Regional Conference on Deepening South Asian Economic Integration
July 24, 2008, New Delhi

Key note address by Mr. Tariq Sayeed, President SAARC CCI

• Mr. Pranab Mukherjee, Hon'ble Minister of External Affairs, Government of India
• Mr Rajeev Chandrasekhar, M.P. and President, FICCI
• Dr Arjun Sengupta, M.P. and Chairman, RIS
• Dr Nagesh Kumar, Director-General, RIS
• Distinguished participants, Ladies & Gentlemen

Good Morning

I feel greatly honoured and privileged in sharing views at the inaugural session of the Conference on "Deepening South Asian Economic Integration" jointly organized by SAARC CCI, FICCI and Research & Information System, India.

At the outset, I appreciate the organizers for creating a fabulous opportunity to Industry and academia to share their views at this very important forum, organized as a precursor of the 15^th SAARC Summit, scheduled in the first week of August.

Distinguished participants, ladies and Gentlemen, for Prime Minister Yousuf Reza Gillani, peace and friendship with India has been an abiding vision, not only for the sake of the people of India and Pakistan, but because of the salutary impact it will have on the fortunes of the entire region. He articulated his vision during conference on Economic Freedom in South Asia in April 2008 stating that the Government of Pakistan will extend all possible cooperation toward effective implementation of the SAFTA and the measures announced in the current Trade Policy regarding SAFTA and promoting trade with India reflect the level of sincerity and ardent desire to promote regional trade in South Asia.

Through initiatives like allowing Indian companies to invest in Pakistan by installing manufacturing units of CNG buses in currently announced Trade policy, Pakistan has taken the lead to establish closer economic cooperation with regional countries. It is my earnest desire that during my tenure as the President SAARC Chamber of Commerce & Industry, SAARC nations should sign Investment treaties, which would be instrumental to gain the perceived objective of SAFTA. I am of the firm opinion that this initiative will not only help promote bilateral trade between two major players of the South Asia but also positively impact intra-regional trade in SAARC. Another encouraging step towards the economic unification of the region is the inclusion of services sector, which has widened the scope of SAFTA and will greatly benefit to uplift the socio-economic level of the region through enhanced investment in education and health sectors. The collaborative partnership in areas of finance and banking, insurance, Information Technology etc. would help promoting greater cooperation and fiscal measures would lead to the formation of common capital market.

It is the duty of the Private Sector of SAARC to redeem the hopes of their respective Government, particularly India and Pakistan to meet the challenges, making SAFTA and enabler of economic development of the region.

Before coming to the part that how member countries of the SAARC can deepen the economic cooperation for regional integration. I would like to enlighten you with the trends in regional trade before the formation of Worlds leading trade like EU, NAFTA and ASEAN. EU which now comprises 27 nations, began its journey as the European Coal and Steel Community in 1951 from only six member nations. At that time the regional trade with around 28%, which in 2007 increased to 55%, showing only 0.4% increase per annum. Similarly at the time of creation of NAFTA in 1994, the intra-regional trade was around 35%, which after a period of 24 years was estimated around 60% showing 1% increase per annum. ASEAN was established in 1967, when the intra-ASEAN Trade was only 12%, which today has improved to more than 30% , reflecting 0.33% per annum. However, the nations of SAARC which at the time of their independence were heavily dependent on each other failed to manage regional economic integration. It was due mainly ti adoption of stringent policies, inward looking approach and state owned economic management, which resulted engulfing nations and subsequently when SAARC was created in 1985, the intra-regional trade was only 3.4%, which even after 23 years remains less than 5%, showing an insignificant increase of mere 0.05% per annum which is incomparable with trade growth in its contemporary regional trade blocs.

The SAARC perhaps is the only region in the World, which has not learnt lessons from the rapid development around the World. The major reasons behind the sluggish growth of the region had been the ignorance towards the development of infrastructure, communicational linkages while the regions like EU and NAFTA laid great emphasis on the development of communication, infrastructure coupled with efficient network of transportation, which are necessary pre-requisites for trade development and help deepening regional integration. On the other hand SAARC started its journey withour the crucial element of communication network Unfortunately, despite having all four means of communication i.e. rail, road, sea and air, the trade between two major countries channeled through third country and even now major part of trade is regrettably done via third country, which is perhaps the only example that countries bounded into a regional commitment channel their trade via third country.

As far as importance of the region of South Aia is concerned it was never denied since its medieval history. It had been a hunting place of Worlds warlords in all the eras. It was called golden Sparrow by the British. The region of South Asia was enriched with tremendous potential in the past as attributed by a famous Cambridge historian Angus Madison in the words that "United India had 22.6 percent of global GDP in the year 1700 compared to 23.3 per cent of entire Europe" and once Indian Rupee at that time was equivalent to 3 USA Dollar. And upto 1935, this trend was more or less the same. At that time the movement of people of sub-continent was free while the Europeans and others had to acquire visa to enter in our region. But unfortunately due to misuse of resources and involvement in the non-productive issues i.e political mayhem, the entire scenario is changed and now the share of whole South Asian region, today, accounts for only 1.5% of the Global GDP.

Presently about 350 research scholars are doing their Doctorate on issues relating to economic integration of South Asia in the leading universities all over the World and the involvement of institutions like World Bank, UNTACD, Asian Development Bank and leading research institutions in campaign of unleashing the true potential of the region indicates the importance of the region, the economic revival of which is much awaited to increase the World GDP. Some estimates have revealed that by 2020, the contribution of the South Asian region to the World GDP would be around 50%, which proves that the developed world still assumes South Asia as one of the highly potential regions in the World.

However, transformation of this desire into reality requires socio-political will of the respective Governments, I am of the opinion that regional economic integration is a must for the development of the whole region.

For deepening economic relations, we drastically need to remove all such barriers that have been identified as irritants to trade and increase costs. According to a recent World Bank report, on an average it takes 34 days and 8 documents to export and 42 days and 13 documents to import, making South Asia the second least trade-friendly region in the world. Furthermore, the cargo traded is inspected more in South Asia than other region, leading to significant delays. It has been researched that customs paperwork and other red tape cause the most delays. Only a third of the delays are caused by problems with "hard infrastructure" such as poor port facilities and roads, Consequently, the cost to trade in South Asia remains relatively higher as compared with the other major regions in the world, which is due mainly to inadequate provisions of trade facilitation in the region.

The region faces constraints when doing business across borders, which hinders business activity. This in turn is detrimental to the integration of South Asia as a region. The Government of the SAARC countries and the private sector need to work together to identify, acknowledge and overcome these constraints for economic development in the region.

SCCI has identified some barriers and constraints impeding business in the region in consultation with the private sector from all the SAARC countries. Although this list is not exhaustive, we have tried to cover the major constraints that have been brought forward to us. Some of the constraints are general whereas others are specific. The constraints highlighted are:

• SAARC region lacks in communication infrastructure and some countries in the region follow a restrictive policy when it comes to developing regional communication links. There is an urgent need to improve its infrastructure and discard its restrictive policy to allow open communication at the regional and bilateral level.
• To enhance business and trade, there needs to be adequate infrastructure for transportation of goods. Inadequate land, sea and/or air links will lead to increased costs and delays in delivery. According to research conducted at Purdue University, USA it has been found that a one-day delay in delivering goods from the exporter to the final market on average increased the cost of those landed goods by 0.8 percent. Hence, such links need to be improved as well as expanded to increase and facilitate trade in the region.
• Banking facilities are crucial to the smooth handling of business transactions insurance is vital for risk management. However, the SAARC region has inadequate regional banking infrastructure and in many cases the existing banks do not facilitate regional business transactions. The region needs to realize that in order to ease doing business among the South Asian countries and to facilitate trade, adequate banking facilities and efficient insurance services must be offered.
• Harmonization of standards is seen as the key to competitiveness in international markets. International harmonization and standardization is a defining problem as regional markets open up and the economy grows increasingly interdependent. Hence, to enhance trade and ensure smooth business, keeping in consideration time and costs involved, mutual certification and standards must be accepted throughout the region. Doing so will encourage business activity and ease doing business in the region.
• Any regional bloc including SAARC should allow freedom of mobility for more people to people movement across borders. This will also ease cross border movement of businessmen and lead to increased business acitivity. Hence, the visa regime in South Asia needs to be more open, This applies particularly to India and Pakistan for which obtaining a visa is not only tedious but extremely restrictive.
• Non-Traiffs Barriers (NTBs)which include both qualitative and quantitative restrictions and excessive documentation requirements are restrictive to trade and not only add to costs but also increase time for delivery. It has long been argued that trade is impeded in South Asia due to excess of NTBs.

In view of the fact that this conference has organized as the precursor of the 15^th SAARC Summit, I deem it an important platform to present before you the Memorandum of SAARC Chamber of Commerce & Industry for effective implementation of SAFTA. In fact it is a proposed roadmap, which I would like to and wish that the respective Governments play their due role for achieving the objective perceived under SAFTA.

Sharing the aspirations of our people for a better life and collectively to face the challenges posed by globalisation and meeting the demands of the WTO regime though enhanced regional cooperation have agreed to pursue the following guidelines:

1. The SAFTA agreement is only the firt stage on the road to deepening cooperation; its effective implementation will depend on the space created for trade, economic collaboration and development across our frontiers. However, if South Asia's economies are to be integrated it will require the development of transnational infrastructure.
2. Trade cooperation would point to monetary cooperation thereby suggesting the need for coordination among central banks. Sustained trading links would require investment, cooperation, both public and private, through joint ventures.
3. The customs Union could lead on to a common exchange rate policy and eventually a common currency underwritten by coordination of macro-economic management across the region.
4. Energy cooperation could evolve into a common energy grid across the region with integrated electricity and gas systems. Transport cooperation would lead to an integrated transport infrastructure which permits for uninterrupted travel from Peshawar to Chittagong and from Kathmandu to Colombo and connecting the abutting regions -- Central Asia, the Persian Gulf, South East Asia and China -- with South Asia.
5. Investment flows would culminate in regional corporations with production facilities located across the region through vertically and horizontally integrated production systems. Shares of both national and regional companies would be quoted on the stock exchanges across the region as capital moves without hindrance across national boundaries to underwrite investment in any part of the South Asia region through a South Asia Development Bank.
6. The regional economic cooperation, investment in transnational physical infrastructure, transportation, communication, energy grid, sharing of water on an equitable and efficient basis and efforts at poverty alleviation would not produce tangible results unless the following criteria are adopted: a) The concerns of LDCs are genuinely addressed; b) the negative list is kept at the minimum to protect the most vulnerable sectors; c) tariffs are brought down, as agreed, and non-tariff and para-tariff barriers are minimised; d) the economies are gradually opened up to each other with a recourse to investment-trade linkage that takes care of trade deficits between partners through investment flows and capital account; e) vertical and horizontal integration of industries that benefits from relative advantages, economies of scale and provides global competitiveness.
7. To realize such a transformation in the investment climate in each of these countries, preconditions will have to be created to overcome perceptions of political hostility and the attendant security threats will have to be addressed.
8. The proposal for dedicated South Asian Development Fund could also be encouraged. One fund should be dedicated to financing infrastructure and development projects most beneficial to the adjoining regions. A second fund should be established as an Investment Fund, serviced by both public and private capital, to finance private sector investment as well as projects for serving regional markets.
9. The main obstacle to improving connectivity remains political. 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. The political leaders of South Asia should, therefore, dismantle the political barriers to regional integration.
10. If South Asia's energy scenario were to be re-defined 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 and among the abutting regions.
11. South Asian nations should look beyond the traditional nations of security and focus on cooperative security; the nation of cooperative security recognises the profound condition of interdependence that binds South Asia and calls on the states of the region to act in their own enlightened seld-interest to resolve the current problems facing them through peaceful means.
12. Beyond cooperative security, South Asian nations must ultimately move towards 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.
13. There is a greater need to allow greater interaction among the policy-maker, parliamentarians, businessmen, media practitioners, professionals, and the leaders of civil society. To enable it to happen, it is necessary that India, Pakistan and Bangladesh, who have restrictive visa regimes, drastically revise their visa policy and remove impediments to free movement of people.
14. To overcome information deficit about the countries of the region, it is imperative that all restrictions on across to and free flow of information are removed forthwith and media persons and products are allowed free movement across frontiers; the media, on their part, should give special attention to coverage of the countries of South Asia that remain under-reported;
15. It is imperative for South Asian countries to agree to a uniform human rights code and set up institutions under the Paris Principles, and call upon the member countries of SAARC to purposefully set about creating the required mechanisms.

Ladies and Gentlemen much has been written, debated and theoretically evaluated but on practical side we are working like NATO which specifically means here "No Action Talk Only".

I am optimistically of the opinion that if SAARC nations nurture the ties of kinship, commerce and culture and if we emphasize all that we have in common, we will be able to enhance economic cooperation in the true spirit of SAFTA. To achieve this noble desire we need to change our mindset and have to adopt proactive approach to keep pace with the current development around the globe. For deepening cooperation for regional integration, we need to remodel our economic policies in line with the spirits of SAFTA that provides a tangible mechanism to achieve the objectives for which SAARC was created.

Thank you very much indeed