What institutional and policy mechanisms are required to enhance economic cooperation among South Asian countries under the SAARC framework?

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Institutional and Policy Mechanisms to Enhance Economic Cooperation among South Asian Countries under the SAARC Framework

Abstract

The South Asian Association for Regional Cooperation (SAARC), established in 1985, was envisioned as a regional organization to promote peace, stability, and economic integration among its eight member states: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. However, despite South Asia’s enormous demographic potential, cultural connectivity, and economic complementarities, the region remains one of the least economically integrated in the world. Intraregional trade under SAARC accounts for less than 5% of total trade, in contrast to over 25% in ASEAN and 60% in the European Union. This essay critically evaluates the institutional and policy mechanisms required to overcome existing structural and political constraints, strengthen SAARC’s institutional architecture, and enhance meaningful economic cooperation in South Asia.

1. Strengthening SAARC Institutional Frameworks

1.1. Revitalizing the SAARC Secretariat

The SAARC Secretariat in Kathmandu currently suffers from limited authority, insufficient resources, and lack of enforcement powers. To make it a more effective driver of economic cooperation:

  • Mandate expansion is needed to empower the Secretariat with agenda-setting, monitoring, and compliance functions, particularly in trade and economic agreements.
  • Technical and financial capacity-building should be prioritized, enabling the Secretariat to coordinate complex negotiations, track implementation progress, and produce analytical assessments.
  • Appointing specialized economic units within the Secretariat could focus on key sectors, such as trade facilitation, digital economy, energy cooperation, and sustainable development.

1.2. Strengthening Dispute Resolution Mechanisms

One major reason for the underutilization of SAARC’s economic potential is the absence of robust mechanisms to resolve trade disputes and non-tariff barriers (NTBs).

  • A SAARC Dispute Resolution Body, modeled after the WTO’s Dispute Settlement Understanding, could provide a neutral platform for resolving trade conflicts.
  • Strengthening the SAARC Arbitration Council (SARCO), established in 2006, is essential to handle commercial and investment disputes effectively, giving businesses and investors greater confidence.

2. Advancing Policy Mechanisms for Regional Trade and Investment

2.1. Deepening and Expanding the South Asian Free Trade Area (SAFTA)

The SAFTA Agreement (2006) is the cornerstone of SAARC’s economic cooperation, but its scope remains limited due to:

  • Exclusion lists that cover sensitive sectors.
  • Non-tariff barriers (NTBs) such as cumbersome customs procedures, inadequate mutual recognition of standards, and transit restrictions.
  • Lack of meaningful trade in services.

To strengthen SAFTA:

  • Member states must reduce sensitive lists and phase out remaining tariffs.
  • Launch negotiations on a SAARC Trade in Services Agreement (SATIS), enabling cross-border flows in sectors like tourism, education, healthcare, and ICT.
  • Implement a regional framework for NTB elimination, including harmonization of standards and mutual recognition agreements (MRAs).

2.2. Promoting Regional Investment and Value Chains

South Asia’s economic integration can be enhanced by developing regional value chains (RVCs), particularly in textiles, agro-processing, pharmaceuticals, and digital services.

  • Establishing a SAARC Investment Promotion Network would coordinate national investment promotion agencies to facilitate cross-border investments.
  • Creating a regional investment protection and facilitation framework can reduce political risk and incentivize private-sector engagement.
  • Encouraging joint ventures, special economic zones (SEZs), and industrial clusters across borders would strengthen supply chain linkages and generate employment.

2.3. Enhancing Connectivity Infrastructure

Poor physical connectivity—including inadequate cross-border roads, railways, ports, and energy grids—remains a key barrier to economic integration.

  • Implement the SAARC Regional Multimodal Transport Study (SRMTS) recommendations, upgrading transport corridors linking India, Bangladesh, Nepal, Bhutan, and beyond.
  • Develop regional energy grids and pipelines, building on initiatives like the SAARC Framework Agreement for Energy Cooperation (Electricity) signed in 2014.
  • Promote digital connectivity through regional broadband infrastructure, facilitating e-commerce and digital trade.

3. Strengthening Financial and Monetary Cooperation

3.1. Establishing a SAARC Development Bank

To fund regional infrastructure and development projects, SAARC should consider creating a SAARC Development Bank, modeled on the Asian Development Bank (ADB) or the African Development Bank (AfDB).

  • Such an institution would pool resources for regional public goods, such as connectivity, disaster resilience, and climate adaptation.
  • It could complement existing mechanisms like the SAARC Development Fund (SDF) by scaling up project financing and leveraging private capital.

3.2. Exploring Regional Financial Integration

South Asia can benefit from regional monetary cooperation, particularly in:

  • Promoting the use of local currencies in intraregional trade, reducing dependence on the U.S. dollar.
  • Developing regional payment and settlement systems to lower transaction costs and enhance financial inclusion.
  • Coordinating macroeconomic policies, particularly on issues like inflation management, capital flows, and financial stability.

4. Advancing Political Will and Confidence-Building

Institutional reforms and policy innovations can only succeed if underpinned by strong political will and regional trust.

4.1. Depoliticizing Economic Cooperation

SAARC’s progress has repeatedly been stalled by political tensions, especially between India and Pakistan. To shield economic cooperation from bilateral disputes:

  • Consider adopting an ASEAN-style “dual-track” approach, allowing economic initiatives to proceed even when political issues remain unresolved.
  • Empower SAARC sub-regional platforms (e.g., BBIN—Bangladesh, Bhutan, India, Nepal) to advance connectivity and trade projects where political feasibility exists.

4.2. Strengthening Public–Private Dialogue

Engaging the private sector, think tanks, and civil society is essential to generate momentum for regional economic integration.

  • Institutionalize SAARC Business Council and Chambers of Commerce networks to provide policy feedback and identify barriers to cooperation.
  • Support track-II diplomacy and academic research exchanges, creating regional epistemic communities that build trust and policy innovation.

5. Leveraging External Partnerships and Global Linkages

South Asia’s integration efforts can benefit from partnerships with external actors such as:

  • ASEAN, the European Union, and the African Union, drawing lessons from their institutional experiences.
  • International organizations like the World Bank, ADB, UNESCAP, and the Belt and Road Initiative (BRI), securing technical and financial assistance.
  • Engaging with global norms on sustainable development, digital trade, and climate action, aligning SAARC’s regional agenda with the UN Sustainable Development Goals (SDGs).

Conclusion: Toward a Pragmatic and Inclusive Regionalism

Enhancing economic cooperation under SAARC requires a multi-layered strategy that combines institutional strengthening, policy innovation, political confidence-building, and regional ownership. While SAARC has historically underperformed compared to its regional counterparts, the structural complementarities and shared challenges among South Asian countries provide fertile ground for deepening integration.

To move beyond declaratory rhetoric, member states must prioritize actionable mechanisms: reforming SAFTA, investing in connectivity, promoting investment and financial integration, and depoliticizing economic cooperation. By doing so, SAARC can transform itself from a symbolic organization into a functional and dynamic driver of inclusive regional growth, positioning South Asia as a key pole in the evolving global economic order.

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