Colombo: South Asian leaders meeting in Sri Lanka this weekend will discuss improving commercial ties but political and other tensions have dampened hopes of a regional free trade pact being implemented any time soon, economists say.
The eight-member South Asian Association for Regional Cooperation, or Saarc, first mooted a free trade pact in 1995, but it remains largely limited to paper and member states have begun cutting bilateral deals instead.
(REGIONAL TENSIONS THREATEN TO THROW TRADE ISSUES OFF-TRACK) Saarc, whose leaders meet in Colombo for a two-day summit starting on Saturday, 2 August, has made little headway towards regional economic integration since it was formed in 1985, analysts say.
“Politics have hijacked Saarc’s economic agenda,” said HSBC economist Arjunna Mahendran.
Analysts say the group has been held hostage to hostility between India and Pakistan— its two largest members— which have fought three wars since their independence from the British rule.
Tensions now are rising again due to a deadly attack on the Indian embassy in Afghanistan earlier this month that New Delhi blames on “elements” in Pakistan and a clash this week between Indian and Pakistani forces along the Line of Control in Kashmir.
“I see the temperature (between India and Pakistan) intensifying rather than cooling,” said Mahendran.
Saarc leaders are due to take up the regional free trade issue and look at the possibilities of forging a common currency along the lines of the euro at their meeting.
The South Asian Free Trade Area, or Safta, agreement, aimed at achieving zero tariffs on almost all products by 2012, was signed in January 2004 and came into effect in July 2006. The free trade zone would encompass the eight members—India, Pakistan, Nepal, Sri Lanka, the Maldives, Bangladesh, Bhutan and Afghanistan.
But Safta has failed to take off and bring the promised economic benefits to the 1.5 billion people living in one of the world’s poorest regions.
Regional trade remains low due to quarrels over tariff concessions, especially between India and Pakistan, economists say.
“I can’t see things moving forward (in the free trade area) in the near future,” said Mahendran.