Southeast Asia - Articles

ASEAN and SAARC: Intra Regional Trade Forums

This article evaluates ASEAN and SAARC as two pivotal regional platforms for actuating economic cooperation in South and Southeast Asia. A comparative study reveals that despite asymmetrical sizes AFTA has surpassed SAFTA in terms of trade benefits and value addition to the overall regional economic growth. Therefore, it is pertinent to examine AFTA and SAFTA relatively and ascertain reasons for the failure of SAARC and SAFTA in relation to ASEAN’s initiatives. Why has SAARC failed to forge conditions of cooperation on the economic and political fronts? What have been the probable impediments in the growth of SAFTA as compared to AFTA? What can be done to restructure and revive the SAFTA to propel the South Asian economy towards greater economic integration and regional consolidation? What was decided in the 16th SAARC Summit in terms of regional trade cooperation?

The European Union (EU) is spearheading the process of developing inter-regional economic networks among other regional organizations of the world. However, many factors are responsible for the success of ASEAN Free Trade Agreement (AFTA) which realized the logic of an apropos economic group consciousness which completely lacked in SAARC. It is a collective effort by ASEAN member countries to reduce tariffs on intra-ASEAN trade in the goods sector. The primary objective of AFTA is to enhance ASEAN’s position as a competitive production base producing for both regional and global markets. An analysis reveals that the formation of AFTA has led to a remarkable expansion of intra-ASEAN trade since its inception. The statistics so far substantiates the fact that Intra-ASEAN trade has been consistently increasing over the years from US$81.98 billion in 1993. Today, the intra-ASEAN trade incorporates approximately 25 per cent of the total external trade in comparison to merely 2 per cent of the intra-SAARC trade.

Among the countries, Singapore continues to be a major contributor in the intra-regional trade, accounting for 39.5 per cent of the total intra-ASEAN trade, followed by Malaysia (24.2 per cent), Thailand (15.6 per cent), Indonesia (9.5 per cent) and the Philippines (5.7 per cent). Also, the role of great power interventions especially of the US has been vital in determining the fate of AFTA. ASEAN has been an important economic partner for the United States; shared convergent commercial interests are a major driving force for ASEAN and the success of its forums. For the last two years, the cumulative American investment in ASEAN has been greater than the total investments in China, Japan and Korea.  ASEAN receives the fifth largest share of US foreign investment and this is rendering a subtle counter to the China block in Asia. Such an external pressure in terms of performance is completely missing in SAARC.

Moreover, despite initial gains, SAFTA has not really achieved much in terms of internal or external trade.  It is interesting to observe incessant efforts by the SAARC members, especially India, being the most prosperous, to ameliorate conditions of intra regional trade in South Asia. The robust rise in India’s total imports from SAARC has been underpinned by the sharp increase in imports from Pakistan, Sri Lanka, Bhutan, and Bangladesh. India generally maintains a positive trade balance with the other SAARC member countries, and the trade surplus has risen from US$2.3 billion to US$5.0 billion until recently. Sri Lanka is again the leading partner, accounting for 31 per cent of India’s total imports from the region, followed by Pakistan (21 per cent), Nepal (20 per cent), Bangladesh (15 per cent) and Bhutan (9 per cent). The region also lacks the impetus to incur the unforeseen costs and investments to initiate any new agenda for economic prosperity unlike ASEAN. 

Although SAARC has been working towards enhancing its regional trade, it certainly requires a structural revival. There are several steps that should be incorporated in the working process of SAFTA and SAARC on the whole to improve the conditions of trade. First, SAFTA experiences high trade deficit in terms of its global trade, thus more emphasis could be given to boost exports from the region. Second, SAARC countries are mainly exporting agricultural commodities and agro-based products. With trade being competitive and identical, more diversification of goods is extremely essential. Third, while SAARC countries have effected reduction in tariff levels, it can be reduced even further to increase the benefits of the trade bloc in future. Adequate steps could also be implemented to attract more FDI into the region from other sources. Fourth, the direct relationship between bilateral exports and GDP in the SAARC region reveals the potential for export-led growth in the region. With further opening of the economy, the bilateral exports will also increase. As there is a positive relation between the bilateral trade agreement and bilateral export flows in the SAARC region, the creation of bilateral agreements in the region must be encouraged. Finally, strengthening of economic relations can be used to reinforce improving political relations in the region, for instance, the relationship between India and Pakistan, as economic ties could help improve political relations to a great extent.