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Speech by the External Affairs Minister, Mr. Pranab Mukherjee at the RIS/SACEPS Conference of "Economic Cooperation in SAARC: SAFTA and Beyond"

New Delhi
March 19, 2007

Dr. Arjun Sengupta,
Syed Babar Ali, 
Dr. Nagesh Kumar, 
Distinguished delegates to this Conference, 
Ladies and Gentlemen: 

I am glad to have this opportunity of addressing you at this Regional Conference on Economic Cooperation in SAARC, which could not have been timed better. In ten days from now, we start our deliberations to prepare for the 14th SAARC Summit in New Delhi on April 3-4, 2007. India is keenly looking forward to receiving leaders from the rest of the subcontinent for the Summit, which, we hope, will turn out to be a landmark in the evolution of South Asian regionalism. I believe that 60 years after the subcontinent achieved independence, the region is poised at the cusp of a historic transformation, which has the potential to bring about revolutionary change in the lives of all the peoples of SAARC. Naturally, this change can come about only if we are all willing to recognize the opportunities before us and reach out and grasp them. Letting these opportunities pass us by will only lead to our region falling further behind, while the rest of an increasingly integrating world economy marches ahead. Positive and concrete action is needed, therefore, if the 14th SAARC Summit is to signify more than a mere date and a place. The Summit and its preceding meetings will discuss ways to upgrade regional economic cooperation, including SAFTA and I am certain this Conference will provide us useful inputs. 

For more than twenty years now, we in South Asia have attempted to pursue our own separate paths of economic development, while talking about regional cooperation on the sidelines. One result has been a high price paid in terms of the opportunities lost for regional cooperation. The underlying concept of a regional cooperation organization is sharing and exchange – sharing space, resources and talent and exchanging goods, services and ideas. In the past, unfortunately, all that South Asia could share or exchange was poverty. Indeed, the “poverty trap” that engulfed South Asia for so long also tended to limit our imagination in the past about the possibilities for growing together in the region. Now, we must learn the slightly more complex art of sharing prosperity for mutual benefit. This requires a new mindset among our decision makers. A rising tide lifts all boats and sharing wealth, as the rest of the world has figured out, makes all nations richer. 

As we assess the task before us, one thing is clear to me. There is today the real prospect of ending economic poverty in the SAARC region in our own lifetime. Thanks to the economic reforms of the last decade, historically unprecedented growth rates have now become the presumed norm in the subcontinent. And India is not the only one growing rapidly. Most of our neighbours, too, have turned in impressive growth trajectories in recent years. Despite many difficulties—political, social and environmental—economic growth in the subcontinent has now acquired a new traction. South Asia is now among the fastest growing regions of the world. As a consequence, we can begin to visualize the reduction of poverty levels in the subcontinent to single digit levels within the next decade. For the first time in centuries, the capacity to provide a decent life to all the citizens of our region is within our grasp. 

I would venture to say it is in India’s own national interest to see the rest of South Asia prosper. As the fastest growing economy of the region, India has the potential to become a growth opportunity for all our neighbours and I would invite all of them to see it as such. This potential can be fully realized if SAARC as a whole becomes more integrated. However, it is a matter of concern that while countries in South Asia are integrating with the global economy, they remain less integrated among themselves. Even after more than two decades, intra-SAARC exports are a mere 5% of the total exports of the region. Compare this with NAFTA, where intra-regional trade is nearly 52% of total trade, or the EU, where it accounts for more than 55% of the total. For those who choose to see something peculiarly Asian about our low figures, I would cite the similar figure for ASEAN – it is as high as 21.4%.

Therefore, I submit to you that if the SAARC region has to become a dynamic component of the larger process of regional cooperation and globalization that is taking place in the world, it cannot remain disconnected within itself. It must first bring about economic integration amongst the member countries and then with other regional organizations. Otherwise, it runs the risk of being left far behind by other regional organizations. 

We have made a small beginning in this regard. The South Asian Free Trade Agreement is at once a visible symbol of the recent progress and the many difficulties that remain to be overcome. Its full implementation would go a long way towards enabling the region to begin to fulfill its undeniable potential. I would therefore urge that the realization of genuine free trade in the region not be undermined by linking it to extraneous political considerations. We have raised our serious concerns regarding non-compliance with SAFTA by Pakistan and we expect it to revise its position to ensure that international commitments that it has solemnly undertaken are complied with. Otherwise SAFTA and the process of regional economic cooperation will continue to remain fragile. I would emphasize here that, in the subcontinent, we must begin to walk on both legs—simultaneously resolving political differences and expanding economic integration. 

To be sure, there are many economic issues standing in the way of freer trade in the region. Many of our neighbours have expressed fears about Indian economic dominance in the context of an incipient liberal regional trading regime. The history of economic cooperation in other parts of the world, however, has shown that the smaller economies stand to gain more than the larger ones in a regional free trade arrangement. Several studies, including a study done by the State Bank of Pakistan, have shown that trade and businesses from the smaller countries are expected to be the biggest beneficiaries of SAFTA. India too has promised to review its non-tariff barriers and generate better access for our neighbours to the Indian market. It is a promise we intend to keep. 

We fully recognise that regional trade in South Asia is largely about India’s trade with its neighbours. Barring Pakistan and Afghanistan, none of our other SAARC neighbours share frontiers with each other. The emergence of the Indian economy over the last few years as one of the fastest growing economies in the world offers opportunities of expanding markets, investments, technology and entrepreneurial resources for the countries in the region. Some successful examples already exist. India’s FTA with Sri Lanka has helped it reduce its trade deficit with India. Bhutan’s cooperation with India in tapping its hydro electrical potential has helped in its economic development. Trade creating investments in Nepal are yet another successful example of spurring bilateral trade. The growing purchasing power of Indians has helped boost tourism into Maldives, Nepal and Sri Lanka. 

Today we are linking India into a web of partnerships with the countries of the region and beyond through free trade and economic cooperation agreements. We have concluded a Free Trade Agreement with Singapore and are in the process of negotiating with ASEAN. We are exploring similar arrangements with other Asian economies. This web of engagements may herald an eventual free trade area in Asia, covering all major Asian economies and possibly extending to Australia and New Zealand. This Pan Asian FTA could be the future of Asia and will, I am certain, open new growth avenues for our economies. It is therefore important that we assess South Asian economic cooperation in the larger Asian context. 

Ladies and Gentlemen:

In addition to achieving regional integration, the other major transformation that we must attempt in the region is greater connectivity across South Asian borders. The idea of “open borders” has in fact become an alluring new theme in the sub-continental political discourse. This is not merely a romantic notion for liberal intellectuals in the urban areas of our region. For the many millions of people living in the border regions of the subcontinent, the notion of open frontiers is intimately connected to their own economic, social and political well-being. Because of the post-Partition political evolution of South Asia and the inward-looking nature of the economic strategies adopted by most countries of the region a few decades ago, many of the region’s frontiers have become closed and hostile to movement of people and goods between states. As a consequence, many regions of South Asia, which for centuries were integrated economic and cultural spaces, have been torn asunder.

Today, amidst our economic globalization and regional trade liberalization, it is both necessary and possible to restore and upgrade many of the traditional trade and transport connectivities that linked different parts of the subcontinent. India strongly believes that the time has come for reconnecting South Asia within itself and to the rest of the world. Some small advances have already been made. One example is the revival of the old railway links between Rajasthan and the Sindh province in Pakistan, the expansion of bus services between the two Punjabs, the revival of the Srinagar-Muzaffarabad connection across the Line of Control and renewed road and rail transport links with Bangladesh. We are hoping for an early launch of the already agreed truck trade between Srinagar and Muzaffarabad road. After many decades, border trade has once again resumed between Sikkim and Tibet on the Sino-Indian border. Yet, we have a long way to go in realizing the full potential of open borders in the subcontinent. 

It is indeed regrettable that when many regions of the world are rapidly pressing ahead with trans-regional highways, trade corridors and energy pipelines, South Asian nations have denied each other basic transit rights for overland trade in goods. Oddly enough, some of our neighbours support movement of goods one way, but oppose two way transit arrangements. We believe the entire region stands to benefit if we end all the current restrictions on overland trade among the nations of the subcontinent. We have expressed interest in transit facilities via Pakistan for overland trade with Afghanistan. We are also keen on a similar arrangement with Bangladesh to link up with our own North Eastern region and South East Asia. Positive responses to these possibilities would allow our neighbours to simultaneously leverage the growing strength of the Indian market as well as their own geographic location. Comprehensive transit arrangements in South Asia, then, will see everyone win and no one lose. 

What applies to transport connectivity also holds true for energy cooperation in the subcontinent. If we can depoliticize cross-border energy projects and create a framework for mutually beneficial energy interdependence, a whole lot of options open up—from large scale trans-border energy projects to more local interconnectivity between electricity grids. 

Previous SAARC Summits, particularly, the more recent Summits held in Islamabad and Dhaka, have also acknowledged the need to improve connectivity. The SAARC Summit in Dhaka, in particular, reiterated “the need to strengthen transportation and communication links across the region for accelerated and balanced economic growth” and agreed to undertake trade facilitation measures, including transit for enhancing intra-regional trade and other economic activities. At Dhaka, Prime Minister Dr Manmohan Singh also put forward a bold new vision of an inter-connected South Asia, for freer movement of people, goods and ideas. We hope that the 14th Summit will carry forward this theme of regional connectivity. 

The SAARC Regional Multi-modal Transport Study has also made important recommendations for enhancing transport connectivity amongst SAARC countries. Our transport infrastructure, fractured by the partition of India, now needs to be rebuilt. The entry of Afghanistan as the eighth member of SAARC makes the idea of connectivity even more important for all of us. It provides the region a gateway to Central Asia and beyond. South Asia already has linkages with East Asia. An enlarged pan-Asian connectivity can help us recreate a new Silk Route with South Asia as the hub. A first step would be a coordinated and focused commitment of SAARC member states to resolve the identified and non-identified physical barriers, and put in place a regional multi-modal transport system. 

There are several trade facilitation related issues that must also be addressed collectively. These include harmonizing and simplification of customs and other procedures, standardization, reciprocal recognition tests and certification and banking facilities. The complementarities in our region should encourage us to expand the scope of SAFTA to cover trade in the services sector. We also hope that we can finalize the Agreement for Promotion and Protection of Investments, which will contribute meaningfully to further economic integration in the region. 

India is a very strong advocate of collaboration in regional projects, particularly in areas such as infrastructure, poverty alleviation and dealing with cross border challenges such as natural disasters, public health and terrorism. India’s offer of US $ 100 million could be utilized for development projects on poverty alleviation once the SAARC Development Fund (SDF) is operationalised. During the 13th SAARC Summit held in Dhaka in November 2005, Prime Minister Dr. Manmohan Singh had also proposed the creation of a South Asian University. This proposal has been welcomed by all the member countries. At an intergovernmental Expert Meeting held in New Delhi recently, it was agreed that the University would be established in India. The text of an Intergovernmental Agreement establishing this University has been finalized and would be considered during the 14th SAARC Summit. The University is envisaged to be an autonomous, non-profit public-private partnership, which will seek support both from each of the national governments and from other sources. It is our earnest hope that it will advance a sense of South Asian community by bringing together future generations of students in the common pursuit of quality education and to prepare them for the challenges of the new millennium.

Ladies and Gentlemen: 
India remains fully committed to the SAARC process. We are convinced that on the foundations of their ancient civilizational and commercial inter-linkages, South Asian nations can work together for SAARC to emerge as a major powerhouse of economic creativity and enterprise. We are also conscious that as the largest country in this grouping, India has the largest responsibility. We stand ready to fulfill that responsibility. It will be our effort during our Chairmanship to significantly upgrade regional economic cooperation. Thank you.