Peace through a south Asian economic bloc

In contrast to Richard Falk's concern about the negative effects of trading blocs, many economists regard globalization as a beneficial, even necessary, trend: here is a case for creating a bloc in south Asia

By Amit Kumar | 1994-11-01 12:00:00

The world is becoming organized as a system of trading blocs, and the South Asian countries must adapt to that reality. The region accounts for about 20% of the world's population, yet generates only two% of the world's gross national product (GNP). It is also one of the most volatile regions of the world, for conflicts are still raging in Afghanistan, Kashmir, Sri Lanka, Tajikistan, Burma, and northeastern India.

A South Asian economic bloc would safeguard the region's economic interests and help bring peace. South Asian countries, which do not now belong to any trading bloc such as the European Community (EC), North American Free Trade Agreement (NAFTA), or the Association of Southeast Asian Nations (ASEAN), risk being isolated from other regional groupings. Since such blocs are formed on the basis of proximity, an economic bloc of seven South Asian countries (India, Pakistan, Bangladesh, Sri Lanka, Maldives, Bhutan, and Nepal) is a promising possibility. It could be extended to include Burma, Afghanistan, Iran, and the Central Asian republics of the former USSR.

Although these economies are only beginning to liberalize, they have a vast potential for trade. The Indian sub-continent, home to one-fifth of humanity, is attracting foreign investment and increasing its exports. Foreign investment in India increased from just U.S. $165 million in 1990-91 to U.S. $3 billion in 1993-94. With a middle-class population estimated at 300 million, South Asia has a market the size of Europe or the U.S. With the end of the Cold War and the consequent changes in trade relations, the possibility arises of full or associate membership with other trading blocs.

Geographical distance and differences in the levels of development preclude full membership with EC and NAFTA. However, associate membership and arrangements for preferential trade with these blocs can be explored. India, Pakistan, Sri Lanka, and Bangladesh are Commonwealth countries and can exploit relations with Britain, Canada, and Australia to gain access to the vast markets of the EC, NAFTA, and APEC, a loose body of Asian-Pacific nations for economic cooperation.

The Emerging Asian Bloc And Other Regional Groupings

Another option for South Asian countries is to entice East Asian nations to pursue an Asian bloc or Pacific Rim free trade agreement, as proposed by Malaysia, though the other Asian countries may have reservations about the idea. India's membership in APEC is still pending. Sri Lanka applied for membership in ASEAN, but was not accepted. A strong regional community in South Asia will provide a basis for building institutional linkages with ASEAN and the Arab community.

The Arab world is South Asia's principal source of energy and its major market for manpower exports. However, transactions with the Arab world and East Asia remain bilateral; linking the Arab world, South Asia, ASEAN, and East Asia would change the global balance of economic power.

The South Asian Association for Regional Cooperation (SAARC), comprising seven South Asian countries, was formed in 1985 as a potentially significant cooperative endeavor.

It is generally believed that a common threat which brings nations closer together is necessary for the cohesion of regional groupings. Indeed, the first move towards the SAARC by Zia-ur-Rehman, the Bangladesh President, came in the wake of Soviet intervention in Afghanistan in 1979. However, the South Asian countries have a long and unfortunate history of political antagonism amongst themselves, which means their perceptions of security threats to the region differ. If there is any common threat, it is the threat of poverty; of being dominated economically by the rich countries and isolated from regional trading blocs.

The progress of SAARC has been slow. It has sponsored several regional studies of natural disasters, poverty alleviation, cultural contacts, drug traffic control, and the like, but has made little progress in boosting regional trade or economic cooperation. SAARC needs to be transformed into a powerful organization.

A striking feature of the SAARC economies is the extremely low volume of intra-regional trade. In 1990-91, less than two% of India's foreign trade was within this region. Even after the formation of SAARC, this small trade volume has been steadily declining. Reasons for low intra-regional trade include the long history of political animosity, particularly among India, Pakistan, and Bangladesh; the small size of the region's GNP; and the similarity of resource endowments of SAARC economies. For these reasons, trade in the region is competitive and the countries are dependent on foreign assistance, often in the form of "tied aid" that requires the recipients to buy from specific donors.

A South Asian Economic Bloc: Towards Collective Self-Reliance

Studies have been done on possibilities of socioeconomic cooperation in the region, but the topics have been limited to trade integration rather than a higher level of integration-an economic community. A broader harmonization of domestic policies by member countries is needed to promote trade and economic growth. Both political and economic solidarity are needed while dealing with issues of development finance, problems of technology, and international marketing. Other means of economic integration should be considered, such as allowing payments in non-convertible currencies, rearranging industries to create specializations, and developing direct transport links.

The proposed South Asian bloc would attract foreign investment to the region. Recently, even the International Monetary Fund has urged India and Pakistan to boost their intra-regional trade and emulate the Southeast Asian miracle.

When the Western media talk of Asia, it usually refers to East Asia without the Indian subcontinent, while the Middle East is west of Iran. South Asia is sandwiched in obscurity. Forming a trading bloc can change this. A few years ago, the economies of the Southeast Asian "tigers" were growing no faster than those of Sri Lanka or Pakistan. It was the formation of ASEAN and export-oriented policies that stimulated their growth rates and improved their standards of living.

Inclusion Of Iran, Afghanistan, Central Asian Republics, And Burma

Iran, Burma, Afghanistan, and the Central Asian republics of Uzbekistan, Kazakhstan, Turkmenistan, Tajikistan, and Kyrgyzstan can be invited to join the South Asian group. All these countries are linked with strong cultural, geographical, and historical bonds to the Indian subcontinent, but many in those countries will be reluctant to join such a grouping. Suppression of the democratic movement in Burma and fundamentalist regimes in Iran and Afghanistan may cause the West to view the inclusion of these countries with skepticism. This situation may change in the next few years. In recent months, Iran has shown signs of liberalization and patching up with the West. Indian Prime Minister Narasimha Rao's visit to Iran in 1993 demonstrated this trend. Similarly, most central Asian countries have tried to keep ethnic conflicts and Islamic fundamentalism under control.

Curbing The Arms Race

Since the Cold War ended, economic muscle has replaced military might as the key to national security. South Asian countries should reduce their defence budgets, which have been a drag on their development. Forming an economic bloc could help create mutual trust, curb the arms race, and put large sums of money into productive investment instead of (as in the case of India and Pakistan) an arms race.

Most impediments to the bloc arise due to political and historical animosities and a fear of India among smaller countries of the region. Such differences can be put on the back burner, as the Israelis and Arabs are learning. The people of South Asia have much more in common in terms of history and culture than do the Palestinians and Israelis. A few years ago there were serious political problems even between Malaysia and Indonesia, but ASEAN and extensive intra-regional trade in Southeast Asia have shifted the focus to economic growth and mutual cooperation. In the long run, such a bloc will lead to peace and stability in the region. India can stimulate the formation of the economic bloc without seeming to be a "Big Brother."

A South Asian bloc should in no way prevent member countries from maintaining multiple affiliations. Thus, Pakistan could continue its trade pact with Iran and Turkey; or India, its agreements with Russia and other former Soviet republics. Such an arrangement would give the member countries more flexibility in shaping their external trade relations. The resource-based economies of South Asian countries can also pool their efforts to get better prices for raw-material exports in world markets. Possible cooperation and coordination can be explored in foreign policy, regional security, and in such multilateral forums as the General Agreement on Tariffs and Trade, the Commonwealth, and the United Nations.

In each of the member countries there are vested interests who will be hurt by the formation of an economic bloc. Yet overall, the trading bloc would benefit most of the people living in one of the poorest parts of the world.

Amit Kumar is a student of international business, and a former associate editor of Peace.

Peace Magazine Nov-Dec 1994

Peace Magazine Nov-Dec 1994, page 17. Some rights reserved.

Search for other articles by Amit Kumar here

Peace Magazine homepage