Regional Integration and Liberal Economic Order in SAARC: A Case Study of Trade Relations Between Pakistan and India under SAFTA Regime (1997-2015)

Abstract

The South Asian Association for Regional Cooperation (SAARC) was established in 1985 with the aim to accelerate economic growth and social progress in the region. It was assumed by the proponents of SAARC that wealthier South Asia would be peaceful and powerful politicoeconomic entity, because increase in wealth and economic cooperation among states would improve human development index and decrease intra state political conflicts in South Asia. SAARC initiated trade liberalization policies since 1994 when SAARC preferential trade agreement was signed. Though the scope of trade liberalization was limited in the purview of SAPTA due to its positive list approach to intraregional trade, yet it paved the way for SAARC Free Trade Area (SAFTA). The establishment of SAFTA in 2004, boosted up the morale of SAARC and it started to visualize complete economic integration in South Asia in near future. However, SAFTA have not meet to its expected results and volume of intraregional trade is still low and the goal of wealthier South Asia is still far away. In this context, this study is outlined to analyze the liberal economic dimension of SAARC. It highlights the evolutionary process of trade liberalization in the region of South Asia and analytically evaluates the contribution of SAARC towards economic integration of South Asia. In addition it highlights the international economic scenario in which the establishment of Free Trade Area had become desirable for SAARC member countries. For this purpose, the study emphasizes on three major research questions; why the liberal economic practices are desirable in SAARC? Why SAFTA has not been fully implemented yet? And what are the major hindrances in the establishment of Free Trade regime in SAARC? To evaluate the effectiveness of SAFTA, study emphasizes on the Pakistan – India trade relations under SAFTA regime for in-depth analysis. This part of the study uses comparative approach. It includes a comparison between overall economic structure of Pakistan and India and comparison of bilateral trade trend between India and Pakistan before and after SAFTA through using statistical data. Further it covers all economic and noneconomic hindrances to bilateral trade between Pakistan and India. During the study, primary data is collected through structured survey and open ended interviews from stakeholders. For static analysis, data is gathered from internationally recognized databases of World Bank, UNTACD, WTO and World Economic Forum. The study finds out that regional integration without trade liberalization is impossible. SAARC is working on the agenda of economic integration in South Asia through its apex body, SAARC Chamber of Commerce and Industry; though the process of integration is slow but it is steady. In the age of globally integrated trading system, protectionism will no more a good choice to protect domestic industries. South Asian countries will have to reform their domestic macro-economic policies for implementing trade competitiveness measures in their respective states. Regional connectivity and trade facilitation measures under SAFTA has boosted up the foreign direct investment to South Asia. Further, this study finds out that power asymmetries in SAARC have make the process of trade liberalization slow, India will has to reconsider its role in SAARC as through showing its hard and soft power, it has disrupt the trade negotiation process on the platform of SAARC on many occasions. However, the study contributes to understand the relation between regional integration and liberal economic order in the purview of SAARC.