Regional Integration - Can South Asia succeed?

Nishantha KAMALADASA

SAARC REGION: South Asia is the least integrated region in the world, where integration is measured by intra-regional trade in goods, capital and ideas. It was even less than Sub-Saharan African region.

This was revealed at a regional seminar held recently (June 27, 2007) through video conferencing at the Distance Learning Centre Ltd, Colombo.

The regional seminar was attended by representatives from India, Pakistan, Bangladesh, Sri Lanka, Bhutan and Afghanistan.

This article looks at how the region could be integrated for us to benefit from it, taking clues from the discussion. It contains certain issues transpired in the discussion as well as the author’s personal perspectives on the theme.

Making the closer more distant

Dr Ejaz Ghani from World Bank commenting on the World Bank report on South Asia: Growth and Regional Integration further said that South Asia’s cost of doing business is one of the highest in the world.

It was also revealed that the cost of trading across borders in South Asian is one of the highest in the world.

As an example, it requires 12 documents, 46 copies and 138 signatures to pass a consignment from India to Nepal, while it required 14 documents, 50 copies and 200 signatures to pass the same from Nepal to India. No wonder that the trade between the countries had been less.

Regional cooperation provides the geographical proximity to be used to the maximum. However if there are tariff and non tariff barriers the geographical proximity will have no value. Distance that is created by these barriers nullifies the geographical closeness.

Benefits of Regional Integration

South Asian regional cooperation can bring different benefits to different countries, because of the dissimilarities. Large countries could achieve a cost-advantage due to economy of scale that they could enjoy having a larger local market, which could give a price-advantage to the smaller countries for their imported goods.

Small countries that currently are restricted by their small local markets could get a larger market to their products and gain economy of scale in production as a result. South Asian region still having lower labour costs also could give and get cost and price advantages doing business within.

If one takes this in to account you expect that it would be cheaper to buy, for example books, from India than UK or USA. But if you go to bookshops in Sri Lanka you still find books published and printed in the UK and the USA.

Not that there are no Indian editions of the same book, but the hidden costs in importing books from India is higher, in spite the less publisher prices. So, Sri Lankan customers don’t get any price-advantage, though having a big brother (with low labour cost and large market that enable him to achieve economy of scale) in proximity.

Putting the Individual Houses in Order

So the message was very clear, all member countries have to put their houses in order if they want higher integration in the region. Otherwise all countries in the region would see the rest of the world as better partners and turn their back to the neighbours. None of the countries will be benefited by the geographical proximity.

But that would not be the only action one could initiate for better regional integration. Every member country would be benefited by the development in their neighbouring countries as then they would be able to get inputs or markets, for their products, within the region itself.

Classic example was the simultaneous development achieved within the ASEAN block. We saw the countries in the region emerging as economically powerful countries almost simultaneously. Other was the Far East, again after Japan, Korea and China following.

Hence it would be the responsibility of each member country to help the other countries to develop. This could be done by giving special concessionary rates for “development drivers”. This could be undertaken by countries which already have achieved heights in development.

Most of the countries have discriminatory pricing policies, especially in the service sector. For examples, Indian education institutes have a different fees structure for international and domestic students.

Education being a “development driver”, could these institutes offer the domestic fees for SAARC students? This way India can help the neighbours to develop.

This is being practised by Japan in the Far East region and Japanese concessions even flows beyond the Far East region, sometimes to include whole of Asia.

Benefits of Exposure

The concessions also exposes a country in a business sense and developed countries get a competitive edge on business as a result of this exposure. The concessions of that nature could be good ambassadors in certain markets.

Once established, they can assure a country, a continuous revenue stream. So apart from benefiting from trickling effects of regional development, these concessions could also act as business promotion levers.

India and even Pakistan can play this role of the Big brother in the region similar to what had been assumed by Japan in Far East and even to some extent in whole of Asia, investing largely on the Asian Development Bank and similar endeavours.

It will be too late for India if it waits until Japan (and even China) entering the region closing down the curtain for India.

Role of Centre and Periphery

In most of the regional integrations you find a center and periphery. Center is occupied by large or developed countries and the periphery by the rest. Japan in Far East, Singapore and Malaysia in ASEAN, USA in Latin America, UK, Germany and France in Europe, Australia in Asia Pacific are the centres.

The relationship between the center and periphery had been to the advantage of both, center gaining more, though it looks the other way around on the surface. Remember during exam times we had similar unions (study groups). Tutor student representing the center and the recipient students assuming the periphery.

Though it appeared the recipients were benefited more, the truth was the tutor student learnt more in the process while the recipient also learnt to some extent.

However study groups succeeded when there was this center periphery relationship within (Someone to offer and others ready to accept).

If South Asia needs to look for a more fruitful regional integration probably India has to play the role of the centre and all member countries have to put their houses in order. But are we in South Asia ready to assume our parts of the play? Regional integration will depend on our readiness to assume the respective roles.