commerce Departments in individual SAARC countries will have to be upgraded to meet this challenge. Since trading in SAARC basically means to trading with India, this objective seems to have been met in the current trading environment by bilateral FTAs. Thus, SAFTA will basically boil down to trading between India and Pakistan. If the remaining bilateral FTA with India, viz., Indo-Bangladesh comes into operation soon, there are reasons to believe that there will be less enthusiasm among some

SAARC countries about SAFTA. The SAFTA agreement does not refer to liberalisation of trade in services. A regional trade arrangement should not only be deepened but widened as well. For example, the Indo-Sri Lanka BFTA has now been advanced to an Indo-Lanka Comprehensive Economic Partnership Agreement where liberalisation of services (in addition to investment) has been included. The BIMSTEC Free Trade Area that was signed in early February 2004 refers to liberalisation of services under a GATS-Plus framework in Article 4. In short, the SAFTA agreement is not futuristic14.

The above-mentioned technical shortcomings are obviously going to get aggravated by regional politics. Much will depend on whether Pakistan would offer MFN status to India in 200415. Present indications are that there is a commitment to a peaceful settlement of the long-standing bilateral dispute between India and Pakistan. However, if the MFN issue between the two nations is not settled soon, it will be a major obstacle to the birth of SAFTA. The Indian Prime Minister stated in 2003 that South Asia should move towards a common currency. Obviously this would be possible if there is monetary cooperation among South Asian countries. Currently, under SAARCFINANCE a discussion on monetary cooperation is ongoing. Moreover, literature on the subject is also on the increase (Maskey, 2002; RIS, 2004; and others). RIS (2004), for instance, has suggested the introduction of a parallel currency as the first step towards moving to a common currency. The subject did not receive any attention from the 12th SAARC Summit. It appears that the futuristic proposals have been set aside in order to cover the backlog that has accumulated due to the frequent postponement of SAARC Summits. Concluding Remarks Whether regional trade is the best available option for South Asia has been a subject of debate since the mid-1990s. Critics of promoting regional trade in South Asia via preferences have argued that South Asia would be better off focusing on trade with the rest of the world, in particular, EU and USA (Srinivasan, 1994; Pigato et al., 1997; Panagariya, 1999; and others). A recent report released by the World

Bank (2003) argues: 'Because many tariffs in the region are very high, especially in India and Bangladesh, there are large potential trade diversion costs for the region as a whole if the various preferential trade agreements were ever to be seriously implemented. The consequent reductions in economic welfare would show up principally in reduced customs revenue and terms-of-trade losses. It is unlikely that benefits through increased competition, economies of scale, or improved operating efficiency of import competing firms would outweigh these overall economic costs. There are much larger gains for increased trade with the rest of the world (ROW), especially trade with the developed countries and with more advanced developing countries in South East Asia, including China. This is because the South Asian countries have a comparative advantage in relation to ROW in similar, mostly labour intensive products, and the volume of trade and the economic benefits from trading these products among themselves are limited by comparison.' (p. 22) On the other hand, those who argue the case for regional trade state that substantial trade is already taking place in South Asia with informal trade amounting to a large proportion of formal trade. The exact intra-regional trade is estimated anywhere between 8-10 per cent. Although studies have shown that there are limited complementarities in the SAARC region, it is argued that this was also the case in ASEAN during the mid-1970s, and that dormant complementarities in the region could be invigorated by intraregional investment and FDI16. They also argue the cost of noncooperation to be quite high (RIS, 2004 and 1999; GEP, 1998; CUTS, 1996; and others). The debate is far from settled. Irrespective of the debate, there is a general belief that regional cooperation in South Asia should not be viewed only from the trade perspective, and that there are many gains from regionalism in other areas. The past decade has seen the emergence of a number of regional trading blocs in different parts of the world and data shows that nearly 60 per cent of world trade is now conducted on preferential basis. The countries that are not part of a trade bloc face the risk of discrimination of their exports and loss of competitiveness. Thus, in the light of global trends, irrespective of the pros and cons of the academic debate, South Asia has been pushed to adopt regional economic integration. In the SAARC, promoting intra-regional trade is part of a large package of economic cooperation and SAFTA is a

part and parcel of South Asian Economic Cooperation. However, the movement to SAFTA is taking place in an environment where: (1) the precursor to SAFTA, i.e., the four rounds of SAPTA have failed to show concrete results, (2) several bilateral FTAs are well entrenched in the South Asian trading system, and (3) South Asian tariffs are already coming down under World Bank/IMF structural adjustment programmes. The third factor in effect is automatically reducing the preferential margin. Moreover, there are a number of shortcomings, clauses open for interpretation and items for further negotiations in the SAFTA agreement This shows that most of the research work that was done by the SAARC second-track 'think tanks' has not been fed in effectively to the SAARC first-track or the official process17. Given this situation, not much can be expected from SAFTA. The initial euphoria that comes with the signing of the SAFTA agreement will soon taper away. The realities and the geo-politics of the region will once again determine the pace of negotiations in SAFTA. By that time, the bilateral FTAs would have delivered most of the results for the smaller South Asian countries and SAFTA will be an agreement mainly to promote India-Pakistan trade. Is it due to this realisation that the SAFTA agreement did not bother about a vision and ignored a number of worthy suggestions of the GEP Report? Dr Saman Kelegama is executive director of the Institute of Policy Studies, Sri Lanka. Endnotes 1 Kargil conflict and subsequent military standoff. 2 In the third round, sectoral tariff preferences were exchanged between India and Bangladesh (SACEPS, 2002a). 3 It was highlighted that the Bangkok Agreement failed to be an effective preferential agreement due to such shortcomings and SAPTA should take due caution of this (Kelegama, 1996). 4 The GEP report is taken as a reference point in this paper in the absence of any other document on the vision for South Asia. For a critique on the GEP Report, see, for instance, Jayasekera (2001). 5 See Mukherji (2002:93). 6 Sometimes the movement to a Customs Union may be a problem due to political economy factors. When this is the case, member states could consider alternative routes to deepen economic integration, such as working out a Comprehensive Economic Partnership Agreement

7 8

9 10

11 12

59 (CEPA). The Indo-Sri Lanka BFTA currently is considering such an approach to deepen economic integration (see, for instance, Kelegama, 2003). SAFTA can always explore new paths for deepening integration if a Customs Union is not feasible. Sometimes when institutions are not in place to support restructuring, the process becomes more complicated. It is acknowledged that some inefficient industries have to close down if they are not competitive. However, even potentially competitive industries close down due to unfriendly factor markets. A discussion on this is available in Kelegama (1999). RIS (2002), for instance, has argued that it is the small countries that would benefit most from trade liberalisation; however, the debate is far from settled (Weerakoon and Wijayasiri, 2001). Some items get mentioned in the Declaration of the 12th SAARC Summit. RIS (2004) provides an excellent example of how horizontal and vertical integration could take place in industries of the region by taking the case of the textiles and garment sector. For example, Sri Lanka can export cloves under preferential tariffs to India under the Bangkok Agreement, SAPTA and the Indo-Sri Lanka BFTA. In the near future, it will also have the privilege of exporting cloves to India under the BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation) FTA. It is only in the 12th SAARC Summit Declaration that reference is vaguely made to a future Customs Union and thereafter a South Asian Economic Union. India granted MFN status to Pakistan in 1995 but the latter has been reluctant to reciprocate and has linked the trade settlement to the Kashmir dispute. Intra-regional trade in ASEAN was close to 6 per cent in the mid-1970s, but now has increased to around 23 per cent. ASEAN too was characterised by limited complementarities at the beginning but the situation changed with preferential trading, FDI and intra-regional investment (SACEPS, 2002a). For details on limited complementarities in SARRC, see Din and Qadir (2004). SACEPS (2002a) report, where many of the problems associated with the movement to SAFTA were identified, was submitted to all the Foreign Ministries of SAARC member countries before the 12th SAARC Summit. In fact, all of them received copies in early 2003. However, none of the recommendations given to address the problems in the report seem to have been taken into account.

References l J. Bhagwati, Free Trade Today, (New Delhi: Oxford University Press,

India 2002). l CUTS, 'Cost of Non-Cooperation to Consumers in the SAARC Countries:

An Illustrative Study', Working Paper, Consumer Utility Trust Society, Jaipur, India 1996. l Musleh-uddin and U. Qadir, 'Revealed Comparative Advantage and Trade Complementarity in South Asia', South Asia Economic Journal, vol. 5, no. 2 (2004 forthcoming). l EPG, The Report of the SAARC Group of Eminent Persons, SAARC Secretariat, Kathmandu 1998. l IPS, Sri Lanka: State of the Economy 1999, (Colombo: Institute of Policy Studies, 1999). l D. Jayasekera, 'GEP Report: Critical Evaluation of Economic Aspects' in S. Kelegama, (ed.), Impediments to Regional Economic Cooperation in South Asia, (Colombo: CASAC/FES/IPS publication, 2001). l S. Kelegama, 'Sri Lankan Exports to India: Impact of Free Trade Agreement', Economic and Political Weekly, vol. XXXVIII, no. 30, July 26-August 1, 2003. l S. Kelegama and R. Adhikari, 'Regional Integration in the WTO Era: South Asia at Crossroads', SAWTEE/CUTS-CITEE Discussion Paper, SAWTEE, Kathmandu, Nepal 2002. l S. Kelegama, 'SAARC From Association to Community: A Small Country Economic Perspective', South Asian Survey, vol. 6, no. 2 1999. l S. Kelegama, 'SAPTA and its Future', South Asian Survey, vol. 3, nos. 1 and 2 1996. l N.M. Maskey, 'South Asian Monetary Integration in Light of the Optimum Currency Area Criterion of Pattern of Shocks,' South Asia Economic Journal, vol. 2, no. 2, 2001. l I.N Mukherji, 'Charting a Free Trade Area in South Asia: Instruments and Modalities', in T.N. Srinivasan (ed.), Trade, Finance, and Investment in South Asia, (New Delhi: Social Science Press, 2002). l A. Panagariya, 'Trade Policy in South Asia: Recent Liberalisation and Future Agenda', The World Economy, June 1999. l M. Pigato, et al. (1997), South Asia's Integration into the World Economy, (Washington, D.C.: The World Bank, 1997). l RIS, South Asia Development and Cooperation Report 2004, Research and Information System for Non-Aligned and Other Developing Countries, New Delhi, India 2004. l RIS, South Asia Development and Cooperation Report 2001/02, Research and Information System for Non-Aligned and Other Developing Countries, New Delhi, India 2002. l RIS, SAARC Survey of Development and Cooperation 1998/99, Research and Information System for Non-Aligned and Other Developing Countries, New Delhi, India 1999. l SAARC, 'Regional Economic Cooperation Initiatives within the SAARC Region' and 'A Brief on SAARC', (Kathmandu: SAARC Secretariat, 2000). l SACEPS , SACEPS Task Force Report on SAFTA, South Asia Centre for Policy Studies (SACEPS), Dhaka, Bangladesh, (2002a). l SACEPS , SACEPS Task Force Report on South Asian Investment

61 Cooperation, SACEPS, Dhaka, Bangladesh, (2002b).

l SACEPS , SACEPS Task Force Report on Energy Cooperation in South

Asia, SACEPS, Dhaka, Bangladesh, (2002c). 'Regional Trading Arrangements and Beyond: Exploring Some Options for South Asia Theory, Empirics, and Policy', Report no. IDP-142, South Asia Region, (Washington, D.C: The World Bank, 1994). l D. Weerakoon and J. Wijayasiri, 'Regional Economic Cooperation in South Asia: A Sri Lankan Perspective', International Economic Series, no. 6, (Colombo: Institute of Policy Studies 2001). l World Bank, 'Trade Policies in South Asia: An Overview', Poverty Reduction and Economic Management, South Asia Region, (Washington, D.C: The World Bank, May 2003). l T.N. Srinivasan,

SAFTA and Economic Cooperation Dr A.R. Kemal

nternational trade helps in improving welfare by allowing higher levels of consumption and investment than otherwise possible. In a labour surplus country like Pakistan it also helps in generating higher rates of employment and wages with positive implications for income distribution and poverty, thus further increasing social welfare. While the promotion of multilateral trade, mandate of WTO, promises higher rate of economic growth across the globe, the spread of regional blocs denies the advantages of free trade to the countries outside the group. Therefore, for enjoying benefits of higher trade, including improved resource allocation, higher level of technical and X-efficiency, and wider options for consumers and exposure to new ideas, technologies and products, the South Asian countries must ensure trade facilitation, higher investment and economic cooperation in other areas of economic development. Although the South Asian Association for Regional Cooperation (SAARC) has been in existence for about 20 years, intra-regional trade is still around 4 per cent of their total trade [See IRS (2004)]. The South Asian Preferential Trade Agreement (SAPTA) signed in the mid-90s has helped little in promoting the intra-regional trade because most of the products of export interest to the regional countries were excluded from the preferential treatment. It reflects mistrust and unwillingness of the South Asian countries to increase their interdependence, that augurs well for political and economic cohesion.

The SAARC summit declaration of Islamabad promises a South Asian Free Trade Area (SAFTA). It calls for reduction in import duties to 20 per cent by 2006 and between 0-5 per cent by 2013, but allows the less developed economies to reduce the rate of duties to 05 per cent by the year 2016. SAFTA allows the countries to notify the negative-list which will not enjoy concessional import duties. Obviously, if the negative-list is quite large, the impact of the agreements will be little. Considering the significance of trade to welfare, it is hoped the South Asian countries will keep the negativelist small. Intra-Regional Trade and SAPTA For promoting intra-regional trade, a preferential treaty (SAPTA) was signed in 1994 and in the first round that came into effect in 1995. Concessions were granted on 226 products in 1995 after the first round. It took four rounds to agree on 4700 products out of 6000 by the year 2000, with India leading the table, Maldives being the last as is evidenced in Table 1. Table 1:Preferences under SAPTA by Countries

Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka SAARC

Number of Items 521 233 2554 178 491 491 199 4667

Source: Weerakon and Wijayasiri (2003)

Despite the concessions to a large number of products, there has hardly been any increase in intra-regional trade in the total international trade of the region. This is because, firstly, negotiations under SAPTA have been conducted mainly on a product-by-product basis, which allows some flexibility to each country, but takes a lot of time1. Second, the tariff cuts offered under SAPTA have not been enough. For example, India has offered the preferences on many products and the margins have been maximum but its MFN rates are typically higher than those of its partners, and as such concessions had very little impact. Third, most of the products, which were given concessions are not widely traded in the region. Confining solely to the tariffs and leaving para-tariff and non-tariff measures out of the negotiations has limited the growth of intra-regional trade as has

high local content criterion2. The countries have comparative advantage in similar products which also tends to reduce the trade potential. Intra-Regional Trade Flows The shares of intra-regional trade in imports and exports are quite different and vary significantly across different countries. Despite efforts to strengthen regional economic cooperation through SAPTA, intra-regional trade is only 4 per cent of the total trade, though there have been fluctuations around this level since 1995. While intra-regional trade has been low, its patterns vary sharply from country to country. For example, the share of intra-regional imports in total imports of Bangladesh, Nepal and Sri Lanka stood at 11.7, 33.2 and 10.1 per cent, respectively, in 2000. Pakistan and India met only 2.3 and 0.7 per cent, respectively, of their import requirements from the region in the same period. Bangladesh's share of the regional imports quadrupled and that of Sri Lanka increased by almost one-half over the 1985-2000 period. The shares of India and Nepal first declined but then recovered in recent years, though only a little higher than their respective shares in 1985. The share of Pakistan shows some fluctuations but it is increasing. ($Million)

Table 2: Intra - SAARC Trade

Intra -SAARC World trade of trade SAARC countries 1980 1210 37885 1985 1054 44041 1990 1584 65041 1995 4228 104159 1996 4914 111479 1997 4390 115961 1998 6073 121331 1999 5640 129738 2000 5884 141978 2001 6537 139585 Source: Weerakon and Wijayasiri (2003)

Share of intra - SAARC trade in world trade of SAARC countries 3.2 2.4 2.4 4.1 4.4 3.8 5.0 4.4 4.1 4.7

Intra-Regional Exports In intra-regional exports, Bangladesh's share has gone down from 7.7 per cent in 1985 to 1.6 per cent in 2000, of Nepal from 38.3 per cent to 30.0 per cent, of Sri Lanka from 3.8 to 1.8 per cent and of Pakistan from 5.3 per cent to 2.9 per cent. However, India increased its share from 3.3 per cent in 1985 to 4.4 per cent in 2000. [For details see

Kemal et al (2003)]. Smaller countries have the pro-regional bias in their trade structure while larger countries, both Pakistan and India, have an anti-regional bias in their trade structure. Unless all the trade partners benefit from trade liberalisation, trade expansion in SAARC can expand little. India's trade has not only an anti-region bias, the index of trade balance3 for India falls short of unity; its exports to the region have invariably been higher than its imports. On an average, Indian imports from SAARC countries have been less than its exports to the region. Pakistan, on an average, has trade balance less than 0.5 while

Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Table 3: Percentage Shares of Intra Regional Imports in Total Imports Bangladesh India Nepal Pakistan 3.46 0.69 32.43 1.59 3.57 0.49 32.44 1.75 4.28 0.5 18.8 1.61 5.28 0.48 18.09 1.86 4.48 0.28 12.11 1.75 6.84 0.41 11.7 1.64 7.47 0.54 13.76 1.42 10.13 0.83 17.4 1.48 11.88 0.45 17.23 1.55 12.76 0.49 18.37 1.55 17.66 0.53 17.53 1.46 16.29 0.5 28.55 2.41 12.91 0.45 26.76 1.96 17.26 1.11 31.66 2.42 13.47 0.80 31.9 9 1.94 11.68 0.73 33.15 2.32

Sri Lanka 6.17 7.64 6.49 7.79 5.79 6.74 6.88 11.89 10.11 10.58 11.08 12.59 10.7 10.09 9.78 10.11

Source: PIDE (2003)

Table 4: Percentage Shares of Intra Regional Exports in Total Exports India Nepal Pakistan Sri Lanka 3.25 38.32 5.28 3.8 3.01 38.11 3.2 4.52 2.82 27.84 3.92 3.58 2.78 17.63 5.04 5.76 2.43 2.69 3.51 5.21 2.71 7.19 3.97 3.3 1.78 7.86 3.33 2.6 3.83 13.07 4.93 1.97 4.00 4.69 3.21 2.17 4.13 3.87 3.25 2.37 4.98 8.7 3.13 2.28 4.92 12.99 2.54 2.27 4.36 25.44 1.75 2.05 5.46 36.49 4.08 1.53 4.82 28.85 3.27 2.03 4.43 26.95 2.92 1.81

Year Bangladesh 1985 7.65 1986 6.06 1987 4.1 1988 5 1989 3.9 1990 3.62 1991 4.7 1992 2.21 1993 2.42 1994 2.3 1995 2.65 1996 1.82 1997 2.26 1998 2.69 1999 1.92 2000 1.57 Source: PIDE (2003)

other countries, in general, have a trade balance greater than one [see Kemal et al, (2003)]. Complementarities and Intra-Industry Trade Revealed comparative advantage ratios4, a concept developed by Balassa (1965), is simply a ratio of the share of a given product in a country's exports to its share in world exports. A country is said to have a revealed comparative advantage (disadvantage) in product h if the ratio exceeds or falls short of unity. However, it may give misleading results amid distortions in the market. Therefore, the pattern of â&#x20AC;&#x2DC;trueâ&#x20AC;&#x2122; comparative advantage may differ from the one suggested by the revealed comparative advantage ratios. The finer the disaggregation, the more useful would be the revealed comparative advantage ratios. Here we report results at three digit classification and the reader is referred to [Kemal et al (2002)] one and second digit classification. The revealed comparative advantages of various countries are examined below. Bangladesh has comparative advantage in fish, vegetables, jute, tea, leather, textile yarn, made-up articles of textile material, clothing, and woven cotton fabrics. India has comparative advantage in food, beverages and tobacco products including meat, fish, crustaceans, rice, fruits and nuts, tea and coffee, spices, feeding stuff for animals, a wide range of 'crude materials' including oilseeds, cotton, stone, sand and gravel, iron ore, ores and concentrates of basic metals, and crude animal, vegetable materials, petroleum, oils and preparations, fixed vegetable oils; in chemicals and related products including nitrogen-function compounds, other organic chemicals, synthetic organic coloring material, medicinal and pharmaceutical products, perfumery, cosmetic and soaps, and insecticides and herbicides; leather; articles of textile and clothing; machine tools, household equipment, and steel products; and motor vehicles, motor cycles, and bicycles. Nepal has comparative advantage in men and women's clothing, knitted or crocheted, floor coverings, textile clothing accessories, and essential oils and perfumes etc. Pakistan's revealed comparative advantage is in fish and crustaceans, rice, fresh and dried fruits, sugar, molasses, honey, spices, vegetables, roots and tubers; crude materials including cotton, besides oilseeds and oleaginous fruits,

warm clothing, stone, sand, gravel, crude animal and vegetable materials; textile and clothing; leather; floor coverings; medical instruments; baby carriages; and toys and cutlery. Sri Lanka has comparative advantage in fish, crustaceans, other cereal meals, flour, fruits and nuts, tea and spices; crude materials such as synthetic rubber, fuel wood, oilseeds, oleaginous fruits, paper, paperboard, vegetable, textile fibres, and crude vegetable materials; rubber tyres and articles; wood manufactures; made-up articles of textile materials; pottery, pearls and precious stones; materials of rubber; textile yarn, and woven fabrics of textile materials; and electric power machinery. The profile of revealed comparative advantage suggests that the pattern of revealed comparative advantage is quite similar across the South Asian countries. With the exception of India and Sri Lanka, the South Asian countries enjoy comparative advantage in a relatively narrow range of products. Out of 71 commodity groups, Bangladesh, Nepal and Pakistan have revealed comparative advantage in only 7, 5 and 12 commodity groups while India and Sri Lanka have comparative advantage in 26 and 21 product categories; and no country has comparative advantage in capital intensive and high value-added products. Despite the similar comparative advantage, there is still some scope for increasing intra-regional trade. South Asian countries could import veneers, plywood, particle boards and other textile fabrics from Bangladesh; 43 products ranging from various food items to machinery and transport equipment from India; oilseeds and oleaginous fruits from Nepal; molasses, honey, cotton, clothing, crude animal and vegetable materials, fabrics, cutlery, live animals, and surgical instruments from Pakistan; and synthetic rubber, fuel wood, raw or processed textile fibers, residual petroleum products, tobacco, rubber articles, and electric power machinery and parts from Sri Lanka. Trade Complementarities Regional trading arrangements are likely to succeed in strengthening intra-regional trade if the trade structures of member countries exhibit strong complementarities5. The low values of trade complementarity indices highlight the absence of strong complementarity among the countries of South Asia. The trade

complementarity between Bangladesh and India has increased and is highest in the region. The pattern of complementarity between India's imports and its trading partners' exports shows lack of trade complementarity in exports of South Asian countries to India. Except for Sri Lanka, the index is around 10 per cent. The structure of Nepal's imports exhibits some compatibility with the exports of Bangladesh, India, and Pakistan. While trade complementarity between Nepal and Bangladesh has improved, it has weakened in Nepal's trade with India. On average, Nepal's import structure exhibits the lowest complementarity with exports of Sri Lanka and the complementarity is higher for trade between Pakistan and India. Exports of Bangladesh, Nepal and Sri Lanka depict weak compatibility with imports of Pakistan. While Sri Lanka and India are mostly compatible, exports of Nepal and Bangladesh do not match imports of Sri Lanka. The trade complementarity between Sri Lanka and Pakistan, though not substantial, has improved. The South Asian region has an almost identical pattern of comparative advantage in some products, and that there is no strong complementarity in the bilateral trade structures of South Asian countries. Similarities in the trade structures and absence of comparative advantage in capital intensive and high value-added products, i.e. the products that are normally imported by countries in the region may have limited the growth of intra regional trade in South Asia. Intra-Industry Trade in South Asia While trade would take place only if there are differences in factor endowments, Grubel-Lloyd (1975) argue that differences in technology and human capital can lead to intra-industry trade even in products with identical factor input requirements. Krugman (1981) argues that industries in which increasing returns are achieved at a fairly low level of output can accommodate many producers, with each producing differentiated products. Under these circumstances, each country will specialise in different varieties of the product and engage in intra-industry trade. The growth of regional integration schemes involving cross-country production sharing arrangements also increases intra-industry trade6. Yeats (1998) points out that production sharing has become a major factor in regional trading arrangements, approximately 30 per cent of the world trade in manufactured goods is largely of intra-industry

variety.

materials.

On the basis of two-way trade in similar products Grubel-Lloyd have provided the index of intra-industry trade7. The intra-industry trade index ranges between zero and one with larger values indicating a greater degree of intra-industry trade. In the chemicals and related products category, the bilateral intra-industry trade between Bangladesh and India largely consisted of inorganic chemical elements, oxides and halogen salts, fertilisers, insecticides and herbicides. Significant intra-industry trade took place in basic manufactures, such as made-up articles of textile material, floor coverings, nails and screws. Intra-industry trade in machines and transport equipment is hardly noticeable, except for some trade in ships, boats and floating structures in the year 1995. Intra-industry trade has strengthened over time in such miscellaneous manufactured goods as clothing, knitted or crocheted women's clothing, articles of apparel, textile fabrics and clothing accessories of textile fabrics.

In the chemicals and related products group, the Grubel Lloyd index indicated some intra-industry trade between India and Nepal in nitrogen compounds, inorganic chemical elements, perfumery and cosmetics, and a moderate degree of intra-industry trade in monofilament rods, and miscellaneous chemical products. In some years, intra-industry trade was significant in some basic manufactures, such as articles of textile and clothing, leather, rubber tyres, plywood, floor coverings, mineral manufactures, rails and railway track construction materials, copper, aluminium, metal containers, wire products, and equipment of base metal. In machinery and transport equipment, no significant intra-industry trade occurred except in heating and cooling equipment. Other miscellaneous manufactured goods in which intra-industry trade was indicated were mainly women's clothing, footwear, road motor vehicles, articles of plastic and works of art.

No intra-industry trade took place between Bangladesh and Nepal during this period. A low level of intra-industry trade occurred in chemical and related products consisting of dyeing, tanning extracts and synthetic tanning materials, medicinal and pharmaceutical products, and monofilament rods between Bangladesh and Pakistan,. A moderate to high degree of intra-industry trade was indicated in textile yarn, woven textile fabrics, special yarns, made-up articles of textile materials, and manufactures of base metals. In 1998, Bangladesh and Pakistan engaged in significant intra-industry trade in several industrial products; machinery and transport equipment, prominent among them being rotating electrical plants and parts, agricultural machinery, excluding tractors, and pumps for liquids. In miscellaneous manufactured goods, intra-industry trade was confined to knitted and crocheted women's clothing, and articles of plastic.

Intra-industry trade took place between India and Pakistan in nine items in chemicals and related products in which, the prominent among them being medicinal and pharmaceutical products and soap and cleansing preparations. The Grubel-Lloyd indices show some intra-industry trade in basic manufactures, such as leather, articles of paper and paperboard, embroidery, made-up articles of textile materials, floor coverings, lime, cement and fabricated construction materials, nails and screws, and manufactures of base metal. There are many products in the category of machinery and transport equipment in which intra-industry trade occurred between the two countries. These products range from textile and leather machinery and parts to heating and cooling equipment, and from dataprocessing machines, to medical apparatus. In miscellaneous manufactured goods, intra-industry trade mainly consisted of medical and measuring instruments, photographic supplies and musical instruments.

There are only a few products in which the Grubel-Lloyd indices show a reasonable intensity of intra-industry trade between Bangladesh and Sri Lanka. These products include textile yarn, woven fabrics, special yarns, and printed matter. Some intraindustry trade is discernible in soap and cleansing preparations, monofilament rods, cotton fabrics, and made-up articles of textile

Intra-industry trade between India and Sri Lanka in chemicals and related products was confined mainly to carboxylic acids and nitrated derivatives, other organic chemicals, dyeing, tanning extracts and synthetic tanning materials, and essential oils. In the category of basic manufactures, leather and leather products, pottery, pearls and precious stones, construction material of rails,

and metal containers figured prominently in intra-industry trade between the two countries. In some years, there was significant intraindustry trade in non-electric engines and motors, paper and pulp machinery, and electric power machinery. Other major products in which the Grubel-Loyd indices showed a somewhat high degree of intra-industry trade were articles of apparel, motor cars and other motor vehicles, and photographic supplies. Intra-industry trade between Nepal and Pakistan was confined only to metal salts, while intra-industry trade between Nepal and Sri Lanka consisted of trade in rubber tyres and textile yarn. Pakistan and Sri Lanka traded a variety of products intra-industry. In chemicals and related products, the GL index indicated some intraindustry trade in inorganic chemical elements, metal salts, and medicinal and pharmaceutical products. In some years, intraindustry trade appeared significant in a number of basic manufactures, such as leather, articles of textile and clothing, rubber tyres, floor coverings, wire of iron or steel, and manufactures of base metal. In machinery and transport equipment, intra-industry trade was indicated mainly in textile and leather machinery and parts, printing and book binding machinery, pumps, non-electrical parts, equipment for electricity distribution, electrical machinery and apparatus, and motor cycles and cycles. Other miscellaneous manufactured goods in which intra-industry trade occurred were furniture, bedding and mattresses, articles of apparel, medical instruments, printed matter, and articles of plastic [For details, see PIDE (2003)]. The following observations can be made regarding the nature and extent of intra-industry trade in the South Asian region. First, the historical pattern of intra-industry trade amongst the South Asian countries is highly erratic, and there are only a few products in which intra-industry trade has occurred on a sustained basis. Second, with few exceptions, leather products, textiles, clothing, some basic machinery and tools dominate the intra-industry trade profiles of the South Asian countries. Third, the proportion of intra-industry trade in total trade has been very low for most of the products. This is also reflected in the average bilateral Grubel-Lloyd indices of intraindustry trade. In 1995, intra-industry trade of Bangladesh was only 1.0 per cent, 0.08 per cent, and 0.01 per cent of its bilateral trade with India, Pakistan, and Sri Lanka, respectively.

71 Table 5: Average Bilateral Grubel Lloyd Indices of Intra Industry Trade: 1995

Bangladesh India Nepal Pakistan Sri Lanka

Bangladesh

India

Nepal

Pakistan

Sri Lanka

0.010 -

0.000 0.140 -

0.008 0.083 0.000 -

0.001 0.017 0.393 0.068 -

Source: Kemal et al, (2003) Note: Figures of Sri Lanka are for the year 1994

Intra-industry trade can play a pivotal role in promoting regional integration in South Asia because it can flourish even in situations where the trade and production structures of the trading partners lack strong complementarities. This leads to trade expansion and dynamic scales of economy. The South Asian countries can strengthen their trade linkages by devising mechanisms to promote intra-industry trade within the region. One way to accomplish this is through regional production sharing arrangements that involve the initiation of part of a manufacturing process for a specific good in one country and the transfer of the activity to another for processing8. The South Asian countries can achieve greater economic cooperation and integration by evolving a vertically integrated regional production structure in sectors that can boost regional economy9. This would allow the South Asian economies to specialise in different lines of production within a particular industry and thus achieve benefits of specialisation and economies of scale. It must, however, be pointed out here that the regional production sharing arrangements generally emerge in response to a combination of factors including low tariffs, wage differentials, low transportation costs, and favourable government policies. Constraints to Intra-Regional Trade Identical comparative advantage, lack of communication link, restrictive trade policies, lack of finances and political problems cause weak trade linkages in South Asia. Identical comparative advantage The South Asian countries have an almost identical pattern of comparative advantage in a relatively narrow range of products. Similarly, their bilateral trade structures hardly show any complementarities in the trade structure. Together with absence of

comparative advantage in capital intensive and high value-added products, which are normally imported by countries in the region, they act as structural constraints on expanding intra-regional trade. Though South Asian countries have undergone major structural reforms and share of industrial sector has increased sharply, their industry is not diversified. With the exception of India and, to some extent Pakistan, these resource constraints have prevented the South Asian countries to invest in high value-added exportable products and have made these countries dependent on industrialised countries for their capital goods and technology. The regional exports largely consist of raw materials and traditional products, such as textiles and garments, and some regional countries are direct competitors in the world export market for these products. The import requirements of the region mainly consist of capital goods and high-tech products. In this way, the trade pattern of the South Asian countries is tilted towards the developed countries. Despite the demand for the South Asian products in the region, there is a rather limited capacity to generate exportable surpluses of the product in accordance with the specifications. It has marred the growth of intra-regional trade. The specifications of products imported and exported are different. Lack of communication links There are no communication links between the South Asian countries and as such the production, consumption and trade patterns of potential trading partners within the region may not be known. There are hardly any ships which call on specifically for the export of South Asia to other regional countries. Similarly, inadequate trade facilitation mechanisms contribute to the unrealised potential of intra-regional trade in certain areas. For example, Nepal's trade with other countries in the region depends on transit facilities provided by India. These facilities often involve high handling and transportation charges and delays in delivery, thus hampering the flow of trade between Nepal and its trading partners in the region. Restrictive trade policies Restrictive trade policies also cause the low level of intra-regional

trade. The restrictions have been more severe on the export interest of South Asia. However, the South Asian countries have substantially liberalised their economies in the past decade. Some trade liberalisation has also occurred under the SAPTA regime, according to which almost 5000 products from all SAARC member countries are entitled to preferential duty treatment. The trade regimes of South Asia are still quite restrictive. There is, however, a general perception that the trade liberalisation episodes, including SAPTA, have not made any significant impact on intra-regional trade in South Asia. Political problems Political differences have also undermined efforts to foster regional economic cooperation in South Asia. India and Pakistan, the two largest economies of the region, have not been able to realise the full potential of their bilateral trade owing to various political compulsions. The small South Asian countries have been skeptic towards regional economic cooperation initiatives, fearing that a large trading partner like India will dominate the region economically to the detriment of their domestic industries. The political conflicts as well as differences in economic outlooks have hindered intra-regional trade in South Asia. The prospects of trade cooperation have enhanced with improved Indo-Pak relations and signing of SAFTA. Prospects after SAFTA SAARC's Islamabad declaration promises South Asian Free Trade Area (SAFTA) which would come into force on January 1, 2006, to be fully implemented by the end of 2015. Under the agreement, tariff reductions, rules of origin, safeguards, institutional structures and dispute settlement will be sorted out by various committees10. It also calls for harmonisation of standards and customs procedures, mutual recognition of test results and transport infrastructure cooperation. These measures would hopefully help in promoting the intra-regional trade. SAFTA's tariff reduction program calls upon India, Pakistan, and Sri Lanka -- more developed countries -- to reduce tariffs to 20 per cent by 2006. While Nepal, Bhutan, Bangladesh and Maldives -- less developed countries -- are required to reduce tariffs to 30 per cent in the same period. Following that Pakistan and India, in five years, Sri

Lanka in six years and other SAARC countries in eight years shall have to reduce their tariffs to 0-5 per cent. Moreover, India, Pakistan, and Sri Lanka will reduce their tariffs on imports from the relatively less developed countries to 0-5 per cent by January 1, 2009. The agreement calls for elimination of all quantitative restrictions for products on the tariff liberalisation list. The agreement allows a negative-list, but it provides for reviewing the number of products on the sensitive list at four-year intervals to reduce the list and expand the free trade coverage of the Agreement. Regional groupings have proliferated around the globe. While some have been successful, others have not. World Bank (2004) reviews the regional experiences around the world and points out six broad conclusions for the success of such groupings of free trade. First, a regional trade agreement does not automatically result in increased trade and growth. Whereas the intention at the time of formation of the group is always to promote intra-regional trade and economic cooperation in all fields, a large number of interest groups emerge who on the grounds of injury to their industry, call for exemption on reduction in the import duties. For this reason the experience with SAPTA has been disappointing. SAFTA allows a sensitive list and if the list is large, then it may not see higher intra-regional trade. Whenever trade liberalisation is promoted, the industries in which the country does not have comparative advantage will close down. Moreover, agreements that kept in place high external barriers, protect inefficient activities and undermine the competitiveness of all countries.

endowments have shown more consistent success because of the opportunities to exploit different comparative wage rates, capital availability, technological levels that give rise to differing factor proportions in production [Schiff and Winters (2003) and Lederman et al, (2003)]. However, this conclusion runs contrary to the success of EU. The promotion of intra-industry trade would result in higher growth even if factor endowments are similar. Fourth, a regional integration framework that helps in trade creation and competition amongst regional countries would help in lowering domestic prices and providing new technology. It is impossible to have the benefits of a regional agreement without exposing the member economies to new competition [Hoekman and Schiff (2002)]. Fifth, competition in services also results in successful integration. Lowering the cost of telecommunications, finance, business services, and retail and wholesale commerce would result in productivity gains. Finally, there is a need to streamline border transactions through trade facilitation. Increase in efficiency within the region often spills over into trade outside the region as well, because improving customs or improving efficiency of ports helps both intraregional trade and international trade.

Second, the trading arrangements with unilateral efforts among members to reduce external protection have been more successful. Reducing trade barriers vis-Ă -vis the rest of the world creates an incentive for all members to export. It augments competition that drives domestic productivity [see Muendler (2002)]. When external protection is generally low, trade creation usually dominates trade diversion, and so the risk that regional agreements will be a drag on growth is substantially reduced. Indeed regional agreements where members have had low external protection have achieved greatest success [see Baldwin and Venables (1995) and Burfisher, et al, (2003)].

To ensure the success of SAFTA, the member countries have to take a number of initiatives. First, all countries must have very small negative-list. If the list is large, the SAFTA would become redundant. There should be a firm basis to exclude products and ground rules should be laid down and be transparent. Second, keeping rules of origin simple and transparent so that they do not become devices of protection and impediments to trade. The SAPTA rules, which are quite stringent, need to be revised. Third, ambitious agreements to establish detailed investors' protections and separate dispute panel resolution systems should be left for the future, because it could delay the progress unnecessarily. Fourth, since some of the SAARC members may dump and some may provide subsidies to exports and hence unfair competition, the transparent anti-dumping and countervailing methods may be necessary. However, anti-dumping actions and countervailing duties against regional partners can bring back the protectionist tendencies; anti-dumping mechanisms can stifle the benefits for SAFTA arrangements.

Third, the agreements between the countries with different factor

What would be the impact of SAFTA? RIS (2004) reports results of

studies conducted in the framework of gravity model. It suggests that complete elimination of tariffs under SAFTA may increase the intraregional trade by 1.6 times. It further suggests that in the dynamic framework the gains from liberalisation are at least 25 per cent higher than the static gains. However, these gains are grossly in view of SAARC's large trade potential; it exists both in trade diversion from traditional sources towards SAARC countries by removing the constraints and trade creation and expansion by easing import restrictions on products which SAARC countries are not trading in but are their major exports. While more than half the exports of manufactured goods from South Asia consist of textiles and leather products, they are subject to very high rates of import duties and/or quantitative restrictions and even outright bans in South Asia. Similarly, rather limited trade in engineering goods is owing to a number of factors including reliance on foreign aid to finance the import of capital goods, poor quality of goods and heavy import duties on capital goods even by the countries who are themselves exporters of capital goods. Intra-industry trade can play an important role in bolstering economic and trade relations within the region. This is because intraindustry trade can take place even in situations where the trade and production structures of the trading partners lack strong complementarities, as observed in South Asian countries. Whereas the intensity of intra-industry trade is low, the potential for widening the scope of this type of trade within the region is rather large. However, that can only be realised if the import duties are low. Intraindustry trade is largely driven by product differentiation and increasing returns to scale. Therefore, an increased level of intraindustry trade in the region can only be achieved if the regional countries develop the technological capacity to produce different product varieties at declining average cost. Lack of trade complementarities causes weak trade linkages in South Asia. However, trade complementarities can be developed within the region if countries achieve vertical specialisation through production sharing arrangements. The manufacturing of components for automobile and engineering industries would be quite helpful. Similarly, in chemical industries the possibilities exist. Vertical specialisation would not only allow the regional trading partners to strengthen their trade ties, but also enable them to reap economies of

scale by concentrating on a specific production process in the valueaddition chain. Therefore, as in the case of various regional trading groups around the world, the South Asian countries can boost economic cooperation by developing vertically integrated production structures, thereby attaining vertical specialisation. Joint ventures can pool regional resources to promote industrialisation and economic growth in South Asia. Since the South Asian countries have collectively gained substantial experience in agro-based industries, textiles and clothing, paper and pulp, and light engineering, there seems to be scope for joint ventures in these areas. The establishment of joint ventures will particularly benefit the small South Asian countries because they lack the resources to undertake industrial investment efficiently. Conclusion The signing of SAFTA has created euphoria in the South Asian countries. However, there are, at least, two possibilities which may make the agreement redundant. Firstly, all the countries are members of WTO and would reduce the tariff levels. If their MFN tariffs are close to preferential tariffs under SAFTA, intra-regional trade may not grow rapidly. Though one could argue that at lower rate of import duty, with or without SAFTA, the intra-regional and trade outside the region would flourish. Second and more importantly, if the negative list is large and includes most of the products of export interest of South Asian countries, trade would not flourish. The SAARC countries must make an effort to make SAFTA a success to expedite economic development, mainly because of the problems in global market access and the higher transaction costs of producing for the world market. The expansion of regional trade yields gains in production specialisation, efficiency and improved quality of exports, which benefit the countries participating in the regional cooperation effort. The SAFTA has great potential and South Asian countries should accept the short-term costs for longterm benefits. Dr A R Kemal is a senior economist and former director of the Pakistan Institute of Development Economics (PIDE) in Islamabad. Endnotes 1 In the third round negotiations were conducted by some countries on a

sectoral basis, albeit in a limited way. 2 In order to qualify for concessions under the SAPTA Agreement, non-LDC countries had to have a domestic content of 50 per cent and the LDCs 40 per cent. In 1998, the ROO requirements were revised downwards to 40 per cent but for LDCs it was 30 per cent. 3 The index of trade balances (TB) is If TB exceeds unity, the country runs deficits; If TB is equal to unity, trade is balance; and If TB is less than unity, the country runs surpluses. It should be noted that the trade balance indices are reported here only to highlight the existing pattern of intra-regional trade, and not to argue for balanced trade within the region. 4 where

X ih / X it Rih = X wh / X wt

Revealed comparative advantage ratio for country in product. Rih = X ih = Country exports of product. Total exports of country. X it = X wh = World exports of product. X wt = Total World exports. 5 Trade complementarity index, measures the compatibility of imports of country with exports of country , as defined below.

where

C ij = 1− | mhi − x hj | ÷ 2

Trade Complementarity index for trade between countries and . C ij = mhi = Share of good in total imports of country . x hj = Share of good in total exports of country . The trade complementarity index is zero when no good exported by one country is imported by the other, and equals one when the shares of one country's imports correspond exactly to those of the other's exports. 6 Under the production sharing arrangements, various stages of the production process for a specific product are undertaken in different countries, giving rise to intra-industry trade. 7

Xh + Mh − | Xh − Mh | Gh = ( Xh + Mh)

Gh = Grubel-Lloyd index of intra-industry trade in industry . Xh = Exports of industry . Xh = Imports of industry . 8 For instance, electronic components may be produced in country A, shipped to country B for assembly, and then re-exported back to country A. where

9 Some of the potential areas where regional production sharing systems can be developed are leather products, textiles and clothing, and basic machinery. 10 With a view to ensuring that agreement is implemented, it establishes the SAFTA Ministerial Council, the regional body's highest decision-making authority, and a Committee of Experts responsible for monitoring implementation and resolving disputes. The Committee of Experts is required to update the Ministerial Council every six months on the progress of the Agreement. References l Bela Balassa, 'Trade Liberalisation and Revealed Comparative Advantage', The Manchester School of Economics and Social Studies, vol. 33, 1965. l Richard E. Baldwin and Anthony J. Venables, 'Regional Economic Integration', in G. Grossman and K. Rogoff (eds.), Handbook of International Economics, vol.3, section 1.2., (Amsterdam: Elsevier Science, 1995). l Mary Burfishcer, Sherman Robinson and Karen Thierfeldler, 'Regionalism: Old and New, Theory and Practice', Paper from the International Agricultural Trade Research Consortium (IATRC) Conference, Capri, Italy, June 2003. l H. Grubel and P. Lloyd, 'Intra Industry Trade: The Measurement of International Trade in Differentiated Products', New York, 1975. l Bernard Hoekman and Maurice Schiff, 'Benefiting from Regional Integration', in Bernard Hoekman, Aaditya Matoo and Philip English (eds.), Development, Trade, and the WTO: A Handbook, (World Bank: Washington, D.C., 2002). l A. R. Kemal, Musleh-ud Din, Kalbe Abbas and Usman Qadir, 'A Plan to Strengthen Regional Trade Cooperation in South Asia' in T. N. Srinivasan (ed.), Trade Finance and Investment in South Asia, (New Delhi: Social Science Press) 2002. l P. R. Krugmen, 'Intra-Industry Specialisation and the Gains from Trade', Journal of Political Economy, vol. 89, no. 5, 1981. l Daniel Lederman, William Maloney and Luis Serven, Lessons from NAFTA for Latin American and Caribbean Countries: A Summary of Research Findings, (Washington, D.C.: World Bank, 2003). l Michael Michaely, 'Trade Preferential Agreements in Latin America: An Ex-Ante Assessment', (Latin America and the Caribbean Region: World Bank, Washington, D. C. 1994). l PIDE, 'Revealed Comparative Advantage and Trade Complementarity in South Asia', A study prepared for the SAARC Network of Researchers on Global Financial and Economic Issues. (Islamabad: Pakistan Institute of Development Economics, 2003). l RIS, South Asia Development and Cooperation Report 2004, (New Delhi: Research and Information System for the Non-Aligned and Other

81 Developing Countries (RIS), 2004).

l Maurice Schiff and L. Alan Winters, Regional Integration and

Development, (Oxford, U.K.: Oxford University Press and Washington, D.C.: World Bank, 2003). l Dushni Weerakoon and Janaka Wijayasiri, 'Implications to Member States of Progression from SAPTA to SAFTA', Institute of Policy Studies of Sri Lanka, 2003. l World Bank, 'South Asia Free Trade Area: Promise and Pitfalls of Preferential Trade Arrangements', The World Bank, Washington, D.C., 2004. l Alexander J. Yeats, 'Just How Big is Global Production Sharing', World Bank Policy Research Working Paper 1871, (Washington, D. C.: The World Bank, 1998).

Repositioning SAFTA in the Regionalism Debate Dr Saman Kelegama and Ratnakar Adhikari

rade liberalisation can follow various tracks -- unilateral, bilateral, regional and multilateral. There is a growing consensus among a large segment of stakeholders that multilateral trade liberalisation is the first best option not least because of the reciprocity and multilateralisation of concessions (so called most-favoured nations principle), where each country has an equal chance of gaining from trade liberalisation initiatives of other countries. However, the progress of the WTO over the last 10 years clearly indicates that trade liberalisation under the multilateral regime is at best uncertain and slow. Neoclassical economists argue that unilateral trade liberalisation is the best option for a country; however, political economy of trade liberalisation is such that reciprocity is a sine-qua-non in trade liberalisation initiatives in most developing countries. Since unilateral trade liberalisation is not a practical option and multilateral trade liberalisation is slow and uncertain, many countries have opted for regional trade liberalisation through regional trade arrangements (RTAs). In the existing literature, RTAs have been hotly debated and there are two schools of thought. The first school of thought, led by Larry Summers (former Treasury Secretary of the USA and currently President of the Harvard University) maintains the view that RTAs are building blocs towards multilateral trade liberalisation. The second school of thought led by

Jagadish Bhagwati (Professor of Economics at Columbia University) argues that RTAs are stumbling blocs to multilateral trade liberalisation. Some other economists, however, have chosen to remain neutral. South Asia decided to embrace an RTA in 1995 when the SAARC Preferential Trading Arrangement (SAPTA) was signed in 1995. In early 2004, the much delayed South Asia Free Trade Agreement (SAFTA) was signed. Six member countries of SAFTA have already vouched their support for the WTO. Bhutan, which is the only nonmember of the WTO, has manifested its commitment to the multilateral trade architecture espoused by the WTO by initiating its accession process. Thus the SAARC RTA (i.e., SAFTA) is a parallel initiative to the multilateral trade liberalisation commitments of SAARC member countries. Critics have pointed out that there is no rationale for an RTA in South Asia because there are limited complementarities in the region; major trading partners of the individual South Asian countries are located in the West, etc. The latest World Bank report on South Asia's trade argues that an RTA in South Asia will lead to substantial trade diversion than trade creation and considers an RTA in the region as a stumbling bloc to multilateral trade liberalisation1. This argument needs re-examination and for this purpose it will be worthwhile first to revisit the theoretical debate on regionalism. This is done in Section II followed by a discussion in Section III on the South Asian perspective of an RTA. Some concluding remarks are made in Section IV. The Debate on RTAs i) Arguments in favour of RTAs as building blocs As per Larry Summers, any 'ism' (bilateralism, regionalism and multilateralism) is good as long as its ultimate objective is trade liberalisation. Supporters of this school of thought, prominently Bergsten (1997) argue: 'Regional arrangements promote freer trade and multilateralism in at least two sense: that trade creation has generally exceeded trade diversion, and that the RTAs contribute to both internal and international dynamics that enhance rather than reduce the prospects for global liberalisation. The internal dynamic is particularly important for developing countries: regional commitments, which can be negotiated much faster than global

pacts, lock in domestic reforms against the risk that successive governments will try to reverse them. Internationally, the RTAs often pioneer new liberalisation ideas that can subsequently be generalised in the multilateral system. Moreover, regional liberalisation creates incentives for other regions and individual countries to follow suit and thus to 'ratchet up' the global process2. The proponents of regionalism assert that it often has important demonstration effects. Regional initiatives can accustom officials, governments, and nations to the liberalisation process and thus increase the probability that they will subsequently move on to similar multilateral actions. 'Learning by doing' applies to trade liberalisation as well as to economic development itself, and can often be experienced both more easily and more extensively in the regional context with far fewer negotiating partners. They further contend that it has had positive rather than negative political effects. Trade and broader economic integration has created the European Union (EU) in which another war between Germany and France is literally impossible. Argentina and Brazil have used Southern Common Market (MERCOSUR) to end their historic rivalry, which had taken on nuclear overtones in recent decades. Central goals of Asia Pacific Economic Commission (APEC) include anchoring the United States (US) as a stabilising force in Asia and forging institutional links between such previous antagonists as Japan, China and the rest of East Asia3. One could also hope that the political rivalry between India and Pakistan is laid to rest after the formation of SAFTA leading to deeper economic integration in days to come. However, the favourable impact of an RTA is subject to proviso that RTAs are able to achieve a deeper degree of economic integration than the multilateral trading system. This is well within the realm of feasibility because RTAs usually entail neighbouring like-minded countries. A smaller forum (with homogenous or semi-homogenous membership) makes it possible to establish the necessary centralised institutions or federalising policy-making and enforcement institutions4. A group of trade economists follow the logic that expansion of RTAs could have positive effects on the global economy provided the

emerging RTAs are 'open' to trade from outside. One key benefit to the global economy comes from the impact of RTA in stimulating domestic growth, which in turn increases the demand for extraregional exports. A major analytical contribution dealing with this issue is of Baldwin (1995). Focusing exclusively on the incentive to seek entry on the part of outsiders, Baldwin identifies a 'domino' effect, which may yield global free trade through Preferential Trading Arrangement (PTA) expansion. Using a variant of what have come to be known as models of economic geography, Baldwin shows that under the 'domino' effect, more and more outside countries have an incentive to become insiders as a PTA expands. The countries are assumed to differ in a way that the PTA is not equally attractive to them. Initially, it attracts one member who finds the entry worthwhile. The addition of this member enlarges the internal market and makes it more attractive to yet another outside country at the margin. Once this country joins, yet another country finds accession profitable, and so on until the PTA becomes global5. Baldwin (1997) further mentions that this domino theory is derived from the expansion of the EU. He then goes on to explain about the American dominos. Indeed, the possibility of facing exclusion due to U.S.-Mexico trade, when the trade talks were going on between the U.S. and Mexico, Canada requested the parties to trilateralise talks which led to the birth of North American Free Trade Area (NAFTA). Similarly, when other Latin American countries, which were interested to join NAFTA only received lukewarm response from President George Bush (Senior), four of them decided to form Southern Common Market (MERCOSUR). The pressure for inclusion was so much that Bolivia and Chile joined MERCOUSR as its associate members. Now that Free Trade Area of the Americas (FTAA) has been announced, covering the entire Western Hemisphere, virtually every country in the Americas is looking forward to joining the same under certain conditions. Not many Asian dominos have fallen so far primarily because ASEAN (the largest RTA within the continent) has only expanded its membership to 10 countries. However, the first ever free trade agreement (FTA), which Japan entered into with Singapore and ASEAN plus three (China, Japan and Korea) is likely to result in

falling of Asian dominos of tremendous significance6. Closer home, recently Bhutan and Nepal joined an exclusive club of five countries formerly Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation (BIMST-EC) now renamed Bay of Bengal Initiative for Multi Sectoral Technical and Economic and Cooperation, because they felt that they could be marginalised if they did not join the club. Sapir (2001), who conducted a study on the issue of domino effect in the Europe, further supports the evidence of the prevalence of domino effects. A la Sapir, 'The empirical findings of the study support the hypothesis that 'domino effects' have played an important role in Europe. These effects may be partly responsible for the successive enlargement of the European Community (EC) from its original six to its present 15 members.'7 The fact that the membership of the EU has grown to 25 further vindicates the above analysis. However, one important condition for the application of domino theory is that the incumbent members should be 'open' to include new members. If they have incentives to create barrier to entry to the new country in the group, domino theory does not work. Therefore, the concept of 'open regionalism' was propounded. Bergesten (1997), one of the pioneers of the concept, argues: The concept represents an effort to achieve the best of both worlds: the benefits of regional liberalisation, which even the critics acknowledge, without jeopardising the continued vitality of the multilateral system. Indeed, proponents of open regionalism (including the author) view it as a device through which regionalism can be employed to accelerate the progress toward global liberalisation and rule-making.8 Asia Pacific Economic Commission was modelled on this concept based on the suggestions of the Eminent Persons Group (EPG), which was chaired by Bergesten himself. However, Bergesten's idea of open regionalism is contradictory and vague as explained later. ii) Arguments for RTAs as stumbling blocs As early as in 1992, Jagadish Bhagwati, who claims himself to be a

multilateralist and a critique of regionalism, posed the following question: is regionalism truly a building, rather than a stumbling, bloc towards multilateral free trade for all: in other words, will it fragment, or integrate, the world economy?9 Bhagwati calls 'the revival of regionalism' as 'unfortunate'. He emphasises the need 'to contain and shape it in ways that it becomes maximally useful and minimally damaging, and consonant with the objectives of arriving at multilateral free trade for all,'10 which is the end of free trade in his conception. Expanding on these arguments, Panagariya (1998) uses two different analyses, through formal model as well as informal arguments to prove that regionalism is a stumbling bloc to multilateral trading system. He takes two formal models by Levy (1997) and Lipsey11. As per Levy's model, if the voters in two different countries, which are the members of both FTA and multilateral trading system were given a choice to vote, they felt that FTA cannot make previously infeasible multilateral liberalisation feasible. Krishna uses a three-country, partial-equilibrium, oligopoly model in which trade policy is chosen to maximise national firms' profits. He shows that more trade diverting the FTA between two countries in this set up, the greater the backing it receives and more it reduces the incentive to eventually liberalise with the third country. With sufficiently large trade diversion, an initially feasible multilateral liberalisation can be rendered infeasible by the FTA option12. He then analyses the informal arguments in the following sequence. Firstly, it has been suggested by Summers (1991) and others that multilateral negotiations will move more rapidly if the number of negotiators is reduced to approximately three via bloc formation. This argument gained some popularity at the time the Uruguay Round (UR) negotiations were stalled but has lost force since the successful completion of the Round. The argument is that due to a large number of members involved at the WTO and the associated 'free rider problem', negotiations at the WTO are slow and difficult. If the world is first divided into a handful of blocs, multilateral negotiations will become easier. Secondly, according to the second informal argument, PTAs may serve as a threat to force unwilling parties to negotiate in earnest at the multilateral level. As per this argument, EU was dragging its feet

too long for the conclusion of the UR, but when President Clinton called for the formation of APEC, the EU decided to conclude the negotiations during the UR. However, Bhagwati (1996) disagrees with this interpretation. He asserts that the UR could conclude only because the US wisely decided to close the UR deal, taking the offer on the table rather than seeking more concessions. Thirdly, it is argued that due to their high visibility, PTAs can energise and unify protectionist lobbies, turning them into effective obstacles against multilateral liberalisation. Finally, there is the related issue of attention diversion and scarce negotiating resources. If the President of the United States and his Trade Representative are preoccupied with cutting deals in Latin America, they will have less time and motivation of multilateral negotiations13. The World Bank (2000) study further elaborates this point by arguing that negotiating an RTA will absorb a huge portion of policymaking skills of a developing country. Perhaps one of the opportunity costs of RTAs is that less negotiating and political capital are available for multilateral negotiations14. Das (1999) argues that growth in regionalism does not necessarily have to lead to a short cut to free trade or a liberalised trading regime. It is difficult to claim that the target of free or a liberalised trade is easier to reach in large regional agreements like the FTAA and the APEC forum with memberships as large as 35 and 21, respectively. These two and other large regional grouping contain economies as different in size, outlook and level of development as any in the WTO15. Panagariya (1998) criticises 'open regionalism' by highlighting three critical limitations of such a concept. His arguments can be summarised in three major points. First, discrimination against nonmembers at any point in time remains in place by definition as long as the regionalism is of Article XXIV variety16. Second, openness is not as innocuous as it sounds the admission price can include several unpleasant 'side payments' that are essentially unrelated to trade. Third, open membership does not necessarily translate into speedy membership17. Further, Zissimos and Vines (2000) assert: 'If the benefits from membership of an exclusive club are derived partly by making

outsiders worse off, then the club will not throw open its doors to all comers. Facilitating trade between bloc members has exactly this effect. The purchasing power of block currencies increases, whilst that of outsiders declines. Consequently, trade blocs do not have an incentive to allow all applicants to join, because some of the benefits of membership come from being able to purchase the products of outsiders more cheaply on world markets. So there is a limit to the expansion that can be expected from existing blocs, and free trade between all countries will not arise.'18 Open membership also raises the issue of broadening versus deepening. Broadening the membership of any regional grouping inherently complicates the process of deepening its integration. Too many new members can make decision making more time consuming and cumbersome. APEC realised this and imposed a moratorium in expanding membership in early 1998.19 Srinivasan (1997) too is quite vocal in criticising 'open regionalism'. Argues he, 'If regional liberalisation is to be extended on the same time table 'in practice and in law' to non-member countries on an MFN basis, it would be multilateral and not regional. If that is the case, why should any group initiate it on a regional basis in the first place?'.20 He goes on to call 'open regionalism' an oxymoron. The practical problems of this concept have been highlighted by the current status of the APEC and the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC) where the progress has been far from satisfactory.21 Contemporary Debate on Regionalism: Other Viewpoints A comprehensive study done by World Bank (2000) on the debate on regional integration, titled Trade Blocs finds out that regionalism is generally a building bloc to multilateral trade liberalisation. It goes on to explain how benefits of trade creation resulting from an RTA outweigh the costs of trade diversion22. The study looks at seven recent RTAs by modelling the effect on trade among the countries in the bloc and the rest of the world to see the impact of trade diversion. As per the study, in four of the seven countries there was no significant trade diversion, but in three countries the problem of trade diversification was large enough to be visible. Hence diversion is neither so common as to be general, nor so unusual as to be dismissible23.

Complementarity between regionalism and multilateralism is also stressed by Ethier (1998), who argues that 'the new regionalism is in good part a direct result of the success of multilateral liberalisation, as well as being the means by which new countries trying to enter the multilateral system (and small countries already in it) compete among themselves for direct investment'. He also suggests that regionalism by internalising an important externality plays a key role in expanding and preserving the liberal trading order24. Commenting on complementarity of regional liberalisation on services with multilateral liberalisation, Hoekman (1995) suggests that both conceptual considerations and the available data on trade and investment flows suggest that RTAs in the area of services should be easier to negotiate and be more far-reaching than a multilateral agreement. However, he admits that the two approaches are substitutes. Reviewing existing agreements, he concludes that sectors that are (included) excluded from RTAs are also (included) excluded from multilateral liberalisation. This suggests 'the GATS is likely to be seen as complementary to the regional arrangements by major service industries in OECD countries.'25 After analysing all the arguments that were discussed, it is clear that there is no need to be unnecessarily nervous about regionalism and its potential to derail the multilateral trade liberalisation. As Baldwin (1997) puts it: Does recent regionalism threaten the future of the world trading system? My guess is that because trade is already quite free in the major trading nations, few regional liberalisations are capable of creating important anti-liberalisation forces (the exceptions are likely to be South-South FTAs). For this reason, most regional deals will weaken the key opponents of free trade (import competitors) while simultaneously strengthening its key proponents (exporters). Regional integration will, therefore, foster multilateral liberalisation and vice versa, just as it has done for the past 40 years. If this is right, regional deals are not building blocks or stumbling blocks. Regionalism is half of the trade liberalisation 'wheel' that has been rolling towards global free trade since 1958â&#x20AC;&#x2122;.26 The increase in intra-regional trade between the regional partners shows that benefits of trade creation outweigh costs associated with

trade diversion. Regional economic integration has served the useful purpose of creating a thread for multilateral trade liberalisation on several counts. If that were not the case, the size and number of RTAs would not have grown with leaps and bound as is happening, especially after the formation of the WTO. Indeed, RTA is the favourite of all the countries of the world whether they are members of the WTO or not. South Asian Perspective on RTAs The initial conditions for South Asia to embark on an RTA seem not very attractive. Limited complementarities, low intra-regional trade (4-5 per cent), political turbulence, etc., are acting as impediments to embark on promoting intra-regional trade. However, there are some valid reasons for engaging in an RTA. The case for economic cooperation under an RTA can be justified from six perspectives. First, nearly 60 per cent of global trade now takes place under RTAs and more than 250 RTAs in operation27, so there are compelling reasons to be in an RTA, for if not formed member countries could get increasingly marginalised in the competitive world. In such a context, one can also question the rationale of multilateral trade liberalisation being identified as the first best option by economists led by Bhagwati. Theory is based on strong assumptions such as perfect competition which no longer exists in a world with 250 plus RTAs already in operation. In an imperfect world, the so-called second best option may be the only option available, thus the case for an RTA is strong. Second, it is argued that there is a large amount of informal trade that is taking place in the region and if this is added to the formal trade, the overall intra-regional trade will amount to nearly eight per cent in the SAARC. The argument is also put forward that despite intra-regional trade being put at 22 per cent in ASEAN, if the reexports from Singapore is taken into account, ASEAN intra-regional trade reduces to 12 per cent. Thus it is argued that there is not much difference between SAARC and ASEAN in intra-regional trade taking into account that preferential trading in ASEAN started 20 years before SAARC. Third, RTAs are not necessarily formed to increase low intra-regional trade to a higher level. In Europe, intra-regional trade was at 44 per

cent at the time of formation of the EC. The real objective here according to the Cecchini Report (1988) was to promote economics of neighbourhood and engage in industrial restructuring by exploiting economies of scale and specialisation28. In other words, to promote industrial restructuring through complementarities and synergies. Fourth, the cost of non-cooperation is highlighted to put forward the case for an RTA. CUTS (1996) showed that consumers in Pakistan paid extra costs of US $ 36.3 mn, US $ 48.9 mn. and US $ 33.7 mn. over the calendar years 1992, 1993, and 1994 respectively for their governments importing 82 to 83 per cent of their tea import requirements from outside the region, such as UK and Kenya29. Despite India being self-sufficient in sugar, it suffered an underproduction during 1992 and 1993 and had to import sugar. Though Pakistan had exportable surplus during that year, India chose to import sugar from outside the region, thus incurring additional costs to the tune of US $ 151 million in 1992 and US $ 215 mn. in 1993. Likewise, Pakistan is known to import steel from China at a price, which is twice that of exports from India. RIS (1999) used the unit value method in a comparative static framework to work out the cost of non-cooperation in the SAARC due to sourcing of imports from non-SAARC countries. They found the cost of non-cooperation for Sri Lanka and Pakistan to be US $ 266 and US $ 511, respectively30. Fifth, the experience of the Indo-Sri Lanka Bilateral Free Trade Agreement (ILBFTA) can be considered to highlight the benefits of an RTA. Despite fears expressed by many pessimists in Sri Lanka, the Agreement led to reducing Sri Lanka's trade deficit with India from 11:1 in 1999 to 5:1 in 2002. Sri Lankan exports to India accounted for 3.6 per cent of overall exports in 2002 in comparison to 1999, when Sri Lankan exports to India accounted for one per cent of overall exports. India has become the 5th largest destination for Sri Lankan exports in 2002 compared to the rank in the 20s in the mid-1990s. Meanwhile, India has become the largest source of imports to Sri Lanka, accounting for 14 per cent of overall imports31. What the Sri Lankan experience shows is that if the regulatory framework in an RTA is correctly designed to accommodate the disparity between the countries then a small country could in fact

gain from an RTA. In this case, the time frame of tariff phase out, rules of origin, and negative list were designed to accommodate the smallness of Sri Lanka's export and production capacity. Sixth, the argument that the South-South RTAs are not very effective in promoting intra-regional trade may not make much sense if we look at South-South trade from the intra-regional investment perspective. It has been empirically demonstrated that the transfer of resources and technology through South-South joint ventures is more appropriate and cost effective for receiving country than similar transfers effected by transnational corporations (TNCs) based in industrial countries. For instance, technology transferred to joint ventures has been found to be appropriately scaled down to smaller size, made more appropriate for factor endowments of developing countries, and adopted to local raw materials and market conditions (RIS, 2004). These joint ventures can promote and supplement South-South trade. Joint ventures with buy-back arrangements with the home country can help in correcting the perennial trade imbalances which may emerge because of limited export capabilities of host countries.

specialisation. In such an event, Sri Lanka may emerge as the region's shipping hub and also the hub for rubber-based industries, Bangladesh will emerge as the hub for energy-based industries, Bhutan, forest-based industries, India as the hub for IT and textile industries, Maldives for fisheries industries, and so on. While the arguments for an RTA exist in South Asia, the question is how to exploit this potential. For SAFTA to be a formidable FTA, it has to cover a large portion of trade that is currently taking place in South Asia. SAPTA the precursor to SAFTA was notified to the WTO under 'Enabling Clause'32 which allows developing countries to form RTAs within themselves. However, more serious RTAs are notified under the Article XXIV of the GATT even if they can in theory be notified under the Enabling Clause. Because RTAs can be welfare enhancing only if they result in more trade creation than trade diversion and act as building blocs to multilateral trade liberalisation, the drafters of the GATT included the requirement to 'liberalise substantially all the trade' under this Article. This means only serious RTAs can fulfil the stringent criteria laid down by Article XXIV. Therefore, it can be argued that SAFTA needs to be notified under this Article so as to make it a formidable RTA33.

In ASEAN, Japanese investment driven exchanges contributed to stimulating intra-regional trade among ASEAN countries. ASEAN also started with limited complementarities in the 1970s with intraregional trade at six per cent, but by exploiting the investment-trade nexus, ASEAN managed to increase its intra-regional trade to 22 per cent at present. In the Greater Mekong Region, ADB funded infrastructure stimulated the supply side and contributed to increasing trade among member countries. These experiences where dormant complementarities have been invigorated by investment have been well documented in the literature.

Conclusion From the mere fact that there are more than 250 RTAs, and the USA which was the main proponent of multilateralism until a decade ago has embarked on NAFTA and other RTAs with the enactments of the Trade and Development Act of 2000 clearly indicates that the proponents of an RTA have won the debate. The rationale for a SAARC RTA was the point of debate but as we have pointed out there is a case for an RTA in South Asia. The question is the slow progress and the political will to implement it.

Like in the EU, if industrial restructuring in the region based on economies of scale and specialisation is promoted via a SAARC investment area, there may be much to be gained. For instance, after the EU came into operation, IBM closed down its individual plants in member countries and initiated specialisation by producing personal computers in the UK, main frames in Germany, telecom equipment in Italy, and so on. RIS (2004) argues that a SAARC investment area can facilitate efficiency-seeking restructuring of industry in the region, thus enabling them to exploit economies of scale and

While the case for SAFTA is straightforward, the question is a major political problem that cut across all areas of economic cooperation. Some South Asian nations being recent creations, a strong rhetoric has been built around the states and they are aided by the powers of state institutions. The mapping of the cartography of the colonial regime has eroded the foundation of regional linking. The division into nation states is strong. Since the nation-states are themselves in the process of being formed in the region, the concept of supranational region seems novel and contradictory to the immediate task

of nation building. Nation states are absolutely central and crucial for any project in South Asia. SAARC moves slowly because most nation states themselves have not been very successful In this milieu, the important question is can SAARC insulate its economic agenda from regional politics? Irrespective of SAARC summits been postponed to accommodate political developments, can the economic agenda have a momentum/life of its own? The answers to all these questions at present are not very positive. Thus economic cooperation within a framework of an RTA in South Asia will move slowly and depend on the political equation. Due to the slow progress of SAPTA, a number of SAARC countries embarked on working out bilateral, sub-regional, and trans-South Asian regional groupings. SAARC is thus unique because before moving to an FTA, it has bilateral FTAs within the grouping and selective RTAs that include some SAARC countries with neighbouring SAARC non-members. ASEAN, for instance, did not have bilateral FTAs among ASEAN countries before moving to AFTA, and neither did MERCSOUR. Thus SAFTA is coming into operation when a 'spaghetti bowl' is already prevailing in the region. The challenge for SAFTA is either to supercede them or to integrate them. Given the SAFTA time frame, this may prove to be difficult. The reviewed debate on regionalism gives little emphasis on such challenges. In this context, the debate on regionalism can be enriched by the experience in South Asia. After all, if RTAs are to be building blocs for multilateral liberalisation efforts then the vision should be to integrate existing RTAs to three or four major blocs such as FTAA, EU, proposed African Union, and a contemplated Asian Economic Community. SAFTA, BIMSTEC, ASEAN +3, etc., are RTAs that can eventually integrate to form the Asian Economic Community. Thus SAFTA has to be re-positioned in the pan-Asian context and be considered as a building bloc of the Asian Economic Community which will eventually become a major global trading bloc that would in turn be a building bloc of the multilateral trade liberalisation system. Asia has a long way to go and SAFTA needs to be more aggressive in its commitments to becoming that building bloc for the Asian Economic Community.

Dr Saman Kelegama is executive director of the Institute of Policy Studies, Sri Lanka. Ratnakar Adhikari is executive director of South Asia Watch on Trade, Economics and Environment (SAWTEE), Nepal. Endnotes 1 World Bank, 'Trade Policies in South Asia: An Overview', Poverty Reduction and Economic Management, South Asia Region, (Washington, D.C.: The World Bank, 2003). 2 Fred Bergsten (1997), 'Open Regionalism', Working Paper 97-3, Institute for International Economic, Washington D.C: 2-3 3 Fred Bergsten, (1997), above, note 2: 3 4 Dilip K Das, (2001), Regional Trading Arrangements and the Global Economy: An Asia-Pacific Perspective, Monograph, February, Cambridge: Harvard University, Centre for International Development, 2001) p. 22 5 Richards E Baldwin, 'The Causes of Regionalism', The World Economy, Vol.20, 1997, pp. 877-8. 6 Based on a personal conversation with Prof. Richard Baldwin. 7 Andre Sapir, 'Domino effects in Western European regional trade, 1960-92', European Journal of Political Economy, Vol 17: 386, 2001. 8 Fred Bergsten, (1997), above, note 2:4 9 Jagdish Bhagwati, 'Regionalism and Multilateralism: An Overview' in Jagdish Bhagwati, Pravin Krishna and Arvind Panagariya (eds.), Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements, (Cambridge: MIT Press, 1999), p.7. 10 Jagdish Bhagwati in V.N. Balasubramanium (ed.) Writings on International Economics, (Oxford University Press, 1998), p. 169. 11 See Arvind Panagariya, 'The Regionalism Debate: An Overview', The World Economy, Vol. 22, no. 4, (Harvard University: Center for International Development, 1999). pp. 22-23 Ibid at 22-23. 23 Jagdish Bhagwati, (1999), above, note 9: 22-25 24 World Bank, Trade Blocs, (Oxford: Oxford University Press, 2000), p. 104. 25 Dilip K. Das, (2001), above, note 4: 4-5 26 This Article of the GATT provides legal cover to RTAs, which allows for discrimination against non-members. However, a major condition to qualify as WTO-compatible is that there should be 'liberalisation of substantially all trade'. 27 It took the EU more than 40 years to grow from 6 members 15. CanadaUS free trade agreement has included only one member by converting itself into NAFTA over a period of one decade. Attempts by even a tiny country such as Chile have faced serious resistance. See Arvind Panagariya, (1998), above, note 11: 35

96 28 29 30

23 24 25 26 27

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97 Ben Zissimos and David Vines,'Is the WTO's Article XXIV a Free Trade Barrier?' CSGR Working Paper No. 49/00, February 2000 S. Kelegama, 'Open Regionalism and APEC; Rhetoric and Reality', Economic and Political Weekly, Vol. XXXV, no. 51, 2000a. T.N. Srinivasan, 'Regionalism and the World Trade Organisation: Is Non-Discrimination Passe?' in A. O. Krueger (ed.), The World Trade Organisation as an International Institute, (The University of Chicago Press, 1997). S. Kelegama, (2000a), 'Open Regionalism and APEC; Rhetoric and Reality' above note 19; S. Kelegama, 'Open Regionalism in the Indian Ocean: How Relevant is the APEC Model for IOR-ARC ?', Journal of the Asia Pacific Economy, Vol. 5, no. 3, 2000c; and S. Kelegama, 'Indian Ocean Regionalism: Is there a Future ?', Economic and Political Weekly, Vol. XXXVII, no. 25, 2002. Large scale foreign direct investment from Japan played a key role in stimulating intra-ASEAN trade via the investment-trade nexus. Further details are given in S. Kelegama, 'SAPTA and its Future', South Asian Survey, Vol. 3, nos. 1 and 2, 1996. World Bank, Trade Blocs, The World Bank, Washington, D.C., 2000. W. Ethier, 'The New Regionalism', The Economic Journal, Vol.108, 1998, pp. 1149-1161. Cf. Sam Laird, 'Regional Trade Agreements: Dangerous Liaisons?', World Economy, Vol. 22, no. 9, December 1999, p. 1187. Baldwin (1997), above, note 5: p. 888. Some 250 RTAs have been notified to the GATT/WTO up to December 2002, of which 130 were notified after January 1995. Over 170 RTAs are currently in force; an additional 70 are estimated to be operational although not yet notified. By the end of 2005, if RTAs reportedly planned or already under negotiation are concluded, the total number of RTAs in force might well approach 300. See http://www.wto.org/english/tratop_e/region_e/region_e.htm Paolo Cecchini et al, The European Challenge-1992: The Benefits of a Single Market, (Aldershot, Hants, UK, 1988). CUTS, 'Cost of Non-Cooperation to Consumers in the SAARC Countries: An Illustrative Study', Working Paper, Consumer Utility Trust Society, Jaipur, 1996. RIS, South Asia Development and Cooperation Report 2004, (New Delhi: Research and Information System for Non-Aligned and Other Developing Countries, 2004). S. Kelegama, 'Sri Lanka's Exports to India: Impact of the Free Trade Agreement', Economic and Political Weekly, Vol. XXXVIII, no. 30, 26 July, 2003. Officially known as Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, 1979 (Tokyo Round). S. Kelegama and R. Adhikari, Regional Integration in the WTO Era:

South Asia at Crossroads, (Kathmandu and Jaipur: SAWTEE and CUTS-Centre for International Trade, Economics and Environment (CUTS-CITEE), 2002). References l Richards E. Baldwin, (1997), 'The Causes of Regionalism', The World Economy p. 20. l Zissimos Ben and David Vines, 'Is the WTO's Article XXIV a Free Trade Barrier?' CSGR Working Paper No. 49/00, February 2000. l Fred Bergsten, 'Open Regionalism', Working Paper 97-3, Institute for International Economic, Washington D.C., 1997. l Jagdish Bhagwati, 'Regionalism and Multilateralism: An Overview' in Jagdish Bhagwati, Pravin Krishna and Arvind Panagariya (eds.), Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements, (Cambridge: MIT Press, 1999). l Paolo Cecchini et al, The European Challenge- 1992: The Benefits of a Single Market, (Aldershot, Hants, UK, 1988). l CUTS, 'Cost of Non-Cooperation to Consumers in the SAARC Countries: An Illustrative Study', Working Paper, Consumer Utility Trust Society, Jaipur, 1996. l Dilip K. Das, (2001), Regional Trading Arrangements and the Global Economy: An Asia-Pacific Perspective, Monograph, February (Centre for International Development, Harvard University, Cambridge, 2001). l W. Ethier, 'The New Regionalism', The Economic Journal, p. 108, 1998. http://www.wto.org/english/tratop_e/region_e/region_e.htm l Jagdish Bhagwati in V.N. Balasubramanium (ed.), Writings on International Economics, (Oxford University Press, 1998). l S. Kelegama, 'Indian Ocean Regionalism: Is there a Future?', Economic and Political Weekly, Vol. XXXVII, no. 25, 2002. l S. Kelegama, 'SAPTA and its Future', South Asian Survey, Vol. 3, nos. 1 and 2, 1996. l S. Kelegama, 'Open Regionalism and APEC; Rhetoric and Reality', Economic and Political Weekly, Vol. XXXV, no. 51, 2000a. l S. Kelegama, 'Open Regionalism in the Indian Ocean: How Relevant is the APEC Model for IOR-ARC ?', Journal of the Asia Pacific Economy, Vol. 5, no. 3, 2000b). l S. Kelegama, 'Sri Lanka's Exports to India: Impact of the Free Trade Agreement', Economic and Political Weekly, Vol. XXXVIII, no. 30, 26 July, 2003. l S. Kelegama and R. Adhikari, Regional Integration in the WTO Era: South Asia at Crossroads, (Jaipur and Khatmandu: SAWTEE and CUTS-Centre for International Trade, Economics and Environment (CUTS-CITEE), 2002). l Sam Laird (1999), 'Regional Trade Agreements: Dangerous Liaisons?', World Economy, Vol. 22, no. 9, December. l Arvind Panagariya, 'The Regionalism Debate: An Overview', The World

Economy, Vol. 22, no. 4, (Center for International Development, Harvard University: 22-23, 1999). l RIS, South Asia Development and Cooperation Report 2004, (New Delhi: Research and Information System for Non-Aligned and Other Developing Countries, 2004). l Andre Sapir, 'Domino effects in Western European regional trade, 1960-92', European Journal of Political Economy, Vol 17, 2001. l T. N. Srinivasan, 'Regionalism and the World Trade Organisation: Is Non-Discrimination Passe?' in A.O. Krueger (ed.), The World Trade Organisation as an International Institute, (The University of Chicago Press. 1997). l World Bank, Trade Blocs, (Oxford: Oxford University Press, 2000). l World Bank, 'Trade Policies in South Asia: An Overview', Poverty Reduction and Economic Management, South Asia Region, (Washington, D.C.: The World Bank, 2003) .

A South Asian Economic Powerhouse Prime Minister of Pakistan, Mr. Shaukat Aziz

he world's economic centre of gravity is fast shifting to Asia. Our continent is seeing important processes of regional and sub-regional economic cooperation. North East and South East Asia are forging cooperation in trade, investment and technology. China, Japan, South Korea and ASEAN are major success stories in terms of economic and technological advancement. These countries have been able to benefit from the processes of globalisation and have positioned themselves to optimise gains. The resource rich regions of Central and West Asia are also embarked on important cooperative ventures indicated by the Shanghai Cooperation Organization, the Economic Cooperation Organization and the Gulf Cooperation Council. Pakistan is situated in South Asia, Central Asia and the Gulf regions simultaneously. Our strategic location makes it possible for us to play a critical role in advancing cooperation in these regions and we are determined to contribute to their peace, stability and prosperity. We look at Pakistan as an anchor of stability at the crossroads of South Asia, Central Asia and the Gulf region. We are forging close cooperative links with all these regions. We want to build positive links with the process of globalisation and believe that regional cooperation is a necessary ingredient in maximising dividends in an increasingly inter-dependent world.

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Pakistan has worked towards the creation of South Asia Free Trade Area (SAFTA) and major progress was made at the 12th SAARC Summit in Islamabad. We have also started consultations to enter into preferential tariff and even free trade arrangements with several important economies of the Asia Pacific region. Pakistan will host the Ministerial Meeting of the Asia Cooperation Dialogue in Islamabad in April, 2005. A major theme at the Islamabad ACD meeting is Economic Cooperation in Asia. As Chairman of SAARC, Pakistan has made efforts towards the realisation of its goals. Enormous challenges confront South Asia. It has the largest number of poor in the world; FDIs are at a low level, but a vast unrealised potential exists. South Asia, home to one-sixth of humanity, cannot remain indefinitely mired in poverty and affliction. We have resources, talent, skills and industrious peoples. We have a great capital -- our human resource. It is second to none. We have the ability to turn South Asia into an economic powerhouse of the world.

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of energy. We can offer India an energy corridor, if it so wants. We could promote tourism and trade and many other areas of cooperation. Bilaterally, India has a huge advantage in terms of balance of trade. It is important to identify reasons that make it difficult for Pakistan to get access to the Indian market. We hope the study group set up in Islamabad in November last year would assist us to do so. We hope that the Economic Experts Committee would be able to deal with these issues effectively. It is important to create a level playing field and facilitate private sector interaction. Investments and joint ventures could take-off in a big way if we are able to create an enabling political environment of peace, stability, trust and confidence. We should work towards attaining these objectives and I don't think they are difficult to achieve.

Central to SAARC's functioning is the Pakistan-India equation. The recent improvement in atmospherics between India and Pakistan helped propel the process of regional cooperation in South Asia. Under SAARC we are coming together in trade with SAFTA, a very attractive arrangement for all of us. We are also working towards Customs cooperation; setting up an Arbitration Council; working instrument on Avoidance of Double Taxation; and on promotion and protection of Investments.

I discern distinct warmth in sentiments in Pakistan and India to engage constructively. Constructive engagement requires vision, sagacity and sense of purpose. There is a huge area of convergence. Divergences can be minimised. The parameters of engagement as far as Pakistan is concerned are simple and straightforward. Let me share them with you: We must cultivate good neighbourly relations. We must respect each other's sovereignty, territorial integrity and base our relations on sovereign equality. We should respect the principles of non-intervention and non-interference. We must endeavor to win each other's trust and confidence.

SAARCFINANCE enables the heads of our Central Banks to develop closer understanding and cooperation. There is also the overarching objective of poverty alleviation as well as mechanisms for technical cooperation. Social Charter sets the regional markers for lifting the quality of life in the region. In SAARC we should share best practices and create mutual dependencies and linkages. All this would create South Asian dynamics for growth and development.

Respect for these basic principles of inter-state conduct is the safe and sure foundation on which Pakistan-India relations will thrive and prosper. Pakistan looks forward with confidence to engaging India on the whole range of issues. Pakistan and India must lead South Asia to new horizons of economic development. Our basic economic indicators are impressive. India's growth rate has been very healthy. We expect ours to grow.

On the India-Pakistan bilateral plane there is a lot that can be done. To begin with the Gas Pipeline Project could be a huge and successful CBM. We envisage this as a stand-alone project of great significance, where India and Pakistan and gas suppliers can benefit. We believe that both Pakistan and India can gain a lot by cooperating in the field

The macro-economic indicators for Pakistan are all positive. The investment climate is attractive; the Stock Exchange is buoyant and interest rates are down. The exports and foreign exchange reserves are healthy. Fiscal deficit is contained at 3.3 per cent of GDP. Per capita income has risen to US$ 650 and is destined to go higher. This

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year the GDP was 6 per cent. We have undertaken across the board reforms in our financial and banking sectors and many foreign banks are operating in the private sector. Pakistan is now out of the IMFPRGF and in fact returned -- with thanks -- two tranches offered by the IMF recently. Pakistan is accessing global capital market. Last year Pakistan floated its first Euro bond. And Pakistan's rating has improved since to B plus. Our privatisation program has progressed well. Major banks have been privatised. The telecom sector is being de-regulated. Mobile telephony has seen a quantum jump. A new paradigm has been introduced to encourage the private sector to leverage the opportunities for commercial and economic activity. The government's role is now only confined to that of a policymaker. We have left the entire business activity with the private sector. The government is also paying greater attention to the social sector. Education is high priority as is agriculture. Major infrastructure projects are taking shape in the form of electricity generating powerhouses, ports, and road and rail networks. Pakistan is well positioned geographically to emerge as a commercial hub for landlocked Central Asia and beyond. Our experience in Afghanistan has been very encouraging. Our trade with Afghanistan has reached US$ 1 billion mark and is growing. Our banks have opened branches in Afghanistan recently. This has further generated economic and commercial activity between Afghanistan and Pakistan.

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and particularly the Muslim world by the President of Pakistan, Mr. Pervez Musharraf. We believe that at this critical juncture of contemporary history, it is important to debunk the theory about clash of civilisations. I have no disagreement with Huntington but I disagree with his concept of clash of civilisations. Pakistan, today, is engaged simultaneously at home and abroad on defending basic human values and to avert conflicts and crises. Our role in countering terrorism is well acknowledged and appreciated. We are committed to promoting peace in our adjoining regions. A vision of peaceful cooperation must imbue our efforts to leverage the full potential of South Asia for progress and development. As Chairman of SAARC, Pakistan has been pro-active in promoting regional cooperation. There is a clear recognition all around that SAARC's success is a function of Pakistan-India relations. When Pakistan-India relations seem to be on the mend, SAARC moves up. Whenever Pakistan-India relations get cool, SAARC becomes inactive. Both regional and bilateral processes are mutually reinforcing. On the bilateral track, the CBMs and Composite Dialogue process with India have been sustained and should be made more substantive and purposeful. Pakistan is prepared to make its earnest contribution to the success of these endeavors. We need to move from tactical to strategic discussions. This is a process that has already started.

The Karakoram highway links us overland across the Himalayas to China. Our seaports are equidistant from Europe and the Far East. We are, therefore, paying special attention to becoming an important trans-shipment point for flow of goods and resources especially energy. The port of Gwadar has created history. From the beginning to the end it would be completed within three years.

Pakistan-India relations are not ordained to remain adversarial perpetually. A sense of confidence in our common destiny coupled with the courage to take bold decisions to turn the corner is required. It is time for a strategic re-think. It is time to move away from rigid mindset. We must be realistic and pragmatic. The time has come to bridge the trust deficit. Both sides must move away from conditioned reflexes to open new avenues and cover fresh ground in our bilateral relations.

We are conscious of our geo-strategic and geo-economic significance. We are equally conscious of our credentials as a progressive, moderate Islamic state, which can be a model to other countries. We are committed to pursuing the policy of enlightened moderation at home and abroad, a policy discussed and introduced to the world,

We must learn from history and experience of other nations in managing our region and our relations. We need to seek just and durable solutions of all outstanding issues including Jammu and Kashmir. It is time to accommodate in full the aspirations of the Kashmiri people. This is an imperative of justice, history and

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democracy. My visit to New Delhi last November has been useful. The dialogue we have had with Indian leadership has been very constructive. I have conveyed to the Indian leadership that Pakistan sincerely desires peace. We want good neighbourly relations based on sovereign equality. We have the courage to take bold decisions to move the relations forward. We must think 'out of the box'. By adhering to old mindsets the present opportunities could easily be lost. If India takes a step forward, Pakistan will respond by two. We will demonstrate flexibility, if India chooses to show the same. In short, we are sincere and serious and expect this to be reciprocated. Let us both prove the pundits of gloom and doom wrong. A new beginning, a new dawn awaits the peoples of South Asia. Let's work together for a promising tomorrow. Shaukat Aziz is currently Prime Minister of Pakistan.

South Asian Economies: Future Challenges Dr Ishrat Husain

he first decade of the 21st Century is bringing about several fundamental structural changes in the economies around the world. South Asian economies have to accelerate the pace of internal transformation of their 'economies' if they choose to benefit from the opportunities the structural changes present. There is a need to shift from the old paradigm of dependence on official aid and putting blame on the unjust international economic order for their woes to the new paradigm of becoming an active participant in the emerging globalised economy. What are the key characteristics of this new globalised economy? First is an open trading environment 'in which low cost and reliable producers of quality goods and services are able to deliver them just in time will derive maximum gains. The countries in this environment will have to compete for market shares in their quest for selling goods and services to the rest of the world. Second, the integration of financial markets and liberal flows of cross border capital, particularly foreign direct investment, provide ample scope for supplementing domestic savings and raising investment levels to accelerate the pace of growth and poverty reduction. In South Asia, the earnings and remittances of workers employed overseas do play a key role in accumulation of net foreign assets. Third, rapid changes in information technology and communications can lead to improving efficiency in the utilisation of capital and labour and thereby to total productivity increase. But, at the same

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time, it places a severe burden on the prospects of employment for unskilled labour. Fourth, a silent revolution in expectations of the so far voiceless voters is taking place due to a perceptible impact of electronic media and skilful management of these expectations and delivery of tangible results against promises is assuming a new dimension in good governance. This paper addresses the following issues: To what extent are the South Asian Economies prepared to face these four major challenges and what is the agenda they should follow in the next 10 years? Before analysing this issue a few thoughts need to be considered on the process of decision-making that should be followed by the leaders of South Asia in order to bring about the paradigm shift. Each country must begin by preparing a long-term vision and the roadmap to translate this vision into action with milestones and time-lines. This vision and road map must have a non-partisan and national consensus and all political parties must agree and commit to the broad thrust and the direction of the economy. Of course, there will be many nuances and approaches to implementation and the roadmap will be altered in the light of experience gained but, at least, the investors and economic actors will be assured that there will be no abrupt reversals and significant derailments. China offers an excellent example of this process where the vision and the road map adopted by Deng Xia Ping has been followed, with some modifications and alterations, by successive governments. The skeptics may contest this conclusion by arguing that the same political party has remained in power since 1978. While this is true, but the point to consider is that in plural democratic societies when even contesting political parties have a broad agreement on the vision and direction of the economy, the voters will judge the performance by their relative success in implementing the programs, policies and projects and bringing about an improvement in the living standards of their electorate during their respective tenures. It is the differentiation in their relative performance that will distinguish the record of one political party from the other and win and lose the support of the electorate. Past Achievements and Current Status What is the state of South Asian economies in meeting he challenges

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mentioned earlier? South Asia has grown at 5.6 per cent in the 1990s -- faster than the low income countries as a group but slower than the East Asian countries. The wide-ranging reforms implemented in this region during the last 10 years or so have brought about some fundamental changes in the economic landscape and removed some of the major constraints retarding the progress of this region. The changes that have come are noteworthy: 1.

There is now a broad political consensus about the objectives and content of economic policies in almost all the countries. The defeat of the Bharatiya Janata Party (BJP)-led Government in the recent Indian elections should not be construed as an indictment of reforms but a manifestation of the growing impatience of the electorate that these reforms have not been deep and fast enough to touch the lives of the majority of the population. This political consensus has survived many changes of the governments in India since 1991 and the alternating shift of power in Pakistan, Bangladesh and Sri Lanka. South Asian countries did not blindly and relentlessly follow the Washington consensus but selected only those elements which suited them thus avoiding the kind of crisis faced by East Asian countries.

2. Reliance on private sector as the main investor, producer and distributor of goods and services has replaced the old notion of the commanding heights model of the economy in which state and state-owned enterprises were the main tools of industrial development. The demise of Licence Raj has given rise to a healthy competitive environment in which market mechanism is used for allocation of resources. This shift has improved the efficiency of resource allocation and utilisation in South Asia. State intervention has been limited to provision of physical infrastructure, social services and other public goods in support of private investment and making markets function efficiently. 3. Unilateral trade liberalisation has been quite rapid in the 1990s in the region. Average tariff rates have declined from 90-100 per cent in 1980s to 13-32 per cent. Sri Lanka leads the way followed by Pakistan. India and Bangladesh are considered laggards in trade liberalisation according to a World Bank study, but are in much better shape than what they were in the 1970s and 1980s. Export promotion has finally been accepted the new gospel in

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contrast to the past five decades of obsession with inward looking import substitution and protection of domestic industry. 4.

Domestic financial and capital market reforms have made the financial sector sound and healthy. In Sri Lanka and Pakistan the strides made are quite advanced. India is slowly and gradually opening up to foreign competition and introducing new legislation to improve the performance of the banks and upgrade the quality of assets. Bangladesh has begun the process more recently but is committed to moving forward in the same direction. But directed credit and credit ceilings, administered and subsidised interest rates, have gradually given way to market-based allocation of credit and determination of prices.

Macroeconomic stability i.e., low inflation, low domestic interest rates and stable but realistic exchange rates, has become the hallmark of these economies. Exchange rate regimes in all the countries have switched from fixed to managed float. Bidirectional movement i.e. both, depreciation or appreciation of domestic currency, takes place according to market supply and demand conditions. There is no longer a hang-up to defend a particular level of exchange rate and preserving competitiveness of exports and smoothing volatility are the main policy considerations. Large foreign exchange reserves are piling up in all the countries with India's coverage more than 15 months imports followed by Pakistan about 12 months and Bangladesh 4 months.

6. Fiscal consolidation and discipline are the furthest in Pakistan with fiscal deficit down to 4 per cent of GDP compared to average 7 per cent and domestic resource mobilisation stepped. up in the last five years by almost 70 per cent. India's budget (2004-2005) aims at 4.4 per cent deficit of GDP for the Central Government but the consolidated deficit is still uncomfortably high. Tax-GDP ratios are low by comparison to other countries at the similar income levels. Therefore, domestic savings and investment ratios have not matched those of China and other fast growing East Asian countries. 7.

India has clearly taken advantage of the low wage, English speaking, highly educated technical manpower to become a

leader among the recipients of outsourcing of IT related services. The same trend is beginning to emerge in other services such as drug clinical trials, health care, biotechnology, research and development. Although the immediate employment impact of the exports of these services is likely to be limited in the medium and long-term, the expansion of burgeoning middle class and the demonstration effect on the younger generation to acquire higher scientific and technical education will help India in the transformation of its economy. Other countries in South Asia are latecomers to the scene and have a lot of catching up to do. This Indian strategy of export of services does make much sense as the services sector accounts for 60 per cent of the output of developed economies and many services are becoming mobile across borders due to breakthroughs in technology and communication. These improvements in macroeconomic fundamentals have led to upgradation of credit worthiness of India and, more recently, Pakistan. Both the countries have established access to international bond market at fine pricing. It will, therefore, be fair to surmise that economic fundamentals have improved to a very large extent in all the South Asian countries in the last decade or so. Broad political consensus on the content and direction of economic policies and their credible and consistent pursuit should provide some signal to the markets that the South Asian economies can be relied upon in the exchange of goods and services and inflow of capital. Agenda for the Future However, the challenges and tasks ahead for economic managers in the region are simply daunting. Sri Lanka and India have almost one quarter of their population living below the poverty line. The estimates for Bangladesh are in the mid 40 per cent, while Pakistan has one-third of its population living below the poverty line. Unemployment rates are quite high and Human Development indicators are dismally low. Moreover, these tasks have to be pursued in the context of a more volatile economic environment -both domestic, as well as, international. Capital inflows and outflows have much greater potential to destabilise markets, exchange rate and interest rates. Technological, communication and media revolution, especially the

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satellite television and cable channels, have raised people's expectations through the demonstration effect of conspicuous consumption by powerful and affluent classes. These expectations are placing enormous pressures on the ruling classes for providing access to basic necessities of life to the majority of the population. At the same time, the state apparatus for delivery of these services in most South Asian countries has become largely dysfunctional due to induction of poor quality personnel, corruption, inertia, waste and institutional decay. How to narrow this widening gap between the rising expectations of the common man and the declining capacity of state institutions is one of the most difficult tasks for the leaders of South Asia. South Asia is lagging behind the East Asian economies and has a lot of catching up to do, that too, in the shortest period of time. We are way behind China, Indonesia, Malaysia, Thailand and the Philippines both in level as well as the rate of improvement. What can be done to reduce poverty and unemployment and catch up with East Asia? We should recognise this region as the benchmark against which we should evaluate our performance, although it is our biggest competitor in the global market, particularly China, which is becoming an industrial giant. A few points are worth consideration, although not exhaustive, to initiate a debate in the region: Between 1980 and 2001, South Asia received US$ 17 billion as Official Development Assistance (ODA). However, between 1990 and 2001, ODA inflows had declined both per capita and as percentage of GDP. There was a change in the composition of external capital inflows with a declining share of aid in relation to other types of inflows. This change in composition suggests that the influence of the official donors and particularly the International Financial Institutions (IFIs) is thus likely to wane while that of the fund managers, rating agencies, equity research houses, investment banks and multinational companies is likely to grow. Thus credibility of economic policies pursued by the countries assumes a much important role than the relationships nurtured with donors and the IFIs. The market's power to penalise imprudent policies and breach of commitment is more damaging to the economy than the slippages in the observance of IMF or World Bank conditionalities. Mexico had to suffer heavily when the Zedillo

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regime reversed the commitment made by the Salinas regime to the markets on the exchange rate. The country witnessed huge and sudden capital outflows, depreciation of currency, inflation and economic recession. To keep access to the international financial markets, the South Asian countries will have to maintain not only open and liberal foreign exchange regimes, sound and robust financial sector, but also pursue consistent, credible and transparent economic policies. Along with sound economic policies, there is growing evidence about the critical role of good governance and institutional quality in the growth-poverty reduction nexus. Weak governance normally associated with South Asia breeds corruption, political patronage, lack of transparency, low observance of rule of law, absence of level playing field, heavy tilt in the delivery of public goods and services towards the privileged and elite classes. Political leaders are now beginning to realise that the disenchantment of the electorate with these poor governance practices increases the burden of incumbency and risks their survival. Thus, improved governance should be on the top of the agenda of all political parties in South Asia. Bureaucratic hassles, long drawn procedures, un-even application of rules and regulations, excessive discretionary powers in the hands of lower level bureaucracy, shortages of essential infrastructure facilities and low productivity of labor force have made the region not such an attractive place for foreign investors. Consequently, Foreign Direct Investment (FDI) has not yet made any significant impact on the economies of the region. FDI accounts for 0.5 per cent of GDP with India receiving US$ 3-4 billion annually and Pakistan about US$ 1 billion. Portfolio investment to India had taken an upward trend but suffered a setback after the recent elections. A major overhaul of the structure of civil service, judiciary, police and local government institutions, re-engineering of business process and inculcation of modern management practices will be required in all the countries of the region. Political and geopolitical risks are still quite elevated in the region. The long-standing hostility between India and Pakistan; the acquisition of nuclear and missile capability by the two countries and

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the consequential sanctions imposed on them, the active frontline status of Pakistan in the war against terrorism, the prolonged civil war between Tamil Tigers and the government in Sri Lanka, and the frequent strikes called by the opposition parties against the government in power in Bangladesh have added risks to doing business and locating investment in these countries. The external perceptions about our region are, therefore, heavily biased due to these risks. The sooner we can overcome these problems, the sooner the better the region will be as a reliable trading partner, active participant in the international capital markets and a choice location for foreign investment. Investment in education and human development in countries, other than Sri Lanka, has been inadequate in volume, deficient in quality and lacking in relevance. The most recent census data for 2001 shows that India's literacy rate has gone up to 64 per cent but female literacy rate is less than 50 per cent. It also shows that at least one third of its population and labor force is not equipped to take up the ever changing and more complex tasks of the economy trying to outclass other competing countries. In Pakistan and Bangladesh almost half of their population and two-third of female population is illiterate. This large proportion of women among illiterates is a cause for serious concern. Sri Lanka is the only country in the region with almost a hundred per cent literacy. But this literacy level shows the growing imbalance between the demand for skills imposed by market economic forces and the supply of skills produced by our educational institutions. There is a surfeit of highly educated graduates who are not employable and there is a shortage of workers who can carry out routine technical jobs in production and service. India produces good quality science and engineering graduates every year who can cater to the high end of the job market but lack of attention to nonuniversity technical education and its quality have created wide gaps at the middle end of the job market. This situation is aggravated in Pakistan and Bangladesh where the issues of quality, relevance and numbers are all intertwined. Sri Lanka has no problem with the numbers, but high level of unemployment among university graduates testifies to this mismatch in the skills. The widespread frustration among the parents and graduates and a high level of dissatisfaction among the employers in finding the right persons for

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the right jobs are further evidence of the imbalance in labor market. This skill imbalance and lack of employability has serious repercussions for the composition and growth of the basket of goods that can be exported: The most dynamic and rapid growing sectors of exports in the world market today in the medium term are those associated with high technology and to some extent medium technology. While India is making some headway in increasing high technology exports, the record of other countries in the region is not very promising. They are still stuck in the low technology exports particularly textiles and clothing which have declining share in the world trade. Thus the need to overcome the skill obsolescence and turn towards medium and high technology exports was never as apparent as it is now. A change in the composition of exports can be achieved by removing the barriers and constraints in the way of foreign investors and Multinational Corporations (MNCs). FDI is an important force for integration for this as MNCs have set up supply chains and integrated production networks that tend to locate each stage of production in the country with the lowest cost. Affiliates of a MNC in one country often export to another for eventual sales in a third country market. These affiliates act as the on-the-job training grounds for the acquisition and dissemination of the skills needed for production and minimising costs. These skills are then disseminated and multiplied throughout other firms in the country. Very little intra-regional trade is taking place in South Asia. Intraregional trade has remained stagnant at less than 2 per cent of the total trade in the last 25 years. A study carried out by the Pakistan Ministry of Commerce in 1996 concluded that due to low transportation costs, cultural similarities which influence taste and cause profitable complementarities to emerge and low transaction costs, the economic benefits of liberalising trade with India outweigh costs. Despite this, the trade between the two neighbouring countries has remained negligible. Regional trading arrangements have made a huge difference in North America, Europe and East Asia, but they have not, so far, been successful in South Asia. The recent attempt to revitalise SAARC will stimulate trade and growth but only to the extent that it unleashes competition' that lowers domestic prices, enables achieving economies of scale and acquiring new technology.

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SAFTA arrangements can be successful the coming years but they some important preparatory measures, such as: l Trade facilitation through expeditious border crossings, quick

custom clearance, efficient port facilities and improved transport links should precede or take place simultaneously with the expansion of volume in cross border trade. l Domestic tax, tariff and subsidy policies that affect production. and trade incentives should be harmonised to avoid recurrence of trade disputes and frequent use of anti-dumping laws. As India provides a lot of subsidies to its producers, in various forms an shapes, the smaller countries are hesitant to allow MFN status to India. The recourse to a long negative list that restricts the volume of trade should be avoided at all costs. l Macroeconomic policies, in fiscal and monetary spheres, should be harmonised to achieve a stable, non-discriminating macroeconomic environment for all the countries in the region. l Supporting institutions to manage and facilitate integration, for example, setting standards, establishing regional development funds and for dispute resolution should be created. l Communication and transport infrastructure between the bordering countries should be improved and upgraded to facilitate increased trade and factor mobility. l Legal regulations for investor protection, intellectual property rights enforcement, anti-trust law, commercial law, labor relations and financial institutions should be harmonised. l Financial markets should be widened and regulatory changes introduced to promote cross-border investment, listings, syndication, bond issues, etc. South Asian countries should tap the enormous potential of their large expatriate population in mobilising investment capital, foreign exchange earnings, skilled manpower and exports of ethnic products and services. India, Pakistan, Bangladesh and Sri Lanka together receive about US$ 20 billion of remittances from their workers annually but their contribution in domestic capital formation is insignificant. Unlike the overseas Chinese community that has played a substantial role in foreign direct investment, non-resident Indians have been a source, to some extent, of professional, technical and managerial skills but not much in terms of large financial outlays. The non-resident deposits transferred to India account for

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only a miniscule proportion of their wealth holdings abroad. These flows are quite stable and should augment domestic savings for accelerating the pace of investment without creating future debt obligations. Innovative products and investment vehicles to attract the savings of non-resident South Asians should be encouraged with the help of regulatory agencies. South Asian countries have not become a part of global value chain nor participated in international supplier chain arrangements. There is no single business model for participating in this chain and there can be many phases of transition and many modes of involvement. For example, joint ventures, franchising, purchasing by international firms, licensing, sub-contracting, fully owned firm, original equipment, original design and manufacturing, strategic partnerships for technology, overseas acquisition of equity are the diverse means whereby developing country enterprises can gain wide access to international markets at their own level of capability, climb the technology ladder and benefit from globalisation. East Asia is a major participant in this global supply chain and produces parts and components for a variety of manufactures. It is time the South Asian countries got engaged in this value chain. The Impact of WTO The prevailing confusion needs to be cleared that something drastic or unexpected is going to hit us in the near future due to WTO. All the countries in the region are already members of this organisation since 1995 and have made binding commitments to maximum tariffs. In some cases the applied tariffs are lower than the bound tariffs. The South Asian countries have already liberalised their imports and have been flooded with cheaper imports from China in the recent years. There could be no greater threat to the survival of domestic industry than competition from Chinese goods. Some industrial firms could not face the onslaught and have been wiped out. Others have taken up the challenge by cutting the fat, taking up the slack, becoming cost efficient and improving quality, and are competing with the new entrants. Thus the process of restructuring and transition is going on and should not pose any systematic threat to the industries of the region. What we are focusing upon is the abolition of the textile quotas under the Multi-Fiber Agreement and the adoption of the new

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agreement on clothing and textiles in January 2005. The impact of this new pattern of textile trade on the economies of South Asia region is highly varied. Most simulation studies and modeling exercises carried out by the World Bank, USITC and independent consulting firms confirm the view that China, followed by India and Pakistan, will be the main beneficiaries of the abolition of quotas. These countries are all vertically integrated i.e., from producing cotton all the way to finishing, dyeing, stitching, etc., and enjoy low wage costs and low raw material costs. Pakistan, for example, has invested US$ 3-4 billion in the past five years in modernising and acquiring state-of-the-art machinery that can produce quality goods according to the changing demand patterns of the buyers. However, it is not clear if all the ready-made garment exporting firms in Bangladesh and Sri Lanka will survive in the post-2005 markets. Both countries are seized of this problem and are taking measures to assist their firms and their workers. Whatever the benefits of regional trading blocks, they are no substitute for participation in multilateral trade arrangements. Multilateral arrangements provide a much larger market, several times the size of any regional block, enlarge the market access substantially and permit wider competition, larger scale of operation and greater specialisation, all of which increase productivity and growth. Thus the successful completion of the Doha Development Round is in keeping with the interests of South Asian countries. However, the deferential impact on the countries of the region has to be handled carefully, imaginatively and expeditiously. Short-term adjustment costs to the workers and business have to be absorbed in the long-run interest of expansion in activities these countries have dynamic advantage in. Conclusion South Asian countries improved their economic landscape in the last 10 years or so and despite many vicissitudes and shocks have bee able to maintain positive growth momentum. In the coming decade, while the policy reform and will help the internal transformation of these economies, the task facing the leaders of these countries are formidable. To maximise the benefits from globalisation and thus help reduce poverty, the future agenda should focus on good governance and institutional reform, investment in skilled manpower, shifting away from low-technology exports, aligning with

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international value chain of production, attracting foreign private capital flows including that from expatiate nationals, promoting intra-regional trade and mitigating political and geopolitical risks. Dr Ishrat Husain is former governor of the State Bank of Pakistan.

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Windfalls of Economic Union Dr. Salman Shah

eveloping and articulating a South Asian vision involving at least a fifth of humanity is indeed an awesome task. I shall try to fulfil this responsibility to the best of my abilities. A South Asian vision should encompass the aspirations and hopes of all the member countries of SAARC. I will be focusing on this topic primarily from the perspective of Pakistan and India. It is, after all, the state of India-Pakistan relations that has kept SAARC from fulfilling its role of promoting development and prosperity in South Asia. The normalisation process between India and Pakistan continues, while SAARC has agreed to set up a South Asian Free Trade Area. This change reflects a realisation in India and Pakistan that the dynamic part of the world has moved on from conflict and turmoil to a more peaceful environment and, as a result, its citizens have moved from abject poverty into an era of unprecedented growth and prosperity. India and Pakistan, on the other hand, have been left behind due to the acrimony and bitterness of the last fifty-five years over the unresolved Kashmir dispute, four hot wars, an unending cold war, display of unmitigated hostility and active foreign policies of the two countries designed to undermine each other. That the post-independence period has been a major economic disaster for the people of South Asia is an understatement. East Asian economic miracle and the explosive economic growth of China are not hidden from anybody. Starting from an economic and human development base that was perhaps better for South Asia than East

Asia or China, we in South Asia have been pathetically left behind in every category of economic and human development. Based on current trends around a billion citizens of South Asia will still be living on less than the equivalent of two dollars a day by 2015, compared to only 300 million such citizens in East Asia and Pacific region. Gross national income per capita in South Asia is around $440 (even lower than sub Saharan Africa) as compared to $1010 for East Asia. Per capita GDP is increasing at 2.4 percent in South Asia whereas it is 5.6 percent in East Asia. By 2015 South Asiaâ&#x20AC;&#x2122;s population will exceed 1.67 billion with each citizen demanding a higher standard of living, decent schooling, housing and jobs. There is no doubt that in this era of internet and the information revolution, governments will have to lose office or provide an environment under which South Asia can develop and prosper. Clearly our forefathers wanted a better future for us. We were supposed to rapidly develop after the yoke of colonialism was overthrown. Independence was supposed to rid South Asia of hunger, poverty, disease and ignorance. This did not happen. Why did South Asia fail to provide a conducive environment for development as compared to East Asia? Is it possible to put in place a new environment for the future? These are the questions we have to deal with and find answers that can help us move forward. It is interesting to observe that the British had proposed two alternative proposals for independence. Proposal A was a bid to keep some post-independence unity whereby two federations of Hindu majority and Muslim majority regions would be formed under a minimal Union Government that controlled defence, foreign affairs, communications and minority rights. Proposal B was the proposal that eventually got implemented and led to independent India and Pakistan. Proposal A, based on a three-tier-structure of government, (Union, Federation, Provincial) was the preferred option of the British as they wanted to preserve to the extent possible the economic, defence and administrative unity of India. This proposal was accepted in a slightly watered down version by the Quaid-eAzam and the Muslim League showing that the founding fathers of Pakistan were not averse to strong economic, defence and political links between the two sovereign countries. The Indian Congress however rejected the proposal as it thought that the proposal did not go far enough in empowering the union government.

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Proposal A can be thought of as being somewhere between a European Union type arrangement and a confederation. It can, therefore, be argued that from the very beginning Pakistan’s leadership had envisioned strong economic, defence and political links between the two countries. I believe a South Asian Economic Union, on the pattern of EU would have emerged had the relationship between the two countries not been bedeviled by the Kashmir dispute. Mahatma Gandhi, in a different context, had said that the two communities would come together almost immediately after the British power comes to a final end in India. This demonstrates that forefathers of both India and Pakistan desired close fraternal ties between the people of the sub-continent. Keeping this strand of reasoning in mind, it is highly plausible that South Asian cooperation can become a norm for the future, provided an environment for peace and security can be created between India and Pakistan. A South Asian vision based on peace, security and economic integration driven by facilitating structures on the lines of the European Union can be contemplated. With the visit of Mr. Vajpayee to Lahore and his visit to the Pakistan Monument, where the Lahore resolution was passed, India gave a strong signal of its acceptance of the reality of Pakistan and the two-nation theory. The long-standing Kashmir dispute is not as intractable as it is made out to be. Solutions acceptable to India, Pakistan and the Kashmiri people can be worked out and moves towards a South Asian Economic Union on the pattern of European Union can be made. The current process of one step forward and two steps backward will not work. We have to focus on what the ultimate long-term goal is and once the goal is identified we can determine the sequence of steps needed to achieve it. The process can start with opening up of communication and travel followed by trade and economic cooperation leading to an economic union. This can be supplemented at a later stage with a coordinated defence, mutual reduction of forces and perhaps even a coordinated common foreign policy. South Asia could become a powerful force for stability and economic development in the region and the world at large. The stakes are indeed enormous for the citizens of South Asia. The peace dividend would run into billions of dollars, forever changing the lives of the citizens of South Asia. We are missing out on huge

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wallops of investment, trade and development activities due to the hostile South Asian political environment. The goal of more than doubling the South Asian region’s per capita income and closing the gap with the East Asian Pacific region within the next ten years can be set and easily achieved in a conducive environment. This would require that the leadership of South Asia accept the challenge of propelling South Asia into the 21st century as economically the fastest growing region of the world. This would require sagacious leadership willing to compromise on long held positions for the sake of enriching the lives of the people. We have to create momentum towards achieving this goal. The first step is an unambiguous joint statement of intent by India and Pakistan reflecting their joint vision of converting SAARC into a South Asian Economic Union (on the lines of the European Union) within a time frame of say ten to fifteen years. The statement should spell out the framework for talks designed to achieve the objective. A separate statement should also commit to an honest endeavour to find a solution to the Kashmir dispute acceptable to the people of Pakistan, India and Kashmir within the same time frame. As part of the understanding, all warring parties would declare an immediate ceasefire in Kashmir and talks for developing a peaceful framework for resolving the dispute would be initiated. The joint statements of intent on economic cooperation and political disputes can be issued within the next six month. Perhaps it can be the Islamabad declaration on the visit of Mr. Vajpayee in early January next year. This would need intense diplomatic activity between the two countries. If the world gets convinced of our commitment, the joint statements would be worth billions of dollars of immediate direct foreign investment in South Asia. As soon as the capital markets realise that we are serious, investment climate ratings in India and Pakistan would suddenly make a quantum jump. Our political ratings would certainly exceed the East Asian regional ratings and South Asia would probably rank shoulder to shoulder with East Asia for the investors’ dollars. Closing the risk perception gap could lead to a distinct possibility of annual foreign direct investments in South Asia in the range of sixty to seventy billion dollars. Following the announcement of intent, development of tourism,

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sports and cultural links should be the number one priority. This is an area unencumbered by vested interests and can give instant returns. If people of South Asia are allowed visa-free and unhindered travel for short visits within the South Asian region and even if just two percent of the population starts to travel annually among South Asian countries, we are talking about twenty five million people contributing to cross border tourism. Cities like Lahore, Delhi, Agra, Jaipur, Lucknow, Madras, Bombay, Karachi and others would have a deluge of tourists and will run out of hotel accommodation. If each visitor spends 1000 dollars, we are talking about twenty five billion dollars per annum of new economic activity in the region that would unleash a construction boom in selected cities and regions of South Asia. New hotels, shopping malls, recreational facilities, transport facilities would be needed, leading to accelerated economic activity. Imagine a cricket match between India and Pakistan in Lahore or Delhi with open borders. Even a match between Lahore District and Delhi Gymkhana cricket teams would be a blockbuster. I feel that if we loosen up now, within two years regional tourism would be a huge industry creating millions of new jobs.

A major benefit of a South Asian Economic Union based on settlement of long-standing disputes and mutual economic cooperation would be an environment in which major reductions in defence spending can be made and transferred to development activities. In Pakistan alone a 30 percent reduction in defence budget could free up close to a billion dollars a year for human development activities involving health, education and training. The impact of such redistribution of resources will greatly boost the regionâ&#x20AC;&#x2122;s ability to compete in the world markets. Scientists and engineers engaged in R&D per million population in South Asia number 137 (probably mostly in India) compared to 492 in East Asia. Patent applications by residents were 21,43 in South Asia (1998) compared to 65,506 in East Asia. Primary teacher to pupil ratio in South Asia is 59 as against 25 in East Asia (1997). These statistics indicate that we as a region are not investing in our people and we must reverse this trend if South Asia has to be the region of the future. We can quote numerous other statistics but we donâ&#x20AC;&#x2122;t need to. We all know that we have been left far behind, not by nature but by ourselves, by wasting the opportunities that have come our way.

Following tourism, boosting of regional trade in South Asia holds great promise. As a region we have fallen way behind East Asia in our trading activities. The East Asia region as a whole has a trade to GDP ratio of 70 percent compared to South Asia where the ratio is only 30 percent. Regional trade amongst ASEAN countries is around 82 billion dollars (1999) almost ten percent of GDP compared to regional trade (excluding smuggling) in SAARC of 2.7 billion dollars only (0.4 percent of GDP). If SAARC were to hit the ASEAN ratio of 10 percent of GDP it would translate into a trade volume of around 58 billion dollars. This kind of trading activity could tremendously boost economic activity in the region. While some of this activity will replace imports from third countries a major chunk would be based on new production within the region and phase out of inefficient producers. It will introduce corporate efficiencies, cost reductions in manufacturing, price breaks for consumers and a greater ability to market globally. Full economic integration on the lines of the European Union would take a minimum of ten years but if its is done judiciously ensuring a win-win situation for all member countries the payoffs can be enormous. The SAPTA and SAFTA framework is in place but needs to be rejuvenated and pushed towards the road of economic integration.

We have squandered the last fifty-five post-independence years. The next fifty-five years can be a repeat of the past unless the people of South Asia force the leadership to change course. The five-step approach I have outlined above, 1. 2. 3. 4. 5.

Announcement of intent, Tourism and travel, Trade and economic integration, Resolution of disputes and mutual reduction of forces and Full South Asian Economic Union will transform the lives of our people.

The leadership must give the people a clear roadmap for the next ten years with an irrevocable commitment that problems and issues between India and Pakistan will be solved peacefully in the best tradition of humanity and civilised behaviour. A roadmap that can help South Asia achieve what other disadvantaged regions have already achieved; an environment in which each South Asian child can realise its highest potential and an era for our region full of liberty, peace, security and economic prosperity free from poverty, disease, war and turmoil. It is within our capacity to develop such a

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roadmap and implement it. The sooner we do it, the better it will be for all of us. The alternate is a vision that twenty years in the future we are still sitting pointing nuclear missiles at our hapless and poverty-ridden citizens. Dr Salman Shah is currently Special Assistant to the Prime Minister of Pakistan on Finance and Economic Affairs.

SAARC: Problems of Regional Cooperation Dr Hasan-Askari Rizvi

his paper examines the efforts to promote regional cooperation in South Asia against the backdrop of the 'theories' of functionalism, neo-functionalism and communications and transactions across the territorial boundaries of the states. It is argued that regional cooperation enjoys a widespread support in South Asia and there are sound bases for promotion region-wide cooperation in the areas of mutual interest. However, a host of political, economic and security factors have slowed down this process. Any effort to promote effective and enduring regional cooperation needs to address these issues. The obstacles to intraregion cooperation may be many but these are not insurmountable. The states of the region can overcome these problems and cultivate a South Asian mindset that thinks beyond the territorial boundaries of the state. South Asian Association for Regional Cooperation (SAARC) has been functioning since December 1985 when the heads of states/government of seven states of South Asia met in Dhaka, Bangladesh, to formally set up this organisation. Its antecedents can be traced back to personal consultations by President Ziaur Rahman with his counterparts in South Asian states, followed by his letter dated May 2, 1980, proposing the setting up of a regional cooperation organisation. In November 1980 the Bangladesh government circulated a Working Paper to the states of South Asia outlining the details of the proposal.1

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The South Asian states began a formal dialogue on setting up of a regional cooperation organisation in April 1981 when their foreign secretaries held the first meeting. During the next four years, they held various meetings which also included the meetings of their foreign ministers in August 1983 (New Delhi), July 1984 (Male), and May 1985 (Thimpu). The first summit conference was held in Dhaka on 7-8 December 1985 which launched the SAARC.2 The SAARC Charter identified the following goals for the organisation:3 l Promotion of the welfare of the people of South Asia and the

improvement of their quality of life.

The establishment of the SAARC was welcomed by the official and non-official circles of the member states. They hoped that the SAARC framework would enable the states of South Asia to overcome their mutual distrust and divergence in their worldview and work harmoniously in the regional and global contexts. Some people maintained that the problems among the states of South Asia, especially between India and Pakistan, would adversely affect the performance of this organisation. Still others argued that unless the smaller states of South Asia resolve their problems with India, the SAARC may never take off. There were those who maintained that despite the problems among the states of South Asia there was nothing wrong in making an effort to promote regional understanding and cooperation.

l Acceleration of economic growth, social progress and cultural

development in South Asia, provision of opportunities to the people “to live in dignity and to realise their full potentials.” l Promotion and strengthening of collective self reliance among the member states. l Work towards mutual trust, understanding and appreciation of one another's problems. l Active collaboration and mutual assistance in economic, social, cultural, technical and scientific areas. l Strengthening of cooperation with other developing countries. l Promotion and strengthening of cooperation among the states of South Asia on international forums on matters of shared interest. l Cooperation with international and regional organisations that have similar goals and purposes. The Charter emphasised that their mutual cooperation will be based on “respect for the principles of sovereign equality, territorial integrity, political independence, non-interference in the internal affairs of other states and mutual benefit.”4 The Charter outlined two important principles of interaction in the organisation. These were: all decisions will be taken on the basis of unanimity, and the organisation will not deliberate on “bilateral and contentious issues.”5 The Charter also maintains that regional cooperation should not be viewed as a substitute to bilateral or multilateral interaction and cooperation. These three approaches, i.e. bilateral, regional and multilateral, supplement each other and promote peace, harmony and stability.6

The optimism about the performance of the SAARC was based on the assumption that cooperation in social, economic, cultural and other mutually agreed fields would produce enough goodwill to help them to resolve their bilateral problems. Regional economic and cultural cooperation was viewed as an established way of easing tension and managing conflict relations. These strategies help to defuse, if not resolve, the conflicts. Regional Cooperation for Peace and Harmony Regional cooperation is not an entirely new idea. Its roots go back to the 19th Century. In 1828, Prussia established a customs union with Hesse-Darmstadt. There were other instances of such cooperation in the 19th Century and the first four decades of the 20th Century. This trend picked up considerably in the post- Second World War period. The 1960s and the 1970s witnessed several attempts to create interstate organisational network for cooperation in various fields. Some of these efforts were quite successful while others faltered. The European Economic Community (EEC) and the European Union (EU) are viewed as success stories. The Association of South East Asian Nations (ASEAN) is also regarded as a partially success story. The performance of other regional organisations has varied. However, there is enough literature in International Relations that describes regional cooperation and regional integration as useful methods for promotion of interdependence, peace and stability in a region. Several explanations are advanced for the increased interest in

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regional cooperation and integration during the last 50 years. First, the horrors of the Second World War led the political leaders in Western Europe to devise “a novel structure of European governance” capable of eradicating intra-Europe conflict. Second, the changed political preference of the leadership and active political circles led the states of Europe to create a larger politico-economic entity. They felt their aspirations and needs can be met effectively in a broad based European framework. Third, the advocates of theories of functionalism and neo-functionalism viewed regional integration as a product of inter-state cooperation in different functional areas. Fourth, some have argued that inter-governmental understanding on regional cooperation holds the key to the success of this process. This perspective implies that important bargains among the key leaders of the major states of a region facilitate regional cooperation and integration. Fifth, economists focus primarily on market relationship of “goods and factors of production” in order to study regional cooperation and integration.7 Inter-state cooperation in different functional areas is instrumental to promoting positive interaction across the territorial boundaries. It defuses tension and promotes interdependence which in turn promotes peace and stability. Cooperation in less or non- contentious areas can be assigned to some inter-state, i.e. regional or global, organisation. These functional areas include health, education, environment, transportation, science and technology, trade and commerce. Inter-state arrangements for promoting cooperation in such areas create network of multiple interaction across the territorial boundaries. As the states participating in such arrangements derive benefits from inter-state cooperation in the specified areas, the organisation managing these affairs become important and the state begin to realise the importance of regional arrangements. This increases mutual relevance among the states of the region and creates interdependence among them who play-down differences and emphasise positive and mutually advantageous interaction. The positive outcome of interdependence encourages the states to extend regional cooperation to new functional areas. In this way, the scope of inter-state cooperation increases and the concerned states develop a strong stake in regional cooperation. Ernst B. Haas and others, identified as neo-functionalists, refined the work of their predecessors, i.e. functionalists, by emphasising the

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“instrumental motives” of the elite and their “self interest” in the process of regional cooperation. If they obtain benefits from cooperation in different functional areas they expand cooperation across the territorial boundaries. Thus they prefer “incremental decision-making over grand designs” because they re-orient their policies as the advantages of functional cooperation become available.8 If cooperation in the selected functional areas produces positive results for the states, their elite favour spillover or cooperation from one to another functional areas. This expands the scope of cooperation and promotes regional integration. The Communication theory of regional integration suggests that an “intensive” pattern of communication and transactions among the states creates community feelings among them. The communication and transactions include trade, mail, tourist flows and the establishment of supranational voluntary groups. Karl Deutsch who advocated the communication/transaction theory of regional cooperation underlined the need of measuring the volume of communication and transactions to measure regional cooperation and integration. He emphasised the concept of a security community as the ultimate aim of regional cooperation. According to Deutsch, the member states in a security community attain a strong sense of partnership and institutions that assure “dependable, peaceful change.” Social problems are resolved by “institutionalised procedures, without resort to large-scale physical force.”9 What matters most is “mutual relevance” of the people of different states which is measured by the flow of transactions and communication across the national boundaries. It is erroneous to assume that all communications and transactions are conducive to cooperation. A hostile and negative communication or interaction is likely to hamper regional cooperation. Therefore, we have to look at the contents of communication and transactions. Further, one can debate if inter-state flows and transactions are the cause of the growing cooperation or vice versa. Despite these limitations the volume, frequency and nature of interaction among the states of a region helps to understand the dynamics of relations provided other relevant factors influencing the process are not ignored.10 The major determinants of effective regional cooperation are as

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follows. The outcome of cooperation must be viewed as advantageous by each state. The power elite and the politically active circles must learn though experience that mutual cooperation yields them certain tangible gains. The most crucial functional area is the economy, including trade and commerce. The expansion of interaction in other functional areas is also important. If the cooperative relationship is viewed as negative by some state, it may lose interest in regional cooperation. The key leaders and influential political groups in the concerned states must actively support regional cooperation. Strong political will on the part of the leadership is crucial to overcoming problems that crop up on way to greater cooperation. Further, the benefits of cooperation may accumulate slowly, causing doubts about the rationale of regional cooperation. In such a situation, a determined leadership can cope with such problems and sustain the momentum of the process. Interaction across the territorial boundaries must exist both at the official and non-official levels. The ordinary people, the civil society groups, the media, the academicians and business and trade groups should interact across the territorial boundaries. The non-official societal level interaction is conducive to regional cooperation and, at times, helps to defuse tension at the official level. The states suffering from serious internal disharmony and conflict or political instability cannot play an active role in promoting regional cooperation. They may restrain interaction across the territorial boundaries in order to cope effectively with internal problems. Regional cooperation suffers if the states of the region do not have a shared perception of security, entertain mutual distrust and they are unable to resolve or defuse their political disputes. The disposition of the major states in the international system can help or hinder the efforts for regional cooperation. The current trends at the international level to promote regional trading blocs and cooperation for mutually shared goals helps cooperative interaction at the regional level. It may be pointed out that regional cooperation is neither a linear process nor its ultimate outcome is a particular kind of regional community. Its nature, scope and pace can vary from region to

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region. Even within a region the scope and direction of cooperation can vary from time to time. Despite several commonalities in regional cooperation in different parts of the world, it will be misleading to assume that regional cooperation will be equally successful everywhere. Regional Cooperation in South Asia There are sufficient basis for promotion of regional cooperation in South Asia. Geographic proximity coupled with overlapping historical experiences, traditions and common problems of poverty and under-development provide enough reasons to the seven states of South Asia to work towards promoting regional cooperation. There is a strong realisation in the politically active circles and the civil society groups that they should overcome narrow nationalist biases against each other. They should promote intra-region cooperation in the functional areas that will improve the quality of life for the ordinary people. Various non-governmental organisations in these countries are now interacting with each other for promoting good relations and regional cooperation. The media is also supportive of region wide cooperation. There has been improvement of relations between India and Pakistan in the eighties and the nineties that facilitated regional cooperation. Although they have many unresolved problems and strong distrust persists between the two countries, they decided to work together under the framework of SAARC. Their inability to resolve bilateral problems has slowed down regional cooperation in South Asia. However, the fact that despite their differences they have agreed to work together in the regional context is a significant development. Their determination to pursue regional cooperation will keep the process alive, although its pace is going to be slow. The disposition of the leaders of South Asian states has also been influenced by the changes in global trading system, the emergence of trading blocs and protectionism in the industrialised states.11 They have come to the conclusion that the South Asian states have to harmonise their economic and trading policies and work towards protecting their economic interests in the region and elsewhere. SAARC has adopted a slow paced approach towards evolving consensus on the issues and problems to be addressed at the regional

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level. This has disappointed many who want quick results from the SAARC and are keen to quickly turn this into a vibrant and effective regional institutional arrangement. As a matter of fact the SAARC's slow and cautious deliberations have saved the organisation from breaking up. Similarly, two principles of the Charter have restricted its role but these have saved it from internal dissension. These are the principle of unanimity for decision-making, and exclusion of bilateral and contentious issues from the purview of the SAARC. However, the heads of state/government and foreign ministers attending the summit conference take up bilateral issues on the sidelines. Without the cover of the SAARC they are not likely to get so frequent opportunities to take up bilateral issues, albeit, quietly and without being under pressure to produce results. Since the beginning of the efforts to create institutional framework for regional cooperation in South Asia in 1980, many important issues have been taken up at the regional level. The underlying idea is that the states of South Asia should create a regional framework for addressing region-wide problems in order to improve the quality of life for the people, facilitate good governance and promote confidence and trust among the states of the region. The major issues taken up by the SAARC include population explosion, poverty and under-development, degradation of environment, water resources, food security, energy scarcity, fostering local governance, disaster management, drug trafficking, health care, education, and tourism. They also established Integrated Programme of Action (IPA), South Asian Development Fund, trade and economic cooperation, SAPTA, SAARC Chamber of Commerce, Agriculture Information Centre at Dhaka, Tuberculosis Centre at Kathmandu, Documentation Centre at New Delhi, Meteorological Research Centre at Dhaka, Human Resources Development Centre at Islamabad, . Some training programmes and consultations were held among officials of the SAARC states. In April 2006, first South Asian Accounting Summit was held in Karachi. This conference was organised by the Institute of Chartered Accountants of Pakistan in collaboration with International Accounting Standards Board and South Asian Federation of Accountants. SAARC Law conference is also held from time to time. The 12th SAARC summit conference, held at Islamabad on January 4-6, 2004, took important decisions which are expected to have far

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reaching implications for the future of this organisation. The summit declaration identified “poverty alleviation as the greatest challenge” and declared that poverty alleviation was “the overarching goal of all SAARC activities.” It designated the “provision of basic needs, promotion of literacy and better health care” as the regional priority. The SAARC members also approved the Additional Protocol on Terrorism which reflected the thinking of the member states articulated over the last couple of years. This strengthened the SAARC Regional Convention on Suppression of Terrorism (1987). They also adopted a Social Charter for promotion of “the welfare of the people of South Asia, to improve their quality of life, to accelerate economic growth, social progress and cultural development and to provide all individuals the opportunity to live in dignity and to realise their full potential.” The most significant development was the adoption of the Agreement on South Asian Free Trade Area (SAFTA).12 This agreement was to become operational on January 1, 2006. However, the member states did not ratify the SAFTA until March 2006, delaying its implementation. The 12th SAARC summit attracted more attention because Pakistan's President General Pervez Musharraf and India's Prime Minister Atal Behari Vajpayee met on the sidelines of the summit and, on January 6, 2004, issued a joint declaration that outlined the framework of the dialogue between the two countries on the contentious issues. The two sides showed accommodation. Pakistan declared that it would not allow any territory under its control to be used for terrorism. India reciprocated by agreeing to discuss all issues, including the Jammu and Kashmir. They agreed to accelerate the on-going confidence building measures and encourage greater interaction between the two states. Most political analysts agreed that if India and Pakistan improve their relations against the backdrop of this declaration, SAARC will become more effective regional organisation. The 13th SAARC Summit held at Dhaka in November 2005 made equally important decisions. The summit declaration focused again on poverty and designated the next decade, 2006-2015 as the decade of poverty alleviation in the SAARC region.13 The other threat to the region identified in the summit declaration was terrorism. The declaration proposed enhanced cooperation among the member states to check transnational terrorism. Other issues raised in the

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declaration include promotion of trade and economic cooperation, coping with natural disasters and the implementation of SAFTA.14 The summit conference admitted Afghanistan as its member and decided to take up China and Japan's request for the observer's status in the next ministerial meeting15 The United States and South Korea have also shown interest in getting the observer's status. The future direction of the SAARC include extended economic cooperation and the lowering of tariff walls in order to promote free trade, acceleration of investment in the region, improvement and integration of infrastructure, cooperation in the field of energy, harmonisation of macro-economic policies, integration of labour markets in the region, enhancement of service delivery across the region, and greater emphasis on implementation of Social Development Charter.16 There are non-official proposals for setting up a regional parliament for the SAARC countries.17 Challenges to Regional Cooperation The SAARC experience suggests that the official and non-official circles in the states of South Asia view regional cooperation as positive diplomacy. Most civil society groups, political activists and government officials favour the strengthening of institutional framework for regional cooperation. They want the SAARC to be as active as the EU or the ASEAN. They also favour the expansion of the scope of the SAARC to include more society related issues and problems in its domain, especially human rights, democracy, human security, and protection of the disadvantaged sections of the populace. Some of them advocate enhanced regional trade and free movement of people, goods and services in the region. However, the SAARC's performance is far below the widely shared expectations. Its processes are not yet firmly established, making it difficult for the SAARC to demonstrate is efficacy as a regional organisation. Internal divisions continue to persist in South Asia which hinder the growth of region-based processes and institutions. It is therefore premature to think of South Asia as a security community or a region of perpetual peace, harmony and stability. The obstacles to regional cooperation have not demoralised the states and their elites; they continue to pursue the ideal of regional cooperation. They recognise the obstacles to regional cooperation and want to work towards removing them. This gives the hope that the South Asian states would not give up on regional cooperation as a

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means for removing tension and conflict in the region. Major Challenges faced by SAARC Process Domestic Constraints: The states of South Asia face the problems of poverty, underdevelopment, national identity, internal harmony and integration, although their intensity varies from state to state. These domestic problems, especially the issues of political order and national integration, adversely affect governance and political management. The experience suggests that if a state faces these problems, it emphasises state sovereignty, national boundaries and the exclusive character of the national identity. The overplaying of these themes hinders the establishment the cross-border region wide institutions and processes. Internal political problems create a dilemma for the policy makers. On the one hand they want to strengthen the national identity and thus emphasise the territorial boundaries. On the other hand they need to play-down state sovereignty and encourage trans-national and trans-boundaries interaction for promoting regional cooperation. In South Asia, almost every state has accused some of its neighbouring state of exploiting its internal disharmony and conflict. For example, India and Pakistan have often accused each other of supporting dissident and separatist political forces. Other South Asian countries have traded similar charges with India from time to time. If the states of South Asia resolve their problems of internal political order they are likely to be more forthcoming for regional cooperation. Regional cooperation is strengthened if the concerned states learn from experience that it yields them tangible economic and political benefits. The expectation to make gains is an important inducement for inter-state cooperation. In other words, the goals of regional cooperation should not conflict with the major economic and political goals of individual states; they must complement each other.18 In South Asia, the states are not always convinced that their national political and economic interests are fully served by regional cooperation. Two factors pertaining to their individual economies have hindered free economic interaction across the territorial boundaries. First, sharp divergence in the level of economic and industrial development has slowed economic interaction. India is ahead of all South Asian countries in these fields which causes

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concern in the smaller and less developed economies. The fear of being overwhelmed by India's products and services has led the smaller states not to open their markets to Indian goods. Second the national economic aspirations also hinder regional economic cooperation and free trade. The individual states may want to restrict international trade in order to protect local industry. The SAFTA agreement attempts to address these concerns by gradually introducing free trade in a manner that the individual countries can protect their legitimate domestic economic interest. The countries can prepare lists of the goods that may not be freely traded. Similarly, the less developed economies like that of Nepal, Bhutan, Bangladesh and Maldives are given more time to switch to free trade system. Non-tariff barriers will also be reduced over time. Hopefully, some of the concerns of India's neighbours will be taken care of when the member states start implementing the SAFTA agreement. Regional Constraints: The structural imbalances between India and other states of South Asia cause problems for regional cooperation. India's preponderant position in terms of territory, population, military power, and economic and industrial development is often viewed with distrust by the neighbouring states What accentuates this problem is the lack of a shared perception of regional political order and security. They do not have a shared perception of the major external threat to the region and thus pursue foreign policies which may conflict with each other. India and Pakistan view each other as a security threat and spend a lot of resources to strengthen conventional and non-conventional security against each other.

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concerned states have similar political and societal orientations of their domestic political arrangements The most problematic issue is India's vision of its role in South Asia which emphasises its centrality and guiding role in security and foreign policy matters. The ruling elite and a large section of Indian intellectuals are of the firm opinion that, given India's size, resources and military power, it should play the role of the central power and that the states of region should not pursue the policies that diverge from the Delhi's political framework for the region. India-dominated South Asian political order is often questioned by some South Asian states, especially Pakistan. These states argue that South Asia's regional order must be based on sovereign equality of all states, noninterference in each other states and freedom to each state to conduct its domestic and foreign policies. They also argue that the common denominators of regional order must be evolved through consensus-building among the states of the region.19 Indian leaders are not willing to compromise on their central role in determining South Asia's strategic profile. They often object to the foreign and domestic policy choices of the smaller states of South Asia if these conflict with India's political preferences. Given periodic differences between India and other South Asian states, the SAARC summit conference could not be held regularly. It was postponed several times due to differences between India and some state of the region.

The key question is do the states of the region hold similar views on what constitutes security threat to the region as well as what should be the primary features of the security profile of the region? The states of South Asia do not have shared views on these matters. Their views on many regional and global issues diverge which slows down regional cooperation.

Extra-Region Constraints: The states of South Asia are more dependent on the outside world rather than on each other. They seek economic and technological assistance from industrially developed and rich western countries and Japan. They have more expanded and active trade relations with the states outside South Asia than with the states of South Asia. They also obtain weapons and military hardware from the states outside the region. Therefore, their relations with the outside world are more significant than their interaction within South Asia.

The domestic political system of the states of South Asia differ widely and they resent if India's official and semi-official circles make critical comments on their domestic political institutions and processes. Regional cooperation and integration is facilitated if the

In the past, the impact of super-power rivalry had implications for the interaction among the states of the region. In general, Pakistan leaned more often towards the United States and the former often cultivated the latter in order to cope with its security problems with

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India. The Soviet Union maintained close relations with India. It often supported India in its problems with Pakistan, supplied weapons and military hardware and helped to set up defence and other industry. Such a superpower rivalry accentuated the already existing differences in the region.

readjust their bilateral trade in the context of the SAFTA. The two governments may criticise each other for one reason or another, they have kept the dialogue process on the tack. Hopefully, when India and Pakistan resolve their bilateral problems, the SAARC process will move forward at a faster pace.

The end of the Cold War between the Soviet Union and the United States in 1990-91 created a favourable environment for regional cooperation in South Asia. Now, the United States and other major powers, including Russia, are supportive of improved relations between India and Pakistan and promotion of regional cooperation in South Asia. The international environment is now more supportive of regional cooperation than was the case 20 years ago.

An eminent scholar, Mohammad Ayoob, identified four prerequisites for regional cooperation. These are:20 (1) Common and similar threat perceptions from external or internal sources. (2) Similar political system that help to create congruence in political and ideological disposition. (3) Shared foreign policy orientation based on common strategic perceptions. (4) An understanding about the role of the â&#x20AC;&#x153;pivotal powerâ&#x20AC;? in the region. As these conditions are not fully available in South Asia, the pace of regional cooperation is slow.

India-Pakistan Problems: The conflicts and problems between India and Pakistan are the major causes of the slow evolution of regional cooperation in South Asia. These two major countries have a long track record of troubled relations which made them less enthusiastic about regional cooperation. The SAARC has been a hostage to IndiaPakistan conflicts. Several unresolved issues, especially the Kashmir problem, seriously undermined India-Pakistan bilateral relations. They generally viewed each other as the adversaries and attempted to outmanoeuvre each other at the bilateral, regional and global levels. The latest incidents that undermined their relations included the limited Kargil war (1999), Indian complaints of the involvement Pakistan-based Islamic militant groups in insurgency in Indianadministered Kashmir, terrorist attacks in India in 2001, and the deployment of Indian and Pakistan troops on the border in 2002. The prospects for regional cooperation improved when India and Pakistan agreed in January 2004 to resume a dialogue for peaceful resolution of their problems. As a follow up of this decision, IndiaPakistan introduced a large number of confidence building measures which contributed to improving their bilateral relations. However, the bilateral dialogue has not so far resolved any contentious issue between the two countries. As long as they do not take concrete steps to resolve their problems, India and Pakistan will continue to distrust each other. The improved relations between India and Pakistan since 2004 had a positive impact on regional cooperation. They have now agreed to

Conclusion The slow pace of regional cooperation in South Asia is the manifestation of the peculiar political and strategic dynamics of the region. Several factors have negative implications for intra-region cooperation and integration. The concept of regional cooperation enjoys more widespread support in the region now than was the case two decades ago. Several economic considerations make a convincing case for cooperation among the states of South Asia. International environment is also supportive of this trend. However, a host of political factors, especially the lack of consensus on the political and strategic profile of South Asia, have made it difficult for the SAARC to become an effective regional organisation. Above all, the troubled IndiaPakistan relations and their inability to resolve their problems have adversely affected the prospects of regional cooperation more than any other factor. Despite these difficulties, the societal groups, politically active circles and the power elite in the states of South Asia are determined to work towards promoting regional cooperation. This engenders the hope that the SAARC process will stay on the track, although its pace is likely to be slow. It is premature to suggest that South Asia will replicate the European Union model. The conditions and circumstances in South Asia are so different that the EU model may

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not be relevant. Regional cooperation and integration framework that evolved in Europe's pluralist and industrialised societies which had a broad consensus on the future shape of the region cannot be reproduced in the region where these conditions do not exist. South Asian regional cooperation framework must take into account the region's economic, political and security realities. The emphasis on the economic arguments alone is not likely to produce effective region-wide cooperation. These arguments must be reinforced by the shared political and security considerations. This calls for making earnest efforts for resolving intra-region political problems and promotion of a shared view of the shape of South Asia's strategic profile. Greater harmonisation of the perspectives of the South Asian states in these three areas improves the prospects of regional cooperation and integration. This process can be facilitated by encouraging non-official interaction among the states of South Asia, enabling their societies to cultivate ties which are independent of the official interaction. This will help to create a South Asian mindset of thinking beyond the territorial boundaries of the nation-state. Even when the official interactions are strained, the societal level relations will persist and build pressure on the governments to moderate their antagonistic disposition. These “lobbies” of peace provide a durable foundation for regional cooperation. Dr Hasan-Askari Rizvi is a political and defence analyst based in Lahore, Pakistan. Endnotes 1 For the text of the Working Paper, see Muhammad Shamsul Haq, International Politics: A Third World Perspective (London: Oriental University Press, 1987), pp79-94. See also Samina Ahmed, “South Asian Regional Cooperation.” Regional Studies (Islamabad), (Vol. 1 No.3, Summer 1983), pp. 84-101. 2 Keesing's Contemporary Archives: Record of World Events (1984), pp.32975-76, (1985), P.33339, (1986), P.34243. See also Partha S. Ghosh, Cooperation and Conflict in South Asia (New Delhi: Manohar Publications, 1989), pp.9-12. 3 Charter of the South Asian Association for Regional Cooperation (1985), Article 1. 4 Ibid., Article 2. 5 Ibid., Article 10.

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See S.D. Muni, “SARC: Building Regionalism from Below.” Asian Survey, (Vol.25, No.4, April 1985), pp.391-404. 7 Walter Mattli, The Logic of Regional Integration: Europe and Beyond (Cambridge: Cambridge University Press, 1999), pp.5-11. 8 Ernst B. Hass, “The Study of Regional Integration,” in Leon N. Lindberg and Stuart A. Scheingold (eds.), Regional Integration: Theory and Research (Cambridge, Mass: Harvard University Press, 1971), pp.3-42. See also Michael Hodges, “Integration Theory,” in Trevor Taylor (ed.), Approaches and Theory in International Relations (New York: Longman, 1978), p.246. 9 Michael P. Sullivan, International Relations Theories and Evidence (Englewoods Cliffs, N.J: Prentice Hall, 1976), p.209. See also Karl W. Deutsch et al, Political Community and the North Atlantic Area (Princeton: Princeton University Press, 1957). 10 Hasan-Askari Rizvi, “Problems and Prospects of South Asian Regional Cooperation.” Regional Studies , (Vol. 2 No. 2, Spring 1984), pp. 13-24. 11 Rasul B. Rais, “Politics of Regional Cooperation in South Asia.” Journal of South Asian and Middle Eastern Studies, (Vol. Xl No. 3, Spring 1988), pp.57-72. 12 For the text of the 12th SAARC summit declaration as well as the Social Charter, Additional Protocol on Terrorism, and SAFTA, see Daily Times (Lahore), 7 January, 2006; News (Islamabad), 5 January 2004. 13 Sultan Ahmed, “The Future of SAARC,” Dawn (Karachi), 17 November 2005. 14 Rashid Ahmad Khan, “SAARC and Regional Realities,” Nation (Lahore), 25 November 2005. 15 See Muhammad Ali Siddiqi, “SAARC: Implication of Afghan Membership,' 13 November 2005; Ijaz Hussain, “Implications for SAARC Enlargement,” Daily Times, 23 November 2005. 16 Rehman Sobhan, “Roadmap for South Asian Cooperation,” South Asian Journal (Lahore), (No. 6, October-December 2004), pp.1-18. 17 S. D. Muni, “A South Asian Parliament,” ibid., pp.49-59; for a detailed proposal for setting up a regional parliament, see M.L. Sondhi & Shrikant Paranjpe, SAARC Parliament and the Pursuit of Stable Peace in South Asia (New Delhi: Conflict Management Group, 1995). 18 See K.J. Holsti, International Politics: A Framework for Analysis, 6th edition (New Delhi: Prentice-Hall, 1992), pp. 382-383; James E. Dougherty & Robert L. Pfaltztgraff, Contending Theories of International Relations, 2nd edition (New York: HEPWE & Row, 1981), p.431. 19 Hasan Askari Rizvi, Pakistan and the Geostrategic Environment: A Study of Foreign Policy (New York: St. Martin's Press, 1993), pp.20-22. 20 Mohammad Ayoob, “The Primacy of the Political: South Asian Regional Cooperation in Comparative Perspective,” Asian Survey (Vol. 25, No.4, April 1985), pp.443-457.

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SAARC Secretariat: A Critique Abul Ahsan

he secretariat of any organisation or institution as the Secretariat of South Asian Association for Regional Cooperation (SAARC) is a vital instrument for the realisation of its aims and objectives. Its head, whether he is designated as the Secretary General1 or by any other name, is the key player. He uniquely brings to bear regional perspective and represents overall interest of the organisation with regard to all matters brought before it for consideration. This may not always be the case with other institutions of the body comprising representatives of member states who are required to look at issues from the point of view of their respective countries. For several reasons peculiar to the region, the role of the secretariat is particularly important in South Asia. Reviewing SAARC Secretariat The SAARC secretariat was set up in Kathmandu in January 1987 about two years after the seven nation organisation with Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka as members came into being. A review of the role and function of the SAARC Secretariat and its Secretary General is important because of a number of reasons. First, the several recent meetings of the heads of state or government of SAARC have taken some important decisions and bold initiatives to strengthen the organisation and to widen and deepen regional cooperation. The 12th2 summit in Islamabad, for example, concluded the agreement on South Asian Free Trade Area (SAFTA) under which that member countries would bring down tariff from the existing level to 0-5 per cent between the years 2006 and 2015 in two phases. The leaders reiterated their commitment to

establish the South Asian Economic Union as recommended by the Group of Eminent Persons and urged that earnest steps should be taken in this direction. Special mention should also be given to the signing of SAARC Social Charter demanding cooperation in the vital field of energy and the establishment of a South Asian Development Bank. These are areas which can provide much needed substance to regional cooperation. Secondly, regional organisations like the European Union (EU), Association of South East Asian Nations (ASEAN) and North American Free Trade Area (NAFTA) are now expanding their membership and scope of operation. The membership of the European Union has recently been increased from 15 to 25 and when Romania and Bulgaria join the forum the number would rise to 273. Similarly, NAFTA today consists of the United States, Canada and Mexico. It is expected to have 31 more members by 2005 to form a larger free trade area extending through Central and South America4. In South East Asia, ASEAN is reaching out both to neighbouring China, Japan and South Korea through the recently initiated ASEAN free trade area arrangement, the ASEAN +3 initiative and the mechanisms designated as Dialogue Partners and ASEAN Regional Forum (ARF)5. Recent resurgence of regional organisations among industrial nations comes from their sense of frustration about the tardy progress in trade negotiations under the World Trade Organisation (WTO) and whatever reduction in tariff that has taken place is far short of their expectations. The same logic applies more strongly in the case of developing countries like those in South Asia .The commitments made earlier by developed countries to the developing countries under the WTO have not been acted upon and the issues of vital interest, like agriculture, intellectual property rights and movement of natural persons are being sidetracked. If SAARC is to compete in this environment and become effective it needs to have a strong and result oriented secretariat. Role and Function of SAARC Secretary General The role and function of the SAARC secretariat and the Secretary General and on the Establishment of the Secretariat are provided for in the Memorandum of Understanding (MOU) signed by foreign ministers of member countries on 17 November 1986 at Bangalore India6. According to the Memorandum, the Secretary General is appointed by the SAARC Council of Ministers upon nomination by the member

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states on the principal of rotation in an alphabetical order. The other professional staff is Directors nominated by each member state but formally appointed by the Secretary General. Under Chapter VIII of the Memorandum the Secretary General 'shall be responsible for coordination and monitoring of the SAARC activities' and act as the 'channel of communication and linkage' between SAARC and International Organisations when empowered by the Standing Committee to do so and assist in the organisation and preparation of SAARC meetings. The Secretary General is also the custodian of the SAARC documents and publications. Chapter III of the Memorandum provides that the secretariat shall 'co-ordinate and monitor' the implementation of SAARC activities and 'service the meetings of the Association'. The original tenure of two years of Secretary General was, subsequently, raised to three years at the 9th SAARC Summit held at Male. Since the decision of the 11th summit, the Secretary General holds the rank of a minister. Mandate Exercised by Similar Secretariats A survey of the functions and powers exercised by secretariats of similar organisations elsewhere point to broad common features. The Secretary General or his equivalent in a regional organisation cannot, no doubt, take decisions on matters which are not entrusted to him by the charter of the organisation. These are left to the member states to decide. His job generally is to provide data objective information and analysis to facilitate decision-making. As an institution, conceived to represent general interest of the organisation, and because of its non-partisan character, the secretariat in most cases has the authority to initiate and propose programmes and projects to strengthen cooperation. Once decisions are taken at the appropriate intergovernmental level it is for the Secretary General to administer, implement and monitor follow-up. In most cases the secretariat also acts as the guardian of agreements, understandings and treaties adopted by the body and ensures that these are applied correctly. In the event of default, the secretariat has the duty to draw attention of the concerned party to the matter and urge remedial action. European Commission and ASEAN Secretariat The European Commission, which is the secretariat of the EU, has been mandated to undertake policy initiative, propose legislation as

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the executive body of the organisation and to act as the guardian of treaties along with the European Court of Justice7. It serves as the honest broker between conflicting national interests, negotiates trade and cooperation agreements with foreign countries and international organisations and independently decides on agriculture and trade policy issues. The President of the Commission, who holds tenure of five years, takes part in the heads of state and government meetings. The Commission has, over the years, played a constructive role in bringing the community members closer. The European Commission and its president are given the credit for their efforts at bringing about the integration of the community. It played a vital role in realising the European single-market idea at the beginning of 1993 and, subsequently, in finalising the blueprint for economic and monetary union8. The ASEAN revised the role and mandate of its Secretariat several times since its establishment in 1976 (the ASEAN came into being about nine years earlier). The original mandate of the Secretariat was 'to provide for greater efficiency in co-ordination of ASEAN organs and for more effective implementation of ASEAN projects and activities'. Subsequent amendments made in 1983, 1985, 1989, 1992, were aimed at providing more manpower resources, authority over and freedom of operation to the Secretary General. The Manila protocol signed in July 19929raised the term of office of the Secretary General to five years. He works as the channel of communication between different organs and institutions of the ASEAN as well as foreign governments and international organisations. The Secretary General is mandated to initiate plans, programmes and activities to strengthen regional cooperation, prepare the ThreeYear Plan of cooperation and monitor its implementation. All funds established for ASEAN cooperation are administered by the Secretary General. He is the spokesman of the organisation and represents the body on all matters. In organisational terms, the Secretary General is appointed by the heads of state and government on merit and enjoys the rank of a minister. The professional staff is recruited through region-wise open competition, as compared to SAARC where all directors are nominees of the member countries.

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Need to Change SAARC Secretariat SAARC Secretariat hardly exercises even a modest role assigned to it by the Charter. It has only occasionally been involved in the preparation of documentation for important meetings. The Standing Committee and the Technical Committees, which comprise representatives of member nations, are currently assigned the function of monitoring and co-coordinating SAARC activities. The SAARC activities are highly decentralised and disaggregated. In fact all activities are undertaken by the member states themselves. The role of the Secretary General simply acts as a channel of communication with the outside world and seeks specific authorisation by the Standing Committee10, since he has no mandate to communicate with foreign countries or outside organisation, except for the exchange of published materials. In matters related to SAARC agreements, protocols and understandings, the Secretary General has little role. A look at the Agreement on Establishment of SAARC Food Security Reserve11 indicates that the drawing of food grains from the reserve is left to the borrowing and lending countries. The two parties will agree on the terms of the borrowing and simply notify the details to the Food Security Board, which comprises representatives of member states. It is to be noted that since inception in 1987, no food grains were ever withdrawn from the Reserve. To take another example, any request of a contracting party for extradition of an alleged offender from another party for violation of provisions of SAARC Regional Convention on Suppression of Terrorism12 is left to the concerned member state to deal with. The SAARC Secretary General is the depositary of all SAARC agreements and conventions but his role is restricted to transmit notification about their ratification and the date of their enforcement. Thus all SAARC agreements may be seen merely as an intention on the part of member states to address some common regional issues but for all intents and purposes it is left to the member states to work out their implementation as they deem fit. Finally, in a singular departure from the general norm, funding of the SAARC activities is to be undertaken through voluntary contribution of member states. The SAARC Secretariat is the only regional institution available to the organisation to provide regional perspective and to realise the

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objectives of the body. Other bodies like the Technical Committee or the Standing Committee are inter-governmental institutions. Those who participate in those meetings take the positions of their respective countries. The narrow mandate and restricted scope of operation of the Secretary General is designed to keep all the options open for the member states. The Charter's provision that all decisions of the organisation shall be taken on the basis of unanimity and that the bilateral and contentious issues shall be excluded from deliberations provides each member state with veto power. Fragile Mandate of Secretariat No doubt the power and authority of a secretariat depends on the nature of cooperation envisaged and the purpose and the way member states use it. It is similar to the Non-aligned Movement (NAM), in operation for more than four decades, which is merely a consultative forum; its decisions having no mandatory force and has also not found it necessary to have a secretariat for itself. The cocoordinating mechanisms at New York, Geneva and a few other places as well as the host countries of respective events have managed meetings and other activities. On the other hand, the European Union is the most integrated regional institution. It is an economic union with a common currency and an elected parliament that allows free flow of goods, services, capital and labour. It has common external tariff and close cooperation in political security and economic cooperation policy. As a result, the European Commission, as mentioned earlier, has been given wide powers and freedom by the constitution to operate in the interest of the Union. The ASEAN, which started with a modest agenda is progressively expanding and deepening cooperation and has over the years transformed into a dynamic regional organisation. The growing power and responsibility assigned to the Secretary General is a measure of a realisation on the part of member states that a strong secretariat is vital to carry the body forward. It may be noted that the SAARC charter defines the aims and objective of the organisation in rather general terms. (To promote the welfare of the peoples of South Asia' and to promote 'active collaboration and mutual assistance' etc.)13 But as the organisation is currently poised for qualitative transformation in its scope of work, it should follow other successful organisations in the revitalisation of the secretariat.

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Conclusion SAARC has, so far, achieved little. The stringent controls over the economies by governments of the region and their inward looking policy administered by a corrupt and inefficient bureaucracy have hampered effective regional cooperation. Most crucially, the strained relationship between India and Pakistan, the two major countries of the area, and the lack of goodwill, trust and confidence have seriously impeded the progress. Consequently, the strict control imposed on the Secretary General is symptomatic of member states' hesitation to part with a degree of their sovereignty. The resumption of long stalled dialogue between India And Pakistan following the meeting of the leaders of the two countries during the January 2004 SAARC summit in Islamabad and the economic reform measures undertaken by all South Asian countries since 1990s should positively impact on the SAARC process. Also important are the spread of education, democratic awareness and the emergence of a growing middle class in the region with fresh ideas priorities and aspirations. It is time the civil society in the region and the media, in particular, played a proactive role to mobilise public opinion for regional cooperation and to underline the cost of non cooperation. The well-being of the people of the region should not be allowed to remain hostage to the outmoded ideas of security and national chivalry. Abul Ahsan has served as foreign secretary to the government of Bangladesh and secretary general of the South Asian Association for Regional Cooperation (SAARC). Endnotes 1 The term secretariat and secretary general is used interchangeably through out the article. 2 For the Declaration of the 12th SAARC Summit, see Daily Dawn, Karachi, 7 January 2004. 3 Taniguchi Makoto, 'Time for An East Asian Economic Zone', Japan Echo, (Japan Echo Inc, December 2003), pp. 28-29. 4 Ibid. 5 Association of South East Asian Nations - An Overview, (Jakarta: ASEAN Secretariat, 2004). 6 Memorandum of Understanding on the Establishment of the SAARC Secretariat Information and Media Division, (Kathmandu: SAARC Secretariat, June 1999). 7 Pascal Fontaine, Europe in 12 Lessons, (European Commission Publications, Brussels), October, 2003. 8 Role of the European Commission, (Brussels: EU 2003).

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The ASEAN Secretariat: Basic Mandate Function and Composition, (ASEAN Secretariat, 2004). 10 Op.cit. Memorandum of Understanding of the Establishment of the Secretariat (SAARC secretariat Publication, 1987). 11 Agreement on Establishing the SAARC Food Security Reserve, (Kathmandu: SAARC Secretariat July 2002). 12 SAARC Regional Convention on Suppression of Terrorism, (Kathmandu: SAARC Secretariat). 13 Ibid.

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Hindrances to South Asian Cooperation Khaled Ahmed

he world looks at the region of South Asia in fear because of the danger of war lurking permanently here. In particular, it worries about nuclear proliferation at the hands of two regional states who have fought wars in the past and are poised to go to war again. The region is also seen to be not sufficiently integrated through trade. There is a lot of negative jurisprudence in the history of bilateral relations among the regional states since they became free from British colonial rule in 1947. The region is dominated by India which is over 70 percent of the land-mass and population. India’s relations with its neighbours have seen ups and downs but most of the past history has been dominated by negative factors. Yet, South Asia minus India has not become integrated either. There is little solidarity among the smaller states alienated from India. Pakistan’s relations with Bangladesh have been as subject to variability as those of India; Pakistan has not been able to move forward in its relations with Sri Lanka and Nepal. The regional organisation, the South Asian Association for Regional Cooperation (SAARC), has not made much progress, despite the signing of the South Asian Free Trade Agreement (SAFTA). The world focuses on South Asia because elsewhere in Asia, regional arrangements have made progress. Reference is often made to the Association of Southeast Asian Nations (ASEAN) where member states have been able to create a trading bloc since its foundation in 19671. SAARC came into being in 1985, pointedly dedicated to the non-political goal of promoting economic and social cooperation. In

that sense both the regional organisations have an identical goal: avoid political wrangling and get together on the basis of shared economic goals. Both organisations pretended as if their enterprise was not in reaction to political developments in the region. ASEAN pretended that it was not aimed against a third entity, yet there were clear internal and external factors that motivated its birth: fear of internal movements of communism and fear of the external assertion of China in the region2. Why couldn’t the same factors motivate South Asia? It is often said that regional blocs come into being under threat from an ‘external’ foe. In the case of South Asia, the external foe was not properly defined. Some critics of SAARC say that, instead of the foe being outside, it was sitting in the centre of it in the shape of India. By 1985, when SAARC was established, Pakistan and India had fought the third battle in their epochal war: the 1971 defeat of Pakistan and the establishment of Bangladesh. It is said that the idea of a regional bloc was conceived by Bangladesh as a small-state response to the big-state conflict3. SAARC and ASEAN ASEAN was supposed to be Indonesia-centric; SAARC was to be India-centric. But whereas Indonesia gave leadership to the idea of ASEAN, India was sceptical about the validity of SAARC. It is not true to say that South Asia had territorial disputes to resolve before ‘freezing’ them through normalisation as implied in the charter of SAARC. The truth is that three contenders in Southeast Asia, Mala(s)ya, Indonesia and the Philippines, had complex territorial claims on one another which had to be simply buried in favour of engagement in the trading bloc4. In South Asia, unresolved disputes assumed a higher priority than a collective response to internal and external challenges. In fact, while India wants members to adhere to the SAARC charter excluding political debate, Pakistan resents the fact that the charter excludes such a debate. India’s argument is that SAARC is undermined by the raising of issues disallowed by its charter; Pakistan’s argument is that excluding a ‘realistic’ political debate from the charter hinders the coming together of the members on other issues. There is no such thing as an Asian identity in Southeast Asia. The various member states of ASEAN are not united by any linguistic or cultural commonalty as in South Asia. Although a new commercial ethic is creating a kind of uniformity among them, they don’t feel any Asian adhesive in this relationship. On the other hand, in India-centric South Asia, a kind of bond of collective culture

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is felt by its inhabitants. Could this ‘intimacy’ be the dividing factor in South Asia? The centre-piece in the obstruction to peace in South Asia is the Indo-Pakistan rivalry in the region. India doesn’t want the world to mediate the Indo-Pak disputes even when the world favours India’s recent emergence as the great democratic country in Asia doing well economically. India thinks of itself as the big power which must command deference from the peripheral states under a kind of Indian Monroe Doctrine. In its disputes with them it doesn’t want any external intervention. On the other hand, the smaller states can face India only by leaning on an extra-regional reference. Pakistan has passed the cold war period by exploiting this external reference. The smaller states give evidence of leaning on Pakistan to counterbalance India. This negative networking did not create conditions for cooperation in the region; in fact, all national strategies are geared to either maintaining the status quo or changing it through militarisation. The logic of war is stronger than the logic of peace. The upsurge of internal security crises has not improved matters by aligning and mixing the external threats with internal weaknesses that the states suffer from. The regional threat perception and strategic thinking stands squarely in the way of any initiative in favour of integrating South Asia. India always thought that it was threatened from the periphery because its neighbours were being lured away by the cold war power opposed to India: the United States. The Nehruvian legacy was sceptical of the United States; it was also ‘anti-neighbours’. While Gujral’s Nehruvianism in the 1990s sought to accommodate India’s neighbours and disarm their fears of India’s hegemonism, the militant Nehruvians, led by Indira Gandhi, thought India was threatened from all sides and that it had no friends in the world. Rajiv Gandhi’s government popularised the ‘destabilisation’ doctrine under which India’s smaller neighbours were being wheedled and coerced by the United States into exploiting India’s internal troubles to destabilise it. After 1971, America was seen as the arch enemy building up Pakistan as a proxy and aligning with China to threaten India from the north. While most Indians betray the various shades of paranoid Nehruvianism, Indian civil servants in the Ministry for External Affairs would like to help stiffen the anti-American jurisprudence with their well-kept record of grievances. Thus, when

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the right-wing BJP leaders sought close relations with the United States, almost the entire nation was primed to entertain negative thoughts about it.5 However, after the Congress-led government signed a nuclear deal with the US, India appears to be moving closer to the US despite an uproar in the media and the deep suspicions of the Left and Right. It is ironic that the United States should emphasise an Indian emotion that represents paranoia also about India’s smaller neighbours. Something can be said about the inclination of the smaller neighbours to call in the global power as a make-weight against what they perceive is India’s regional power. One can see this reliance on the extra-regional reference as a negative for peace in the region, but cannot help seeing in it also the negative psychology of a great regional state that feels unsure of its greatness. The irony deepens as the two big South Asian ‘Islamic’ states-Pakistan and Bangladesh-feel enraged by the recent actions of the United States in the Middle East and Afghanistan but see it aiding and abetting India too. Both are Islamic states and have added a religious element to their antagonism of India. In India, the party that wishes to break out of the straitjacket of the hegemonic regionalism of the early Nehruvian leaders, is the Hindu fundamentalist party that tried to reach out to the United States and Israel. This has created a most confusing anti-regionalist scenario. The three states have deepened their animosity by adding religion to their ideology while being forced to court the same global power. One can sum up the confused situation like this: all the three states hate the United States but court it under strategic compulsions; they also use this extra-regional reference to postpone and destroy any chance there is of cooperation among themselves. ‘The Threat of India’ and South Asia While India’s threat perception is linked to its hegemonic self-image and translates into paranoia against ‘foreign intervention’ in South Asia, Pakistan’s is simply India-centric. It has taken upon itself the onus of overturning the status quo with regard to Kashmir. The temperament of the state of Pakistan has been determined by this extremely inflexible ‘mission statement’. It cannot live in peace with India unless it can force a many-times-stronger India to surrender Kashmir to it. The inflexibility of Pakistan’s stance on Kashmir derives from a sense of ‘moral correctness’ radiating from the UN

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Security Council resolutions of 1948. There are other less important factors that take Pakistan into the anti-peace league in South Asia. Pakistan felt uncertain about its survival in its early years and feared efforts afoot in India to destabilise the newborn state and reabsorb it. Pakistan shaped its nationalism in response to this fear of reabsorption. It propounded the two-nation idea as state doctrine and in time made any disavowal of it punishable under the Penal Code. It brought the army into the legislature to ensure that politicians didn’t ignore the reason of the state in deference to opportunism of politics. It wrote up textbooks that made permanent the narrative of partition and the ethnic cleansing that accompanied it. The homo pakistanicus grew up hating India as part of his nationalism and looked at regional peace as a ruse to yield hegemony to India. After fighting three wars with India with predictable results, Pakistan developed a negative nationalism akin to the Serbs of the Balkans who sang songs of their defeat at the hands of the Turks. And Pakistan yielded paramountcy to the army as an adjunct to its nationalism. Like Cuba, Pakistan had to pay a big price for taking on a big neighbour. The state has sacrificed too much of its internal resources in the cause of coercing India. Because India is big and undefeatable, the state has encouraged the formation of a tactical rather than a strategic mind. The mainspring of Pakistan’s intellectual establishment is the army which passes off tactical thinking as strategic6. Since India can’t be defeated; Pakistan’s strategy should be one of tactical pinpricks that may quicken the process of India’s internal implosion. The theory of India’s implosion is the Pakistan military establishment’s singular contribution to the civilian mind in Pakistan. Within the security structures, the only active intellectual impulse is located within the prime intelligence apparatus. Intelligence agencies universally embody the paranoia of the state and are usually treated as ‘special cases’ and accepted as ‘necessary evil’, but in Pakistan they perform the intellectual function and have the coercive power and impunity from law to enforce their thinking. It is for this reason that one has to measure Pakistan’s intellectual performance on the question of security and threat perception against the intelligence agencies. Above all, one has to understand their reverse indoctrination during the Afghan war against the Soviet Union and then its induction of ‘holy warriors’ into the low-intensity proxy war with India in Kashmir7. Today the rise of the militant

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clergy in Pakistan has to be understood within the framework of clergy-barrack nexus that is in crisis since 9/11. Most of the damage, of course, was caused to Pakistan’s internal order and stability. But the end result was Pakistan’s unshakable resolve, as expressed by its ‘warrior priests’, to prevent normalisation and peace in the region unless its ‘mission statement’ was realised. Bangladesh was made in an environment of intense anti-Pakistan emotion which could also be interpreted as an intense pro-India feeling. The East Pakistan political elite had disagreed with the West Pakistan ‘mission statement’ against India. When in 1971 it emerged as a new nation, it was anti-Pakistan and pro-India. That should have resulted in one region less where nationalisms clashed to the exclusion of cooperation and peace. But the second president of Bangladesh General Ziaur Rehman, ‘the freedom-fighter’ amended the 1972 Constitution of Sheikh Mujib and removed the word ‘secular’ from it. The same 5th Amendment introduced Islam as the ‘guiding principle’ of the Constitution, which his successor General Ershad bettered through his 8th Amendment which declared Islam state religion. Awami League, eclipsed by Sheikh Mujib’s corrupt and ruthless one-party administration, was dubbed a pro-India party and kept away by an army that under General Ershad, a ‘repatriate’ from Pakistan as opposed to ‘freedom-fighting’ General Ziaur Rehman, set up India as the big Bangladeshi bogey. India is the big enemy in Bangladesh today. It shows in the anger the Bangladeshis feel over the waters dispute; it shows in the trade figures that reveal India as an exploiter of the misfortunes of Bangladesh. India has failed to arrive at an equitable division of waters from the Farakka Dam it built without consulting the lower riparian state. In its trade with Bangladesh, it pleads restrictive import policy to keep out Bangladeshi goods while Indian goods flood Bangladesh. India has signed a free-trade agreement with Bangladesh which is not performing well mainly because of the situation created by the alternation in power by Khaleda Zia’s Bangladesh National Party (BNP) and Hasina Wajed’s Awami League. As noted above, General Ziaur Rehman had thought of SAARC as a security guarantee against India. Bangladesh today lurches under the burden of two legacies: Pakistani atrocities in 1970-71 and atrocities committed by the father of the

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nation, Sheikh Mujib, after 1971. Awami League represents the legacy of Sheikh Mujib and favours a Bangla nationalism based on solidarity with India. The BNP favours what is called the Bangladeshi nationalism based on a sense of grievance against India and a ‘revisionist’ sympathy with Pakistan and its anti-India stance in the region8. Because of Bangladesh’s ‘bicameral’ mind, India and Pakistan are fighting their spy wars there. The BNP has allowed the penetration of the country’s traditionally more pluralist society by jihad and its proselytising activities. The Awami League has had to shed some of its secular markers to be acceptable to an increasingly anti-Indian populace. Bangladesh is moving towards its irreducible anti-Indian identity simply because Pakistan is no longer there as the hated occupying power. The only restraint on Bangladesh is the United States and the donor states in the West that provide 40 percent of Bangladesh’s foreign exchange9. Although the third largest country in the region on the basis of population, Bangladesh is not a military power and is amenable to Indian pressure somewhat like landlocked Nepal because of its territorial vulnerability. The unstable borders may hurt India with penetration of refugee populations but they render Bangladesh susceptible to Indian pressure which Dhaka may try to ward off by seeking a strategic alliance with Pakistan10. In this situation, the only incentive towards cooperation rather than rivalry in South Asia comes from extra-regional powers that seek peace and cooperation in the region as a part of their global strategy. Sri Lanka’s early threat perception has focused on India for two reasons. The demarcation of Palk Strait and Gulf of Mannar had to be settled with India and thereafter guarded. The other factor was the presence of a very large minority of Tamils that formed their 65 million strong state within the Indian Union and could present Sri Lanka with an irredentist challenge. Consequently, Sri Lankan relations were off to a bad start. A suspicion of India persisted into the 1970s when Srimavo Bandaranaike was Prime Minister of Sri Lanka. It is during this period that Sri Lanka made the proposal of turning the Indian Ocean into a zone of peace its central strategic plank. Relying on this unimplemented UN resolution, the country sought to meet its basic requirement of protecting its borders and territorial integrity. However, it was during the beginning of the Tamil uprising in the 1970s that Sri Lanka’s fear of India reached its apogee. When SAARC was mooted in 1985, Colombo was sceptical about it. It had instead sought linkages with ASEAN in 1981 and

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1984. Then in 1987 Indian troops landed in northern Sri Lanka to save it from the Tamils. Sri Lankans saw the Indian military presence in Sri Lanka as a violation of state sovereignty. After the Indian army left in 1989, Indian scholars challenged the Sri Lankan fear of India by positing their own thesis: that the region was in fact threatened by a superpower (read: the United States)11. Both Bangladesh and Sri Lanka have signed free-trade agreements with India despite their threat perceptions. The trend started with Nepal with which India has a treaty that cannot really be called a free-trade treaty in some of its aspects. But with Bangladesh, the contents of the treaty improved, although, because of the reasons discussed above, relations between the two have not improved in its wake. With Sri Lanka, the treaty has improved to a great extent and is being cited as an example for South Asia. However, some economists look at the three treaties as obstacles to a great multilateral vision of South Asia Free Trade Area (SAFTA). The three treaties were seen by Pakistan as an India strategy under Prime Minister Gujral to isolate Pakistan in the region because it was not willing to liberalise trade with India and give it the Most Favoured Nation status in reciprocation of a similar gesture by India towards Pakistan in 1990. Sri Lanka’s own perception of security has turned inwards, seeing danger in the politics of the Tamils and the extremist Sinhala (JVP) reaction to the Tamils. This has brought about a change in the way Sri Lanka looks at India. A similar change could be coming over Pakistan - much more slowly - as the threat of internal terrorism mounts. The Negative Role of Nationalism The biggest and probably the most insurmountable obstacles to peace are the various nationalisms of South Asia. They pit them against one another and they make the population xenophobic by interpreting the period of colonialism negatively on false evidence. The truth is-nationalism is valid only for people who feel it and decide not to question it. It applies to all nations who try to give themselves identity. It works nowhere and the fabrication as ‘social engineering’ mutates and fades over time. The world saw the rise of nationalism in the post-industrial era in the 18th century. Somehow the decay of religion in Europe made way for the passions of ‘fatherland’. No one thought it was a good thing to feel patriotic. But it was mostly in hostility to other peoples that this passion was

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nurtured. This led to two world wars in the 20th century. Europe got cured of nationalism after the Second World War, but the rest of the world carried on as of yore. Ideology kept it at bay for 70 years, but then the floodgates were opened for the most crude forms of nationalism. Religion got into the act and made it worse in these days of the nation-state. Research shows that the nation is in fact shaped by the state, and those nations which came before the state, like Pakistan, were to find themselves mutated over time till they could not recognise themselves in the mirror of the past. The only way to survival is the adoption of a pluralist society in the states that wish to live in peace in South Asia. It was Lord Acton (1834-1902) who thought that the only civil society that would survive would be the one which allowed all its nationalities to prosper within it and subsumed them in one nationalism. This is what the British Raj tried to tell Hindus and Muslims of India with little success. Now both India and Pakistan have nationalisms that don’t stand up to scrutiny. The Indians will say to the Pakistanis: ‘we were brothers and lived in peace till the British divided us’. The Pakistanis will tell the Bangladeshis: ‘we were brothers till India pulled us asunder’. The truth is that nationalism doesn’t work and the state keeps on changing the people living in it in order to ensure its internal strength12. In the ASEAN region, the nations which cooperate and live in peace are not homogenous linguistically and culturally. In South Asia, there is strong sense of cultural unity, yet any advance towards cooperation and peace seems almost impossible to achieve. Is the feeling of cultural unity a myth or a reality? Is the Chinese community-spread out in Southeast Asia and allowed its own state in Singapore by the exigencies of Malay nationalism-responsible for inculcating a new work ethic in the region, while in South Asia the trading communities- originating in Gujrat and dominating Bombay and Karachi-have been sidelined by more warlike communities?13 Has the region of Southeast Asia developed into a high-trust society while South Asia has not?14 Recent studies have challenged the assumptions behind nation-building in both India and Pakistan. One reason Indians and Pakistanis don’t talk sense when put together is that their versions of what happened to them in the years leading to 1947 are so diametrically opposed. The two communities have been given two opposed narratives on the basis of which to talk among

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themselves and then talk to the ‘other’ party across the border. The two narratives have nurtured two nationalisms and in these days of the e-mail make for very confused dialogue on the web-sites. Very often an Indian responding to a Pakistani article refers to events that Pakistanis are unaware of. There is always a bitter edge of rejectionism in such responses; in other words, the Indian narrative will allow an Indian to accept the Pakistani version only at the risk of losing his place among his fellow Indians. In Pakistan, the rejection of India is entirely based on the narrative constructed around what is called the Pakistan Movement, and the state actually relies on the Penal Code to deter Pakistanis from accepting the Indian version. Ayesha Jalal, the historian, says the truth is too fragmented to lend itself to any nationalism easily. In fact there is a mosaic of narratives floating around, on the basis of religion, region and class, in the history of India since 1850; and no ‘thesis’ made in the communal narratives can be completely upheld. She has tried to look at this ‘existential’ multiple narrative at the risk of continuing to be unpopular with ‘official’ India and ‘official’ Pakistan. In her monumental work15, Ayesha Jalal focuses on the Muslim individual and his personal space and on the collective consciousness of the Muslims under the rubric of sovereignty. Her thesis is that the idea of the Muslim nation and its ‘separation’ from the rest was not tenable given the fact that the Indian nation itself was not yet formed: separate from what? What was in evidence was a network of different affiliations that defied a single narrative. Ayesha Jalal has decided to study all the facets of history that have actually fallen through the cracks of ideological formatting. She studies the linguistic issues to see how the communities were presenting themselves to their followers and how the individual was able to ‘imagine’ himself into his environment. She examines the Khilafat movement to see if the blending of Islamic and Indian nationalist symbols had any permanent value, and finds that any application of an ‘Islamic normative theory’ could not be ‘an adequate gauge for the actual practice of politics’. Thus the thesis of separatism as presented by the Muslim League is subtly overthrown, just as the all-India construct of the majoritarian Congress gets a short shrift. The book is, therefore, an unpalatable pabulum (to the nationalists of both sides) exposing the paradox of inclusionary nationalisms, whether Islamic or secular, unfolding as ‘exclusionary majoritarian

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identity’. The conclusions of Jalal’s work suggest that discord in South Asia is inherent in, and specific to, South Asia and unless the nation-building myths of the post-colonial state in the region are deconstructed and understood, no progress in the direction of regional cooperation will be possible. SAARC: the Organisation that Didn’t Work16 On 13 May, 2003, a TV discussion among three Pakistanis (a politician from the MMA- Muttahida Majlis-e-Amal, an alliance of religious parties, the federal trade minister and a businessman) had the cleric and the minister united against free trade with India while the businessman thought it was safe and indeed necessary for Pakistan to open up. On 28 May, 2003, another TV discussion had two Pakistani Members of the National Assembly (MNAs) who had just returned from a ‘goodwill’ visit to India favouring the giving of the Most Favoured Nation (MFN) status to India and trading with it, while expressing some apprehension about the relative competitive advantage of India over Pakistan. While the government exercises ambiguity over its intent (saying it means only gas when it says trade) the economic writers in the country are in favour of free trade with India, one and all. Now that the barrier seems to be breaking down, one suddenly finds Pakistanis completely at sea about how to go about doing trade with India once the decision is taken. The Lahore University of Management Sciences (LUMS) hosted a seminar of the South Asia Centre for Policy Studies (SACEP) of Bangladesh, on 21 May 2003, which answered many questions about trade the Pakistanis usually ask. Dr Saman Kalegama of Sri Lanka told the audience that South Asia thought of free trade in the region under SAARC (South Asia Association for Regional Cooperation) in the 1990s. A Preferential Trade Area (SAPTA) was mooted in 1993 and became operational after it was ratified by the SAARC ‘seven’ in 1995. Then in 1996, the seven agreed to set up a free trade area (SAFTA) to be operationalised by 2000 or 2005 at the latest. At the 10th SAARC summit in Colombo, the year 2001 was actually set for the finalisation of a Treaty on SAFTA. Then something ‘political’ intervened (read: a near-war between India and Pakistan) and the date with SAFTA was not kept. Then at the 11th summit in Kathmandu it was decided that the treaty would be ready by 2002. The 12th summit in January 2003, at which the draft treaty was to be presented, did not take place because India and Pakistan were still

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quarrelling. Finally, it was held in Kathmandu on $ January 2004, at which the SAFTA was signed and has now been ratified. Why are the SAARC seven bothered about a free trade area in the South Asian region? Traditionally, they have not traded with each other; they have mostly fought among themselves. Trading in South Asia means trading with India because it stands in the middle, occupying 70 percent of the region’s territory and being the only state with contiguous borders with all the others except with Maldives. But as globalisation creeps up, regional trade is seen as a kind of local shield against the exploitative edge of global capital. Another incentive to regionalism has come from ASEAN which now trades intra-regionally up to 21 percent of its total trade. (In 1975, when it started, ASEAN traded only 7 percent intra-regionally). The European Union (EU) trades 63 percent within itself and is thus quite sheltered from the global shocks if and when they come. Some movement towards free trade at the bilateral level has taken place since 1996 when SAARC first decided to write up a regional free trade treaty. India signed a free trade treaty with Nepal in 1996, then signed one with Sri Lanka in 1998. While the treaty with Nepal is based on a ‘positive list’ of commodities under duty free trade, the Indo-Sri Lanka free trade treaty could furnish the answers Pakistanis look for when they think of trading freely with India. Scholars think that bilateral treaties being signed among member states may actually accumulate a jurisprudence that could stand in the way of trade liberalisation under SAFTA. So far India’s free trade treaties with Nepal, Sri Lanka and Bangladesh seem to be carving out a subregion in which Pakistan seems to be becoming economically isolated. To counter this, Pakistan signed its own free trade treaty with Sri Lanka. There is a misunderstanding about the concept of free trade which must be removed. It doesn’t mean unhampered duty-free trade in all goods under the sun. The idea of the ‘negative list’, goods excluded from trade, is a part of the free trade regime. If India and Sri Lanka have agreed to free trade, they have also agreed not to trade in certain goods. Sri Lanka, negotiating a free trade agreement with Pakistan, is facing the same obstacle in respect to its tea export to Pakistan. But these issues are a part of the free trade regime and belong to the shifting focus in the thinking of the trading partners. The ‘negative list’ can be revised at any time. In the case of India-

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Nepal trade agreement, however, there are certain aspects that need to be looked at before it can qualify as a genuine free trade treaty. There is no negative list, which can be taken to mean that there is an across-the-board protection to goods. This makes the treaty somewhat like the arrangement India and Pakistan have today. There is also no dispute settlement arrangement in the India-Nepal treaty. There is another misunderstanding that even otherwise knowledgeable people in Pakistan seem to entertain: that cheap and better quality Indian goods will overwhelm Pakistan and force the industry here to close down. This is simply not true. Once the two countries decide to enter into a bilateral free trade regime, they will negotiate a ‘negative list’ which simply means protecting some crucial areas of each economy. If there is a disadvantageous exchange in goods not on the ‘negative list’, the affected country can lean on a clause against ‘import surge’ and ban imports in that good alone. In other words, there is a clause that can allow a country to pull out substantially from the free trade regime if a massive imbalance occurs. Such a clause against ‘import surge’ exists in the India-Sri Lanka treaty. Under this treaty, Sri Lanka will export its goods to India duty free from 2003 and India will have duty-free access to Sri Lanka in 2008. The treaty has a provision for charging duty on goods that are ‘dumped’ or are subject to subsidies in the exporting country. This is another ‘complaint’ put forward by those in Pakistan who oppose free trade with India. Pakistani industrialist, Mr Tariq Saigol, who spoke at the LUMS seminar, thought that Pakistan should give the MFN status to India and open up trade with it. He made a telling point when he said that politics worked in Pakistan against the economy in two ways: trade with India was not liberalised and remained on the ‘positive list’ because of ‘politics of enmity’, but Pakistan was exposed to unhampered ‘dumping’ of the Chinese goods because of ‘politics of friendship’. He said he had favoured arriving at a sensible free trade arrangement with India when he was head of the Lahore Chamber of Commerce and Industry. He referred to a positive study made on the subject by a World Bank officer for the finance ministry in Islamabad in 1995. He thought that Pakistan simply could not indefinitely postpone the award of the MFN status to India. Dr Kalegama took into consideration the opinion that SAFTA might not benefit the regional states as much as hoped because they traded in the same category of goods, but he thought that such a situation could change

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gradually with time. He also noted that SAFTA had no regional leadership engagement. In ASEAN a free trade area was pursued with great vigour by President Suharto of Indonesia and NAFTA was championed by President Clinton of the United States, but in South Asia SAFTA was still not made a mission by any big leader. He also looked at the investment flow into the ASEAN region as an ancillary to free trade, but noted that such an inflow of the FDI (foreign direct investment) had not taken place in South Asia after the signing of the bilateral free trade agreements. He computed that SAFTA will inflict the highest level of revenue loss to India, followed by Pakistan, but it will curb smuggling, which was equally inflicting revenue loss in addition to undermining national products. Khaled Ahmed is a political analyst, as well as consulting editor at The Friday Times and contributing editor at the Daily Times, Pakistan. Endnotes 1 Kofi Annan, UN Secretary General: ' Today, ASEAN is not only a wellfunctioning, indispensable reality in the region. It is a real force to be reckoned with far beyond the region. It is also a trusted partner of the United Nations in the field of development.' Address at ASEAN Regional Forum, 16 February 2000. 2 Muthiah Alagappa, in Asian Security Practice: Material and Ideational Influences (Stanford University Press, 1998): 'Fear of internal and international communism, reduced faith or mistrust of external powers, Indonesia's decision to pursue its active and independent foreign policy through regional cooperation, the desire on the part of Malaysia and Singapore to constrain Indonesia and bring it into a more cooperative framework, considerations of regime consolidation in nearly all member states, and the desire to concentrate on economic development.' (p 107) 3 Iftekharuzzaman, Bangladesh: a Weak State and Power in Asian Security Practice (see above): 'But one of the main considerations of President Ziaur Rehman, who launched the initiative was to enhance the security of Bangladesh by bringing the kind of collective pressure to bear on India that could not be exerted bilaterally.' (p.315) 4 Nicholas Tarling, Nations and States in Southeast Asia (Cambridge, 1998): The Philippines laid claim to Sabah against Malaysia and the latter had claims on a number of islands also claimed by Indonesia. Ironically, the 'external' power against which ASEAN was supposed to have been formed has come in and laid claim to Spratly Islands in the region. (p.21) 5 Stephen Cohen, India: Emerging Power (Brookings, 2001): 'Western diplomats were for many years put off by India's flexible non-alignment,

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165 which for a time was a pretext for a close relationship with the Soviet Union. They were also irritated by the style of Indian diplomats. While professional and competent, they seemed compelled to lecture their British and American counterparts on the evils of the cold war, the moral superiority of India's politics, or the greatness of its civilisation â&#x20AC;ŚTo its smaller neighbours, India presented a different face. Government officials in the smaller South Asian states tell stories about the insensitivity and arrogance of Indian diplomats, soldiers, government officials and even businessmen. Pakistan finds that dealing New Delhi can even be dangerous, as the two countries have regularly harassed (and at times beaten up) each other's officials' (p.135). George K. Tanham, Pakistan's Strategic Thinking, Hicks & Associates Inc, 2000, 'Pakistanis often say that they are very emotional people and are quick to add that many other people are also emotional. However, they seem to believe that emotions play a more powerful role in their lives than they do for others. Many suggest that reading Urdu poetry helps to understand them. Their personal emotional behaviour is often reflected in governmental actions and decisions. This leads Pakistan sometimes to undertake actions and operations that are not fully thought out...The great importance of personal relationships in most of Pakistani society is reflected in the behaviour of the government that tends to see other governments in personalised terms as friends or enemies. China is a friend, and India is an enemy. Pride, honour and revenge are also considerations for Pakistanis. These feelings are powerful and enduring. When other nations change their policies because of their own changing national interests, and Pakistan feels let down, it perceives a personal betrayal. Pakistan practices international relations largely on a personal basis...This difference in outlook has led to major misunderstandings with the United States, as several ambassadors have stated, they were sick of Pakistani talk of betrayal and saw the issues in terms of national interest, and did not understand the Pakistani reaction.' (p.7) Niccolo Machiavelli (d.1532), The Prince: 'Mercenaries and auxiliaries are useless and dangerous. For mercenaries are disunited, thirsty for power, undisciplined and disloyal; they are brave among their friends and cowards before the enemy. In peacetime you are despoiled by them and in wartime by the enemy. Mercenary commanders [cannot be trusted] because they are anxious to advance their own greatness, either by coercing you, or by coercing others against your wishes. Experience has shown that only armed princes and republics achieve solid success, and that mercenaries bring nothing but loss'. Quoted in the preface by John K. Cooley, Unholy Wars: Afghanistan, America and International Terrorism (Pluto Press, 1999) Jeremy Seabrook, Freedom Unfinished: Fundamentalism and popular resistance in Bangladesh today (Zed Books, 1999): 'The state is swaying between those who favour Bangali nationalism and those who propagate

12 13 14

Bangladeshi nationalism, the two poles being represented by Sheikh Hasina's Awami League (AL) and Khaleda Zia's Bangladesh National Party (BNP). The former leans on a third phenomenon, the fundamentalists and Jamaat Islami. Over this confusion presides the sinister subcontinental politics of India and Pakistan, India supporting Awami League and Pakistan supporting BNP and the fundamentalists.' (p.156) The author sees both AL and BNP as totally corrupt parties that agree on everything exploitative of the masses but not on each other's existence. BNP ruled Bangladesh from 1991 to 1996; AL ruled from 1996 to 2000. BNP enforced crippling strikes against the AL government 60 times; AL enforced strikes against the BNP 140 times. Kuldip Nayar, Dawn, 7 June 2003: 'The change in the government's attitude may well be due to the pressure by the donor nations (Bangladesh Development Forum) which cover 40 per cent of the country's foreign exchange needs. At its meeting at Dhaka a few weeks ago, they raised the question of treatment meted out to the minorities. The donors also criticised corruption. Bangladesh beats India in this field. What actually scares the BNP is the odium of fundamentalism. After the fall of Iraq, Dhaka wants to give the impression of being liberal and pluralistic. Washington's perceived likes and dislikes do influence the BNP government. Too much of Islam is apparently one of Washington's "dislikes." Daily Pakistan, 6 June 2003, visiting managing director Bangladesh TV, Anwar Zahid, said that Pakistan as a nuclear power was the security guarantor of Bangladesh. Editor Mujibur Rehman Shami said that by reuniting with Pakistan, Bangladesh could at once become a nuclear power. Nira Wickramasinghe, Sri Lanka: the many faces of security in Asian Security Practice (Stanford, 1998): 'The fundamental security problem is one in which the states peripheral to India seek a maximisation of security vis-Ă -vis India while India itself seeks to regionalise security within a sub continental framework.' (p.370) Omut Ozkirimli, Theories of Nationalism: A critical introduction (Macmillan, 1996). Willem van Kemenade, China, Hong Kong, Taiwan Inc: The Dynamic of a New Empire (Alfred K. Knopf, New York, 1995) Fran Tonkiss & Andrew Passey (Ed), Trust and Civil Society, (Macmillan, 2000): There is no doubt that in the West there is a kind a trust in individual transactions that one does not always find in Pakistani society. At least, society offers an uneven manifestation of it. For instance, in Punjab, where the individual is still a 'warrior' it is minimal: people don't trust the 'other' enough to enter into firm commitment (commitment is an important part of trust) and end up not paying for goods bought. On the other hand, in Karachi, where businessmen belong to traditionally trading communities, trust is fundamental to economic success. The 'warrior' has less trust than the

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15 16

167 'trader'. The latter has to trust in the 'other' for the transmission of his goods under contract. But the book clearly warns that trust has to be not communal but individual if it is to yield economic advantage to society. Nor is trust a totalitarian concept, otherwise the experiment of the Soviet Union should have succeeded against the West's laissez faire capitalism. Ayesha Jalal, Self and Sovereignty: Individual and Community in South Asian Islam since 1850 (Sang-e-Meel Publications, Lahore, 2000). What follows has been abstracted with some commentary from SACEP Task Force Reports, A Policy Dialogue on South Asian Cooperation, South Asia Centre for Policy Studies (SACEP) and Centre of Policy Dialogue Bangladesh. The writer attended the sixth and final seminar by SACEP on the subject at the LUMS at Lahore on 21-22 May 2003. The seminar was reported by him in The Friday Times of 20 June 2003.

Food Security in South Asia Suresh Babu

chieving food security for its inhabitants remains a major challenge for South Asia. This paper identifies major causes of food insecurity due to poor access to food in South Asian countries. Presenting empirical evidence on the extent of food insecurity in South Asia, this paper reviews technological, institutional, and policy challenges facing policymakers in increasing access to food. The paper introduces emerging strategies and options for meeting food security needs by identifying various factors that hinder the appropriate implementation of policies and programs that aim at increasing food access. Examples of successful food and nutrition intervention programs both within and outside of the region, are also presented. In order to understand the challenges that countries in the South Asian region face in achieving food security it is important to review the current status of food production in the region. The challenges of improving food security in the region relate to a complete set of constraints along the food supply chain from production to marketing and distribution (Babu, et al., 2005). Evaluating past solutions in the region for their impact is important to refine and redefine appropriate approaches for food security interventions. Status of Food Production The countries in the region have been growing much faster in the last decade as compared to the decades following independence. Figure 1 presents the rate of economic growth in South Asian countries during the years 1997-2002. With the exception of Pakistan, all

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countries in the region have experienced a growth rate of more than 4 per cent over the last several years. In Sri Lanka and India the growth rates have surpassed 6 per cent in selected years. Such increased growth in the national income should lend itself to improved food security for the population. Yet, human development across the countries in South Asia lags behind other developing regions as shown by the monitoring progress in human development across South Asia (Human Development Report, 2004). The human development index during 1985-2002 is given in Figure 2 and shows an increasing trend in all countries, although it is at a lower level in Pakistan and Nepal. Another indicator of growth and

economic development in developing countries is the share of agriculture in the national income (GDP). Figure 3 shows the share of agriculture in the national income for South Asian countries during the years 1997-2002. In general, the share of agriculture in GDP ranges between 20-30 per cent, except in Nepal which is closer to 40 per cent. The share of agriculture in GDP has been declining in all countries except Nepal. Although agriculture continues to contribute less and less to the national income the percentage of the population who depend on agriculture remains between 50-60 per cent in these countries. This indicates that the value of production in agriculture as well as the labour productivity level continues to be low.

1997 1998 1999 2000 2001 2002

an k Sr iL

ki s Pa

an g

1997 1998 1999 2000 2001 2002

ta n

1997 1998 1999 2000 2001 2002

h es la d

Sri Lanka

ep a

1997 1998 1999 2000 2001 2002

Pakistan

1997 1998 1999 2000 2001 2002

Nepal

1997 1998 1999 2000 2001 2002

India

In d

1997 1998 1999 2000 2001 2002

50 40 30 20 10 0

1997 1998 1999 2000 2001 2002

Figure 3. Share of Agriculture in GDP

Figure 1. Economic Growth in South Asia

0 Bangladesh

-2 Source: World Development Indicators, 2004

2002

1985 1990 1995 2000 2002

a ny Ke

d la n

2002

1985 1990 1995

Th ai

1985 1990 1995

an st ki Pa

1985 1990 1995 2000 2002

2002

Source: Human Development Report, 2004

1985 1990 1995

an ka

1985 1990 1995 2000 2002

a di Sr

de sh

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

1985 1990 1995 2000 2002

Figure 2 .Monitoring Progress in Human Development across South Asia

Source: World Development Indicators, 2004

Table 1 provides selected information on food production, food exports, food imports, and food balance in South Asian countries for the year 2002. All countries in the region have been producing an adequate amount of food at the national level. In fact, all the countries have been exporting some food although the amount of food exported from Bangladesh, Nepal, and Sri Lanka continues to be insignificant. Food imports are very high for Bangladesh and Sri Lanka while some food is also imported by India, Nepal and Pakistan. Food balance is negative only for Bangladesh indicating that their imports are more than their exports and the local food production does not fully meet the local food requirements. While the growth rate of the South Asian economies has been increasing over the last ten years, and the poverty in the region has been declining, the region continues to be home to about 40 per cent of the world's poor.

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171 Table 1: Food Security in South Asia (1000 tonnes) Country

Food Production

Food Exports

Food Imports

Food Balance

Bangladesh

26,924

1.6

2,827

-4, 601

India

1,74,655

9,490

23,826

Nepal

5,839

Pakistan

24,936

2,966

288

3,818

Sri Lanka

1,938

9.8

1,307

252

Source: FAO, 2004

very high compared to other impoverished regions of the world. India ranks the highest in the prevalence of child malnutrition -measured as the percentage of children below 5 years of age who have less weight for their age -- with 53 per cent of children under 5 years of age below their weight for age followed by Nepal, Bangladesh, Pakistan and Sri Lanka (Figure 5). Even in Sri Lanka, where considerable progress has been made towards reducing child malnutrition through social sector development one third of the children under 5 are still chronically malnourished. This is also reflected in the prevalence of under nutrition as reflected by the amount of calories consumed by the population.

Figures in thousand metric tones for 2002

Figure 4: Percent of People below Poverty Line in South Asia

Table 2. Comparative Performance in Poverty Reduction Region

Living on less than $1 a day

Total population undernourished

185

People without access to improved water sources

Sub-Saharan Africa

323

273

East Asia and Pacific

261

212

453

South Asia

432

312

225

40 35

34.4 33.7

36 32 28

28 25

20 15 10 5

The percentage of those living below the poverty line in South Asia has been on the decline in general, although in comparing the early 1990s to the later years of the 1990s, a decline in poverty is noted in Bangladesh and India while the percentage of poor increased in Pakistan and Sri Lanka. Figure 4 presents the percentage of people living below the poverty line during the 1990s in South Asia.

Bangladesh

India

Nepal

% below poverty 1990s

Pakistan

% below poverty 1995-2000

Source: World Development Indicators, 2004

60 50 40

Sri Lanka

Pakistan

Nepal

Figure 5: Prevalence of Child Malnutrition in South Asia

India

Table 2 presents a comparative performance in poverty reduction in various regions of the world. South Asia still has the highest number of people living on less than one dollar a day followed by Sub Saharan Africa and East Asia and Pacific. South Asia also leads the world's regions in the total number of undernourished people. It has improved in terms of providing better access to water as compared to Sub Saharan Africa.

Bangladesh

All figures in millions for 2000. Source: World Development Indicators, 2004

53 48

48 38 33

30 20 10 0

The prevalence of child malnutrition is considered one of the final welfare indicators of a society. In South Asia, child malnutrition is

Weight for age, as % of children below 5 years Source: World Development Indicators, 2004

Sri Lanka

172

173

Figure 6 presents the prevalence of under-nutrition in South Asia. About 35 per cent of the population is undernourished in Bangladesh followed by 25 per cent in India, 20 per cent in Nepal and Pakistan, and 25 per cent in Sri Lanka. There has been little change in the prevalence of under-nutrition in South Asian countries from the early 1990s through the late 1990s. Thus, the level of food insecurity has not shown much change during the 1990s. Furthermore, a recent comparative estimate of percentage reduction in undernourishment (Figure 7) during the 1990s shows India has only reduced its food security by a 16 per cent reduction in the level of under-nutrition compared to other countries such as China, Indonesia, Malawi, and Kenya which have made more than a 25 per cent reduction in the level of undernourishment during the last decade (Economist, 2004). Figure 6: Prevalence of Undernourishment in South Asia 40 35 30 25 20 15 10 5 0 Bangladesh

India

Nepal

1990-92

Pakistan

Sri Lanka

1998-2000

Figures are % of population Source: World Development Report, World Bank, 2002

Figure 7: Percentage Reduction in Undernourishment between 1990-2000

The food security status in South Asia is reflected by about 303 million people who were food insecure in 2000 compared to 288 million people in 1991. This is an increase of 5 per cent in the region. Currently about 40 per cent of the food insecure people in the developing world live in South Asian countries, highlighting the gravity of the food security problem in South Asian countries (FAO, 2004). Economic Reforms and Food Security The national food security status of South Asian countries also reveals a positive trend. The countries have transformed themselves from food deficit countries in the 1960s and 1970s to food surplus countries in the 1980s and 1990s. However, increased food production has not been fully translated in terms of household and individual food security. This is partly due to a high level of poverty that coexists with nutritional and food insecurity. Furthermore, malnutrition remains a challenge even in urban areas where there has been a relative increase in income among the households. Higher prices paid to farmers for their produces have been partly responsible for a growth in the food grain reserves at the national level. Lower food prices have increased accessibility to food and increases prospects for exports of food. Yet food insecurity continues to be a major development challenge because of the low purchasing power of the majority of the population which is below the poverty line. Economic reforms and market liberalisation in the food and agriculture sector in South Asia have spurred private investments in high value agriculture such as fruits, vegetables, livestock and fisheries. However, it is not clear whether investments in high value crops will result in reducing food insecurity of the vulnerable sections of the population.

Malawi

33.3

Indonesia 25

Kenya China

31.3 16

India 0

Source: Economist, 2004

The emerging trends in food security intervention policies and programs show that there has been increased privatisation of food markets in South Asia. A case in point is Bangladesh. When the country was affected by severe floods in 1998, The Economist predicted that the country faced starvation and the death of about 20 million people, due to floods, which wiped out more than two thirds of the country's rice crop. Yet, Bangladesh did not see a single death due to starvation from the flood because it had developed its private sector to deal with food shortages. Bangladesh's private sector imported adequate amounts of food from India and other countries

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in the region to meet the deficits caused by the floods. Along with food aid, the private sector ‘helped in preventing starvation and death in Bangladesh’. This example shows that liberalising local markets and encouraging private sector participation will help in preventing starvation and death due to national disasters (Dorosh, et al., 2004). There has been a considerable reduction in food subsidies in the countries of South Asia. Pakistan's experience in abolishing its wheat rationing system in the 1980s and allowing private traders to participate in food trade presents a stark contrast to Indian system of maintaining a huge level of subsidies through food distribution system to protect its vulnerable population (Islam and Garrett, 1997). There is also a diminishing role of the public sector participation in food distribution, particularly in countries like Pakistan and Bangladesh. There has been a shift from broad based public distribution system toward target interventions through social safety nets in the region (Babu, 2003). Strategies and Options for Increasing Food Security The major policy question that remains to be addressed in the South Asian region is: ‘Has a reduction in poverty led to greater food security in South Asia?’. Food security can be addressed through several options and strategies by using technology, institutions and policy alternatives. One of the reasons for continued food insecurity in the region is the low productivity of crops and livestock in the region as compared to many developing and developed countries. Increasing productivity of crops through increased investment in agriculture research and development that focuses on crops grown and consumed by the poor is needed. The investment in agriculture research as a percentage of agriculture GDP has been declining in many of the South Asian countries. The trend has to be reversed in order to develop new technologies that will reduce food insecurity. Bio-technology can improve crop productivity and food crops should be explored with the challenges in developing bio-technology policy, bio-safety regulations and capacity for using bio-technology. Increasing the nutritional content of food consumed by the population, as well as increasing the resistance to biotic and abiotic stresses through bio-technology can help solve the food insecurity problem in the region. The use of better technology for minimizing environmental harm from the intensive cultivation of food crops is

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also important. The use of remote sensing technology to minimise weather fluctuations will help in forewarning drought-related food production challenges. There is a need for better linkages between agricultural research and technology-transfer. The extension systems that were successful in transferring technology to the farmers during the Green Revolution period have declined, both in terms of quantity and quality. Unless the extension systems of the South Asian countries are revived through better partnership of public and private institutions, the adoption of new technologies by the farmers will lag behind. Use of information technology to transfer knowledge across the countries as well as within the countries is important. Understanding the benefit of information and communication technologies in transferring information for increasing the productivity of farmers will help in reducing food security. Furthermore, use of geographical information systems (GIS) and Geo Positioning Systems (GPS) for identifying opportunities for precision agriculture will help in reducing the waste of inputs such as water and fertiliser and in increasing the productivity of South Asian agriculture. Institutions could also play an important role in improving access to food. Well functioning institutions that facilitate the smooth transfer of produced food to consumers are important. National level institutions such as the Public Distribution System in India should have adequate access to remote areas in order to improve food security at the local level. Food insecurity has been high in areas where the public distribution system has not been functioning effectively. The role of food parastatals as an institution in procuring and distributing food in the region must be revisited because it is becomingly increasing clear that the parastatals that participate in procurement and distribution of food have become inefficient partly due to poor governance and accountability. Reforming these institutions to better serve the poor by reducing cost and increasing benefit to the poor will improve access to food (Rashid, et al., 2005). Good governance is fundamental for increasing access to food and reducing food insecurity. Pro-poor policies should target the most vulnerable sectors of society. Food entitlement should reach the targeted population. Even well-functioning programs such as Integrated Child Development Services program (ICDS) do not fully

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address the problem of food access of the vulnerable population. Ownership rights on land and reduction in income inequality will also serve in improving access to food. Minimum wages to guarantee the right to food as well as access to credit and marketing networks are important low income groups. South Asia is home to successful examples of targeted food and nutrition intervention programs. For example, the Integrated Child Development Services (ICDS) has been the largest child nutrition intervention program in the world. In India’s 10th five-year plan, it is envisaged that the program will be implemented throughout the country, providing universal coverage for the program. Yet, ICDS continues to face major implementation challenges and does not fully translate the investments made into adequate nutrition. The Tamil Nadu Integrated Nutrition program, a variant of ICDS program which is currently incorporated as part of ICDS has shown that when effective monitoring and evaluation is conducted and appropriate follow up activities are undertaken, child nutrition could in fact be improved through integrated nutrition programs (Dev, 2005). The Food for Education program in Bangladesh provides adequate evidence that not only can food be transferred to poor households through targeted interventions but it can also be an effective tool to bring children to school, particularly the girls (Ahmed and del Ninno, 2005). The food-based nutrition intervention program Triposha in Sri Lanka has also shown a positive impact on reducing child malnutrition. The policy priorities for improving food security and nutrition in South Asia include greater public investment in agriculture as well as in the social sectors. For example, an additional US$ 50 billion investment in South Asia in the social sector will reduce child malnutrition by 13 million (Smith, et. al, 2000). Improving access to productive resources and employment for vulnerable sections of society is also important. Greater linkage between agriculture research and food policy should be pursued in order to translate agriculture technology into adequate food security. Recent trends indicate that community-based targeting programs works better in improving access to food. However, policymaking should involve poor farmers and vulnerable sections of society to directly benefit in terms of improved access to food. Greater involvement of the private sector is also required in establishing and maintaining food

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distribution centers in rural areas. Another area that needs policy attention is to improve interregional trade liberalisation in South Asia. Harmonisation of customs and tariffs among the countries in the region to facilitate better food trade is needed. A multi-disciplinary approach is needed for greater involvement of nutritionists in policymaking. The early warning systems to forewarn of impending food shortages due to natural disasters should be developed in all of the countries in the region as well as at the regional level to increase cooperation to share such information among the countries. Effective communication that is user specific and user sensitive to various levels of decision making is also important from scientists to policymakers for solving the food security problem in the region. Conclusion During the last 30 years a lot has been accomplished in terms of increasing food production through technology and policy interventions in South Asia. However, an organised effort is still needed from all sectors of the economy to reduce the high levels of food insecurity and child malnutrition. Various technological, institutional and policy options for increasing food security in the region require a greater involvement of nutritionists and food scientists in food and nutrition policymaking. In that process the importance of conducting quality research through improved capacity for food and nutrition intervention and better communication of research results to policymakers cannot be underestimated. Suresh Babu is a senior research fellow at the International Food Policy Research Institute, Washington, DC. References l A. Ahmed, and C. del Nino, ‘Feeding Minds While Fighting Hunger: Food for Education in Bangladesh’, in Economic Reforms and Food Security in South Asia, S. Babu and A. Gulati (eds.), New York: Haworth Press, 2005) l S. C. Babu and A. Gulati (ed.), Economic Reforms and Food Security – The Impact of Trade and Technology in South Asia, (New York: Haworth Press, 2005) l S. C. Babu, 2003. ‘Social Safety Nets for Poverty Reduction in South Asia – Global

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l Experiences in Sri Lankan’, Journal of Agricultural Economics, 2003, 5 (1): pp. 1-8. l S. R. Cummings Rashid and A. Gulati, ‘Grain Marketing Parastatals in Asia: Why do they have to Change Now?’, Markets Trade and Institutions Division Discussion Paper 80, IFPRI, 2005. l S. M. Dev, 2005. ‘Market Reforms in Agriculture: An Indian Perspective’, S. Babu and A. Gulati (eds.), Economic Reforms and Food Security in South Asia, (New York: Haworth Press, 2005) l P. Dorosh, C. Del Ninno and Q. Shahabuddhin, The 1998 Floods and Beyond: Towards a Comprehensive Food Security in Bangladesh, (Dhaka: The University Press and Washington, DC: IFPRI, 2004) l The Economist, Economic and Financial Indicators, London, December 2004. l FAO, Statistical Databases, 2004. http:// faostat. fao. org/faostat / collections 01/10/2005

?version=ext&hasbulk=0&subset=agriculture.

A South Asian Parliament Prof. S. D. Muni

Accessed

l Human Development Report, 2004, Human Development Institute, UNDP, New York. l Y. Islam and J. Garrett, ‘IFPRI and the Abolition of the Wheat Flour Ration Shops in Pakistan: A Case Study on Policymaking and the Use of Impact of Research’, Impact Assessment Discussion Paper No. 1., (Washington, DC: IFPRI, 1997) l L. Smith and L. Haddad, ‘Explaining Child Malnutrition in Developing Countries: l A Cross-country Analysis’, IFPRI Research Report, (Washington, DC: IFPRI, 2000). l World Bank, 2004, World Development Indicators, Washington, DC. l World Bank, 2002, World Development Report, Washington, DC.

he idea of a South Asian Parliament (SAP) is not very old. It was first mooted academically during the early 1990s, and was elaborated upon in 1995 in a research paper1. One of the authors of the paper, Professor M.L. Sondhi, taking advantage of his position as the Chairman of the Indian Council of Social Science Research, organised an India-Pakistan Social Scientists Forum and issued a call from this forum to establish a South Asian Regional parliament. Gradually, journalists and academics have endorsed and propagated this initiative2. While some of these academics and analysts have projected the idea of SAARC parliament as a mechanism for 'crisis management and resolution'3, others have seen it as a legislative body to monitor the 'economic and security interests of the region'4. The idea of SAP did not emerge initially from the SAARC process as sensitive political issues were generally kept out of its framework. The idea of a SAARC or South Asian Parliament is a manifestation of an advanced degree of political integration in the region. As the questions of preserving sovereignty and national identity are powerfully defining national agenda in South Asia, compromising sovereignty could not be envisaged under any regional institutional arrangement. Accordingly, even the Group of Eminent Persons (GEP) appointed during the 9th SAARC Summit in Male in 1997, steered clear of the aspects of political integration in the region, though it proposed the setting up of a South Asian Economic Union by the year 2020. The GEP, while commenting on the 'Political Dimension' of the SAARC process only acknowledged that 'often,

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cooperation has been hindered by a lack of political will and hampered by the vicissitudes of the political climate'5. This concern with sovereignty and political identity would still be a major challenge to overcome when concrete moves are made towards establishing a regional parliament. However, the idea of SAP has started tapping gently on the political sound board in some of the South Asian countries and also in the SAARC forum. It appeared very feebly during the deliberations of SAARC Ministers meeting to celebrate the 10th Anniversary of SAARC and articulate a 'SAARC Vision For The Second Decade', in New Delhi on December 8, 1995. India's then Prime Minister Narasimha Rao mentioned the idea of a South Asian Parliament in his inaugural address at this commemorative meeting and the Bangladesh Foreign Minister, ASM Mostafizur Rahman endorsed it in the form of a 'non-legislative South Asian parliament'6. In 1998, at the Male summit, the Pakistani Prime Minister Nawaz Sharif did propose a forum of South Asian foreign ministers as 'High Council' for 'inquiry, mediation and conciliation' on peace and security in South Asia, but that was not comparable to parliament. The then opposition leader Benazir Bhutto had taken an initiative to hold a meeting of the parliamentary opposition leaders of SAARC countries. In May 2003, Pakistan's PPP parliamentarians complained that they were not allowed by General Pervez Musharraf's military regime to participate in a meeting in India called to discuss the formation of a SAARC Parliament. They were referring to a South Asia Forum of Parliamentarians established in India by the Members of Indian parliament led by the Congress Party's Edwardo Falerio7. Another articulate Indian political leader and a parliamentarian Dr. Subramanian Swami talked about a South Asian Parliament to his audiences in Washington8. Political support for the idea of a South Asian parliament received a boost when India's Congress leader Mrs. Sonia Gandhi endorsed it at a 'Conference on Peace Dividend in South Asia', organised by the Hindustan Times group of newspapers in New Delhi in December 2003. Responding, in a way, to the call for greater economic integration, open borders and security cooperation in South Asia by Prime Minister Vajpayee, the leader of opposition in the Indian Parliament Mrs. Sonia Gandhi said at the same forum: â&#x20AC;&#x2DC;Over time, why can't we, for instance, conceive a South Asian Parliament as a permanent deliberative body on issues of regional

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concern and importance? Such a body could expand the perspective on South Asia among all our countries9.' Mrs. Gandhi has repeated the idea of a South Asian Parliament on subsequent occasions. This has led the Congress Party to endorse the idea in its agenda for the April-May, 2004 elections. After its electoral victory, the newly formed United Progressive Alliance (UPA) has also accepted the idea in the Common Minimum Programme (CMP). With what sincerity and commitment this objective will be pursued and how political and structural difficulties coming in its way will be dealt with, remains to be seen. Political Context and Culture Parliament is a political institution. There are two important aspects of the context and culture required to evolve and strengthen this institution in a given region. One is the nature of the system of parliamentary democracy in each of the regional countries and second, the level of political integration among all the countries of the region where such an institution has to be established. In South Asia, there are two broad categories in which democratic parliamentary institutions can be seen. One: where parliamentary democracy has taken considerable roots and another, where this system is under stress and still evolving. In the first category, India, Sri Lanka and Bangladesh may be included. In India and Sri Lanka, parliamentary institutions have been functioning since independence, for nearly fifty years within a democratic framework of polity. However, in Sri Lanka the prestige and powers of parliament have been seriously undermined since the introduction of the system of Executive Presidency in 1978. The parliament and its related institutions have also come under additional stress in Sri Lanka due to political divide between the executive president and the parliament, between 2001 and April 2004. This divide still persists even after 2004 election in which the president's coalition emerged victorious but without a clear parliamentary majority. Lack of healthy political traditions of 'cohabitation' between a powerful president and a popular parliament that could not be envisaged while drafting the 1978 Constitution, has brought discomfiture and embarrassment to both the president and the parliament. In Bangladesh, parliament has functioned as a truly democratic institution for about 16-17 years, from 1972-75 and from

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1991 until now. The period in between was marked by military rule and politically docile and tailored parliaments. It is only in India that parliamentary democracy has remained a stable structure of governance. Some see this stability as having been eroded during the period of emergency rule, from August 1975-July 1977. The remaining four countries, Pakistan, Nepal, Bhutan and Maldives fall into the second category of pseudo- quasi- or undemocratic systems. These countries have witnessed serious distortions in the democratic institutions, except during short intervals. Nepal and Pakistan have had functioning parliamentary democracies during 1959-1960 and 1990-2002; and 1988-1999 respectively. In Pakistan, during the initial decade of 1947-1958, the basic tenants of parliamentary democracy were accepted by the institutional structures but in practice, parliamentary democracy remained fragile and unstable10. During the remaining times, there have been autocratic political orders in these two countries under the military generals in Pakistan and feudal monarchs in Nepal. In Bhutan the monarchy is trying to assume democratic institutional framework and in Maldives, the powerful presidency governs under one-party dominance system. Notwithstanding the democratic distortions in these countries, there have been elected (directly or indirectly) legislatures where public and sectional concerns are voiced and executive responses to such concerns invoked. The South Asian region does not stand for strong parliamentary institutions. Even in stable democracies like India and Sri Lanka, socio-political dynamics have evolved in a manner that healthy political culture has not been reflected in the functioning of parliaments and its associated institutions. Political defections, indiscipline, corruption and power struggles have not allowed healthy norms and traditions of parliamentary functioning to take roots. For months on, oppositions have boycotted parliaments to make trivial political points and in the process, have also not allowed parliaments to transact legislative business. More often than not, the ruling parties have not shown necessary respect and deference to the wishes of the opposition. This is true in almost all the parliaments of the region. This is not the place to go into a detailed analysis of the malady of parliamentary functioning in South Asia but one of the important factors is expansion of politics in South Asian societies and the introduction of hitherto marginalised social groups into

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national legislatures. These groups are not aware of parliamentary processes nor are they fully acultured in democratic norms and discipline. Social fragmentation of polities in South Asia has led to the intensification of the race of political power along sectarian identities and interest groups, loosening of the control of party organisations and erosion of values and ideals. Above all, the autocratic rulers and undemocratic political orders in some countries of the region have also not allowed democratic institutions to develop in these countries. Despite the fragility of parliamentary democracy in South Asia, there is a positive side as well. The stable democracies in India and Sri Lanka have accumulated rich experience in evolving parliamentary institutions over the years in the given social and political context of the region. This experience has been shared, consciously or otherwise with other countries in the region. Thus the institution of Parliament has developed its procedures, rules of transacting legislative business, defined the roles of its officers, political groups and individual members, and developed norms of parliament's engagement with other governing institutions like the executive, judiciary, media, civil society etc. There is also the experience of bicameral legislative structures in India and Nepal. India being a dynamically federal system, also has the experience of operating state level legislatures, presenting a wide variety of experiences to its neighbouring countries to learn, by way of both acceptance and rejection of specific aspects of institutional evolution. Therefore, South Asia has the experience, expertise and ingenuity to develop a regional parliament, at least its design and structures, if there is political will in the region to have such an institution. Towards Regional Integration The idea of a regional parliament is closely related to the level of regional political integration. In South Asia, until recently, political integration has been kept out of the SAARC process while emphasising economic integration. There is no dearth of SAARC documents, scholarly analyses and media commentary that lament slow and tardy progress of SAARC in furthering the cause of economic integration in the region. SAARC was initiated on the theoretical premise of 'functionalism' that stresses that economic cooperation and socio-cultural exchanges would help build the required mutual confidence in the region where political

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understanding would be strengthened, conflicts resolved and integration initiated. But in the past two decades, the slow progress of SAARC has been blamed on lack of political will and reluctance to address political issues. Pakistan, in particular, has raised the question of Kashmir and bilateral political conflicts in the SAARC forum, and other members of the regional organisation have also supported the idea of opening SAARC to regional and bilateral political discussions. India has not accepted this because the SAARC Charter, based on functional theory's approach and original consensus, does not allow bilateral and contentious issues to be raised. The roots of the conflict between political and cooperative issues in South Asia mainly lie in two areas: the Indo-Pakistan conflict and the inherent regional structural imbalance where India, being overwhelmingly large and better endowed, invokes suspicion and fear among its smaller neighbours, who pursue strategies to counterbalance India12. Both these roots of regional conflict are gradually softening under the twin pressures of domestic popular aspirations aroused by fast spreading awareness and the global integrative forces unleashed by globalisation13. Almost all the SAARC statements reflect such pressures. On India's part, initiative in the direction of alleviating the concerns of its smaller neighbours to speed up the SAARC process were taken during Rajiv Gandhi's (1984-89) regime in many ways. His Foreign Minister Dinesh Singh even took these efforts to the popular and civil society levels by establishing the Indian Council for South Asian Cooperation to propagate this line. A decade later the 'Gujral Doctrine', initiated by the then Foreign Minister I. K. Gujral in 1996, was seen as the thoughtful response, which helped India move toward assuaging the fears and apprehensions of its smaller neighbours14. The foreign minister of his successor government NDA, Yashwant Sinha while endorsing the essence of 'Gujral Doctrine' committed his government to 'institutionalising positive asymmetry in favour of our neighbours'15. Mr. Sinha had in fact gone much beyond that when in addressing a seminar on South Asian Cooperation in Dhaka, in January 2003, he gave a call of a 'Union of South Asian States'. He said: 'If Africa could think in terms of a Union, if the Economic Community in Europe could become a European Union, if ASEAN could make progress, if the countries in Latin America could make

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progress, there is no reason why we in South Asia cannot become a Union of South Asian states. So I am putting this idea on a table. We will be interested in negotiating a new agreement which will create a South Asian Union and in course of time, the South Asian Union -the SAU will not merely be an economic entity. It will acquire a political dimension in the same manner (by) which the European Union has come to acquire a political and strategic dimension. This is the direction in which I suggest we move. I am not suggesting an end to SAARC but an upgradation of SAARC into a South Asian Union16.' The effect of domestic and global pressures was not evident only in the speeches. There were positive developments in South Asian bilateral relations as well, of course, along with persisting tensions and misunderstandings. In 1996, India resolved the Chittagong Hill Track refugee and insurgency issue with Bangladesh and signed Mahakali Treaty with Nepal. In 1998, India resolved the Ganga waters dispute with Bangladesh and also signed Free Trade Agreement with Sri Lanka. Now Sri Lanka and India are pursuing a Comprehensive Economic Partnership Agreement to integrate their economies as closely as possible17. Bangladesh is also interested in having a Free Trade Agreement with India. In 2003, Bhutan demonstrated an unprecedented level of cooperation with India when it decided to have mutually coordinated operations to flush out India's Northeast insurgents from their sanctuaries on its territory. These are only some of the landmark signs of a change in the dynamics of India's cooperation with its immediate neighbours both within and outside the SAARC parameters. It is hoped that there is a similar positive move in Indo-Pakistan relations as well. Surely, the international community, particularly the U.S. has been nudging these two adversarial neighbours to resolve their differences since the 1998 nuclear explosions18. The Kargil conflict and the consequences of post-September 11 developments have only strengthened the U.S. resolve to 'remain engaged' with the Indo-Pakistan issue. That both India and Pakistan are feeling the pinch of domestic developmental challenge being vitiated by their bilateral conflict became evident when both the Indian and the Pakistani Prime Ministers talked of poverty as the common challenge in 2003. The then Indian Prime Minister Atal Behari Vajpayee in April 2003, called for fresh initiatives to open a

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dialogue between India and Pakistan, and proposed the prospects of 'security cooperation, open borders and even a single currency'. Inaugurating a symposium on 'The Peace Dividend: Progress For India and South Asia' in New Delhi in December 2003, Vajpayee said: â&#x20AC;&#x2DC;I would suggest that the demands of globalisation and the aspirations of our people provide the objective bases of our energetic pursuit of a harmoniously integrated South Asia. Our people, business and organisations are waiting to interact more closely with each otherâ&#x20AC;ŚThey have waited for over an half-century for its fulfillment and are now impatient to move ahead. We can sense this impatience in the outpouring of popular sentiments after our initiatives. The increased travel between India and Pakistan of Parliamentarians, businessmen, artists and sportsmen show the intense desire for amity and goodwill. We have to respond to this desire by seeking every possible way to banish hostility and promote peace19.' The Indo-Pakistan decision during the Islamabad SAARC summit to initiate a bilateral dialogue for conflict-resolution between them was the result of the sentiments expressed in the above statement and efforts made to build mutual confidence. This has given the SAARC a new momentum and the positive manner in which this dialogue is being pursued by the new UPA government clearly underlines that India-Pakistan relationship is a part of the whole subcontinent's movement towards greater economic cooperation and political integration20. There are optimists in India and Pakistan who even claim that a positive Indo-Pakistani relationship will be put on viable track by the end of this year. Regional political integration is a difficult and complex process. It often follows regional economic integration, but only when there is a strong political will. In South Asia, some signs of such a political will slowly emerging can be seen but these are still very weak and fragile. The dynamics of regional economic and political integration is best illustrated by the European experience where credible initiatives for regional economic integration started only during the 1950s after long Westphalian stability. The process of European integration has become a strong movement but it is in no sense complete, not even the economic integration process has been fully accomplished and

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secured21. Politically, the European Union is struggling to evolve consensus on Common Foreign and Security Policies of the member countries. The European Parliament which was first constituted after direct elections in 1979 is still evolving. However, both the process of European Integration and the evolution of the European Parliament offer useful insights for South Asia to learn from, in terms of following positive lessons and avoiding pitfalls, though social, political and economic conditions in South Asia are vastly different from what they have been in Europe22. No other region in the developing world has so far come forward firmly in emulating Europe in working for political integration. ASEAN, considered more successful comparatively and has developed institutions for security issues (such as ARF), has neither thought of an ASEAN Parliament nor a common approach to critical political values like democracy, pluralism, human rights and freedom. Other developing regional groupings like GCC, SCO, OAU, IOC-ARC, etc., are far behind on the political front. South Asia has at least started talking about the goal of a community and establishing a regional union with talks of a South Asian Parliament. South Asian Parliament Like the European Parliament, the SAP can both induce and reinforce the process of South Asian cooperation and integration, as also get reinforced by such process. Mrs. Sonia Gandhi, the leader of India's Congress party viewed the SAP as an instrument that could be helpful in the growth of a regional perspective. The academics have looked at it as an institution of political mutual understanding, communication and consensus building that may positively impinge on conflict resolution. Perhaps, under the SAARC process, somewhat unwittingly though, this inherent role of SAP was taken note of when introducing provisions for visa-free travel of parliamentarians. The parliamentarians on their own are also realising the value of getting together at the regional level as evident from the establishment of SAARC forum of parliamentarians. So far SAP is still an idea, even a nebulous idea, but as and when the region starts working for it, its structural aspects will have to be considered carefully. The first precondition for establishing SAP will be an Agreement or a Treaty among all the South Asian countries on the structure. The example of Maastricht Treaty (1992) and the Amsterdam Agreement (1997) to support the structure of the European Parliament may be recalled here. Such Agreements and Treaties may be negotiated within the

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SAARC framework. To facilitate such negotiations, another Group of Eminent Persons or a specially constituted task force may be appointed by SAARC to thrash out theoretical details of SAP structure.

representation will seem rational. The European Parliament also follows a differentiated approach where number of representation from member countries differ from each other and is collectively decided.

South Asian countries have a strong electoral tradition based on adult suffrage, with the exception of Bhutan. Accordingly, an elected SAP can be constituted on the prevailing electoral systems of the member countries. While the preference for a free and fair election based on adult suffrage may be highlighted, accommodation be made for indirect elections to SAP from any specific country until it is ready to hold direct elections. The life of SAP may be five years as is the general practice of parliaments in South Asian countries.

There is another sensitive aspect linked to representation. In the European Parliament national identities are submerged under political identities because in the Chamber, the seating arrangement does not follow nationality criteria23. This does not seem workable for SAP. Not only because the national identities in South Asia have not been softened at the European level but also because, due to lack of uniform political and democratic norms and practices in South Asia, political groups cutting across national boundaries with similar ideologies and political programmes have emerged. The prospects of such groups emerging in the foreseeable future also seem dim. The SAP members will, therefore, continue to retain their respective national identities along with their political and ideological complexions. On specific issues, national representatives from the same country may take different positions according to their respective political programmes, and so, even cooperate with politically sympathetic groups from across the borders. For instance Communist party members of various South Asian countries may take a mutually coordinated approach in SAP that may be in conflict with other political representatives from their countries. Recurrence of such situations will initiate a process of political harmony across national boundaries in South Asia.

Numerical strength of the parliament poses a real challenge in South Asia because of its inherent imbalance. Any proportionate representation would invariably put Indian SAP members at absolute majority because of India's demographic enormity. This will not be acceptable to the other countries. Therefore there are two alternatives in deciding the strength of the parliament and the number of representatives from each country. One is to have equal number from each country and another to have a proportionate number but not (emphasis added) based on population size of the respective countries. Equal numbers will naturally militate against India since its representation in SAP will be reduced to 1/7 of the total size, making the composition look grossly unnatural. It may also create difficulties for very small countries like Bhutan and Maldives, who may not have a large pool of competent people to be spared for South Asian regional deliberations. Thus, for a balanced composition of SAP, while India's overall demographic dominance has to be avoided, the size differential of the countries has also to find some reflection in the regional body. One formula for composition could be that while India contributes 25 per cent of the total strength, the other two demographically sizable countries, Pakistan and Bangladesh, contribute 15 per cent each and the remaining four smaller sized countries contribute 10 per cent each of the total numbers. This is just a suggestion to illustrate a balanced formula, which can surely be improved upon. In SAARC, financial contributions are made on the basis of each member country's capabilities. Perhaps the same formula may be applied for meeting the expanses of SAP, and there again a differentiated-balanced

The officers of SAP, particularly the speaker and the deputy speakers may be elected within the parliament on a rotational basis according to the alphabetical order. Each one may have a term of less than one year because all the seven member countries will have to be accommodated during the five-year term of SAP. Accordingly, while the candidates for each term can only be from among the members from only one country, votes will be cast by all the members of SAP. Other procedures and rules to govern smooth functioning of SAP may be drawn from the best available in South Asian countries. Total strength of the parliament may be fixed somewhere between 300 t0 500, though in some of the South Asian countries like India, the strength of parliament stands at more than 570 members. Raising or reducing the numbers of SAP must be collectively decided by the South Asian countries. However, larger the Parliament more would

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be the expenditure incurred on its functioning and upkeep. The parliament may have at least two annual sessions with the gap between one and the other session not exceeding six months. SAP procedures may involve discussions in subject committees, question sessions and open House debate. And decisions may be adopted in the form of resolutions adopted by majority vote. It may be desirable to provide a safeguard that any particular resolution which does not have support of atleast 1/3 of all the member countries representatives may not be adopted. Like the European Parliament during its initial stages, SAP can only start as a deliberative body. At this stage we are not even envisaging a regional executive on the lines of the European Council or Commission. It may still take years before the next stage of South Asian regional political integration can be contemplated. The SAP will therefore address its decisions/resolutions to the South Asian governments or even SAARC. As other institutions of political integration evolve in South Asia, SAP may, over the years, begin to assume a legislative character. Until then SAP decisions will be in the form of suggestions and recommendations. Even when these SAP decisions are ignored or rejected by the individual governments, they will generate public pressures in their favour throughout the region. More so when some South Asian governments accept them and others do not. The subjects under the purview of SAP should then be those areas where SAARC has been working and where there already is a regional consensus. This gives a wide variety of issues to SAP for deliberations, ranging from those of economic cooperation to the ones adopted under the Social Charter in the Islamabad SAARC summit. SAP may also deliberate upon security issues affecting the region like terrorism where SAARC Charter is being revamped. As security and nuclear confidence building grows between India and Pakistan, the related issues would also become ripe for SAP deliberations. Holding of the SAP sessions and its various subject committee meetings may be so disbursed throughout the region that no country feels either burdened or neglected. Further, such meetings will expose local people and national media, and sensitise them to regional issues. This is how a harmonised regional perspective indicated by Mrs. Sonia Gandhi will gain momentum. The SAP members, being free from specific national constraints may be able to think beyond their national positions even on complex and sensitive issues of conflicts and tensions in the region. In the process

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unconventional ideas and constructive possibilities may emerge for resolving such issues. The vibrations of regional political integration have already started being felt. Both domestic and international forces are working on the vibrations to give them strength and direction. Under such circumstances the idea of SAP may look distant but not unrealistic. This distance between the idea and reality may be bridged if IndiaPakistan confidence building gathers momentum and India takes bold initiatives to push regional integration in a positive direction. Prof. S D Muni teaches at the School of International Studies, Jawaharlal Nehru University, New Delhi, India. Endnotes 1 M.L.Sondhi and Srikant Paranjpe, 'SAARC Parliament', The Hindustan Times, New Delhi, July 27, 1990. Subsequently both these authors produced a detailed argument in favour of SAARC Parliament in a study entitled SAARC Parliament and the Pursuit of Stable Peace in South Asia, (New Delhi: Conflict Management Group, JNU, 1995). 2 Rakshat Puri, 'Establish SAARC Parliament Like EU', The Tribune, Chandigarh, June 10, 2001. Also his, 'Giving SAARC to the people', in India International Center Quarterly, vol.29, no.1, Summer 2002 and 'Perspective On SAARC', Kashmir Times, Srinagar, December 20, 2003; Ishtiaq Ahmed, 'A South Asian Union of Independent States', Op-Ed, Daily Times , Lahore, June 1, 2003; Hiranyalal Shrestha, 'Tomorrow's SAARC Cannot Operate Without SAARC Parliament', Kathmandu Post, Kathmandu, January 6, 2002. See also Himal, Kathmandu, vol.13, no.1, January 2000. 3 Srikant Paranjpe, 'A Multilayered Approach To Security: Perspectives From Western India', in Comprehensive Security: Perspectives From India's Regions, Seminar Proceedings, Delhi Policy Group, August 2001, pp. 183-204. 4 Ishtiaq Ahmed, op.cit. 5 SAARC VISION BEYOND THE YEAR 2000: REPORT OF THE SAARC GROUP OF EMINENT PERSONS, (Sri Lanka: South Asian Association For Regional Cooperation, Department of Government printing, 2000), pp.7-8. 6 Text of the speeches released on the SAARC Secretariat Website: <http://www.saarc-sec.org/vision.htm>. 7 This author is associated with this forum as a 'Friend of the Forum'. 8 As reported in Dawn, Karachi, July 25, 2003. 9 The Hindustan Times, New Delhi, December 13, 2003. 10 Ayesha Jalal, The State Of Martial Rule, (Cambridge: Cambridge University Press, 1990).

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193 S. D. Muni and Anuradha Muni, South Asian Regional Cooperation, (New Delhi: National Publishing House, 1984). For a more theoretical discussion, see Ernest B.Hass, Beyond the Nation State: Functionalism and International Organisations, (Stanford: Stanford University Press, 1964). Also writings of David Mitrany, A Working Peace System, (London: Royal Institute of International Affairs, 1946); Joseph S. Nye, Peace In Parts: Integration and Conflict in Regional Organisations, (Boston: Little Brown, 1968); Robero O. Keohane and Joseph S. Nye Jr., Power and Interdependence, (Boston: Little Brown, 1977). S. D. Muni, 'Coping With the Contentious Issues in South Asia', in L. L. Melhotra, H. S. Chopra and Gert W. Kueck, SAARC 2000 And Beyond, (New Delhi: Omega Scientific Publishers, 1995), pp. 78-97. South Asian leaders are increasingly taking note of these forces as reflected in their speeches. For one articulate version of such speeches see Sri Lankan Foreign Minister Lakshman Kadirgamar, 'Seven Sisters Of South Asia: Where Are They Going?', 10th Lal Bahadur Shastri Memorial Lecture, January 11, 2003, New Delhi. Gujral Doctrine was articulated in Mr. Gujral speech at Chathem House, London on 23 September 1996. See Yashvant Sinha's Dinesh Singh memorial lecture in New Delhi on February 3, 2004. Text available with the Indian Council of World Affairs, Sapru House, New Delhi. Text of the speech from MEA, Government of India website: <http://meaindia.nic.in/speech> . India-Sri Lanka Comprehensive Economic Partnership Report, Colombo: Joint Study Group Report, October 2003. Strobe Talbott, Engaging India: Diplomacy, Democracy and The Bomb, (Washington D.C.: Brookings Institute, 2004). Text on the MEA website. Also The Hindustan Times, New Delhi, December 12, 2003. The dynamics and dilemmas of integration in South Asia have been discussed widely. See, for instance, Sridhar Khatri, 'The Politics of becoming a Community: Stages and Pre-requisites', South Asian Survey, vol.6, no.2, July-December 1999, pp.197-230; Rasul Bakhsh Rais, 'Integration and Community Formation in South Asia: Need For Institutions, Norms and Values', South Asian Survey, vol.8, no.2, JulyDecember 2001, pp.203-212. For understanding the process of European integration, see James A. Caporaso, European Union : Dilemmas Of Regional Integration, (Boulder: Westview press, 2000) and Anderson James and Eberhard Brot, The Frontiers of The European Union, (New York: Palgrave, 2001). See K.K.Bhargava & Ross Masood, SAARC And EUROPEAN UNION, (New Delhi: Har-Anand Publications, 1994); Hartmut Elsenhans, 'European Integration: Limited Automatisms And Implications For SAARC', in South Asian Survey, vol.4, no.2, July-December 1997, pp.

235-257; Dick Gupwel, 'The EU and SAARC in the First Decade of the Twenty-first century', in K.K.Bhargava, Sridhar Khatri (eds.), South Asia 2010, (New Delhi: Konark Publishers Pvt. Ltd., 2002). 23 'Overview of the European Parliament: An Introduction', taken from the European Parliament website: http://www.europarl.eu.int/presentation .P.2.

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South Asian countries to establish regional and sub-regional institutions and mechanisms for the promotion and protection of human rights.

A Human Rights Code For South Asia Iqbal Haider

outh Asia, much to the misfortune of our people, happens to be one of the most polarised and poverty-ridden regions of the world. Multiple polarisation, illiteracy and poverty not only reinforce each other, but also create many hurdles in promotion and protection of human rights. It is rightly emphasised that: 'One does not enjoy human rights with a bare body and empty stomach'. Hence, poor countries not only require faster economic growth, but also quicker reduction in poverty to enhance human development and enforce commitment to human rights. There is also a growing realisation that the universal nature of human rights calls for across the borders cooperation. The United Nations has been expressing serious concern over repeated violation of the Universal Declaration of Human Rights and the International Covenants on Human Rights, as well as the failure of the member states to implement and adhere to the same. In the past three decades, the UN has been emphasising the significant role that institutions at the regional and national level can play in promoting and protecting human rights and fundamental freedoms and in developing and enhancing public awareness of these rights and freedoms. Many developed countries have also linked economic cooperation to the democratisation of institutions and promotion of human rights in the countries of the Third World. Increased awareness in civil society and consistent efforts being made by nongovernmental organisations for regional cooperation have also forced

Most of the regional or sub-regional groupings in Europe, North America and Africa have appreciated the need to have common human rights treaties/conventions or codes and have officially constituted autonomous statutory forums to ensure their observance and enforcement. Perhaps the first initiative in this direction was taken by the European Union. On 4th November 1950, in Rome, members of the Council of Europe had adopted the Convention for the Protection of Human Rights and Fundamental Freedom.1 This Convention has been amended and improved from time to time. On 1st November 1998, this Convention2 was further amended by protocol No.11 to provide for the establishment of the European Court of Human Rights with wide jurisdiction to deal with human rights cases and issues. The European HR Court is also vested with the power to grant relief to any person, NGO or group of individuals, to disapprove any policy or legislation of any member country and conduct trials. Such Human Rights Charters and Commissions or Courts have also been established by the 3Organisation of African Unity and Latin American countries. However, no regional or sub-regional grouping in Asia, Asia Pacific, South East Asia, South Asia, Central Asia or the Middle East is willing to pay more than lip service to the cause of human rights. Consequently, no regional or sub-regional group in Asia has any kind of common Human Rights Convention/Charter or officially constituted statutory body. Most countries in Asia, including the regional groups, attempt to justify their failure in adopting a uniform HR Charter and enforcing an official mechanism on the grounds that: 1. HR issues are an internal matter; 2. International Human Rights Charters/Declarations and Treaties etc., are in conflict with certain religious rites, cultural values, customs and practices; 3. National security and economic considerations must prevail over rights of individuals; and 4. Common regional or sub-regional human rights official forum or mechanism is not advisable in view of diversity on many issues

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among member states of the regional alliances. Despite all these reservations among the Asian countries, the need for regional human rights mechanism cannot be ignored. In our neighbourhood, 10 members of the Association of South East Asian Nations (ASEAN) have been debating this issue but the final decision to establish ASEAN Human Rights Commission has yet again been deferred. In the meantime, some of the ASEAN Countries have established official statutory human rights institutions. In Thailand, a comprehensive statute, 'National Human Rights Commission Act' was passed by its legislature in 1999 to establish the Commission, specify its jurisdiction, composition, etc. Members of the NHRC4 of Thailand are appointed by the King on the advice of the Senate and the Commission also enjoys the powers, among others, to examine human rights violations, entertain complaints/petitions of individuals or private organisations against such violations and, if it considers necessary, it may conduct detailed enquiry, hearing, trial and propose remedial measures. The Commission in Thailand submits its reports and recommendations regularly to the parliament. In the Philippines the Commission on Human Rights is constituted by the president in pursuance of Article XIII, Sections 17-19, of the 1987 Philippine Constitution. It was first established by the president on 5th May, 1987. The Commission comprises a Chairman and four members, who are vested with sufficient powers to promote awareness and protection of human rights. In Malaysia, a Human Rights Commission has been established by the government in pursuance of a comprehensive statute 'Human Rights Commission of Malaysia Act 1999', which provides that the Commission shall be a corporate body and shall have not more than 25 members and one of them will be Chairman or Vice Chairman. The Commission is vested with the power to conduct enquiry on its own or on a complaint made by an aggrieved person or group of persons. Similarly, in Indonesia the then President Soeharto had issued a presidential decree on 7th June 1993 to establish a statutory body, 'The National Commission of Human Rights', which was not autonomous since only the president had the powers to appoint its members and approve the office bearers of the Commission.

Despite sustained efforts by civil society, the respective governments of the SAARC countries are not willing to even consider adoption of a uniform Human Rights Code or Convention and to provide any common forum or mechanism to supervise adherence to and implementation of the same.. Although not all SAARC countries have autonomous and official statutory institutions devoted to address the grievances of the people on Human Rights issues, India, Nepal and Sri Lanka have established independent statutory National Commissions/Court for Human Rights, to provide some relief to their people. In 1993, the Protection of Human Rights Act5 was passed by the Parliament of India, which provided for establishment of not only National Human Rights Commission at the Federal level, but also establishment of State Human Rights Commission and Human Right Courts. The National Human Rights Commission in Nepal was established under the Act of 19976 as an independent autonomous statutory body. Similarly the Human Rights Commission in Sri Lanka was established in March 1997 under the Human Rights Commission Act of 1996. In Pakistan the need for such an independent, autonomous statutory body was felt by the government of former Prime Minister Benazir Bhutto, when it established: 1. 2.

a statutory body called 'Tribunal for the Disadvantaged Persons'; a permanent non-lapsable statutory funds to provide financial assistance and legal aid to women victims of Human Rights violations, in pursuance of the Fund for Women in Distress Act 1996; and a separate full-fledged Division and Ministry of Human Rights with wide powers to check and monitor compliance with the international conventions, treatises as well as relevant provisions of the constitution and local laws and to promote awareness about Human Rights both in the administrative machinery and in society at large.

Unfortunately all these measures were discarded or made ineffective after the fall of the government. There is only one active official institution in Pakistan to protect women's rights National Commission on the Status of Women7 (NCSW)-which was established in pursuance of an Ordinance promulgated by the president on July 17, 2000. This Commission addresses some of the

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human rights issues relating to women. In South Asian countries, relief is provided to the victims of Human Rights in vast majority of the cases, by the judicial or quasi-judicial forums. However, jurisdiction of the courts in South Asian countries, much to our disappointment, is limited to specific violations of any particular legal right, law or constitutional provision. Generally, the courts exercise their jurisdiction only on a complaint filed by an aggrieved party and the grant of relief or compensation by the courts is critically dependent upon the quality of evidence in each case. The concept of public interest litigation or representative action is being discouraged and restricted by the superior judiciary. The ordinary courts of law, in any case, are unable to dispense inexpensive justice expeditiously simply because they are already overburdened with millions of cases, pending for many decades. Another serious impediment that the conscientious complainant suffers is that the ordinary courts have very limited jurisdiction on human rights issues and almost no jurisdiction on the collective human rights violations or issues of any community or any section of public. Until a couple of years ago, High Courts in Pakistan were entertaining public interest or representative action matters. However, now in Pakistan, India and other SAARC countries, the Supreme Court has original jurisdiction to directly entertain, adjudicate and decide public interest matters on some of the human rights issues. The problem is that only a few victims or organisations have the means to invoke jurisdiction of the Supreme Court in a serious and effective manner. Consequently, very few human rights cases are filed directly before the Supreme Court to invoke its jurisdiction. Expeditious and inexpensive justice from the ordinary courts is still a far fetched dream for the oppressed people in South Asian Countries. The public opinion, both internationally and locally, is increasingly asserting for the establishment of regional mechanism to protect and promote human rights. This growing realisation and public pressure is reflected at different levels. First, the international community, particularly the UN organs are playing a more effective role to persuade the member states to setup statutory official human rights institutions at the national level and to encourage regional

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cooperation among them. Second factor is the growing acceptance of the universality of human rights across the borders. Thirdly, to the good fortune of the oppressed people living in the third world countries, some of the developed countries have attached trade and investment to the human rights values. Growing awareness in civil society and increasing cooperation among the people on a regional basis to address human right issues also increase awareness. These factors give every reason and justification to be optimistic about realisation of the basic objective to establish a common Human Rights Charter and effective mechanism to protect human rights on regional basis among the countries in South Asia. The concerned prominent citizens of the SAARC countries took an initiative to establish a non-governmental organisation on a regional basis, called 'South Asians for Human Rights (SAHR)', in pursuance of a declaration passed in a representative convention held at Neemrana Fort, Rajasthan, India on July 21-22, 2000. It is a broad alliance of peace and human rights activists belonging to the SAARC countries. This was indeed a much needed initiative at nongovernmental level to promote awareness and mobilise public opinion with a view to pressurising the governments of the SAARC countries to sign a Human Rights Charter and establish a common official mechanism to check the Human Rights abuses in the SAARC countries. There are a large number of non-government organisations in most of the SAARC countries who actively support various human rights causes. The SAARC countries have already signed several conventions on narcotics, combating trafficking in women and children for prostitution, promotion of child welfare, among other areas. Several agreements have also been signed on Food Security and specific social issues, which require concerted and coordinated actions for the effective realisation of their objectives. In the 12th SAARC Summit, a Social Charter8 was signed on 4th January, 2004 at Islamabad. This Charter spells out laudable goals and objectives, such as poverty alleviation, promotion of the status of women, education, human resource development, welfare of children, population control, promotion of tolerance, pluralism, human dignity, social justice, protection of the rights and interests of minorities, elimination of discrimination in all forms, etc. Although,

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other treaties address some human rights issues, SAARC has not adopted any uniform human rights convention or charter, nor has it agreed to create any regional institution or mechanism to monitor adherence to and implementation of various human rights conventions, charters and treaties signed by the member countries.

(a) Competence and Responsibilities: The institutions ought to be vested with adequate powers and competence, having as broad a mandate as possible, to promote and protect human rights effectively, in pursuance of a constitutional provision or a special statute.

The need for regional and sub-regional uniform Human Rights Charter/Court and implementing mechanisms, such as Regional Human Rights Commissions and Courts, has been emphasised time and again by the UN organs and UN-sponsored summits, in the past three decades. In December 1978, the UN General Assembly passed a resolution containing guidelines on the structure and functioning of national and local institutions for the promotion and protection of human rights. The effective implementation of International Human Rights Standards was highlighted and basic parameters/guidelines were prescribed first in the UN sponsored meeting of the representatives of the member countries held in Paris in 1991, which had laid down detailed set of principles to guide as to how to promote and ensure protection of human rights on a regional and national basis. These are commonly known as 'The Paris Principles'9.

(b) Composition, Guarantees of Independence and Pluralism: Autonomy/independence and pluralism ought to be ensured by the constitution or the law, in the composition of the institution, which should include representation of various sections of civil society actively involved in the promotion and protection of human rights. Pluralism ought to be reflective of the society they represent.

These principles were subsequently endorsed by the UN Commission on Human Rights (Resolution 1992/54 of 3 March 1992) and the UN General Assembly (Resolution 48/134 of 20 December 1993). Similarly, the need for strengthening of regional and national institution/mechanism was reiterated and emphasised in a number of UN-sponsored conferences on human rights issues, including the Regional Meeting for Africa of the World Conference on Human Rights, held at Tunis in 1992, the Regional Meeting for Latin America and the Caribbean, held at San Jose in 1993, the Regional Meeting for Asia, held at Bangkok in 1993, the Commonwealth Workshop on National Human Rights Institutions, held at Ottawa in 1992, and the workshop for the Asia and Pacific Region on Human Rights Issues, held at Jakarta in 1993. 'The Paris Principles' of 1991, which were endorsed by both the General Assembly and the Human Rights Commission of the UN at Geneva, prescribed the basic standards, specifications and characteristics of regional/sub-regional and national institutions:

(c) Methods of Functioning: Complete freedom to consider any question within its competence and to have free access to the people directly, or through media; free access to gather information from any department or authority; complete freedom to promote and propagate awareness among the masses about the human rights and the basic rights, remedies and entitlement of the people; adequate powers to conduct enquiry, investigations, intervention in any proceedings, make mandatory recommendations and conduct trial and hearing of specific cases; to submit to the government/parliament and other competent bodies, reports, requests and proposals on any matter concerning promotion and protection of human rights; proposed legislative or administrative measures the government should adopt; to promote and ensure harmonisation of the local laws/regulations and practices with the international human rights instruments and to encourage ratifications of the international human rights instruments etc., etc. (d) Judicial powers: To receive, hear and decide complaints and petitions of any individual or group of persons or any NGO concerning human right issues or violations; seeking an amicable settlement through conciliation or decide the disputes in accordance with the law. (e) Financial Resources: The institutions ought to have financial autonomy in pursuance of the constitution provision or the statute, which should guarantee that the government shall allocate in the annual budget sufficient funds, which the institution would be authorised to spend in its discretion, but in a transparent, fair and

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lawful manner. These are just some of the basic standards, parameters and characteristics prescribed by the 'Paris Principles'. Institutions set up under the Paris Principles display a great deal of commonality in perception of human rights issues and approach to protect and promote the same. It is suggested that South Asian countries must, without any further delay, also agree to set up a uniform Human Right Code and establish institutions in accordance with the Paris Principles. For this purpose, the following course of action needs to be adopted: 1.

SAARC countries and its Secretariat may be approached by South Asian Free Media Association (SAFMA), and other regional organisations committed to human rights causes, such as SAHR, should also make such an appeal to place this issue on the agenda of SAARC Summit, scheduled to be held at Dhaka in January 2005, and the member states may be persuaded to agree to adopt a uniform comprehensive Human Rights Code/Convention, enforceable on all the member states of South Asia. Once SAARC Summit takes the decision in principle, it can appoint a group of eminent human rights activists to prepare a Draft Human Rights Code with the help of the UN Human Rights Charter, European Convention on Human Rights and other related treaties. Identify the maximum possible International Conventions/Treaties & Charters relating to human rights issues, which the member states of SAARC agree to honour, abide and enforce. Across the border cooperation is needed among the SAARC countries, to prevent and eradicate human rights abuses, terrorism and other organised crime and undesirable practices such as slavery, trafficking of women and children, drugs, smuggling etc. Extending help and assistance to the governments of each other member states of SAARC, in their endeavour to establish their own national institutions, in conformity with the Paris Principles, to promote and protect human rights. Mutual support to strengthen the capacity of national institutions of the member states of SAARC to undertake their mandates.

In this regard, the European Convention of Human Rights/European Court of Human Rights, the African Commission of Human and People Rights, are successful illustrations of a step by step building block approach and should stimulate joint efforts in evolving a regional mechanism for the protection and promotion of human rights in South Asia, as well. What appears to be lacking is sincerity of purpose and bona fide commitment to set up such regional mechanisms. A beginning should be made with certain minimum common denominators of easily achievable objectives, projects and programmes. A regional common mechanism for South Asian Countries must precede the establishment of Official/Statutory Human Rights Commissions/Courts at national level in all member states of SAARC. As stated above, at least three of the SAARC countries already have official independent autonomous national human rights institutions. Other member states must establish the same without further delay in accordance with the 'Paris Principles', to provide the first effective edifice for the protection and promotion of human rights in the region. Iqbal Haider is a former member of the Pakistani Senate and secretary general of the Human Rights Commission of Pakistan. Endnotes 1 Human Rights Information Centre Counsel of Europe, http://www. dhdirhr.coe.fr 2

Ibid.

The African Commission on Human and People's Rights Organisation of African Unity, The Secretariat of the African Commission on Human and People's Rights Banjul, The Gambia. For details see www.nhrc.or.th/en/nhrc_full.htm

4 5

For details see www.nhrc.nic.in/hract.htm

For details see www.nhrc-nepal.org/?ID=122&AFD=0

For detail refer http://www.ncsw.gov.pk

For details see www.saarc-sec.org/main.php

For compete text refer www.ohcr.org/english/law/parisprinciples.htm

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Remittances and Development in South Asia Dr Rashid Amjad

he outflow of migrant workers and the inflow of overseas remittances have had a profound impact on the economies of South Asia. Clearly this impact varies depending upon the size of the migration outflow in relation to the total labour force and remittances as a percentage of gross export earnings or the domestic product in different countries. In Pakistan during the 1980s migration and remittance flows were perhaps the single most important factor in explaining the rapid decline in poverty during these years. In Sri Lanka, where nearly half of out-migrants are women, migration and remittances have both affected the labour market and foreign exchange position of the country. In Bangladesh and India migration outflows have been significant but never so large to have a major impact on the labour market, although in India at the regional level e.g., Kerala and in certain districts of Bangladesh the impact may have been more important. In Bangladesh and India remittances are still significant as a proportion of the gross domestic product. This paper reviews the trends in remittances post-September 11, 2001 and analyses factors which may explain a significant increase in three of the four South Asian economies reviewed in the paper, namely, Bangladesh, India, Pakistan and Sri Lanka and the impact of this increase on economic developments in these countries.

Remittances and Development There is rich literature available on the impact of remittances on economic development as well as more specifically on the labour market and poverty in developing countries. Of special interest is the recent study by Adams and Page (2003) of the World Bank which, based on a new data set of 74 low and middle-income developing countries, has concluded that, 'international migration - defined as the share of a country's population living abroad has a strong statistical impact on reducing poverty. On average, a 10 per cent increase in the share of international migrants in a country's population will lead to a 1.9 per cent decline in the share of people living in poverty (US$ 1.00/person/day).' As regards remittances, their key conclusion is that, 'international remittances defined as the share of remittances in a country GDP has a strong, statistical impact on reducing poverty. On average, a 10 per cent increase in the share of international remittances in a country's GDP will lead to a 1.6 per cent decline in the share of people living in poverty'. The other major recent development has been the increased concern about the security implications of formal and informal (havala) remittance systems and their susceptibility to money laundering or terrorist financing. At a recent International Conference on Migrant Remittances (London, 9-10 October 2003), organised jointly by the U.K.'s Department for International Development (DFID) and the World Bank in collaboration with the International Migration Policy Programme (IMP), this issue of increasing transparency and accountability in remittance flows was discussed with a view to determine the optimal legal and regulatory framework for remittances. The meeting especially addressed the concern that tighter controls in the form of greater regulatory supervision on remittances may reduce availability and drive up costs of services for the migrants. The paper does not rigorously pursue the conclusions of the Adams and Page study or the issue of building up an optimal regulatory framework for remittances but does explore both issues in the context of changing levels of remittances to the four South Asian economies in recent years.

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Recent Trends in Remittances

7 per cent of GNP. In Sri Lanka there is only a marginal increase in part because most remittances were sent through official channels.

Table 1: Remittance Inflows : Annual (Million US $) Bangladesh India Pakistan Sri Lanka

1997 -98

1998 -99

1525.4 11875 1490 817.7

1705.7 11830 1060 867.5

1999 2000 1949.3 12290 983 930.5

2000 -01

2001 -02

2002 -03

2003 -04

1882.1 12125 1086.57 979

2501.1 14807 2389.05 1040.5

3062.0 15174 4236.85 NA

3343.2 14150 (9 mths.) 3871.58 NA

Source: Data from website of Bangladesh Bank; Reserve Bank of India; State Bank of Pakistan and Central Bank of Sri Lanka. For India for 2003-04 from Government of India, Ministry of Finance, Economic Survey, 2003-04.

Officially recorded remittance flows, based on data from their respective central banks, to the four South Asian countries are shown in Table 11. In Bangladesh, India and Pakistan, they show a significant increase as compared to the 2000-01 inflows. The most dramatic increase is in Pakistan where remittances increased fourfold from just over US$1 billion in 2000-01 to over US$4 billion in 2002-03. In Bangladesh, they increased by over 70 per cent from around US$1.9 billion to over US$ 3.3 billion. For India the increase was around 25 per cent from around US$12 billion to slightly over US$ 15 billion. The impact of remittances on the national economy can be gauged by seeing it as a percentage of gross domestic or national product. Table 2: Remittances as % of GDP /GNP 1995, 1996 or 1997 as % of 2002 -03 as % of GNP GDP Bangladesh 3.16 (1996) 6.0 India 2.7 (1997) 3.07 Pakistan 2.19 (1997) 7.0 Sri Lanka 6.06 (1995) 6.46 (2001 -02) Source: For 1995, 1996 or 1997, Adams and Page (2003); For 2002 -03 data on remittances from Table 1 an d GNP from World Bank, World Development Indicators, 2004.

In Table 2, besides reporting the Adams and Page estimates for the late 1990s, we have recalculated remittances as a percentage of gross national product (GNP) for 2002-03 (2001-2002 for Sri Lanka). Though the data are not strictly comparable, as for 2003-02 we have used the GNP estimate which means that as a percentage of GDP the ratio of remittances would be slightly higher, the figures are still very revealing. They show an almost doubling of percentage for Bangladesh from around 3-6 per cent, about a 15 per cent increase for India and a more than three-fold increase for Pakistan to around

Based on the results of the Adams and Page study we should see a significant fall in poverty in South Asia, especially in the case of Pakistan and Bangladesh. Outflows of migrant workers and inflows of remittances to Pakistan in the 1980s had been perhaps the single most important factor explaining a rapid decline in poverty during this period2. In analysing this impact especially on poverty a number of caveats need to be kept in mind. The most important of these is that the sudden jump in remittances to these countries does not appear to have been the result of any significant increase in the outflows of migrants from them. What appears most likely to have happened and what national official sources attribute this increase to is that in the post 9/11 period the inflows of remittances began to come much more through official rather than the previous unofficial (havala) channels as financial controls and scrutiny were tightened on such transfers, especially in the United States. Table 3: Pakistan: Inflow of remittances by country of origin Million US $ Country Bahrain Canada Germany Japan Kuwait Norway Qatar Saudi Arabia Oman U.A.E U.K. U.S.A. Other Countries Encashment/ profit FEBCs Total

2000 -01 23.87 4.90 9.20 3.93 123.39 5.74 13.38 304.43 38.11 190.04 81.39 134.81 88.40 64.98

2001 -02 39.58 20.52 13.44 5.97 89.66 6.55 31.87 376.34 63.18 469.49 151.93 778.98 293.28 48.26

2002 -03 71.46 15.19 26.87 8.14 221.23 8.89 87.68 580.76 93.65 837.87 273.83 1237.52 727.64 46.12

2003 -04 80.55 22.90 46.52 5.28 177.01 10.19 88.69 565.29 105.29 597.48 333.94 1225.09 567.93 45.42

1086.57

2389.05

4236.85

3871.58

Source: State Bank of Pakistan (Website).

This is perhaps best illustrated by looking at the main sources of increase in remittances to Pakistan (Table 3). Between 2000-01 and 2002-03 while there is a general increase for all countries, the really big jump is from the United States where remittances increased from around US$ 135 million to US$ 1238 million. In the case of the UAE

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also there is an increase from US$ 190 to US$ 838 million. It is also important to note that in fact total inflow of remittances actually fell between 2002-03 and 2003-04 for Pakistan from around US$ 4.1 billion to US$ 3.9 billion with inflows from the United States remaining at the same level but falling sharply in the case of UAE from US$ 837 to US$ 597 million. While we have not been able to examine the sources of increase for Bangladesh and India, in all probability the same has happened in these countries. Therefore, the increase signals a much greater flow of remittances from official channels of either incomes earned or past savings of migrants in the host countries. It is also probable that some of this increase is also money transferred in the face of greater scrutiny of bank accounts in these countries. The first question that we explore is the economic impact on the receiving countries as a result of this increase in remittances through official channels. One unambiguous advantage that accrued as a result of the increase in official remittance flows was that it improved, and in the case of Pakistan dramatically, the balance of payments situation. This increase in remittances, if substantial, can contribute significantly towards stabilizing the exchange rate, increasing availability of foreign exchange for imports, lessen dependence on foreign borrowing and in some cases relieve the pressures to accept the harsh conditionalities imposed on such borrowing especially by the IMF and the World Bank. For Pakistan's economy, which had been in a deep recession for many years, this increase in inflows was 'manna from heaven'. The rupee exchange rate against the US dollar was depreciating in the late 1990s due to an unfavourable balance of payments situation and a decline in aid inflows following the 1998 nuclear explosion. To prevent rupee resources from flowing into dollars during this period, which was possible as controls on nationals keeping foreign exchange accounts were considerably relaxed, thus leading to a further depreciation of the rupee the rate of interest on domestic savings was kept very high. This had a dampening affect on investment. Interestingly, after the large increase in remittances post- September 2001, the dilemma was reversed as the government now endeavoured to prevent the rupee from appreciating sharply against

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the dollar which would reduce competitiveness of the country's major exports. Once the exchange rate was stabilized the State Bank was able to reduce drastically the rate of interest which was an important factor in both increasing consumer borrowing and new investment which helped turn around the economy. Also the resurgence of the national economy and improved macroeconomic indicators and balance of payments position led to not renewing the IMF's PRGF programme, with its harsh conditionalities, from the end of 2004 which it had entered into to help stabilize the economy in 20003. In Bangladesh the increase in remittances from US$ 1.5 billion in 1997-98 to US$3.3 billion in 2003-04 was an important factor in putting into effect currency reforms including the free floatation of the currency from May 31st, 2003. Bangladesh had been under pressure from the World Bank and the IMF for a few years to float the currency but had earlier hesitated to do so until it felt that it had adequate foreign reserves. The strong inflow of remittances allowed foreign reserves to increase and provided the confidence to float the currency4. For India the balance of payments situation was already very healthy with large reserves building up as a result of very high foreign direct and portfolio investment and therefore the increase in remittances by themselves did not have a significant impact on the exchange rate or overall monetary policy. India's foreign exchange reserves (including gold and special drawing rights) had reached US$ 118.6 billion on May 7th, 2004 an unprecedented increase of US$ 42.5 billion since the end of March 20025. However, the increase in remittances did contribute to the current account moving into surplus in 2001-02 for the first time in 24 years in spite of a sizeable trade deficit. Remittances over US$ 15 billion in 2002-03 more than offset the US$ 12.9 billion trade deficit that year and almost fully financed it during April-December 2003. For India, a factor that may have contributed to the increase in remittances, besides pressures to send them through official channels was the relatively more attractive rate of interest being offered by the Reserve Bank of India as compared to the historical all time low interest rates in the United States and most developed economies. One result of the increase in foreign reserves, to which

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remittances contributed marginally, has been the pressure on the exchange rate to appreciate. In March-April 2004 as foreign exchange inflows accelerated the rupee rose in value by 2 per cent against the US dollar despite the intervention by the Reserve Bank of India to buy US dollars. It would appear that the overall policy being currently followed by the Reserve Bank is to allow the rupee to appreciate if inflows of 'hot money', encouraged by the rising USdollar returns, continue to accelerate6. These movements also shows that exchange rate in India is now increasingly determined by capital flows and not by trade flows as conventional theory would predict7. In Sri Lanka remittances primarily from housemaids working in the Middle-East are the second leading net foreign-exchange earner after garments and are an important balancing element in the current account, usually offsetting around 60 per cent of the trade deficit. In 2002, private transfers, primarily transfers from housemaids in the Middle-East, were sufficient to finance 90 per cent of the combined deficit on the trade, services and income accounts8. There was no significant increase in these remittances most probably as they were being sent through official channels although we do not have the most recent data. The next important question we need to explore is the extent to which the increase in remittances injects increased demand or purchasing power into the economy, thereby stimulating growth in the respective economies. This would depend critically upon how much of this increase in remittances simply represents migrants switching from sending funds through formal rather than nonformal channels. And, if there was an increase in total remittances being sent back, that is through both official and non-official sources, the magnitude of this increase and its causes need to be explored. Again evidence on both counts is very sparse. A study carried out by the ILO in the late 1980s estimated that of total remittances flowing into Pakistan around 57 per cent was through official channels9. If one was to use the same benchmark, the total flow of remittances in 2000-01 would have been double at nearly US$ 2 billion as compared to the official inflow of US$ 1 billion. Continuing on the same assumption one could argue that of the US$ 4 billion that came as remittances in 2002-03 the net increased inflow into the economy was around US$ 2 billion. This represents a major injection into the

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domestic economy of Pakistan at around 5 per cent of GDP. It is also of the same magnitude as the country's total Public Sector Development Plan (PSDP) in that year. We do not have any surveys available to estimate the break-up of total remittances into official and unofficial inflows for the other countries and even the estimate for Pakistan is dated to a time when the rupee was still overvalued and there were much stricter restrictions on foreign exchange holdings and transfers by Pakistani residents and non-residents. While therefore being extremely cautious in drawing conclusions one could say that depending on a host of factors, and using the previous Pakistan study as some kind of a benchmark, anywhere up to 50 per cent of the increase in remittance through official channels in recent years could have been net additions to the remittances flowing into the country. If indeed there was an increase in the remittances being sent through both formal and informal channels post-9/11, what could have been the reasons for it to happen? One factor which could have influenced this decision was the uncertainty and insecurity felt by the migrants in the post-9/11 atmosphere which made them, especially those living in the United States, to transfer a greater amount of their current earnings and possibly even more importantly transfer part of their accumulated savings to their home countries. The ILO/ARTEP (1987) survey of return migrants in Pakistan had shown that migrants keep part of their incomes as savings in the host country which they bring along with them on their final return. Also part of the increased remittances could have been transfer of deposits in banks which their owners felt may be subject to greater scrutiny. If these were indeed significant factors responsible for a possible increase in the overall remittances post-9/11 through official and unofficial channels, the flows could become more volatile in the foreseeable future depending very much on general conditions prevailing in the migrant's country of residence. We now examine whether this increase in remittances, through both official and non-official channels, would have a positive impact on poverty as argued by Adams and Page. To the extent that these inflows increased domestic demand, stimulated new investment and spurred economic growth clearly the impact in the medium and long term on poverty should be positive.

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However, we cannot say whether they would have a direct and more immediate impact on poverty levels. The best outcomes, in terms of poverty impact, is if the increase in remittances, is the result of an increase in the outflow of migrant workers from the county. And to the extent that these workers are mainly semi-skilled or unskilled and come from poor households, the money they send back has an immediate impact on the living standards of the families left behind. This is clearly what happened in Pakistan during the 1980s when the major migration took place to the Middle-East, mainly of skilled, semi-skilled and unskilled workers. In the given circumstances this increase would have a far less immediate favourable impact on poverty and certainly not of the magnitude that Adams and Page stipulate. Indeed the results of recent survey in Pakistan on poverty shows some marginal decline in 2003-04 after increasing in the past decade but the immediate impact is clearly far less than one would have expected from the magnitude of the increase in remittances10. Some evidence on this can be gauged from the areas in which remittances have been flowing in Pakistan after the recent upsurge. The present boom in real estate prices and the stock market has been credited to a large extent to remittances from abroad. Also the increase in sales of consumer durables, mainly cars, facilitated by favourable lending arrangements, all seem to suggest that these remittances are coming from more well-to-do migrants rather than from the average skilled and unskilled workers in the Gulf. Also these inflows are going into bank deposits rather than National Savings Schemes which were mainly favoured earlier11. Finally, on the issue of havala and other informal funds transfer system, where cash is accepted at one location and a corresponding cash sum to a beneficiary paid at another location by a message or phone call, a number of steps have been initiated, including by the IMF and national banking authorities to ensure that consistent antimoney laundering and counter-terrorist financing measures are imposed on all forms of money or value transfer systems -- informal as well as formal. However, the success of any such measures needs to consider the factors which have encouraged migrants to send remittances through

213

unofficial channels, the most important of which is the low cost and timely delivery of funds as compared to the formal banking system. Before enacting legislation or other measures, policy makers and central bankers need to analyse the role of havala and other informal transfer services, on how they can be better regulated and the formal banking system made more efficient in transferring funds; otherwise any new legislation or regulation could only drive these operations further underground12. Conclusion The large increases in remittances post-9/11 in at least three of the four South Asian economies -- Bangladesh, India and Pakistan -have had a significant impact on economic development. Based on our preliminary analysis of the causes and nature of this increase its immediate impact on poverty alleviation may be far less as compared to earlier inflows. In the medium and long term it could still have a positive impact on poverty as Adams and Page stipulate. There is a need for carrying out more analysis including primary data collection in both countries of residence and origin of the migrants to better gauge the economic and development impact of these flows including on reducing poverty. Dr Rashid Amjad is Director, Policy Planning, Employment Sector at the International Labour Organization, ILO, in Geneva. The views expressed in this article are the authorâ&#x20AC;&#x2122;s own and do not necessarily reflect those of the ILO. The author would like to thank Asif Ismail for his helpful comments on the paper. Endnotes 1 A comparison of these figures with those from the IMF on workers remittances used by other studies including Adams and Page show broadly the same magnitudes except in the case of India where the IMF figures for 2000, 2001 and 2002 are given as slightly over US $ 8 billion. While estimates in Table 1 for India and Sri Lanka represent private transfers on the balance of payments account these comprise predominantly of inflows of remittances from Sri Lankans and Indians working abroad as cited in official publications of both countries. ( For IMF data see International Monetary Fund, Balance of Payments Statistics Yearbook 2003, Table B-19 Workers' Remittances.). 2 See Amjad and Kemal (1997) 3 See Ishrat Hussain, Governor, State Bank of Pakistan, 'Why Pakistan should Exit the IMF Programme', Daily Dawn, February 29 and March 1,

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4 5 6 7

8 9

10 11 12

215 2004. See Economist Intelligence Unit, Country Profile 2003 Bangladesh. London. See Economist Intelligence Unit, Country Profile 2004 India. London See Economist Intelligence Unit, Country Report India, 01 June 2004. London 'In more recent times, with the tail of mobile capital accounts wagging the dog of the balance of payments , the importance of capital flows determining the exchange rate has increased considerably, rendering some of the earlier guideposts of monetary policy formulation anachronistic. â&#x20AC;Ś On a day to day basis it is capital flows which influence the exchange rate and interest rate arithmetic', Rakesh Mohan, Deputy Governor, Reserve Bank of India, speech at the 22nd Anniversary Lecture of the Central Banking Studies at the Central Bank of Sri Lanka, Colombo, 21 November, 2003. See Economist Intelligence Unit, Country Profile 2004, Sri Lanka, London. ILO/ARTEP, Impact of out and return migration on domestic employment and labour market situation in Pakistan, 1987. Report submitted to the Pakistan Planning Commission. See Government of Pakistan, Pakistan Economic Survey 2003-04, Islamabad. I am grateful to Sakib Sherani for pointing this out. See remarks by Agustin Carstens, Deputy Managing Director, International Monetary Fund at the IMF Seminar on Current Developments in Monetary and Financial Law, Washington D.C., May 24-June 4, 2004 (IMF Website).

References l Richard H. Jr. Adams and John Page, 'International Migration, Remittances and Poverty in Developing Countries,' World Bank Research Working Paper 3179, December 2003. l Rashid Amjad (ed.), To the Gulf and Back: Studies on the Economic Impact of Asian Labour Migration, (ILO/ARTEP, 1989). l Rashid Amjad and A.R.Kemal, 'Macroeconomic Policies and their impact on Poverty Alleviation in Pakistan', The Pakistan Development Review, Winter 1997, Islamabad. l ILO/ARTEP, Impact of Out and Return Migration on Domestic Employment and Labour Market in Pakistan, vol. I to VII, Asian Employment Programme, 1989.

A Currency Union for South Asia J Ravikumar Stephen

urope had to face two great wars to go through the new renaissance, which made the European nations bury their hatchet for a political and economic cooperation within Europe. The recent result of the referendum in France was just a break speed on the slippery route to an economic/political integration of Europe. Integration of Europe is a mere survival need; hence, sooner or later this is going to be a reality. No way, the need of South Asia is dissimilar to that of Europe, East Asia, Africa and the Pax-Americana. Before doing the SWOT analysis for South Asia, let us try to re-learn what is money and its significance in terms of international trade. Currency and Exchange Rates Money can be described as a unit of account in which debts and prices are expressed. In a hypothetical world in which the number of currencies equaled the number of commodities, the usefulness of money in its roles of unit of account and medium of exchange would disappear, and trade might just as well be conducted in terms of pure barter. Money is a convenience and this restricts the optimum number of currencies and most of the nations consider that a national currency is a means to achieve identity among other nations. Till the late 19th century, people used to fix currencies to gold. In international trading if the prices of foreign goods are expressed in terms of foreign currency, then it must be translated into domestic currency prices as well. In practice, it is realized that more the number of

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currencies, more the costs of valuation and money changing. International Monetary System In the international jungle of independent currency areas, the superpower, dominates. As the demand for international trading increases, the main beneficiary is the United States. The encourages the US to effect a higher optimal rate of inflation, than would otherwise be adopted. Because of the international demand for its currency, and subject to the constraint imposed by the threat of entry, the United States will have a higher optimal rate of inflation than it would in the absence of the international use of its currency.

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Rate. Before going to in details of the Optimum Currency Area, let us try to understand the nature of Flexible Exchange Rate. Disadvantages of Flexible Exchange Rate Mundell's considerations, several decades ago, seem highly relevant today. Due to increasingly higher capital mobility in the world economy, regimes with a temporarily fixed, but adjustable, exchange rate have become more fragile and a movement to generalized flexible exchange rates would be a step backward for the international monetary system.

The Bellagio-Princeton Study Group on International Monetary Reform, organised by Fritz Machlup, Robert Triffin and William Fellner, distinguished four main options for the international monetary system:

Flexible Exchange Rate presents the false suggestion that flexibility of the exchange rate provides an extra degree of freedom. A country has a choice to stabilize such possible targets as the price level, the money supply, the exchange rate, the price of gold or the wage rate. In other words, it can have:

l The gold standard; l Flexible exchange rates l A new international reserve facility; and l A world central bank.

l A commodity standard l A monetary standard l A foreign currency standard l A gold standard or a wage standard.

It is true that the rest of the world needs an international monetary system much more than the United States. In the absence of an international monetary system, the superpower dominates and bilateral bashing replaces multilateral rules. Although superpower pre-eminence will be apparent even in an international monetary system, there is at least a set of rules that apply equally and a multilateral framework for resolving disputes.

In the international monetary system of the 1960s the price of gold was fixed by the United States and other countries fixed the price of the US dollar. Moving toward flexible exchange rates (and a flexible price of gold for the United States) shifts the burden of stabilization policy onto a monetary standard, or a commodity standard or a wage standard.

If the superpower abuses its monopoly position, the rest of the world can form a defensive league against it, and take steps to find alternatives. When, in the late 1970s, the United States went on an irresponsible inflation binge, Europe was provoked into the creation of the European Monetary System (EMS). The second-best alternative to an international monetary system is by regional monetary arrangements. Why not a monetary system for each continent? This regional monetary system is something similar to the Optimum Currency Area concept, proposal by Robert Mundell in 1960. The system encouraged by Robert Mundell, suggests a Fixed Exchange

Now GDP is expressed in terms Purchasing Power Parity (PPP). The departure of relative prices from purchasing-power-parity norms should be a wake-up call for those who believe flexible exchange rates are efficient. Flexible Exchange Rate will be effective, only if regions of the same country have separate currencies. The price level, the money supply, the exchange rate, the price of gold or the wage rate are not same within the regions of a particular country. If the theory of flexible exchange rates endorsed by James Meade and Milton Friedman were valid, it would apply to a particular region in a country rather than to the entire country itself. Canada is a classical example:

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The Canadian dollar, uniquely among the G-10 countries, had adopted flexible exchange rate. This had not helped Canada to escape the US business cycle. Though it had addressed the stability of the heartland economy of Ontario and lower Quebec it failed to stabilise the peripheral regions in the west (British Columbia), the north and the Maritimes. It is true to any country. The wages in the industrialised states are not similar to the less industrialised states in India itself. Should we have different currencies for individual states? No. Labour mobility equalises inflation in one state with the recession in another state. Hence, having separate currency for each state will not only be superfluous, but will also add up to the cost of transaction, in addition to the extra cost involved in printing separate currencies. If this is true, it supports the theory of expanding the currency area to mutual trading partner countries as well. Benefit of a Common Currency In the absence of Common Currency, countries that are in the process of forming a common market would saddle themselves with a new barrier to trade in the form of uncertainty about exchange rates. Mundell argues there are advantages to regions that use a common currency (fixed exchange rate). The following are the benefits: l A particular currency union facilitates international trade and a

single medium of exchange reduces transactions costs. l Larger currency areas disturbances are likely to be offsetting, so

that exchange rate changes are smaller, with less feedback on domestic prices. l As Mussa (1997) argues that the European crisis of 1992 could have been prevented if the European countries were using the same currency. l Drawbacks of Optimum Currency Areas (OCA) l Difficulty of maintaining employment when changes in demand or other "asymmetric shocks" require a reduction in real wages in a particular region. l The loss of monetary independence. Mundell's Solution to the OCA Mundell emphasised the importance of high labor mobility to offset such disturbances. He characterised an optimum currency area as a

set of regions among which the propensity to migrate is high enough to ensure full employment, when one of the regions faces an asymmetric shock. Suppose demand shifts from Nepali to Indian goods. The increase in demand for India output result in inflationary pressures there, while Nepal goes into recession. For this, Mundell's argument would be: if unemployed labour could move freely from Nepal to relieve inflationary pressures in the India, both problems could be resolved simultaneously. If a common money can be managed so that its general purchasing power remains stable, then the larger the currency area even one encompassing diverse regions or nations subject to â&#x20AC;&#x153;asymmetric shocksâ&#x20AC;?the better. A country suffering an adverse shock can better share the loss with a trading partner because both countries hold claims on each other's output in a common currency. A harvest failure, strike, or war, in one of the countries causes a loss of real income, but the use of a common currency allows the country to run down its currency holdings and cushion the impact of the loss, drawing on the resources of the other country until the cost of the adjustment has been efficiently spread over the future. If, on the other hand, the two trading partners use separate currencies with flexible exchange rates, the whole loss has to be borne alone. Optimum Currency Area, which has functioned with fixed exchange rate, does not require political integration. We have thriving examples of fixed exchange rate regimes: Austria, Holland and Belgium (and indirectly Luxembourg), were tied to the DM. Argentina's fixed exchange rate system tied to the dollar is an encouraging sign. These are examples that eloquently refute the idea that fixed exchange rate systems cannot work without political integration. The best path toward monetary union is through irrevocably fixed exchange rates and the gold standard was a way of organizing a fixed exchange rate system without the need for political integration. Sequencing Trade and Monetary Integration There are five levels of integration developed in the early 1960s by Bela Balassa (1961). He proposed the following sequence: preferential trading arrangements, free trade area, customs union, common market, economic union.

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Free Trade Area & Customs Union

Currency Union & Common Market South Asia

Preferential Trading Arrangements

Currency unions (also known as monetary unions) are groups of countries that share single money. Currency unions commonly occur when a small and/or poor country unilaterall y adopts the money of a larger, richer anchor country.

The following table provides details of the countries that are anchored to other currencies: Name of the Country (ies)

Anchored Currency

Panama, El Salvador, Ecuador and smaller countries and independencies in the Caribbean and Pacific Swaziland, Lesotho and Namibia Number of countries in Pacific Liechtenstein Anguilla; Antigua, Barbuda, Dominica, Grenada, Montserrat, Saint Kitt s, Nevis, Saint Lucia, Saint Vincent and the Grenadines Benin, Burkina Faso, Cote dIvoire, Guinea -Bissau, Mali, Niger, Senegal, and Togo Cameroon, The Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon

US $ South African Rand Australian & New Zealand $ Swiss Franc East Caribbean $

The Central Bank of the West African States circulates the CFA Franc The Bank of the Central African States circulates a slightly different CFA Franc

Currency Union is not a new concept. The Latin Monetary Union began in 1865 when France, Belgium, Italy and Switzerland (later joined by Greece, Romania, and others) adopted common regulations for currency to encourage its free flow across borders. This essentially amounted to a commitment to minting silver and gold coins to uniform specifications, but without other restrictions on monetary policy. The outbreak of the World War-I effectively ended this currency union. Since 1970, Mundell has enthusiastically advocated European monetary unification (EMU), and seems vindicated by the formal advent of the Euro on January 1, 1999. Hence, he deserves the additional sobriquet of â&#x20AC;&#x153;intellectual father of the Euroâ&#x20AC;?. Optimum Currency Area in South Asia The world economy has become increasingly integrated in the last decade. In order to gain from this globalization process, the developing economies have undertaken extensive reforms to integrate themselves more intensively with the rest of the world. The world financial markets are getting synchronized with the

liberalization of capital flows, the opening up of capital accounts, the entry of Foreign Direct Investors (FDI) in different markets, and the increase in international trade. The idea of Optimal Currency Area (OCA) stems from the seminal work of Mundell (1961) and McKinnon (1963). According to this view, any region that has high intra-regional trade, fiscal transfers, high labor and capital mobility, and that experience the same economic shocks should have a common currency. Let us do a SWOT (Strength, Weakness, Opportunity & Threat) Analysis for the formation of Optimum Currency Area in South Asia. Strengths The South Asian countries grew at a 5.4 percent per annum on average from 1990 to 2002, and are projected to grow at the rate of 6/7 percent in the next few years. The structure of production is reasonably similar across the South Asia. The share of agriculture varies from 20 to 25 percent for all, except Nepal (40.6 percent) and Bhutan (33.9 percent). The industrial sector constitutes roughly a fourth of GDP in all countries, varying from 21.8 percent (Nepal) to 37.4 percent (Bhutan) in 2002. Except Nepal and Bhutan, the share of service sector for all other member countries comprises around 50 percent of their total GDP in 2002. All the countries, except Sri Lanka, registered a very low rate of inflation and it stands at an average of 3.7 percent per annum for the SAARC countries. Maldives registered a very low rate of inflation (0.9 percent) in 2002. The figures indicate that most of the South Asian countries have similar growth rate and inflation rate. Inflation rate has, however, been rising in 2005. The South Asia also exhibits a similar demographic structure. The population growth is 2.0% percent per annum on average from 1980 - 2002. The SAARC countries exhibit similar growth rates in money supply. Except Nepal (6.3 percent), the growth in money supply varies between 19.3 percent (Maldives) and 13.1 percent (Bangladesh). Most of the countries have comfortable levels of foreign exchange reserves. All the countries experienced fiscal deficits (combined states and centre) ranging from 3.9 percent (for Nepal) to 10.1 percent (for India) in 2002. Since most of the South Asian countries currently have low inflation, low current account deficits, similar growth, trade and production structure, it prods us to think of the possibility of monetary cooperation in the region, even

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if not for all the South Asian countries, certainly for some subgroup (s). Following are the recommendation by Saxena: Group 1: India, Pakistan, and Sri Lanka Group 2: India, Nepal and Sri Lanka Group 3: Bangladesh, Nepal and Sri Lanka Group 4: India, Maldives and Pakistan. Even Maskay (2003) finds India and Pakistan suitable candidates for a common currency. While India, Pakistan and Sri Lanka have a managed float, all the other countries have a pegged exchange rate regime, and Bhutan and Nepal have pegged against the Indian rupee. There is one-to-one convertibility of Indian rupee and Bhutanese ngultrum over the last 20 years and there is no adjustment in the exchange rate between India and Nepalese rupees for the last 10 years. The Group of Eminent Persons (GEP) of SAARC has proposed a roadmap for economic integration through the formation of a South Asia Free Trade Area (SAFTA) and a South Asian Customs Union (SACU) by 2015, and South Asian Economic Union (SAEU) by 2020. South Asian countries have also initiated cooperation within the framework of SAARC in poverty alleviation and people-to-people contact programs, expansion in the scope of investment and technology cooperation, besides bilateral initiatives such as IndoNepal FTA (Free Trade Agreement) and Indo-Sri Lanka FTA. Some of the more encouraging signs are: l First, a framework treaty for the South Asian Free Trade Area

(SAFTA), which was signed by the SAARC member countries at the Islamabad SAARC Summit, 2004, is coming into operation this year. This will pave the way for the eventual creation of a South Asian Economic Union, as envisioned by the Group of Eminent Persons. l Second, The member countries also signed the SAARC Social Charter at the Summit. The Charter encompasses a broad range of targets to be achieved across the region in areas of poverty eradication, empowerment of women, youth mobilization, human resources development, promotion of health and nutrition, protection of children etc.

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Weaknesses While SAARC began with South Asian Preferential Trading Area (SAPTA) in 1995, the progress has been rather slow, especially when viewed against the worldwide trends. Labour mobility helps the members of a monetary union adjust to asymmetric shocks by allowing labour to move from areas of high unemployment to low unemployment. Given the geo-political situation in the region, through there are illegal immigrants to India in search of jobs from Bangladesh, we can not expect high labor mobility except a between India and Nepal / Bhutan. Convergence Criteria: The convergence of macroeconomic indicators like inflation rate, interest rate and exchange rate, public debt, fiscal deficits, etc. are pre-requisites for common monetary arrangements in the region. The fiscal deficit for India in 2002 was 10.1 percent. This fiscal condition will not facilitate the effective stabilization of the South Asian currency. Opportunities The increasing global integration is expected to enable the developing countries to benefit from the emerging international fixed exchange rate system and an ultimate common currency can eliminate the risk of exchange rate fluctuations, and thus encourage trade and investment. This would enhance the economic integration process in the region. There are compelling economic reasons to suggest that it is in the interest of all the South Asian countries to promote intra-regional trade and economic cooperation. Direct trade in products like steel and aluminum, textile machinery, chemical products, and dry fruits currently being diverted through third countries will benefit both India and Pakistan quite substantially price, quality, and time. The region can expand trade tea and coffee, cotton and textiles, natural rubber, light engineering goods, iron and steel, medical equipment, pharmaceuticals, and agro-chemicals. The energy problems in the region can be solved through cooperation. The water from the Himalayan Rivers flowing through Bangladesh, Bhutan, India, Nepal and Pakistan can be harnessed for flood prevention and inland navigation system. India assisted Bhutan in constructing the Chukha hydroelectric project, which has the potential to benefit Bangladesh and Nepal.

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Tea, Newsprint, Jute goods, & Leather Urea, Sponge iron, Semiprocessed leather, & Newsprint

Bangladesh

Pakistan

Textiles, Cement, Light engineering goods, Machinery, & Railway rolling stock.

regional trade by 1.6 times of the existing level. The following are some of the general reasons a country would prefer to join an OCA: To gain the inflation rate of the OCA; l To reduce transactions costs in its trade with a major partner; l To eliminate the cost of printing and maintaining a separate

national currency; India

l To participate in a purchasing power parity area, which would Steel, Chemicals, Light engineering goods, Capital goods, Coal, Limestone, Pharmaceuticals

There are significant complementarities in trade among the South Asian countries. Sri Lanka can gain by diverting its trade in cement and shipbuilding with South Korea to India and Pakistan. Adverse terms of trade, protectionism from the West and political instability from the civil war have led Sri Lanka to build local ties. Hence, since 1992, Sri Lanka has consistently advocated improving intra regional trade through the framework of South Asian Preferential Trade Agreement (SAPTA). Like all the other South Asian countries, Pakistan also has a limited access to the markets in the developed world and hence Pakistan has taken initiatives to form Economic Cooperation Organization (ECO) to promote its exports and improve intraregional trade with Central Asia. But given the competition from developed countries, it will be difficult for Pakistan to capture these markets. So, Pakistan has to concentrate on South Asian market to promote its exports where it enjoys comparative advantages after India. There is a great deal of potential in the region for developing trade and economic cooperation. Increasing openness of the economies with the removal of tariff and non-tariff barriers different national currencies, the movements are very smooth and steady towards an economic integration. According to Mehta and Bhattacharya, the complete elimination of tariffs under SAFTA may increase the intra-

be fostered by fixed exchange rates and even more by monetary union; l To keep the exchange rate from being kicked around as a political football by vested interests that want depreciation to increase profits, or to bail out debtors; l To establish an automatic mechanism that will enforce monetary and fiscal discipline; l To have a multinational cushion against shocks; l To participate more fully and on more equal terms in the financial center and capital market of the union; l To provide a catalyst for political alliance or integration; l To establish a power bloc as a countervailing influence against domination of neighboring powers; l To establish a competing international currency as a rival to the US dollar and earn, instead of paying, seigniorage; l To reinforce or establish an economic power bloc that will have more clout in international economic parleys and have a greater power to improve, by its trade policy, its terms of trade; l To participate in a restoration of a reformed international monetary system. Threats Here are some of the circumstances under which a country might decide against joining a fixed exchange rate zone or a currency union: l Because the country wants to use the exchange rate as an instrument of employment policy to lower or raise wages; l Because, as a large country, the country does not want an unfriendly country to benefit from the economies-of-size advantages of the large currency area, or else because it fears that the addition of another currency will make national macroeconomic policy more difficult;

226 l Because the country wants to use the money-expansion or the

inflation tax to finance government spending, and it would be prevented from doing so to the extent desired by the discipline of fixed exchange rates; l Because the government of the country wants to use seigniorage as a source of hidden or off-budget funding for personal use by members of a corrupt government; l Because a regime of fixed exchange rates could conflict with the required policies of a central bank that had a constitutional mandate to preserve price stability; l Because monetary integration with one or more other countries would remove a dimension of national sovereignty that is a vital symbol of national independence; l Because the country wants to maintain its monetary independence in order to use the money-expansion or inflation tax in the event of an emergency; l Because there is no domestic political and economic leadership capable of maintaining a fixed exchange rate system in equilibrium; l Because the partners in the prospective currency area are politically unstable or prone to invasion by aggressor countries; l Because the country does not want to accept the degree of integration implied by the OCA agreement, such as common standards, immigration, labour or tax legislation. Conclusion It took the European Union a long time to achieve the current levels of labour mobility and this can be enhanced in South Asia through integrated labour laws in South Asia once the process of economic integration officially begins. Promotion of Intra-Regional Trade: The intra-regional trade can be facilitated through a reduction and ultimate elimination of tariff and non-tariff barriers. The attempt to move towards SAFTA appears to be more promising in this direction. The bilateral FTA between the countries in the region can also supplement this. Reducing Transaction Costs: To reduce the cost of exchanging currencies for intra-regional trade and to improve the transparency in price setting necessary for the promotion of intra-regional trade and investment flows, the Asian Clearing Union (ACU) can be strengthened further to facilitate such transactions. The scope of

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ACU can be widened to include tourism, service transactions and others. Maldives, the only country of South Asia, which is not the member of ACU, can seek the membership. The other Asian countries may be invited to join ACU.Monetary Policy for Shocks: A common monetary policy will reduce the asymmetric shocks. For this South Asian Fraternity (SAF), in the respective countries need to coordinate with the Chamber of Commerce and Industry of their respective countries and facilitate exchange of business professionals. Coordination of Fiscal and Monetary Policies in the Region: Fiscal positions need to be strengthened through deficit and debt reduction. There is a need to establish greater harmony in monetary policies in order to reduce currency misalignment and achieve full convertibility within South Asia. J Ravikumar Stephen is a management consultant and peace activist based in India. References l Do Currency Regimes Matter in the 21st Century? An Overview by Hiroshi Fujiki and Akira Otani (MONETARY AND ECONOMIC STUDIES (SPECIAL EDITION)/DECEMBER 2002) l Sequencing Trade and Monetary Integration: Issues and Applications to Asia by Richard Pomfret (Working Paper 2004-14, School of Economics, University of Adelaide University, Australia) l Monetary Cooperation in South Asia: Potential and Prospects by Sweta Chaman Saxena and Mirza Allim Baig (Discussion Papers- RIS-DP # 71/2004 - intend to disseminate preliminary findings of the research carried out at the Research and Information System [RIS] for the NonAligned and Other Developing Countries) l Mundell, the Euro, and Optimum Currency Areas by Ronald McKinnon (May 22, 2000) l Currency Unions by Andrew K. Rose (CEPR, NBER and Haas School of Business, University of California), for The New Palgrave

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the colonial period. A study of the continuity of the colonial tradition of curtailing civil liberties in periods of internal strife and conflict along the borders is much too vast a subject to be dealt with in a brief paper and it will be appropriate to confine ourselves at the moment to the recent period, say 25-30 years.

Human Rights in Conflict Situations I. A. Rehman

outh Asian states have a long history of both intra-state and inter-state conflicts. In each conflict the state has considered itself threatened. Its sense of insecurity has always driven the state to devise special laws that disregard the due process and impinge on citizens' basic rights and freedoms. In many situations the civil society has been influenced by the state establishments' projection of their concerns, real or imagined, to the extent that it becomes a party to derogation of the rule of law or, at least, indifferent to suppression of basic freedoms. The anti-colonial struggle in the subcontinent on several occasions assumed the form of violent strife. The colonial power responded by promulgating draconian laws, such as the Punjab Murderous Outrages Act of 18671 and the Frontier Crimes Regulation. Whenever the British were pitted against their European rivals, their largest colony received long sets of repressive laws, such as the Rowlatt Act and the Defence of India Rules. The colony that was India was first divided between India and Pakistan and then between Pakistan and Bangladesh. The present generations in these new states may not be able to recall the special laws of the colonial period but their establishments have preserved their old manuals which used to offer ways of meeting the threats to 'His Majesty's government established by law' both from within and outside. Only the reference to the English monarch has been replaced with the titles of the postindependence entities while their claim to be governments established by law has often had as little justification as it had during

Pakistan was the first country in South Asia, and probably one of the first few in the world, to make laws to fight terrorism with special laws, interpreted by special courts for speedy trial, and under special procedures. The Suppression of Terrorist Activities Act of 1975 held the field for many years till it fell out of favour with the judiciary. Early in the nineties it gave way to the Terrorist Affected Areas Ordinance and the Special Courts for Speedy Trial Act. Then in 1997 came the Anti-Terrorism Act. These enactments were defended on the ground of need to deal with ethnic strife and violence related to political issues in Sindh. Military courts were set up in Sindh in the last week of December 1998 and functioned till February 1999 when they were wound up following a Supreme Court ruling against them, although the government deemed it proper to extend the measure to the rest of the country while the court was deliberating on the matter. Special laws and special procedures were needed by civilian governments. During the years of direct military rule Martial Law Regulations and summary military courts were available to supersede normal laws, even the constitution. They were used in East Bengal in 1971 to suppress its political struggle that had acquired the form of insurgency and, later on, of a fight for national liberation. In view of the proclamation of emergency the regime did not require fresh extra-legal means to deal with the situation caused by India's invasion of East Bengal when the regime faced an external conflict along with a domestic one. The same was the case during the military rule of Gen. Ziaul Haq (1977-85). Armed with Martial Law Regulations, quite a few of which prescribed death as the minimum penalty for offences that could not be described as heinous or revolutionary (the term used by the colonial rulers for armed political resistance), the regime could discard the requirements of rule of law while dealing with the democratic agitation. Its involvement with the conflict in Afghanistan did not necessitate any search for new tools of extra-

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legal coercion either. The recent last military regime established in 1999 chose to do without Martial Law Regulations though a somewhat weaker substitute was found in the Chief Executive's orders. It had to rely on executive actions instead of laws to meet the situation created by an extra-territorial conflict the United State's war against terror. Sri Lanka has not had to face armed conflict with an external party but it allowed the political struggle of the Tamils to grow into an insurgency. The first casualty was the Constitution. A Prevention of Terrorism Act was enforced in 1979 and guarantees of rule of law declined. India too chose to resort to special laws to meet the situation caused by internal strife, like the Kashmir security law and the infamous TADA. When this measure could not be kept in force, it was replaced with Prevention of Terrorism Act (POTA). In Nepal where democracy was introduced only in 1990, an intrastate conflict erupted in 1996 when the Maoists launched what they called 'a People's War'. From the very beginning the state discarded the established legal instruments for dealing with the situation. In 2001 a state of emergency was declared and army deployed to fight the insurgents. All of the special laws mentioned above were motivated by a desire to give the state greater powers in disposing of citizens' affairs and their interests. They reduced the protection to the citizens provided by normal laws and procedures. In some cases the principle of presumption of innocence was discarded and the accused bore the onus of proving himself innocent. The powers of the law-enforcing agencies were increased and the traditional restrictions on use of force, including use of weapons and firepower, were relaxed. Many problems were created by creating special courts outside the judicial hierarchy, as in Pakistan, where the judiciary fought a long-drawnout battle to bring the special courts under the superior courts' supervision. The right to equality before law was dented as those facing trial before special courts were placed at a disadvantage as compared to those who were tried by normal courts for the same offences. The enhanced punishments prescribed in special laws

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increased corruption all round and the less affluent suffered more than those resourceful enough to buy their way to bail and acquittal. These special laws and procedures gave rise to human rights violations on a massive scale. One of the forms human rights abuse assumed was the extra-legal killing of suspects and innocent people in what were described as 'encounters' in Pakistan and India and disappearances in Sri Lanka and Nepal. Thousands were liquidated in this2 manner. The 'encounters' were not confined to conflict zones and spilled over into areas where no armed strife had taken place. For instance when killing in 'encounter' became the sole instrument to deal with violence in Karachi, the practice was enthusiastically adopted by the so-called law enforcing agencies in the Punjab province of Pakistan. In India the Sikhs in Punjab were 'pacified' through large-scale extralegal killings2. Till recently disappearance of hundreds of people, many of whom were eventually found dead was a matter of major concern, and the pattern is now visible in Nepal. Another form of human rights violations has been displacement of hundreds of thousands of innocent people from conflict areas of the region. The number of people forced to abandon their homes and sources of livelihood as a result of the conflict between the Maoists and the security forces in Nepal has been estimated at 150,000 to 200,0003. Thousands of people had to leave their homes in Sri Lanka. Displacement of innocent civilians has been going on for years on both sides of the Line of Control in Kashmir for years and the situation was greatly aggravated during the Kargil episode and the subsequent shelling across the LoC4. Instances of arbitrary arrest and detention without trial as a result of both intra-state and inter-state conflicts are a legion. Faced with internal strife the Zia regime in Pakistan kept several thousand people in detention without trial by simply extinguishing the judiciary's powers to intervene. The worldwide derogation of civil liberties, following the events of Sept 11, 2001, and guarantees of protection against arbitrary arrest have been compromised across South Asia. For instance, hundreds of people have been arrested in Pakistan during the hunt for Al-Qaeda men and the Taliban. The government admitted to handing over 643 such detainees to the U.S. authorities without ascertaining their involvement in crimes against

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Pakistan or any other state or fulfilling the extradition requirements. A man was arrested on the suspicion of involvement in a terrorist act. He was kept in different police stations without trial or any charge. Bailiffs despatched by the High Court in habeas corpus petition failed to find him. It was many months later that he was produced in a court for trial on the charge of smuggling. Several doctors and scientists have been detained, some of them for long periods, on the suspicion of links with the Al-Qaeda organisation or men belonging to it. The security cordons thrown around conflict zones in Sri Lanka caused disruption of supplies of food and medicines to people living in these areas and around them. The freedom of movement was curtailed and only elaborate arrangements and pressure from international humanitarian agencies could ensure that some supplies of food and life-saving drugs could reach the beleaguered population. A similar situation prevails in Nepal. Movement of people outside the capital is restricted and a short journey takes long hours, even days, and no one is interested in supplying food, medicines or other humanitarian aid to the population living in areas controlled by the Maoists or where they and the troops are battling for supremacy. Following the branding of the Maoists as terrorists by the richest of the potential aid-givers, they as well as the people living under their control have lost their entitlement to relief. Collateral damage, perhaps. All conflicts in South Asia, whether intra-state or inter-state, have been accompanied with information control by state establishments. The biggest casualty has always been the truth. Concealment of facts and their distortion along with restrictions on the media in the form of censorship and press advice or by barring access to conflict areas have been noticed in all South Asian countries. Many Pakistanis still complain that they did not know about the killings and ravaging of women in Bengal in 1971. The whole truth about security operations in Kashmir and India's North-East is still not known. What was concealed from the people of Pakistan during the conflict in Afghanistan and the formative phases of Al-Qaeda and the Taliban is now appearing in research work5. All conflicts of any nature in South Asia have given rise to a 'patriotic' media. That the media has by and large tended to toe the line of state

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establishments is only one, and perhaps less reprehensible, part of the story. The tendency to outdo the establishment publicists, ideologise national positions and demonise the other have been more dangerous manifestations of disregard for truth and professional morality. The dissidents who question the justification for armed conflict or merely pose questions about costs and consequences or the conduct of operations have been pilloried and hounded with greater vigour than sometimes by the states' functionaries. Disagreement with establishments' perception could be branded as treason. During the Kargil conflict between India and Pakistan the electronic media, perhaps to a greater extent in India than in Pakistan, went to the extent of glorifying war with much more harmful consequences than the Pakistanis had done in preceding decades through singing of war songs and paeans to those who killed others or got killed. Not enough was done to focus on the plight of civilians or the bills of conflict that were to be paid by the people, mostly by the poorer among them. The infection spread to the world of arts, cinema in particular. The success of a couple of Indian films on the conflict with Pakistan has resulted in nearly a score of similar ventures in India while the Pakistanis are trailing behind only by virtue of fewer productions and not in terms of lack of respect for human person or the dignity of the opponent and a pathetic fondness for bloodshedding. The repercussions of conflicts in South Asia for the civil society have been quite serious. The worst affected are the political parties. The India-Pakistan conflict has come to determine the agenda of political parties in both countries. Few parties wishe to be less hawkish than the others as desire for peace is considered a sign of weakness, even as surrender of what is touted as national interest and collective honour. The academics also have competed with one another in proving themselves supra-nationalists. The trade unions have been split. For instance, the rise of Muttahida Qaumi Movement (MQM) in Karachi, which owed its birth itself to a split in the student body, brought divisions in trade unions, some of them with a long history of united struggle for workers' rights, media ranks and professional associations. The worst sufferers, however, have been the people at large,

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especially the minorities. In Sri Lanka during the height of the conflict an innocent Tamil was not safe in Colombo, nor even in India if he went to visit a relative there or merely sought refuge from violence. As a result of India-Pakistan conflict the Hindu community in Pakistan has lost its title to be considered patriotic and loyal to the state and the same can be said about the Muslim minority in India. During the recent pogrom in Gujarat, India, the victims of mob frenzy were identified not only as Muslims but also as Pakistani terrorists. Seizure of land and other properties, including shrines, belonging to minority communities has been done sometimes under laws of dubious validity and sometimes by the fiat of executives or local nabbs. This has happened not only in Pakistan and India but also in Bangladesh. The application of laws for foreigners and to innocent civilians who inadvertently cross the national borders is quite callous. All conflicts in South Asia have been financed by the state establishments out of funds diverted from none too large resource pools, causing arbitrary cuts in public welfare projects. Huge expenditures on conflicts and preparations for defence have made a direct contribution to increase in both unemployment and poverty. Domestic strife has often kept investors away (e.g., Pakistan and Sri Lanka till the agreement on ceasefire).

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drained of their sense of forebearance and compassion. The killing and abuse of women and children belonging to the opposite side do not prick the conscience of protagonists. The only concern is that the losses, pain and humiliation suffered by the other remain higher than on one's own. However it will not be fair to assume that those who thrive on conflicts and the misery of the people have been succeeding in smothering the conscience of the entire South Asia population. No country in the region has been with people of sound minds and stout hearts, although the numbers vary from country to country. Voices have been raised for peace and good neighbourliness. Women organisations and human rights activists in particular have stood up to armed goons and their political patrons. The media people from the region have met more than once to take stock of their role in conflict situations, made confessions and realised the need for their proactive role in averting conflicts, in containing them and in saving the civilian populations from their ravages. South Asian Free Media Association (SAFMA) has gone beyond developing solidarity among media persons on their freedom and professional interests and has brought politicians, parliamentarians, academics and activists together to explore ways to bilateral and regional understanding, good neighbourliness and conflict resolution. It need not be forgotten that after all the victims of the Gujarat carnage found defenders from the Indian society and those accused of raiding the parliament house in New Delhi could find eminent lawyers to defend them.

All conflicts in South Asia have increased violence by non-state actors in the communities concerned. In Pakistan even a child knows that the country has received a glut of arms and drugs as a result of its involvement with the Afghanistan conflict. Militant groups have mushroomed and sectarian violence has become an epidemic. If the state functionaries prefer killing those suspected of threatening national security the game can be played by non-state actors too. State establishments' tendency to employ more effective weapons to kill their targets has led to a veritable arms race between lawenforces and criminals.

The only conclusion possible from this brief survey of the consequences of conflict situations in South Asia is that such situations must be examined in the context of the people's basic rights. Conflict is basically a denial of right to peace. Discussion of conflicts must not be limited to considerations of states' prestige and the set of rights and wrongs dictated by the ruling elites.

Apart from the loss of life, property, economic opportunities and legal safeguards, the population of countries faced with either internal strife or inter-state conflict throughout the region has paid a heavy price that is often not included in the balance sheet. Conflict situations impose heavy strains on the people's mental health, a fact established through many researches. A large number of people are

A lot has been written on conflict resolution and there is no need for adding another piece of advice to the high and mighty in South Asia that dispose of the lives of over a billion people. But a plea to the civil society may not be out of place. Society must realise that neither an inter-state conflict nor an intra-state one is ordained by heavens, it is created by human beings who believe in taking up arms as the

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first resort and not the last. Further, conflicts yield dividends to the elites and for that reason they love conflicts, while peace brings dividends to all people, including the poorest. No conflict is irresoluble. For example, almost all internal conflicts in South Asia originate in the state's stubborn refusal to offer legitimate political space to all components of its multi-cultural and multi-ethnic societies. Can this problem defy sincere efforts to solve it? Likewise, inter-state conflicts in South Asia are in reality clashes between national entities for the supremacy of one or the other. They too can be resolved provided that civil societies in the warring states can find the strength of mind and courage to stay two steps ahead of the state establishments and not two steps behind them, as hitherto.

Integrating Stakeholders in Energy Cooperation

I A Rehman is a leading human rights activist and senior journalist, as well as director of the Human Rights Commission of Pakistan. References l See the text of the enactment in Pakistan Code Vol. 1. The law has not yet been removed from Pakistan's statute book. l For 'encounter' killings in Pakistan see State of Human Rights reports of Human Rights Commission of Pakistan, especially for the years 1992 to 1998. An excellent account of such killings in India is available in the 672 case studies compiled in 'Reduced to Ashes' by Ram Narayan Kumar and others, a 2003 publication by the South Asia Forum for Human Rights, Kathmandu. l See 'Insurgency and Displacement,' SAFHR paper 15, Sarah Kernot and Manjita Gurung, issued in 2003 by South Asia Forum for Human Rights. l Hundreds of families in the Kargil area on both sides of LoC had their first restful night in years only after the ceasefire that took effect in November 2003. l Ahmed Rashid, Taliban and two recent American publications, George Crile, 'Charlie Wilson's War' (Atlantic Monthly Press, New York) and Gerald Posnar, 'Why America Slept,' (Random House, New York).

Dr Mahendra P. Lama

here are distinct advantages for South Asian countries to cooperate in the energy sector. These countries together possess vast stores of energy, mostly in the form of water resources, oil, forest, coal and gas. However, these countries continue to be characterised by low per capita consumption of energy, poor quality of energy infrastructure, skewed distribution and inaccessible and costly energy availability. These countries have remained largely energy importers and increasingly faced a serious energy shortfall. This is likely to deepen further both because of ongoing economic liberalisation-led energy intensive activities and rise in income levelled steady switching over of the rural and urban families from traditional bio-fuels to more efficient and convenient modern fuels. The inability to cater to the increasing industrial and other commercial energy needs have adversely affected their productive activities, social development and investment climate. Power shortages, outages and low quality have imposed substantial costs on the economic growth. This is further exacerbated by structural, institutional and financial problems. Energy security is, therefore, emerging to be one of the most critical issues in the South Asian region. Energy Sector Reforms The South Asian countries have introduced massive reforms in the energy sector, targeted at improving availability, accessibility and affordability and reducing import dependence. Most countries have focused on the following strategy in energy sector reforms.

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l Segregation of the regulatory functions from the government and vesting them in an independent regulatory commission l Unbundling various activities from a vertically integrated unit to distinct and separate units based on functions l Corporatisation of various units l Tariff and pricing reforms l Private sector participation l Cross-border trading options This restructuring is aimed at making these utilities, particularly power, more efficient and financially viable. The private sector including the foreign investors can now set up thermal, hydel and wind or solar and gas-based energy projects. A large number of private sector investors have entered into the energy sector. At the same time, there has been a realisation that availability and accessibility to energy can transform the quality of life and work substantially, help raise health and educational standards and retard rural-urban and cross border migration by enhancing the level and pace of income and employment generation.

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Given the historical context, topographic and demographic features, natural resource endowments and socio-cultural ethos, South Asia could be the most natural unit of cooperation and integration. Creation of a South Asian energy market and cooperative development of the available diverse energy sources in the region can help increase the level of energy security in the region and, thus, can subsequently contribute to achieving a sustained higher economic growth. This could lead to a South Asian regional power and gas market and competition among producers both public and private that would ensure economic and efficient delivery of services to the consumers in the region. At the same time, the power system networks of Bangladesh, Bhutan, India, Nepal, Pakistan and even Sri Lanka can be interconnected to achieve greater efficiency and economy in the overall system. In South Asia there are clear options emerging in the arena of regional cooperation in energy sector. Cross-border energy trade is one with the Bhutanese success story spreading to Nepal, Bangladesh and even Pakistan. This is further corroborated by combining gas deposits in Bangladesh, hydro-power potentials of Bhutan, Nepal and North East India and the bourgeoning markets in the South Asian countries. The strong seasonality factor in both generation and demand that is noticeable in the South Asian countries has, in turn, generated a lot of interest in cross border power trading.

Scope for Energy Cooperation Regionalism, besides its strategic, geo-political and foreign policy dimensions, has been a major plank of development cooperation and integration in many parts of the world. There are examples of a variety of regional groupings that have transformed the conventional outlook and aspirations into more open, dynamic and wider systems and practices of peaceful coexistence, collective responsibility and regional development. There are instances where bilateral conflictual issues have been effectively dealt with by the larger concept of and win-win situation generated by regionalism and multi-lateralism1. Regional cooperation has brought about significant transformations in some of the region's strategic options, political actions, economic orientation and development gains2.

In some cases, the imprudent use of power during a typical day and season has led to major losses as well. For instance, in Bangladesh a sizable generation capacity to the tune of at least 1200 MW remains un-utilised during the off-peak hours and in effect power units remain shut off for these hours. They produce power only when they are requisitioned to produce. This available capacity can be a ready source for regional cooperation for import-export of electricity from a neighbouring country.

Economic gains based on regional cooperation in the energy sector have become a firmly established practice across the regional groupings. Many developing countries, because of their low income and small market size, are unable to capture the inherent economies of scale of major infrastructure investments. Cross-border energy exchanges will bring the entire issues of region cooperation and integration in this sector to the forefront.

There exists clear seasonality in power generation in India and this becomes particularly prominent hydel power generation. The lean months for hydro power generation are from January to June, whereas in Nepal the supply capacity is maximum during the wet months. It is during the hot summer months that the Indian system is starved of energy and capacity. This is where the complementarity in cross-border power trade emerges.

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Energy Cooperation: Regional Initiatives A number of organisations in the region and outside have been consistently working towards fostering the cooperation in energy sector in South Asia. This includes the technical and professional public sector organizations, including Petrobangla, Power Grid and Power Trading Corporations of India, Electricity Authorities of Nepal, Sri Lanka and Pakistan. On the other hand, international agencies like the World Bank, ESCAP, Asian Development Bank, USAID (SARI-E initiatives) and UNDP have also been fairly active in the last few years. The SAARC has set up a Technical Committee exclusively on energy sector cooperation under its Integrated Programme of Action and has recently appointed a working group on energy cooperation. A number of studies have already been conducted on various aspects of energy cooperation in the region. These are conducted by research organisations, such as South Asia Network of Economic Research Institutes (SANEI), Coalition for Action on South Asian Cooperation (CASAC), South Asian Centre of Policy Studies (SACEP) , Bangladesh Unnayan Parishad (Dhaka), Centre for Policy Dialogue (Dhaka), Institute for Integrated Development Studies (Kathmandu), Centre for Policy Research (New Delhi) and Tata Energy Research Institute (New Delhi) and premier universities like Jawaharlal Nehru University (New Delhi), BUET (Dhaka), Quaid-i-Azam University (Islamabad), Lahore University of Management Sciences (Lahore), Tribhuvan University (Kathmandu) and Colombo University (Sri Lanka). Some of these institutes and universities have played very active role in advocating the cooperation issues of cooperation in both water and energy sectors in the region. The private sector role in the energy cooperation issues in the region is emerging slowly. This is both because of their marginal role in the past in their respective national energy sector and overwhelming public sector domination in energy related activities. After the reforms were initiated in the energy sector in the last decade or so, the private sector could play an active role both at the national and regional level. The SAARC Chambers of Commerce and Industries, a recognised apex body of the federations of chambers of commerce and industries in all the South Asian countries, is now emerging as a major agency of bringing the energy cooperation issues to the forefront.

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Energy Cooperation: Options and Models There is a whole range of options for any energy exchange project in the South Asian region. The reality is that till 1947 an overwhelming part of the region had an integrated energy market and system. The choice of a model to trade or exchange electric power and other energy varieties among these countries is a crucial issue. There are successful instances of international gas and power trading mechanisms in other regions across the world. One notable enabling feature in the energy markets in these regions is the prevalence of competitive energy trade legislation. The possibility of energy trading has opened new vistas of cooperation. Cross-border energy trade could lead to: i) ii) iii) iv)

effective utilisation of natural resources, increase in reliability of power supply, economy in operation and mutual support during contingencies, bring about large scale transformation in the sectors contributing to economic growth, v) act as the single most effective confidence building measure (CBM) through the participation of multiple stakeholders and vi) substantially promote market integration in energy related goods and services. The changing nature of economic actors and institutions and their increasing support base in the civil society are likely to force policy designers in South Asia to procreate modalities for a substantive and lasting interaction3. Interconnection of power systems of contiguously located countries and their coordinated operation provide immense technical and economic benefits also. All these interconnections allow each electrical utility to save on power plant investment and operating costs as a result of the improved use of the interconnected system. It also contributes to the quality of electricity supplied to customers as well as reduces environmental damage. Reducing losses in the power system is often more cost effective than constructing more generation capacity. Reduction of transmission and distribution losses (continue to remain very high in South Asia) by 90 MW due to the proposed interconnections would reduce the need for installing new capacity at an investment of Rs. 3600 million (US$ 79.12 million

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at the exchange rate of US$ 1=IRs. 45.50). South African Power Pool (SAPP) created in 1995 encompassing among others South Africa, Lesotho, Mozambique, Namibia, Malawi, Zimbabwe and Zambia under the regional cooperation organisation viz., Southern African Development Community (SADC) is one example which matches very well with the South Asian situation. They trade in power with a view to provide a reliable and economical power supply. SAPP countries have a diverse mix of hydro and thermal generation plants serving a population of over two hundred million people. It has a coordination centre located in Harare which carries out a number of functions including monitoring the operations of SAPP, collection of data, undertaking planning studies and training activities, and disseminating information to members. The Pool is working satisfactorily with immense gain to all the participating countries. There are examples of such regional power pools successfully operating in several parts of the world. (Table 1) Table 1: Existing Regional Power Pools Regional Arrangement Union for the Coordination of Transmission of Electricity (UTCE)

Member Countries Spain, Portugal, France, Belgium, Italy, Netherlands, Luxemburg, Austria, Germany, Switzerland and now extended to Poland, Czech Republic, Slovak Republic, Hungary, Slovenia and Croatia.

Nord Pool North American Electric Reliability Council (NERC) Southern African Power Pool (SAPP), The Commission of Regional Power Integration (CIER)

Norway, Sweden, Finland and Denmark United States and Canada.

South America, power trading

South Africa, Lesotho, Mozambique, Namibia, Malawi, Zimbabwe and Zambia Jordan, Bahrain, Tunisia, Algeria, Saudi Arabia, Syria, Libya, Egypt, Morocco, Mauritania, Yemen, Iraq, Lebanon, Palestine, Dubai and Qatar. Argentina, Paraguay and Uruguay. Central America

There already exists a considerable network of inter-connections among the South Asian countries. India's Power Grid Corporation has worked out the inter-connections required, their feasibility and the cost and benefits to the participating countries in the South Asia Growth Quadrangle (SAGQ) region consisting of Bangladesh, Bhutan, North East region of India and Nepal. All these interconnecting channels will match the Indian efforts to integrate all regions to form a National Grid by the end Eleventh Five Year Plan in 2012.

As options for power trading in the broader ambit of regional cooperation in South Asia, the following three mechanisms can be cited: i) Bilateral power trade ii) Pool based iii) Wheeling facility Cross-border power trade on a bilateral basis already takes place between India and Bhutan and, to a limited extent, between India and Nepal. India-Bhutan In case of 336 MW Chukha project, Bhutan earned as high as Nu 2367 million (US$ 52 million) in 2002-2003 mainly from its power export to India (1472 GWh). This constituted almost 45 per cent of Bhutan's exports to India and 11 per cent of the kingdom's GDP4. It fully met Bhutan's power sector objectives of increasing government revenues through the generation of power for sale to India and to industries within the country. The projected revenue generation from the ongoing and the projects in pipeline could transform Bhutan into a middle-income country over the course of next 15 years. The sale of surplus power to highly power deficit areas of West Bengal, Orissa and the North East has been the hallmark of this project. The transmission link has also been a great success, which is likely to be upgraded to help evacuation of 4,500 MW from three large potential power projects, which are being built in Bhutan. India-Nepal Power exchange between India and Nepal has been underway since the last three decades. There is an agreement between the Governments of Nepal (HMG/N) and India (GOI) for exchanging power up to 50 MW, as and when required by the border towns. Interconnection is between Bihar State Electricity Board, Uttar Pradesh Power Corporation (formerly known as Uttar Pradesh State Electricity Board) and now also with the newly created State of Uttaranchal. The power exchange at present is on goodwill basis. This exchange has recently been increased to 150 MW. Despite the tariff being very nominal, the revenue generated by Nepal through sale of power to India has recorded almost six-fold increase during the last eight years (Table 2)5.

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Table 2: Exchange of Power between India and Nepal Bulk energy sale to India (GWH) Bulk energy purchase from India (GWH) Revenue from bulk sale to India ( Rs million)

1993 1994 1995 1996 1997 1998 1999 2000 2001 46.1 50.5 39.5 87.0 100.2 67.4 64.2 95.0 126.0 82.2 102.8 113.8 73.0 154.0 210.3 232.4 232.2 226.5 75.5 91.4

97.6 206.7 249.3 199.9 198.1 327.8 441.0

Source: NEA, A Year in Review, 2000/01, Kathmandu, August 2001

West Seti Project of Nepal Another example is that of 750 MW West Seti power project in Western Nepal. This is a third type of bilateral power exchange, which is likely to take place in the region. A unique feature of this arrangement is the involvement of an independent power producer (IPP) to develop this power plant, the entire generation of which will be exported to India through Power Trading Corporation of India. This indicates a changing pattern of power exchange, a direct outcome of new hydro-power development policy that opened power development by private producers6. Table 3: Nepal : West Seti (Western Nepal) Project Offer for Export to India Year 1 Saleable Energy MUs) 2 Exchange Rate Rs/US$) 3 Rate / Unit a. US$ b. Equivalent Rs [3a x 2] 4 Total Payment (Rs million) [(3b. x 1)/10] Discounting Factor 5 Present Value (Rs) a. Total Payment [4 x 5] b. Unit Rate [3b x 5]

2001-07 3000 66.82

06-12 3000 89.42

11-17 3000 119.66

16-22 3000 160.13

21-27 3000 214.30

25-31 3000 270.54

0.07 4.68

0.07 6.26

0.07 8.38

0.07 11.21

0.07 15.00

0.07 18.94

14031.9

18777.9

25129.0

33628.3

45002.2

56814.3

1.00

0.567

0.322

0.183

0.104

0.066

1403.19

1065.51

809.09

614.38

466.52

374.30

4.68

3.55

2.70

2.05

1.56

1.25

6 Levellised Tariff for 25 years

7.514

Source: Power Trading Corporation of India, 2001

It does not require grid synchronisation, as the entire generation will be transmitted to the Indian grid without connection to the NEA system. As such the project would work as an integral part of the Indian system. The power tariff deal is being negotiated for 25 years for which the levelised tariff would be computed at a rate not more than US$ 0.07. If this agreement, as designed, is implemented as per the schedule, Nepal is likely to realise the total payment of Rs. 14030

million (US$ 308.35 million) by 2007 and Rs. 56814 million (US$ 1248.57 million) by 2031.(Table 3). India-Pakistan Just a couple of years ago Pakistan was producing surplus power mainly because of lower than expected economic growth. Pakistan's informal offer to India in 1998 of selling surplus power very much matched the demand in the northern and the western regions of India. The northern region, one of the largest electricity consuming industrial areas, comprises the most populous states of Uttar Pradesh, Punjab, Haryana and Delhi. However, tariff came up as a major stumbling block in the entire negotiation process that was conducted during the second half of 1998 and first half of 1999. The WAPDA offered a price of US 7.2 cents/KWH while the Indian side offered a price of 2.25 cents7. It is mainly on this ground the negotiations broke off. Pakistan already has a 500 KV primary transmission system extending from Jamshoro in the south to Tarbela and Peshawar in the north. All these lines run near the adjoining borders of India and may not require complex transmission extensions to the Indian borders. â&#x20AC;&#x2DC;There is a complete network on our side and, of course, on their (India) side as well. What we need are the connections, which would take only a couple of weeksâ&#x20AC;&#x2122;8. It is stated that each country will construct and maintain a double circuit twin-bundled 220 KV transmission from the designated substations viz., Dinanath in Pakistan and Patti in India. National Power Grid Corporation of India may play an active role in concretising the Indian side of the transmission of the power purchased from Pakistan. There is a proposal of laying a 50 km high voltage double circuit (HVDC) transmission line to evacuate power form the Dinanath sub-station near Lahore to the Patti sub-station in the Indian Punjab. If this happens, it is likely to bring about a major transformation in the political economy of regional cooperation in South Asia9. However, the key issues to be settled before the cross border flow is concretised are the cost of transmission line and its sharing mechanism; the determination of power tariff; the payment mechanism including the currency and the channel to be used like Asian Clearing Union and most importantly the power supply sustainability and its geopolitical immunisation. It is very crucial to maintain a fair balance in

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the energy security equation in order to avert the risk of 'trade and fade'. India-Sri Lanka Projects The Government of India (GoI) and the Government of Sri Lanka (GoSL) signed a Memorandum of Understanding to build a bridge across the Palk Strait in July 200210. Indo-Lanka power interconnection through the land bridge is one important area where both countries can benefit. The Joint Study Group appointed by the Governments of Sri Lanka and India (2003), while noting the potential of a regional power pool for Southern India and Sri Lanka, enabled by interconnecting the respective electricity grids has recommended that ‘the interest of Indian companies to participate in future bids for coal-fired plants in Sri Lanka may be accentuated by the existence of a regional power pool. A regional power pool would also enable better management of peak-load demands on both sides, as well as enable faster recovery from disasters11.’ There is a considerable degree of provincial disparity in terms of power distribution, as the Western province has at a privileged position and, the North and East are at an underprivileged position. Sri Lanka is likely to have a huge power deficit because of the newly initiated peace and development process.

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the first phase, and by 3100 GWh in the second phase. By applying the different unit prices that are currently used by the Ceylon Electricity Board, it is possible to estimate the potential revenue from the transmitted power added to the national grid. The current average unit price of electricity in Sri Lanka is estimated to be SLRs. 7.25 (US$ 0.0763) per KWh. At this rate, the additional power supply will generate annually US$ 118.3 million in the first phase, and US$ 236.6 million in the second phase. The pool-based approach, also known as agent-based integrated simulation, can possibly provide support to develop a competitive long run market equilibrium in regional power trade. This approach involves the close working of a set of agents (manufactures), a monitoring, advisory and channelising regional body. These agents develop their own strategies to explore and exploit the capacity and other constraints of plant and market. They also evolve their own market clearing as well as settlement mechanisms. Each of the agent represents one of the generating firms. A key feature of this model is that it uses a micro level, bottom-up representation of the market with each generating firm (public and private) represented at the level of its individual plants.

In a study carried out by the Nexant (2002), the pre-feasibility of a 400kv transmission interconnection with 500 MW transfer capacity in phase I, has been analyzed. Given the existing infrastructure conditions, this transmission line possibly connects to the Sri Lankan national grid at Anuradhapura12. The importance of the Indo-Sri Lankan land bridge in the Indo-Lanka power interconnection lies in the fact that with reduced infrastructure costs, the transmission line can be laid on the bridge and not in the seabed as perceived earlier.

In this context, establishing a Regional Power Trading Corporation (RPTC) would be highly beneficial to launch this type of market mechanism in SAARC region also. This could be called ‘SAARCRPTC’ which could provide market feed-back to individual power producers (agents) as well as the power consumers. The SAARCRPTC can maintain and disseminate information on plant structures, avoidable cost of production, plant sales prices, sales volume, rate of utilisation, profits generated, target utilisation and market conditions, consumer behaviour, and ongoing plant building and future investment in the sector.

With the proposed transfer of 500 MW power through Indo-Lanka power interconnection - Phase I, the total installed capacity in Sri Lanka would rise by 22 per cent from the current level of 2231 MW to 2731 MW. In the second phase of the project, it is estimated to double the transfer capacity by raising the installed capacity to 3231 MW. Even if the current gross power generation per MW at 3.1 GWh is taken as a benchmark, with this additional capacity the gross annual power generation in Sri Lanka will increase by 1550 GWh in

This, in essence, would be a pooling of surplus power generated by individual plants in the participating countries and transporting into deficit ones by a coordinated exchange mechanism depending on demand and consumer categories (estimating consumer surplus). However, information asymmetry in this type of a model can create market havoc and thereby serious aberrations. Therefore, a major task of the SAARC-RPTC is to gather and analyse information on generation, demand, transmission and payment modes well in

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advance and arrange for the smooth operation of markets. The idea should be to evolve an effective bidding system for individual plant generators depending on the plant capacity, fuel use etc. across the entire spectrum of its activities. To facilitate the process of setting up of SAARC-RPTC , it is rather essential to assess and understand the nature, direction and extent of intra-country power exchange of the South Asian countries. This gives a broad indications about the nature of power trading within a country and various regions of a country and also indicates geographical locations of load centers within a country. The physical boundaries in South Asia region are such that it is only India which shares common borders with almost all its neighbouring countries. However, there are very distinct advantages for countries like Bangladesh and Sri Lanka to import power from Bhutan and Nepal, both because of the lower tariff and supply reliability. At the same time the power generating countries would also like to diversify the markets. For instance, Bhutan is keen to expand the market for its power exports, India being the only buyer for its power. This is more so as a number of hydro plants are under construction in the North East region of India, which may to a large extent lead to the diminution in the demand for Bhutanese power. Interestingly, these changing dimensions of power trading are widely matched by the expansive transmission lines that exist in all the bordering states of India including the North East, Tamil Nadu, Jammu and Kashmir, Punjab and Gujarat. Therefore, India as a transit corridor for power transfer could give a major boost to both the power trading activities and the process of regional cooperation and integration. India could also ensure full use of the transmission lines and generate a substantial revenue as wheeling charges13. There are very strong possibilities of cooperation in other forms of energy. India can play an effective role in initiating trade in power between Bangladesh and Sri Lanka. For instance, Bangladesh could set up a plant of 2000 MW primarily to supply power to Sri Lanka via India which can also share this power. There is already an example of East Talcher to Kolar to Trivandrum (2200 km) 500 DC system completed in 2.5 years. However, the power trading is in its infancy in the South Asian

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region. Whatever 'trade' takes place today is basically bilateral exchanges or apportioning of power from surplus areas to temporarily needy regions. Neither was any power purchase agreement (PPA), for the purchase of power by India from these projects signed with Bhutan and Nepal, nor any principle for fixing the rates for purchase of power have been evolved. In most cases, the tariff has been determined by political consideration, diplomatic goodwill and convenience. Such an ad hoc arrangement based on negotiations and goodwill could work in the past mainly because the quantum of power purchase was limited. However, in years to come the size of power purchase would be substantial. Power trading will be in bulk and will have to have a more detailed framework of contracts and operating procedures. Cross-Border Gas Trade Besides electricity, the four areas which can be identified for cooperation in the oil and gas sector in South Asia region are i) transboundary natural gas trade, ii) trade in refined petroleum products, iii) cooperation in oil and gas exploration and iv) cooperation in NGV developments. Sizable gas shortfall is expected in both India and Pakistan unless some major exploration and drilling operations are undertaken. The Tenth Plan of India has projected natural gas demand of 130 MMSCMD in the year 2006/7 which could rise to 175 MMSCMD in 2011/12. Indian Government policy in recent years has sought to promote the imports of natural gas, in view of the fact that demand is projected to outstrip production by 62 MMSCMD in 2006/7 taking the intermediate demand forecasted by Tenth Plan. It could be higher if the latent demand for natural gas is taken into account. Smaller countries like Bhutan, Maldives and Nepal are also likely to record a quantum jump in the gas consumption in the next decade or so. The optimal techno-economic solution is for India, Pakistan and other South Asian countries to jointly pose their demands to potential suppliers in north and west and other Central Asian countries so that economies of scale result in a substantial reduction in unit cost of supply to both countries.

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Though the South Asian countries, particularly India and Pakistan, have been envisaging both on-shore (Iran-Pakistan, TurkemenistanPakistan) and off-shore (Qatar-Pakistan, Iran-India and OmanIndia) pipelines, nothing concrete has emerged because of : i) huge financial implications, ii) geo-political apprehensions, iii) unsure confirmation of natural gas reserves, iv) pricing of supplied gas, v) third country approval of transits and vi) environmental fallouts. This has also been the case in intra-regional gas pipeline between Bangladesh and India. Indian concerns about the safety of the pipeline and assured supply through territory of Pakistan can be addressed through dialogue and legally binding guarantees by multilateral institutions14. This can be even ensured by extending this pipeline to Nepal, Bhutan and Sri Lanka. In fact, recent months have seen considerable progress in India laying gas pipeline into Nepal and Indian Oil Corporation's (IOC) planning to sell petroleum products in Sri Lanka15. Any of these pipelines, if laid, could change the energy as well as the economic picture of the entire region. If political apprehensions are set aside, there are strong possibilities and scope for bringing gas from Bangladesh through pipeline. A number of feasibility studies have been done in this regard including by UNOCAL16, and Indian gas utilities like Gas Authority of India Limited (GAIL) and Oil and Natural Gas Commission (ONGC) of India. TERI's estimates suggest comparatively much higher net back for gas imported from Bangladesh if supplied to North India. Among the several options available to use the rich gas resource base of Bangladesh the electricity generation and export of gas through pipelines are considered to be the most viable and profitable17. There have been numerous studies carried out to assess the gas reserves and also to examine the possibility of harnessing it for cross-border exchanges. This has generated a lot of interest and speculation as the estimates of gas reserves vary sharply18. Recently two committees constituted by the Government of Bangladesh submitted their reports in June and August 2002. The Gas Reserve Determination Committee concluded that, as of April 2002, the proven as well as probable gas reserve of the country was between 12.04 TCF and 15.55 TCF for 22 gas fields. The possible gas

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in place was estimated to be in the range of 4.14 TCF to 11.84 TCF19. The Gas Utilization Committee â&#x20AC;&#x2DC;arrived at the finding, after in depth examination, that under the short and mid-term demand supply projections, there is a problem of short supply which militates against export of gas from the current reservesâ&#x20AC;&#x2122;20. Swapping of Indian gas with Bangladesh gas is another proposal that also stands as a mutually gainful project. The proposal is that ONGC will sell the gas found in North East India, which could not be brought to mainland India since it would be too costly a proposition, to Bangladesh that would sell equivalent quantity of gas to India in return. However, nothing much has happened on this front. Yet another proposal is to allow the right-of-way to lay a gas pipeline across Bangladesh to bring Indian gas, stranded in North East, to mainland India. This will bring transit fees to Bangladesh without any gas sales from the country. However, progress on this proposal is also very slow. More than this, the delay in any deal has been very costly for the South Asian countries. There are expert views that recent discoveries in the East Coast (Godavari) in India may thwart the plans to import natural gas into the country21. An attractive option of this trans-boundary natural gas trade is to undertake the Iran-Pakistan-India Pipeline. Iran has shown urgent interest (particularly after the discovery of gas field at Tabnak) in supplying gas overland through Pakistan to India. The Pakistan government also formally announced its acceptance of such a facility to India22. Annually over U$ 200-400 million is likely to accrue to Pakistan as transit fees and royalty, if the deal is clinched. Any of these pipelines, if laid, could change the energy as well as the economic picture of the entire region besides providing a robust CBM between India and Pakistan. These projects will substitute expensive imported liquid fuels to improve balance of payment, bring relief to the hard-pressed infrastructure of ports, roads and railways used in movement of liquid petroleum, improve environment, and reduce cost of electricity generation, besides several other direct and indirect benefits as a result of multi-billion dollar investment in the gas pipeline as well as in the downstream industry using the gas. As neither India nor Pakistan possess the necessary finances and technology to build such a pipeline,

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multinational and multilateral resources will have to be tapped. The economies of scale will substantially reduce the cost of a unit of gas energy imported jointly than individually. According to an economic analysis conducted for a UNDP sponsored project on Energy-Environment Cooperation in South Asia, based on the then prevailing prices in March 1998, the tariff cost of the pipeline project could be reduced by about 26 per cent by having a joint pipeline for India and Pakistan as compared to having separate pipelines. Therefore, in order to promote regional energy cooperation through trade of natural gas via trans-boundary gas pipelines in South Asia, these countries need to work on four major directions. This could be done only if an appropriate climate of trust is progressively created. l Full-fledged preparatory techno-economic work. l Intergovernmental agreement. l Informed public opinion. l Promotion of international commercial and financial interest in

the proposed projects. Conclusion South Asian countries continue to be characterised by low per capita consumption of energy, poor quality of energy infrastructure, skewed distribution and inaccessible and costly energy availability. These countries have remained largely energy importers and increasingly faced a serious energy shortfall. All these have adversely affected their productive activities, social development and investment climate. There has been a realisation that availability and accessibility to energy can transform the quality of life and work substantially, help raise health and educational standards and retard rural-urban and cross border migration by enhancing the level and pace of income and employment generation. The creation of a South Asian energy market and cooperative development of the available diverse energy sources in the region can help increase the level of energy security in the region and thus can subsequently contribute to achieving a sustained higher economic growth. There are distinct advantages for South Asian countries to cooperate in the energy sector. There have been negotiations going on among the South Asian countries on the possibility of power trading and gas pipelines. Given the demand and supply situations

in the subcontinent, it is rational to believe that the trade in power and gas will be mutually beneficial in terms of both economic and political gains. The studies conducted up to date reveal some important regional projects that merit serious consideration. They also provide a range of options. However, there are several challenges ranging from trust and confidence building to investment and technology transfer, demand locations to really integrating the energy market and sustaining the effort to matching the regional aspirations with such efforts. The 12th SAARC Summit held in Islamabad in 2004 clearly indicated the need to consolidate in energy cooperation by creating an ‘energy ring’. What is required is a breakthrough project that can be set as an example for other regional energy ventures. In all these efforts and strategisation, the key element should be understanding the neighbours, strengthening both the traditional and emerging ties with them and making a much more concerted regional effort in consolidating a regional identity. The projects need to be depoliticised through sensitising the general mass about the gains that accrue and providing options and alternatives to the policy makers. An equally critical task is to build the capacities of the policy makers in energy sector across the region by re-skilling and reorienting them to the advantages of energy cooperation. South Asian countries should also realise that cooperation is a goal oriented action wherein not only goal but also certain resources are shared together by the participants. This implies sharing of national control over them which is taken as a loss of national sovereignty. Whenever these countries have felt this, they have tended to withdraw from the regional cooperation process. States are reluctant to cooperate on merely economic goals. Therefore, tackling this perception of national sovereignty itself is a major question as it demands extending a new form of cooperation, sacrifice, contribution which the countries in this region invariably lack. This is why initiatives like ‘beneficial bilateralism’ and ‘unilateral gestures’ have worked in the region. Dr Mahendra P Lama is Professor of South Asian Economies at Jawaharlal Nehru University, India.

254 Endnotes 1 Edward D. Mansfield and Helen V. Miner, The Political Economy of Regionalism, (New York: Columbia University Press, 1997). Also see Maurice Schiff and L. Alan Winters, Regional Integration and Development, World Bank and Oxford, Washington, 2003; Miroslav N. Jovanovic, International Economic Integration :Limits and Prospects, (London: Routledge, 1998) 2 Ali M. El-Agraa, Regional Integration: Experience, Theory and Measurement, (London: Macmillan, 1999) 3 Mahendra P. Lama, QK Ahmad & Mohan Man Sainju, ‘Reforms in Power Sector and Cross Border Power Trade in South Asia’, in a forthcoming volume edited by Mohsin Khan, IMF , Washington, 2004. 4 Selected Economic Indicators, Royal Monetary Authority of Bhutan, September 2000, Thimphu and Kuensel, January 2004. 5 Fiscal Year 2002/03- A Year in Review, Nepal Electricity Authority, Kathmandu, August 2003. 6 The government earns revenue through royalty and export tax and gives several incentives and concessions to the private developer. Once the private developer agrees to the term and conditions laid down on the regulations, it receives a license to develop the project and subsequently takes on itself to market the power. 7 Data collected form the Ministry of Power, Government of India, New Delhi and Malik Masood, ‘A Note on Pakistan Power Sector/WAPDA Restructuring and Privatisation and Other Issues of Interest for South Asian Energy Forum’, South Asia Regional Energy Forum Proceedings, USAID, Kathmandu, 1999. 8 Statement by the Power Minister of Pakistan Gohar Ayub Khan, Hindustan Times, January 16, 1999. Also see Mahendra P. Lama, ‘Economic Reforms and Cross Border Power Trade in South Asia’, South Asian Survey, New Delhi, September-December 2000. 9 A. R. Kemal and Mahendra P. Lama, ‘Energy Trading Between India and Pakistan: Scope and Opportunities’, a collaborative research being conducted by Pakistan Institute of Development Economics (Islamabad) and Jawaharlal Nehru University, New Delhi under SANEI, New Delhi, 2004. 10 This is aimed at connecting the island nation with the mainland of South Asia by road and rail through India. The proposed multi-purpose and multi-modal land bridge between Dhanushkodi (South-East of Tamil Nadu state) and Thalaimannar (North-West Sri Lanka)] is expected to be 44 kms in length; Mahendra P. Lama et al, ‘India- Sri Lanka Land Bridge Project : Assessment of Economic and Social Impact’, A Report prepared for NEXANT under the USAID-SARI/E Programme, 2003. 11 Joint Study Group Report on ‘India-Sri Lanka Comprehensive Economic Partnership Agreement’, October 2003. Co-Chaired by Rakesh Mohan (India) & Desamanya Ken Balendra (Sri Lanka ). 12 Nexant, ‘Indo-Lanka Power Interconnection: Pre-Feasibility Study’,

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13 14

Colombo, 2002; Alternatively, the power transmission interconnection at Puttalam is no longer feasible given the fact that the proposed power plant at Puttalam has already been abandoned Mahendra P. Lama, ‘Energy Cooperation in South Asia: Opportunities, Strategies and Modalities’, (Dhaka: CPD-CASAC, 2004) Mahendra P. Lama and Rasul Bakhs Rais, ‘Pipelines and Powergrid for Peace’, Occasional Paper, (Mumbai: ICPI and London: Kings College, 2001) ‘A joint venture of Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) for cooking gas plants through pipeline is being implemented. This will link Nepal's main distribution depot at Amalekhganj, about 175 km south of Kathmandu, with IOC's supply centre at Raxaul in Bihar on the Indo-Nepal border. The pipeline will help Kathmandu save on transportation time and curb adulteration of the fuels while being hauled across the border in truck-tankers’, Himalayan Times, Kathmandu, 29 January 2004. Unocal Corporation's Natural Gas Pipeline Project from Bangladesh to India includes construction of a new 30-inch diameter 1363-kilometre natural gas pipeline with a capacity to transport 500 MMSCFD of gas from Bibiyana fields in Bangladesh to major markets in India. Government of Bangladesh could expect to begin receiving estimated revenues and tax receipts of at least US$ 3.7 billion over the 20-year life of the project. The proposed pipeline is also expected to result in a direct investment of $ 500 million to US$ 700 million for field development and pipeline construction in Bangladesh. There are several additional benefits to Bangladesh. As of today power generation with 46 % of the total gas consumption constitutes the most vital sub-sector for gas use followed by fertilizer production 30 %, industry 13 % and domestic and commercial 11%. All gas fields so far discovered are located in the East Zone, Consequently, all the power plants in the East Zone use gas as the fuel, while all plants in the West Zone are fuelled by oil of various grades. The completion of the bridge on the (Brahamaputra) river and the construction of a gas pipeline through the bridge and the subsequent gas supply to west zone and its connection with Baghabari plant is likely to change the power situation drastically. A study stated that the estimated hydrocarbon resource base of Bangladesh ranges from a low side scenario of 34.2 TCF to a high side scenario of 51.5 TCF with a mean or ‘best technical’ estimate of 42.1 TCF. Another study carried out jointly by Petrobangla and the US Geological Survey in 2001 estimated the technically recoverable, undiscovered resource or ‘New Field Discoveries’ on a countrywide basis for Bangladesh. This showed that the total potential of New Field Discoveries ranges from a minimum case of 8.4 TCF to a maximum case of 65.7 TCF, with a mean of 32.1 TCF. Brown TA, AHM. Shamsuddin and MJ Rickard, Hydrocarbon Resource Base of Bangladesh,

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Proceedings of the 13th South East Asia Petroleum Exploration Society (SEAPEX), Exploration Conference, Singapore, 4-6 April 2001. 19 Report of the Committee for Gas Demand Projections and Determination of Recoverable Reserve and Gas Resource Potential in Bangladesh, submitted to Government of Bangladesh (GoB), Ministry of Energy and Mineral Resources, June 2002. 20 Committee Report on Utilization of Natural Gas in Bangladesh, submitted to Government of Bangladesh, Ministry of Energy and Mineral Resources, August 2002. 21 Preety Bhandari, India Country Study on Regional Cooperation in the Energy Sector in South Asia, CPD-CASAC Research Programme, 2003. 22 Iran proposed such a pipeline almost a decade back during Benazir Bhutto's regime. Since then Pakistan has been consistently denying such permission, Business Recorder, Karachi, April 8, 2000.

South Asian Water Concerns Ramaswamy R. Iyer

his paper aims at presenting a synoptic and objective overview, in very broad terms, of the principal national concerns and issues relating to water in South Asian countries. For the purpose of the paper, â&#x20AC;&#x2DC;South Asiaâ&#x20AC;&#x2122; refers only to the countries in the subcontinental mainland, i.e., Pakistan, India, Nepal, Bhutan and Bangladesh. Besides, it is concerned largely with the northern part of the subcontinent where different countries are linked together by the Himalayan rivers. National Perspectives Pakistan The major part of Pakistan -- leaving aside the inland drainage area of Balochistan, as also the southern coastal region -- is in the Indus Basin. Water deficit? Most writings on the water resources of Pakistan refer to water scarcity (present or imminent), but it is not clear how much of the projected water and food deficit will remain if the ills of poor water management and inefficiencies in irrigated agriculture (on which there is general agreement) are remedied. Water-logging and salinity The allocation of the three western rivers of the Indus system to Pakistan under the 1960 Indus Water Treaty, and the development of irrigated agriculture that followed, certainly brought much prosperity to the country or to some sections of the population, but

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an unanticipated outcome was the emergence and spread of the ills of water-logging and salinity. Out of a total of 18 million hectares (mha) of irrigated land in Pakistan, about 6.22 mha are said to be affected by this menace. In response to this the Government of Pakistan launched different Salinity Control and Reclamation Projects (SCARP), starting in 1959. These do not seem to have been very successful. Among the criticisms of the SCARP approach are design defects, severe environmental impacts, and the creation of secondary problems that are as bad as the original ones that the plan had intended to remedy. The impression that one gets is that Pakistan is still struggling with a gigantic problem to which satisfactory answers have not yet been found. Inter-provincial conflicts Another major national concern is the persistence of inter-provincial conflicts over water distribution. These conflicts have a long history, going back to the middle of the 19th Century when human intervention in the natural flow of the river through the construction of barrages and canals began. The old inter-provincial conflicts and the attempts to resolve them were followed after Partition (1947) by the India-Pakistan dispute over the Indus, which was resolved by the Indus Water Treaty of 1960. The problems of water-sharing among the provinces in Pakistan continued, and were dealt with by several committees and commissions. The settlement currently in force is the Indus Water Accord of 1991. However, there are important unresolved issues with a crucial bearing on water distribution. Issues of flood management, not discussed here, also have inter-provincial angles. Kalabagh controversy A new dimension has been added to water-sharing disputes by the contentious Kalabagh Dam Project. This Project is the centre of a major controversy in Pakistan. The arguments are familiar. The case for the project is argued on the basis of a projected water shortage and the need for and possibility of one more dam on the Indus system. The opponents of the project argue that water is not available for the dam, that the project is not needed, and that it will have serious environmental and human impacts. There is also an interprovincial angle: Sindh is afraid that with the Kalabagh dam, more of the Indus water will be diverted by Punjab, with serious consequences for it (Sindh); and the North Western Frontier

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Province (NWFP), while it might derive some benefits, is seriously worried about submergence of land, displacement of people, and water-logging problems. Two approaches At the heart of the Kalabagh controversy lies the confrontation between two divergent approaches to water-resource policy, planning and management, encapsulated by one writer (Bengali, 2003) as the 'techno-centric approach' vis-Ă -vis the 'socio-centric approach'. As summed up by him, the former relies wholly on technical expertise and engineering solutions, whereas the latter recognises that 'development, management and conservation cannot be achieved in a vacuum, and social systems and structures and people's cultures and lifestyles also need to be addressed'. Other issues There are also serious concerns in Pakistan about the pollution of rivers, the degradation of coastal zones, the problems of sewage disposal in urban areas, and so on, but limitations of space prevent this paper from going into them. India (The Indian concerns outlined below may find a resonance in the other countries of the region.) Water crisis? An important and widely shared perception in India is that of an imminent water crisis. The crucial element here is the demand projection, and that needs to be looked at carefully. In every kind of water use, major economies are desirable and possible, though difficult. If these are achieved, the demand picture will not remain the same. Turning to the supply side, large-dam projects are not the only answer; there are other possibilities. Local rainwater harvesting (â&#x20AC;&#x2DC;catching the raindrop as it fallsâ&#x20AC;&#x2122;) and watershed development are also part of the supply-side answers to the demand. Through a combination of these two approaches, namely, on the demand side, the practice of the utmost economy and efficiency in water-use and of resource-conservation, and on the supply side, efforts to augment the availability of `usable' water through extensive recourse to local water-harvesting and watershed development, it may be possible to avert a crisis, though the situation will undoubtedly be difficult and

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will call for careful management. Divergence on big projects There is a widespread perception that the growth of population, pace of urbanisation and economic development will accentuate the pressure of increasing demand on a finite resource, and that the answer lies in large supply-side projects and long-distance water transfers. That is the dominant view in India, but there is a strong body of opinion that challenges that view. The Narmada, Tehri Movements The most dramatic confrontation between the two views took place in the case of the Narmada (Sardar Sarovar) and the Tehri HydroElectric Projects. In both cases, the protest movements and their leaders (Medha Patkar and Sunderlal Bahuguna) became well-known nationally and even internationally. In both cases, the battle has been lost in the Supreme Court, and construction activities -- stalled for a while -- have been resumed in full force, but the movements cannot be adjudged to have been failures: they have changed forever the way people at every level (including the general public, the media, policymakers, project-planners and managers) think about such projects. In that sense, the movements have been enormously influential. ‘Flood control’ This is a controversial subject, but it is increasingly recognised that what we must learn to do is not so much to ‘control’ floods as to cope with them when they occur and minimise damage, partly through ‘flood-plain zoning’ (i.e., regulation of settlement and activity in the natural flood plains of rivers) and partly through `disasterpreparedness'. However, the notion of ‘flood control’ continues to hold some sway over people's minds, and to influence official thinking. Inter-state river water disputes Most of the major rivers in India flow through more than one (Indian) state and are therefore ‘inter-state rivers’. The constitutional/statutory mechanism for the resolution of inter-state conflicts within India -- over such rivers seemed initially to be working reasonably well, but it has run into difficulties in recent years. Two currently outstanding disputes are the Ravi-Beas Dispute (Punjab and Haryana) and the Cauvery Dispute (Karnataka, Tamil

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Nadu, Kerala and Pondicherry). An early and satisfactory resolution does not seem to be within sight in either case. These unresolved disputes have implications that go far beyond water: they raise questions about Indian federalism. The groundwater crisis Continuing reckless exploitation of groundwater, leading to the rapid depletion of aquifers in many places, portends disaster. The situation, which has been described as ‘colossal anarchy’ (Shah 2004), needs to be quickly brought under control, but there are enormous legal, political and practical difficulties here. There may be need for changes in the law relating to ownership rights over groundwater, enactment of new state-level laws for regulating the extraction and use of groundwater, establishment of regulatory bodies, rationalisation of power tariffs, and so on. However, with regard to the very large number of private tube-wells in the country (estimated at 21 million) and the fact that most of these are cases of ‘self-supply’, i.e., outside the purview of supply systems, public or private, there is some scepticism about the feasibility of `regulation' and the efficacy of changes in policy or law as remedies for the depletion and contamination of groundwater aquifers. No clear solutions to this difficult problem are in sight as yet and the debate needs to be pursued further. Water markets Water markets already exist in India mainly in the context of extraction of groundwater through tube-wells and bore-wells but also in relation to surface water in some instances. Many more instances may emerge. There are many who think that this is the route to follow for the future; there are others who are deeply uneasy at the idea of water markets and at the underlying perception of water as a tradable commodity. The advocates of water markets (who view water as a commodity) recommend: ‘Define property rights and allow trading’, but the citizen's right to water (for drinking, cooking and washing) is a part of the right to life, and the water rights of a farmer for irrigation or those of an industry for industrial uses are use-rights; treating either of them as ‘tradable property rights’ has serious implications that need to be studied carefully.

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The supply of water by private tankers in urban areas and the burgeoning bottled-water trade are also instances of (entirely avoidable) water markets. If the public system provided an adequate, reliable and safe supply, the demand for tankers or for bottled water may go down sharply. Apart from that, these supplies (and the soft drinks business) have necessarily to draw raw water from somewhere, and that draft may be an unsustainable or inequitable one. The instance of the bore-wells of the Coca Cola Company depriving an entire area in Kerala of its water is well-known. The case went to the High Court and the judgment has invoked the public trust doctrine, but the story is as yet unfinished, as the case may still go to the Supreme Court. Privatisation The paucity of financial resources is pushing the governments, central and state, to think in terms of inviting private sector participation in dam and reservoir projects, which would earlier have been exclusively in the domain of the state. The new Indian National Water Policy, 2002 includes a clause that specifically provides for this. There has been much opposition to the idea of `privatisation of water', whether in relation to projects or in the context of water services, on several grounds. There was a public outcry against the leasing of a 20-km stretch of the Shivalik River in Chattisgarh to a private corporate entity for water supply, and the state tried to cancel the lease but encountered legal difficulties. This, like the Coca Cola case mentioned earlier, is an unfinished story. Pricing of water The twin propositions that water rates should be regarded as `user charges' and not as a form of taxation, and that the principle behind `user charges' should be `full cost recovery', are important elements in current economic thinking. They may be acceptable in the context of water as an input into economic activity: irrigation, industrial use, water for hotels. However, these principles cannot apply without modification to `water for life' (drinking water). This too cannot be free, but must be priced reasonably, with full economic pricing to the affluent, penal pricing beyond a certain level of use, some degree of subsidisation to the less affluent, and perhaps some free supplies to the very poor. It cannot be said that these issues have been thought through to clarity and finality in India.

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Other issues There are many other issues such as the third tier of local selfgovernment at the level of villages (panchayats) and cities (nagarpalikas) introduced by the 73rd and 74th Amendments to the Constitution. Among the subjects to be devolved to these bodies (known as panchayati raj institutions or PRIs) is water management at the local level. The future role of PRIs in relation to water is a matter of considerable importance. Another matter which demands urgent attention is the problem of the pollution and contamination of water sources and systems that steadily diminishes the quantum available for use. Nepal A large number of rivers and streams flow through Nepal and into India. The nature of the terrain immediately brings to mind the possibility of generation of hydro-electric power, and a number of sites for large projects have been identified. Only a small part of the power so generated can be used in Nepal; the rest would have to be exported, primarily to India. India can also use all the waters that flow from Nepal for irrigation, and would further like to minimise the damage caused by the floods coming down those rivers from time to time. These possibilities give rise to the idea of large projects for building dams and reservoirs in Nepal. (Bangladesh, for its part, has for long been arguing for seven large projects in Nepal for augmenting the lean season flows of the Ganges at Farakka, where the waters are shared between India and Bangladesh.) Against this background, there is a growing sentiment in Nepal that the country's water resources represent the route through which its visions of prosperity can best be realised; that water is to Nepal what oil has been to the Gulf countries, namely, the source of revenues and wealth; and that those revenues will come principally from the export of hydro-electric power to the neighbouring countries, mainly India. Several multi-purpose projects (Karnali, Pancheswar, Saptkosi, etc) have been under discussion between Nepal and India for over three decades, but little progress has been made on any of them, for several reasons: the long history of mistrust and suspicion characterising India-Nepal relations; the growing salience of environmental concerns, concerns about the displacement of people,

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and misgivin about large projects in the seismically active Himalayan region; and a degree of dissent, even within Nepal, from the view that the route to prosperity lies in large-scale centralised generation of hydro-electric power for export. There is an àlternative' view in Nepal that advocates decentralised, relatively small, environmentally benign projects (whether for irrigation or for hydro-electric power) primarily for Nepal's own needs rather than for meeting the needs of other countries. Export of electricity is not ruled out, but large generation primarily for export to a single large buyer (India) under inter-governmental arrangements is not considered desirable. It is difficult to say how widespread the àlternative' view is, but that it commands a degree of influence cannot be denied. Opposition to the Arun III HydroElectric Project did eventually result in the World Bank withdrawing from the project; this is regarded as a great loss by the water establishment and other proponents of the mainstream position, but celebrated as an achievement by critics who argue that the abandonment of this unviable project made created a number of smaller, cheaper and quicker alternatives. (For a short while a leading proponent of this view became a government minister, and for a brief period the àlternative' view became `mainstream', but that is no longer the case.) Turning to another aspect, Nepal -- as a land-locked country -attaches a great deal of importance to a navigational outlet to the sea (to a port in India or Bangladesh). At the moment this is not physically feasible, but creating such a possibility as a part of one of the projects that are being talked about remains an important objective of Nepal. Bhutan Bhutan, close to Nepal and like it a mountainous country lying on the southern slopes of the Himalaya between China and India, is flanked on the western and eastern sides by the Indian states of Sikkim and Arunachal Pradesh, with Assam as the immediate southern neighbour. The country is heavily forested and richly endowed with water resources. The annual availability of water per capita is put at 75000 m3 in the Bhutan Water Policy document, but the environmental information portal of the World Resources Institute gives a per capita Internal Renewable Water Resources (IRWR)

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figure of 43214 m.3 for the year 2001. It is not clear how those two figures are related to each other, but it is clear enough from either figure that the country is exceptionally well-endowed with water, though even that abundance is expected to come under pressure in the future because of the growth of population and the processes of economic development. The most important point to bear in mind about Bhutan is its deep attachment to its cultural and natural heritage and its determination to preserve them. It has adopted what has been described as `the middle path' to sustainable development. At the same time, the country is (understandably) not exempt from the aspirations that other countries entertain for economic development and prosperity. The contrary pulls of these two strands in Bhutanese thinking are evident in the Water Policy document. For instance, there are fine statements of the holistic ecological point of view and indications of social and human sensitivity; at the same time, the language of economics, management and the market-place is also found in many places. It is hoped that the floodtide of `economic development' and `modernity' will not overwhelm Bhutan and make it indistinguishable from the rest of the world and subject to the same ills. In pursuance of the objective of earning revenues from the country's hydro-power potential, Bhutan has undertaken certain projects with Indian assistance. It is not within the scope of this paper to go into the details of the projects that are in operation; under construction; and in the visualisation/formulation/planning stages (Chuka, Chuka II, Tala, Kurichu, Sunkosh, Manas, etc). What needs to be noted is that Chuka is widely regarded as an example of successful intercountry cooperation for mutual benefit; and that the inflow of revenues from the sale of electricity to India has been very large in relation to the country's GDP and has made the country prosperous in economic terms, with a per capita income much higher than that of its neighbours. However, the question whether the transformation in the economy has been accompanied by ecological and social changes and whether these warrant any concern, has not been adequately debated. If further expansions of, and additions to, hydro-electric capacity take place as planned, would it be possible for Bhutan to continue to adhere to the middle path? That question is of

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course one for the Bhutanese to reflect on. Bangladesh Crisscrossed by rivers and streams, Bangladesh is a water-abundant country with a per capita water-availability of 8444 m3 in 2002 (World Resources Institute). (Another study Ahmad et al 2001 puts the annual per capita water availability at 12162 m3 in 1991, 10305 m3 in 2000, and 7670 m3 in 2025.) As the country acts as a narrow funnel through which three large river systems (the Ganges, Brahmaputra and the Meghna) drain into the sea, its major national problem is the periodical occurrence of disastrous flooding. There was catastrophic flooding in 1988 and again in 1998. However, though floods dominate the thinking of Bangladesh, there is also a perception of a critical shortage of water in the lean season in some parts of the country. Most Bangladeshi writings on water tend to make the point that 94% of the water resources of the country originate beyond its borders, and that 54 rivers and streams flow into Bangladesh from India. This consciousness, combined with that of India's size, colours Bangladeshi thinking and gives it a sense of vulnerability. The water establishment of Bangladesh is acutely aware that, for water security as well as for flood-management, the country needs Indian cooperation. Against this background, there are four prominent concerns in the national thinking about water: flood-management; water-sharing with the upper riparian; internal water-resource management; and the protection and preservation of the natural environment. The massive floods of 1988 brought international attention to this problem, resulting in the Flood Action Plan (FAP) financed by a large number of donor countries. The FAP was a very large programme consisting of numerous studies and some pilot projects. However, it was subjected to severe criticism right from the beginning, and soon fell into disrepute, largely because it was perceived as a top-down, non-participative and essentially donor-driven plan. On water-sharing with upper riparians, treaties or understandings with India on several rivers are favoured. A Treaty with India on water-sharing in the Ganges was signed on 12 December, 1996.

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Similar understandings are felt to be necessary on at least eight or nine of the 54 rivers and streams that cross the India-Bangladesh border. Currently, talks are in progress on water-sharing on the Teesta. (Another strong Bangladeshi perception is that of the need for the augmentation of the lean season flows of the Ganges, and the Government of India is in agreement with that view, but there is a divergence between the two countries on how the augmentation is to be brought about). Turning to internal water-resource management, the work done under the aegis of the FAP (though there was disenchantment with that programme) provided useful inputs when, eventually, the preparation of a new National Water Management Plan and a National Water Policy was undertaken. (The National Water Policy was published in 1999, but it still remains largely a declaration of intent lacking in formal backing and not translated into operational plans.) In these new initiatives, the old top-down engineering and structural approaches were moderated by a greater awareness of non-structural measures; the importance of people's participation in planning; environmental concerns; and institutional change. At the same time, the influence of the new processes of `economic reform' is seen in the references to water as an economic good, the importance of pricing as an instrument of water management, private sector participation, and so on. The balancing of these divergent perceptions seems somewhat uneasy and precarious. Environmental concerns are now part of the climate of opinion and have acquired a degree of importance even in the water resources establishment that was earlier primarily driven by engineering considerations. The concern is largely focussed on the control of the incursion of salinity from the sea and on the protection of the wetlands (the Sunderbans). In recent years, the presence of arsenic in groundwater has become a major concern. This problem has been experienced in parts of India as well, though perhaps not in as acute a form as in Bangladesh. Different explanations have been given for this phenomenon; expert opinions seem to vary on this (and therefore on the appropriate responses), and finality does not seem to have been reached. As groundwater `development' has been extensive in Bangladesh, this is a serious national problem.

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Another emerging concern relates to the implications for Bangladesh of the predictions of climate change. This is a subject that is currently under study in both official and academic circles. As yet, there is much uncertainty as to what the future holds for the country. As the studies progress, this is bound to become a central concern. Convergences and Divergences Convergences Concerns about food security and apprehensions of future waterscarcity are common to all the countries. The response to these concerns at the administrative, technical and planning levels in governments is generally characterised by a predilection in favour of big supply-side interventions, with some variations in the strength of this way of thinking from country to country. There is also some advocacy of àlternatives' in all the countries, again with variations from country to country. The philosophy of `middle path' is strongest in Bhutan. The àlternative voices' are moderately strong in Nepal, with a degree of influence on official thinking, but the mainstream view continues to regard water as Nepal's oil, i.e., as a potential source of revenue and wealth. In Pakistan and India there is a strong polarisation between the believers in big, centralised, technology-driven, supply-side projects as the only answers to future needs, and those who oppose the approach as unsustainable, destructive and inequitable, and advocate local, small, communityled alternatives that are (in their view) environmentally benign and socially just. The polarisation is particularly marked in India, with an inadequacy or even absence of constructive civil discourse between the `dam-builders' and the ènvironmentalists', either side describing the other as a `lobby'. In Bangladesh, there are not many possibilities of big projects, but the official water establishment, as in India, continues to be dominated by the engineering point of view. Apart from the already completed Teesta Barrage, the proposed Ganges Barrage is perhaps the one big project in view, and it is regarded as very important. Essentially, however, the `big project' point of view is reflected in the advocacy of several large dams in Nepal as a means of augmenting the lean season flows of the Ganges. There is also general agreement at the official levels and among the intelligentsia (especially the economists) on the `potential' of hydroelectric power that exists in the river systems of the countries, and, in particular, in the Himalayan rivers, and the need to exploit as much

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of that potential as possible. The critics question such projects on environmental and other grounds, and contend that the need for large centralised power-generation can be minimised by a combination of demand-management, efficiency in energy use, getting more energy out of capacities already created, extensive local decentralised generation, and so on. They also have strong doubts about the wisdom of building large reservoirs in the seismically active Himalayan region. Environmental concerns are widely shared, but are not equally strong or influential in all countries. This is of course a central concern in Bhutan. There are powerful movements in Pakistan, India and Nepal, but they are not often very effective, and despite the existence of Ministries for Environment, the concern cannot be said to be `mainstream'. At the official level, and among the neo-liberal economists who are influential in the `economic reform' process, there is a tendency to juxtapose `development' and `environment' and to argue that the latter should not be over-emphasised to the detriment of the former. That (questionable) point of view finds much implicit (and sometimes explicit) support from the officials of the World Bank and the ADB. Floods loom large in the thinking of both India and Bangladesh. Despite the disenchantment with the FAP, mainstream opinion in Bangladesh is not wholly negative about embankments. Similarly, despite the recognition of the weaknesses and failures of embankments official thinking in India still considers them necessary. An offshoot of the concern about floods is the Indian river-linking project. The use of groundwater is massive in India and quite substantial in Bangladesh. The mining of groundwater and the rapid depletion of aquifers in some parts of the country is a major problem in India, and one which has not been attended to in any significant measure. In Bangladesh, the main problem is the extensive presence of arsenic, which is also experienced, though perhaps not to the same extent, in West Bengal and Bihar in India. Another emerging concern in all the countries is the problem of pollution and contamination of water sources and systems. Potentially, this could be a major source of intra-country and inter-

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country friction. However, it cannot be said that there is adequate awareness of this problem in any of the countries. It follows that serious action to deal with this threat to resource-availability has not begun, or even been thought of. Divergences Divergences have occurred essentially in relation to water-sharing in (or projects on) rivers that cross (or flow along) national boundaries. Some of these have been resolved through treaties. However, some divergences continue. The Indus Water Treaty of 1960 between India and Pakistan has acquired a reputation internationally as a successful instance of conflict-resolution, but currently there are a few unresolved disputes under the ambit of the Treaty. In particular, talks about the Baglihar hydro-electric project have failed, and Pakistan has moved for arbitration, invoking the arbitration clause of the Treaty for the first time in its history. The Ganges Water-Sharing Treaty between India and Bangladesh (1996), after a shaky start due to low flows in 1997, has been working reasonably well, and neither country has asked for a review. Whether it will continue to work well will depend on the state of the political relationship between the two countries. In other words, here, as in the case of the Indus Treaty, it is politics and not water that will determine the future of the Treaty. Apart from the Ganga (Ganges), there are many other rivers that cross the India-Bangladesh border, and agreements may be needed on some of them. However, the current state of India-Bangladesh relations is perhaps not conducive to the conclusion of further treaties. Meanwhile the Government of India's announcement of a major river-linking project (including possible diversions from the Ganga and the Brahmaputra) has caused much concern in Bangladesh. However, with a change of Government in India, that project is under review. As far as India-Nepal relations are concerned, a new chapter seemed to open with the Mahakali Treaty of February 1996, but action under

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the Treaty has remained stalled because of certain differences between the two countries. We need not go into those differences in detail, but the point is that much time has already been lost without a resolution of these differences, and nearly nine years after the signing of the Treaty there is still little progress on its implementation. It must also be noted that despite the ratification of the Treaty by the Parliament of Nepal, there is a significant body of opinion against the Treaty in the country. Further progress on these matters will have to wait for a degree of internal stability in Nepal. Indus Treaty and Baglihar: An Overview The Indus Water Treaty, 1960 is internationally regarded as a successful instance of conflict resolution between two countries that have otherwise been locked in conflict. It was also the practice until recently to express satisfaction at the fact that the arbitration provisions of the Treaty had not so far been invoked, but that record seems about to change. On the other hand, there are some who question the statement that the Treaty is a good example of conflict resolution; they feel that the surgery that it did on the river-system was harmful. There is also a body of opinion in both countries that the division of waters under the Treaty was unfair, but the unfairness alleged in one country is the exact opposite of that alleged in the other country. On the outstanding differences under the Treaty (relating to the Tulbul/Wullar, Baglihar and Kishenganga projects) there are divergent perceptions in the two countries as to the question of conformity to the Treaty. Where does the truth lie in relation to all these differences? Conflict Resolution Is the Treaty really a successful example of conflict-resolution? The answer has to be `Yes and No'. The water-sharing under the Treaty was a simple allocation of three rivers to Pakistan and three to India, and there was nothing much thereafter to `operate'; there is no continuous water-sharing on the same river as in the case of the Ganges (between India and Bangladesh). It is much more difficult to operate the Ganges Treaty than the Indus Treaty, and high praise of the Indus Treaty as a successful instance of conflict-resolution is perhaps somewhat exaggerated. Having said that, one must give due credit to the fact that the Treaty has managed to survive three wars, that the Indus Commission has continued to meet even when the political relationship between the two countries was extremely bad,

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and that at the working level the relationship between the officials of the two countries has been marked by cordiality. At the same time, a few differences under the Treaty have proved quite intractable, and that is a poor reflection on the Treaty. On the claims of `successful conflict-resolution', the picture is, therefore, mixed, with the positive elements having a slight edge. Was the `surgery' on the Indus system necessary and good? We must note that the `surgery' on the river-systems (Indus in the west, GangesBrahmaputraMeghna in the east) was a part of the surgery on the subcontinent. That surgery is now a fact of history. However, without entering into a discussion of that division, it must be noted that in deciding whether the subcontinent should be divided, little (if any) attention was paid to the fact that major riversystems were going to be cut across. That did not figure as a factor in the decision-making but was only considered later as a consequence of a decision taken on other grounds. Water Sharing Issues and Partition Was the Treaty a good answer to the water-sharing problem that surfaced after the Partition of the subcontinent? It has been argued that dividing the river-system into two segments was not the best thing to do, and that the better course would have been for the two countries jointly to manage the entire system in an integrated and holistic manner. However, given the circumstances of Partition and the difficult relationship between the two newly formed countries, it would have been na誰ve to expect that such a joint integrated cooperative approach would work. (If a constructive, integrated approach were possible in relation to the river system, then why not in relation to the totality of perceptions that led to the partition of the subcontinent? Obviously this speculation is pointless). An alternative possibility would have been to agree upon a sharing of waters between the two countries on each of the six rivers constituting the system. That might have been technically feasible but very difficult to operate. Continuous sharing on each river with joint monitoring arrangements and so on might have proved cumbersome, difficult and productive of endless disputes. Instead, the actual division agreed upon was the allocation of the three western rivers to Pakistan and the three eastern rivers to India. If the ideal solution is unavailable, the choice has to fall on the second-best solution; agreement of any kind is better than discord.

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Was the sharing of waters fair? Many in India feel that the allocation of 80 per cent of the waters to Pakistan and 20 per cent to India was an unfair settlement foolishly accepted by the Indian negotiators; and many in Pakistan argue that the territories that went to India under Partition were historically using less than 10 per cent of the Indus waters, and that the Treaty was generous to India in giving it 20 per cent of the waters. Both are fallacious arguments. A share of 20 per cent is not ipso facto low; on the other hand, the level of historic use (10 per cent or whatever) does not necessarily determine a country's future needs or entitlements. A multiplicity of factors and criteria has to be applied, having regard to all the relevant circumstances; not a priori view on what is fair is possible. However, it is hardly necessary for us to go into this question. When prolonged inter-country negotiations by teams acting under governmental briefings led to a Treaty, and the Treaty was approved and signed at the highest levels, it must be presumed that it was the best outcome that could be negotiated under the given circumstances; either side is then precluded from saying that it was unfair, unequal, poorly negotiated, etc. If a degree of dissatisfaction with the Treaty arises in the course of operation of the Treaty, it would be a matter for inter-state discussions within the ambit of the Treaty, or a re-negotiation of the Treaty with much uncertainty as to the outcome. On the whole, it would probably be best to leave things as they are. The Treaty embodies a negotiated sharing that doubtless represents what was achievable. Resolution of Differences Why are certain differences (Tulbul, Baglihar, etc) proving intractable? Ignoring the complexities involved in these cases and simplifying the issues, the Pakistani position is that these projects constitute violations of the Treaty by India which India denies. The Treaty precludes the building of any storages by India on the rivers allocated to Pakistan. The crucial question, therefore, is whether the projects proposed by India involve the creation of storages. That is not as simple a question as it might seem. The conventional engineering view is that a diversion barrage or a run-of-the-river hydroelectric project (unlike a dam and a reservoir) does not create any storage. However, even run-of-the-river projects involve structures, and any structure on a river does raise the water-level and create a minimal

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storage. The question then becomes one of the level and acceptability of that storage, and a difference of opinion on this is possible. It is the Pakistani view that the Indian projects mentioned above involve storages and are therefore unacceptable; Pakistan is also apprehensive of the structures in question giving India a measure of control over rivers allocated to Pakistan, and enabling India either to reduce water-flows to Pakistan or to release stored waters and cause floods. The Pakistani objections are thus partly water-related and partly security-related. The Indian position is that the security fears are misconceived as India cannot flood Pakistan without flooding itself first (such an explanation was earlier accepted by Pakistan in the case of the Salal Project); that its capacity to reduce flows to Pakistan is very limited; that the Treaty does give India some minimal rights on the western rivers, which India has not been able to use partly because no proposal, drawing, design or other technical detail submitted by it is ever cleared by Pakistan; and that Pakistan is deliberately unreasonable in its examination of such proposals, the aim being the obstruction of all efforts by India to use the limited rights given to it by the Treaty. It is the Indian perception (privately stated) that the operation of the Indus Treaty has been hamstrung by total and persistent Pakistani negativism. It is also the Indian perception that Pakistan's objections to Wullar (Tulbul), Baglihar, and Kishenganga are essentially political and not technical. As mentioned above, one such project, namely Salal Hydroelectric Project, was (after many years of talks) cleared by Pakistan in the 1970s. Subsequently the relations between the two countries deteriorated and touched rock bottom in the post-Kargil period. It was unrealistic at that stage to expect the differences relating to Baglihar, etc, to be resolved. There was even some uncertainty in 2002 about the future of the Treaty itself, but that trouble blew over and the Treaty continued to function. However, there was a feeling that once the political relationship between the two countries improved, agreement would be reached on these outstanding issues. That expectation has been belied. While the two countries have begun to talk to each other, and a`peace process' has been put in motion, the talks over Baglihar have failed and Pakistan has invoked the arbitration provisions of the Treaty and asked the World Bank to nominate a neutral expert. It is a bit puzzling that this negative development that casts a shadow on the `peace process' has been allowed to occur.

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There are two possible explanations to this unfortunate development. The first is that there is indeed a genuine and sharp difference between the two countries on the conformity of the Baglihar Project to the provisions of the Treaty, and perhaps the talks broke down on that issue. The other possibility is that Pakistan's objection continues to be political rather than technical, and that there has been a hardening of the Pakistani position on the talks with India. If this understanding is correct, the breakdown of the talks on Baglihar might be the result of a deliberate decision about political relations, unconnected with the details of the Baglihar case. Is the invocation of the arbitration provisions a matter for regret? It seems to this writer that there is no need for unhappiness at the invocation of the arbitration clause. The Treaty provides for arbitration. That would also be action under the Treaty. If India is convinced that its position is correct, it should be able to present its case strongly to the neutral expert, and eventually to the Court of Arbitration if that contingency arises. However, an agreed settlement is definitely preferable to arbitration, and India should continue to try to persuade Pakistan to return to the negotiating table. Relation with the Kashmir Issue Finally, what is the Jammu & Kashmir dimension of Baglihar, Wullar, etc? There is a strong sense of grievance in Jammu & Kashmir that the Treaty has made it very difficult for it (J&K) to derive any benefit by way of irrigation, hydroelectric power or navigation from the rivers that flow through it but stand allocated to Pakistan. The Government of India would like to remove J&K's sense of grievance. However, the first step here is the communication of the technical details of the projects concerned to Pakistan. Things get stalled at that stage because of Pakistan's objections. Speculatively speaking, Pakistan is perhaps not keen on letting these projects go forward because (a) they are in what it regards as disputed territory, and (b) the benefits of the projects would go to J&K under Indian auspices. Hence, (presumably) the stalemate. Tulbul, Baglihar, etc, might not have proved so difficult to resolve if they had been located not in J&K but elsewhere. However, Pakistan did at one stage let Salal proceed under certain conditions; one had hoped that Baglihar would also be similarly allowed to proceed. That has not happened. One has to wait and see what the future holds.

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Ramaswamy R Iyer is an honorary research professor at the Centre for Policy Research (CPR) in New Delhi, India. References Adhikary, Q. K. Ahmad, S. K. Malla, B. B. Pradhan, Khalilur Rahman, R. Rangachari, K. B. Sajjadur Rasheed, B. G. Verghese (ed.), (2000), Cooperation on the Eastern Himalayan Rivers: Opportunities and Challenges, (New Delhi: Konark Publishers, 2000), under the auspices of Bangladesh Unnayan Parishad, Dhaka, Centre for Policy Research, New Delhi and Institute for Integrated Development Studies, Kathmandu. l Q. K. Ahmad, Nilufar Ahmad and K. B. Sajjadur Rasheed, Resources, Environment and Development in Bangladesh, (Academic Publishers, 1994) under the auspices of Bangladesh Unnayan Parishad, Dhaka. l Q. K. Ahmad, Asit K. Biswas, R. Rangachari, M. M. Sainju (ed.), Ganga-Brahmaputra-Meghna Region: A Framework for Sustainable Development, (Dhaka: The University Press Ltd, 2001). l Kaiser Bengali (ed.), The Politics of Managing Water, (Islamabad: Sustainable Development Policy Institute, and Oxford University Press, 2003) l Dying Wisdom: Rise, Fall and Potential of India's Traditional Water Harvesting Systems, (New Delhi: Centre for Science and Environment, 1997). l Anil Agarwal, Sunita Narain and Indira Khurana (eds.), Making Water Everybody's Business: Practice and Policy of Water Harvesting, New Delhi: Centre for Science and Environment, 2001). l B. R. Chauhan, Settlement of International and Inter-State Water Disputes in India, (Bombay: Indian Law Institute, N. M. Tripathi Pvt Ltd, 1992). l Rakesh Chettri, ‘Bhutan's Mega Power Politics’, Kathmandu Post, February 29, 2000. l Kanchan Chopra and Biswanath Goldar, ‘Sustainable Development Framework for India: The Case of Water Resources’ Final Report, Institute of Economic Growth, Delhi, for the UN University, Tokyo, October 2000. l Ben Crow, Alan Lindquist and David Wilson, Sharing the Ganges: The Politics and Technology of River Development, (New Delhi: Sage Publications, 1995). l Ben Crow, (1997) ‘Bridge over Troubled waters? Conflict and Cooperation over the Waters of South Asia’, in Sony Devabhaktuni (ed.), Regional Cooperation in South Asia: Prospects and Problems, Occasional Paper No.32, February 1997, The Henry L. Stimson Center, Washington D. C., USA. l ‘Water Management in Bangladesh: A Policy Review’, Livelihoods and Policy Relationship in South Asia, WP I, DFID, UK, and Other l K. B.

277 organisations, Department for International Development (DFID), UK. Dhawan, Indian Water Resource Development for Irrigation: Issues, Critiques and Reviews, (1993). l B. D. Dhawan (ed.), Big Dams, Claims, Counter Claims, (New Delhi: Commonwealth Publishers, 1990). l Tim Dyson, Robert Cassen and Leela Visaria, Twenty-first Century India Population, Economy, Human Development, and the Environment, (Oxford University Press, 2004). l Vinod K. Gaur (ed.), Earthquake Hazard and Large Dams in the Himalaya, (New Delhi: INTACH, 1993). l Peter Gleick, ‘Basic Water Requirements for Human Activities: Meeting Basic Needs’, Water International 21, International Water Resources Association, 1996. l Peter Gleick, ‘The Human Right to Water’, Water Policy I (1998), Elsevier Science Ltd 1999. l `Water Resources in Bangladesh', Government of Bangladesh (website). l National Water Policy, Ministry of Water Resources, Government of India, 1987. l ‘Integrated Water Resources Development A Plan for Action’, the Report of the National Commission on Integrated Water Resources Development Plan, Ministry of Water Resources, Government of India, September 1999. l ‘Reply to the World Commission on Dams’, letter No.2/WCD/2001/DT (PR) Vol.-III dated 1-2-2001 addressed to the Secretary General of the WCD (see WCD's website www.dams.org), Government of India. l National Water Policy 2002, Ministry of Water Resources, New Delhi, Government of India. l National Policy on Resettlement and Rehabilitation for Project (2004), Ministry of Rural Development, Department of Land Resources, Government of India, Resolution dated 17 February 2004. l S. Guhan, The Cauvery River Dispute: Towards Conciliation, (Madras: Frontline Publication, 1993). l Dipak Gyawali and Ajaya Dixit, ‘How Not To Do A South Asian Treaty’, HIMAL, Kathmandu, April 2001. l Dipak Gyawali, Water in Nepal, (Kathmandu: Himal Books, 2001). l Fantastic Dams, HIMAL South Asian, (special issue), Vol.11, Number 3, 1998. l Ramaswamy R. Iyer, ‘India and Bangladesh’, The Daily Star, Dhaka, Bangladesh, 22 May 2001. l Ramaswamy R. Iyer, ‘Delay and Drift on the Mahakali’, Himal South Asian, Kathmandu, June 2001. l Ramaswamy R. Iyer, WATER: Perspectives, Issues, Concerns, (New Delhi: Sage Publications, London: Thousand Oaks, 2003). l Ramaswamy R. Iyer, ‘Making of a Subcontinental Fiasco’, HIMAL South Asian, Vol.16, No.8, August 2003. l Ramaswamy R. Iyer, ‘Beyond Drainage Basin and IWRM: Towards a Transformation of Thinking on Water’, not yet published, but available l B. D.

278 for reference in the website of the University of California Santa Cruz (eScholarship Repository, May 2, 2004, http://repositories.cdlib.org/cgirs/CGIRS-2004-7 l Ramaswamy R. Iyer, ‘The UPA and the Cauvery Dispute’, The Hindu, 14 June 2004. l Ramaswamy R. Iyer, ‘Punjab Water Imbroglio: Background, Implications and the Way Out’, Economic and Political Weekly, 31 July 2004. l Ramaswamy R. Iyer, ‘Cauvery: Disappointments, Appeals’, The Hindu, 9 November 2004 l Ramaswamy R. Iyer, ‘Preserving Proprieties’, The Hindu, 14 December 2004. l Ramaswamy R. Iyer, ‘Water Governance, Politics, Policy’, paper prepared for a Conference organized by Institute of Rural Management, Anand, Gujarat, in December 2004 (not yet published). l Ramaswamy R. Iyer, ‘India's River-Linking Project: Implications For Nepal And Bangladesh’, Address at an International Conference on Regional Cooperation on Transboundary Rivers held at Dhaka on 17- 19 December 2004. l Patrick McCully, Silenced Rivers: The Ecology and Politics of Large Dams, (India: Orient Longman, 1998). l Dinesh Kumar Mishra, ‘Living with Floods: People's Perspective’, Economic and Political Weekly, 21 July 2001. l Moench Marcus, Caspari Elisabeth and Dixit Ajaya (eds.), Rethinking the Mosaic: Investigations into Local Water Management, Nepal Water Conservation Foundation, Kathmandu, and Institute for Social and Environmental Transition, Boulder, Colorado, USA, Dec.1999. l Vasudha Pangare and Ganesh, From Poverty to Plenty: The Story of Ralegan Siddhi, (New Delhi 1992). l Report of the Committee on the Pricing of Irrigation Water, Planning Commission, New Delhi, 1992. l R. Rangachari, ‘Some Disturbing Questions’, Seminar , 478, June 1999. l A brief report on Bhutan Water Vision, Policy and Act workshop held at Trashigang. (Ministry of Agriculture, 2003 – website) Royal Government of Bhutan. l National Environment Commission: Brief State of Environment, Royal Government of Bhutan. l Bhutan Water Policy, SaciWaters, (website): l ‘Floods: A Symposium on Flood Control and Management’, Seminar No.478, June 1999. l R. B. Shah, ‘Inter-State Water Disputes: A Historical Review’, International Journal of Water Resources Development, Vol. 10, No.2, Oxford, UK, 1994. l Tushaar Shah, Groundwater Markets and Irrigation Development, (Bombay: Oxford University Press, 1993). l Tushaar Shah, ‘Water and Welfare: Critical Issues in India's Water Future’, Economic and Political Weekly, 20 March 2004.

279 l Vandana

Shiva, Water Wars: Privatization, Pollution and Profit, New Delhi: India Research Press, 2002). l Satyajit Singh, Taming the Waters: The Political Economy of Large Dams in India, (Oxford University Press, 1997). l Bhim Subba, Himalayan Waters Promise and Potential, Problems and Prospects, (Kathmandu: Panos South Asia, 2001). l Bhekh Thapa and B. B. Pradhan, Water Resources Development: Nepalese Perspectives, (Konark Publishers Pvt Ltd, under the auspices of Institute for Integrated Development, Kathmandu, 1995). l Bhutan: State of the Environment 2001, Report No.1999EE46, The Energy Research Institute, New Delhi. Submitted to United Nations Environment Programme] UNEP: Regional Resource Centre for Asia and the Pacific web site. l E G Thukral, Big Dams, Displaced People: Rivers of Sorrow, Rivers of Change, New Delhi: Sage Publications, 1992) . l A Vaidyanathan, ‘Integrated Watershed Development: Some Major Issues', Society for the Promotion of Wastelands Development, Foundation Day Lecture, May 1991. l A Vaidyanathan, Water Resources Management: Institutions and Irrigation Development, (New Delhi: Oxford University Press, 1999). l A Vaidyanathan, ‘Imperatives of Water Governance’, The Hindu, 30 March 2004. l V. M. Valsalan, Inter-State Water Disputes in India: A New Approach Central Board of Irrigation and Power, New Delhi, 1997. l B G Verghese, 1990: Waters of Hope: Himalaya-Ganga Development and Cooperation for a Billion People, (Oxford & IBH Publishing Co. Pvt Ltd, for Centre for Policy Research, New Delhi, 1990), 1999: Second edition, with the sub-title ‘From Vision to Reality in Himalaya-Ganga Development Cooperation’. l B G Verghese, Winning the Future, (New Delhi: Konark,1994). l B G Verghese and Ramaswamy R. Iyer, Harnessing the Eastern Himalayan Rivers: Regional Cooperation in South Asia, (New Delhi: Konark Publishers Pvt Ltd, for Centre for Policy Research, 1993) . l B G Verghese, Ramaswamy R Iyer, Q K Ahmad, S K Malla and B B Pradhan (eds.), Converting Water into Wealth, (New Delhi, Dhaka, Kathmandu: Konark, 1994). l Special issue on water resources development, WATER NEPAL, journal of water resources development, Kathmandu, Nepal, Vol.6, No.1, January-July 1998. WASH: From Vision 21 to Action, Power Point Presentation, Water Supply and Sanitation Collaborative Council, Geneva www.wsscc.org l ‘Water Resources and Freshwater Ecosystems, Country Profile, Bangladesh’, World Resources Institute, 2004. l `Water Resources and Freshwater Ecosystems, Country Profile, Bhutan', World Resources Institute, 2004

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Water Vision 2025 papers: l Bangladesh Water Partnership, Bangladesh Water Vision, June 1999. l M.

Maniruzzaman Miah (ed.), Water Management in Bangladesh: From Vision to Action, Bangladesh Water Partnership, (Boipatra, Dhaka, 2003). l India Water Partnership, India Water Vision, July 1999 (India Water Partnership and Institute for Human Development, New Delhi 2000). l Jalasrot Bikas Sanstha, Nepal Water Vision, June 1999. l Pakistan Water Partnership, Pakistan Country Report- Vision for Water for the 21st Century 15 June 1999. World Bank: l ‘Water Resources Management’- A World Bank Policy Paper, 1993. l Round

Table on Water Sector Strategy Review, New Delhi, 11-12 May 2000: WB's website <www.worldbank.org > - Topics and Sectors Environment - Water Resources Management - Water Resources Management - Water Resources Strategy - South Asia). l ‘Water Resources Sector Strategy Review Draft March 2002’. l Rashid Faruquee and Yusuf . Choudhry, ‘Improving Water Management in Bangladesh’, Policy Research Working Paper 1569, the World Bank South Asia Country Dept I, Agriculture and Natural Resources Division, January 1996. l Dams and Development: A New Framework for Decision-Making, World Commission on Dams, (London and Sterling, VA: Earthscan Publications Ltd, November 2000).

Crisis of Minority Rights in South Asia Rita Manchanda

angladesh, India, Pakistan, and Sri Lanka are home to multiple nationalities, ethnic, religious, linguistic and caste communities--identities that were politicised under colonial administrations, strengthened during the process of constitutional reforms and reinforced by the “nationalising” processes of state consolidation. The ethno-geographic mosaic of these post-colonial states and the kingdoms of Nepal and Bhutan as they transform themselves into modern states, challenges the concept of a homogenous, “one nation-one people” state as developed in Europe. Instead, here it is more the construction of a state preceding the emergence of nation. State consolidation has been predicated towards majoritarianism in state ideology and design, and its articulation in structures of governance that are centralising, coercive, hegemonic, and exclusionary. Taking an overview of the crisis of minority rights protection in South Asia, this paper addresses the question of why minorities rebel, locating it in the context of state design and orientation that predicates majoritarianism and exclusion. The paper looks at the limits of strategies of multiculturalism and autonomies for reworking the minority rights question in the region. It problematises different state regimes of protection--the limits of constitutionalism, where a state's constitution itself discriminates, and where ethnic polarisation and war have rendered inadequate a minority rights framework for any enduring perspective for rebuilding relations (e.g., Sri Lanka's Sinhalese-Tamil conflict). Finally, the paper provides snapshots of living modes of exclusion in the region.

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The challenge of pluralism in South Asia is enormous and so too is the gap between the fundamental rights promised in various state constitutions and the banality of discrimination, violence, and inequality that is the everyday experience of people belonging to minority or indigenous communities. The state of most minorities in South Asia is abjectmarked by low income, lack of assets, voicelessness, and vulnerability. While these are aspects common to the poor in South Asia, people belonging to a “minority” feel them more acutely and more systematically, since they occur as a direct result of the violation of their rights by virtue of being a “minority”. For instance, more than 800 languages are spoken in the region, but only 66 percent of the population have access to education in their mother tongue (United Nations Development Programme [UNDP] 2004), thus disadvantaging linguistic minorities in education, civil service, and public life. Minority groups and indigenous peoples make up a disproportionate majority of the voiceless and of peoples under the poverty line. It is members of minority groups who are predominantly targeted by “prevention of terrorism” and other “emergency” regulations. Common citizenship delivers formal equal treatment, and lonely schemes of positive discrimination derogate against equal rights, but they have proved insufficient to solve the discrimination dilemma without an accompanying agenda for expanding democratic participation and realising equality and justice. As Samaddar (2004) emphasises, in his incisive analysis of the minority question in India, at its core is the “democracy deficit”. Indeed, if one follows the tracks of the minority rights question in South Asia as a whole, they lead us back to the “democracy deficit”. Whether the relationship between the majority and minorities will be one of pain and tension is critically determined by the design and effect of the state's orientation. In Nepal, after the “triumph of people's power” in April 2006, the country is poised to draft a new, more representative constitution. How will it address the challenge of transforming the system of institutionalised exclusion that has produced a disproportionate dominance by 16 percent of Nepal's upper caste Hindu hill elite (Bhattachan 1999 and Lawoti 2005)? Will it provide for sharing power with the excluded janjatis (indigenous peoples), Dalits, and women through a policy of reservations? Will it make changes in the electoral law, making for

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community (identity)-based parties? How many of the 61 indigenous nationalities (janjatis) and 125 languages spoken in Nepal will be recognised? Will it continue the hierarchy of “official” and “national” languages that discriminates against non-Nepali Khas speakers in schools, civil service, and the administration, including local government bodies? Nepal's 1990 constitution refused to recognise that the Hindu kingdom was home to Muslims, Buddhists, Kirants, Christians, Bons, and others. Will the new constitution enshrine secularism as a principle that cannot be revoked by legislation? How will it deal with institutionalised gender-based discrimination that has resulted in 173 instances of discrimination in 83 laws in Nepal?1 The unitary structure of the polity, which had marginalised the regions, braided together inequalities and exclusions across different dimensions--regional, ethnic, linguistic, rural, and class. What kind of autonomies will be negotiated in a federal restructuring of the polity? Such choices will determine whether the new Nepali state will reproduce a majoritarianism that will end up pushing some minorities onto the warpath and some into sullen submission. Culture and cultural values are not by themselves a source of conflict, but exclusion, suppression of socioeconomic and cultural rights, and denial of voice and dignity will lead to political mobilisation that increasingly tends to focalise grievances along cultural-ethnic lines. Still, the Maoist insurgency in Nepal is a critical reminder of the relevance of class as a significant axis of conflict intersected by the variables of ethnicity, caste, language, and religion. Nepal illustrates how inequalities and exclusions across different dimensions--regional, ethnic, urban-rural, and class--can create conditions for violent conflict. At the start of the insurgency in 1996, the poverty rate was 72 percent in mid- and far-western regions, but 4 percent in Kathmandu. Overlying these regional disparities were disparities in human development status, with the human development index (HDI) of upper-caste Nepalis being 50 percent higher than that of hill-ethnic, terai-ethnic, and occupational caste groups. Whereas indigenous peoples constitute 36 percent of the population, and Dalits 15 percent, they hold 8.42 and 0.17 percent of government posts, respectively. In the strongholds of the Maoist insurgency, poverty braids with inequality, and regional and ethnic discrimination (UNDP 2005). Moreover, this area has the smallest

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political voice in Nepal. The 1990 pro-democracy movement which mobilised ethnic communities also produced an elite compromise between the palace and the upper-middle classes, creating a widening chasm between democratic expectations and democratic practice (Goodhand 2001). The fault lines of poverty and inequality, urban-rural, indigenous-upper caste, metropolitan-periphery, and inequitable gender roles, all feed the conflict. No state in South Asia is free of internal strife. People belonging to different minorities, ethnic, religious, linguistic, and social groups, and indigenous tribes/communities are engaged in struggles against the state and other groups for the protection and preservation of their social, cultural, and economic rights. Their demands vary from equality and integration to regional/territorial autonomy, self-rule, self-government, and self-determination, including separation. The state has responded with violent suppression, resorting to what Sahadevan (1999) calls “ethnic militarism”, in his mapping of 18 conflicts over five decades: “Ten conflicts have been secessionist, with six groups demanding autonomy and two groups (Baloch and Pakhtun) having mixed goal preferences, articulated in terms of autonomy, secessionism, and irredentism. At least three secessionist movementsEast Pakistan, Khalistan, and Eelamoriginated from the mismanagement of autonomy demands, thereby indicating a trend towards conflict escalation.” According to Sahadevan (1999), one conflict in Misoram followed a “secessionist-autonomist-secessionist cycle”. The value of Sahadevan's (1999) analysis lies in his drawing attention to the state's militarist response to democratic aspirations. Gazdar (2006) emphasises Pakistan's use of a counter-insurgency mode against its own citizenry. In 20 of the last 35 years, since the “new” Pakistan, there have been military operations counter-insurgency style between security forces and Pakistan's citizenry to suppress what are projected as “insurgencies”. Balochistan (1973-77) was “dubbed a separatist movement”; Sindh (1983-89), “a fight against banditry” (ethnic Sindhis were at the forefront of the Movement for the Restoration of Democracy (MRD) against General Zia's dictatorship; and Karachi (1992-96), “ethnic terrorism and urban crime” (Mohajir assertion of ethnicity-based claims). Latter day military/counter-insurgency operations are directed against renewed resistance in Balochistan, disparaged as the cupidity of the sardars

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(tribal chiefs), and in Waziristan, to flush out the Taliban and Al Qaeda. The protagonists of these movements “share some project of ethnic sub-nationalism”; however, as Gazdar (2006) observes, while ethnicity is an important political variable in Pakistan politics, it has not been the determining demand except in Balochistan (Ahmed 1999 and Akhtar 2003). Contemporary conflict theory conceptualises multifaceted civil conflicts largely as “ethnic” conflicts, de-historicising and essentialising them. In focalising histories of social injustice, political exclusion, and socioeconomic grievances into ethno-nationalist conflicts, the questions that are sidestepped are these. To what extent are ethno-national and cultural differences a creation of elite-led politics, i.e., the mobilisation of collectivities by political entrepreneurs (Manchanda 2006)? To what extent does “ethnicisation” of conflicts displace and distract from other conflict fault lines rooted in the struggle to share resources, political participation, and respect and dignity for cultural identity? Ghai (2000) sums up ethnicity as the process “when these (cultural, religious, linguistic) markers cease to be mere means of social distinction and become the basis of political identity and claims to a specific role in the political process or power, ethnic distinction are transformed into ethnicity.” Ethnic movements often have as their crux, hardcore issues of social and economic justice and of public participation, but as in the case of the Tamil conflict in Sri Lanka, the protagonists on both sides articulate it in terms of ethnicity and identity (Uyangoda 2001). Indeed, the histories of the struggle of the Tamil, Naga, and Chittagong Hill Tracts (CHT) peoples map narratives of how and when a group refuses to accept at a historical moment the identity of a minority and claims instead the status of a people, a nation. In the constitution of majority-minority groups and majority-minority identities is the discourse of power. The redistribution of power lies at the vertex of the relation between state and “national” minorities. International discourses on human rights-minority rights promote strategies of multiculturalism and its variants: coexistence and diversity. The emphasis is on meeting the challenge of collective or cultural identities as reflected in UNDP's (2004) Human

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Development Report. It emerges from the same intellectual policy discourse as the 1997 report of the Carnegie Commission on Preventing Deadly Conflict. While warning that attempts at suppression of ethnic cultural or religious differences have “too often led to bloodshed”, the report exhorts that, “in case after case the accommodation of diversity within appropriate constitutional forms has led to diversity.” It is an argument for multiculturalism as a philosophical approach and prescriptive strategy for accommodating deep and defiant cultural diversity in post-colonial, multi-ethnic, and multi-religious societies or in societies with significant immigrant communities. Multiculturalism Multiculturalism refers to the value and prescriptive policy of cherishing cultural diversity as a public good and making different community identities central to the self-understanding of a nationstate's identity. However, as Parekh (2001) argues, in the dominant multi-culturalist discourse, the majority culture is accepted uncritically and used to judge the claims and define the rights of minorities. Multiculturalism is about “the proper terms of relationship” between communities and the “norms governing these claims including the principles of justice cannot be derived only from one culture alone but through an open dialogue between them” (Parekh 2001). Such a dialogue becomes extremely problematic when the international discourse demonises a culture, e.g., Islamic, or posits paradigms like the “clash of civilisations”. What does reworking the minority question on the basis of a politics of accommodation of cultural identity mean for South Asian minority communities? Mahajan (1998), a critical supporter of multiculturalism, believes that it has assured the protection of cultural identity by “safeguarding cultural autonomy and promoting cultural diversity”; where “it has failed is in promoting equality, nondiscrimination and vitally, equity”. The Indian constitution provides a framework for minority rights configured as a cultural category. Its consequence, as Mahajan (1998) concludes is that the “the concept of Minority Rights has become an instrument for enhancing cultural autonomy and diversity but not equality and equity”. More trenchant is Samaddar's (2004) assessment, where he argues that multiculturalism is “a weak answer to nationalising states

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determined to pursue overwhelmingly a politics of repression, assimilation, denial exclusion and marginality. Without locating minority rights as an agenda in democracy, multiculturalism may not be enough. The democracy deficit is at the heart of the minority rights question.” Equal Rights: Special Rights The guiding principle that human rights are universal, inalienable, and indivisible; and the enshrining of equality before law and nondiscrimination in constitutional structures and institutional practices, is not sufficient to enable minorities to enjoy equal rights. Even without states invoking religion, ethnicity, or nationality to dominate and oppress, people belonging to minorities and majorities are subject to very different (unequal) conditions of enjoyment of equal rights and fundamental freedoms. For example, the majority group's language usually equalises as the national language of the public sphere, e.g., Sinhala in Sri Lanka; consequently, there is natural support for its development. Not so with the language of a minority that would require special support. Universal citizenship is an instrument of equality in democratic states, but this universality produces the paradox of formal equality of all and the everyday deficit in realisation of power by weaker groups, individuals, and communities. Positive discrimination is one pathway. The Indian constitution provides for preferential policies that derogate against the principle of equal rights.2 It has enabled affirmative action in favour of “backward groups” and, for the identified minority, the creation of a separate domain/private sphere reserved for minority group members to maintain group identity distinct from the “common domain”/public sphere of common regulatory authority. It is a system of special autonomies. However, this mix of a strategy of “negative guarantees” and positive discrimination has been a weak instrument in providing protection or promoting equal rights and democratic participation. It has produced minority-ism (Mahajan 1998), i.e., a clamour for identification of new minorities and backward caste groupings, and resentment and opposition by the majority to what is variously referred to as “appeasement” of minorities or (by upper castes) of perpetuating caste-ism.

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Autonomies Autonomy is increasingly being posited as a way for plural states to deal with the aspirations of minorities, especially national minorities (Chaudhury et al 2006). It is a strategy for resolving the basic contradiction between the principle of people's “right to selfdetermination” and the principle of national sovereignty and territorial integrity of a state. Both norms are of great value and importance. The task is to find a balance between the two. The UN has sought to balance the right to self-determination and territorial integrity by recognising the rights of linguistic, ethnic, and religious minorities and developing universal norms and covenants for the protection of these rights. European institutions have gone a step further by encouraging states to grant “autonomy” and creating “federal” polities (Pan and Pfeil 2003). Under international law, the rights of “people” and minorities are different: people are a “nation” without sovereignty, while minorities do not have the right to self-determination. The confusion arises when a “people” are erroneously termed minorities, because (as a national minority) they live in a territory where they constitute a numerical minority in relation to other groups of people. People's right to self-determination is a political concept, and ethnic groups like the Tamils in Sri Lanka, the Jumma people of the CHT in Bangladesh, and the Mohajirs in Pakistan assert their status as “peoples” rather than “minorities” (Mahmud 1997). In the Sri Lankan Tamil context, the subordinate status associated with minority identity is rejected in favour of assertion of “Tamil nation, Tamil people”. Similarly, indigenous peoples can lay claim to an international rights discourse that recognises collective rights while minorities are entitled to individual rights. Minorities and indigenous peoples are separate concepts but interlinked by the shared context of discrimination and powerlessness. The rights of indigenous peoples to the traditional lands they inhabit are much stronger in international (and national) law. It explains why no country in South Asia formally recognises the presence of indigenous peoples. Nor is any country signatory to the International Labour Organization (ILO)'s Convention 169, the most comprehensive international legal instrument to address collective land rights and displacement of indigenous peoples. Even the 1997 CHT peace accord carefully makes

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no reference to indigenous peoples, but refers instead to “tribal inhabited areas”. Federal Polities South Asian states have been extremely wary of, if not hostile to, devolving power, and most have evolved into unitary states with, at best, administrative decentralisation. Even India, which has been the most far reaching in articulating an asymmetric federal polity with a complex structure of special autonomies, uses the nomenclature “centre-state relations”. The constitution has a unitary bias, e.g., after distributing legislative powers in three lists, not only are residual subjects left with the union, its will prevails on subjects in the concurrent list. The Indian parliament also reserves the right to change states' boundaries. India's constituent assembly discussions had envisaged a wideranging structure of self-rule and shared rule, but the shadow of Partition in 1947 diluted its federalising impulse. Post-partition federalism came to be viewed as carrying the seeds of secession and disintegration (Aurora and Verney 1995), with the ruling elite resisting the linguistic reorganisation of states and reinforcing central control. More than five decades later, India has failed to develop a conceptual framework of federal principles guiding the devolution of power. For instance, what is the basis for the formation of three new states? In Chattisgarh, language was the cultural element; in Jharkhand, tribal identity; and in Uttaranchal, regional culture (Oomen 2003). The Naga people's fifty-year old struggle for self-rule in the north east; Jammu and Kashmir's erosion of constitutionally sanctioned special autonomy, and people's alienation and the Punjab insurgency that was rooted in issues of autonomy and power sharing, are but three of the most significant conflicts that testify to the Indian elite's centralising and majoritarian impulse. Over and above the majoritarian impulse inherent in the concept of nation-state, two historical legacies were to propel the ruling elite towards a certain kind of state consolidation. The first was the colonial encounter, which left a dual imprint: the colonial power's administrative habits of governance centralised territorial control and drew up arbitrary boundaries that cut through national, ethnic, religious, and linguistic communities. The British administrators also

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fixed and institutionalised these fluid identities and organised governance on the basis of communal entities manifest as divideand-rule strategies. The colonial government's decision to introduce religion as the fundamental category for administrative and electoral classification infused a particular political meaning into concepts like “Hindu” and “Muslim”. The minority question in India is primarily a communal question. In Sri Lanka, the site of political representation was ethnic identity: Sinhalese, Tamil, and Burghers, i.e., belonging to a “racial” group. The Sinhala numerical majority was disadvantaged and Tamils privileged by colonial administrators. Tamil minority consciousness was to evolve in the process of constitutional reform. As a consequence, the defining characteristic of post-colonial state formation in Sri Lanka has been the ethnic bifurcation of the ruling class. Colonial administrations further reinforced the salience of communal entities by introducing legal pluralism as a structure of governance, i.e., uniform colonial laws for the public sphere and religion-based customary laws for the personal sphere. It afforded significant respect for customary legal regimes to do with collective land rights and protection against predatory “outsiders”, especially for indigenous peoples. However, then and now, such dual regimes tend to reinforce discriminatory politics not only against “outsiders” but also “insiders”, particularly disadvantaging vulnerable groups like women and depressed and backward castes. The second legacy to propel the elite towards state consolidation was the partition of the Subcontinent. In India, Partition diluted and reshaped constituent assembly discussions on self-rule and shared rule. Post-partition federalism came to be seen as carrying the seeds of disintegration. The move to recognise minorities' political rights was overturned. As the Indian leader Sardar Patel bluntly told constituent assembly members, “We are laying the foundation of One Nation and those who choose to divide again and sow the seeds of disruption, will have no place” (Ansari 1996). As a result, the issue of minority rights was relegated to the domain of protection, and not seen as integral to democratic nationhood. It made Indian rulers resist the demand for ethno-territorial autonomies and the eventual reorganisation of the state along linguistic lines.

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In Pakistan, the overhang of Partition determined the decision of the new rulers to not recognise the category of “national” minorities, which would introduce a competing claim to the state ideology of a Muslim nation. Pakistani ruling elite's discriminatory and antidemocratic politics of treating East Pakistan as an internal colony and denying the Bengali cultural identity resulted in a second violent Partition--Bangladesh--and further fuelled secessionist paranoia against autonomy. Evolution of Minority Rights Protection Historically, the failure to protect the rights of minorities within states has resulted in major internal and international conflicts. Consequently, it has prompted international concern and responsibility that has had to confront the fundamental principle of non-interference in the internal affairs of sovereign states. PostWorld War I political order produced a series of minorities' treaties involving the defeated territories with the League of Nations as guarantor. The treaties collapsed with the League. UN frameworks emphasised principles of universal protection in place of specific rights. Post-cold war, the return of the minority question of old Europe in new Europe in the violent break-up of Yugoslavia and the surge in identity-based conflicts prompted states to adopt the Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities (1992). The declaration was inspired by Article 27 of the International Covenant on Civil and Political Rights (ICCPR) 1966, the only global treaty with a provision specifically referring to minority rights: the right to enjoy in community with other group members, their culture, religion, and their own language. Fundamental to all human rights law is the principle of equality, and integral to that, the concept of non-discrimination. It ensures that no one is denied the protection of their human rights based on external factors like race, sex, language, colour, religion, national or social origin, birth, property, or political opinion. South Asian states are signatories to these conventions (albeit with significant reservations) that make up international human rights law and are expected to integrate these obligations with their national law. Politics of Recognition Recognition of a minority group is a crucial precondition for

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protecting minority rights. International conventions, declarations, and institutional mechanisms provide frameworks identifying minority rights and entitlements, but there is no consensual international definition of who or which group is the bearer of these rights. Consequently, states have interpreted what constitutes a minority to suit their own politics. Pakistan recognises only religious minorities and not its Sindhi, Balochi, or Pashto nationalities; it has created a new religious minority: the Ahmadis. Constitutionally, Bangladesh does not recognise that it has linguistic, religious, or ethnic minorities; it styles itself as mono-ethnic, mono-linguistic, and mono-religious, creating minorities of its Hindu, non-Banglaspeaking and Adivasi populations. Sri Lanka's minority rights discourse does not include recognition of social (depressed caste) minorities. India does not list its Dalit population as a minority and state institutions (e.g., the judiciary) legitimise a homogenous Hindu identity excluding multiple sects from the religious minority category. Constitutionally, religious and linguistic minorities are constructed as a cultural category, sidestepping the issue of power and public participation. Nepal denies its multi-religious character and institutionalises exclusion of its linguistic and ethnic minorities. The most widely accepted theoretical definition of “minority” is probably the one given by Capotorti (1976),3 a Special Reporter of the UN Sub-Commission on Prevention of Discrimination and Protection of Minorities. He established certain objective and subjective criteria for determining a minority; the objective criteria identify numerical inferiority, and the subjective criteria refer to a group that shows solidarity in preserving its culture, traditions, religion, and language. Capotorti's (1976) definition would leave out Dalits and other racially discriminated groups who do not wish to preserve the basis of their difference, whose identity was imposed by dominant castes or groups, and who were constituted as undesirable and debased. Consequently, at a wide-ranging minority rights consultation in Kathmandu in 1998, South Asians were more inclined towards the definition provided by Capotorti's colleague, Deschenes,4 which shifted the emphasis from preservation of identity to their collective will to survive and their desire to achieve equality with the majority

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in fact and in law (Banerjee 1999). This still left out minorities, especially national minorities, who did not wish to assimilate and integrate. It is these people's desire to preserve their identities that is looked on with suspicion by the majority. Moreover, “minority” as a numerical concept overlooks the situation of a discriminated majority, e.g., blacks in apartheid South Africa. Numerically smaller groups are not necessarily subordinate or backward or less likely to have access to opportunities, e.g., Newaris in Nepal or Mohajirs in the early phase of state formation in Pakistan. Also, Sri Lanka's politics of ethnic relations defy the majority-minority dichotomy in a profoundly phenomenological sense--the Sinhala majority with a minority complex, and the Tamil minority with majority ambitions (Uyangoda 2001). In the case of Kashmir, one has a Muslim-majority province in a minority situation in India. A key criterion is self-identification as a minority (and the group's right to determine who is a member of the minority). Several groups, e.g., the Tamil community, the Naga peoples of northeast India, or indigenous peoples of the CHT in Bangladesh, have repudiated identity as a (subordinate) minority and claimed for themselves identity (and rights) as a “nation” (the people of the “Jumma” nation in the CHT and the Mohajirs as an ethno-nationality) (Mahmud 1997). None of these peoples see themselves as “ethnic communities”each claims to be a nation. National Frameworks for Minority Rights South Asian states in the political organisation of their plural societies have experimented with different models: from federalism with special autonomies to unitarian state structures; from multiparty democracy to party-less authoritarian and military governments; from secular to theocratic orientation; and from republic to monarchy. Some polities, e.g., India, have articulated an elaborate framework of constitutional guarantees for minority rights protection and asymmetric federal structures for devolving power. With others, like Pakistan and Bangladesh, the constitution itself has become a source of discrimination and victimisation. In Nepal too, exclusion is deeply institutionalised. Sri Lanka has sought to evolve a constitutional and legal regime of protection against the backdrop of an ethnicised conflict with little or no success. Ethnic polarisation

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has defeated experiments in federal devolution and reinforced the state's unitarian ideology and centralised structure, as well as Sinhala-Buddhist hegemony. Rather than politics, the fallback is administrative strategies, such as the abortive P-Toms mechanism (for integrating the LTTE-controlled north and east in post-tsunami reconstruction). The constitutions of all these states (including Bhutan's draft constitution) have a fundamental rights chapter that provides for fundamental human freedoms applicable to all citizens, irrespective of race, place of birth, religion, caste, creed, colour, or sex; subject to certain restrictions, these provisions are largely enforceable by the courts. Fundamental rights primarily protect individuals from arbitrary state policies. International discourses on human rights and minority rights have been braided together in the “nation-state” building process in these countries. However, historical circumstances, contextual specificity of ruling class ideology, and the overall exigencies of creating a coherent “nation-state” around an often fictive ethnic core in highly plural societies, has produced a region rife with minorities at risk. For the dominant (majority) groups, minority rights are seen as challenging the state. The region's minority communities, on the other hand, have in common the experience of majoritarianism and their discrimination and disempowerment resulting in submissive acquiescence to resistance or violent revolt. Some of the broad contours of the constitutional dynamics of protection and exclusion are discussed below with reference to Pakistan, Bangladesh, and India. Pakistan Pakistan's state ideology is anchored in the faith of the Muslim people as a nation, with consequences for non-Muslims and other nationalities in the territory (e.g., Baloch, Pakhtun, and Sindhi). In 1949, the Constituent Assembly adopted the Objectives Resolution despite objections raised by non-Muslims to its Islamic characterno law repugnant to Islam could be adopted. It became the preamble to Pakistan's 1956, 1962, and 1973 constitutions and paved the way for all subsequent Islamic provisions. Starting as a secular democracy, the country has moved closer to a theocratic state. Pakistan is an Islamic republic and the state religion is Islam.

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Religion-Based Exclusions Separate electorates. The controversy over separate electorates has raged from the first constitutional regime, which proposed separate electorates for West Pakistan and joint electorates for East Pakistan, to joint electorates in the 1973 constitution till President Zia-ul-Haq reintroduced separate electorates. In 2002, joint electorates were reintroduced, ending a structure of political apartheid that had kept minorities out of the political mainstream and led to socioeconomic discrimination (Zia, forthcoming). Head of state. The constitution stipulates that the head of state be a Muslim, and the wording of the mandatory oath ensures that the prime minister too must be a Muslim. Ahmadis declared non-Muslim. The Second Amendment to the constitution (1974) declared Ahmadis (who believed themselves to be Muslims) non-Muslims. It was the first violation of the fundamental rights of a minority community at the constitutional level. Ten years later, they were denied the right to publicly practice their faith. In the 1980s, “offences relating to religion” amendments were made to the penal code that particularly victimised Ahmadis. Articles 298A, B, and C proscribed anyone from “directly or indirectly” posing as a Muslim or by “visible representation or by in any manner whatsoever outrages the religious feelings of Muslims”. More than 2,000 Ahmadis have been charged under the Blasphemy Law. Moreover, in 2002, when joint electorates were introduced, the status of Ahmadis remained unchanged--on the list of separate voters. With the community declining to take the oath on the finality of prophethood, they remain virtually disenfranchised. Council for Islamic Ideology. The council was given a constitutional basis under Article 228. Hudood Offences Ordinance (1979). This ordinance ousts the testimony of non-Muslims against a Muslim accused for awarding a hadd (Quranic penalty); and devalues the testimony of non-Muslims and women to half that of Muslim males. The presiding officer of a court trying a case under the Hudood Ordinance must be a Muslim unless the accused is a non-Muslim. The Hudood (Offence of Zina) Ordinance criminalises all extra-marital sex. For minorities, making adultery punishable creates serious problems in Christian divorces,

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for which adultery is the only valid ground for divorce. Federal Shariah Court. This supra-constitutional body was set up in 1980 with powers to examine and declare any law repugnant to the injunctions of Islam. The right of appeal was provided to the Supreme Court-Shariat Appellate Bench. Non-Muslims can never be members of this bench and non-Muslim lawyers cannot appear before these courts unless the parties before the court are nonMuslims too. Blasphemy Law. In the 1980s, amendments were made to the penal code chapter on offences relating to religion that made certain acts criminal offences and introduced severe penalties. Ordinance XX (1984) introduced the death penalty, while Article 295C, in particular, has victimised non-Muslim minorities, its loose formulation making it an easy tool in the hands of extremist elements wanting to settle personal scores with religious minorities. Objectives Resolution. This was made a substantive part of the constitution (1985) through the insertion of Article 2A and modified by dropping the word “freely” from “to profess and practise religions…” Although the right to judicial review of legislation exists, in cases of violation of the constitution, the Supreme Court has not emerged as a forum for defending minority rights and judges appear to reflect the prejudices of society at large. For example, in 1993, a spate of cases was filed by members of the Ahmadi community, holding that their religious freedoms as guaranteed under Article 20 were being violated. The Supreme Court ruled that granting Ahmadis equal rights would be against public order. The majority (Sunnis and Shias) consider “the movement ideologically offensive”. Moreover, with the establishment of the Federal Shariah Court, the hierarchy of jurisdiction has become ambiguous. The judicial process for religious offences tends to be dilatory as judges feel threatened by the presence of Islamists in the courts and tend to adjourn hearings. A judge who acquitted a young Christian accused under the Blasphemy Law was shot dead soon after. In addition, there are linguistic and nationality-based exclusions. Pakistan's constitution barely reflects the multilingual character of

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the country, with six major and over fifty-nine minor languages. Punjabi accounts for 44 percent, Pashto for 15 percent, Sindhi for 14 percent, Seraiki for 11 percent, Urdu for 8 percent, and Baloch for 4 percent. The only recognition of the country's multilingual character occurs in Article 251, which enables the provincial assembly to promote the use of the provincial language along with the national language. Demand for equality between the provinces and autonomy within has seen Pakistan's ethno-linguistic groups define themselves as “nationalities”. Pakistan's constitution does not recognise the multinational character of the state. In 1975, the government passed a law prescribing a seven-year imprisonment for individuals advocating the presence of more than one nationality. The state has responded in “counter-insurgency” mode to suppress ethnic, sectarian, and class conflicts. “Islamism” has been used to stifle the claims of the nationality question, but it remains a flashpoint and is intensifying (Human Rights Commission of Pakistan [HRCP] 2001 and 2003). Bangladesh: One Religion, One Language The new state of Bangladesh emerged as a secular polity with a constitutional embargo on religion in politics. The original 1972 constitution had four basic principles: secularity, nationalism, democracy, and socialism. However, later amendments replaced “secularity” with “absolute trust and faith in the Almighty Allah”. Tension between Bengali nationalism based on language and culture and Bangladeshi nationalism rooted in the primacy of religion, has resulted in a steady drift towards Islamic hegemony. Both have had exclusionary consequences for its religious, linguistic, and ethnic minorities (Samad 1999). Bangladesh declared itself a unitary and culturally homogenous nation, emphasising the hegemony of the Bengali nation, thus excluding non-Bengali Chakmas, Marmar Tripuras, and plains tribal ethnic communities that make up a little over 1 percent of the population. Subsequent amendments to the constitution (Article 6) declared that citizens of Bangladesh were to be known as Bengalis, turning the non-Bengali population into ethnic minorities. Article 3 adopted Bengali as the state language, turning non-Bengali-speaking populations, including the Urdu-speaking Biharis, into linguistic minorities. Article 2 made Islam the state religion, thus excluding the Hindu, Buddhist, Christian, and animist communities.

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Mohsin (2003), mapping the constitutional processes by which the rights of Bangladesh's minorities and indigenous peoples have been derogated, states that constitutional provisions have by implication “become instruments of hegemony and domination” in the hands of successive governments. She focuses on the changes in the constitutional status of the CHT as an “excluded area”, thus eroding its autonomy and restricting the access of “outsiders”. On top of the massive displacement caused by the construction of the Kaptai Dam, land was further alienated through a policy of state-aided settlement of 400,000 Bengalis. Suppression of their cultural identity and the rights of the hill tribes culminated in twenty-five years of armed struggle till the 1997 peace accord. However, it is an executive accord and has no constitutional status. Moreover, let alone acknowledging their rights as indigenous peoples, it refers to the CHT as “tribal inhabited area”. Bangladesh is a striking instance of the use of law to alienate minority people's right to enjoy their property, through the Vested Property Act 1974, which supplanted the Enemy Property Act 1965 of undivided Pakistan. It was used against both Hindus and ethnic communities, and said that the properties of Indian nationals residing in Pakistan or of Pakistan citizens residing in India would be identified as “enemy” property. In particular, it made Hindu-held property insecure because ownership had to be proven at various levels. Local officials and law enforcement agencies were found to side with the majority against minorities in land cases. According to one estimate, 30 percent of all Hindu property was “legally” swallowed up under this act. It was withdrawn by Sheikh Hasina's government in 2001 (US State Department 2005). India: Limits of Constitutionalism India's post-independence ruling elite piloted a brave pathway of constitutionalism for protection of the rights of religious, linguistic, and social minorities, as well as indigenous peoples; provided affirmative action to overturn the histories of injustice and inequality of tribes and oppressed castes; devolved power through a structure of asymmetric federalism to meet demands for self-rule; and inscribed as non-“derogable” the principles of secularism and democracy. However, the living modes of discrimination and exclusion that still exist are testimony to the limits of a constitutionalism that enshrines

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diversity, cultural rights, and autonomy for protecting minority rights when there is little accompanying philosophic consciousness of the values of tolerance of difference, justice for righting historical wrongs, and autonomy enabling self-rule. India's constitution guarantees the fundamental rights of equality and nondiscrimination to all citizens. However, where common citizenship is the fulcrum for accessing rights, it inevitably tilts towards the individual and thereby the majority in political rule. The constitution does not recognise group rights, only individual rights. It does refer to minorities but only those “based on religion or language”. The safeguards for minorities' economic and political rights provided in the draft constitution (1947-49) were dropped with the assurance that the majority would be fair and generous to the minorities (Sammadar 2004).5 There is no state religion; all were to be treated equally. The constitution describes the state as sovereign, socialist, secular, and democratic. The “secular” orientation was introduced by an amendment in 1976 (under Emergency rule). The discourse of secularism was constructed on the basis of equal rights, but has been translated as based on the majority. It has lulled some minorities, e.g., Christians, into turning their backs on minority status and calling themselves secular. Without the philosophic underpinnings of the value of tolerance in society, secularism becomes reduced to an administrative strategy used by cynics, without providing minorities protection. As Samaddar (2004) presciently notes, “The contentious history of democracy in India has shown that majoritarianism appears not by contravening these principles ('justice to all', 'dignity of the individual') but on their basis as a majoritarian power structure that can wield this to its advantage”. The directive principles of the constitution (non-justicible) urge the state to work towards establishing a uniform civil code. But this has become a euphemism for a majority-defined (upper-caste Hindu) code rather than the product of a dialogue between different systems. The constitution provides for legal pluralism for religious minorities in their personal sphere and also in certain areas of the public sphere--management of minority educational institutes and trusts

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(there is a differentiated legal regime for scheduled tribal areas). It has produced a tension between what Asbjorn Eide describes as the “common domain” that ensures equality and the “separate domain” designed to respect diversity and maintain group identity. As Oomen (2003) states more explicitly, “Citizenship is an instrument of equality in democratic states, ethnicity and nationality are often invoked to confer or deny equal rights”. This unresolved tension between separate and common rights produces majority accusations of appeasement without providing minorities protection. Autonomy, especially under siege, is most disadvantageous to women, who are constructed as bearers of community identity in a patriarchal discourse. The majority-minority relationship becomes particularly problematic when the public sphere is accessible to takeover by a group (majority) determined to impose its values in large or total measure on state institutions, thereby almost equalising the public and group interest. This was evinced in the hegemony of Hindutva discourse. Gujarat is the most dramatic demonstration of this phenomenon, which has produced a virtual apartheid situation. For example, Articles 25 to 28 address the subject of freedom of religion. Under Article 25, citizens are “entitled to freedom of conscience and the right to freely profess, practice and propagate religion”. However, these rights are, as in most constitutions, subject to “public order, morality and health”. States are allowed to pass laws “regulating” or “restricting” activities that may be associated with religious practices. This has been exploited by states to institute laws that violate fundamental rights enshrined in the constitution. The most controversial are the anti-conversion bills that were passed by the state legislatures of Orissa (1967), Madhya Pradesh (1968), Tamil Nadu (2002, now nullified by the DMK), Gujrat (2003), Chattisgargh (2005) and most recently, Rajasthan (2006), which has been rejected by the governor. The Rajasthan Dharma Swatantrik Vidhayak Bill illustrates the anti-minority bias of the state legislature and its loose formulation, the vulnerability of minorities. Under this act, “No person shall attempt to convert either directly or otherwise any person from one religion to the other by use of force or by allurement or by any other fraudulent means…” The state's communal agenda is exposed in the provision allowing “vapasi” (re-conversion).

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India's varied experiments in federalism and special autonomies have often been proposed as a model for accommodating democratic aspirations for self-rule that threaten to split apart countries like Sri Lanka. The dynamics of India's lived experience of federal powersharing continues to reflect the overriding concerns for the unity and integrity of a culturally diverse nation that preoccupied the constituent assembly as it laid down the foundations of the constitution, resisting the linguistic organisation of states and emphasising “administrative convenience”, although postindependence agitations obliged Nehru to concede the former. Centralising and authoritarian impulses motivated by national security state pathology as well as the vision of centralised planning for development, have resulted in repeated assaults on the actuality of power sharing and special autonomies. The last five decades have seen the democratic transformation of the structure of power in India as manifest in coalition governments at the centre and powerful regional forces in the states, shifting the balance of centre-state relations. It has challenged the capacity of the federal power structure to provide protection to minorities within states. Attacks on religious and social minorities are increasing. The 2002 Gujarat communal carnage exposed the clash between the federal principles that protect state autonomy and the central government's responsibility to protect fundamental rights, which belong to all citizens (Academy of Third World Studies and South Asia Forum for Human Rights [SAFHR] 2004). The BJP-led government in Delhi failed to intervene on the grounds that the Gujarat (BJP) government was legally constituted and empowered. Four years later, when Gujarat threatened to explode into communal violence again, abetted by state institutions, the centre's Congressled government intervened and stopped the violence. But this ad hocism is no substitute for constitutional clarity or a mechanism for dealing with a situation where a federating unit turns rogue. Living Modes of Exclusion The challenge of pluralism in South Asia is enormous and so too is the gap between the fundamental rights promised in each country's constitution and everyday forms of discrimination and inequality. In Nepal, the caste Hindu hill elite make up 16 percent of the population and dominate political economic and sociocultural life,

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while 85 percent of the population, including women, is marginalised and excluded. Forty percent of Nepal's population is literate but only 10 percent of Dalits can read and write--they make up 15 percent of the population. Post-multi-party democracy, in successive elections from 1994-99, not a single Dalit has been elected to the National Assembly. Nepal's janjatis make up 36 percent of the population, but there are only four persons from the janjati community in the judiciary and a little over 1 percent in the civil service and security forces (Lawoti 1999). The traditional communal land tenure system of the Limbu janjati group in eastern and north-eastern Nepal was overridden by the 1960 land reforms, dispossessing the Limbus, but multi-party democracy did not prevent 71 percent of Limbus from being pushed below the poverty line. The Madhesi, who have constituted themselves as an indigenous nationalities of the tropical foresthigh caste, Dalit, and Muslimare discriminated against on the basis of region. Madhesia leaders claim that 3,00,000 people are deprived of citizenship. Nepal's 1990 constitution recognises the country's multilingual character but, in 1999, the Supreme Court prohibited the use of any language other than the “official” language Khas in elected local bodies. In India, a quarter of the population lives below the poverty line. Muslims, who make up 13 percent of the population, disproportionately account for India's poor. In urban India, 60 percent of Muslims have never gone to school as against the national average of 20 percent. In rural India, Muslim landlessness is 51 percent as compared to 40 percent for Hindus. In endemic communal violence, it is largely Muslims who are the victims--in the 1970 Bhiwandi riots, 59 of the 79 dead were Muslims. Political violence against minorities peaked with the consolidation of Hindutva forces leading to the communalisation of institutions such as the police, administration, and judiciary. In the Gujarat communal violence of 2002, when some 200 Hindus and 2,000 Muslims were killed, more than 300 persons were arrested of which only three were Hindu. Draconian laws like the TADA and POTA have been used extensively against rebellious members of the minority community. A study carried out in ten states by the NGO People's Tribunal in July 2004 found that 99.9 percent of those arrested under the POTA were Muslims. Adivasis make up 8 percent of India's population. From 1951 to1990,

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dams, mines, and industries have displaced 21.3 million people, of which 45 percent are tribal and 75 percent of which have not been resettled. In Andhra Pradesh, 50 percent of cultivable land in the scheduled areas is occupied by non-tribals (Reddy 2006). In Sri Lanka, Tamils fell from their privileged position of dominating 30 percent of public sector jobs with the promulgation of the Sinhala-Only Official Languages Act 1956. By 1970/71, although earlier accounting for 18 percent of the Sri Lankan population, Tamils had slumped to 11 percent, falling further to 5.7 percent in 1978-81. Less than 8 percent of Sri Lankan public servants are Tamil-speaking, while 26 percent of the country's population, including plantation Tamils and Muslims, are Tamil speaking. The government's preferential admissions system to higher education, known as the “policy of standardisation” has squeezed out Tamil students from medical and engineering colleges, and seen the number of student drop to 22 percent and 28 percent in medical and engineering schools, respectively. A combination of restrictive citizenship law and electoral law disenfranchised 975,000 hillcountry Tamils in 1956. It is estimated that 150,000 are still stateless in Sri Lanka (Sambandam 2003). Government-sponsored land settlement schemes planted 300,000 Sinhalese in areas considered by the Tamils to be part of the “homeland”. Discriminatory policies and war have produced a diaspora of 2 million displaced Tamils. The war has devastated the northeast, causing the country's impressive social indicators for the region to plummet. A GTZ study notes that, in Trincomalee, assessed birth weight shows malnutrition and high wastage among mothers (Senanayake 2004). Bangladesh's Hindu minority has dwindled from 28 percent in 1941 to 9 percent in 2002. On average 538 Hindus went “missing” each day between1964 and 1991. Minority out-migration was accelerated by the legal regime of the Enemy Property Act and its post“Liberation war” form, the Vested Property Act 1974-2001. Nearly 30 percent of all Hindu property was alienated by this act, often accompanied by violence, forcible occupation, and the connivance of corrupt officials. In the country's 300-seat parliament, religious minorities hold seven seats. Political violence between the two main political parties often leads to the motivated targeting of Hindus as during the October 2001 elections, which were marked by 1,500 violent incidents against Hindus, including torture, rape, and forcible

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occupation of property and lands aimed at decimating a supposed vote bank. Minorities remain poorly represented in government institutions. The government-owned Bangladesh Bank employs 10 percent non-Muslims in its upper ranks. There are no known government-run Christian, Hindu, or Buddhist schools. In 1947, the indigenous population in the CHT was 97 percent; now one in two persons is a Bengali. The Kaptai Dam has submerged 40 percent of cultivable land area, and galloping encroachment by state-sponsored Bengali settlers has further increased pressure on land400,000 landless Bengalis were settled in the CHT between 1978 and 1984. Pakistan's women, and Christian, Hindu, and Ahmadi communities are victimised by a constitutionally sanctioned legal and juridical regime that promotes a culture of discrimination, intolerance, and extremism. As mentioned earlier, the Federal Shariah Court bars non-Muslims as members and non-Muslim lawyers from appearing before it. The Hudood Ordinance ousts the testimony of nonMuslims against a Muslim accused (and equates women's testimony to half that of men), while the Hudood (Offence of Zina) Ordinance, which makes adultery punishable, creates serious problems for Christian divorces on the ground of adultery. The Blasphemy Law, which discriminatingly protects the sanctity only of Muslim holy personages and their religious sentiments, has been used by religious extremists to target 2,000 Ahmadis and, more recently, 55 to 60 Christians. Denial of the nationality question, and marginalisation of national minorities in the distribution of power and resources, has produced ferment and violent revolt. Balochistan, which produces 36 percent of Pakistan's natural gas, receives barely 12 percent of the royalties. The presence of Balochis in the civil-military power structure of Pakistan is negligible: in the civil service, it is 3 percent, and in the army, practically non-existent. The literacy rate in province is the lowest in the country: one-third the national average. Moreover, as these living modes of discrimination and exclusion of minorities demonstrate, the minority question in South Asia is a trans-border concern. As former Indian foreign secretary, S K Singh, said, “What happens in the states of UP and Bihar has implications in Nepal, of Tamil Nadu in Sri Lanka and similarly developments in Punjab, Rajasthan, UP and Jammu and Kashmir reverberate in Pakistan and Bangladesh”. Indeed, the network of co-ethnicities, languages, and religion makes for a complex dynamics of action-

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reaction. Soon after the 1965 Indo-Pakistan war, Pakistan promulgated the Enemy Property (Custody and Registration) Order, by which industries, trading centres, and landed properties belonging to the Hindu community (or belonging to Indian nationals residing in Pakistan, deemed “enemies”) were listed as abandoned and nationalised. The destruction of the Babri Mosque unleashed mob attacks on Hindus and their properties in Pakistan and Bangladesh. It was perhaps not incidental that, in 1993, the Bangladesh Home Ministry asked commercial banks to block substantial cash withdrawals and to withhold disbursement of business loans to the Hindu community in the districts adjoining the India-Bangladesh border. Conclusion In the midst of growing concern about the crisis in minority rights protection in South Asia, there are sites of resistance, agency, and transformation. Madrassahs (religious schools) in West Bengal, to which students of all communities flock, have become significant catalysts for fostering communal harmony. Independent fact-finding missions, people's commissions, and people's tribunals have emerged as important civil society mechanisms for revealing the facts and holding the state accountable for violation of minority rights. Minority groups have been slow to come together, divided by a seeming conflict of interests as they assert competing claims (minorityism) to equitable access. However, emerging cross-border solidarities and initiatives have drawn attention to the common problems of majoritarianism--which effectively blocks the legitimate participation of minorities in the public sphere--and the communalisation of politics and politicisation of religion. As the Regional Minority Rights Consultation in Kathmandu (1998) revealed, a major factor preventing minority communities from fighting for their rights is their lack of awareness about human rights and democracy (Banerjee 1999). This moment in history is being hailed as the age of democracy, human rights, and the rule of law. However, increasingly rights are being mauled by the so-called “war on terror” that has reinforced xenophobia and racism and seriously undermined the rule of law in the world. States have used the pretext of the “war on terror” to deny and repress the political assertion of minorities. At the international

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level, this has produced aggressive and ambivalent international doctrines of humanitarian intervention. The moral ambiguity of the US-led international system of intervention has put in question wellintentioned initiatives like the recently adopted UN declaration on the responsibility to protect populations against genocide, war crimes, ethnic cleansing, and crimes against humanity (2005). Important for minority rights protection are developments such as the General Assembly's decision to upgrade and create the Human Rights Council in place of the Human Rights Commission, which was a subsidiary of ECOSOC; and the setting up of two new UN posts in 2005: a special advisor to the secretary general on the prevention of genocide, and an independent expert on minority issues, appointed by the UN high commissioner for human rights. Rita Manchanda is a journalist and human rights activist involved with the South Asian Forum for Human Rights (SAFHR) in New Delhi, India. References l Academy of Third World Studies and SAFHR. 2004. Federalism and Protection of Minorities in India. Workshop report. Jamia Milla University, New Delhi, 27-28 February. l Ahmed, Feroz. 1999. Ethnicity and Politics in Pakistan. Karachi: Oxford University Press. l Akhtar, Shaheen. 2003. Pakistan's Dimensions of Security. In Comprehensive Security in South Asia: Ethnic Dimensions. Edited by V Raghavan. New Delhi: Delhi Policy Group. l Ansari, Iqbal. 1996. Introduction to Readings on Minorities. Vol. 2. New Delhi: Institute of Objective Studies. l Aurora, Balveer, and Douglas Verney, eds. 1995. Multiple Identities in a Single State: Indian Federalism in a Comparative Perspective. New Delhi: Konarak. l Banerjee, Sumanta, ed. 1999. Shrinking Space: Minority Rights in South Asia. Manohar: SAFHR. l Capotorti, Francesco. 1976. The Protection of Minorities under Multilateral Agreements on Human Rights. Italian Yearbook of International Law 2 (14). l . Study on the Rights of Persons Belonging to Ethnic, Religious and Linguistic Minorities. UN Document E/CN.4/Sub.2/384/Add.1-7. Geneva: UN Centre for Human Rights. l Carnegie Commission's Report on Preventing Deadly Conflict. 1997. l Chaudhury, Sabyasachi Basu Ray, et al, eds. 2006. Indian Autonomies: Keywords and Key Texts. Calcutta: CRG-SAMPARK. l Gazdar, Haris. 2006. Counter-insurgencies in Pakistan. Economic and

307 Political Weekly. 20 May, 1952-1953. l Ghai, Yash. 2000. Ethnicity and Autonomy: A Framework of Analysis.

In Autonomy and Ethnicity: Negotiating Competing Claims in Multiethnic States. Cambridge University Press. l Goodhand, Jonathan. 2001. Conflict Assessments: A Synthesis Report, Krygyzstan, Modova, Nepal and Sri Lanka. London: Centre for Defence Studies, King's College London. l HRCP. 2003. Minority Rights in Pakistan. HRCP, Karachi, 12 April. l HRCP. 2001. Ethnic and Language Rights: National Consultation on Status of Minorities' Rights. HRCP, Karachi, 27-28 July. l Lawoti, Mahendra. 2005. Towards a Democratic Nepal. New Delhi: Sage Publications. l Bhattachan, Krishna. 1999. Minority Rights in Predatory Nepalese State. In Shrinking Space: Minority Rights in South Asia. Edited by Sumanta Banerjee. Manohar: SAFHR. l Mahajan, Gurpreet. 1998. Identities and Rights. Delhi: Oxford University Press. l Tayyub Mahmud 'Migration, Identity and the Colonial Encounter 'Oregon Law Review Fall 1997, University of Oregon l Manchanda, Rita. 2006. ' Conflicts and the Politics of Peace in South Asia' in R.N. Kumar and Sonia Muller-Rappard edited Critical Readings in Human Rights and Peace, SAFHR- SHIPRA Publications. l Mohsin, Amena. 2003. Ethnicity and Conflict: The Bangladesh Case in V Raghavan ed Comprehensive Security. l Oomen, T K. 2003. Ethnic Dimensions of Security: Situating India in the Context of South Asia in V Raghavan edited Comprehensive Security in South Asia. l Pan, Christoph, and Beate Sibylle Pfeil. 2003. Ethnos: National Minorities in Europe Braumuller. l Parekh, Bhigu. 2001. Rethinking Mulitculturalism Palgrave New York. l Reddy, N Subba. 2006. 'Development through Dismemberment of the Weak: Threat of Polavaram Project' Economic and Political Weekly April15, pp. 1430-1434 l Sahadevan, P. 1999. Ethnic Conflict and Militarism in South Asia Kroc Institute Occasional paper 6 OP :4 University of Notre Dame. l Samad, Saleem. 1999. Bangladesh: State of Minorities in Sumanta Banerjee ed Shrinking Space. l Samaddar, Ranabir. 2004. 'The Juridical Political Claims of Minority Protection in India' Paper in a Reader for South Asian Workshop on Combatting Racism, Xenophobia and Discrimination against Ethnic Minorities and Indigenous Peoples, SAFHR Kathmandu, May 2004 l Sambandam, V S. 2003. 'A promise of Identity' Frontline 1 March. l Rajasingham-Senanayake, Draini. 2004. Data, Demography and the Conflict-Development Nexus. Paper presented at the ICDP +10 Conference organized by IPPF Kathmandu, August. l US State Department. 2005. International Religious Freedom Bangladesh: Country Report 2005 .

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l UNDP. 2004. Human Development Report “Cultural Liberty in Today's

Diverse World'. l UNDP. 2005.

Human Development Report 2005 p 163. Available (http://undp.org/reports/global/2005 ) l Uyangoda, Jayadeva. 2001. 'Questions of Sri lanka's Minority Rights', ICES, Colombo. l Zia, Shahla. 'Discrimination Against Religious Minorities : Constitutional Aspects' in Rita Manchanda edited Shrinking Space vol II, forthcoming. Endnotes 1 Forum for Women in Law and Development, Kathmandu 2004. 2 Other constitutions, such as those of Bangladesh and Nepal, also indicate a “negative” possibility, i.e., “nothing shall prevent the state from acting to offset the disadvantages of backward groups…” 3 Capotorti (1976) defined a minority as “a group which is numerically inferior to the rest of the population of a State and in a non-dominant position, whose members possess ethnic, religious or linguistic characteristics which differ from those of the rest of the population and who, if only implicitly, maintain a sense of solidarity, directed towards preserving their culture, traditions, religion or language.” 4 “A group of citizens of the state, constituting a numerical minority and in a non-dominant position in that state, endowed with ethnic, religious or linguistic characteristics which differ from those of the majority of the population, having a sense of solidarity with one another, if only implicitly by a collective will to survive and whose aim it is to achieve equality with the majority in fact and in law.” 5 B R Ambedkar in the Constituent Assembly Debates, quoted by Sammadar (2004).

Women and Development in South Asia Dr Preet Rustagi

omen as a category and South Asia as a region for analysis brings up the issue of heterogeneity vs. homogeneity (Stromquist, 1998; Agarwal, 1996; HDSA, 2000). South Asian women and their status is being assessed in this paper to highlight the similarities in the conditions faced by women across the region, despite the diversities stemming from class, religion, culture and locality. This assessment is undertaken on the basis of a select set of quantitative indicators regarding their work, survival, health, education and political participation. The issues considered here to highlight the gender inequalities that constrain women from their legitimate claims to participate in and benefit from development in South Asian countries are limited by the availability of data1, quantifiability and comparability across countries. South Asia comprises seven different sovereign nations2, with diverse socio-cultural and ethnic populations, a range of religious faiths, legal frames, economic and political forces, all of which impact upon the lives of women in the region. Within these diversities, the region stands together on a number of counts and the women of South Asia too, face similar conditions on various fronts. South Asia is a highly populated, agriculture dependent, poor income region, often identified as the most deprived region in the world (HDSA, 1997). The region is also recognised as a 'patriarchal belt' (Caldwell, 1982), where women are subordinated to men in a kin-ordered social structure (Mathema, 1998), have low status, little or no access to

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property and land3 (Bardhan, 1986) and suffer from non-recognition of their work which is largely unpaid. Socio-cultural practices, based on a strong patriarchal ideology prevalent in the region, curtail women's mobility and prevent them from utilising opportunities to enhance capabilities. Not all the spheres of gender discrimination are quantifiable, but even within the limited arenas of labour markets, socio-cultural influences on education, nutrition, health and political participation, women in most of the South Asian countries face unequal treatment. Since our emphasis here is to deal with the aspects of gender inequalities based on quantitative indicators, certain equal, if not more critical, dimensions, such as violence against women or the influence of legal institutions, are not dealt with. Aggregation of the situation of women in South Asia is feasible in quantitative terms only in certain spheres, as in the case of sex ratios, education, child mortality, fertility rates and so on. In other dimensions such as work participation, political participation and violence, for instance, the definitional categorisation, level of data availability, and its periodicity, are all very varied across the different South Asian countries and therefore, an average taken for the region as a whole can be questionable if attempted. In such cases, individual country level analysis is undertaken. Since 1975, coinciding with various international efforts, most of the South Asian countries have also intensified their respective country level endeavours to assess the status of women, comprehend the nature of gender inequalities and introduce institutional mechanisms to enable movement towards equality. By the end of the twentieth century, gender equality and empowerment have become accepted norms in any discussion on development. The gender-neutral approaches hitherto adopted have been questioned by the recognition of the asymmetrical impact of development and poverty on women and men. Gender inequality is a global phenomenon, with variations only in terms of degrees of discrimination and biases against women (UNDP, 1995). Equality refers to equal opportunities in terms of access to sources of livelihood, health, and education, as well as to social, economic and

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political participation without discrimination. Gender inequalities stem from relations of power and authority, class-religion-casteethnic hierarchies and socio-cultural traditions, customs and norms (Kabeer, 1994; Carr, et al., 1996). Empowerment is the process of transforming these structures and institutions, thereby ensuring equality. Over the years, in a number of well being indicators, South Asian women are seen to be better off today than they were a few decades ago- their survival in terms of life expectancy has been improving; more women are educated and working; many of them have entered politics at least at the local governance levels and there is an increasing recognition of the need to address women's issues specifically, to understand gender relations and work towards equality and empowerment for women. Despite these improvements, the aggregate picture of women's development reflected in the quantitative indicators in any of these spheres, reveals that the journey has only begun and there are many more processes that require transformation4. Following this introduction, the next section focuses upon the issues relating to women's work, its non-recognition and the nature of economic participation of the South Asian countries. Predominance of male preference and the gender biases in nutrition, and health care which impact the survival of girls and women, are dealt with in the third section. The overwhelming emphasis on women's reproductive roles to the utter neglect of their other health concerns and its impact on their well-being is discussed in the fourth section. The educational poverty in most of South Asia, especially the gender biases prevalent and the influence of socio-cultural constructs of women on their access to and enhancement of capabilities is dealt with in the fifth section. The sixth section provides for the role of women in South Asian politics. The inroads made by the positive interventionist efforts of reservation for women and the need for it is highlighted. Finally, some concluding remarks are made to emphasise the need for working towards changing mindsets and perceptions that influence the institutional structures and their functioning, towards elimination of gender inequalities in the region.

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Women's Work Women in South Asia- a predominantly agricultural and traditionbound region- participate in economic activities and contribute their labour actively. Yet, due to the nature of their work- which is intertwined with household activities at times and is often unpaidand the flawed definition of economic activity, their economic participation remains statistically invisible.

influenced these trends differ from country to country. Nevertheless, the characteristics of women's labour, in terms of the nature of tasks undertaken and the wages earned, remain by and large unchanged. The majority of women are undertaking manual, non-mechanised, low or unpaid tasks. Even among those entering the paid labour market, women face gender discrimination in access to jobs, and gender inequalities in pay and job security.

The role played by women in the care sector, predominantly their reproductive work (bearing, rearing, nurturing children and household maintenance), falls outside the national accounting systems followed by different countries. While these activities are crucial for household members' well-being and effective participation in different spheres- economic, social and political, they continue to remain non-economic activities. By virtue of women performing these roles which are statistically not counted as economic and hence not monetarily valued, women's roles and their contribution are assigned a lower status.

An overwhelming majority of economically active women in Nepal and India work in agriculture (see Table 2). In Sri Lanka, where agriculture is the main life supporting sector for rural populations, women are involved extensively in the plantation sector (Weerahewa and Ariyawardana, 2003). Rural women in South Asia participate in crop farming, animal husbandry and a host of off-farm activities. A substantial amount of time is spent by South Asian women in looking after livestock- from rearing to protecting animals, finding and collecting fodder and water, collecting eggs, milking, ensuring the health of animals, poultry, etc.

Women's contribution in activities that are recognised by definition as economic activities also remains unrecognised and nonenumerated. This is due to cultural and traditional values which constrain recognition of women's economic participation. In the South Asian countries, the historical gender roles, spaces and stereotypes of the 'public' male breadwinner (provider) and 'private' female care-giver are espoused even under changing situations. This is due to the association of household status with women's non-work that has been perpetuated by the circumstances of women having to offer their labour in the paid market work spheres under extreme economic stress and poverty. Despite the conceptual, methodological and definitional flaws, statistics on women's work from the respective national data sources reveal nearly one-third participation of women in the labour-force. Maldives and Pakistan are the two countries where the female percentage of labour-force is relatively low, while in Bangladesh and Nepal the share of women labour-force is higher compared to other countries in the region (see Table 1). The region as a whole has been witnessing rising levels of women's economic participation over the years. The factors that have aided or

Country

India Pakistan Bangladesh Nepal Sri Lanka Bhutan Maldives

Table 1: Sectoral Distribution of Labourforce in South Asia Per centage Labour Force in Percentage of Female Workers Agriculture Industry Services 62 11 27 47 20 33 59 13 28 93 1 6 49 21 30 92 3 5 25 32 43

32 27 42 40 36 32 22

Source: HDSA, 1997, 200 0.

By and large, among the secondary sector activities of industry, manufacturing and so on, women's enumeration is low as seen in Table 2. Sri Lanka and Bangladesh have a relatively higher share of women's employment in the secondary sector. Sri Lanka began its phase of trade liberalisation and export oriented growth as early as 1977. The nature of these industries and the additional labour demand generated therein facilitated entry of women workers. Bangladesh has recently embarked on industry-led growth policies specially in such areas as garments. While this thrust has led to South Asia becoming one of the world's largest exporters of textiles (with India, Sri Lanka and Bangladesh), the work and pay conditions are no better than sweatshops (see Unni, 2001).

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315 Table 2: Sectoral Employment in South Asia by Sex (Percentage)

Country Bangladesh (1996) India (1994) Nepal (1996) Pakistan (1997) Sri lanka (1995)

Sex* Male Female Male Female Male Female Male Female Male Female

Agriculture

Industry 53.9 41.7 58.3 78.0 78.9 93.7 40.7 66.4 35.4 41.5

per cent government jobs are reserved for women. Service

19.2 27.8 16.5 10.9 4.9 1.4 20.2 10.6 28.2 30.8

26.8 30.5 25.2 11.1 13.2 4.5 39.0 23.2 36.4 27.7

*For each country male figures are percentages of male labourforce and female figures are percentages of female labourforce. Source: Respective labour force surveys of the countries; cited in HDSA, 2000.

The majority of South Asian women work in the informal sector or as unpaid family helpers. Among the economically active women workers in India, 96 per cent are in the unorganised sector. In Nepal, 75.3 per cent are self-employed and 28 per cent are unpaid family members. In Pakistan, 65 per cent of the female labour-force that is officially enumerated is in the informal sector. The percentage of women earning a living in the informal sector in Bangladesh in 199596 was 75 per cent (HDSA 2000). Women workers are in demand for their docility, lower probability of organising or fighting for better wages and work conditions. The patriarchal norms that are prevalent make it easier to manage women as workers. Women's participation, although increasing in South Asia, still accounts for the smallest percentage of formal sector employment. Even here women occupy the lower rungs of clerical and low-skilled occupations. The lower levels of literacy and skill/training among women in South Asia are often blamed for their placement in the lower echelons. Women are often occupied in community, social and personal services. In India, 57 per cent of women in formal sector fall in this employment category, while the share is 59 per cent in Bangladesh (see Table 2). Despite Sri Lankan women being more professionally qualified, their higher labour market participation does not show signs of breaking the proverbial 'glass-ceiling' and many of them are unemployed (Jayaweera and Sanmugam, 2002; Aturupane, 1996; Alailima. 1998). To encourage women's participation, some of the South Asian countries have introduced policies of reservation in government jobs. In Bangladesh, 10-15 per cent and in Pakistan, 20

However, the extension of women's work spheres into paid categories without an adjustment or radical change in the sharing of household responsibilities is an added stress on them. Unless women have control over their earnings and the power to decide how they spend their incomes, the benefits in terms of empowerment will remain limited. Some studies have found that working women tend to spend their resources more judiciously on children's nutrition and household concerns as opposed to their male counterparts who are often noted to be frivolous by using their incomes on commodities of personal gratification (Hoddinott, 1992; Kabeer, 1994). At the same time it is important to note that women's work status certainly provides them the opportunity to wield relatively more space within household structures, especially when their income becomes important for the family and the fulfillment of their needs are dependent on it. Even in terms of mobility that is otherwise restricted for women in patriarchal societies, employment provides the desirable opportunity to interact with others and operate in 'public' domains, traits which can be substantially empowering in certain contexts. The recognition of women's economic 'worth' can also help in improving the survival of girls. Survival Issues The strong presence of traditional values and perceptions in South Asia, wherein the role and status of women are assigned lower significance, reflects in the demographic balance as well. As opposed to the global sex ratio of 106 women per 100 men, South Asia is one of the few regions (other than China and parts of the Arab world) where the proportion of women to men is lower- only 94 women per 100 men in the population. Relatively balanced sex ratios are recorded for Sri Lanka and Nepal while Pakistan, India and Maldives have a lower proportion of females in their populations (see Table 3). In India, where the sex ratios have been declining especially among the younger age cohorts, practices of female infanticide and foeticide to prevent the birth of girls have been noted in some parts of the country (see George, et al., 1992; Agnihotri, 2000 among many others). The introduction and ease of access to pre-natal screening methods such as

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ultrasonography and amniocentesus technologies that can help detect the sex of the foetus are being used to selectively abort female foetuses. Table 3: Survival Indicators for South Asia Gross Domestic Product per capita 4798 3180 2840 1833 1610 1310 1890 2730

Country/Region

Maldives Sri Lanka India Bhutan Bangladesh Nepal Pakistan South Asia

Sex Ratio (Females per 100 males) 93 102 94 98 95 100 92 94

Female Life Expectancy at Birth

Female Child Mortality Rate 66 76 64 64 61 59 60 -

80 20 97 94 116 124 104 99

Female to Male Child Mortality Rate 1.51 0.91 1.18 0.96 1.09 1.13 0.96 1.14

Source: HDSA 2000; HDR 2003; for col.4 and 5 UNFPA, 1999.

Analyses of the causes leading to such demographic imbalances, ever since these trends were observed in South Asian countries, have exposed the strong son preference traits. The trend of declining sex ratios witnessed despite reduction in mortality rates has led researchers to examine other variables such as sex ratios at birth, gender differentials in nutrition and extent of gender variations in mortality rates among populations belonging to different age cohorts. Linkages have been examined in many of the South Asian countries between fertility rates, contraceptive use, abortion and sex preference even in Nepal and Bangladesh where the imbalance is not so pronounced (Arnold, 2001; Karki, 1992; Leone, et al., 2003; Bairagi, 2001 among others). The reasons for son preference stem from patrilineal and religious structures that lay emphasis on the role and significance of male offsprings. Property transfers, ritual functions, the family heir who carries the name of the household etc., leads to the desire of having one or more sons in every household. In the context of declining fertility rates and smaller family size becoming desirable, the pressure to give birth to a male offspring further worsens the condition of women's health and their status. Frequent child bearing and the exposure of women's bodies to a host of tests take a toll on their health. Since women are held responsible for childbirth, failure to produce a male child becomes a cause for violence, abuse and torture against them. Even when girls are born,

they are discriminated against in a number of ways (UN, 1998; Miller, 1981; UN Secretariat, 1988). Neglect and lack of adequate care in feeding girls, looking after their nutrition and health, are noted in a number of studies revealing the gender discriminatory practices in South Asia. These are mostly an outcome of the lower status assigned to women (Basu, 1992). Improvements in life expectancy and reduction of mortality rates are noted in all the South Asian countries over the quarter century 1975 to 2000 (HDR 2003). Yet, as compared to male child mortality rates, the female child mortality rates are higher revealing excess female mortality among under-5 age groups. The female to male ratio is above 1 in four countries - Maldives, India, Nepal and Bangladesh. By far the best performance among the survival indicators is witnessed in the case of Sri Lanka (see Table 3). Consideration of three survival dimensions using sex ratios, child mortality and life expectancy display discrepancies in ordering of different countries. Nepal has a more balanced sex ratio, but the worst life expectancy and child mortality rates among females. The survival indicators seem to have a stronger association with the income levels of the countries, especially the life expectancy and infant mortality levels. However, the sex ratios and gender disparity in mortality do not display a similar correlation, highlighting the influence of gender ideologies which discriminate against girls, irrespective of income development levels of the countries. Health Concerns The overall lower status of women in South Asia influences their health status too. Lack of access to resources, poor decision making power or control, low recognition of their work i.e., low economic worth, and their social position as subservient to males or other household members, places their health requirements at a low priority. In fact, often these health needs are not realised or articulated by the women themselves. Their low self-esteem and their socialisation into 'non-entities' prevent them from such articulation. The emphasis laid on women's marriage reiterates the stress on their reproductive roles, undermining all other spheres of human

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development. In South Asian countries, marriages are traditionally carried out at early ages with little choice/option given to women. The governments of most South Asian countries are actively working towards preventing child marriages and pushing the minimum age at marriage up for girls. Bangladesh, India and Bhutan have stipulated the legal minimum age at marriage at 18 years, yet many marriages do occur before girls attain the legal minimum age. (HDSA, 2000). Early marriage along with young age pregnancies compounded by poor health and economic poverty puts undue stress on women's bodies (Hartmann and Standing, 1989). A majority of South Asian pregnant women suffer from anaemia (see Table 4). The total fertility rate (TFR) has been declining over the last three decades, but still continues to be quite high in Maldives, Pakistan, Bhutan and Nepal. The most significant decline in TFR is witnessed for Bangladesh, India and Sri Lanka (see Table 4). Table 4: Some Health Indicators for South Asia Country/Region

Total Fertility Rate

Maldives Sri Lanka India Bhutan Bangladesh Nepal Pakistan South Asia

1970 - 75 7.0 4.1 5.4 5.9 6.2 5.8 6.3 5.6

200 0 - 2005 5.3 2.0 3.0 5.0 3.5 4.3 5.1 3.3

% of Pregnant Women with Anaemia

Birth Attended by Skilled Personnel 62 60 72 73 58 75 45 -

Health Expenditure as % of GDP

70 97 43 15 12 11 20 36

Public 6.3 1.8 0.9 3.7 1.5 1.6 0.9 -

Private 1.3 1.9 4.0 0.4 2.6 3.6 3.2 -

Source: HDR 2003; HDSA 2000.

Maternal mortality rates are quite high in the region (HDSA, 2000). The probability of women not surviving childbirth is further aggravated by a large proportion of them having non-institutional deliveries, unaided by skilled personnel. Only 36 per cent of South Asian babies are born with the assistance of skilled personnel (see Table 4). In Sri Lanka and Maldives, the situation is relatively better compared to other South Asian countries. The cultural basis of women's status and their perception of low selfworth in the tradition-bound South Asian countries results in discriminatory practices beginning from basic nutrition to accessing health care. HDSA, 1997 notes that half of the children living in the region are malnourished, 260 million people lack access to

rudimentary health facilities and over 400 million go hungry every day. The lack of adequate public health services acts as a constraint for women to access such services (Baru, 2003; Gopalan and Shiva, 2000). Given the levels of poverty in South Asia, home to nearly 40 per cent of the world's poor (HDSA, 1997), the accessibility of private paid health services among women is likely to be limited, since their needs are not considered to be important. There is very often excessive concentration on reproductive health to the utter neglect of other health concerns of women in government policies (see Qadeer, 1998; Datta, 2003). Other areas which have not been researched adequately and lack data are women's mental health and sexuality. Education The importance of education for human development as well as women's empowerment as a core dimension is well accepted, even in South Asia. Sri Lanka and Maldives are among the best performing countries in the region. However, the gender biases at higher educational levels, in professional courses or in non-traditional subjects are visible even among these countries (Jayaweera and Sanmugam, 2002; HDSA 2000). The adult literacy rate (ALR) for the population above 15 years has been improving over the years. Even over the last decade from 1990 to 2001, ALR has increased from 48 to 56 (see Table 5). However, this rate is low compared to even developing countries, where the ALR was 75 per cent in 2001. The literacy rate for the youth (refers to population in the age cohort of 15 to 24 years) in all South Asian countries shows positive trends, reflecting inter-generational improvements. In South Asia, the youth literacy rate is 71 per cent. There is a definite improvement in literacy levels among females across South Asian countries. Some countries, such as Maldives and Sri Lanka have achieved remarkable literacy levels among females. Gender disparity levels both in literacy and enrolment ratios are negligible in these two countries (see Table 6). However, gender gaps in literacy are high in Nepal, Pakistan, and India. The one statistic which poses a cause for concern in the South Asian context is the large proportion of women among illiterates. The

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321 Table 5: Adult and Youth Literacy Rates for South Asia 1990 and 2001 Country/Region

Maldives Sri Lanka India Bhutan Bangladesh Nepal Pakistan South Asia Developing Countries Source: HDR 2003.

Adult Literacy Rate % (15 years and above) 1990 94.8 86.7 49.3 34.2 30.4 35.4 47 .7 67.2

2001 97.0 91.9 58.0 40.6 42.9 44.0 56.3 74.5

Various incentive schemes such as scholarships for girls, free school meals (in India, Bangladesh and Nepal) and separate schools for girls in each Thana (Bangladesh) have been started (HDSA 2000). Efforts have also been made to increase female teachers in schools.

Youth Lit eracy Rate % (15- 24 years) 1990 2001 98.1 99.1 95.1 96.9 64.3 73.3 42.0 49.1 46.6 61.6 47.4 57.8 61.7 70.6 81.1 84.8

There is still a long way to go to achieve universal literacy goals and eliminate gender discrimination in these societies. The effort will have to be on both ends- at the state level to ease supply side constraints based on local knowledge of the nature of gender specific inequalities that are prevalent, and at the household or social level to tackle the demand side hurdles posed for women's educational attainments.

Table 6: Adult Literacy Rate and Gross Enrolment Ratio by Gender Country

Adult Literacy Rate Gender Gap Female Male Maldives 96.9 97.1 0 .2 Sri Lanka 89.3 94.5 5.2 India 46.4 69.0 22.6 Bangladesh 30.8 49.9 19.1 Nepal 25.2 60.5 35.3 Pakistan 28.8 58.2 29.4 Source: HDR 2003; Gap calculated from Col.1 and 2.

Gross Enrolment Ratio Female Male 79 64 49 54 57 27

78 63 63 54 70 45

tradition based stereotypes and role demarcation for women are strongly prevalent in most South Asian countries. Given the social ordering along patrilineal- patrilocal families, women are married out and investing in their education is not perceived as a priority. Among resource constrained households, often educational costs are strategically borne for the male child while depriving the girl sibling (Khan, 1993). The role of women is associated with their reproductive functions, to the detriment of their own personal and educational development as human beings. These attitudes and perceptions based on socio-cultural and economic factors constitute the demand side constraints to women's education. On the supply side, factors such as inadequate investment, lack of infrastructure, schools, teachers (especially female teachers) etc., reflect the state's commitment and impinge on the levels of accessability. In most of the countries of South Asia, average years of schooling are quite low- 6 years for girls and 8 years for boys. In an effort to improve this situation, a number of countries in the region have stressed upon free and compulsory primary education and put emphasis on enrolment and retention of girls in schools.

Political Participation The region of South Asia has had the largest number of women leaders who have been heads of the nation (Indira Gandhi, Sheikh Hasina, Benazir Bhutto, Srimavo Bandaranaike and Chandrika Kumaratunga). The first female head of any nation in the world, as early as in 1960, was from South Asia, in Sri Lanka. The general level of political participation among the South Asian women does not reflect similar trends. Even in pockets where the political awareness among women may be higher, their actual participation is often limited by the constraints laid on their mobility and roles based on the socio-cultural perceptions. Therefore, in spite of the visibility of women at the higher echelons of government, the overall public participation of women remains low for the region (see Table 7). There is no data on female membership for most political parties and only a few of them are given tickets to stand for elections. The experience of India's amendment to its Constitution (the 73rd and 74th Amendments introduced in 1992), reserving one-third seats for women in its local governance structures, generated tremendous interest in the other countries of the region. In 1997, both Nepal and Bangladesh introduced women's reservation in local bodies. While it was 20 per cent in Nepal, in the case of Bangladesh it was one-third seats in all four tiers of local government. In Pakistan also, one-third seats are reserved in local bodies, which is visible in the current figures of women's political participation. As an outcome of women's movements in many of the South Asian countries, the demand for positive intervention in the form of

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reservation of seats for women in the governance structures, has been met to some extent. This policy has clearly assisted women's participation, which would have been denied given the deep-rooted patriarchal traditions wherein men wield power. Table 7: Women in Parliament (%)

Country/Region Maldives Sri Lanka India Bhutan Bangladesh Nepal Pak istan

Percentage Women 6.0 4.4 9.3 9.3 2.0 7.9 20.6

insights into the specific approaches required to address the gender discrimination experienced by women and can help in the process of policymaking. The added dimension to be noted is that of the nature of gender inequalities which are rooted in the structures and institutions, and these aspects are not always amenable to quantification. The perceptional and attitudinal biases against women operational in the social context, as well as in the market and state institutions, need to be identified, understood and appropriately tackled. Along with generating awareness regarding gender issues, efforts need to be made in the direction of generating appropriate data for analysing women's development in a more useful manner.

Source: HDR 2003.

Prior to the phase of recognising the need for reserving seats for women, there was an assumption about women's passivity regarding their interest in, and understanding of, political matters. Subsequent to the amendments and provisions being made, the debates have focused extensively on the inabilities of women, given their illiteracy and lack of understanding regarding political matters (Mazumdar, et al., 2001). In India, as elsewhere, there is substantial propaganda against such reservation on the pretext of misuse (Buch, 2000; ISS, different years). Women also face a backlash in the form of violence, since they are seen as altering the power equation and challenging the status quo. Concluding Remarks The situation of South Asian women as seen by the set of quantifiable indicators of gender development reflects the improvements being made in a number of spheres with regard to work, mortality, health, education and political participation. The constraints faced by women in South Asia are not merely economic or poverty related but emphasise the prevalence of deep-rooted gender ideologies that operate through various institutions and prevent women from enjoying an equal status in different spheres of their lives. Among the many efforts being made at international, regional and national levels to move towards gender equality, the highlighting of the levels of biases that prevail through the use of human development indicators, is one prominent tool. This provides

Dr Preet Rustagi is a senior fellow at the Institute for Human Development, New Delhi, India. Endnotes 1 One useful outcome of the UNDPs efforts at the global and regional levels to bring out the Human Development Reports (HDRs) since the 1990s, especially the Human Development in South Asia (HDSA) ever since 1997, is the availability of data from different sources in one document. Most of the data used here are from these documents. 2 The countries included here are the 7 SAARC members: India, Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan and Maldives. 3 Only among few of the communities in the region where matriliny is practiced, women have control over land and economic property through inheritance; for instance, in Bhutan 80 per cent of the population follows matriliny. Similarly parts of Kerala and northeast region in India also follow matrilineal property transfers. 4 The Human Development Reports published by UNDP notes this region as one of the worst in the world as per the gender related development levels (HDR, various years; HDSA, 2000). References l B. Agarwal, A Field of One's Own, (Cambridge: Cambridge University Press 1996). l S.B. Agnihotri, Sex Ratio Patterns in the Indian Population - A Fresh Exploration, (New Delhi: Sage, 2000). l Patricia Alailima, 'The Situation of Women: Employment, Unemployment and Underemployment,' in Women in the Economy, Centre for Women's Research, Colombo, Working Paper no. 12 1998. l Fred Arnold, 'Son Preference in South Asia', in Sathar and Phillips (eds.), Fertility Transition in South Asia, 2001, pp. 281-299. l Harsha Aturupane, Unemployment among Educated Women in Sri

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325 Lanka, (Colombo: Department of National Planning, 1996).

l Radheshyam Bairagi, 'Effects of Sex Preference on contraceptive Use:

Abortion and Fertility in Matlab, Bangladesh,' International Family Planning Perspectives, 2001, vol. 27(3), pp. 137-143. l Kalpana Bardhan, 'Women: Work, Welfare, and Status: Forces of Tradition and Change in India', South Asia Bulletin, 1986, vol. 6(1), pp. 3-16. l Rama V. Baru, 'Privatisation of Health Services - A South Asian Perspective', Economic and Political Weekly, 2003, vol. 38(42), pp. 4433-37. l A.M. Basu, Culture, the Status of Women and demographic Behaviour, (Oxford: Clarendon Press, 1992). l Nirmala Buch, 'Women's Experience in New Panchayats: The Emerging Leadership of Rural Women', Occasional Paper No. 35, (New Delhi: Centre for Women's Development Studies, 2000). l John Caldwell, Theory of Fertility Decline, (London: Academic Press, 1982). l M. Carr, Martha Chen and Renana Jhabvala (eds.), Speaking Out: Women's Economic Empowerment in South Asia, (New Delhi: Vistaar Publications, 1996). l Alice Clark, 'Social Demography of Excess Female Mortality in India: New Directions', Economic and Political Weekly, 1987. vol. 22(17): WS 12-21. l Anindita Datta, 'Articulation of an Integrated Women's Health Policy Using the Life Cycle Approach', Indian Journal of Gender Studies, 2003, vol. 10(1), pp. 25-43. l Sabu George, Rajarathram Abel and B.D. Miller, 'Female Infanticide in Rural South India', Economic and Political Weekly, 1992, vol. 27(22): pp. 1153-1156. l Sarla Gopalan and Mira Shiva, National Profile on Women, Health and Development, Voluntary Health Association of India compiled for WHO, August 2000. l B. Hartmann and H. Standing, The Poverty of Population Control: Family Planning and Health Policy in Bangladesh, (London: Bangladesh International Action Group, 1989). l HDSA, Human Development in South Asia, Mahbub-ul-Haq Human Development Centre, (Karachi: Oxford University Press, 1997-2002). l J. Hoddinott, 'Household Economics and the Economics of the Household'. Paper presented at the IFPRI/ World Bank Conference on Intra-Household Allocation, IFPRI, Washington, 12-14 February, 1992. l ISS, Women and Political Empowerment Series, New Delhi: Institute of Social Science, 1995-2001. l Swarna Jayaweera (ed.), Women in Post-Independence Sri Lanka, (New Delhi: Sage, 2002). l Swarna Jayaweera and Thana Sanmugam, Graduate Employment in Sri Lanka in the 1990s, (Colombo: Centre for Women's Research, 2002).

l Naila Kabeer, Reversed Realities - Gender Hierarchies in Development

Thought, (New Delhi: Kali for Women, 1994). l Y.B. Karki, 'Sex Ratio in Nepal,' Economic Journal of Nepal, 1992, vol.

15(1), pp. 30-37. l Shahrukh R. Khan, 'South Asia' in Elizabeth M. King and M. Anne Hill

(eds.), Women's Education in Developing Countries: Barriers, Benefits and Policies, (Baltimore: John Hopkins University Press for the World Bank, 1993), pp. 211-246. l Tiziana Leone, Zoe Mathews and Gianpiero Dalla Zuanna, 'Impact and Determinants of Sex Preference in Nepal,' International Family Planning Perspectives, 2003, vol. 29(2), pp. 69-75. l Madhuri Mathema, 'Women in South Asia: Pakistan, Bangladesh, and Nepal' in Stromquist (ed.), 1998. l Mazumdar, et al. 'Gender and Governance - India country paper', Centre for Women's Development Studies, 2001. l Barbara D. Miller, The Endangered Sex: Neglect of Female Children in Rural North (India, Ithaca and London: Cornell University Press, 1981). l Imrana Qadeer, 'Reproductive Health - A Public Health Perspective', Economic and Political Weekly, 1998, vol. 33(41), pp. 2675-84. l Zeba Ayesha Sathar and James F. Phillips (eds.), Fertility Transition in South Asia, (New York: Oxford University Press, 2001). l Nelly P. Stromquist (ed.), Women in the Third World - An Encyclopedia of Contemporary Issues, (New York and London: Garland Publishing, 1998). l UN Secretariat, 'Sex Differentials in Survivorship in the Developing World: Levels, Regional Patterns and Demographic Determinants', Population Bulletin of the UN, 1998, vol. 25: pp.51-64. l UNDP, Human Development Report, United Nations Development Programme, (New Delhi: Oxford University Press, 1990-2003). l UNFPA, The State of the World Population, New York: UNFPA, 1999. l Jeemol Unni, 'Gender and Informality in Labour Market in South Asia', Economic and Political Weekly, 2001, vol. 36(26), pp. 2360-77. l Jeevika Weerahewa and Anoma Ariyawardana, 'Impact of the WTO on Women Workers in Sri Lanka, in Veena Jha (ed.), Trade, Globalisation and Gender - Evidence from South Asia, UNIFEM in Collaboration with UNCTAD, (New Delhi: UNIFEM, 2003).

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Gender and Globalisation in South Asia1 Dr Karin Astrid Siegmann

uring the high-level meeting in Hong Kong, WTO member countries discussed issues ranging from abolishing agricultural export subsidies and industrial tariff reduction, and market access for foreign banks and telecom providers. The human face of trade and investment flows, however, is often hidden behind economic statistics and legal formulations. This human face is gendered: Globalisation has meant different things for women and men. 'Globalisation' refers to a process of progressive integration of economies and societies, driven by new technologies, new economic relationships, and national and international policies (World Commission on the Social Dimension of Globalization, 2003). The formation of transnational entities, such as the WTO, and also the rise in transnational operations of private corporations are examples of such new economic relationships. Policies implemented from actors outside the national realm, such as stabilisation and structural adjustment programmes (SAPs) implemented by International Financial Institutions (IFIs) since the beginning of the 1990s were further catalysts of globalisation (BenerĂa, 2002). These policies were relevant for several South Asian countries such as India, Pakistan, Nepal, and Bangladesh who speeded up their integration with the world economy since the beginning of the 1990s (MHHDC, 2002; Khan, 1999). Most South Asian countries took significant steps to open their

economies for trade and investment in the beginning of the 1990s2. Sri Lanka had already taken the course of liberalistaion of economy int he late 1970s. Tariff rates for imports can serve as an approximation for the difference between domestic and world market prices. According to this indicator, South Asia has become more integrated into the world trading system, as tariffs fell significantly throughout the 1990s from initially very high levels. Similarly, South Asian trade to gross domestic product (GDP) ratios have risen between the 1980s and 1990s. Regional exports almost doubled during the 1990s as compared to the previous decade. Whereas the share in manufactured goods increased in the same period, a large portion of it remains in labour-intensive goods such as textiles and clothing (T&C) across South Asia (MHHDC, 2002). Put in global perspective, however, the degree of integration into the world economy is relatively low as compared, for example, with Southeast Asia or Latin America. Table 1: Economic globalisation in South Asia, selected indicators 2003

Exports of goods and Services (% of GDP) Bangladesh 14.21 Bhutan .. India 14.48 Maldives 85.17 Nepal 16.65 Pakistan 20.48 Sri Lanka 35.77 Source: World Bank (no date)

Foreign direct investment net inflows (thousand current US$) 102472 200 4269000 13505 14778 534000 228720

A gender dimension in this tighter integration is commonly noted in the margin. The notion of 'gender' refers to socially constructed roles and socially learned behaviours and expectations associated with females and males (World Bank, 2001). Gender equality as a universal goal is enshrined in various international declarations. More recently, the Millenium Development Declaration (2000) reaffirmed the primacy of gender equality as development goal (Tran-Nguyen, 2004). Despite the recognition of gender equality, little progress has been made in achieving this goal, particularly in South Asia. Varying between 15 and 20 percentage points, the gender gap in education remains significant in most South Asian countries (Table 2). With an average of 37.4 per cent in 2003, South Asia is characterised by the

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second lowest female labour force participation rate world-wide after the Middle East and North Africa. They hardly increased during the past decade (ILO, 2004). Even in a country that has been praised for its implementation of labour legislation like Sri Lanka, including non-discriminatory remuneration, women workers in manufacturing only earn 81 per cent of men's average wages (UN DESA, 2006). Resultantly, India, Nepal, Bangladesh, and Pakistan rank 99th to 107th on the gender development index (GDI) and thus at the bottom of the distribution. Sri Lanka forms an exception with a rank of 66 (UNDP, 2005a). Table 2: Gendered youth literacy rates in South Asia, 2003

Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

Female 41.1 .. 67.7 99.2 60.1 53.9 96

Male 57.8 .. 84.2 99.1 80.6 74.8 95.1

Source: Genderstats (no date) Note: Youth literacy rates (% of people aged 15 -24)

Tran-Nguyen (2004) relate this situation to gender-related social norms that (for e.g.) associate reproductive work3 with women and serve as barriers to their economic participation on equal footing with men. It is compounded by male authority at home and in the workplace that weakens women's bargaining power. This article tries to answer the question if and how global economic integration has influenced and interacted with gender imbalances in South Asia. The focus hereby is on indicators related to the labour market such as employment opportunities, wage equality, working conditions, as they can be assumed to be affected most directly by intensified trade and investment flows. The next section presents theoretical approaches and empirical evidence regarding the globalisation-gender interface. Examples from the South Asian experience are then provided in the third section. Section four concludes with a summary and recommendations for a globalisation that benefits gender equality and women's empowerment. Gender and Globalisation - Theory and Experience Does globalisation marginalize or empower women? Although

different types of economic players, such as buyers, sellers, savers, and investors are identified in macro-economic theory and policymaking, they do not refer to the basic social category of gender. They implicitly assume that policy measures affect women and men equally (Randriamaro, 2005; Corner, 1996). In reality, trade policies may affect women and men differently due to gender inequalities in access to and control of economic and social resources and decision-making. Their impact is also mediated by the different roles that women and men have within societies in particular, the gender division of labour (Randriamaro, 2005). In order to analyse trade-gender effects and interactions, the different roles of women and men need to be kept in mind. They may differ across regions and sectors, yet, some general features of women and men's economic roles can be identified4. The most significant gender difference is the strong influence of reproductive work on labour market decisions of women as compared to men. It results in lower participation rates, higher labour turnover, employment and wage discrimination, as well as a high concentration of female as compared to male workers in unskilled, informal, and unpaid occupations across economic sectors. Occupational and sectoral segregation is particularly pronounced in South Asia where cultural norms in a number of countries prescribe a separation of female and male work environments. According to Tran-Nguyen (2004), trade and investment flows can be associated with gender equality in different ways: First, they can have a positive or negative impact on growth and employment opportunities for women and men. Second, they may induce competitive pressures, which may reduce or encourage gender discrimination in terms of access to employment or regarding wage differentials. Third, they may facilitate or raise barriers to access resources and services by women and men; and finally, multilateral trading rules may facilitate or constrain governments in applying policies or regulations that address gender inequality. Classical and neo-classical trade theory identifies trade as a catalyst of growth. Whereas no unified theory of international investment exists, empirically the capacity of investment flows to catalyse growth have been supported (Borensztein et al., 1998; Blomstrรถm et al.,

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1994). Economic growth can thus be seen as an indirect consequence of globalisation. The empirical evidence regarding interactions between gender equality and growth remains ambiguous5. Whereas Dollar and Gatti (1999) and Klasen (1999) find a negative impact of the gender gap in schooling on growth, Seguino's (2000) results, confirmed by Busse and Spielmann (2005), support the opposite view. Dollar and Gatti (1999) identify a positive correlation between per capita income and measures of gender equality. This association was both upheld and qualified by the UN (1995). Whereas a strong positive correlation was observed between economic growth and women's relative participation in the labour force between 1980-1990, however, depending on development levels this association appears to be curvilinear. The emerging trend of defeminisation6 that can be detected in some middle-income countries, such as South Korea and Mexico, is in line with such a non-linear relationship. Mehra and Gammage (1999) relate this shift to a restructuring in the export sector of the respective countries, connected to a process of technologisation. According to the Heckscher-Ohlin framework for trade analysis, trade leads to a factor price equalisation, including gender wage differentials. Similarly, it is assumed that gender wage discrimination is costly for employers insofar as it leads to inefficient and thus not profit-maximising production (Becker, 1971). Increased competition going hand in hand with trade expansion would erode these differentials. On the other hand, non-neoclassical economists hold the view that competition is based on cost reduction and firms will use wage disparities as a toll for competition (Seguino, 2000). Skilled workers will be paid efficiency wages to attract them, whereas unskilled workers with lower bargaining power will be given lower wages. Given the concentration of male workers in skilled and female workers in unskilled occupations, trade expansion would thus lead to an increase in wage differentials (Tran-Nguyen, 2004). The increase in female non-agricultural employment, especially in textiles and clothing, footwear, electronics can be associated with such skill polarisation. The employment of large numbers of women in the low-value chains of global production networks can thus be seen as a stepping stone for a systematic industrial strategy in several

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developing countries (Tran-Nguyen, 2004). Siegmann (2003) identifies two mechanisms for effects of international investment flows on gender equality in the labour market. A cost effect associated with transnational corporations' (TNCs') greater orientation towards the world market is their preferential recruitment of, on average, lower paid female workers. Given global competitive cost considerations, this appears as a rational strategy for TNCs in comparatively labour-intensive industries. Conversely, foreign firms' advanced technological endowments relative to domestic companies require a well-educated workforce with technical skills. In light of these perspectives, gender gaps in education and, on average, women's weaker labour market attachment disadvantage female workers' employment in skillintensive production. According to Randriamaro (2005), foreign direct investment (FDI) might lead to substitution of domestic products due to foreign companies' competitive pricing and thus to job losses in small and medium enterprises (SMEs). Given the concentration of female entrepreneurs in the informal sector, FDI may thus influence gender equality in access to employment and income unfavourably. Advanced technologies employed by foreign providers may go hand in hand with better quality of goods and services. However, the private provision especially of basic services such as in the area of education, healthcare and water and sanitation may have negative implications for equity in access to services for marginalised groups of the society. Critics of basic services privatisation are concerned that as basic rights are transformed into commodities, access to services will be available only to those who can pay the price set. Due to women's role as informal care providers as well as water managers and preference given to boys in schooling, this may have negative repercussions for gender equality. For example, the imposition of user fees for education under SAPs resulted in girls leaving schools first and more frequently, even when only minimal fees are imposed (Young and Hoppe, 2003). The same programmes had a negative impact on female health via intensification and lengthening of work, via higher food prices, intrahousehold differences in access to food, and via access to health care

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(Commonwealth Secretariat, 1989). The opening up of economies for international trade and foreign investment under the rule of the WTO has been a powerful trigger for global economic integration. WTO rules are generally obligations of conduct, not of results. It also means that policies that are meant to achieve specific development outcomes, such as gender equality and women's economic empowerment, sit uncomfortably with the general approach of the WTO system that rejects fixing economic outcomes of free market exchanges. However, WTO rules offer negotiating space for women's economic empowerment (Beviglia Zampetti, 2004)7. For example, the Agreement on Agriculture (AoA) aims at facilitating trade in agricultural goods. Women farmers in many developing countries are primarily involved in agriculture for their household's own consumption, and therefore their primary concern relates to food security and self-sufficiency. Increased export orientation in agriculture may therefore lead to the replacement of women's agricultural work and endanger food security (Ă&#x2021;agatay, 2001). The AoA does not specifically aim at ensuring food security and fostering self-sufficiency. WTO members, however, can make use of special provisions for developing countries contained in the agreement, in particular, of the exemptions from limits on domestic supports in such areas as extension services, stockholding for food security, domestic food aid, or disaster relief. These are important areas where existing social and economic biases against women may call for specific public intervention. For instance, there is a significant bias in many countries against the provision of extension services to women farmers that may need to be addressed. Furthermore, specific support for fertilisers, seeds and water may be critical for small subsistence and women farmers. The objective of the General Agreement on Trade in Services (GATS) is to assist the freer flow of services across national borders - from postal delivery via tourism to medical advice. Indiscriminatory treatment of foreign service providers, so-called national treatment, according to WTO rules inhibits provision of support for domestic providers who behave in a way that enhances women's empowerment and gender equality. However, the GATS does not require its members to extend unconditional national treatment to

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all its trading partners. There are no restrictions on the number of types of conditions, which may be attached to national treatment conditions. A requirement, for instance, that a foreign university setting up a branch in Karachi applies a minimum quota for female students would thus be perfectly legitimate. Gendered Face of Globalisation During the period of tighter integration of South Asia into the world economy, South Asian women's involvement in the paid labour force has not increased significantly (Figure 1). Whereas the female labour force participation rate is comparatively highest in Bangladesh, it has not changed much since the beginning of the 1990s. Significant increases can be observed in Pakistan only, from a very low initial level of about 30 per cent. Figure 1: Labour force activity rates in South Asia, selected countries 1991-2002 (% female) 80 70 60 Bangladesh

India

Pakistan

Sri Lanka

20 10 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Source: World Bank (no date)

Across South Asia, women are perceived as home-makers, i.e. in charge of reproductive activities. Apart from that, agricultural work is most common for female employment. As can be gauged from Figure 2, up to 94% of the female workforce in Nepal are involved in agricultural work, also reflecting the lack of diversification of the mountain kingdom's economy. However, a large proportion of this work is not remunerated. In Pakistan, for example, more than half of all employed females above 10 years as compared to about one third of males are employed as unpaid family helpers in agriculture (Federal Bureau of Statistics, 2003). Yet, in Sri Lanka, the majority of women work in the

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Figure 2: Gendered employment in South Asia by major sector (%) 100 90 80 70 60

Agriculture

Industry

Services

30 20 10 0 BD-M BD-F I-M

I-F

N-M

N-F

P-M

P-F

SL-M SL-F

Source: MHHDC (2000) Note: BD=Bangladesh (1996 data), I=India (1994), N=Nepal (1996), P=Pakistan (1997), SL=Sri Lanka (1995), F=female, M=male

plantation sector (MHHDC, 2000). Their employment is thus both remunerated and directly tied to the world economy. Technological change through the 'Green Revolution' did not provide an encouraging example of globalisation's impact on women in South Asian agriculture. The adoption of high-yielding varieties (HYV) of rice and wheat in India and large parts of Asia depressed landless labourers wages, many of whom are female, and replaced female post-harvesting work - a traditional area of female wage employment. This may have offset any gains made by increasing employment due to the introduction of HYV technology packages (FAO, no date). Seasonal cotton-picking in Pakistan is almost exclusively done by women and girls. The increase in cotton production at an annual growth rate of 14% in the latter half of the 1980s is likely to have caused a tremendous rise in the demand for female wage labour (Kazi, 1999). However, recent research shows that they did not benefit from liberalisation in textiles and clothing trade in terms of better wages and working conditions (Siegmann, 2006). In Bangladesh, the area under commercial shrimp farming has tripled between the 1980s and 1990s, the largest share of the produce is exported to northern markets (Rahman, 1999). Activities related to shrimp farming are dominated by female employment.

Globalisation here meant employment creation for women. Women are also strongly involved in marine food export processing in India where workers are commonly young, unmarried migrants. Wages in this sector are higher than agricultural wages. The employment has thus given them financial independence and a chance to improve their standard of living, however, often at the cost of their health (Jha, 2005). Shiva (1996), on the other hand, highlights the gendered costs of the rise of Indian marine exports. She stresses that women in fishing and farming communities suffered most through the expansion in shrimp farming as it was chiefly female-dominated jobs in fisheries and agriculture that were replaced. Similarly, in the Maldives, when exports of marine products increased between 1977 and 1990, women's participation declined from 62 per cent to 20 per cent (Shiva, 1996). Significant opportunities have become available for women in South Asia's low-technology manufacturing industries such as the textiles and clothing (T&C) industry (MHHDC, 2002). This process has paralleled the export-oriented development path, South Asian countries embarked on, mainly since the 1990s. Therefore, within South Asia, differences in gendered manufacturing employment often have to do with the structure of the T&C sector. Pakistan as well as India display a relatively low share of female employment in the T&C industry due to a more significant textile rather than garment production, whereas Bangladesh and Sri Lanka specialise in garment manufacturing. Box 1: Women's employment and empowerment in Bangladesh's export manufacturing Bangladesh's exports of ready-made garments have experienced exceptional growth since the mid-1980s. The country developed its clothing sector in the shadow of the quota system in T&C trade. In 2002, Bangladesh was the seventh largest supplier of ready-made garments to the USA and number nine for the EU market (Nord책s, 2004). Growth of the sector has gone hand in hand with employment creation for women. The share of women in the total manufacturing workforce increased from 28.4% to 36.6% between 1990-1 and 19956. A peculiar feature of the country's labour market is that women are concentrated in export-oriented garment production, but represent only 10% of the manufacturing workforce for the domestic market (Bhattacharya, 1999). Preferential recruitment of women

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337 Figure 3: Female workers in paid employment in the South Asian T&C industry (% of total T&C workforce) 90 90

80 70 60 60 50 40 30 30 20

10 0 Bangladesh

Sri Lanka

Nepal

Pakistan

India

Sources: Siegmann (2005a)

indeed may have supported export competitiveness due to the differential between female and male wages as assumed by Seguino (2000). However, in the export-oriented manufacturing sector, women's wages are converging towards those for men. The average gender wage differential in Bangladesh's manufacturing sector was 0.578 for production workers in 1991-2. However, in woven apparel production, women production workers' wages constitute 90% of those of their male colleagues (Bhattacharya, 1999). Studies have shown that work in the export-oriented garment industry in Bangladesh has had a positive effect on women's selfesteem and decision-making within the family. Women garment workers tend to marry and have children later and are often able to take part in choosing a husband (Randriamaro, 2005). An assessment of their working conditions depends on the point of reference. Some authors highlight their weaker bargaining power as compared to men with the resulting lower wages as well as their long working hours with a blatant lack of occupational safety and health provisions. Kabeer (2004) underlines the progress in terms of economic independence and bargaining power a job in the readymade garment sector means for the women employed there if compared to the situation without. In Sri Lanka, having modernised its T&C sector, wages as well as female-intensity are highest in regional comparison. Here as well, the comparatively low cost of labour and the investors' enthusiasm to

establish themselves in a quota-free environment facilitated the emergence of the T&C industry as a major employer of female labour. Employment of women in manufacturing increased by 50% from 1977, the year Sri Lanka started to open up, to 1995. However, much of the employment gains have been concentrated at lower levels of the occupational structure (Fontana, Joekes and Masika, 1998). In contrast, Singh (2003) assumes Nepal's WTO accession in 2004 to affect women's employment negatively due to a substitution of Nepalese woollen carpets through imported products as well as the removal of the quota for garment supply under the ATC in January 2005. Both garments and woollen carpets' production in Nepal is characterised by a large concentration of female workers. Latest developments have proven these pessimistic assumptions correct. Nepal has lost significant export shares to the EU and USA (ILO, 2005; UNDP, 2005b) with the associated job losses hurting women most. As in other regions of the world, the share of the services sectors in the South Asian economies is rising. The services sector accounted for more than half of South Asia's combined GDP in 2004 (World Bank, no date). The services sector encompass the provision of services in tourism as well as a large portion of remittances from migrant workers, earning their livelihoods as construction workers and domestic servants in the Middle East as well as nurses in Europe and North America. Resultantly, the services sectors are to a significant degree globalised. FDI in services such as banking, telecommunication, water and sanitation etc. are other important links with the global economy. Box 2: Opportunities in Nepal's tourism In Nepal, tourism has become the country's export engine since the mid-1970s. In 1996, it contributed 20 per cent of total export earnings. Within just three years, between 1993-1996, this meant an increase of 80 per cent (F채lth, 1999). In terms of income and expenditures by women, it is evident that the impact of globalisation on this sector has been positive (Jha, 2005). In a case study from the mountain community of Dhampus, Gurung (1995) describes how, before the advent of tourism, women's lives

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were centred around the household and farmwork, whereas now numerous off-farm employment opportunities are available in which women can participate. With less than 3% of the total, relative female employment in formal accommodation establishments, such as starranked hotels, is low. It is significant in the informal hotel sector, though. This segment includes teashops, guesthouses, and portering. Women's involvement totalled more than one third of total employment in this sub-sector in 1991. Besides the access to cash income, the move from unpaid farm work to income-generating work outside agriculture implies better working conditions in terms of hours of work and physical strain. Indirectly, the risen income in their community has led to the investment of time-saving technologies such as water pipes, toilets, and rice-mills. The availability of these facilities helped especially to reduce women's workload. However, it is mainly the relatively well-to-do who have benefited. Due to cultural and legal constraints, the majority of migrant workers from India, Pakistan, Nepal, and Bangladesh are men (Kaspar, 2005; Oishi, 2002). Whereas in the late 1970s, migrant workers from Sri Lanka were only a small stream, it had swollen to nearly a million by 2002 (Tran-Nguyen, 2004). Almost 80 per cent of them are female (Oishi, 2002). Female domestic workers in households of the Middle East form a large portion of these migrants. They make an important contribution to the nation's foreign exchange earnings and to family resources, but at considerable cost to themselves and with minimal improvement of their position (Fontana, Joekes and Masika, 1998). Indirectly, male migration abroad, in particular to the Middle East, has led to a feminisation of agriculture, e.g. in Pakistan (MHHDC, 2000; Kazi, 1999). As many developing countries, South Asian nations compete for foreign investment in order to create employment, overcome foreign exchange constraints and to upgrade technologies. But the efforts to become competitive often hurt the social sectors first. It is most often these sectors that face budgetary reductions when liberalisation policies are implemented. Such cuts in social spending are likely to hit poor rural women the hardest who already have limited access to education and health facilities (MHHDC, 2002).

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Conclusions The presentation of examples across South Asia mirrors the inconclusive theoretical and international evidence regarding the interface between globalisation and gender equality. Theoretical approaches regarding gender and globalisation are still in a nascent stage and cross-country studies few. Moreover, no systematic investigation into the interrelationship between globalisation and parity between the sexes has been undertaken in the South Asian context. Therefore, obviously, generalisations are inappropriate. Any empirical analysis has to take country- and sector-specific features into account. Even then, an assessment of the costs and benefits of globalisation for gender equality in South Asia might still depend on the aspect of gender equality investigated. An increase in relative female employment, for example, might be paralleled by worsening health indicators. Having said that, some commonalities can be identified in the South Asian experience outlined above. In agriculture, the concentration of female farmers in labour-intensive activities with little utilisation of technology has led to a replacement of women's work where more capital-intensive techniques were introduced, such as through the 'Green revolution'. Conversely, where labour-intensive primary subsectors were stimulated through globalisation, for instance in cottonpicking and shrimp farming, women were recruited on a preferential basis. A similar pattern can be noted in the manufacturing sector. New avenues for women's employment have opened in light (read labourintensive) manufacturing across the region, in particular in the T&C sector. It is endangered, however, from a future move towards more capital-intensive production that is likely to crowd out a largely unskilled female workforce. The picture emerging from the e.g. the tourism industry in empowerment through paid agriculture, most South Asian opportunities abroad.

services sector is patchier. Whereas Nepal allowed women's economic alternatives to involvement in women are barred from economic

For all major sectors, in comparison with their male colleagues, women workers often get stuck in the lower rung, with long hours,

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poor working conditions and little job security (MHHDC, 2002). Their lower levels of schooling as compared to males are compounded by gender-related discrimination and cause a comparatively weaker bargaining power in the labour market. These factors provide entry points for action. Overall, one can say that economic globalisation creates economic opportunities for those endowed with productive resources such as human, and physical capital, access to formal employment, geographical mobility. In order to benefit from such opportunities, women and girls' access to resources need to be strengthened. They include rights to land, access to capital and technology, support for unconstrained mobility and first of all equal access to education. Given the gender-blindness of the policies and institutions governing trade at national, regional and international level (Randriamaro, 2005), a conscious effort needs to be made to 'engender' the globalisation agenda. Potentially dissimilar impacts for women and men and unfavourable consequences for gender equality - need to be recognised and investigated at national, sectoral, and regional level as South Asian policy-makers take liberalisation decisions. A number of tools for such gender-sensitive trade assessments have been developed by international organisations (Randriamaro, 2005; UNIFEM and Durano, 2004). Governments need to make use of existing manoeuvring space within WTO rules and in bilateral and regional trade agreements to make sure trade and investment liberalisation is not clashing with national policy goals, such as the achievement of gender equality. Liberalisation of trade and investment without recognition of its potential gendered impact and without national policies in support of women's empowerment carries the danger to further marginalize South Asian women. Dr Karin Astrid Siegmann is a research fellow at the Sustainable Development Policy Institute (SDPI) in Pakistan. Endnotes 1 This article is partially based on Siegmann (2005b). 2 Sri Lanka started to liberalise and open up its economy in 1977. See MHHDC (2002) for a concise overview about steps undertaken by South Asian countries to further integrate into the world economy and their

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4 5 6 7 8

development impact. 'Reproductive work' refers to activities for the care and development of people, performed mostly by women under conditions of unpaid labour. 'Productive activities', in contrast, refer to income generating activities, generally linked to the market (Çaðatay, 1998) For an overview related to South Asia, see MHHDC (2000). The following discussion is based on Tran-Nguyen (2004). 'Defeminisation' denotes the decrease in the female share of the workforce. The following discussion is based on Beviglia Zampetti (2004). A wage differential of 0.52 denotes that women's average wages are 52 per cent of men's average wages.

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l Commonwealth Secretariat (Ed.), 'Engendering Adjustment for the 1990s'. Report of a Commonwealth Expert Group on Women and Structural Adjustment. London, 1989. l L. Corner, Women, men and economics. The gender-differentiated impact of macroeconomics, (New York, 1996). l D. Dollar and R. Gatti, 'Gender Inequality, Income, and Growth: Are Good Times Good for Women?', Gender and Development Working paper Series No. 1.(Washington DC: World Bank, ) Available at: http://www.onlinewomeninpolitics.org/beijing12/goodtimes.pdf. l A. F채lth, (1999): 'Tourism and gender: Opportunities for LDCs in an intensified global economy', UNCTAD (Ed.), Trade, sustainable development and gender. Papers prepared in support of the themes discussed at the Pre-UNCTAD X Expert Workshop on Trade, Sustainable Development and Gender, Geneva 12-13 July 1999). New York and Geneva. l Federal Bureau of Statistics Government of Pakistan (2003): Household Integrated Economic Survey (HIES) 2001-2002. Islamabad, Available at: http://www.statpak.gov.pk/depts/fbs/statistics/hies0102/hies0102.html. l M. Fontana, S. Joekes and R. Masika, (1998): 'Global Trade expansion and liberalisation: gender issues and impacts', BRIDGE Report No. 42., 1998. Brighton. Available at: http://www.bridge.ids.ac.uk/report s/re42c.pdf. l Food and Agriculture Organisation of the United Nations (FAO) (no date): Women and the Green Revolution. Available at: http://www.fao.org/FOCUS/E/Women/green-e.htm. l Genderstats (no date): Database of gender statistics. World Bank. Available at: http://devdata.worldbank.org/genderstats/ home2.asp?cty=AFG,Afghanistan&hm=home2. l D. Gurung, Tourism and gender. Impact and implications of tourism on Nepalese women. (Kathmandu: International Centre for Integrated Mountain Development (ICIMOD) Discussion Paper No. MEI 95/3, 1995. l Promoting fair globalization in textiles and clothing in a post-MFA environment. Geneva: ILO, 2005). Available at: http://www.ilo.org/public/english/dialogue/sector/techmeet/tmtcpmfa05/tmtc-pmfa-r.pdf. l Global employment trends for women 2004. (Geneva: ILO, 2004). Available at: http://kilm.ilo.org/GET2004/DOWNLOAD/trendsw.pdf. l V. Jha, 'Trade and Gender. Evidence from South Asia', Trade Insight 1 (2), 2005, pp. 31-33. l N. Kabeer, 'Globalization, Labour Standards, and Women's Rights: Dilemmas of Collective (In)action in an Interdependent World', Feminist Economics 10 (1), pp. 3-35, 2004. l H. Kaspar, (2005): 'I am the Household Head now!' Gender Aspects of Out-migration for Labour in Nepal. Kathmandu. l S. Kazi, Gender Inequalities and Development in Pakistan', S. R. Khan

(Ed.), 50 Years of Pakistan's Economy. Traditional Topics and Contemporary Concerns, Karachi, 1999. l S. R. Khan, 'Traditional Topics and Contemporary Concerns: An Overview and Summary of Findings', S. R. Khan (Ed.), 50 Years of Pakistan's Economy. Traditional Topics and Contemporary Concerns. Karachi, 1999. l S. Klasen, 'Does Gender Inequality Reduce Growth and Development? Evidence from Cross-Country Regressions', Gender and Development Working paper Series No. 7. World Bank. Washington DC. Available at: http://siteresources.worldbank.org/INTGENDER/Resources/wp7.pdf. l Mahbub ul Haq Human Development Centre (MHHDC) (2002): Human Development in South Asia 2001. Globalisation and Human Development. Islamabad. l Mahbub ul Haq Human Development Centre (MHHDC) (2000): Human Development in South Asia 2000. The Gender Question. Islamabad. l R. Mehra and S. Gammage, 'Trends, Countertrends, and Gaps in Women's Employment', World Development 27 (1999), pp. 533-550. l No author, Garments' workers to get training, Daily Times, March 8, 2006. Available at: http://www.dailytimes.com.pk/default.asp?page =2006\03\08\story_8-3-2006_pg5_10. l H. K. Nord책s, 'The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing', (Geneva: World Trade Organization, 2004). Available at: http://www.wto.org/english/res_ e/booksp_ e/discussion_papers5_e.pdf. l N. Oishi, 'Gender and Migration. An Integrative Approach', CCIS Working Paper 49. San Diego, 2002. Available at: http://www.ccisucsd.org/PUBLICATIONS/wrkg49.PDF. l M. Rahman, I'nvolving stakeholders in policy-making: The case of exportoriented shrimp culture in Bangladesh', UNCTAD (Ed.), Trade, sustainable development and gender, Papers prepared in support of the themes discussed at the Pre-UNCTAD X Expert Workshop on Trade, Sustainable Development and Gender, Geneva 12-13 July 1999). (New York and Geneva: UNCTAD). l Z. Randriamaro, Gender and Trade. Overview report, 2005. Available at: http://www.bridge.ids.ac.uk/reports/CEP-Trade-OR.pdf. l S. Seguino, 'Accounting for Gender in Asian Economic Growth', Feminist Economics 6 (2000), No. 3, pp. 27-58. l V. Shiva, 'Trading away our lives: Free trade, women and ecology', Durgabai Deshmukh Memorial Lecture 1996, New Delhi. l K. A. Siegmann, 'Poisonous growth? Pakistani cotton pickers after the quota expiry', Presentation at SDPI seminar 'Picking and Pesticide Poisoning: Working Conditions of Cotton Pickers', February 20, 2006. l K. A. Siegmann, 'Gendered employment in the post-quota era: The case of Pakistan', Presentation at the 8th Sustainable Development Conference, Islamabad, December 7-9, 2005. l K. A. Siegmann, 'Free trade to fortify females?', SDPI Research and

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l K. A. Siegmann, 'The employment challenge of the Agreement on Textiles and Clothing. Scenario and strategies for Pakistan', SDPI Policy Paper, 2005, Islamabad. l K. A. Siegmann, Gender employment and equity Effects of foreign direct investment in rural Indonesia, Unpublished Ph. D. dissertation, University of Bonn, 2003. l S. Singh, Nepal's accession to WTO: Gender perspectives, Kathmandu, 2003. l A. N. Tran-Nguyen, 'The economics of gender equality, trade and development', A. N. Tran-Nguyen and A. Beviglia Zampetti, (Eds), Trade and Gender. Opportunities and Challenges for Developing Countries. (New York and Geneva: UNCTAD, 2004). Available at: http://www.unctad.org/en/docs/edm20042_en.pdf. l United Nations (UN) (1995): 1994 World survey on the role of women in development. Women in a changing world. New York. l UN Department for Economic and Social Affairs (UN DESA) (2006): World's Women 2005, The Progress in Statistics. Available at: http://unstats.un.org/unsd/demographic/products/indwm/wwpub.htm. l United Nations Development Fund for Women (UNIFEM) and M.F.B. Durano, 'Trading off inequalities. Gender trade impact assessment as a tool for trade reform', A. N. Tran-Nguyen, and A. Beviglia Zampetti (Eds), Trade and Gender. Opportunities and Challenges for Developing Countries. (New York and Geneva: UNCTAD, 2004). Available at: http://www.unctad.org/en/docs/edm20042_en.pdf. l United Nations Development Programme (UNDP) (2005b): Trade Flows and Recent Developments in Textiles and Clothing in the Asia-Pacific. UNDP Regional Centre. Colombo. Available at: http://www.undprcc.lk/web_trade/smallsize2.pdf. l UNDP (2005a): Human Development Report 2005. International cooperation at a crossroads: Aid, trade and security in an unequal world. New York. Available at: http://hdr.undp.org/reports/global/ 2005/. l World Bank (no date): World Development Indicators database. Washington DC. Available at: http://devdata.worldbank.org/data-query/. l World Bank (2001): Engendering Development. Through Gender Equality in Rights, Resources, and Voice. Washington DC. l World Commission on the Social Dimension of Globalization (2003): Background. Available at: http://www.ilo.org/public/english/wcsdg /commission/background.htm. l B. Young and H. Hoppe, 'The Doha Development Round, Gender and Social Reproduction', FES Occasional Paper No. 7., 2003. Available at: http://www.fes-geneva.org/publications/Occasional Papers Short Summary /occasional_papers_7.htm.

Cooperative Security in South Asia C. Raja Mohan

he notion of collective security has always been attractive to students of international affairs. Yet, it has also been the most elusive in practice. Throughout the evolution of Westphalian system of international relations, many saw that the concept of collective security was the only alternative to perpetual war and conflict. Rooted in the principle of 'all for one and one for all', the idea of collective security posits that peace cannot be secured in an environment of self-help and balance of power1. This notion is contested by realists who insist that pursuit of power, conflict and hegemony are natural conditions of international system and that it is not possible for states to put collective interest above that of the national interest2. The context of this age-old argument, however, has been transformed in recent decades amidst the rise of a number of new concepts such as common security, comprehensive security, cooperative security, and human security. Common security emphasises the reality of interdependence among adversarial states and the importance of developing shared perspectives3. Comprehensive security brings into consideration many traditional non-military challenges4. The proponents of human security challenge the traditional state-centric model of security and demand that peace and well being of the individual receive the primary 5 focus . It is easy to argue from the traditional perspective that given the deep divisions and security problems within the subcontinent, the idea of collective security is not attainable in the foreseeable future. Could 'collective self-defenceâ&#x20AC;&#x2122; -- a lesser form than collective security

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be considered an appropriate model for South Asia? Different regions in recent history -- most notably Europe and South East Asia -- have put in place varying forms of collective self-defence arrangements. Collective self-defence was successful in Europe, given the common threat faced by the West European nations during the Cold War from the Soviet Union. Under the leadership of the United States, the West European states found it necessary to bury their past differences which led to a series of wars and face the perceived all-encompassing threat from the Soviet Union in a united manner. In South East Asia, too, shared internal and external threats allowed security cooperation among the regional states. South Asia, however, has found it hard to emulate either West Europe which had alliance-based collective defence arrangements or South East Asia with its looser forms of regional cooperation. While the Cold War dynamics forced stronger forms of cooperation in West Europe and South East Asia, they sharpened the intra-regional security problems in the subcontinent. The impact of the Cold War accentuated the problems between India and Pakistan that arose out of the Partition. India and Pakistan joined the opposing coalitions of the global Cold War. While the alliances they formed -- Pakistan with U.S. and China and India with the Soviet Union -- seemed to provide stability at one level, they also created the conditions for long-term instability in the region. The combination of regional and global dynamics meant that, let alone collective security or collective selfdefence, the states of South Asia found it impossible to have even normal neighbourly relations. While South Asia is a long way from implementing either collective security or collective self-defence, the traditional debate on security in the region has been altered by the impulses of globalisation as well as regional developments. South Asian Security after the Cold War The end of the Cold War at the global level did not match any of the expectations for a peace dividend in South Asia. The 1990s seemed a depressing decade for the subcontinent in terms of peace and development. The early hopeful signs of democratisation at the turn of the decade vanished into thin air by the time the new millennium arrived. The Army returned to the centre-stage in Pakistan amidst the incompetence of its political class. Democratic politics in Nepal failed to deliver, and the parliamentary system in Bangladesh degenerated into a war of bandhs. The rapid dissipation of the hopes

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for more representative and effective governance in the subcontinent during the 1990s was accompanied by the rise of religious extremism and anti-modernism in the region, exemplified most significantly by the Taliban in Afghanistan. The northwestern parts of the subcontinent became the epicentre of terrorism in the world, with an impact that ranged from Tanzania to Tajikistan and Manhattan to Mindanao. In India, the destructive trail of the Hindutva ideology moved from the demolition of the Babri Masjid to the gruesome communal riots during early 2002 in Gujarat. Civil wars from Kashmir to Jaffna meanwhile raged on, with victims countless for any one to enumerate. The introduction of nuclear weapons, covertly at the turn of the 1990s and overtly at the end of the decade, combined the weapons of mass destruction with violence, terrorism, jihad and inter-state conflict. All optimism for the future of the subcontinent -- either in terms of internal security or inter-state security -- appeared to have been smothered. Yet the very negative developments in the subcontinent carried within them the seeds of a radical transformation of the region. The international impact of the extremist forces -- dramatised on September 11, 2001 -- inevitably drew retribution from the sole super-power of the international system. Never mind the irony that it was the U.S. policy of pitting jihadis against godless Soviet communists in Afghanistan in the 1980s that produced Osama bin Ladin and his jihadi allies6. The American War on terrorism has had its intended and unintended consequences. The Taliban was ousted, and the Army in Pakistan has become the instrument to clean up the jihadi mess that was nurtured by it in the 1980s and 1990s. Equally important, it has focused international attention on the subcontinent and its intra-state and inter-state wars. Never in the past has the international system paid so much attention to the problems of regional security in South Asia. During the Cold War, the external environment complicated the security politics of South Asia. Now an external environment may be emerging that is favourable to a reasonable resolution of South Asia's security challenges7. The accumulated impact of globalisation on the politics and economics of the subcontinent over the last decade has begun to reveal a radical transformation. The Indo-Pak military confrontation since the attack on parliament on December 13, 2001 has brought the Anglo-American powers into play in a manner that has not been seen

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since the early 1960s. The prospect, however remote, of a war between India and Pakistan escalating into a nuclear exchange has forced the international community to explore a final resolution of the underlying political conflict between the subcontinental rivals. The Kashmir question is not the only one among the regional conflicts that is on the Anglo-American radar. The expansive American war on terrorism has brought the United States, with Britain in tow, and the European Union into a political effort to deal with the other security challenges in South Asia -- the tragic war in Sri Lanka and the Maoist insurgency in Nepal. The world has begun to impinge on the subcontinent. Along with the global war on terror that is focused on Afghanistan, there have been Anglo-American efforts to defuse the Indo-Pak tensions, the Norwegian mediation between the Singhalese and Tamils in Sri Lanka, and the international initiative on Nepal led by Britain. The security dynamics of the subcontinent are being altered irreversibly. But external environment alone is not enough to resolve regional security problems. It needs political courage and statesmanship within the region to grasp the new challenges as well as opportunities for peace and development in the subcontinent. To some extent the pressures from below are already forcing states in the region to act more purposefully. After a series of military crises and real wars, India and Pakistan have finally recognised the importance of a sustained bilateral engagement that would involve both bilateral cooperation and conflict resolution. There is also recognition throughout South Asia that the time has come to deal with the civil wars within the region in a more innovative and political manner rather than trying to deal with them as law and order problems. The current efforts at peace within the region can at best be characterised as 'work in progress' with no guaranteed prospect of success. But there is no denying the fact that the assumptions and premises on how to end conflict have begun to be questioned and revised in a fundamental manner. That is a reason for hope. More subtle, but even more significant, has been the consequences of economic globalisation in the 1990s. Under pressure from the 'Washington Consensus', all nations of the subcontinent have adopted liberal economic policies. As they open up their markets to the world, the South Asian states are discovering that they cannot keep them closed to their own neighbour, India. While Islamabad

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continues to resist normal trade relations with New Delhi, some of the smaller countries of the region have begun to acknowledge that their economic future is now intertwined with that of India. There is no escape from the logic of globalisation that demands deeper trade relations and economic integration with India. Meanwhile proposals for mega-projects for pipelines and transportation corridors, straddling across borders in South Asia, promise to further deepen economic integration in the subcontinent. Whatever might be its other negative consequences, the relentless pressures of globalisation are helping to break down the economic walls within the subcontinent. Trade volumes within South Asia have begun to surge, although entirely in India's favour at the moment. Bangladesh and Sri Lanka are among the top ten export destinations for Indian goods. Nothing less than a reversal of the economic partition of the subcontinent is now on the cards. After British India was partitioned into separate states, insular economic policies and political differences had made borders into high-security barriers. Now globalisation offers the prospect of transforming these borders into zones of economic cooperation and reconnect regions that were once part of the same economic and cultural space. India: Towards Positive Unilateralism For all its own internal difficulties, the task of leading the region towards economic and political moderation, and social development inevitably falls on New Delhi. One of the most significant developments in India since 1991 has been radical rethinking about the relevance of a more effective regionalism in the subcontinent and a sea change in the Indian policy towards her smaller neighbors8. This was based on the recognition of the acute crisis that had enveloped India's relations with her neighbours at the turn of the 1990s. At the heart of the changing Indian policy towards the neighbors is the so-called 'Gujral doctrine'', named after Inder Kumar Gujral who served as the external affairs minister during 1996-97 and as prime minister during 1997-989. The doctrine argued that if India's neighbours were willing to respect India's security concerns, New Delhi would not insist on reciprocity in resolving bilateral problems. Mr. Gujral's willingness to go more than half the distance in resolving the long-standing problems of the subcontinent was followed by his successors. Although the doctrine was named after Mr. Gujral, given his enthusiastic articulation of it, the broad

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lines of it were followed by the government of P.V. Narasimha Rao, (1991-96) and that of Atal Behari Vajpayee, who followed Gujral. Yashwant Sinha, foreign minister under the BJP led coalition explicitly acknowledged the debt to his predecessors and the Vajpayee government's commitment to take it forward. He has coined a new expression for the core of 'Gujral Doctrine', namely to 'institutionalising positive asymmetry in favour of our neighbours'10.

globalisation is chipping away at the notion of South Asia as an exclusive sphere of influence of India, it is reinforcing the primacy of the Indian market in the long-term evolution of the South Asian economies. The integration of the markets of the subcontinent over the coming decades is inevitable. This has opened the doors for unilateral Indian initiatives to promote economic integration and political stability in South Asia.

No state bases its policy on altruism. India's new regional policy has been guided by three imperatives. First is the recognition that India cannot fulfill its aspirations for a larger international profile without addressing its problems in the neighbourhood. The real tensions in India's relations with all its neighbours will act as a huge fetter on its attempts to become a major power on the global scene. India cannot run away from its neighbourhood. However frustrating it might be, there is no alternative available to Indian diplomacy other than a substantive and patient engagement of its neighbours.

Globalisation is beckoning India with the prospect of resolving longstanding conflicts in the region and re-integrating the South Asian market. If India can think big and act bold, a prosperous subcontinent is within the realm of political imagination. An Indian strategy to shape such a future would involve shedding excessive suspicion of other great powers, finding ways to act in cooperation with them, and discarding the old slogans on 'internationalisation', 'bilateralism' and 'reciprocity'. Such a strategy must consider unilateral economic actions that will accelerate integration of the region. Instead, embarking on tortuous bilateral negotiations on trade with the smaller neighbours, India can alter the economic dynamics of the region through unilateral actions. Security multilateralism and positive economic unilateralism from India are the keys to a different future of the subcontinent.

Second, as it coped with the emerging globalisation of regional security, India had to discard much of its traditional baggage about the role of other major powers in the subcontinent. Shedding the past suspicion of the major powers has become necessary. In the past, New Delhi had sought to keep the other powers out of the region, claiming some kind of an exclusive mandate as a regional power to manage the affairs of the subcontinent. That approach has been neither credible nor effective. New Delhi does not have the luxury of pursuing a kind of Monroe doctrine for the region. Instead of trying to keep other powers out of the region, India must work with them to promote economic modernisation, social harmony, and political moderation. The old way of looking at the internationalisation of South Asian security is to define it as a set back. The other is to take advantage of the trend to achieve India's interests. India's focus is slowly shifting away from mechanics to political outcomes. Third, India has begun to recognise that it has a huge stake in the rapid economic development of its neighbourhood. The economic performance of India has been the best in South Asia during the decade of 1990s. But that rapid development is no guarantor of stability in South Asia. Without all boats rising in South Asia at the same time, India can neither prosper nor be secure. While

Towards Cooperative Security While collective security and collective self-defence will remain unrealisable goals, the changed global and regional context allows the nations of the subcontinent to pursue cooperative security. 'Cooperative Security' is an idea, which gained currency in the discourse on East-West relations after the fall of the Berlin Wall in 1989. During the 1990s many European institutions like the Organisation for Security and Cooperation (OSCE) and North Atlantic Treaty Organisation began to use the term to denote the changing relations with Russia and former Soviet Republics. At the same time there was also profound skepticism about the concept in many policy quarters in the Western world. There is no real consensus on the meaning of the term 'Cooperative Security'. Among the several definitions that tend to compete include cooperation between great powers, comprehensive cooperation, and cooperation to overcome prior conflict11. But in a more narrower and precise sense, Cooperative Security

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could be understood as policies of governments, which see themselves as former adversaries or potential adversaries to shift from or avoid confrontationist policies. Cooperative security essentially reflects a policy of dealing peacefully with conflicts, not merely by abstention from violence or threats, but by active engagement in negotiation and a search for practical solution and with a commitment to preventive measures. Cooperative security assumes the existence of a condition in which the two sides possess the military capabilities to harm each other. It also assumes a political willingness to negotiate about one's own means of violence with an adversary -- current, former or potential. According to Olaf F. Knudsen, 'Cooperative security implies a tentative mental conversion of the parties to an attitude of good faith to the other side, an acceptance of letting the relationship function, loosely, on the basis of the principle of transparency12'. Establishing cooperative security runs into a complex process of building confidence and trust and there could be repeated failures. The Indo-Pak experience of recent years can be described as a struggle to come to terms with cooperative security. Immediately after their respective nuclear tests of May 1998, the two sides sought to initiate an engagement. The events since then have included high profile summitry to achieve political breakthroughs as well as war and conflict. The failure of these initial attempts, however, has reinforced the importance of finding ways to minimise conflict as well as expanding cooperation. Unlike 'collective security', cooperative security is not rooted in idealist notions of how the world ought to be. Cooperative security also accepts the reality on the ground that an alliance like relationship between India and all her neighbours is not possible in the foreseeable future. But the idea of cooperative security recognises the reality of profound interdependence among the South Asian nations in both economic and security realms. The imperatives of this new interdependence range from common steps to avoid a nuclear war between India and Pakistan to the actualisation of a free trade area in the subcontinent13. It could indeed be argued that the outlines of such a cooperative security regime in South Asia have begun to emerge. The challenge now is to lend political energy to the processes of problem-solving and accelerate wide ranging regional cooperation. The 12th SAARC summit has helped lift the profound veil of

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pessimism that had engulfed the prospects of SAARC. The signing of a framework free trade agreement has launched a new era of cooperation in hard areas of commerce and trade. While many elements of detail need to be sorted out, the agreement to create SAFTA is indeed a turning point in the evolution of South Asian regionalism and has restored the intuitional credibility of SAARC. The 12th SAARC Summit has also opened the doors for thinking about trans-border energy cooperation and even bolder concepts such as common currency. It has also talked about engaging other regional groupings and nations to widen the ambit of regional and trans-regional economic integration. While much hard work remains to be done, it has created the basis for optimism about future direction of regionalism in the subcontinent. Cooperative security is premised on the assumption that states will act in their own self-interest. That self-interest is evident in the case for regional free trade and trans-border energy cooperation. Yet, states in the region have been unable to act even when it serves their own national interest. While Sri Lanka has shown a forward-looking vision for economic cooperation, the same cannot be said about others. Bangladesh seems reluctant to follow the logic of regional integration despite being increasingly tied to the Indian economy. Pakistan too holds back on beneficial economic regionalism, citing the importance of settling the question of Jammu and Kashmir first. Negative thinking is also pervasive in New Delhi, where the tunnel vision and tight-fistedness of its economic bureaucracy is constraining rather than facilitating the integration of the subcontinent. Despite the dramatic surge in its exports to its South Asian neighbours and much slower rise in imports from the neighbours during the 1990s, India has been niggardly in opening its market. South Asians nations have wallowed in poverty for so long and marketed it abroad for aid that they find it hard to conceive of shared prosperity through greater economic integration. Breaking out of this cycle is possible only if South Asian states move towards depoliticising issues of economic cooperation and building the habits of cooperative security. Depoliticisation of economic cooperation need not mean avoiding the negotiation on long-standing political disputes. Finding final settlements to difficult issues, completing the negotiations on delineation of boundaries, respecting the security

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concerns of others are all in the self-interest of individual nations of South Asia. The temptation to put either one -- conflict resolution and normalisation of bilateral relations -- ahead of the other has resulted in lack of movement on both fronts. Cooperative security demands walking on both legsexpanding economic cooperation wherever possible and making sustained efforts to resolve political disputes. The 12th SAARC Summit at Islamabad in January 2004 had also provided a venue for a long-delayed engagement between the leaderships of India and Pakistan. And going beyond expectations the two sides produced a framework to renew the peace process on January 6. Since then the process has survived an expected change of government in New Delhi in the general elections. The first round of talks at the official and ministerial level since then has produced a broad range of possibilities for cooperation. A whole range of confidence-building measures on subjects ranging from nuclear and conventional military stability to the dispute over Jammu and Kashmir have been exchanged. But the movement forward appeared to have been stalled by political misperceptions. Some of these seemed to have been cleared in the meeting between the Indian Prime Minister Manmohan Singh and the Pakistan President Pervez Musharraf on the margins of the United Nations General Assembly on September 24, 200414. Both sides have claimed a breakthrough and called it a historic moment. Such proclamations must always be taken with a pinch of salt. But it will be a mistake to under-estimate the significance of what has been said. The two leaders 'addressed the issue of Jammu and Kashmir and agreed that possible options for a peaceful, negotiated settlement of the issue should be explored in a sincere spirit and purposeful manner'. For the first time in decades, the two sides have now agreed at the highest level to look at potential solutions to the conflict in Kashmir. They have at the same time, 'agreed that confidence building measures (CBMs) of all categories under discussion between the two governments should be implemented keeping in mind practical possibilities'. This political understanding to 'walk on both legs' --simultaneously address the most divisive dispute as well as expand economic cooperation -could indeed constitute a new beginning in Indo-Pak relations. If the elements of cooperative security that have been identified on the Indo-Pak agenda begin to get implemented, it could profoundly transform the security environment in the subcontinent.

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C Raja Mohan is strategic affairs editor at the Indian Express and a member of India's National Security Advisory Board. Endnotes 1 For a current defence of the notion of collective security see, Charles A. Kupchan and Clifford A. Kupchan, 'The Promise of Collective Security', International Security (Cambridge, MA), vol. 20, no.1, Summer 1995, pp. 52-61. 2 For the basic neo-realist conception of international relations, see Kenneth Waltz, Theory of International Relations (New York: AddisonWesley, 1979). 3 For an exposition on the idea of common security, see, The Independent Commission on Disarmament and Security Issues, Common Security: A Blueprint for Survival, (New York: Simon and Schuster, 1982). 4 For a comparative discussion of the various concepts, see, David Dewitt, 'Common, Comprehensive, and Cooperative Security', The Pacific Review (London), vol.7, no. 1, 1994, pp. 1-19. 5 For a comprehensive review of the idea of human security, see, Kanti Bajpai, 'The Idea of Human Security', International Studies (New Delhi), vol. 40. no. 3, July-September 2003, pp. 195-228. 6 For a comprehensive role in the American promotion of Islamic extremism during between the 1970s and 80s against the Soviet Union, see, John K. Cooley, Unholy Wars: Afghanistan, America and International Terrorism(New Delhi: Penguin, 2001) 7 For an analysis of the impact of American war on terrorism after 911 on South Asia, see, C. Raja Mohan, 'Catharsis and Catalysis: Transforming the South Asian Subcontinent ', in Ken Booth and Tim Dunne (eds.), Worlds in Collision: Terror and the Future of Global Order (New York: Palgrave Macmillan, 2002), pp. 205-14. 8 For a discussion of India's neighbourhood policy after Cold War, see S.D. Muni, 'Problem Areas in India's Neighbourhood Policy', South Asian Survey (New Delhi), vol.10, no.2, July-December 2003, pp.185-96. 9 The doctrine was first articulated in a speech by Mr. Gujral at the Royal Institute of International Affairs in London during 1996. The speech is reproduced in I.K. Gujral, A Foreign Policy for India (New Delhi: Ministry of External Affairs, 1998), pp.69-81. See also I.K. Gujral, Continuity and Change: India's Foreign Policy (New Delhi: Macmillan, 2003), pp. 107-74. 10 See Yashwant Sinha, 'The 12th SAARC Summit and Beyond', Seventh Dinesh Singh Memorial Lecture, New Delhi, Sapru House, 3 February 2004. See also, C. Raja Mohan, 'Neighbourhood Policy: Yashwant Doctrine', The Hindu (New Delhi), 13 January 2003. 11 For an early discussion of cooperative security, see, Janne Nolan (ed.), Global Engagement: Cooperation and Security in the 21st Century, (Washington DC: Brookings, 1994). 12 'The Concept of Cooperative Security and its Relationship to Policy',

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unpublished paper, 2001. 13 Dipankar Banerjee ( ed.), Comprehensive and Cooperative Security in South Asia (New Delhi: Institute of Peace and Conflict Studies, 1998). 14 The text of the Joint Statement issued by the two leaders is available at www.meaindia.nic.in

Health Conditions and Service Delivery in South Asia Feyza Bhatti and Shazra Murad

mproving health outcomes through the provision of universal, equitable, and high-quality public health services to all by the year 2000 has remained high on the agenda of international organisations, governments, and civil society since the Alma Ata Declaration of 1978. However, most governments failed to expand the provision of healthcare services to all by 2000, and once again at the United Nations Millennium Summit in September 2000, government representatives from 189 countries pledged to join hands to improve the health status of all, particularly women and children, by 2015. The strong commitment by governments to improving health outcomes is reflected in the Millennium Development Goals (MDGs), since three of the eight goals directly refer to health.1 Improved health conditions undeniably boost economic growth and contribute positively to poverty alleviation, as well as to a country's economic and human development. Freedom from illness increases a person's physical and mental ability to reallocate time - which might otherwise have been lost - to education and skill building as well as to economic, social, and political participation. Better health also increases labour productivity,2 which brings about higher economic growth in the long run. It also contributes to the demographic transition from high to low death and birth rates, which in turn leads to progress in decreasing infant and under-five mortality rates, and thus fertility rates.3 Freedom from diseases, particularly communicable diseases, not only contributes to individual well-being

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but improves the investment climate and encourages tourism and trade.4 Most importantly perhaps, the right to a healthy life and freedom from diseases is the right of every individual;5 improving the health status of its citizens consequently improves a country's human development and state of human rights. Ensuring universal and equitable access to good-quality health services requires a government to invest significantly in the health of its people by allocating a sufficient share of public revenues for health sector development to (i) improve functioning healthcare systems through better regulation and monitoring, and (ii) boost human development by addressing income poverty, improving physical infrastructure (water, sanitation, and roads) and education outcomes, and reducing gender inequalities. Allocations to the health sector vary among countries depending on their income levels as well as their governments' priorities. While high-income countries spend 11.2 percent of their GDP on health, spending on the health sector is only 6.0 percent and 4.6 percent for middle- and low-income countries, respectively.6 Furthermore, resources within countries are unevenly distributed between the poor and non-poor, rural and urban areas, and between genders - the poor, the rural population, and women emerge as the most disadvantaged. Progress in human development has also been relatively slow in regions such as South Asia and sub-Saharan Africa. Besides insufficient expenditure and unjust distribution of resources, increasing health problems - such as the global HIV/AIDS epidemic and the resurgence of communicable diseases like malaria and tuberculosis have led to problems of efficiency in the delivery of health services in low-income countries, weakened health management systems, and increased corruption in the health sector.7 Providing health services to all is thus an enormous challenge for those South Asian countries that are signatories to the Millennium Summit Declaration. This paper is divided into four sections. The first section looks at the present health conditions in South Asia relative to other regions of the world. The second section compares the region's health sector expenditures with that of other developing and developed regions. The third section analyses the problems in provision of healthcare services to all in South Asia in absolute terms as well in comparison

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with other regions of the world. The main challenges facing the health sector and possible remedies to improve health outcomes are discussed in the concluding section. The State of Health in South Asia South Asia is one of the most heavily populated regions in the world and also one of the world's poorest. Despite significant progress over the years in reducing poverty and improving the lives of many of its people, there is still widespread deprivation and neglect. The sheer magnitude of human distress in the region numbs the mind: more than one-third of South Asians lack access to improved sanitation, one-third live in poverty, one-quarter go hungry or are malnourished, one-fifth of children do not attend primary school, and almost one-tenth of children die before the age of five.8 Health, despite being guaranteed in the constitutions of every South Asian country, has been neglected in public budgets - spending on health has averaged a mere 1 percent of GDP. This has resulted in poor health outcomes for a majority of the largely poor population of South Asia. What is even more disturbing is the inequality in access and provision of health services among different regions, socioeconomic groups, rural and urban areas, and also across gender. This disparity in the delivery of health services to the poor, women, children, and people living in rural areas across South Asia has resulted in large disparities in health outcomes among these groups. Health conditions also vary among each of the countries within the region with some countries having made more progress than others. For example, Sri Lanka and Kerala in India have made significant progress in health, with most indicators comparable to those in developed countries, while other countries like Pakistan and Nepal reveal some of the poorest health outcomes in the region and in the world. Aggregate numbers for the region mask the several layers of disparity that exist here and it is only by analysing the health outcomes for each country - and where possible across different regions and groups within countries - that a realistic assessment of the health status in South Asia is possible. While health spending remains insufficient, the region's large and growing population continues to place an additional burden on already inadequate health facilities. South Asia's population has nearly doubled in the last three decades and is expected to increase to around 1.7 billion by 2015 (Table 1). India alone is home to more

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than 1 billion people. The region, which contains one-fifth of humanity, also has one of the largest concentrations of poor people, with more than 400 million people living below USD1 a day. This means that every two in five poor persons in the world live in South Asia. The poor are more vulnerable to disease and malnutrition, and are also least likely to access healthcare for themselves and their children. This results in a large waste of human potential and human lives and a denial of the very basic â&#x20AC;&#x153;freedom to surviveâ&#x20AC;? (Sen 1999). Table 1: Population in South Asia, 1975-2015 (Million) Country

1975

2003

2015

India

620.7

1071.0 1,260.0

Pakistan

68.3

151.8

193.4

Bangladesh

73.2

136.6

168.2

Nepal

13.5

26.1

32.7

Sri Lanka

14.0

20.4

22.3

Bhutan

1.2

2.1

2.7

Maldives

0.1

0.3

0.4

South Asia (Total)

791.0 1,408.0 1,680.0

Source: UNDP 2005.

A demographic transition is underway in South Asia, with crude birth rates and death rates falling over the years. The crude death rate has declined constantly over the years and fell by around 48 percent during 1970-2002. This decline in death rates has also led to a decline in birth rates. While these health gains are commendable, they are not equally distributed in the region and among the various groups. The poorest and most vulnerable segments of society in the region have benefited least from improvements in the health sector. In 2003, the crude birth rate in the region varied from a low of 16 per 1,000 live births in Sri Lanka, to 24 in India, and relatively higher birth rates in Pakistan and the Maldives (36 per 1,000 live births). Similarly, crude death rates varied from 10 per 1,000 live births in Pakistan and Nepal to 7 in Sri Lanka. The gains in reducing both birth and death rates have created conditions for further reductions in the fertility rate. In the last four decades the fertility rate has declined substantially from over six per cent in the 1960s to around 3 at present. The fertility rate in the region varies from 2 births per woman in Sri Lanka to a high level of 5 births per woman in Pakistan, Bhutan and Maldives.9

Table 2: Demographic Trends in South Asia, 1994-2003 Country

Crude Birth Rate (per 1,000 Live Births) Crude Death Rate (per 1,000 Live Births) Fertility Rate 1994

2003

1994

India

Pakistan

Bangladesh

Nepal

2003

1994 2003

3.8

3.0

6.1

5.0

4.7

3.4

5.4

4.2

Sri Lanka

2.5

2.0

Bhutan

5.8

5.0

Maldives

6.8

5.3

South Asia (Weighted Average)

4.2

3.3

Source: MHHDC 2005.

South Asia has also made significant progress in improving overall life expectancy, which has gone up by 26 percent during the period 1970-2003. This means that, on average, an individual in South Asia can now expect to live 13 years longer than in 1970. The gains in life expectancy have occurred across the region with life expectancy in 2003 ranging from 62 years in Nepal to 74 in Sri Lanka. However, the region continues to lag behind the rest of the world and life expectancy in the region is still one of the lowest, second only to subSaharan Africa. Another disturbing feature of the gains in life expectancy is that the progress has slowed down in recent years during 1993-2003, life expectancy increased by a mere 2 years. Also, most of this life is spent in illness and disease. In 2002, on average, an individual born in South Asia could only expect to live 53.4 years of their life in full health. Women in South Asia bear a greater Table 3: Trends in Life Expectancy at Birth, 1970-2003 (Years) Country

1970-75 1993 2003

India

50.3

Pakistan

51.9

Bangladesh

45.2

Nepal

44.0

Sri Lanka

63.1

Bhutan

41.5

Maldives

51.4

South Asia (weighted average)

50.1

Source: UNDP 2005.

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burden of illness and disease, which results in a shorter and poorer quality of life. It is estimated that, while men may lose up to 11.5 percent of their total life expectancy to ill health, women are at greater risk of losing as much as 14 percent.10 While the gains in health that South Asia has made over the years are commendable, they are far from sufficient, especially when compared to other regions in the world. The most glaring indication of this is that, despite sound levels of growth and food production, South Asia is the most malnourished region in the world. There are more people who go hungry and suffer from a deficiency of food intake in South Asia than in Sub-Saharan Africa, a region with relatively lower levels of food production. It is estimated that during 1998-2000, of the 827 million undernourished people in the world, more than 300 million were in South Asia, while sub-Saharan Africa had 183 million. South Asia's global share of undernourished people is an estimated 40 percent. This is a sad fact for a region that has done reasonably well in its levels of economic growth. It is thus important for policymakers to analyse the reasons for this disparity that has emerged between growth and quality of human lives, especially people's health. Table 4: Regional Distribution of Undernourished People, 1998-2000 Region

Undernourished People (Million)

Regional Share of Undernourished People (%)

Sub-Saharan Africa

183.3

South Asia

333.6

East Asia and Pacific

193.3

Arab States

32.2

Latin America and Caribbean

54.9

Central and Eastern Europe and CIS

30.2

827.5

Total Source: UNDP 2003.

Compared to other regions in the world child malnutrition is also most severe in South Asia. Nearly half the children under the age of five are malnourished in South Asia compared with 28 per cent in Sub-Saharan Africa and only 7 per cent in Latin America and the Caribbean. Within the region child malnutrition is particularly severe in India, Bangladesh and Nepal. Around 47-48 per cent of children in these three countries are malnourished. The situation in other

Figure 1: Regional comparison of malnutrition among children under age 5 (%) 1996-2004 50

45 40 35

25 20

15 15 10

5 0

South Asia

Sub-Saharan Africa

Source: UNICEF 2006

East Asia & Pacific

Latin America & the Caribbean

CEE/CIS

World

countries in South Asia is also by no means desirable: 38 per cent of children under age 5 are malnourished in Pakistan, Maldives (30), Sri Lanka (29) and Bhutan (19). Of the 150 million malnourished children in the developing world, 78 million alone are in South Asia. Many of the deaths among children under age five are also associated with malnutrition. South Asia has also made substantial progress in reducing both infant and child mortality over the years. The improvements in reducing infant and child mortality have been particularly rapid in Bangladesh where it is estimated that both rates have been falling by more than 5 per cent a year. Despite this rapid progress in recent years the region continues to lag behind the rest of the world and has one of the highest rates of infant and child deaths. In 2000 of the 10.8 million global child deaths more than three million were in South Asia. Globally thirteen countries account for more than twothirds of the child deaths, three of these countries, namely, India, Pakistan and Bangladesh are in South Asia. Among these countries only Bangladesh is on track to meet the Millennium Development Goals (MDGs). Women in South Asia are at the greatest risk of disease and overall poor health. South Asia is among the few regions in the world where men outnumber women. This ratio is the result of the discrimination

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that girls and women in the region face from birth and before to death. Girls are often fed least and last and thus are more undernourished than boys. They are also less likely to receive care and more likely to die premature deaths. As a consequence of this neglect and discrimination the ratio of female to male population in South Asia is 94 women to 100 men. The biological norm is that women live longer than men and that is why the global sex ratio is 106 women to 100 men. Taking the global sex ratio into account it emerges that around 50 million women are simply missing in South

Figure 3: South Asia: Under-five mortality rate (per 1,000 live births) 1990-2003 180 166 160 145

144 140

128

123

126 115

120 103 100 87

Table 5: Regional comparison: Infant and child mortality 1990-2003

23 15

Region

Infant mortality rate (per 1,000 live births)

Under-five mortality rate (per 1,000 live births)

1990

2003

0 India

Pakistan

Bangladesh

Source: UNDP 2003 and 2005

2003

Developing countries

104

Arab States

East Asia and Pacific

Latin America and Caribbean

Sub-Saharan Africa

111

105

180

179

South Asia

126

World

Sources: UNDP 2003 and 2005.

Maternal deaths (total)

100

India

80 75

70 63

Bhutan

Maldives

South Asia

2003

Table 6: The burden of maternal mortality in South Asia (2000)

120

Sri Lanka 1990

Asia. However, the gravest risk that women in South Asia face is that of death during pregnancy. More than one-third of all maternal deaths in the world occur in South Asia. Maternal mortality is an important indicator of women's general position in society and reflects the importance accorded to them. South Asia with a maternal mortality ratio of 516 per 100,000 live births fares poorly on this account. It is estimated each day 507 women in the region die from complications during pregnancy and childbirth. There are an estimated 185,000 pregnancy related deaths in South Asia each year. This makes it the region with second highest number of maternal

Figure 2: South Asia: Infant mortality rate (per 1,000 live births) 1990-2003

Nepal

Life time risk of maternal death 1 in: Maternal mortality ratio

136,000

540

Pakistan

26,000

500

Bangladesh

16,000

380

6,000

740

Sri Lanka

300

430

Bhutan

310

420

Maldives

140

110

184,620

516

61 55

60 46

Nepal

40 19 20

0 India

Pakistan

Bangladesh

Nepal 1990

Source: UNDP 2003 and 2005

Sri Lanka

Bhutan

Maldives

South Asia

2003

Source: WHO, UNICEF, and UNFPA 2002

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deaths after Sub-Saharan Africa. The tragedy in a majority of the premature deaths that occur in South Asia is that many of these are easily preventable by small investments in improving living conditions for the masses and an emphasis by governments in the region on preventive primary level care. These small changes in the focus of public policy in health can go a long way in improving the lives a millions of health deprived South Asians. Health Sector Expenditures South Asia, in general, is characterised by a weak public financial commitment and a significant dependence on private out-of pocket spending. As Table 7 shows, South Asia's expenditure on health sector-both total and public sector expenditure as percentage of GDP- is lowest when compared to other regions of the world. Furthermore, in the absence of social security programmes, almost all the private health expenditure is financed directly by households. Considering that one-third of South Asians are poor,11 high dependence on out-ofpocket health expenditure means a high number of poor in South Asia have to either sacrifice their spending on food or other basic services to receive healthcare, or borrow money to cover health expenditures. High out-of-pocket expenditures are also a push factor for driving people into lifetime poverty. In India, each year 2.2 per cent of the population is pushed below the poverty line as a result of health expenses that swell household budgets. As Table 7 shows, in 2003 the total health expenditure of South Asian countries was only 4.4 per cent of GDP as compared to 5.1 per cent in Middle East and North Africa, 6.1 per cent in Sub-Saharan Africa and 6.8 per cent in Latin America and Caribbean. Only onequarter of this expenditure was financed by public sector; indicating that public sector expenditure on health in South Asia was as low as 1.1 per cent of GDP. Furthermore, 75 per cent of health spending came from private sources mainly from out-of-pocket expenditures (95.7 percent of private expenditure) highlighting that a high proportion of health sector expenditures are financed directly by individual households in South Asia.

Table 7: Health expenditure by region, 2003 Total

Public

Out-of-pocket

(as % of GDP) (as % of GDP) (% of total)

(% of private expenditure)

South Asia

4.4

1.1

25.0

95.7

East Asia & Pacific

5.0

1.9

39.0

88.3

Europe & Central Asia

6.5

4.5

67.3

79.9

Latin America and Caribbean

6.8

3.3

48.2

75.3

Middle East and North Africa

5.6

2.7

50.9

89.2

Sub-Saharan Africa

6.1

2.4

41.2

47.4

Note: The figure for South Asia is calculated using weighted index according to the populations of countries Source: World Bank 2006 and authors calculations

Sri Lanka and Nepal are the countries which have highest public spending on health in the region with around 1.5-1.6 per cent of their GDP being spent on health. However, even this does not exclude them from being ranked among countries of the world with lowest public health spending (as a percentage of GDP). Pakistan has the worst record in public financing of health sector. Only 0.7 per cent of Pakistan's GDP is spent on public health services. Indeed, with this spending level Pakistan is one of the four lowest spending countries (in terms of GDP share) in the world.12 Table 8 also indicates that except Sri Lanka, the health expenditure is highly financed by private sector. Table 8: Health expenditure in South Asia, 2003 Total

Public

Out-of-pocket

(as % of GDP)

(% of total)

(% of private expenditure)

Bangladesh

3.4

1.1

31.3

85.8

India

4.8

1.2

35.9

97.0

Nepal

5.3

1.5

27.8

92.2

Pakistan

2.4

0.7

27.7

98.0

Sri Lanka

3.5

1.6

45.0

88.9

Source: World Bank 2006

Analysing the data in terms of per capita health expenditure, the inadequacy of the amount spent on healthcare becomes more obvious. Sachs (2001) estimated that in a low income country the minimum required per capita expenditure on health in order to be

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able to introduce basic essential health services would be US$30-45. South Asia is the only region of the world that has lower than US$30 per capita health spending. South Asian countries spend a total of US$35.5 billion, of which US$8.6 billion was general government expenditure on health during 2003.13 The per capita health spending, which was also mainly private, was only US$24 in 2003. This was two-thirds of the spending of Sub-Saharan Africa and only 11% of what Latin America and Caribbean spent in health during the same year. Table 9: Per capita health expenditure by regions in US$, 2003 Per capita health expenditure Current US $ South Asia

East Asia & Pacific

Europe & Central Asia

194

Latin America and Caribbean

222

Middle East and North Africa

Sub-Saharan Africa

Source: World Bank 2006

Per capita total spending was US$24. Among the South Asian countries, except Sri Lanka, which was at the lower bound of minimum required per capita spending, none of the South Asian countries spent more than US$30 per capita on health sector. The per capita health expenditure varies between US$12 in Nepal to US$31 in Sri Lanka (table 10). Table 10: Per capita health expenditure in South Asia (US$), 2003

Bangladesh

Total health expenditure

Per capita total health expenditure

Per capita public health expenditure

US$ (in billions)

Current US $

1.92

India

28.64

Nepal

0.32

Pakistan

1.99

Sri Lanka

0.63

Source: World Bank 2006 and WHO 2006

Meagre amounts spent by governments show the lack of political commitment to improving the health outcomes for a majority of South Asians. However, expenditure figures alone cannot explain the dismal health outcomes or how health systems work and how much of the spending actually benefits people. In developing countries, there exists a gap between actual and potential impact of public spending on health outcomes; the size of the gap depending on the weaknesses or strengths of the health systems as well as physical and human development levels of countries.14 In addition, a cross-country study of 42 countries concludes that low public health spending could not explain the inequalities in health outcomes among the countries.15 Therefore, a small public spending on health sector might also be very effective when it is distributed efficiently and equitably, and when poverty levels are low, access to safe water and sanitation facilities and education levels are universal. For example, despite having low public spending on health, Sri Lanka is the only South Asian country that have managed to reach health outcomes which are equivalent or better than the ones attained by countries that invest highly in the health sector. Spending only indicates a small proportion of what is happening with regard to health but what makes the differences between countries that have similar investments but varying outcomes can be analysed through looking at the access to and provision of basic healthcare services. The countries that have health systems which cannot deliver services equitably i.e. to poor, rural areas and women, are less likely to achieve overall improvements in health status. The public sector spending on health is therefore a necessary but not a sufficient condition for improving the health outcomes of all. Accessible, efficient and quality healthcare services, on the other hand, are also vital for improving health outcomes. Provision of Healthcare Services The health system consists of parallel public and private sectors in all the countries of South Asia. Public-private partnerships have also started delivering healthcare services in the region but they are yet small in number. Healthcare services provided in public institutions are in general inadequate (in terms of numbers of physical infrastructure, physicians and health staff) and low quality while it is expensive and unregulated in the private sector.

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A high proportion of government funding to health sector is distributed to the urban centres and tertiary healthcare projects benefiting only a small segment of people in South Asia.16 Furthermore, public healthcare systems face various problems in service delivery. These include mainly inadequate number of staff particularly paramedical staff, staff absenteeism,17 lack of essential drugs and consumables, poor referral linkages, discriminative staff attention to patients, low quality and high levels of corruption.18 These problems lead to lower utilisation of services. In Pakistan and India, for example, share of public sector in outpatient services is only about 20 per cent and has been decreasing during the last decade.19 The private sector is the main provider of both the in-patient and outpatient curative healthcare services in all countries of the region, except for Sri Lanka and Maldives. In India, Pakistan and Bangladesh private healthcare practioners are the primary providers of outpatient care in rural areas while in addition to that large private hospitals are also available for in-patient care in urban areas. The private health sector is growing fast in the region. For example, in India the number of private hospitals has increased 16 times during 1974-1996, while the number of public hospitals only doubles during the same time period. Similarly, in Bangladesh the number of private hospitals has increased from 164 to 712 during 1983-2001, outnumbering the number of public hospitals in the country. The weaknesses in the public healthcare provision mechanisms have been the main factor behind the fast growth of private sector healthcare. However, the benefits of private sector to the citizens are questionable, as private sector remains highly unmonitored and thus the services provided by private sector can be of equally poor quality as those provided by through the public sector. For example, a study conducted in rural Maharashtra showed that private hospitals lacked qualified human resources and important supplies. Thirty-nine percent of private hospitals were operating without full-time doctors and four out of ten hospitals did not have an oxygen cylinder.20 There was no significant overall difference in patient satisfaction using public and private services in Andhra Pradesh as well (Mahapatra 2003).21 Another problem that South Asian health system faces is the insufficient physical infrastructure, human resources and drug

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supplies. There are only six physicians and nine hospital beds for every 100 people. The number of physicians per 100 people varies between two in Nepal to seven in Pakistan. The physician to population ratio in South Asia is second in the world, after SubSaharan Africa. Available data also indicates that current number of hospital beds per 1,000 people is quite low as compared to East Asia and Pacific and Europe and Central Asia. Drug availability is important as drugs offer a simple and cost effective way of treating many health problems. Inadequate drug supplies in public healthcare institutions lead to lower utilisation of the services provided in these institutions. For example, availability of drugs and distribution of it through primary healthcare network is one of the main causes of better functioning of primary healthcare services in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu in India. It is estimated that in 1999, the percentage of population with access to essential drugs in India and Nepal was in the very low range (0-49). The access to drugs was slightly better in Bangladesh and Pakistan but was still categorised as low access (50-79). The only country with good access to essential drugs was Sri Lanka. Table 11: Physicians and hospital beds per 1,000 people Physicians 1997-2004 Hospital beds per 1,000 people

Per 1,000 people

South Asia

0.6

0.9

East Asia & Pacific

1.3

2.4

Europe & Central Asia

3.0

7.6

Latin America and Caribbean

1.9

…

Middle East and North Africa

1.2

…

Sub-Saharan Africa

0.1

…

Source: World Bank 2006 Table 12: Population with sustainable access to affordable essential drugs (%), 1999

Bangladesh India Nepal

50-79 0-49 0-49

Pakistan

50-79

Sri Lanka

95-100

Source: UNDP 2004

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Amidst all the above mentioned problems regarding the health systems, looking at two indicators with regard to maternal and child healthcare preventive services, Table 13, shows us the ability of South Asian countries to address the basic health needs of women and children. Table 13 provides the percentages of births attended by skilled health staff and the immunisation coverage for measles and DPT. Table 13: The ability of healthcare system to provide basic maternal health and immunisation services in South Asia Births attended by skilled Immunisation coverage health staff 2000-04 (% of all children under the age 1) 2004 (% of total)

Measles

DPT

Bangladesh

India

Nepal

Pakistan

Sri Lanka

South Asia

Source: World Bank 2006

In South Asia only little more than one-thirds of women are assisted by a skilled health personnel at the time of delivery. This is the lowest figure as compared to other regions of the world. Data on immunisation coverage also shows a similar pattern; South Asia with 61 per cent of measles immunisation rate has the lowest coverage in the world. In DPT, South Asia has the second lowest coverage after Sub-Saharan Africa. Basic healthcare services also fail to reach all. There are significant differences between rural and urban areas, and between rich and poor in receiving these services, expect for Sri Lanka which has almost universal immunisation coverage and skilled birth attendance both in rural and urban areas. To give some examples of these differences: l In India, immunisation coverage of one-year olds in rural areas

was 36.6% while in urban areas it was 60.5%. Only 28% of children from poorest families were immunised as oppose to 81% of children from richest families. Similarly, only a small

percentage of births are attended by skilled health staff (16.4%) in poorest families while the births attended by skilled health staff in richest families are 84.4%. l In rural Pakistan, the immunisation coverage of children was 46% while it was 70% in urban areas. The immunisation rate of children in richest households (42%) was double of the rate in poorest households (20%). The percentage of births attended by skilled health staff was 12 times higher in richest households than it was in poorest households in Pakistan as well as in Bangladesh and Nepal. l In Bangladesh, while the difference between rural and urban areas in immunisation coverage of children was not as high as it was in India or Pakistan (69.7% in urban and 58.3% in rural areas), the differences between income groups are high both in immunisation coverage and percentage of births attended by health staff. Besides low coverage, inadequate reach and poor quality of health services provided by the public sector corruption is also a major problem. There is widespread neglect on the part of health providers in the public sector especially in remote areas. In many countries in South Asia doctor absenteeism is common and doctors appointed to villages often fail to be on duty and continue to extract pays. Along with this there is also a problem of low drug availability often as a result of medicines meant to be given free of charge being sold by nursing staff and doctors. A study by Transparency International (2002) shows that among the families who were surveyed and used government health services during one year prior to the survey, around half of the families in Bangladesh and 65% in Pakistan reported irregular admission processes,22 and majority of families in Bangladesh (58%), Pakistan (96%) and Sri Lanka (92%) also reported corruption after admission to the hospital as well.23 Other factors not directly emanating from the health sector also lead to poor health condition for a large majority of people in South Asia. These are mainly related to overall weak infrastructure (lack of safe water and proper sanitation facilities, roads), low education and literacy levels, and widespread gender discrimination and social and cultural factors that might influence health knowledge and behaviour such as taboos on sexual health.

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There is a direct link between education, particularly female education and health.24 South Asia is the most illiterate region of the world. The adult literacy rate was 46 per cent for females and 72 per cent for male adult populations indicating that around 400 million adults were illiterate.25 Gender discrimination is widespread in the region. Despite closing over the last decade, still the female-male disparities in education and literacy, economic, social and political participation are broad. Lower status of women as compared to men has various negative repercussions on the health outcomes of women. First of all, gender discrimination in distribution of food leads to malnourishment among girls, and this decreases the chances of survival from childhood diseases. Secondly, gender discrimination decreases the chances of getting a proper treatment or delaying the treatment even if there is a life-threatening situation. For example, in most of the countries of the region as high percentage of women cannot go to the health facilities alone or without the permission of their husbands or in-laws. Lack of decision-making power and the taboos about sex also curtails the bargaining power of women relating to their reproductive choices and rights. Women in South Asia bear a heavy burden on their health due to repeated and closely spaced births. In recent years, the risk of HIV/AIDS is also poses a serious threat to health of women in South Asia. Universal access to safe water and sanitation are crucial for improving the health outcomes, particularly infant and child mortality and nutrition.26 South Asia is the region where out of 1.4 billion people 897.3 million are without access to sanitation and more than 200 million are without access to safe water.27 As compared to other regions of the world South Asia has lowest access to sanitation and second lowest access to safe water after SubSaharan Africa, in terms of percentage share of population having access to these services. Recommendations for Improving Health Services in South Asia In this paper, we have provided some snapshots of the health sector in South Asia both in terms of inputs and outcomes. The available data and analysis showed that the health sector outcomes are very low as compared to other developing regions of the world. In

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addition, spending by the governments is inadequate and any possibility of effective public provision is hampered by a complex range of weaknesses in the health sector as well as low human development levels Improving health outcomes and attaining MDGs within the specified time period is quite unlikely for all of South Asian countries, except Sri Lanka which has a fairly higher per capita public spending and a comparatively fairer health sector. The challenge for improving health for all in South Asia is huge and requires commitment by its governments both in terms of increased spending and in ensuring that the services reach the most vulnerable groups. Some of the steps that can be adopted to improve the lives of millions of poor people in the region are outlined below: l Increase public funding for health: there is an urgent need to

increase investments in health in order to achieve lower death and disease rates. In order to reach the goal of health for all South Asia governments must increase their financial commitment to health. l Increase public spending on primary level facilities: health budgets must focus on providing basic health facilities for all and target specific groups that require urgent attention. Focus of health budgets must shift from tertiary to primary level care and from curative to preventive facilities. l Efficiency, equity and quality: whatever is spent on health must be used efficiently minimising losses and waste. There is also a need to ensure that equal levels and quality of care are available and accessible for all. Vertical programmes that have been introduced in recent years to deal with specific issues like the Lady Health Worker Programme in Pakistan need to be integrated into the health system to make them more accessible, sustainable and efficient. l Provision of safe drinking water and sanitation: a large number of diseases in South Asia are the result of poor unhygienic living conditions. Improving these can be a major contribution to efforts to prevent a large burden of morbidity and mortality in the region, particularly among children. l Education and nutrition: there is a need to focus on providing education in general and health education in particular to all especially women. Better nutrition for all, especially women

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and children is also important for achieving lower levels of maternal and child deaths. l Creating awareness: campaigns to create a general awareness about issues of fertility, diseases like HIV/AIDS, tuberculosis etc can also help control the spread of these diseases and aid in controlling problems like population growth. l Stimulating research and data collection: it is vital to have reliable data on the prevalence of diseases, morbidity and mortality in order to be able to devise strategies to deal with them. Research both medical and social is required to devise public policy and also to deal with health problems. l Regulation of private sector: as the private sector constitutes a large share of healthcare in South Asia it is important to control and monitor its delivery of health care. There need to be certain standards and requirements that must be fulfilled by all healthcare providers. l Safety nets: there is a need to develop a social security system in all South Asian countries through which healthcare can also be insured. As a majority of South Asians live in poverty it is important to devise strategies to keep them out of further impoverishment.

GDP in the world with 0.5%. Burundi and Democratic Republic of Congo are the other two countries that have public spending on health as low as Pakistan. 13 Calculated by authors using WHO 2006. 14 Ablo and Reinikka 1998. 15 Wagstaff 2002. 16 MHHDC 2005. 17 The absentee rate of physicians in Bangladesh was quite high with 40% in large clinics and 74% in subcentres with single doctors (Chaudhury and Hammer 2004). 18 Transparency International 2002. 19 MHHDC 2005. 20 Nandraj and Duggal 1997. 21 Mahapatra 2003. 22 The percentage of people reporting irregular admission processes was lower in other countries; 20% in India, 8% in Nepal and 18% in Sri Lanka. 23 The reported corruption after admission was 15% in India and 18% in Nepal. 24 For examples from developing countries see Caldwell (1979), Agha (2000), Afzal et al.(1988), Cochrane et al.(1980). 25 World Bank 2006 and MHHDC 2006. 26 Leipziger et al. 2003. 27 MHHDC 2006.

Feyza Bhatti (senior research fellow) and Shazra Murad (research fellow) are based at the Mahbub-ul-Haq Human Development Centre in Pakistan.

References l Ablo, E., and R. Reinikka. 1998. Do Budgets Really Matter? Evidence from Public Spending in Education and Health in Uganda. World Bank Working Paper Series #1926. Available at http://www.worldbank.org /html/dec/Publications/Workpapers/WPS1900series/wps1926/wps192 6.pdf#search=%22do%20budgets%20really%20matter%22 l Afzal, M., T. A. Raja, and A. Mohammad. 1988. Some Differentials in Infant and Child Mortality Risks in Pakistan 1962-1986. Pakistan Development Review 27: 4, pp. 635-642. l Agha, S. 2000. The Determinants of Infant Mortality in Pakistan. Social Science and Medicine, 51(2000):199-208. l Caldwell, J. 1979. Education as a Factor in Mortality Decline An Examination of Nigerian Data. Population Studies, 33(3): 395-413. l Chaudhury, N. and Hammer, J.S. 2004. Ghost Doctors: Absenteeism in Rural Bangladeshi Health Facilities. The World Bank Economic Review, 18(3):423-441. l Cochrane, S., O'Hara, D., & Leslie J. (1980). The effects of education on health. Working Paper No. 405. Washington, D.C: The World Bank. l Leipziger, D., Fay, M., Wodon, Q., Yepes, T. 2003. Achieveing Miilenium Development Goals: the Role of Infrastructure. World Bank Policy Research Working Paper #3163. http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP

Endnotes 1 These goals include Goal 4: Reducing child mortality, Goal 5: Improving Maternal Health and Goal 6: Combating HIV/AIDS, malaria and other diseases. 2 Strauss and Thomas. 1998. 3 UNDP 2003, p. 85. 4 See MHHDC 2005, Chapter 1 for more details on the impact of health status on various sectors of economy and human development outcomes. 5 Improving public health is provided as a primary duty of governments in the Constitutions of South Asian countries. 6 World Bank 2006, p. 102. 7 Utstein Anti-corruption Resource Centre 2006. 8 UNDP 2003. 9 UNDP 2005. 10 MHHDC 2006. 11 MHHDC 2005 12 World Bank 2006. Myanmar has the lowest public spending as % of

378 /IB/2003/12/31/000160016_20031231124754/Rendered/PDF/wps316 3.pdf l Mahapatra, P. 2003. Quality Health Care in Private and Public Health Care Institutions. In Health policy research in South Asia: Building Capacity for Reform, Yazbeck, A.S and Peters, D.H. (eds.). Washington D.C: The World Bank. l MHHDC (Mahbub ul Haq Human Development Centre). 2005. Human Development in South Asia 2004: The Health Challenge. Karachi: Oxford University Press. l MHHDC (Mahbub ul Haq Human Development Centre).. 2006. Human Development in South Asia 2005: Human Security in South Asia. Karachi: Oxford University Press. l Nandraj and Duggal 1997. Physical Standards in the Private Health Sector- A Case study of Rural Maharashtra. Mumbai: Cehat. l Sachs, J. 2001. Macroeconomics and Health: Investing in Health for Economic Development, Report of the Commission on Macroeconomics and Health. Geneva: World Health Organization. l Sen, A. 1999. Development as Freedom. New York: Oxford University Press. l Strauss, J. and Thomas, D. 1998. Health, Nutrition and Economic Development. Journal of Economic Literature, 36(2): 766-817 l Transparency International.2002. Corruption in South Asia 2002. Available at http://www.transparency.org/ l UNICEF (United Nations Children's Fund). 2005. State of World's Children 2006. New York: UNICEF. l UNDP (United Nations Development Programme). 2003. Human Development Report 2003, Millennium Development Goals: A Compact among Nations to End Poverty. New York: Oxford University Press. l UNDP (United Nations Development Programme). 2005. Human Development Report 2005, International cooperation at a crossroads: Aid, trade and security in an unequal world. New York: Oxford University Press. Also available at http://hdr.undp.org/statistics/ data/rc_2005.cfm l Utstein Anti-corruption Resource Centre. 2006. Corruption in the health sector-Causes and consequences. Available at http://www.u4.no/themes/health/causesandconsequences.cfr l Wagstaff, A. 2002. Inequalities in Health Developing Countries: Swimming against the Tide? World Bank Policy Research Working Paper Series #2795. Available at http://www-wds.worldbank.org/ servlet/WDSContentServer/WDSP/IB/2002/03/22/000094946_0203 1204013460/Rendered/PDF/multi0page.pdf l WHO (World Health Organization), UNICEF (United Nations Children's Fund), and UNFPA (United Nations Population Fund). 2002. Maternal Mortality in 2000: Estimates Developed by WHO, UNICEF and UNFPA. Available at http://www.who.int/reproductivehealth/publciations/maternal_mortality_2000/mme.pdf

379 l World Bank. 2006. World Development Indicators 2006. CD-ROM.

Washington D.C. l WHO (World Health Organization). 2006. National Health Accounts.

Available at http://www.who.int/nha/country/en/

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Charter of the South Asian Association for Regional Cooperation

e, the Heads of State or Government of BANGLADESH, BHUTAN, INDIA, MALDIVES, NEPAL, PAKISTAN and SRI LANKA; Desirous of promoting peace, stability, amity and progress in the region through strict adherence to the principles of the UNITED NATIONS CHARTER and NON-ALIGNMENT, particularly respect for the principles of sovereign equality, territorial integrity, national independence, non-use of force and noninterference in the internal affairs of other States and peaceful settlement of all disputes; Conscious that in an increasingly interdependent world, the objectives of peace, freedom, social justice and economic prosperity are best achieved in the SOUTH ASIAN region by fostering mutual understanding, good neighbourly relations and meaningful cooperation among the Member States which are bound by ties of history and culture; Aware of the common problems, interests and aspirations of the peoples of SOUTH ASIA and the need for joint action and enhanced cooperation within their respective political and economic systems and cultural traditions; Convinced that regional cooperation among the countries of SOUTH ASIA is mutually beneficial, desirable and necessary for promoting the welfare and improving the quality of life of the peoples of the region; Convinced further that economic, social and technical cooperation among the countries of SOUTH ASIA would contribute significantly to national and collective self-reliance;

Recognising that increased cooperation, contacts and exchanges among the countries of the region will contribute to the promotion of friendship and understanding among their peoples; Recalling the DECLARATION signed by their Foreign Ministers in NEW DELHI on August 2, 1983 and noting the progress achieved in regional cooperation; Reaffirming their determination to promote such cooperation within an institutional framework;

DO HEREBY AGREE to establish an organisation to be known as SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION hereinafter referred to as the ASSOCIATION, with the following objectives, principles, institutional and financial arrangements: Article I OBJECTIVES The objectives of the ASSOCIATION shall be: a) to promote the welfare of the peoples of SOUTH ASIA and to improve their quality of life; b) to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realise their full potentials; c) to promote and strengthen collective self-reliance among the countries of SOUTH ASIA; d) to contribute to mutual trust, understanding and appreciation of one another's problems; e) to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; f) to strengthen cooperation with other developing countries; g) to strengthen cooperation among themselves in international forums on matters of common interests; and h) to cooperate with international and regional organisations with similar aims and purposes. Article II PRINCIPLES 1.

Cooperation within the framework of the ASSOCIATION shall be based on respect for the principles of sovereign equality, territorial integrity, political independence, non-interference in

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the internal affairs of other States and mutual benefit. 2. Such cooperation shall not be a substitute for bilateral and multilateral cooperation but shall complement them. 3. Such cooperation shall not be inconsistent with bilateral and multilateral obligations. Article III MEETINGS OF THE HEADS OF STATE OR GOVERNMENT

Article VI TECHNICAL COMMITTEES 1.

The Heads of State or Government shall meet once a year or more often as and when considered necessary by the Member States. Article IV COUNCIL OF MINISTERS

2. a)

a) b) c) d) e) 2.

A Council of Ministers consisting of the Foreign Ministers of the Member States shall be established with the following functions: formulation of the policies of the ASSOCIATION; review of the progress of cooperation under the ASSOCIATION; decision on new areas of cooperation; establishment of additional mechanism under the ASSOCIATION as deemed necessary; decision on other matters of general interest to the ASSOCIATION. The Council of Ministers shall meet twice a year. Extraordinary session of the Council may be held by agreement among the Member States.

d) e) f) 3. 4.

5. Article V STANDING COMMITTEE 1.

The Standing Committee comprising the Foreign Secretaries shall have the following functions: a) overall monitoring and coordination of programme of cooperation; b) approval of projects and programmes, and the modalities of their financing; c) determination of inter-sectoral priorities; d) mobilisation of regional and external resources; e) identification of new areas of cooperation based on appropriate studies. 2. The Standing Committee shall meet as often as deemed

necessary. The Standing Committee shall submit periodic reports to the Council of Ministers and make reference to it as and when necessary for decisions on policy matters.

a) b) c)

Technical Committees comprising representatives of Member States shall be responsible for the implementation, coordination and monitoring of the programmes in their respective areas of cooperation. They shall have the following terms of reference: determination of the potential and the scope of regional cooperation in agreed areas; formulation of programmes and preparation of projects; c) determination of financial implications of sectoral programmes; formulation of recommendations regarding apportionment of costs; implementation and coordination of sectoral programmes; monitoring of progress in implementation. The Technical Committees shall submit periodic reports to the Standing Committee. The Chairmanship of the Technical Committees shall normally rotate among Member States in alphabetical order every two years. The Technical Committees may, inter-alia, use the following mechanisms and modalities, if and when considered necessary: meetings of heads of national technical agencies; meetings of experts in specific fields; contact amongst recognised centres of excellence in the region.

Article VII ACTION COMMITTEES The Standing Committee may set up Action Committees comprising Member States concerned with implementation of projects involving more than two but not all Member States. Article VIII SECRETARIAT There shall be a Secretariat of the ASSOCIATION.

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Article IX FINANCIAL ARRANGEMENTS 1. The contribution of each Member State towards financing of the activities of the ASSOCIATION shall be voluntary. 2. Each Technical Committee shall make recommendations for the apportionment of costs of implementing the programmes proposed by it. 3. In case sufficient financial resources cannot be mobilised within the region for funding activities of the ASSOCIATION, external financing from appropriate sources may be mobilised with the approval of or by the Standing Committee. Article X GENERAL PROVISIONS 1. Decisions at all levels shall be taken on the basis of unanimity. 2. Bilateral and contentious issues shall be excluded from the deliberations. IN FAITH WHEREOF We Have Set Our Hands And Seals Hereunto. DONE In DHAKA, BANGLADESH, On This The Eighth Day Of December Of The Year One Thousand Nine Hundred Eighty Five. Hussain Muhammad Ershad PRESIDENT OF THE PEOPLE'S REPUBLIC OF BANGLADESH Jigme Singye Wangchuk KING OF BHUTAN Rajiv Gandhi PRIME MINISTER OF THE REPUBLIC OF INDIA Maumoon Abdul Gayoom PRESIDENT OF THE REBUPLIC OF MALDIVES Birendra Bir Bikram Shah Dev KING OF NEPAL Muhammad Zia-ul-Haq PRESIDENT OF THE ISLAMIC REPUBLIC OF PAKISTAN Junius Richard Jayewardene PRESIDENT OF DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

SAARC Social Charter Twelfth SAARC Summit Islamabad, 4-6 January 2004

e-affirming that the principal goal of SAARC is to promote the welfare of the peoples of South Asia, to improve their quality of life, to accelerate economic growth, social progress and cultural development and to provide all individuals the opportunity to live in dignity and to realize their full potential. Recognising that the countries of South Asia have been linked by age-old cultural, social and historical traditions and that these have enriched the interaction of ideas, values, cultures and philosophies among the people and the States and that these commonalities constitute solid foundations for regional cooperation for addressing more effectively the economic and social needs of people. Recalling that all Member States attach high importance to the imperative of social development and economic growth and that their national legislative, executive and administrative frameworks provide, in varying degrees, for the progressive realization of social and economic goals, with specific provisions, where appropriate, for the principles of equity, affirmative action and public interest. Observing that regional cooperation in the social sector has received the focused attention of the Member States and that specific areas such as health, nutrition, food security, safe drinking water and sanitation, population activities, and child development and rights along with gender equality, participation of women in development, welfare of the elderly people, youth mobilization and human

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resources development continue to remain on the agenda of regional cooperation. Noting that high level meetings convened since the inception of SAARC on the subjects of children, women, human resettlements. Sustainable developments, agriculture and food, poverty alleviation etc. have contributed immensely to the enrichment of the social agenda in the region and that several directives of the Heads of State or Government of SAARC Countries at their Summit meetings have imparted dynamism and urgency to adopting regional programmes to fully and effectively realize social goals. Reiterating that the SAARC Charter and the, SAARC Conventions, respectively on Narcotic Drugs and Psychotropic Substances, Preventing and Combating Trafficking in Women and Children for Prostitution, Regional Arrangements for the Promotion of Child Welfare in South Asia and the SAARC Agreement on Food Security Reserve provide regional frameworks for addressing specific social issues, which require concerted and coordinated actions and strategies for the effective realization of their objectives. Realizing that the health of the population of the countries of the region is closely interlinked and can be sustained only by putting in place coordinated surveillance mechanisms and prevention and management strategies. Noting, in particular, that Heads of State or Government of SAARC Countries, at their Tenth Summit in Colombo in July 1998, reaffirmed the need to develop, beyond national plans of action, a regional dimension of cooperation in the social sector and that the Eleventh SAARC Summit in Kathmandu in January 2002 directed that a SAARC Social Charter be concluded as early as possible. Convinced that it was timely to develop a regional instrument which consolidated the multifarious commitments of SAARC Member States in the social sector and provided a practical platform for concerted, coherent and complementary action in determining social priorities, improving the structure and content of social policies and programmes, ensuring greater efficiency in the utilization of national, regional and external resources and in enhancing the equity and sustainability of social programmes and the quality of living

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conditions of their beneficiaries. The Member States of the South Asian Association for Regional Cooperation hereby agree to adopt this Charter: Article I General Provisions 1. States Parties shall maintain a social policy and strategy in order to ensure an overall and balanced social development of their peoples. The salient features of individual social policy and programme shall be determined, taking into account the broader national development goals and specific historic and political contexts of each State Party. 2. States Parties agree that the obligations under the Social Charter shall be respected, protected and fulfilled without reservation and that the enforcement thereof at the national level shall be continuously reviewed through agreed regional arrangements and mechanisms. 3. States Parties shall establish a people-centered framework for social development to guide their work and in the future, to build a culture of cooperation and partnership and to respond to the immediate needs of those who are most affected by human distress. States Parties are determined to meet this challenge and promote social development throughout the region. Article II Principles, Goals and Objectives 1. The provisions made herein shall complement the national processes of policymaking, policy implementation and policyevaluation, while providing broad parameters and principles for addressing common social issues and developing and implementing result oriented programmes in specific social areas. 2. In the light of the commitments made in this Charter, States Parties agree to: i. Place people at the center of development and direct their economies to meet human needs more effectively; ii. Fulfil the responsibility towards present and future generations by ensuring equity among generations, and protecting the integrity and sustainable use of the environment; iii. Recognize that, while social development is a national responsibility, its successful achievement requires the collective

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commitment and cooperation of the international community; iv. Integrate economic, cultural and social policies so that they become mutually supportive, and acknowledge the interdependence of public and private spheres of activity; v. Recognize that the achievement of sustained social development requires sound. equitable and broad-based economic policies; vi. Promote participatory governance, human dignity, social justice and solidarity at the national, regional and international levels; vii. Ensure tolerance, non-violence, pluralism and nondiscrimination in respect of diversity within and among societies; viii. Promote the equitable distribution of income and greater access to resources through equity and equality of opportunity for all; ix. Recognize the family as the basic unit of society, and acknowledge that it plays a key role in social development and as such should be strengthened, with attention to the rights, capabilities and responsibilities of its members including children, youth and the elderly; x. Affirm that while State, society, community and family have obligations towards children, these must be viewed in the context of inculcating in children intrinsic and attendant sense of duty and set of values directed towards preserving and strengthening the family, community, society and nation; xi. Ensure that disadvantaged. marginalized and vulnerable persons and groups are included in social development, and that society acknowledges and responds to the consequences of disability by securing the legal rights of the individual and by making the physical and social environment accessible; xii. Promote universal respect for and observance and protection of human rights and fundamental freedoms for all, in particular the right to development; promote the effective exercise of rights and the discharge of responsibilities in a balanced manner at all levels of society; promote gender equity; promote the welfare and interest of children and youth; promote social integration and strengthen civil society; xiii. Recognize the promotion of health as a regional objective and strive to enhance it by responding to urgent health issues and outbreak of any communicable disease in the region through sharing information with each other, imparting public health and curative skills to professionals in the region; and adopting a coordinated approach to health related issues in international

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fora; xiv. Support progress and protect people and communities whereby every member of society is enabled to satisfy basic human needs and to realize his or her personal dignity, safety and creativity; xv. Recognize and support people with diverse cultures, beliefs and traditions in their pursuit of economic and social development with full respect for their identity, traditions, forms of social organization and cultural values; xvi. Underline the importance of transparent and accountable conduct of administration in public and private, national and international institutions; xvii.Recognize that empowering people, particularly women, to strengthen their own capacities is an important objective of development and its principal resource. Empowerment requires the full participation of people in the formulation, implementation and evaluation of decisions and sharing the results equitably; xviii.Accept the universality of social development, and outline an effective approach to it, with a renewed call for international cooperation and partnership; xix. Ensure that the elderly persons lead meaningful and fulfilling lives while enjoying all rights without. discrimination and facilitate the creation of an environment in which they continue to utilize their knowledge, experience and skills; xx. Recognize that information communication technology can help in fulfilling social development goals and emphasize the need to facilitate easy access to this technology; xxi. Strengthen policies and programmes that improve, broaden and ensure the participation of women in all spheres of political, economic, social and cultural life, as equal partners, and improve their access to all resources needed for the full enjoyment of their fundamental freedoms and other entitlements. Article III Poverty Alleviation 1. States Parties affirm that highest priority shall be accorded to the alleviation of poverty in all South Asian Countries. Recognising that South Asia's poor could constitute a huge and potential resource, provided their basic needs are met and they are mobilized to create economic growth, States Parties reaffirm

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that the poor should be empowered and irreversibly linked to the mainstream of development. They also agree to take appropriate measures to create income-generating activities for the poor. Noting that a large number of the people remain below the poverty line, States Parties re-affirm their commitment to implement an assured nutritional standards approach towards the satisfaction of basic needs of the South Asian poor. Noting the vital importance of biotechnology for the long-term food security of developing countries as well as for medicinal purposes, States Parties resolve that cooperation should be extended to the exchange of expertise in genetic conservation and maintenance of germplasm banks. They stress the importance of the role of training facilities in this area and agree that cooperation in the cataloguing of genetic resources in different SAARC countries would be mutually beneficial. States Parties agree that access to basic education, adequate housing, safe drinking water and sanitation, and primary health care should be guaranteed in legislation, executive and administrative provisions, in addition to ensuring of adequate standard of living, including adequate shelter, food and clothing. States Parties underline the imperative for providing a better habitat to the people of South Asia as part of addressing the problems of the homeless. They agree that each country share the experiences gained in their efforts to provide shelter, and exchange expertise for effectively alleviating the problem.

Article IV Health 1. States Parties re-affirm that they will strive to protect and promote the health of the population in the region. Recognizing that it is not possible to achieve good health in any country without addressing the problems of primary health issues and communicable diseases in the region, the States Parties agree to share information regarding the outbreak of any communicable disease among their populations. 2. Conscious that considerable expertise has been built up within the SAARC countries on disease prevention, management and treatment, States Parties affirm their willingness to share knowledge and expertise with other countries in the region. 3. Noting that the capacity for manufacture of drugs and other

chemicals exists in different countries, States Parties agree to share such capacity and products when sought by any other State Party. Realizing that health issues are related to livelihood and trade issues which are influenced by international agreements and conventions, the States Parties agree to hold prior consultation on such issues and to make an effort to arrive at a coordinated stand on issues that relate to the health of their population. States Parties also agree to strive at adopting regional standards on drugs and pharmaceutical products.

Article V Education, Human Resource Development and Youth Mobilization 1. Deeply conscious that education is the cutting edge in the struggle against poverty and the promotion of development, States Parties re-affirm the importance of attaining the target of providing free education to all children between the ages of 6 14 years. They agree to share their respective experiences and technical expertise to achieve this goal. 2. States Parties agree that broad-based growth should create productive employment opportunities for all groups of people, including young people. 3. States Parties agree to provide enhanced job opportunities for young people through increased investment in education and vocational training. 4. States Parties agree to provide adequate employment opportunities and leisure time activities for youth to make them economically and socially productive. 5. States Parties shall find ways and means to provide youth with access to education, create awareness on family planning, HIV/AIDS and other sexually-transmitted diseases, and risks of consumption of tobacco, alcohol and drugs. 6. States Parties stress the idealism of youth must be harnessed for regional cooperative programmes. They further stress the imperative of the resurgence of South Asian consciousness in the youth of each country through participation in the development programmes and through greater understanding and appreciation of each other's country. The Organized Volunteers Programme under which volunteers from one country would be able to work in other countries in the social fields shall be

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revitalized. States Parties recognize that it is essential to promote increased cross-fertilization of ideas through greater interaction among students, scholars and academics in the SAARC countries. They express the resolve that a concerted programme of exchange of scholars among Member States should be strengthened.

Article VI Promotion of the status of women 1. States Parties reaffirm their belief that discrimination against women is incompatible with human rights and dignity and with the welfare of the family and society; that it prevents women realizing their social and economic potential and their participation on equal terms with men, in the political, social, economic and cultural life of the country, and is a serious obstacle to the full development of their personality and in their contribution to the social and economic development of their countries. 2. States Parties agree that all appropriate measures shall be taken to educate public opinion and to direct national aspirations towards the eradication of prejudice and the abolition of customary and all other practices, which are based on discrimination against women. States Parties further declare that all forms of discrimination and violence against women are offences against human rights and dignity and that such offences must be prohibited through legislative, administrative and judicial actions. 3. States Parties shall take all appropriate measures to ensure to women on equal terms with men, an enabling environment for their effective participation in the local, regional and national development processes and for the enjoyment of their fundamental freedoms and legitimate entitlements. 4. States Parties also affirm the need to empower women through literacy and education recognizing the fact that such empowerment paves the way for faster economic and social development. They particularly stress the need to reduce, and eventually eliminate, the gender gap in literacy that currently exists in the SAARC nations, within a time-bound period. 5. States Parties re-affirm their commitment to effectively implement the SAARC Convention on Combating the Trafficking of Women and Children for Prostitution and to combat and

suppress all forms of traffic in women and exploitation of women, including through the cooperation of appropriate sections of the civil society. States Parties are of the firm view that at the regional level, mechanisms and institutions, to promote the advancement of women as an integral part of mainstream political, economic, social and cultural development be established.

Article VII Promotion of the Rights and Well-being of the Child 1. States Parties are convinced that the child, by reason of his or her physical and mental dependence, needs special safeguards and care, including appropriate legal protection, before as well as after birth. 2. The child, for the full and harmonious development of his or her personality, should grow up in a family environment, in an atmosphere of happiness, love and understanding. 3. States Parties shall protect the child against all forms of abuse and exploitation prejudicial to any aspects of the child's wellbeing. 4. States Parties shall take necessary actions to implement effectively the SAARC Convention on Regional Arrangements for the Promotion of Child Welfare and to combat and suppress all offences against the person, dignity and the life of the child. 5. States Parties are resolved that the child shall enjoy special protection, and shall be given opportunities and facilities, by law and by other means, to enable him or her to develop its full potential physically, mentally, emotionally, morally, spiritually, socially and culturally in a healthy and normal manner and in conditions of freedom and dignity. The best interests and welfare of the child shall be the paramount consideration and the guiding principle in all matters involving his or her life. 6. States Parties agree to extend to the child all possible support from government, society and the community. The child shall be entitled to grow and develop in health with due protection. To this end, special services shall be provided for the child and its mother, including pre-natal, natal (especially delivery by trained birth attendant) and post-natal care, immunization, early childhood care, timely and appropriate nutrition, education and recreation. States Parties shall undertake specific steps to reduce low birth weight, malnutrition, anemia amongst women and

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children, infant, child and maternal morbidity and mortality rates, through the intergenerational life cycle approach, increase education, literacy, and skill development amongst adolescents and youth, especially of girls and elimination of child/early marriage. 7. States Parties shall take effective measures for the rehabilitation and re-integration of children in conflict with the law. 8. State Parties shall take appropriate measures for the rehabilitation of street children, orphaned, displaced and abandoned children, and children affected by armed conflict. 9. States Parties pledge that a physically, mentally, emotionally or socially disadvantaged child shall be given the special treatment, education and care required by his or her particular condition. 10. States Parties shall ensure that a child of tender years shall not, save in exceptional circumstances, be separated from his or her mother and that society and the public authorities shall be required to extend particular care to children without a family and to those without adequate means of support, including where desirable, provision of State and other assistance towards his or her maintenance. 11. States Parties shall take all appropriate measures, including legislative, administrative, social and educational measures, to protect children from the illicit use of narcotic drugs and psychotropic substances as defined in the relevant international treaties, and to prevent the use of children in the illicit production and trafficking of such substances. In this respect, States Parties shall expedite the implementation of the SAARC Convention on Narcotic Drugs and Psychotropic Substances at the national and regional levels. Article VIII Population Stabilisation 1. States Parties underscore the vital importance of enhanced cooperation in the social development and well-being of the people of South Asia. They agree that national programmes evolved through stakeholder partnership, with enhancement of allocation of requisite resources and well-coordinated regional programmes will contribute to a positive atmosphere for the development of a socially content, healthy and sustainable population in the region. 2. States Parties are of the view that population policies should

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provide for human-centered approach to population and development and aim towards human survival and wellbeing. In this regard, they affirm that national, local or provincial policies and strategies should aim to bring stabilization in the growth of population in each country, through voluntary sustainable family planning and contraceptive methods, which do not affect the health of women. States Parties shall endeavour to inculcate a culture of selfcontentment and regulation where unsustainable consumption and production patterns would have no place in the society and unsustainable population changes, internal migration resulting in excessive population concentration, homelessness, increasing poverty, unemployment, growing insecurity and violence, environmental degradation and increased vulnerability to disasters would be carefully, diligently and effectively managed. States Parties shall take action to ensure reproductive health, reduction of maternal and infant mortality rates as also provision of adequate facilities to enable an infant to enjoy the warmth of love and support of his/her parents. States Parties also agree to set up a SAARC Network of Focal Institutions on population activities for facilitating the sharing of information, experiences and resources within the region.

Article IX Drug de-addiction, Rehabilitation and Reintegration 1. States Parties agree that regional cooperation should be enhanced through exchange of information, sharing of national experiences and common programmes in the specific areas, which should receive the priority consideration of the appropriate mechanisms both at the national and regional levels. 2. States Parties identify for intensive cooperation, the strengthening of legal systems to enhance collaboration in terms of financial investigation; asset forfeiture; money laundering; countering criminal conspiracies and organized crime: mutual legal assistance; controlled deliveries; extradition; the updating of laws and other relevant structures to meet the obligations of the SAARC Convention and other related international obligations, and developing of measures to counter drug trafficking through exchange of information; inter-country cooperation; controlled deliveries; strengthened SDOMD; regional training; frequent meetings at both policy and

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operational levels; strengthening the enforcement capabilities in the SAARC countries; enhanced control of production and use of licit drugs, and precursors and their essential chemicals. Keeping in view the complementarities between demand reduction activities and supply control programmes, States Parties agree that all aspects of demand reduction, supply control, de-addiction and rehabilitation should be addressed by regional mechanisms.

Article X Implementation 1. The implementation of the Social Charter shall be facilitated by a National Coordination Committee or any appropriate national mechanism as may be decided in each country. Information on such mechanism will be exchanged between States Parties through the SAARC Secretariat. Appropriate SAARC bodies shall review the implementation of the Social Charter at the regional level. 2. Member States shall formulate a national plan of action or modify the existing one, if any, in order to operationalise the provisions of the Social Charter. This shall be done through a transparent and broad-based participatory process. Stakeholder approach shall also he followed in respect of implementation and evaluation of the programmes under National Plans of Action. Article XI Entry into force The Social Charter shall come into force upon the signature thereof by all States Parties. Article XII Amendment The Social Charter may be amended through agreement among all States Parties. IN FAITH WHEREOF We Have Set Our Hands And Seals Hereunto. DONE In ISLAMABAD, PAKISTAN, On This The Fourth Day Of January Of The Year Two Thousand Four, In Nine Originals, In The English Language, All Texts Being Equally Authentic.

Begum Khaleda Zia PRIME MINISTER OF THE PEOPLE'S REPUBLIC OF BANGLADESH Maumoon Abdul Gayoom PRESIDENT OF THE REPUBLIC OF MALDIVES Jigmi Yoezer Thinley PRIME MINISTER OF THE KINGDOM OF BHUTAN Surya Bahadur Thapa PRIME MINISTER OF HIS MAJESTY'S GOVERNEMNT OF NEPAL Atal Behari Vajpayee PRIME MINISTER OF THE REPUBLIC OF INDIA Mir Zafarullah Khan Jamali PRIME MINISTER OF THE ISLAMIC REPUBLIC OF PAKISTAN Chandrika Bandaranaike Kumaratunga PRESIDENT OF THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

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well as the development of economic and technological cooperation; Aware that a number of regions are entering into such arrangements to enhance trade through the free movement of goods; Recognizing that Least Developed Countries in the region need to be accorded special and differential treatment commensurate with their development needs; and Recognizing that it is necessary to progress beyond a Preferential Trading Arrangement to move towards higher levels of trade and economic cooperation in the region by removing barriers to crossborder flow of goods;

Agreement on South Asian Free Trade Area (SAFTA)

he Governments of the SAARC (South Asian Association for Regional Cooperation).

Member States comprising the People's Republic of Bangladesh, the Kingdom of Bhutan, the Republic of India, the Republic of Maldives, the Kingdom of Nepal, the Islamic Republic of Pakistan and the Democratic Socialist Republic of Sri Lanka hereinafter referred to as “Contracting States” Motivated by the commitment to strengthen intra-SAARC economic cooperation to maximise the realization of the region's potential for trade and development for the benefit of their people, in a spirit of mutual accommodation, with full respect for the principles of sovereign equality, independence and territorial integrity of all States; Noting that the Agreement on SAARC Preferential Trading Arrangement (SAPTA) signed in Dhaka on the 11th of April 1993 provides for the adoption of various instruments of trade liberalization on a preferential basis; Convinced that preferential trading arrangements among SAARC Member States will act as a stimulus to the strengthening of national and SAARC economic resilience, and the development of the national economies of the Contracting States by expanding investment and production opportunities, trade, and foreign exchange earnings as

Have agreed as follows: Article 1 Definitions For the purposes of this Agreement: 1. Concessions mean tariff, para-tariff and non-tariff concessions agreed under the Trade Liberalisation Programme; 2. Direct Trade Measures mean measures conducive to promoting mutual trade of Contracting States such as long and mediumterm contracts containing import and supply commitments in respect of specific products, buy-back arrangements, state trading operations, and government and public procurement; 3. Least Developed Contracting State refers to a Contracting State which is designated as a “Least Developed Country” by the United Nations; 4. Margin of Preference means percentage of tariff by which tariffs are reduced on products imported from one Contracting State to another as a result of preferential treatment. 5. Non-Tariff Measures include any measure, regulation, or practice, other than “tariffs” and “para-tariffs”. 6. Para-Tariffs mean border charges and fees, other than “tariffs”, on foreign trade transactions of a tariff- like effect which are levied solely on imports, but not those indirect taxes and charges, which are levied in the same manner on like domestic products. Import charges corresponding to specific services rendered are not considered as para-tariff measures; 7. Products mean all products including manufactures and commodities in their raw, semi-processed and processed forms; 8. SAPTA means Agreement on SAARC Preferential Trading Arrangement signed in Dhaka on the 11th of April 1993;

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Serious injury means a significant impairment of the domestic industry of like or directly competitive products due to a surge in preferential imports causing substantial losses in terms of earnings, production or employment unsustainable in the short term; 10. Tariffs mean customs duties included in the national tariff schedules of the Contracting States; 11. Threat of serious injury means a situation in which a substantial increase of preferential imports is of a nature to cause â&#x20AC;&#x153;serious injuryâ&#x20AC;? to domestic producers, and that such injury, although not yet existing, is clearly imminent. A determination of threat of serious injury shall be based on facts and not on mere allegation, conjecture, or remote or hypothetical possibility. Article 2 Establishment The Contracting States hereby establish the South Asian Free Trade Area (SAFTA) to promote and enhance mutual trade and economic cooperation among the Contracting States, through exchanging concessions in accordance with this Agreement. Article 3 Objectives and Principles 1. The Objectives of this Agreement are to promote and enhance mutual trade and economic cooperation among Contracting States by, inter-alia: a) eliminating barriers to trade in, and facilitating the cross-border movement of goods between the territories of the Contracting States; b) promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development; c) creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and d) establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement. 2. SAFTA shall be governed in accordance with the following principles: a) SAFTA will be governed by the provisions of this Agreement and also by the rules, regulations, decisions, understandings and

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protocols to be agreed upon within its framework by the Contracting States; b) The Contracting States affirm their existing rights and obligations with respect to each other under Marrakesh Agreement Establishing the World Trade Organization and other Treaties/Agreements to which such Contracting States are signatories; c) SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems; d) SAFTA shall involve the free movement of goods, between countries through, inter alia, the elimination of tariffs, para tariffs and non-tariff restrictions on the movement of goods, and any other equivalent measures; e) SAFTA shall entail adoption of trade facilitation and other measures, and the progressive harmonization of legislations by the Contracting States in the relevant areas; and f) The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis. Article 4 Instruments The SAFTA Agreement will be implemented through the following instruments: 1. 2. 3. 4. 5. 6.

Trade Liberalisation Programme Rules of Origin Institutional Arrangements Consultations and Dispute Settlement Procedures Safeguard Measures Any other instrument that may be agreed upon.

Article 5 National Treatment Each Contracting State shall accord national treatment to the products of other Contracting States in accordance with the provisions of Article III of GATT 1994.

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Article 6 Components SAFTA may, inter-alia, consist of arrangements relating to: a) tariffs; b) para-tariffs; c) non-tariff measures; d) direct trade measures. Article 7 Trade Liberalisation Programme 1. Contracting States agree to the following schedule of tariff reductions: a) The tariff reduction by the Non-Least Developed Contracting States from existing tariff rates to 20% shall be done within a time frame of 2 years, from the date of coming into force of the Agreement. Contracting States are encouraged to adopt reductions in equal annual installments. If actual tariff rates after the coming into force of the Agreement are below 20%, there shall be an annual reduction on a Margin of Preference basis of 10% on actual tariff rates for each of the two years. b) The tariff reduction by the Least Developed Contracting States from existing tariff rates will be to 30% within the time frame of 2 years from the date of coming into force of the Agreement. If actual tariff rates on the date of coming into force of the Agreement are below 30%, there will be an annual reduction on a Margin of Preference basis of 5 % on actual tariff rates for each of the two years. c) The subsequent tariff reduction by Non-Least Developed Contracting States from 20% or below to 0-5% shall be done within a second time frame of 5 years, beginning from the third year from the date of coming into force of the Agreement. However, the period of subsequent tariff reduction by Sri Lanka shall be six years. Contracting States are encouraged to adopt reductions in equal annual installments, but not less than 15% annually. d) The subsequent tariff reduction by the Least Developed Contracting States from 30% or below to 0-5% shall be done within a second time frame of 8 years beginning from the third year from the date of coming into force of the Agreement. The Least Developed Contracting States are encouraged to adopt reductions in equal annual installments, not less than 10% annually.

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The above schedules of tariff reductions will not prevent Contracting States from immediately reducing their tariffs to 05% or from following an accelerated schedule of tariff reduction. a) Contracting States may not apply the Trade Liberalisation Programme as in paragraph 1 above, to the tariff lines included in the Sensitive Lists which shall be negotiated by the Contracting States (for LDCs and Non-LDCs) and incorporated in this Agreement as an integral part. The number of products in the Sensitive Lists shall be subject to maximum ceiling to be mutually agreed among the Contracting States with flexibility to Least Developed Contracting States to seek derogation in respect of the products of their export interest; and b) The Sensitive List shall be reviewed after every four years or earlier as may be decided by SAFTA Ministerial Council (SMC), established under Article 10, with a view to reducing the number of items in the Sensitive List. The Contracting States shall notify the SAARC Secretariat all non-tariff and paratariff measures to their trade on an annual basis. The notified measures shall be reviewed by the Committee of Experts, established under Article 10, in its regular meetings to examine their compatibility with relevant WTO provisions. The Committee of Experts shall recommend the elimination or implementation of the measure in the least trade restrictive manner in order to facilitate intra-SAARC trade.1 Contracting Parties shall eliminate all quantitative restrictions, except otherwise permitted under GATT 1994, in respect of products included in the Trade Liberalisation Programme. Notwithstanding the provisions contained in paragraph 1 of this Article, the Non-Least Developed Contracting States shall reduce their tariff to 0-5% for the products of Least Developed Contracting States within a timeframe of three years beginning from the date of coming into force of the Agreement.

Article 8 Additional Measures Contracting States agree to consider, in addition to the measures set out in Article 7, the adoption of trade facilitation and other measures

The initial notification shall be made within three months from the date of coming into force of the Agreement and the COE shall review the notifications in its first meeting and take appropriate decisions.

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to support and complement SAFTA for mutual benefit. These may include, among others: a) harmonization of standards, reciprocal recognition of tests and accreditation of testing laboratories of Contracting States and certification of products; b) simplification and harmonization of customs clearance procedure; c) harmonization of national customs classification based on HS coding system; d) Customs cooperation to resolve dispute at customs entry points; e) simplification and harmonization of import licensing and registration procedures; f) simplification of banking procedures for import financing; g) transit facilities for efficient intra-SAARC trade, especially for the land-locked Contracting States; h) removal of barriers to intra-SAARC investments; i) macroeconomic consultations; j) rules for fair competition and the promotion of venture capital; k) development of communication systems and transport infrastructure; l) making exceptions to their foreign exchange restrictions, if any, relating to payments for products under the SAFTA scheme, as well as repatriation of such payments without prejudice to their rights under Article XVIII of the General Agreement on Tariffs and Trade (GATT) and the relevant provisions of Articles of Treaty of the International Monetary Fund (IMF); and m) Simplification of procedures for business visas. Article 9 Extension of Negotiated Concessions Concessions agreed to, other than those made exclusively to the Least Developed Contracting States, shall be extended unconditionally to all Contracting States. Article 10 Institutional Arrangements 1. The Contracting States hereby establish the SAFTA Ministerial Council (hereinafter referred to as SMC). 2. The SMC shall be the highest decision-making body of SAFTA and shall be responsible for the administration and implementation of this Agreement and all decisions and arrangements made within its legal framework.

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The SMC shall consist of the Ministers of Commerce/Trade of the Contracting States. 4. The SMC shall meet at least once every year or more often as and when considered necessary by the Contracting States. Each Contracting State shall chair the SMC for a period of one year on rotational basis in alphabetical order. 5. The SMC shall be supported by a Committee of Experts (hereinafter referred to as COE), with one nominee from each Contracting State at the level of a Senior Economic Official, with expertise in trade matters. 6. The COE shall monitor, review and facilitate implementation of the provisions of this Agreement and undertake any task assigned to it by the SMC. The COE shall submit its report to SMC every six months. 7. The COE will also act as Dispute Settlement Body under this Agreement. 8. The COE shall meet at least once every six months or more often as and when considered necessary by the Contracting States. Each Contracting State shall chair the COE for a period of one year on rotational basis in alphabetical order. 9. The SAARC Secretariat shall provide secretarial support to the SMC and COE in the discharge of their functions. 10. The SMC and COE will adopt their own rules of procedure. Article 11 Special and Differential Treatment for the Least Developed Contracting States In addition to other provisions of this Agreement, all Contracting States shall provide special and more favorable treatment exclusively to the Least Developed Contracting States as set out in the following sub-paragraphs: a) The Contracting States shall give special regard to the situation of the Least Developed Contracting States when considering the application of anti-dumping and/or countervailing measures. In this regard, the Contracting States shall provide an opportunity to Least Developed Contracting States for consultations. The Contracting States shall, to the extent practical, favourably consider accepting price undertakings offered by exporters from Least Developed Contracting States. These constructive remedies shall be available until the trade liberalisation programme has been completed by all Contracting States.

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b) Greater flexibility in continuation of quantitative or other restrictions provisionally and without discrimination in critical circumstances by the Least Developed Contracting States on imports from other Contracting States. c) Contracting States shall also consider, where practical, taking direct trade measures with a view to enhancing sustainable exports from Least Developed Contracting States, such as long and medium-term contracts containing import and supply commitments in respect of specific products, buy-back arrangements, state trading operations, and government and public procurement. d) Special consideration shall be given by Contracting States to requests from Least Developed Contracting States for technical assistance and cooperation arrangements designed to assist them in expanding their trade with other Contracting States and in taking advantage of the potential benefits of SAFTA. A list of possible areas for such technical assistance shall be negotiated by the Contracting States and incorporated in this Agreement as an integral part. e) The Contracting States recognize that the Least Developed Contracting States may face loss of customs revenue due to the implementation of the Trade Liberalisation Programme under this Agreement. Until alternative domestic arrangements are formulated to address this situation, the Contracting States agree to establish an appropriate mechanism to compensate the Least Developed Contracting States for their loss of customs revenue. This mechanism and its rules and regulations shall be established prior to the commencement of the Trade Liberalisation Programme (TLP). Article 12 Special Provision for Maldives Notwithstanding the potential or actual graduation of Maldives from the status of a Least Developed Country, it shall be accorded in this Agreement and in any subsequent contractual undertakings thereof treatment no less favourable than that provided for the Least Developed Contracting States. Article 13 Non-application Notwithstanding the measures as set out in this Agreement its

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provisions shall not apply in relation to preferences already granted or to be granted by any Contracting State to other Contracting States outside the framework of this Agreement, and to third countries through bilateral, plurilateral and multilateral trade agreements and similar arrangements. Article 14 General Exceptions a) Nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of its national security. b) Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the similar conditions prevail, or a disguised restriction on intraregional trade, nothing in this Agreement shall be construed to prevent any Contracting State from taking action and adopting measures which it considers necessary for the protection of: (i) public morals; (ii) human, animal or plant life and health; and (iii) articles of artistic, historic and archaeological value. Article 15 Balance of Payments Measures 1. Notwithstanding the provisions of this Agreement, any Contracting State facing serious balance of payments difficulties may suspend provisionally the concessions extended under this Agreement. 2. Any such measure taken pursuant to paragraph 1 of this Article shall be immediately notified to the Committee of Experts. 3. The Committee of Experts shall periodically review the measures taken pursuant to paragraph 1 of this Article. 4. Any Contracting State which takes action pursuant to paragraph 1 of this Article shall afford, upon request from any other Contracting State, adequate opportunities for consultations with a view to preserving the stability of concessions under SAFTA. 5. If no satisfactory adjustment is effected between the Contracting States concerned within 30 days of the beginning of such consultations, to be extended by another 30 days through mutual consent, the matter may be referred to the Committee of Experts.

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Any such measures taken pursuant to paragraph 1 of this Article shall be phased out soon after the Committee of Experts comes to the conclusion that the balance of payments situation of the Contracting State concerned has improved.

Article 16 Safeguard Measures 1. If any product, which is the subject of a concession under this Agreement, is imported into the territory of a Contracting State in such a manner or in such quantities as to cause, or threaten to cause, serious injury to producers of like or directly competitive products in the importing Contracting State, the importing Contracting State may, pursuant to an investigation by the competent authorities of that Contracting State conducted in accordance with the provisions set out in this Article, suspend temporarily the concessions granted under the provisions of this Agreement. The examination of the impact on the domestic industry concerned shall include an evaluation of all other relevant economic factors and indices having a bearing on the state of the domestic industry of the product and a causal relationship must be clearly established between â&#x20AC;&#x153;serious injuryâ&#x20AC;? and imports from within the SAARC region, to the exclusion of all such other factors. 2. Such suspension shall only be for such time and to the extent as may be necessary to prevent or remedy such injury and in no case, will such suspension be for duration of more than 3 years. 3. No safeguard measure shall be applied again by a Contracting State to the import of a product which has been subject to such a measure during the period of implementation of Trade Liberalization Programme by the Contracting States, for a period of time equal to that during which such measure had been previously applied, provided that the period of non-application is at least two years. 4. All investigation procedures for resorting to safeguard measures under this Article shall be consistent with Article XIX of GATT 1994 and WTO Agreement on Safeguards 5. Safeguard action under this Article shall be non-discriminatory and applicable to the product imported from all other Contracting States subject to the provisions of paragraph 8 of this Article. 6. When safeguard provisions are used in accordance with this

Article, the Contracting State invoking such measures shall immediately notify the exporting Contracting State(s) and the Committee of Experts. In critical circumstances where delay would cause damage which it would be difficult to repair, a Contracting State may take a provisional safeguard measure pursuant to a preliminary determination that there is clear evidence that increased imports have caused or are threatening to cause serious injury. The duration of the provisional measure shall not exceed 200 days, during this period the pertinent requirements of this Article shall be met. Notwithstanding any of the provisions of this Article, safeguard measures under this article shall not be applied against a product originating in a Least Developed Contracting State as long as its share of imports of the product concerned in the importing Contracting State does not exceed 5 per cent, provided Least Developed Contracting States with less than 5% import share collectively account for not more than 15% of total imports of the product concerned.

Article 17 Maintenance of the Value of Concessions Any of the concessions agreed upon under this Agreement shall not be diminished or nullified, by the application of any measures restricting trade by the Contracting States, except under the provisions of other articles of this Agreement. Article 18 Rules of Origin Rules of Origin shall be negotiated by the Contracting States and incorporated in this Agreement as an integral part. Article 19 Consultations 1. Each Contracting State shall accord sympathetic consideration to and will afford adequate opportunity for consultations regarding representations made by another Contracting State with respect to any matter affecting the operation of this Agreement. 2. The Committee of Experts may, at the request of a Contracting State, consult with any Contracting State in respect of any matter for which it has not been possible to find a satisfactory solution through consultations under paragraph 1.

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Article 20 Dispute Settlement Mechanism 1. Any dispute that may arise among the Contracting States regarding the interpretation and application of the provisions of this Agreement or any instrument adopted within its framework concerning the rights and obligations of the Contracting States will be amicably settled among the parties concerned through a process initiated by a request for bilateral consultations. 2. Any Contracting State may request consultations in accordance with paragraph 1 of this Article with other Contracting State in writing stating the reasons for the request including identification of the measures at issue. All such requests should be notified to the Committee of Experts, through the SAARC Secretariat with an indication of the legal basis for the complaint. 3. If a request for consultations is made pursuant to this Article, the Contracting State to which the request is made shall, unless otherwise mutually agreed, reply to the request within 15 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of the request, with a view to reaching a mutually satisfactory solution. 4. If the Contracting State does not respond within 15 days after the date of receipt of the request, or does not enter into consultations within a period of no more than 30 days, or a period otherwise mutually agreed, after the date of receipt of the request, then the Contracting State that requested the holding of consultations may proceed to request the Committee of Experts to settle the dispute in accordance with working procedures to be drawn up by the Committee. 5. Consultations shall be confidential, and without prejudice to the rights of any Contracting State in any further proceedings. 6. If the consultations fail to settle a dispute within 30 days after the date of receipt of the request for consultations, to be extended by a further period of 30 days through mutual consent, the complaining Contracting State may request the Committee of Experts to settle the dispute. The complaining Contracting State may request the Committee of Experts to settle the dispute during the 60-day period if the consulting Contracting States jointly consider that consultations have failed to settle the dispute.

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10.

11.

The Committee of Experts shall promptly investigate the matter referred to it and make recommendations on the matter within a period of 60 days from the date of referral. The Committee of Experts may request a specialist from a Contracting State not party to the dispute selected from a panel of specialists to be established by the Committee within one year from the date of entry into force of the Agreement for peer review of the matter referred to it. Such review shall be submitted to the Committee within a period of 30 days from the date of referral of the matter to the specialist. Any Contracting State, which is a party to the dispute, may appeal the recommendations of the Committee of Experts to the SMC. The SMC shall review the matter within the period of 60 days from date of submission of request for appeal. The SMC may uphold, modify or reverse the recommendations of the Committee of Experts. Where the Committee of Experts or SMC concludes that the measure subject to dispute is inconsistent with any of the provisions of this Agreement, it shall recommend that the Contracting State concerned bring the measure into conformity with this Agreement. In addition to its recommendations, the Committee of Experts or SMC may suggest ways in which the Contracting State concerned could implement the recommendations. The Contracting State to which the Committee's or SMC's recommendations are addressed shall within 30 days from the date of adoption of the recommendations by the Committee or SMC, inform the Committee of Experts of its intentions regarding implementation of the recommendations. Should the said Contracting State fail to implement the recommendations within 90 days from the date of adoption of the recommendations by the Committee, the Committee of Experts may authorize other interested Contracting States to withdraw concessions having trade effects equivalent to those of the measure in dispute.

Article 21 Withdrawal 1. Any Contracting State may withdraw from this Agreement at any time after its entry into force. Such withdrawal shall be effective on expiry of six months from the date on which a written notice

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thereof is received by the Secretary-General of SAARC, the depositary of this Agreement. That Contracting State shall simultaneously inform the Committee of Experts of the action it has taken. The rights and obligations of a Contracting State which has withdrawn from this Agreement shall cease to apply as of that effective date. Following the withdrawal by any Contracting State, the Committee shall meet within 30 days to consider action subsequent to withdrawal.

Article 22 Entry into Force 1. This Agreement shall enter into force on 1st January 2006 upon completion of formalities, including ratification by all Contracting States and issuance of a notification thereof by the SAARC Secretariat. This Agreement shall supercede the Agreement on SAARC Preferential Trading Arrangement (SAPTA). 2. Notwithstanding the supercession of SAPTA by this Agreement, the concessions granted under the SAPTA Framework shall remain available to the Contracting States until the completion of the Trade Liberalisation Programme. Article 23 Reservations This Agreement shall not be signed with reservations, nor will reservations be admitted at the time of notification to the SAARC Secretariat of the completion of formalities. Article 24 Amendments This Agreement may be amended by consensus in the SAFTA Ministerial Council. Any such amendment will become effective upon the deposit of instruments of acceptance with the Secretary General of SAARC by all Contracting States. Article 25 Depository This Agreement will be deposited with the Secretary General of SAARC, who will promptly furnish a certified copy thereof to each Contracting State.

IN WITNESS WHEREOF the undersigned being duly authorized thereto by their respective Governments have signed this Agreement. DONE in ISLAMABAD, PAKISTAN, On This The Sixth Day Of the Year Two Thousand Four, In Nine Originals In The English Language All Texts Being Equally Authentic. M. MORSHED KHAN Minister for Foreign Affairs People's Republic of Bangladesh NADO RINCHHEN Officiating Minister for Foreign Affairs Kingdom of Bhutan YASHWANT SINHA Minister of External Affairs Republic of India FATHULLA JAMEEL Minister of Foreign Affairs Republic of Maldives DR. BHEKH B. THAPA Ambassador-at-large for Foreign Affairs His Majesty's Government of Nepal KHURSHID M. KASURI Minister of Foreign Affairs Islamic Republic of Pakistan TYRONNE FERNANDO Minister of Foreign Affairs Democratic Socialist Republic of Sri Lanka

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SAARC Plan of Action on Poverty Alleviation

he Plan of Action on Poverty Alleviation was recommended by the Third Meeting of the SAARC Finance/Planning Ministers on Poverty Alleviation (Islamabad, 8-9 April 2002) and was approved by the Twelfth SAARC Summit (Islamabad, 4-6 January) Recognizing that the problem of poverty in South Asia needs to be tackled from a multi-dimensional aspect and agreeing that a focused and action-oriented plan is the need of the hour, resolved on the following Plan of Action. The Finance and Planning Ministers of the SAARC countries, united in their determination to reduce poverty, drawing upon the experience of the member countries and committed to achieve the Millennium Development Goals (MDGs), resolve to pursue the following policies of the Plan of Action: Internal Policies i. recognize that poverty reduction requires good governance through a. improved public sector management and delivery system, particularly in areas that affect the poor {land administration, police and judiciary). b. effective monitoring of public expenditure to prevent leakages. c. transparent and cost effective public procurement practices. d. to take steps to prevent domestic money laundering. e. development of IT.

ii. Pursue sound macro-economic management policies through a. focus on quality and pattern of growth. b. fiscal discipline, domestic resource mobilization and reduced internal and external borrowing. c. outcome-based spending on poverty reduction programmes. d. economically viable projects in the productive sector. iii. Enrich the concept of Human Development through adoption of Bhutan's philosophy of promoting 'Gross National Happiness' through a. equitable socio-economic development. b. preservation of environment. c. promotion of cultural heritage. d. good responsible governance. iv. Recognize the importance of combating both rural and urban poverty through a. better targeting of poor in both rural and urban areas. b. appropriate agriculture, livestock and fisheries policies, including pricing, tenure, water and watershed development. c. promoting employment through rural non-farm enterprise. d. access to micro-finance. e. small and medium enterprise development. f. creation of rural infrastructure. g. development of service sector, including tourism. v. Promote multi-culturalism, pluralism and mass education through a. removal of social and cultural barriers to the pursuit of human development goals. b. representative and participatory institution building. c. gender equality and empowerment of women. d. extension of coverage of education, improvement of its quality and reduction of dropouts by school feeding programmes and introduction of other incentives. e. vocational and technical training and skill upgradation. vi. Expand Social Safety Nets through a. food assistance for vulnerable groups. b. schemes targeting the poorest and the most vulnerable by providing old age benefits, disability and benefits on the death of primary bread earner. c. affordable health packages. d. provision of safe drinking water and sanitation. e. incentives to preserve the strength of traditional family structures. vii. Invest in human capital and social sectors through

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a. outcome-driven allocations to social sectors. b. encouragement of private sector investment in education and health. viii. Exercise prudence in allocating public resources and strengthen domestic resource mobilization through a. Prioritization of public expenditure. b. increased domestic revenue to reduce the dependence on ODA. c. fewer but well-targeted subsidies. d. coordinated improvement of revenue collection agencies. ix. Empower local communities and governments through a. decentralization. b. financial devolution. c. community participation x. Strengthening poverty alleviation programmes through a. building up the physical assets of the poor, including grant assistance to the indigent for purchase of small capital assets. b. significant budgetary and credit allocations for (a) and (b). c. supportive policies for social mobilization. d. associating non-governmental and civil society organizations (CSOs). xi. Expand intra-regional trade and capital flows as decided by the Eleventh SAARC Summit through a. early completion and full operationalization of SAPTA. b. faster movement towards SAFTA. c. facilitation of intra-regional capital flows. xii. Learning from each other's experience through a. exchange of best practices. b. frequent interactions among scholars, practitioners and policy makers at all levels. External Policies i. Work with developed countries to increase ODA to 0.7% of GNP through a. formulating common positions at relevant international fora. b. frequent consultations among member states on issues of finance and international investment. ii. Seek increased market access in developed countries through a. joint positions to address the biases against developing countries in WTO related issues. b. removal of tariff and non-tariff barriers. c. joint positions against creeping protectionism against the exports of developing countries.

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d. flexibility for developing countries in Intellectual Property Rights. iii. Reduce the burden of multi-lateral borrowing and external debt through a. more selective multi-lateral borrowing. b. debt swaps for human development. c. debt relief for poverty reduction. d. debt relief for non-HIPC developing countries. e. increased grant assistance for investment in social sector development. iv. Discuss with developed countries ways to unearth past inflows of illegal and tax-evaded money originating from SAARC countries and control them in future through a. instituting mechanisms, wherever required, to prevent corrupt practices in international trade and service transactions. b. disallowance of illegal capital flows into International Banking Systems. Resolve that this Plan of Action would be pursued in the framework of balanced and sustainable development. Resolve further that the Finance and Planning Ministers meet regularly in the future to review policies and programs on poverty alleviation and progress on objectives outlined in the Plan of Action.

M. MORSHED KHAN Minister for Foreign Affairs People's Republic of Bangladesh

NADO RINCHHEN Officiating Minister for Foreign Affairs Kingdom of Bhutan

YASHWANT SINHA Minister of External Affairs Republic of India

FATHULLA JAMEEL Minister of Foreign Affairs Republic of Maldives

DR. BHEKH B. THAPA Ambassador-at-large for Foreign Affairs His Majesty's Government of Nepal

KHURSHID M. KASURI Minister of Foreign Affairs Islamic Republic of Pakistan

TYRONNE FERNANDO Minister of Foreign Affairs Democratic Socialist Republic of Sri Lanka

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ANNEXES a) Convention for the Suppression of Unlawful Seizure of Aircraft, signed at the Hague on 16 December 1970. b) Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation, signed at Montreal on 23 September 1971. c) Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons, including Diplomatic Agents, approved by the General Assembly of the United Nations on 14 December 1973. d) International Convention against the Taking of Hostages, adopted by the General Assembly of the United Nations on 17 December 1979. e) Convention on the Physical Protection of Nuclear Material, signed at Vienna on 3 March 1980. f) Protocol for the Suppression of Unlawful Acts of Violence at Airports Serving International Civil Aviation, supplementary to the Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation, signed at Montreal on 24 February 1988. g) Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation, done at Rome on 10 March 1988. h) Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms located on the Continental Shelf, done at Rome on 10 March 1988. i) International Convention for the Suppression of Terrorist Bombings, approved by the General Assembly of the United Nations on 15 December 1997. j) International Convention for the Suppression of the Financing of Terrorism, approved by the General Assembly of the United Nations on 9 December 1999.

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SAARC Regional Convention on Suppression of Terrorism THE MEMBER STATES OF THE SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION (SAARC) MINDFUL of the principles of cooperation enshrined in the SAARC Charter; RECALLING that at the Dhaka Summit on December 7-8, 1985, the Heads of State or Government of the Member States of the SAARC recognized the seriousness of the problem of terrorism as it affects the security and stability of the region; ALSO RECALLING the Bangalore Summit Declaration of 17 November 1986, in which the Heads of state or Government of SAARC agreed that cooperation among SAARC States was vital if terrorism was to be prevented and eliminated from the region; unequivocally condemned all acts, methods and practices of terrorism as criminal and deplored their impact on life and property, socio-economic development, political stability, regional and international peace and cooperation, and recognized the importance of the principles laid down in UN Resolution 2625 (XXV) which among others required that each state should refrain from organizing, instigating , assisting or participating in acts of civil strife or terrorist acts in another state or acqui-escing in organized activities within its territory directed towards the commission of such acts;

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AWARE of the danger posed by the spread of terrorism and its harmful effect on peace, cooperation, friendship and good neighbourly relations and which could also jeopardize the sovereignty and territorial integrity of states; HAVE RESOLVED to take effective measures to ensure that perpetrators of terroristic acts do not escape prosecution and punishment by providing for their extradition or prosecution, and to this end, HAVE AGREED as follows: Article I Subject to the overall requirements of the law of extradition, conduct constituting any of the following offences, according to the law of the Contracting State, shall be regarded as terroristic and for the purpose of extradition shall not be regarded as political offence or as an offence connected with a political offence or as an offence inspired by political motives: a) An offence within the scope of the Convention for the Suppression of Unlawful Seizure of Aircraft, signed at the Hague on December 16, 1970; b) An offence within the scope of the Convention for the Suppression of Unlawful acts against the safety of Civil Aviation, signed at Montreal on September 23, 1971; c) An offence within the scope of the Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons, including Diplomatic Agents, signed at New York on December 14, 1973; d) An offence within the scope of any Convention to which SAARC Member Sates concerned are parties and which obliges the parties to prosecute or grant extradition; e) Murder, manslaughter, assault causing bodily harm, kidnapping, hostage-taking and offences relating to firearms, weapons, explosives and dangerous substances when used as a means to perpetrate indiscriminate violence involving death or serious bodily injury to persons or serious damage to property; f) An attempt or conspiracy to commit an offence described in subparagraphs (a) to (e), aiding, abetting or counseling the commission of such an offence or participating as an accomplice in the offences so described.

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Article II For the purpose of extradition between SAARC Member States, any two or more Contracting States may, by agreement, decide to include any other serious offence involving violence, which shall not be re-garded as a political offence or an offence connected with a political offence or an offence inspired by political motives. Article III 1. The provisions of all extradition treaties and arrangements applicable between Contracting States are hereby amended as between Contracting States to the extent that they are incompatible with this Convention. 2. For the purpose of this Convention and to the extent that any offence referred to in Article I or agreed to in terms of Article II is not listed as an extraditable offence in any extradition treaty existing between Contracting States, it shall be deemed to be included as such therein. 3. Contracting States undertake to include these offences as extraditable offences in any future extradi-tion treaty to be concluded between them. 4. If a Contracting State which makes extradition conditional on the existence of a treaty receives a request for extradition from another Contracting State with which it has no extradition treaty, the requested State may, as its option, consider this Convention as the basis for extradition in respect of the offences set forth in Article I or agreed to in terms of Article II. Extradition shall be subject to the law of the requested State. 5. Contracting States, which do not make extradition conditional on the existence of a treaty, shall recognize the offences set forth in Article I or agreed to in terms of Article II as extraditable offences between themselves, subject to the law of the requested State. Article IV A contracting State in whose territory a person suspected of having committed an offence referred to in Article I or agreed to in terms of Article II is found and which has received a request for extradition from another Contracting State, shall, if it does not extradite that person, submit the case without exception and without delay, to its competent authorities shall take their decisions in the same manner as in the case of any offence of a serious nature under the law of the

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State. Article V For the purpose of Article IV, each Contracting State may take such measures as it deems appropriate, consistent with its national laws, subject to reciprocity, to exercise its jurisdiction in the case of an offence under Article I or agreed to in terms of Article II. Article VI A Contracting State in whose territory an alleged offender is found, shall, upon receiving a request for extradition from another Contracting State, take appropriate measures, subject to its national laws, so as to ensure his presence for purposes of extradition or prosecution. Such measures shall immediately be notified to the requesting State. Article VII Contracting States shall not be obliged to extradite, if it appears to the requested State that by reason of the trivial nature of the case or by reason of the request for the surrender or return of a fugitive offender not being made in good faith or in the interests of justice or for any other reason it is unjust or inexpedient to surrender or return the fugitive offender. Article VIII 1. Contracting States shall, subject to their national laws, afford one another the greatest measure of mutual assistance in connection with proceedings brought in respect of the offences referred to in Article I or agree to in terms of Article II, including the supply of all evidence at their disposal necessary for the proceedings. 2. Contracting States shall cooperate among themselves, to the extent permitted by their national laws, through consultations between appropriate agencies, exchange of information, intelligence and expertise and such other cooperative measures as may be appropriate, with a view to prevention terroristic activities through precautionary measures. Article IX 1. The Convention shall be open for signature by the Member States of SAARC at the SAARC Secretariat in Kathmandu. 2. It shall be subject to ratification. Instruments of ratification

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shall be deposited with the Secretary General of SAARC. Article X The Convention shall enter into force on the fifteenth day following the date of the deposit of the seventh Instrument of Ratification with Secretary General of SAARC. Article XI The Secretary-General of SAARC shall be the depositary of this Convention and shall notify Member States of signatures to this Convention and all deposits of Instruments of Ratification. The Secretary General shall transmit certified copies of such Instruments to each Member State. The Secretary General shall also inform Member States of the date on which this Convention will have entered into force in accordance with Article X. IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments have signed this Convention. DONE at Kathmandu on this Fourth Day of November One Thousand Nine Hundred and Eighty Seven in eight Originals in the English language all texts being equally authentic. HUMAYUN RASHEED CHOUDHURY Minister of Foreign Affairs People s Republic of Bangladesh DAWA TSERING Minister of Foreign Affairs Kingdom of Bhutan K. NATWAR SINGH Minister of State for External Affairs Republic of India FATHULLA JAMEEL Minister of Foreign Affairs Republic of Maldives

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SHAILENDRA KUMAR UPADHYAYA Minister for Foreign Affairs and Land Reforms His Majesty s Government of Nepal ZAIN NOORANI Minister of State for Foreign Affairs Islamic Republic of Pakistan A.C. SHAHUL HAMEED Minister of Foreign Affairs Democratic Socialist Republic of Sri Lanka

Additional Protocol to the SAARC Regional Convention on Suppression of Terrorism THE MEMBER STATES OF THE SOUTH ASIAN ASSOCIATION FOR REGIONAL CO-OPERATION (SAARC) MINDFUL of the purposes and the principles of co-operation enshrined in the SAARC Charter and the Charter of the United Nations; RECALLING the Declaration of the Eleventh SAARC Summit adopted at Kathmandu on 6th January 2002; FURTHER RECALLING that, at the Eleventh SAARC Summit, the Heads of State or Government, reiterated their support to the United Nations Security Council Resolution 1373 of September 28, 2001 and affirmed their determination to re-double efforts collectively as well as individually, to prevent and suppress terrorism in all its forms and manifestations, including, by increased co-operation and full implementation of the relevant international conventions relating to terrorism to which they are parties and called on all Member States, inter-alia, to prevent and suppress the financing of terrorist acts by criminalizing the provision, acquisition and collection of funds for such acts; BEARING IN MIND the decision of the SAARC Council of Ministers at its Twenty Third Session in Kathmandu on 22nd August, 2002, wherein the Council mandated the preparation of an Additional

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Protocol to the SAARC Regional Convention on Suppression of Terrorism, recognizing the importance of updating the Convention, in order to meet the obligations devolving in terms of Security Council Resolution 1373 (2001); HAVE AGREED as follows: Article Objectives and Purposes The purpose of this Additional Protocol is to strengthen the SAARC Regional Convention on Suppression of Terrorism, particularly by criminalizing the provision, collection or acquisition of funds for the purpose of committing terrorist acts and taking further measures to prevent and suppress financing of such acts. Towards this end, State Parties agree to adopt necessary measures to strengthen cooperation among them, in accordance with the terms of this Additional Protocol.

Article 2 Relationship to SAARC Convention This Additional Protocol supplements the SAARC Regional Convention on Suppression of Terrorism, done at Kathmandu on 4th November, 1987 (hereinafter referred to as the "1987 SAARC Convention"). The 1987 SAARC Convention and this Additional Protocol shall be read and interpreted together as a single instrument. Article 3 Definitions 1. "Funds" mean assets of every kind, whether tangible or intangible, movable or immovable, however acquired, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in, such assets, including, but not limited to, bank credits, travelers cheques, bank cheques, money orders, shares, securities, bonds, drafts and letters of credit. 2. "Proceeds" mean any funds derived from or obtained, directly or indirectly, through the commission of an offence set forth in Article 4. Article 4 Offences 1. Any person commits an offence within the meaning of this

4. 5.

Additional Protocol if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out : (a) An act which constitutes an offence within the scope of and as defined in one of the treaties listed in the Annex to this Protocol; or (b) Any other act intended to cause death or serious bodily injury to a civilian, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a Government or an international organization to do or to abstain from doing any act; or (c) An offence within the scope of any Convention to which SAARC Member States concerned are parties and which obliges the parties to prosecute or grant extradition. (a) On depositing its instrument of ratification, acceptance, approval or accession, a State Party which is not a party to a treaty listed in the annex may declare that, in the application of this Convention to the State Party, the treaty shall be deemed not to be included in the annex referred to in paragraph 1, subparagraph (a). The declaration shall cease to have effect as soon as the treaty enters into force for the State Party, which shall notify the depositary of this fact; (b) When a State Party ceases to be a party to a treaty listed in the annex, it may make a declaration as provided for in this article, with respect to that treaty. For an act to constitute an offence set forth in paragraph 1, it shall not be necessary that the funds were actually used to carry out an offence referred to in paragraph 1, subparagraph (a) or (b). Any person also commits an offence if that person attempts to commit an offence as set forth in paragraph 1 of this article. Any person also commits an offence if that person: (a) Participates as an accomplice in an offence as set forth in paragraph 1 or 4 of this article; (b) Organizes or directs others to commit an offence as set forth in paragraph 1 or 4 of this article; (c) Contributes to the commission of one or more offences as set forth in paragraph 1 or 4 of this article by a group of persons acting with a common purpose. Such contribution shall be intentional and shall either:

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i. be made with the aim of furthering the criminal activity or criminal purpose of the group, where such activity or purpose involves the commission of an offence as set forth in paragraph 1 of this article; or ii. be made in the knowledge of the intention of the group to commit an offence as set forth in paragraph 1 of this article. Article 5 Domestic Measures States Parties, in accordance with the provisions of their respective Constitutions, shall endeavour to become Parties to the international instruments listed in the Annex to which they are not yet a Party. Article 6 Liability of legal entities 1. Each State Party, in accordance with its domestic legal principles, shall take the necessary measures to enable a legal entity located in its territory or organized under its laws to be held liable when a person responsible for the management or control of that legal entity has, in that capacity, committed an offence as set forth in Article 4. Such liability may be criminal, civil or administrative. 2. Such liability is incurred without prejudice to the criminal liability of an individual or individuals who have committed the offences. 3. Each State Party shall ensure, in particular, that legal entities liable in accordance with paragraph 1 above are subject to effective, proportionate and dissuasive criminal, civil or administrative sanctions. Such sanctions may include monetary sanctions. Article 7 Measures to prevent, suppress and eradicate the financing of terrorism 1. State Parties shall consider and take all practical measures at the national level, inter-alia by adapting their domestic legislation to prevent, suppress and eradicate the financing of terrorism, and for effective international cooperation with respect thereto including: a) A comprehensive domestic regulatory and supervisory regime for banks, other financial institutions and other entities deemed

particularly susceptible to being used for the financing of terrorist activities. This regime shall require banks and other financial institutions and other entities to utilize effective measures for the identification of customers, paying special attention to unusual or suspicious transactions and to report promptly to the Competent Authorities, all complex, unusual large transactions and unusual patterns of transactions, which have no apparent economic or obviously lawful purpose; b) Measures to detect and monitor movements across national borders, of cash, bearer negotiable instruments and other appropriate movements of value. These measures shall be subject to safeguards to ensure proper use of information and should not impede legitimate capital movements; c) Measures of assistance in connection with criminal investigations or criminal proceedings relating to the financing or support of any act constituting an offence within the scope of the international instruments listed in Article 4 of this Additional Protocol, including assistance in obtaining evidence in their possession, necessary for the proceedings; and d) Establishing and monitoring channels of communication between their competent agencies and services to facilitate the secure and rapid exchange of information concerning all aspects of offences set forth in Article 4, within the conditions prescribed by domestic law. Towards facilitating the above, each State Party shall consider measures to establish and maintain a financial intelligence unit to serve as a national center for the collection, analysis and dissemination of pertinent money laundering and terrorist financing information.

Article 8 Seizure and confiscation of funds or other assets 1. Each State Party shall take appropriate measures, in accordance with its domestic legal principles, for the identification, detection and freezing or seizure of any funds used or allocated for the purpose of committing the offences set forth in Article 4 as well as the proceeds derived from such offences, for purposes of possible forfeiture. 2. Each State Party shall take appropriate measures, in accordance with its domestic legal principles, for the forfeiture of funds used or allocated for the purpose of committing the offences set forth

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in Article 4 and the proceeds derived from such offences. Each State Party concerned may give consideration to concluding agreements on the sharing with other State Parties, on a regular or case-by-case basis, of the funds derived from the forfeiture referred to in this Article. The provisions of this Article shall be implemented without prejudice to the rights of third parties acting in good faith. The measures referred to in paragraph 1 shall apply with respect to offences committed both within and outside the jurisdiction of a State Party.

Article 9 Predicate offences to money laundering 1. State Parties shall take the necessary measures to ensure that its domestic money laundering legislation also includes as predicate offences those offences set forth in Article 4 of this Additional Protocol. 2. Money laundering predicate offences referred to in paragraph 1, shall include those committed both within and outside the jurisdiction of a State Party. Article 10 Co-operation on immigration and customs controls 1. States Parties, consistent with their respective domestic legal and administrative regimes, shall promote co-operation and the exchange of information in order to improve immigration and customs control measures to detect and prevent the international movement of terrorists and their accomplices and trafficking in arms, narcotics and psychotropic substances or other materials intended to support terrorist activities. 2. To this end, they shall promote co-operation and the exchange of information to improve their controls on the issuance of travel and identify documents and to prevent their counterfeiting, forgery, or fraudulent use. 3. Such co-operation shall be carried out without prejudice to applicable international commitments in relation to the free movement of people and the facilitation of commerce. Article 11 Co-operation among law enforcement authorities States Parties shall work closely with one another, consistent with the respective domestic legal and administrative systems, to enhance

the effectiveness of law enforcement action for the prevention, suppression and prosecution of the offences set forth in Article 4. Article 12 Mutual legal assistance The provisions of Article VIII of the 1987 SAARC Convention relating to Mutual Legal Assistance shall apply, mutatis mutandis, in_ respect of the offences set forth in Article 4 of this Additional Protocol. Article 13 Extradition 1. The provisions of Article III of the 1987 SAARC Convention shall apply, mutatis mutandis, in respect of the offences set forth in Article 4 of this Additional Protocol. 2. The provisions of Article IV of the 1987 SAARC Convention relating to the duty to extradite or prosecute shall apply, mutatis mutandis, in respect of the offences set forth in Article 4 of this Additional Protocol. Article 14 Exclusion of Fiscal Offence exception None of the offences set forth in Article 4 shall be regarded, for the purpose of extradition or mutual legal assistance, as a fiscal offence. Accordingly, State Parties may not refuse a request for extradition or for mutual legal assistance on the sole ground that it concerns a fiscal offence. Article 15 Exclusion of political offence exception For the purpose of extradition or mutual legal assistance, none of the offences established in the international instruments set forth in Article 4, shall be regarded as a political offence or an offence connected with a political offence or an offence inspired by political motives. Accordingly, a request for extradition or mutual assistance may not be refused on the sole ground that it concerns a political offence or an offence connected with a political offence or an offence inspired by political motives. Article 16 Denial of refugee status Each State Party shall take appropriate measures, consistent with the

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relevant provisions of national and international law, for the purpose of ensuring that refugee status is not granted to any person in respect of whom there are serious reasons for considering that he or she has committed an offence set forth in Article 4 of this Additional Protocol. Article 17 Non-discrimination None of the provisions of this Additional Protocol shall be interpreted as imposing an obligation to extradite or to provide mutual legal assistance, if the requested State Party has substantial grounds to believe that the request to extradite or to provide mutual legal assistance, has been made for the purpose of prosecuting or punishing a person on account of that person's race, religion, nationality, ethnic origin or political opinion, or that compliance with the request would cause prejudice to that person's position for any of these reasons. Article 18 Principles of Sovereign Equality and Territorial Integrity 1. State Parties shall carry out their obligations under this Additional Protocol in a manner consistent with the principles of sovereign equality and territorial integrity of states and that of non-intervention in the domestic affairs of other states. 2. Nothing in this Additional Protocol entitles a State Party to undertake in the territory of another State Party exercise of jurisdiction or performance of functions that are exclusively reserved for the authorities of that other State Party by its domestic law. Article 19 Rights and Obligations under International Law Nothing in this Additional Protocol shall be interpreted as affecting other rights and obligations and responsibilities of States and individuals under international law, in particular, the purposes and principles of the Charter of the United Nations, international humanitarian law, and international human rights law. Article 20 Technical Co-operation State Parties shall promote, where appropriate, technical cooperation and training programmes with other regional and

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international organizations conducting activities theobjectives and purposes of this Additional Protocol.

Article 21 Consultations State Parties shall hold periodic consultations, as appropriate, with a view to facilitating: (a) The effective implementation of this Additional Protocol; and (b) The exchange of information and experiences on effective means and methods to prevent, detect, investigate and punish offences within the scope of the Additional Protocol. Article 22 Signature and Ratification This Additional Protocol is open for signature by all Member States of SAARC at the SAARC Secretariat in Kathmandu. It shall be subject to ratification. Instruments of Ratification shall be deposited with the Secretary General of SAARC. Article 23 Entry into Force The Additional Protocol shall enter into force on the thirtieth day following the date of deposit of the seventh Instrument of Ratification with the Secretary-General of SAARC. Article 24 Depositary The Secretary-General of SAARC shall be the depositary of this Additional Protocol and shall notify Member States of signatures to this Additional Protocol and all deposits of Instruments of Ratification. The SecretaryGeneral shall transmit certified copies of such instruments to each Member State. The Secretary-General shall also inform Member States of the date on which this Additional Protocol will have entered into force in accordance with Article 23. IN WITNESS WHEREOF the undersigned, being duly authorized thereto by their respective Governments have signed this Additional Protocol. DONE in ISLAMABAD, PAKISTAN, On This The Sixth Day of January Of the Year Two Thousand Four, In Nine Originals, In The English Language, All Texts Being Equally Authentic.

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percent for males and 35 percent for females. The resurgence of tuberculosis and the threat of HIV/AIDS are also a cause for concern. In general, the quality of statistics on social MDGs needs to be improved considerably to make cross-country comparison meaningful.

South Asia and the Millennium Development Goals

outh Asia, with GNI per capita at $594 in 2004, is home to 47 percent of the world's poor living on less than $1 a day. Since 1990 the region has experienced rapid GDP growth, averaging 5.4 percent a year, which has helped to reduce the consumption poverty rate substantially: India has reduced its poverty rate by 5-10 percent since 1990; most other countries registered reduction in poverty over the period, except for Pakistan, where poverty has stagnated at around 33 percent (using national poverty lines). Although most countries in the region have a well developed tradition of household surveys, challenges still remain on measurement of consistent poverty trends. India's National Sample Survey has undergone some changes in methodology in the most recent round which has created a debate on measuring poverty trends in the 1990s.

Progress in MDGs at the average national level masks considerable sub-national variation measured at regional (state, province, district, and block) level. The average progress in MDGs is also marked by persistent social inequalities mapped on caste, region, tribal and ethnicity dimensions. This is true not just for large economies such as India with wide state-level and district-level disparities but also for smaller countries of the region such as Nepal and Bangladesh. Various rounds of state Human Development Report (HDRs) supported by UNDP for India, recent country-level MDG reports of the World Bank on India and Bangladesh, poverty assessments carried out by the Bank on Nepal and Sri Lanka have revealed hidden regional and social inequalities with respect to basic service delivery in the region. Sustained growth will be necessary for poverty reduction, and concomitant improvement in institutional service delivery mechanisms will be essential for achieving progress in all other dimensions of the MDGs. Source: World Bank. Available at http://devdata. worldbank.org /gmis/mdg/ South_Asia.htm

South Asia

Looking beyond consumption poverty at other indicators of social progress, the region has had encouraging success in some areas: for example, mortality in children under five has reduced substantially between 1990 and 2004 (from 129 to 92, per 1,000), especially in Bangladesh (149 to 77, per 1,000), Nepal (145 to 76, per 1,000), and Sri Lanka (32 to 14, per 1,000), and appreciable gains have also been achieved in school enrolments at primary and secondary levels. At the same time, challenges remain in key areas such as child malnutrition, primary and secondary completion rates, maternal mortality, and gender balance in education and health outcomes; nearly half of all children under the age of five are malnourished in Bangladesh and Nepal, and youth illiteracy in the region is high -- 18

Goal 1 - People living on less than $1 a day (%)

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Goal 3 - Ratio of girls to boys in primary and secondary education (%)

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120

EAP - East Asia and the Pacific

100

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LAC - Latin America and the Caribbean

MNA - Middle East and North Africa

SSA - Sub Saharan Africa

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Goal 7 - Improved water source (% of population without access)

Economic Growth in South Asia: Promising, Un-equalizing,â&#x20AC;ŚSustainable?

Dr Shantayanan Devarajan and Dr Ijaz Nabi 1990

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Goal 6 - Prevalence of HIV, (% of population ages 15-49, 2003)

10 8 6 4 2 0

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Abstract Despite obstacles such as conflict, corruption and high fiscal deficits in some countries, South Asia has achieved impressive economic growth and poverty reduction in the past decade, thanks mainly to economic reforms in the 1990s. If this growth accelerates to 10 percent a year, the region could see single-digit poverty rates by 2015. A closer look at the evidence suggests that much remains to be done to achieve these accelerated growth rates. First, economic growth in the past decade has resulted in growing income inequality which may act as a constraint to higher growth. Second, while conflict, corruption and high fiscal deficits may not have constrained growth in the past, their persistence may become binding in the future. Third, a comparison with East Asia--a region that has sustained 7-10 percent growth rates--shows that South Asia's exportorientation, inflows of foreign direct investment, workers' skill levels, infrastructure and ease of doing business are also substantially less advanced than East Asia's. South Asia's savings, investment and productivity are also lower. These challenges suggest a set of policy choices for South Asian countries aimed at increasing investment and productivity, and the quality of labor, while addressing the problem of lagging regions and poor service delivery. Finally, the least integrated region in the world, South Asia can benefit from regional cooperation in trade, water and energy, among other things. While the policy agenda appears daunting, the dynamism and

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openness that characterizes South Asia today makes us optimistic that some, if not all, of these challenges can be met and the region will be substantially free of poverty in a few decades.

Figure 2: Poverty (head count index) in South Asia is declining, more so in recent years 70 60

I. South Asia's Promising Growth South Asia's economic growth in the last five years has been impressive. Bangladesh, Bhutan, India, Maldives and Pakistan have all grown at over 5 percent per year on average, Sri Lanka at 4.7 percent and Nepal at 2.5 percent. In 2003-4, shortly before the Tsunami hit the region, all countries other than Nepal averaged above 5 percent GDP growth. India, Maldives and Pakistan performed especially well, averaging GDP growth of nearly 7 percent.

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Figure 1: Real GDP growth in South Asia has been impressive, especially so in the recent past

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Bangladesh Nepal India Pakistan Sri Lanka Source: (Data) Bangladesh: HES 1991-92, 95-96 and HIES 2000; India: NSS 50th and 55th rounds; Nepal: NLSS 1995-96 and 2003-04; Pakistan: PIHS 1990-91, 2001-02; Sri Lanka: HIES 1991, 2002.

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The economic growth of the last decade has contributed to an impressive reduction in poverty. In Bangladesh, India and Nepal, poverty fell by 9, 10 and 11 percentage points respectively, in Sri Lanka it fell by 6 percentage points. Only in Pakistan did poverty increase by 8 percentage points, but that was because Pakistan experienced economic stagnation throughout the 1990s. In the robust growth of the 1980s, poverty in Pakistan fell by 12 percentage points. Preliminary estimates based on PSLM 2004-5 survey show a substantial reduction in poverty associated with the recent rapid growth. Policies, Institutions or Luck? South Asia's growth is all the more impressive because the subcontinent suffers from many growth-retarding factors--such as corruption, conflict, high fiscal deficits and dependence on an

enclave natural resource--that have afflicted African countries, which have grown much more slowly.1 Bangladesh is considered by Transparency International to be the most corrupt country in the world, and yet its GDP continues to grow at 5 percent a year, with per-capita income rising at 3 percent a year. Sri Lanka and Nepal have suffered severe civil conflict, but registered per-capita consumption growth rates of 3 and 4 percent a year, respectively. Sri Lanka and India have run fiscal deficits of over 9 percent of GDP for decades. And Maldives has successfully developed an enclave-type tourism industry (leasing out islands to tour operators, who employ foreign labor and use imported materials), with GDP growth averaging 9 percent a year over the last two decades, and per-capita GDP tripling to $2,300. Of course, much of South Asia's recent growth is due to the significant and sustained policy reforms that governments undertook in the last two decades2. Sri Lanka began liberalizing its trade and industrial policies in the 1980s, India and Bangladesh in the early 1990s, and Nepal and Pakistan in the late 1990s. In the financial sector, India and Sri Lanka started deregulating interest rates and allowing private banking in the 1990s, followed by Pakistan and more recently by Bangladesh. Throughout, with some exceptions, South Asian countries maintained prudent fiscal and monetary policies. For much of the time, inflation in every South Asian country was below the world or developing-country average.

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But it is also clear that institutions in South Asia have helped make the payoffs to policy reforms higher than expected, given the presence of seemingly binding constraints, such as corruption and conflict. For instance, the (mostly) democratic institutions and relatively free press in South Asia has meant that the process of policy reform, while painfully slow, results in reforms that represent a domestic consensus, and are therefore sustained. In addition, external financing has played a complementary role to policy reforms in South Asia. Pakistan's recent economic turnaround illustrates how loosening the credit constraint in a reforming economy unleashes rapid growth. Macro-economic difficulties associated with the need to service a large and growing national debt, and steady decline in remittances and concessionary capital flows, halved the growth rate in the 1990s (it was 6 percent in the 1980s). All this changed after September 11, 2001. Pakistan's debt burden was reduced sharply, concessionary capital resumed, and remittances surged. This, combined with far-reaching reform of the banking and energy sectors, privatization of state-owned enterprises and improved public finances, has put Pakistan back on its trend growth path, even surpassing it in recent years. Another source of external finance is the substantial and rising inflow of capital by non-resident nationals in the form of remittances (repatriation of savings) that increases the pool of capital and stimulates demand to spur economic growth. Remittances by South Asian nationals working abroad totaled $22 billion in 2004-5, and account for the region's stability in balance of payments. By comparison, remittance earnings in sub-Saharan Africa totaled $6 billion. Remittances are a far more important source of external financing in South Asia than in East Asia, where external financing is primarily in the form of foreign direct investment.

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earthquake in Pakistan), as well as sharp increases in world oil prices. That the region turned in an impressive growth record in 2005 in the wake of these negative shocks speaks to the strength of its policies, the robustness of some of the institutions, and the resilience of its people. Accelerating economic growth The impressive economic performance of the last decade, but especially the last three years, has encouraged South Asian policy makers and analysts to aspire to the East Asian growth rates of 7 to 10 percent, and sustain these over the coming decade. As we shall see later in the paper, a lot remains to be done to strengthen policies and institutions to sustain such high growth rates. But if the required changes are made and the higher growth rates are sustained for a decade, South Asia will see a substantial reduction in poverty3 (Figure 3), from the current range of 23 percent (India, Sri Lanka) to 50 percent (Bangladesh) to a much lower range of 4 to 13 percent. Poverty in Pakistan is likely to fall dramatically from the current 35.2 percent to 12.4 percent because of its high elasticity of poverty reduction with respect to income. Figure 3: Poverty reduction in South Asia associated with higher growth rates 4%

Poverty incidence in 2013 with 10 percent GDP growth rate Poverty incidence in 2013 with 7 percent GDP growth rate Most recent poverty estimate (percentage)

23%

8% 13%

Pakistan

35% 9%

Nepal

15% 31% 13%

India

15% 23%

13%

Bâ&#x20AC;&#x2122;desh

20% 50%

Finally, relatively favorable external conditions contributed to South Asia's strong economic performance. In the past few years, good weather conditions have contributed to high agricultural output, still an important component of GDP in most countries. Low world interest rates have also helped some countries borrow in international markets. At the same time, South Asia suffered several adverse shocks, including three natural disasters in the last two years (floods in Bangladesh, tsunami in India, Maldives and Sri Lanka,

10%

S. Lanka

10%

20%

30%

40%

50%

60%

Note: Most recent poverty estimates are those estimated by the World Bank and in some cases may be different from those reported in Figure 2. The method used for computing growth elasticity varies among countries. Bangladesh: Wodon (2001); India: Deaton and Dreze (2002); Nepal: Datt and Ravallion (1992); Pakistan: Bourguignon (2003); Sri Lanka: Bourguignon (2003).

II. Challenges to Sustaining and Accelerating Growth Rising regional inequality Despite recent growth and poverty reduction, South Asia still has

444

445

nearly 400 million poor people (out of a population of 1.37 billion). Poverty is not just endemic, but increasingly concentrated in particular, lagging regions. Not only are these regions poorer, but their growth rates are substantially slower than the better-off regions. The phrase "two Indias" exemplifies this difference in regional development outcomes (Figure 4). In 2002-2003, all-India per capita GDP was $480; the poorest seven states (accounting for 55 percent of the population) had a per-capita GDP that was two thirds the national average, while in the richest seven states (33 percent of the population) per-capita GDP was nearly double that of the poorest seven states. In the two largest and poorest northern states (Bihar and Uttar Pradesh, 25 percent of total population) per-capita GDP was less than half the national average and only a third of the richest 7 states. The four southern states, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu (21 percent of the total population), at an average, enjoyed more than twice the GDP per capita of the quarter of the population concentrated in the two poorest northern states.

shows a disturbing regional disparity in income and poverty. The Western Province, led by Colombo, has 30 percent of the country's population but accounts for 47 percent of national GDP, and poverty in the Western province, at 11 percent, is less than half the national poverty rate of 23 percent. Furthermore, most of Sri Lanka's growth in the past decade was concentrated in this one province: the Western Province's share of GDP rose from 40 to 47 percent in 10 years. Even within sub-regions, there is significant inequality. In Pakistan's Punjab province, Central and Northern districts are much better off than the Southern districts (Figure 5). With higher educations standards and better infrastructure, the better off districts attract more investment and therefore grow more rapidly than the southern districts. Figure 5: Pakistanâ&#x20AC;&#x2122;s Punjab shows that there are significant variations in economic outcomes even within sub-national regions 120

45 40

100

Furthermore, with average GDP growth rates of 5 percent, the southern states are galloping ahead of the poorest but populous northern states with growth rates of only 2 percent. This threatens to further increase the poverty gap in the two regions; currently, head count poverty in the poorest northern states and the better off southern states is 35 percent and 18 percent respectively. Figure 4: The two Indias

4% 12,000 3% 8,000

Per Capita GDP 2002/03 (left scale) Per Capita GDP growth rate (right scale)

15 60

Rs. 5,838

0% 7 States below 7 States above national national average average

10 5 0

Central districts

Southren districts

Gross primary school enrolment (left scale) Poverty incidence (right scale)

Rs. 13,100

Rs. 15,843 Rs. 8,183

92 40

4,000

108

Northen districts 16,000

60 50

Weighted Weighted average of average of TN, Bihar and UP Kamalaka, AP and Karala

Regional variations in income and poverty outcomes are not peculiar to a large country like India. Sri Lanka, a much smaller economy,

South Asia's high and growing inequality may itself act as a brake on future growth and poverty reduction. First, the higher the inequality in a country, the harder it is for growth to reduce poverty. This is why Sri Lanka, which has the highest Gini coefficient in South Asia (World Bank 2005), had such anemic poverty reduction despite nearly 5 percent average annual growth. Second, inequality could reflect distortions in the economy as well as unequal power relations, both of which dampen growth. Highly unequal levels of education in Pakistan, for instance, means that some talented children--many of whom are likely to be girls--are denied the opportunity to develop their human capital, which is the main determinant of long-run

446

growth. Inequality is often the reflection of capture of the political system by certain ethnic groups or castes, who then perpetuate the system by providing private benefits to their own group, rather than public goods which generate economic growth. Many of India's lagging states, such as Bihar, fit this description. Third, rising inequality in the wake of market-oriented pro-growth policies could elicit a backlash against these policies, sometimes leading to distortionary policies that slow growth. Recent electoral outcomes in India and Sri Lanka exemplify this. Finally, if inequality between regions rises above a certain threshold, it can trigger a violent conflict which, in turn, can lead to decades of reduced growth. Overcoming "binding constraints" As stated earlier, South Asia achieved relatively high growth in the past decade despite numerous obstacles, such as conflict in Sri Lanka and Nepal, corruption in Bangladesh and many Indian states, and high fiscal deficits in India and Sri Lanka. While these constraints may not have been binding in the past, they may become so in the future, as South Asia attempts to accelerate its growth rate to eliminate poverty in the coming decades. For instance, the conflict in Sri Lanka has been estimated as reducing the country's growth rate by 2-3 percentage points--just the gap needed to get to East-Asian growth rates (Kalegama et al. [ ]). Although Nepal has reduced poverty by 11 percentage points in eight years, its growth has slowed considerably in the last few years, as the Maoist rebellion and other governance problems intensified. Similarly, Bangladesh may have been able to grow at 6 percent a year and achieve universal primary and (nearly) secondary enrolment with widespread perceptions of corruption, but it faces major hurdles, such as infrastructure bottlenecks and the need to diversify its exports, as it seeks to become a middle-income country. Modern infrastructure cannot be built without foreign direct investment, yet Bangladesh's ratio of gross FDI to GDP is 137th out of 141 countries. According to the World Economic Forum's Global Competitiveness Index, Bangladesh ranks 98th out of 102 countries in growth competitiveness and 91st out of 101 countries in business competitiveness.

447

the deficit has been reduced in the past year thanks to higher revenues, there are limits to how much more deficit-reduction can be squeezed out of this instrument. Expenditure reduction remains politically very difficult in India. South Asia's other high-deficit country, Sri Lanka, is facing a fiscal deficit of 9 percent of GDP this year which, in the absence of concessional lending, will have to be financed by expensive commercial borrowing, increasing the country's debt burden further. Achieving East Asian growth rates As we said earlier, if South Asia can achieve and sustain East-Asian growth rates of 7-10 percent a year, the subcontinent will see a substantial reduction, and perhaps elimination, of poverty. Does South Asia have the ingredients for rapid growth that East Asia had? We find numerous gaps between the two Asias. Manufacturing. Expansion of manufacturing is critical because of its beneficial impact on employment; both in terms of generating more jobs but also higher wages for workers due to rapid productivity increases. Although manufacturing value added in South Asia has registered healthy growth in recent years, it needs to grow much faster to catch up with East Asia (Figure 6). Between 1968 and 2001, manufacturing value added increased by a factor of 40, 27 and 17 in South Korea, Malaysia and Thailand compared to a factor of 6 and 7 in India and Pakistan respectively. Consequently, the share of manufacturing value added in GDP increased 400 percent in Malaysia, 300 percent in Thailand and over 200 percent in Korea compared to an increase of only 20 and 30 percent in India and Pakistan. Figure 6: Manufacturing Value Added (1995 US$b) in selected South and East Asian economics 250 40x 212.29

200

150

27X

100

17X

73.66

54.78 50

38.01 6X 5.33

Finally, India introduced an ambitious program to reduce its fiscal deficit--and then missed the plan targets in the first two years. While

1968 2001 Factors Increase

11.93

6.15

1.58

0 South Koera

Turkey

India

35.13

7X 10.385

Pakistan

Source: World Development Indicators, various years

3.20 Thailand

1.32 Malaysia

448

449

Export orientation. Export-led growth fosters sustained GDP and total factor productivity growth over long periods of time because it promotes competitiveness and efficient use of resources. South Asia's export performance, although improving, is still far below the successful East Asian economies. The ratio of exports to GDP in Malaysia, Thailand and Korea is considerably higher than in Pakistan, Bangladesh and India (Figure 7).

Skilled workers. South Asia also falls short of East Asian standards in the supply of skilled workers. Two proxies to capture workers' skills are gross enrollment at the secondary level and average years of schooling of workers. Both of these education attributes give information about the trainability of workers. Acquiring industry specific skills to attract FDI is facilitated by a trainable work force. On these measures, East Asian economies fair far better than the economies in South Asia (Figure 9).

Figure 7: Merchandise Exports (% of GDP) in south and East Asia 120 Malaysia

100

80 60

Figure 9: Trainability attributes of workers in South and East Asia Average years of Gross enrollment at schooling of adults secondary level (% 2000 2000) 85 78

Thailand

70 40 20 0 60 19

6 19

66 19

69 19

76 19

78 19

81 19

84 19

87 19

93 19

9 19

0 20

Korea

Pakistan Bangladesh India

Technology intensity. Export performance is related to the technology intensity of manufacturing (Figure 8). A significant feature of the leading East Asian economies such as China, Malaysia and Thailand is the speed with which they have moved up the technological frontier. Increasingly, their exports consist of products embodying high technology. In India and Pakistan, on the other hand, high technology intensity products are a small share of total exports. Figure 8: Technology Intensity in Manufactured Exports

6.5

6.4

Thailand

China

5.1

6.9

2.6

3.9

10 0 India

Bâ&#x20AC;&#x2122;Desh

S.Lanka

Pakistan

Infrastructure. The quality of infrastructure is a key determinant of investment, especially FDI. Figures 11 and 12 show that on two important types of infrastructure, consumption of electric power, and telephone mainlines, East Asian economies are significantly ahead of South Asian economies. Figure 10: Electric Power Consumption per capita kwh (2000)

Technology Intensity in Manufactured Exports (%) Malaysia

7000

Thailand

6000

70%

5000

60%

6171 85

4000

2832

3000

40%

2000

1626 987

30%

1000

380

363

100

297

Sri Lanka

China

Bangladesh

India

Pakistan

80%

India

90%

20%

1981

2000

Medium Technology

1981

2000

High Technology

Nepal

2000

Low Technology

Malaysia

1981

Thailand

2000

Resources Based

South

1981

Korea

China

450

451

East Asia. In 1993-2002, China grew at 8.9 percent per annum with an associated average savings and investment rates of 39.8 percent and 42.3 percent respectively. In the same period, Korea's income per capita increased 55 percent with savings and investment rates of 32.3 and 34.4 percent respectively. These were substantially higher savings and investment rates than those of South Asian economies in the same period (Figure 13).

Figure 11: Telephone mainlines per 1000 people (2003) 538

600 500 400 300

209 182

200

Figure 13: GDP growth, saving and investment in South and East Asia (1993-2002)

105 46

100

9 8

Nepal

Sri Lanka

Bangladesh

Pakistan

India

Malaysia

Thailand

South

China

Korea

Figure 12: Comparison of Indicators of Business Environment in South and East Asia 500

160 425

140

395

120 100 80

440

450 400

365

35850 300

300

250

241

200

150 50

Pa k

ist an

Ba ng lad es h Sr iL an ka Ne pa l

100

Ind ia

Ch So uth ina Ko rea Th ai l an d Ma lay sia

5 20 15

21.1

22.9

Savings and investment rates. Finally, India, Pakistan and Bangladesh had much lower investment-to-GDP ratios compared to

21.3

22.2

5.3

39.8

4.4

4.4 3.5

24.2

32.3

5.2 33.2

20.6

30.4

24.8

2.7

17.3

Costs of doing business. The business community faces several transactions costs, not directly related to the production cycle, but are, nonetheless, significant. These include costs associated with doing business such as the time it takes to start a business, register property, wind up the business file for insolvency and enforce contracts. Figure 12 shows that these costs are substantially higher in South Asia compared to East Asia.

8.9

3 2

24.6

16.3

36.9

32.1

1 0

0 Bâ&#x20AC;&#x2122;Desh

India

Nepal

Pakistan

S.Lanka China

China

S. Korea

Malaysia

Thailand

Average Annual Gross Savings GDP (left scale) Average Annual Gross fixed capital formation GDP (left scale) Average Annual GDP Growth rate (right scale)

It could be argued that East Asia's high investment rates, with only moderately higher growth rates than South Asia's, means that East Asia is investing inefficiently. Indeed, the East Asian financial crisis in the late 1990s uncovered a large number of investment projects that were riddled with inefficiencies and waste. Is there a lesson for South Asia in this experience? Has South Asia been investing more efficiently than East Asia? Alas, the evidence does not support this. Figure 14 shows that compared to East Asia, both total factor productivity as well as capital accumulation has been lower in South Asia. Figure 14: Sources of growth in South and East Asia (1960-2003) 35 5 25 2 15 1 0.5 0

India

Pakistan

Bâ&#x20AC;&#x2122;Desh

East Asia

452

III. Policy Choices In light of these challenges, the policy agenda facing South Asian countries, as they aspire to attaining 10 percent annual growth, seems enormous. Most of these policies are specific to the individual country's circumstances. Nevertheless, just as South Asian countries are jointly experiencing rapid growth, they share some common themes for accelerating and sustaining this growth. In this section, we highlight the high-priority policy choices facing two or more South Asian countries4. These choices are organized around those aimed at increasing productivity and attracting investment; improving the quality of labor; reducing inequality; and exploiting cross-border synergies. Increasing productivity and attracting investment Resolving civil conflict. Civil conflict, especially in Nepal and Sri Lanka, closes off large areas to gainful economic activity. The long, drawn-out conflicts are a drain on the already thin administrative capacity and they erode governments' ability to build a constituency for reform. Furthermore, conflict diverts valuable financial resources from public investments that attract private investment and promote growth to military expenditures. Resolution of civil conflicts therefore will have substantial pay-off in terms of unlocking development potential. Ensuring and sustaining macroeconomic stability. Macroeconomic uncertainty clouds the investment horizon and lack of fiscal space lowers public expenditures that attract private investment (infrastructure) and upgrade the quality of workers. Sri Lanka and India both have large national debts (105 and 85 percent of GDP respectively) driven by unsustainable fiscal deficits (8 and 9.5 percent respectively). In Sri Lanka, resolution of the civil conflict will help lower the deficit but the more chronic problems are the entitlements associated with the popular perception that Sri Lanka is a "welfare state" that must provide both jobs as well as economic and social services. In India, debt servicing increasingly shrinks the fiscal space for critical expenditures and it is only a matter of time before interest rates begin to rise steeply. Pakistan has pursued fiscal restraint after a decade of profligacy, but the rapid expansion of credit has led to an inflationary impetus which needs to be checked. Upgrading infrastructure. The quality of infrastructure is critical for competitiveness and productivity growth. Bangladesh's main port,

453

Chittagong, is among the most inefficient and costly in the region. The generation capacity in the power sector (not increased for many years) has to be increased by addressing governance-related problems (corruption in tendering etc). Nepal must improve trade logistics with India to take advantage of the growth impetus of a large neighbor. In India, poor quality infrastructure did not impede export of internet-enabled services, but the competitiveness of trade in goods is affected by inefficiencies and bottlenecks in the road/railways network and ports. Equally important are city services that affect livability and thus influence location decisions. In Pakistan, the North-South corridor will be central to increasing upcountry competitiveness. Sri Lanka's road and rail network is in urgent need of modernization. Diversification. India's economy and its exports are beginning to diversify and create new growth vents. The other two large regional economies, Bangladesh, Pakistan also need to look beyond the cotton value chain. In Bangladesh, the considerable export potential in frozen food, pharmaceutical and ceramics needs to be exploited. Construction activity and new crop varieties (now that high-yielding rice varieties have run their course) will provide the next phase of productivity growth. Substantial growth impetus will also come from developing new urban clusters for economic activity to overcome the growth retarding congestion of Dhaka. In Pakistan, the canal colonies at the turn of the last century, import-substituting industrialization in the 1960's, green revolution farm technology in the 1960s and the 1970s have run their course. Potential new growth vents are the Makran coast between Karachi and Gawadar, the opening up of the Eastern border for trade with India and product diversification, and the goods and energy trade with Central Asia. Improving the quality of labor Deepening human capital. Low productivity growth in South Asia (compared to East Asia) can be attributed, among other factors, to the region's poor showing on worker trainability attributes (literacy, years of education) that discourage investment-led growth. The ongoing program of increasing gender-neutral enrolment in and completion of primary schooling is a welcome development. This needs to be complemented with a doubling of the transition to secondary education and tailoring East Asia's public-private partnerships in firm-specific training programs to local conditions.

454

Nurturing remittances. South Asia with its young population is reaping rewards of increasingly integrated global labor market in the form of large remittances. Nonresident nationals have helped build up international reserves and give fillip to aggregate demand. In Nepal and Sri Lanka, they have helped bridge the regional income divide. South Asian workers overseas will remain an important source of income and economic growth for their respective parent countries. The human development programs must be mindful of this and must seek to strengthen the employability of South Asian workers in better paying jobs abroad. Reducing inequality Lagging regions. In India and elsewhere, growing income inequality will strengthen populist politicians and risk diverting the focus from pro-growth policies. The political leadership in lagging states will have to be engaged to address investors' reluctance to locate in those states. In Pakistan, agricultural productivity in lagging regions within provinces has to be increased and NWFP and Baluchistan governments' focus shifted to the growth agenda. In Sri Lanka, the growth potential of regions outside of Colombo and the Western Province has to be realized. Connectivity of Nepal's Western region and in parts of the Eastern region to domestic and international markets has to be improved via reliable and cheap road, telephone and electric power nodes. Service delivery. Improved delivery of public services (health, education, water, sanitation) will help moderate the impact of personal and regional inequality on growth and will contribute to the sustainability of economic growth. Budget reform to give priority to cost effective public service delivery is ongoing throughout the region and needs to be completed. In Nepal, the legacy of social stratification by gender, caste and ethnicity in the allocation of public resources has to be redressed by making local institutions and the civil service more accountable for delivering socially inclusive outcomes. In Pakistan the gender gap in literacy has to be bridged and also the rural-urban divide. In India, state and central government sponsored services have to expand coverage, improve quality and be made more cost effective. Achieving cross border synergies Finally, South Asia remains the least integrated region in the world.

455

Starting from such a low base, greater integration can generate enormous benefits along several dimensions. Reducing cross-border conflict. Cross border conflicts, since independence, have eroded the old trade and investment patterns and mobility of people across borders. Both India and Pakistan incur large military expenditures at the expense of much needed social development. It is essential to manage conflicts in a way that social investments are protected and intra-regional trade, investment and people's mobility is restored to levels enjoyed by other regional groupings. Regional trade. Intra-SAARC trade (at 6 percent of the area's worldwide exports) is woefully low compared to trade in other regional blocks (23 percent in ASEAN, 56 percent NAFTA, 61 percent EU, 12 percent MERCOSUR). This means that the cost efficiencies due to proximity are not being exploited. In part, this is the result of cross-border conflicts (India-Pakistan), but also reflects poor intraregional trade logistics. There are several fresh initiatives now towards "free trading agreements" between several South Asian countries. These are welcome as long as they restore the advantage of geography and facilitate global trade liberalization. The tendency to move to administered "free" trade agreements and the excessive focus on bilateral trade deficits need to be watched for their adverse impact on trade and competitiveness of the member countries. Connectivity. Connectivity in general in the region is poor. Bangkok and Dubai, the two international airline hubs on either side of the region are better connected to capitals within the region than is any regional capital. This adds several hours of additional flying time and substantial cost to mobility within the region. Intra-regional telephone connections are also of poorer quality compared to each country's global telecom access. Road/rail connections are substandard. Combined with visa restrictions and inadequate intraregional banking services, we have a discouraging climate for intraregional business activity. Water. Nothing underscores more the need to promote pan-regional thinking than water. India and Pakistan on the West and India and Bangladesh on the East share common river systems. Agriculture in all three countries depends crucially on irrigation systems

456

commanded by common rivers. Satisfactory water-sharing arrangements thus are critical in ensuring economic growth both via rising farm productivity and also by reducing the threat of conflict. Energy. South Asia is characterized by one of the energy-thirstiest nations (India) sitting next to three energy surplus nations (Nepal, Bangladesh, Bhutan). Yet with the exception of Bhutan, energy trade between India and its neighbors is extremely small. Bridging the gap between energy supply and demand through regional cooperation could be one of the biggest wins in South Asia's quest for growth. To conclude, the recent improvement in growth outcomes in South Asia are encouraging and constitute a solid platform to build a program of sustained economic growth and poverty reduction in the coming decade. It is critical, however, that adequate investments are available and growth is broad-based and inclusive. This will require addressing a number of strategic and policy challenges specific to South Asian economies as well as cross border hurdles in the region. While the challenges are enormous, the dynamism and openness that characterize South Asia today make us optimistic that they will be met, and the region will be substantially free of poverty in a decade. Endnotes 1 Devarajan, Shantayanan. "South Asian Surprises", Economic and Political Weekly, Vol XL No. 37, September 2005 2 Ahmed, Sadiq. "Explaining South Asia's Development Performance: A Puzzle or Good Policies?" unpublished. 3 The poverty reduction estimates are based on several assumptions about the relationship between income and consumption growth and the poverty reduction responsiveness (elasticity) of the economy to income growth. The estimates are thus indicative. 4 For country specific challenges, see annex "Growth Vignettes" on page 20. [p. 462 of this book] References l Ahmed, Sadiq (2005), "Explaining South Asia's Performance: A Puzzle or Good Policies" l Bourguignon, F. (2003), "The Growth Elasticity of Poverty Reduction: Explaining Heterogeneity across Countries and Time Periods," In Inequality and Growth Theory and Policy Implications, edited by T. Eicher and S. Turnovsky, MIT press, Cambridge. l Central Bank of Sri Lanka (2005), Annual Report 2004. l Datt, G. and M. Ravallion (1992), "Growth and Redistribution

457 Components of Changes in Poverty Measures: A Decomposition with Applications to Brazil and India in the 1980s," Journal of Development Economics 38: 285-295 l Deaton, A. and J. Dreze (2002), "Poverty and Inequality in India: A ReExamination," Economic and Political Weekly, September 7: 3729-3748 l Devarajan, Shantayanan, "South Asian Surprises", Economic and Political Weekly (EPW), Vol XL No. 37, September 2005 l Government of India, Central Statistical Organization. l Government of Pakistan, Ministry of Finance (2005), Pakistan Economic Survey 2004-05. l Sri Lanka Department of Census and Statistics (2004), "Official Poverty Line for Sri Lanka," available in http://www.statistics.gov.lk/poverty /OfficialPovertyLineBuletin.pdf. l Virmani, Arvind (May 2004), "Sources of India's Economic Growth: Trends in Total Factor Productivity" Working Paper No. 131. ICRIER, New Delhi, India. l Virmani, Arvind (January 2005), "India's Economic Growth History: Fluctuations, Trends, Break Points and Phases". Occasional Policy Paper, ICRIER, New Delhi, India. l Virmani, Arvind (January 2004), "Economic Reforms: Policy and Institutions Some Lessons From Indian Reforms" Working Paper No. 121. ICRIER, New Delhi, India. l Wodon, Q. (2001), "Growth, Poverty and Inequality in Bangladesh," Background paper No. 2 for the Bangladesh Poverty Assessment l World Bank, World Development Indicators, Various years. l World Bank, Sri Lanka Development Policies Review (DPR) l World Bank, India Punjab Economic Report, l World Bank, Pakistan Punjab Economic Report l 16 l World Bank, Bangladesh DPR l World Bank, India DPR. l World Bank (2002), Poverty in Bangladesh: Building on Progress, World Bank, Washington D.C. l World Bank (2004), "Poverty and Social Development in Pakistan: An Update using Household Data," mimeo. l World Bank (2005), 2005 World Development Indicators, World Bank, Washington D.C.

458

459

108

135%

Gross primary school enrolment

113%

40.4

112%

Southern districts

31.8

129%

Central districts

29.8

Percentage increase in GDP per capita (10% GDP growth) 2004-2013

Northern districts Poverty incidence

122%

Table 1: Pakistan: Sub-regional variations in economic outcomes: the case of Punjab Province

2164 78%

4.1

2.7 31% 1744 Thailand

2276

5.2 32%

19% 1047 877

4011

1165 58%

1168

510 61%

73%

3039

Source: World Development Indicators, 2005

Philippines

1438

Malaysia

5.3

3.0

55%

785

Nepal

12232

3,191

-14

7916

229

Korea, Rep.

102

236

8.9

Sri Lanka

18%

Bangladesh

115%

3,964

781

-26

1067

534

665

132

496

17,406

Pakistan

Indonesia

8237

China

4269

1641

10,651

4.4

987

India

35%

1340

921

2473

681

2207

Sri Lanka

1,601

Malaysia

883

824

1194

3.5

1949

11%

3,222

1155

546

Thailand

493

South Korea

Pakistan

4,625

388

7,729

886

53,505

4.4

59,455

6.2

China

21%

Remittances

54%

Portfolio investment flows (Equity)

241

Foreign Direct Investment

511

Net private capital flows

199

Table 3: Sources of External Funds $ million in East and South Asia

332

1.7

Nepal

1.7

India

3.2

877

6.5

68%

East Asia and Pacific

Source: World Development Indicators and Regional data.

665

0.6

5.0

1.6

37%

1.2

395

3.4

289

1.1

Bangladesh

1.9

Percentage increase in GDP per capita (7% GDP growth) 2004-2013

2.3

GDP Percapita in 2013 @ 7% GDP growth per annum) (Constant,US$)

5.3

Average GDP growth rate 19932003

1.3

Pakistan

Percentage Change 1993-2003

TFP

1.5

GDP Per capita 2003 (Constant, U$$)

Labor growth

1.8

GDP Per capita 1993 (Constant,US$)

Capital growth

4.6

Table 4: Income outcomes in 1993-2003 and targets for the next decade

GDP growth India

GDP Percapita in 2013 @ 10% GDP growth per annum) (Constant,US$)

Table 2: Growth Accounting in South and East Asia

460

461 Table 6: Savings and Investment South and East Asia

Table 5: Poverty reduction associated with economic growth in the coming decade

Average annual Gross capital Formation 1993-2003 Percentage

Average Annual Gross Savings/G DP 1993-2003 Percentage

Bangladesh

15.5

21.1

21.3

4.1

India

21.9

22.9

22.2

3.8

Nepal

13.7

24.2

20.6

Pakistan

14.9

17.3

16.3

7.4

Sri Lanka

16.5

24.8

24.6

2.8

China

42.3

39.8

36.9

4.2

Indonesia

27.0

22.6

22.2

5.3

Korea, Rep.

34.4

32.3

33.0

4.7

Malaysia

43.2

32.2

32.1

10.7

Philippines

16.9

21.6

21.0

1.0

Thailand

33.8

30.4

30.0

1.1

Poverty incidence in 2013 Annual average GDP growth rate of the last two years Bangladesh India Nepal Pakistan Sri Lanka

5.4% 7.7% 3.4% 7.4% 5.7%

Annual Population growth rate

Latest available poverty estimate

Base case: (GDP growth of 7% per annum)

High case: (GDP growth of 10% per annum)

1.7%

49.8% (2000)

20%

12.6%

1.5% 2.3% 2.4% 1.2%

22.7% (1999-2000)

15.1%

31% (2003-04)

15.2%

35.2% (2201-02)

13.4%

22.7% (2002)

9.6%

12.5% 9.4% 7.5% 4.3%

The following factors are critical in determining the growth impacts on poverty reduction: 1. The relationship between household consumption and GDP: It is not always that GDP growth rate is identical to the growth rate of household consumption. In fact, the latter tends to be lower than the former in the South Asia region. This distinction is important since the growth elasticity is computed with household consumption, not with GDP. For the above simulations, we estimate the relationship between the growth rates of household consumption and GDP from available data. 2. Impact of inequality. In Sri Lanka, the growth has not benefited the poor much during the last decade. Widening inequality tends to lower the growth elasticity of poverty reduction. The first table assumes there is no change in inequality, but Table 2 assumes inequality changes at the rate that is estimated from household surveys. 3. Methodology used for estimating growth elasticity: For Sri Lanka and Pakistan, the same method (Bourguignon (2003)) is used, while a different method was used for India and Bangladesh.

Average Annual Gross fixed capital formation/GDP 1993-2003 Percentage

Incremental Capital Output ratio 1993-2003

Source: World Development Indicators, 2005

Annex Growth Vignettes Sri Lanka Social sector achievements, response to economic liberalization of the 1980's and recent out-migration in search of better employment opportunities are all indications of a country and work force whose growth potential should be similar to the East Asian economies' and the best performing regions of India. To realize that potential and to move towards doubling per capita GDP, the following aspects of the political economy need to be addressed: Resolution of the civil conflict: The civil conflict has diverted valuable financial resources from public investments that attract private investment and promote growth, to defense and security related expenditures. This contributes to the low investment to GDP ratio. Furthermore, the long drawn conflict takes up a large share of the administrative capacity of the government. It also erodes government's ability to build a constituency for reform to generate political support to help meet the short term adjustment costs associated with reform. Progress in the resolution of the conflict is

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thus critical to realize the full growth potential of Sri Lanka. Deepening economic liberalization: The impressive economic performance of the last two decades, especially in the western provinces (including Colombo) shows growth enhancing benefits of economic reform (in particular trade liberalization of the 1980's, and reforms in the 1990's spanning successful privatization of the 1990's in sectors such as telecommunications, airlines, ports and plantations; and strengthening of regulations and greater private participation in the banking sector). These reforms need to be deepened. For shared growth, it is important to extend economic liberalization to the rural economy, and especially, regions beyond the Western province. Some specific measures to increase rural incomes are better irrigation and farm technology and full and transferable ownership rights to land transferred to small holders. Economic stagnation in the estates sector needs to be reversed. The economic program must be protected from the political uncertainties of delicate coalitions. Public finances and public service delivery. The current structure of public finances that has resulted in a debt to GDP ratio of 105 and a fiscal deficit of 8 percent is unsustainable and inconsistent with the growth and poverty reduction targets for the next decade. Resolution of the civil conflict will help lower the deficit but the more endemic problem is the attitude of entitlements associated with the popular perceptions that Sri Lanka is a â&#x20AC;&#x153;welfare stateâ&#x20AC;? that must provide both jobs as well as economic and social services. The real challenge is to address this expectation and restructure public finances to give greater priority to market led growth and job creation while continuing to provide cost-effective social services to the deserving. Nepal The underlying resilience of Nepal and its growth potential can be gauged form the fact that despite the political uncertainties (associated both with the wrenching massacre of the entire Royal household a few years ago and the widespread Maoist insurgency), the country has registered respectable growth and has seen a sharp reduction in poverty. The private sector is understandably shy but the resourceful Nepali workers have found sources of employment outside the country and have sent a huge volume of remittances to

463

fuel the economy. This gives 20 us confidence that, under the right policy mix, Nepal has the potential to meet the ambitious targets set for the next decade. Civil conflict: The insurgency in Nepal is ongoing, widespread and less predictable than in Sri Lanka. Its impact on the economy therefore is all the more debilitating. Resolution of the conflict will thus have a large pay off in terms of meeting the growth and poverty reduction targets in the coming decade. Connectivity: Large pockets of poverty in the Western region and in parts of the Eastern region, are due to poor resource endowment but also because the regions are poorly connected to the domestic and international markets. Reliable and cheep modes of connectivity (roads, telephone, electricity) will facilitate access to inputs and product markets and thus are a pre-requisite to releasing the growth potential of many poor regions. Social inclusion and governance: The legacy of social stratification by gender caste and ethnicity in allocation of public resources has to be changed by strengthening local institutions and making them and the civil service more accountable for delivering socially inclusive outcomes. Trade with India and the rest of the world: Although Nepal has benefited from the special trade and employment agreements with its large neighbor to the South, India, this geographical proximity can be exploited further especially given India's rapid growth and increasing openness to global trade. Improvements in trade logistics, customs and tax procedures, removal of the anti-export bias and measures that increase competitiveness of Nepali products and make Nepal an attractive investment destination, need to be implemented to increase productivity and derive the maximum benefit from trading with India and the rest of the world. Nurturing remittances: Given resource poor areas, remittances by the Nepalese workforce employed overseas will remain an important source of income and economic growth. Nepal's human development program must be mindful of this and must seek to strengthen the employability of Nepali workers in better paying jobs outside the country.

464

Bangladesh Optimism regarding Bangladesh rests on many achievements that

465

thorough review to bring the deficit under control. Productivity growth: Sustained high GDPP growth has to be underpinned by productivity growth. The first phase of economic liberalization (1980's) bumped up GDP growth to a higher trajectory by unleashing productivity growth that has now tapered off as the pace of economic reform has slackened. Second generation economic reform, thus, needs to be hastened to regain productivity growth. In agriculture, this means adjusting incentives to encourage farmers to shift to higher productivity crops; in manufacturing, it means upgrading products to compete in the international market on both quality as well as prices. Product diversification and standards, and quality control have to drive the production structures in both manufacturing and agriculture. National and state policy makers have to be conscious of this objective while intervening in input and output prices. Upgrade infrastructure: While poor quality infrastructure did not impede export of internet-enabled services, the competitiveness of trade in goods will be affected by inefficiencies and bottlenecks in the road/railways network and ports. Equally important are city services that affect livability and thus influence location decisions. These elements of infrastructure, along with the power sector, need to be upgraded urgently. Labor market reform: The regulatory framework governing factor markets, especially the labor market, needs to be reviewed to lower transactions costs. At xxx million or xxx of the labor force, India's large scale manufacturing generates surprisingly few jobs. This could reflect both high capital intensity of large units as well as a decision to contract work to smaller units to avoid costly regulation even though such business structures may be sub-optimal. Also, there are unintended, perverse consequences for the labor market. Informal labor contracts resorted to by the large firms result in far more insecure employment conditions that those sought by the regulation. Regional equity: Indian democracy cannot sustain inequalities in living standards across regions. The growing income gap between the successful southern states and the lagging northern states thus has to be bridged. This will require upgrading health and education services and facilitating labor mobility to increase employability of lagging

466

states' workers. State and Union government sponsored services thus have to expand coverage and made more cost effective. Furthermore,

467

Implementation capacity: Pakistan's record of reform as seen in new policy announcements is strikingly good. Results on the ground, however, could be strengthened further by enhancing institutional capacity to implement policy.

468

469

Annex Tables Table A.1: South Asia: Recent Growth Performance (Average annual percentage change, 2001-2005) Bangladesh

Bhutan

India

Maldives

Nepal

Pakistan

Sri Lanka

Real GDP growth

5.1 (5.4)

6.4 (5.5)

6.2 (7.7)

6.8 (8.6)

2.5 (3.8)

5.3 (6.5)

4.7 (5.6)

Growth in agriculture

2.2

3.0

3.1

6.6

3.0

3.3

0.7

Growth in manufacturing

6.3

5.3

6.4

6.2

-0.9

9.0

2.1

Growth in services

5.5

6.9

7.9

6.6

2.8

5.3

5.2

Recent reduction in poverty (last 10 years or so)

9% (1991/92)

11% (95/96)

-3% (90/91, but 12 points reduction in the 1980â&#x20AC;&#x2122;s)

6.1 (9495)

5.5 billion

104.9 billion

20.7 billion

10% (93/94)

Population GDP at market prices (latest, $ )

62 billion

725 million

672 billion

753 billion

Table A.2: South Asia: Drivers of Growth (Average annual percentage change, 2001-2005) Bangladesh

Bhutan

India

Maldives

Nepal

Pakistan

Sri Lanka

10.6 (20.3)

13.8 (22.7)

15 (14.3)

-0.5 (10.4)

11.5 (13.7)

1.5 (12.2)

Export growth (last two years)

8.9 (15.0)

Growth in remittances (latest in $)

18.54 ($2,932.53)*

No data

10.8 (687.2 mil)

33.7 ($4150)

7.9 ($1,355)

Private investment growth (% of GDP)

2.13 (2.36)

23.5

14.8

8.2 (11.3)

9.3 (12.8) 13.2

-0.8 (17.9)

Public investment growth (% of GDP

0.28 (0.44)

23.5

4.6 (2.4)

16.1 (2.7) (25.8)

-7.9 (4.3)

Private consumption growth (% of GDP)

6.09 (6.41)

8.3

1.8

7.4 (7.5)

12.9 (75.6) (29.2)

1.3 (-0.3)

Notes: Bangladesh Remittances* US$2,932 is the average period amount from FY0105. Remittance in FY05 is US$3,848 Pakistan: Remittances average period amount is $2,970, the third entry for Pakistan is growth in the last two years.

470

471 Table A.5. India: Regional variation in growth and poverty outcomes

Table A.3: So uth Asia: Macroeconomic balances (Average annual percentage change, 2001-2005) Bangladesh

Bhutan

India

Maldives

Nepal

Pakistan

Sri Lanka

CPI inflation

5.1

2.9

4.4

1.3

4.0

4.8 (9)

9.4 (6.9)

Money supply change

14.2

12.3

15.3

18.9

10.3

17.8

15.5

All India

Current account balance (% of GDP)

-0.3

-14.3

0.9

-7.9

0.03

0.9

-1.7

Fiscal deficit as % of GDP)

3.9

8.0

9.7

5.8

4.7

3.7

9.1

Debt as percent of GDP (share of foreign debt)

50.1 (31.9)

70.1 (66.2)

81 (7.8)

45.8 (27.9)

64.7 (48.2)

71.6 (34)

105.2 (47.6)

Table A.4: Poverty reduction in South Asia Previous National

Latest

Rural

Urban

National

Rural

Urban

India 1

36 (1993-94)

37.1

32.9

26 (199-2000)

26.8

24.1

Pakistan 2

34 (1990-91)

36.9

37.3 (2001-02)

41.6

26.4

Pakistan 3

26.1 (1990-91)

25.2

26.6

32.1

Bangladesh

58.8 (1991-92)

61.2

44.9

Sri Lanka

26.1 (1990-91)

29.4

16.3

22.7 (2002)

24.7

7.9

Nepal

41.76 (1995-96)

43.27

21.55

30.85

34.62

9.55

Notes: 1. Planning Commission headcount estimates, 2. Pakistan: World Bank estimate, Basic needs Poverty Line 3. Pakistan: Official FEI poverty line

Population weight

Per capita GSDP (Constant prices, Rs ) 2002-03

Per capita GSDP growth rate

Poverty head count (official), 199-2000

Poverty headcount (corrected), 1999-2000

100

12,496

4.1%

26.1

28.6

Weighted average of 7 states below the national average

54.5%

8,183

Weighted average of 7 states above the national average

32.9%

15,843

Weighted average of Bihar and UP

24.3%

5,838

Weighted average of Tamil Nadu, Karnataka, Andhra Pradesh and Kerala)

21.5%

13,110

Table A.6 : Trainability attributes of workers in East and South Asia Gross enrollment at secondary level (%, 2000)

Average years of schooling of adults (2000)

South Korea

>90

Thailand

6.5

China

6.4

Philipines

8.2

East Asia

7.0

India

5.1

Bangladesh

2.6

Sri Lanka

6.9

Pakistan

3.9

South Asia Source: World Development Indicators, 2004

4.9

472

473

TableA.7: Infrastructure Differences in East and South Asia Electric Power Consumption per capita kwh 2002

Percentage paved roads, 1997-2000)

China

987

South Korea

6171

Thailand

Figure 1: Real GDP growth in South Asia has been impressive in the recent past

Telephone mainlines per 1000 people, 2003

Container traffic TEU thousands 2003

209

61,621

76.7

538

12,993

1626

98.5

105

4,410

Malaysia

2832

77.9

182

10,072

India

380

57.3

3916

Pakistan

363

879

Bangladesh

100

9.5

625

Sri Lanka

297

1959

Nepal

30.8

8 6.4

6.8

6.3

6.5 5.6

5.4

6 5

3.8 4 6.2

6.4

6.8

5.1

5.3

4.7

Pakistan

Sri Lanka

2.5

1 0 Bangladesh

Bhutan

India

Real GDP Growth 2001-2003

Source: World Development Indicators, 2005

Maldives

Nepal

Real GDP Growth 2004

Table A.8: Indicators of Investment Climate in East and South Asia Policy uncertainty

Corruption

Courts (lack of confidence courts uphold property rights)

Labor regulation

China

32.9

27.3

17.5

20.7

Malaysia

22.4

14.5

19.1

14.5

India

20.9

37.4

29.4

16.7

Pakistan

40.1

40.4

62.6

Bangladesh

45.4

57.9

10.8

Figure 2: Poverty (head count index) in South Asia is declining in recent years 70 60

58.8 49.8

50 41.76 40

36 32.1

30.9

World Development Indicators, 2005

26.1

26.1 22.7

Table A.9: Indicators of Business Environment in East And South Asia. 20

Starting a business Days required

Registering property Days required

Enforcing contracts Days needed

Closing a business Years to resolve insolvency

China

241

2.4

South Korea

1.5

Thailand

390

2.6

Malaysia

143

300

2.3

India

425

Pakistan

395

2.8

Bangladesh

365

Sri Lanka

440

2.2

Nepal

350

Source: World Development Indicators, 2005

10 0 Bangladesh Around 1990

India Latest

Nepal

Pakistan

Sri Lanka

474

475

Figure 3: Poverty reduction in South Asia associated with economic growth

Figure 5: Regional variations in poverty and education in Pakistan

23 Sri Lanka

120

3535

100

40.4

Pakistan

8 80

31 15

Nepal

29.8

31.8

60 20

23 15

India

50 Bangladesh

108

Central districts

Northen districts

Most recent poverty estimate (%) Poverty incidence in 2013 with 7% GDP growth rate Poverty incidence in 2013 with 10% GDP growth rate

Southern districts Poverty incidence

Gross primary school enrolment

Starting Business - Days Required (2004)

Figure 4: The two Indias

41 Days

China

16,000

6 33 Days

Thailand

14,000

5 12,000

89 Days

India

4 4

10,000 3

Pakistan

8,000

24 Days

3 2

6,000

35 Days

Bangladesh

2 4,000

1 2,000 0

0 Weighted Average of 7 States above the National Average

Weighted Average of 7 Weighted Average of States above the Bihar and UP National Average

Per capita GDP 2002/03 (right scale)

Weighted Average of Tamil Nadu, Kamataka, Andhra Pradesh and Kerala

Per Capita GDP growth (left scale)

100

476

477 Gross enrollment at secondary level (2000)

Figure 7: Merchandise Exports (% of GDP) in South and East Asia Source: World Development Indicators, Various Years

70%

120

China

100

85%

Thailand

Malaysia

48% India 60

45%

Pakistan

Thailand

40 Korea 20

40%

Bangladesh

Pakistan Bangladesh India

Telephone mainlines per 1000 people (2003) 209

China

105

Thailand

India

Pakistan

Bangladesh

100

150

200

250

02 20

19 99

19 96

19 93

19 90

19 87

19 84

90%

80%

19 81

70%

60%

19 75

50%

19 7

40%

19 69

30%

16 66

20%

16 63

10%

16 60

478

479

SAPANA Conference Declaration

eading experts, academics, and scholars from the member countries of SAARC, representing different disciplines and sectors, having met at the South Asian Journal conference â&#x20AC;&#x153;Envisioning South Asiaâ&#x20AC;?, facilitated by SAFMA, on 29-30 April 2006 in Islamabad, Pakistan, have deliberated upon and initiated a process of evolving a holistic and integrated South Asian vision by and for South Asians and a strategic understanding on meeting the challenges of the 21st century and globalisation and ushering in a new era of fraternal, equitable, and collective partnership: 1.

South Asia is at a historic moment of unprecedented potential for transforming its economic and social conditions and, together with China, emerging as two large economies in the next two decades, playing a key role not only in the global economy, but also in the development of human civilisation in the 21st century. Yet the world cannot be sustained by economic growth alone. Human life is threatened with environmental crises, conflicts, endemic poverty, natural calamities and an arms race. Our societies have a rich cultural tradition of unity in diversity, creative growth through human solidarity and harmony with nature. In bringing these aspects of their culture in facing contemporary challenges, the people of this region could bring new consciousness and institutions to the global market mechanism that can take the world on to a new trajectory of cooperative, sustainable development and human security. Global cooperation in environmental protection, poverty reduction and defusing the flash points of social conflict and an

end to violence, terrorism and repression will become the essential underpinning of sustainable development and human security in this century. Thus it is not the military muscle of a state/region that will be the emblem of status, but its contribution to meeting the challenge of peace, overcoming global poverty, protecting the planet from environmental disaster and contributing to humanizing the world and advancement of its people. The global environment provides a historically unprecedented scale of capital flows, trade opportunities, information and technologies, which, if utilized, can dramatically transform the material and social conditions of life of the peoples of South Asia. A vision is efficacious to the extent that it can be concretized. This requires bringing to bear the new consciousness of South Asian cooperative and equitable partnership to undertake specific policy actions. Apart from implementing the decision at the Islamabad SAARC Summit to establish a South Asian Free Trade Area, SAARC Social Charter, ISACPA Report on Poverty Alleviation, three broad areas for deepening economic cooperation can be identified for the purposes of specific policy action: (1) energy cooperation and water management and conservation within South Asia; (2) Increased investment for accelerating economic growth, especially in physical and social infrastructures; (3) Restructuring growth for faster poverty eradication and human resource development. With the most contiguous region of the world, a common history to share and similarities of cultures, South Asia has less baggage to shed than Europe or the Far East. It is now booming with the ideas of regional cooperation that take a wholist approach towards the collective good of the region as they increasingly find state-centric and security-centred approaches inconsistent with the interests of our 1.4 billion people and the imperatives of our times. India and Pakistan are at a crucial moment in history when economic cooperation between the two is necessary for sustaining their respective economic growth rates. a) India will require rapidly rising imports of oil and gas from the Middle East and Central Asia to fuel its economic growth. Pakistan is the natural conduit through which these oil and gas supplies can be transported into India and the rest of South Asia. b) India's

480

481

growth in the past has been based essentially on the home market. In the future, sustaining growth will requite export markets in Pakistan and other South Asian countries. c) Similarly, the sustainability of Pakistan's GDP growth requires a large increase in investment, particularly in infrastructure, and the Indian private sector, along with direct foreign investment, can fill this gap for Pakistan. d) The oil and gas pipeline from Iran through Pakistan to India alone can generate over $700 million a year and with similar lines from Central Asia, Afghanistan through Pakistan another $500 million. This could add 1.5 percentage points to Pakistan's GDP growth. e) The gains from trade between India and Pakistan will be greater for Pakistan than India, and can accelerate GDP growth in both countries. Thus opening up trade and investment is vital for growth sustainability in South Asia. Energy and Water are two vital resource inputs into economic growth. South Asia requires integrated gas and electricity grids for the welfare of each South Asian country. Similarly, South Asian regional agreements among upper and lower riparian states on the model of the Indus Basin Treaty need to be made between Nepal, India, Bangladesh. Similar protocols need to be developed for upper and lower riparian districts/ provinces within each country. These are necessary to avid inter and intrastate tensions in the future. Governments in South Asia need to realize that in the next two decades, South Asia will become the second largest economy in the world after China. This means that the centre of gravity will shift for the first time in 300 years, to this part of the world from the West. This presents a new challenge to South Asian citizens to develop new paradigms of economic policy, governance and international relations. a) At the level of economic policy we need to restructure our GDP growth so as to achieve growth with equity which requires making the poor not into victims but the subjects of the growth process, from being marginal to becoming the mainstream of economic growth. b) At the level of governance we need to give up the 18th century notion that economic gains must be translated into increased military power. In an inter-dependent world the emblem of the status of a country will be based not on its ability to destruct but its ability to save the planet from ecological disaster and to build a more humane world. c) At the level of international relations we need

to replace the competitive and hegemonic model of interstate relations with a cooperative model. We can start with South Asian cooperation to demonstrate to the world that the maximization of national welfare lies not in conflict but cooperation, not through aggression but through human solidarity. 8. The remarkable concurrence of views expressed by the experts at South Asian Journal's conference reflect the immense urge of our peoples to outgrow the past and take a leap into a future that is free from want and conflict. Certain stages of history can be skipped, so can various evolutionary stages through which, for example, the European Union had to pass in the 20th century. The intrastate conflicts and interstate disputes must move from management to resolution in a result-oriented process that must at the same time allow, rather than hinder, regional cooperation to address the demands of our peoples. The lines of conflicts must change into the bridges of friendship and the fencedborders must gradually soften before the urge of South Asians to become a fraternal and indivisible community of people with nation states, while keeping their sovereign equality, joining hands in submitting before the will of their real sovereigns - the people. 9. With a step-by-step approach, and simultaneously, all sided measures can be taken through an integrated and well calibrated sequencing and realistic stages, towards South Asian Free Trade Area, South Asian Union, (tourism/environment/water/energy/ communication /information/economic), South Asian Tariffs and Customs Union, South Asian Monetary Union, South Asian Bank and Development Fund, South Asian Cooperative Security and South Asian Parliament. However, to take a leap forward, there will have to be no hegemony, or ganging up by the small against the big. A new paradigm of equitable, if not equal, partnership must evolve to reshape our all-sided relations. 10. Welcoming the current peace process between India and Pakistan with its two-fold objectives: the exploration of all options for a final settlement of the J&K question in an atmosphere free of violence, terrorism and normalization of bilateral relations while implementing their joint statements of January 6, 2004, September 24, 2004 and April 18, 2005 in their letter and spirit. Appreciating the efforts by India and Pakistan to undertake nuclear and conventional military

482

confidence-building measures, we urge them to put in place a comprehensive regime of CBMs that will ensure a nucleartension free subcontinent. We endorse the demands of India and Pakistan for negotiations with the other nuclear weapons powers to promote global non-proliferation and effective nuclear disarmament. Appeal to all countries in the region to put in place comprehensive sustainable dialogue mechanisms for resolving all bilateral disputes. While India and Pakistan today have a composite dialogue in place which needs to be given further impetus and momentum, similar exercises are needed, for example between India and Bangladesh. 11. Concerned about various intrastate conflicts, such as in Sri Lanka, Nepal and elsewhere, we call upon the concerned parties to hold fire, take necessary confidence building measures and allow peace process to address their relevant genuine concerns and propose alternative solutions on which the parties could mutually agree to resolve their disputes. 12. Welcoming the victory of democratic struggle in Nepal, a broader consensus on convening a Constituent Assembly, without any conditions, the urge of all segments of civil society to find an amicable peaceful solution to the causes that gave birth to the Maoist upsurge and to set a democratic path of free and fair elections, we hope that the people of Nepal will realize the dream of a republic and set a laudable example for those other peoples who are still struggling to achieve their democratic aspirations against the remnants of authoritarianism and extremism. 13. Facing the challenges of globalization and taking a collective stand in the ongoing trade negotiations on WTO, South Asia should set its own house in order to pursue its collective goal of creating an even playing filed both within the region and in the world. In view of the above, the individual working groups set up under SAPANA put forward recommendations in the following areas: South Asian Free Trade Area The agreement on South Asian Free Trade Area (SAFTA) requires effective implementation, expanding the space for trade and, more importantly, economic collaboration, investment and development. If South Asia's economies are to be integrated, it presupposes

483

development of transnational communication networks and physical infrastructure and monetary cooperation involving greater coordination among the governments and the central banks. Despite limited complementarities in trade-able items, due to similar comparative advantages, expansion of trade warrants vertical and horizontal integration of industries and investment in joint ventures by public and private sectors. However, trade and investment will not move ahead unless tariffs are lowered, the negative list kept to the minimum, para- and non-tariff barriers removed and standards harmonized. Streamlining borders transactions through trade facilitation at subregional junctions, special attention needs to be focused on promoting border trade. Increase in efficiency within the sub-region often spills over into trade outside the region as well, because improving customs or improving efficiency of ports helps both intraregional trade and international trade. The Group on Tariff and Macroeconomic Harmonisation recommends: 14. The average rate of tariffs has gone down in all the South Asian countries, but some of them impose para-tariffs, including regulatory duties, anti-dumping duties, and specific duties and non-tariff barriers. Transparency in the tariffs structure needs to be ensured. While the average duties are not all that high there is a need to remove tariff peaks. Further reduction in duties should ensure that the industries where the country has dynamic comparative advantage are not closed down. The group also recommends trade facilitation because various procedural requirements discourages growth of trade; 15. Containing fiscal deficit policy should be pursued by making judicious choices between growth and stability; 16. The prudential regulations for the banks should be effectively implemented and it needs to be ensured that the efficiency gains result in higher deposit rates and/or lower rates on the advances. The pursuit of prudential regulations should not be applied on the small and micro enterprises who cannot meet the collateral requirements; 17. South Asian countries may continue to have floating exchange rates and the central banks may only intervene to keep the currency near the equilibrium value;

484

18. The South Asian countries may further deregulate the economy and may continue privatization policies as long as the private sector monopolies are properly regulated; 19. Whereas South Asian countries are struggling to promote trade within the region, the ultimate objective should be the economic union and common currency. Whereas political agreement would be necessary to make SAFTA effective, formulate the custom union and economic union, various steps will have to be taken before economic union is formed. The countries will have to coordinate the exchange rate, fiscal and monetary policies; 20. The coordination of policies would imply that the countries are willing to increase interdependencies and the commitment of the union to help the country suffering from any problem and a South Asian Fund may be created for this purpose. Various studies need to be conducted to examine the problems by way of policy coordination and the lack of economic policy options when the economic union is formed; and 21. The group also feels that the South Asian countries have achieved growth rates exceeding 8 per cent in recent years and they expect the growth rate to continue. However, the investment rates and other prerequisite to the high growth rates are missing and they must try to overcome the stumbling blocs to growth. Investments Intra-regional investment plays an important role in transferring surplus capital from capital endowed countries of a region to capital deficit ones and along with it technical, managerial and marketing skills. It also plays a vital role in industrial restructuring within the region and helps in moderating trade imbalances among the member countries. In view of the crucial role of investments, it is desirable that member countries of SAARC evolve a common investment policy so that instead of competing with each other in terms of offering fiscal incentives, they facilitate freer flow of capital among them that extend beyond their respective countries. The elements of such an investment policy include capital flows to mitigate the trade deficit and capital scarcity, avoidance of double taxation, protection of investment and conditions governing the management of foreign exchange, differentiating between the requirement s of least and

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non-least developing countries. The 13th SAARC Summit held in December 2005 adopted three treaties for promoting investment facilitation. These are related to customs cooperation, limited double tax agreement and setting up of an Arbitration Council. The scope of these agreements needs to be extended so that the goal of a SAARC investment area is realized. South Asian Customs, Tariffs, and Monetary Union Intra-regional trade and Investment will, subsequently and gradually, translate into a South Asian Customs and Tariffs Union which may lead to a common exchange rate policy that will, eventually, necessitate the creation of a South Asian Monetary Union underwritten by macro-economic management and harmonization of trade, fiscal and monetary policies at the regional level. No less important is the cooperation in the transport and communication sectors envisaging an integrated transport infrastructure that allows uninterrupted travel across and beyond our region and communication highways, facilitating free movement of people, goods and unhindered flow of information across the region and beyond, connecting South Asia with Central, South Western and South East Asia. Not only do rail and road links between Pakistan, India, Nepal and Bangladesh need to be rehabilitated, a system of connectivity will have to be constructed especially for the railways and the truckers will have to be issued special permits. Nevertheless, the Indian and Pakistani governments must agree to transit of trade between Pakistan, Bangladesh, Nepal, India and Central Asia. For promotion of trade the countries will have to facilitate cross border movement of people and goods. Visa and custom facilities will have to be simplified, and for special categories of people and goods waived, across the board. The Group on Custom Laws and Issues recommends: 1. Trade is growing in the region the mindset of protectionism is changing. Trade barriers still exist, with high tariff barriers and a large number of non tariff barriers. The economies are booming and clearly need to be integrated. 2. Customs laws need simplification and harmonization; 3. Dry ports need to be set up and transit rights be given freely;

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Valuation procedures need to be harmonized; Warehousing infrastructure, charges and fees needs improvement; Common formats need to be developed for declaration forms; These forms be made available in electronic form, and available in all major languages in the region; Information and data be exchanged freely; Countries to do away with secretive sensitive lists; A common software be used that would simplify declaration and valuation; Mutual recognition of certification; Common standards and testing procedures to be followed; Capacity building and technology transfer be speeded up; Pakistan to take a lead in trade facilitation efforts, Sri Lanka to lead the efforts towards breaking down non tariff barriers; Allow and encourage trade in services by recognizing University and college degrees across the region.

Water Sharing and Management Increasingly, the governments and concerned institutions are realizing the need to address acute shortage of energy and water, incidence of drought and floods that often bring miseries to the people and, at times, states into conflict. The distribution and management of water resources, though quite a divisive issue among the upper and lower riparian regions across states, needs to be undertaken amicably without depriving the lower and upper riparian regions of their due to avoid a conflict over water issues which must not be politicized. Bilateral treaties, such as Indus Water Treaty between India and Pakistan and the Treaty over Ganges between Bangladesh and India must be respected and upheld in letter and spirit. The Mahakali Treaty between Nepal and India may be implemented by removing reservations of either side. The quadrangle of Bangladesh, Bhutan, India and Nepal may take up an integrated approach to manage water resources while keeping the interests of upper and lower riparian, on the one hand, and India and Pakistan must overcome their differences over Tulbul, Baglihar and Kishanganga projects within the framework of the IWT, on the other. There are other major water related problems that need to be addressed on a priority basis with water cooperation among the

member countries of SAARC to enhance water and food security. There is a great hydro-power potential in Bhutan and Nepal that can be utilized by other countries of the region. However, that would involve the need for a common or bilateral grid, on which all concerned countries would have to agree. Recommendations of the Water Group 1. The regional water scenario of South Asia is predominated by increasing gap between increasing water demand and insufficient supply, high allocation to agriculture and growing new commercial demands, trans-boundary and regional conflicts generated from upper versus lower riparian water needs/interests, increasing interest in hydropower and new management experiences. Policy challenges are linked to the socio-economic approaches, selection of technical solutions and institutional capacity. The following general and specific recommendations could be made, based on the group discussion: 2. The trans-boundary conflicts are based on concerns of the lower riparian countries to secure river flows (Pakistan and Bangladesh versus India) on one hand and development interests of the upper riparian especially for the hydropower (Nepal versus India, India vs. Pakistan). The multi-purpose and multi-country planning for the Himalayan water resources and the South Asian water basins is the proposed future option. (proposed NIBB-C Water Ways is an example) 3. All South Asian countries are going through the experiences of decentralization and local management. Different models have been tried the success so far indicates involvement of local civil society, political acceptance and local institutional implementation capacity as the key elements. The national experiences needs to be impartially evaluated and put in the proper context. 4. The efficiency and productivity of water use in agriculture must be enhanced along with sustainable use of water in agriculture. The physical water stress and growing urban needs of Pakistan and India suggest a slow transfer of water from the sector. 5. All infrastructure developments should consider long term conservation of the natural water resources (all water bodies, including lakes, river sections and groundwater) and regenerative use of water. The central and top-bottom

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engineering approaches are not able to move forward due to political as well as hydrological reasons, hence, the technical options must be formulated across the appropriate local hydrological and political boundaries. The human access to water resources, on the one hand, and increased commercial value of water, on the other, are the growing challenges for the planning and development. The secure allocations for the domestic and drinking water, equitable distribution and fair water pricing in different sectors and regions are the essential regulatory measures. The public sector as a service provider has the responsibility to define guidelines. The water related sectors have the great opportunity for the knowledge sharing in the technical and managerial fields.

South Asian Energy Grid Similarly, the energy cooperation should evolve into a South Asian Energy Grid with integrated electricity and gas systems. As India and Pakistan now agree, and they must move forward, the gas and oil pipelines can run from Central Asia, Gulf, Iran and Myanmar through Pakistan, Afghanistan and Bangladesh to whole of South Asia and beyond. In this context of developing energy markets, power trading in the region calls for establishment of high voltage interconnections between the national grids of the countries. India, Pakistan, Nepal and Bangladesh should cooperate in transportation of gas and jointly developing, trading and sharing of energy. The Energy Group recommends: 1. South Asia is home to 22% of the world's population and occupies only 4% of the world land mass. All the countries in the region are developing economies and heavily dependent on energy imports despite being bestowed by nature with large energy resources including hydro, solar, wind and, to some extent, natural gas resources. However, they have not been able to exploit their energy resources to meet the demand. Energy imports constitute 27% to 87% of their commercial energy needs. Price fluctuations in the international oil market have been adversely impacting the economies of the region. Projected energy consumption to sustain the current economic growth levels would call for a more than 300% increase in their energy consumption by 2020. Energy security, therefore, assumes greater significance for the socio-economic development of

South Asia. The major causes of concern from the regional energy security perspective are: (i) Short-term supply risks due to threat of war and military action that may impact Middle East or Iran, the primary source of commercial energy supply to South Asia; (ii) Difficulty to pay for oil imports, when the prices shoot up sharply; (iii) Prospect of obtaining to long term gas and oil supply contracts at affordable prices, which can also ensure greater price stability; (iv) Availability of electricity to all households within a reasonable time span to enhance the socio-economics development and improve quality of life. 2. The following steps need to be taken urgently to address the above concern: 3. Expedite development of indigenous energy resources including hydropower while taking into account issues of resettlement and socio economic crisis. Non-conventional energy resources, such as, the wind and solar energy resources, such as, the wind and solar energy to meet the long term energy demand; 4. Establishment of a South Asian regional power grid to facilitate exchanges and trading of power to meet the electricity demand in the region; 5. Development of a South Asia Gas Grid with pipelines from Iran. Turkmenistan, to facilitate natural gas surplus countries in the neighborhood of South Asia to facilitate natural gas imports into the region and its distribution among the countries of South Asia; 6. Establish South Asia Energy Research Programs for development of new technologies that would facilitate harnessing the benefits of solar and other energy resources on a more sustainable basis; 7. Establish regional energy cooperation on a long-term basis; 8. Undertake evaluation to examine the appropriateness and impact of power sector reform initiatives undertaken by the countries in South Asia to identify the need for any course correction or policy change. South Asian Development Bank Given a low rate of investment to GDP ratio, South Asia must create attractive environment for investment in high value-added manufacturing lines and trans-regional projects. Enhanced investment flows, both from within and outside the region, would

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culminate in production facilities located across the region through integrated production systems. Shares of both national and regional companies would be quoted on our stock exchanges as capital moves without hindrance across national boundaries to underwrite investment in joint ventures and projects in any part of our region through a South Asian Development Bank. Addressing LDCs' Concerns However, economic cooperation and trade would not produce tangible results unless the concerns of Least Developed Countries (LDCs) are genuinely addressed, the negative-list is minimized, tariffs are substantially brought down and non-tariff and para-tariff barriers lifted, the economies are gradually opened up with a recourse to investment-trade linkage that takes care of trade deficits between partners through investment flows and capital account, vertical and horizontal integration of industries that benefits from relative advantages and economies of scale. The time frame envisaged in the agreement on SAFTA must be strictly adhered to. South Asian Cooperative Security We resolve to get out of the straitjacket of enmity, overcome obsession with over-demanding militaristic security paradigms and look beyond the traditional notions of security and focus on an integrated South Asian Cooperative Security that recognizes interdependence and mutuality of interests. The states ought to act in their enlightened self-interest to resolve their conflicts and differences through peaceful means and to the mutual benefit of our peoples. The choice is often, erroneously, posed between regional cooperation and conflict resolution. We urge all our states to simultaneously move forward to address long-standing political disputes through peaceful means. The main obstacle to regional cooperation and economic integration remains political and strategic. Therefore, we vow to be courageous, flexible and consistent to help resolve interstate and intrastate conflicts and dismantle political barriers to regional economic takeoff. Countering the widespread threat of terrorism, the SAARC countries must implement the current protocol for cooperation against terrorism and bring it in line with the international norms. The regional efforts against terrorism must also include measures to combat the spread of small arms and light weapons, narcotics

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trafficking, smuggling, organized crimes and criminal mafias. This will require exchanges and interaction between the national intelligence and security agencies with their counterparts across the border and greater interaction between the armed forces and military establishments in the region. The conference strongly emphasizes the principle that there can be no intervention in the internal affairs of any nation in the subcontinent. Yet, given the implications of internal conflicts for regional security as a whole, the SAARC must pay greater attention to the relationship between internal and regional security. It calls on both parties to the ethnic conflict in Sri Lanka to take immediate steps towards a revival of the stalled peace process and creation of an interim administration in the Tamil-dominated regions while securing integrity of the country and the rights of minorities there. Without prejudice to the current positions of the SAARC governments on amending the SAARC charter, the conference calls upon the SAARC to initiate a study on mechanisms for cooperative security in the region. Advancing the SAARC charter, the conference welcomes the decision, in principle, of the Islamabad SAARC summit to establish procedures for cooperation with other countries and organizations. Given the increasing interdependence among regions, cooperation with neighboring countries, such as China, Afghanistan and Myanmar and Central Asia, and other regional organizations, it is an essential future activity for SAARC. The Group on Nuclear Stabilization recommends The existence of nuclear weapons in South Asia remains an issue of major concern for the peoples and region's security analysts. Given Indo-Pak history of constant tensions and intermittent crises, we are concerned about the likelihood of a crisis spiralling out of control and eventually leading to a nuclear conflict. While we find the South Asian nuclear regime to be relatively stable in peace time, there is indeed nuclear instability induced into the nuclear equation in time of crises. This is borne out of an analysis of the 1999 and 2002 crises between India and Pakistan. Moreover, since one of the adversaries, Pakistan, inherently links nuclear escalation to conventional asymmetry, the growing asymmetry in conventional arms between Pakistan and India could also lead to a lowering of the nuclear

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thresholds in terms of South Asian crises. Finally, while the mutual ambiguity of the nuclear regime in South Asia contributes to stability on some counts, it does not allow the adversaries to make informed decisions in times of crises and can thus lead to instability. Given the above, the recommendations of the group include: 1. Recognizing that much of the tensions are a result of outstanding disputes, we recommend that Pakistan and India must continue dialogue on these issues and continue on the overall drive towards CBMs through the existing normalization process. With regard to nuclear weapons, Pakistan and India should mutually initiate a global drive towards disarmament. The starting point should be a declaration that transforms South Asia into a nuclear weapons free zone. More specifically, the two sides could focus on the following: 2. Declaring a bilateral ban on nuclear testing through an agreement; 3. Ceasing the production of all fissile material (agreement); 4. Signing a non-deployment agreement, agreeing that weapon systems will not be mated or deployed (agreement); 5. Signing an agreement no to pre-empt nuclear installations of the adversary; 6. Establishing of NRRCs but with a legally binding agreement that such channels will remain open during crises; 7. Enhancing command and control structures to eliminate the likelihood of an accidental or unauthorized nuclear conflict. The Group on Conflict Resolution Mechanism Proposes: Conflicts in South Asia are passing through a critical phase of transformation which requires a proper understanding, interpretation and information about issues which cause conflicts. For a long period of time, South Asia has perceived conflicts through a zero-sum perspective but the process of gradual conflict transformation is taking place in the region which may help the formulation of conflict resolution mechanism. Recommendations: 1. Need for proper conceptualization and understanding of conflicts and their interpretations in a rational manner. Therefore, it is recommended to establish conflict resolution centers and institutes at the governmental and non-

governmental levels so as to unleash the process of meaningful research in the field of conflict resolution. It is also recommended to design academic curricula on conflict resolution so as to create a better awareness among the people of South Asia about the need for a conflict resolution process. Both print and electronic media of South Asia can play a plausible role for creating proper conditions for conflict resolution process; Involvement of stake holders and allow them the space to craft out alternative conflict resolution mechanism. Stakeholders must have political will for conflict resolution and women should be made an integral part of this mechanism. The composite dialogue going on between India and Pakistan should also focus on the practicable conflict resolution strategy as far as contentious issues are concerned; State structures and their proponents should also be influenced because states are often the creators, promoters and sustainers of conflict; There should be SAARC conventions on minority and water rights' charters and the existing human rights' charter of SAARC needs to be strengthened and properly implemented.

South Asian Human Security Beyond cooperative security, South Asian nations must ultimately move towards South Asian Human Security by placing people -- their wellbeing and rights to peaceful life and development -- at the centre of security concerns, rather than intensifying the arms race. To include the excluded, governments of South Asia should take concrete steps to implement the SAARC Social Charter and give priority to poverty eradication by implementing ISACPA Report on Poverty Alleviation and meeting the Millennium Development Goals. This can be done by increased investment, enhanced economic growth and development, which do not necessarily translate into poverty alleviation unless structured to address the root-causes of poverty and give priority to human resource development, employment generation and empowerment of the dispossessed, women and the poor, in particular. South Asian Parliament The South Asian region emerged out of decolonization as a result of the drawing of political boundaries with sovereignty attributes forming new states. The political boundaries have further been

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reinforced through divergent strategies of state and nation building, reinterpretations of history and religion, and due to the Cold-War strategic divides. In the context of these reinforced boundaries and divisions, it may sound imprudent and even unrealistic to talk of political integration in the region. However, over the past decades, the imperatives of globalization, end of the cold war and rising popular aspirations in each of the South Asian states have brought about qualitative changes in the regional perceptions. Processes like SAARC have created institutions and generated impulses under which people are visualizing the prospects of establishing a South Asian community. Regional integration should and will take place within the framework of community building, not by conceiving or attempting erosion of state sovereignties or identities. The examples of SAFMA's initiative towards South Asian parliament and the collective and individual attempts in India and Pakistan to re-write history text books are indicative of growing popular pressure in favour of community building.

concept of a South Asian Parliament. A full fledged SAP may take a decade or two, but it is time to initiate moves in that direction. To begin with, the conference proposes: a) Creation of an IntraParliamentary Union in South Asia; b) SAARC may in principle agree to create a South Asian Parliament and appoint a group of experts, responsible before the SAARC Speakers Forum, to prepare a comprehensive report and a timeframe to establish it in stages and through an evolutionary process; c) The SAARC Speakers Forum should be activated and; d) To begin with, SAP may be set up as a deliberative and consultative body, not as a legislative body, so as to create regional opinion on and build regional pressures on the issues pending for implementation at the SAARC level. This deliberative body may work within the SAARC agenda. By ultimately creating a South Asian Parliament, the evolution of a regional South Asian identity, without in any sense compromising on or conflicting with respective national identities and sovereignty of nation-states of the region.

The SAPANA Group decided to mobilise country-based but comparative studies, that address the question of state building strategies, nationalism, status of minorities within and otherwise in the context of human rights and democratic polices. Studies will also take note of the professional engagements like that of Chamber of Commerce and industries, media, lawyers, academics, doctors and human rights activists across the board initiated and institutionalised within or outside the SAARC framework. The basic strategy to be adopted towards community building through integration will be to encourage institution building and engagements. Patterns of sub-regional cooperation amongst the parts of the states and societies in South Asian, linkages among parliamentarian, political parties, scholars and analysts, as well as transport and communication networks across the borders driven by popular pressures present concrete examples of such strategy. The conclusions of the studies will then be put in a perspective to map out the properties of community building through integration.

The Group on Rewriting History recommends: There is very little shared knowledge of how history is researched, written and taught in each of the countries of South Asia. Furthermore, there is inadequate recognition or appreciation of the shared past of this region. Despite this lack of knowledge about the past, references to and the use of history as a resource in a variety of political debates has only increased, particularly for the promotion of communalism, fundamentalism, casteism, regional and linguistic chauvinism. This makes it more difficult to produce trans-national historical perspectives. The close link between the state and historical research and textbook production has had ambiguous and conflicting consequences for developing a sense of the past. Historical research and analysis is still dependent on Western categories and tools of analysis. There is need to develop more indigenous categories.

The Group on South Asian Political Integration recommends: The participants overwhelmingly endorsed the view to initiate a process of moving towards the creation of an institutional interactive mechanism for parliamentarians of South Asia keeping in mind the

Recommendations: 1. The efforts at working out a common history of South Asia are viable. Even though there may be fundamental differences in perspective, it is possible to identify and work on common themes. Rather than focusing on national histories, themes that are shared by all the countries of South Asian countries should be identified and worked upon.

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Furthermore, a perspective on history that emphasizes the people, and neither fights shy of acknowledging historical injustices of caste, region, religion, gender, (to take some examples) nor glorifies them is an urgent imperative. We believe that such histories can help evolve a broader framework through stronger institutional linkages between groups of professional historians in South Asia. Such an engagement with the past will make a richer, fuller sense of the past possible, and have a great impact on society and the polity today and in the future.

The Group on Religious Extremism and Minorities recommends: Both minority persecution and ghettoisation have to be countered. There is still a major deficit in terms of information and understanding about events across the region even among those actively engaged with various human rights causes. Recommendations: 1. A standing body charged with responsibility to study and compose the institutional frameworks that seek to empower minorities across the region. Where institutional support is absent it should be highlighted. 2. The political position, strategies and rhetoric employed by the participants in the political process be monitored in order to identify issues that may impact minorities. 3. Intellectual tendencies and debates within discourses generated by the minorities about their situation those that promote minority empowerment be highlighted. South Asian Human Rights Code It is imperative for the South Asian countries to agree to and set up institutions under the Paris Principles and purposefully set about creating the required mechanisms to implement all internationally recognized fundamental human, civil and democratic rights. The Proposed Draft on Human Rights Code for South Asia presented before the South Asian Parliament's Conference, convened by SAFMA, will be circulated among the human rights bodies of the region and Human Rights Commission of Pakistan and other human rights bodies in the region will be requested to develop broader understanding among the major stakeholders to develop a regional

framework at the level of SAARC and its member countries. People to People Contact The prevailing barriers to cross-border movements make neither commercial nor logistical sense and originate in the pathologies of interstate, as well as domestic, politics. There is an urgent need to allow greater interaction among the policy-makers, parliamentarians, businessmen, media practitioners, professionals, youth and the leaders of civil society. To enable it to happen, it is necessary that India, Pakistan and Bangladesh, who have the most restrictive visa regimes, drastically revise their visa policy and remove impediments to free movement of people. All-country visas may be granted at separate South Asian counters on arrival at the airports and on all border-crossings. South Asian Information Society To overcome information deficit in the region, it is essential that all restrictions on access to and free flow of information are removed forthwith and media persons and products are allowed free movement across frontiers. In this regard, SAFMA's Protocols on 'Free Movement of Media Persons and Media Products' and 'Freedom of Information' must be adopted by the national legislatures/governments and the SAARC. To ensure the citizens' right to know, we support SAFMA's Protocol on Freedom of Information. The media, on their part, should rise above national divides, avoid demonization and give special attention to the coverage of the countries of South Asia that remain under-reported. Given the rising numbers of South Asian Cyber citizenry, there is an urgent need to upgrade, integrate and facilitate cyber connectivity and accessibility. Culture and Tourism The scope of collaboration in the sphere of culture, tourism, sports, education, health, research, human resource development and environment is infinite. At the level of SAARC, measures should be taken to promote cultural exchanges, tourism, health and education services and research in all fields. Promotion of Humanities Private initiatives and those of universities should be encouraged by the authorities to introduce country studies, invite faculties from the

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neighbourhood, exchange students, promote humanities and physical sciences through South Asian congresses and undertake a non-discriminatory portrayal of history. Visa restrictions and tedious process for academics, experts and scholars must be dispensed with. Women's Concerns Acknowledging the inadequate attention to and focus on redressing the marginalization and invisibility of women at all levels of national and regional policy-making; and the disproportionately high burden of poverty that women face in South Asia; SAPANA resolves to work towards gender equality and gender justice in all aspects of our work in the process as well as the substance; and exhort all the South Asian governments to acknowledge and rectify the glaring gender inequalities especially the feminization of poverty. South Asian Policy Analysis (SAPANA) Network The participants of South Asian Journal conference have agreed to form South Asian Policy Analysis (SAPANA) Network that will pursue virtual research and develop networking among various independent research groups and scholars across the region to promote free and pro-people thinking and a course of development that addresses the concerns of the people, in a wholist and sustainable framework. The objective and purpose of SAPANA will be to redress the shortcomings found in existing Think Tanks and research organisations. Firstly, it is proposed that the main purpose and objective of SAPANA will be to liaise with policy makers and with governments in separate countries and in South Asia as a whole. The research undertaken by SAPANA, while following all the principles of objectivity and rigour, will serve as a platform for policy dialogue and intervention. SAPANA has a great advantage over all existing think tanks and similar institutions, in that it is part of the Free Media Foundation and will work closely with the South Asian Free Media Association (SAFMA). This proximity will allow SAPANA's research output to be available in the public arena through the media. This ability to disseminate extensively will be one of the major advantages SAPANA will have over other institutions.

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SAPANA will focus on multidimensional and multi-thematic interventions rather than specialise in one particular area. Because of the already existing network of the Free Media Foundation and SAFMA, SAPANA is being perceived as a sort of a 'virtual' institution. Unlike most research organisations and think tanks, for the first few years, it will not employ scholars and academics, but will out-source research. Because of its 'virtual' nature, not constrained by the abilities of an in-house research staff, SAPANA will have access to the best scholars working on South Asia who will be hired on short term contracts for specific purposes. Moreover, SAPANA will also be able to design research themes of a more topical and immediate nature requesting scholars to respond quickly. Its flexibility will be one of its strengths. The participants appreciated South Asian Journal and SAFMA for taking this timely initiative. The participants of the First SAPANA Conference agreed to meet again within two years to pursue their objectives and shared goals.