Strengthening Regional Trade Integration in South Asia: A SAARC Perspective 9813367776, 9789813367777

Citation preview

Owais Hasan Khan

Strengthening Regional Trade Integration in South Asia A SAARC Perspective

Strengthening Regional Trade Integration in South Asia

Owais Hasan Khan

Strengthening Regional Trade Integration in South Asia A SAARC Perspective

Owais Hasan Khan Department of Law National Law University Odisha Cuttack, Odisha, India

ISBN 978-981-33-6776-0 ISBN 978-981-33-6777-7 (eBook) https://doi.org/10.1007/978-981-33-6777-7 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Dedicated to World Peace, Prosperity and Harmony To the people of South Asia In the loving, grateful and blessed memory of my parents Ms. Nikhat Naseem & Mr. Aosaf Hasan Khan

Foreword

Regional integration exercise which first began in the post-war Western Europe ushered in a new era of multilateralism into world politics. Integrating regional economies is more a political act whereby willing states express their resolve to minimise interstate conflicts and foster a sense of regional fraternity by integrating their economies into a single multilateral framework. Encouraged by the success of the European Economic Cooperation (EEC), now renamed as European Union, states in other parts of the world too created regional groups for not only interstate economic but also interstate political cooperation. Rather surprisingly, African continent, despite the myriad intra-regional conflicts and feuds, forged more regional groups, followed by the Arab, Latin American, South East Asian states. In comparison with these cooperative (not integrationist) efforts across the global regions, SAARC is a lateral entity. As the author referred, intra-regional, mainly Indo-Pak, rivalry was the main region for this delayed and hesitant start. SAARC agenda, as its Charter conveys, is a modest one as it forbids regional security cooperation. Nor does it allow bilateral issues of any type to be debated in the SAARC forums. SAARC economic agenda is also not an ambitious one. It undertook to promote intra-regional trade cooperation (investment added later) albeit in limited goods. As this South Asian multilateral association moved ahead from mideighties—lowly and hesitantly, impeded by periodic Indo-Pak political feuds—it obviously had been a limited one. Regional free trade area pact, called SAFTA, had been able to register a modest 5% intra-regional trade. Investment and services sectors, despite formal agreements, are awaiting implementation. The reasons for this poor progress by the SAARC are many which the author has analysed systematically with sound documentation. Mutual political trust is the basic prerequisite for the growth of a regional group, a factor lamentably is nearly absent among the South Asian countries. Not only Pakistan but also India’s other neighbouring countries are not exhibiting much trust in the region’s largest economy, for her smaller neighbours suffer from a sense of Indian political and economic hegemonism. India too, traditionally reluctant to encourage regional economic cooperation, prefers bilateral strategies of deepening trade and investment ties with her neighbours. The Indian regional political behaviour, like intervention in Sri Lanka and intimidation of Nepal, vii

viii

Foreword

did not serve to help sustain a deepened political bond between Delhi and the other countries of SAARC. At present, SAARC is dormant following the Indian boycott of the Islamabad summit. But then such periodic suspension of the SAARC gatherings and activities raises questions about the very relevance of this group. Natural though for such scepticism, SAARC needs to be supported and sustained for more than one reason. It is the only multilateral agency for flagging South Asian identity, even a faint one, in global politics. Its functioning, limping though, brings together regional civil servants and experts representing different fields which help them gain knowledge about their respective developmental problems. In the past, SAARC summits helped discuss or find solutions to bilateral issues, mainly Indian and Pakistani, on the sidelines of the SAARC summits. There is therefore a positive diplomatic dividend borne out of the summit meetings of the regional body, though bilateral issues are disallowed at the formal level. One only hopes the current impasses in the SAARC activities will be ended, as it should be in the overall interest of the countries and their people. I congratulate the author whom I have known as an active and engaging scholar at the NALSAR, University of Law, Hyderabad. His approach to the book is not one of those stereotyped versions as he competently tried to examine the SAARC origin and activities from the perspective of regional integration models like functionalism and neo-functionalism. Equally, there is a serious effort in this book to examine the critical issues relating to regional trade such as tariff and non-tariff barriers, crossborder illegal transactions and the problems created by non-state regional actors like drug traffickers and smugglers. South Asian borders, given their fragile and unmanageable security character, are smugglers’ hubs which severely inhibit official regional trade. This book, well organised and competently analysed, in my view, will surely help future scholars of regional cooperation not only in South Asia but also in other regions of the world over. September 2020

Prof. (Dr.) P. V. Rao Emeritus Professor National Fellow ICSSR Director (Rtd.) UGC-IOC Osmania University Hyderabad, India

Preface

The central theme of this book is based on the belief that international cooperation, based on the principles of transnational democracy and equity, is the most important tool through which lasting peace and prosperity can be ensured on this blue planet. Mother nature created the world without borders—a white globe. Borders are artificial constructs which are morally questionable and economically disadvantages. Human problems and their solutions are transnational. Be it climate change, poverty and unemployment, diseases and pandemics, conflicts and wars, all require transnational cooperation and efforts. There is a basic dichotomy between domestic territorial jurisdiction and human problems. I see SAARC as a ‘stepping-stone’ towards the wider aim of multilateralism, global cooperation and integration. A well functioning, equitable and strong SAARC can secure regional peace in South Asia and facilitate its socio-economic empowerment. Considering the historical baggage and mutual political distrust amongst the South Asian nations, the good offices of SAARC, where member nations can formally and informally air opinion and iron differences, can work wonders for regional stability, peace and development. I hope I have done justice with the subject. I wish the readers a happy reading. Cuttack, India September 2020

Owais Hasan Khan

ix

Acknowledgements

I am extremely grateful to my family for their love and support: Late Nikhat Naseem, Late Aosaf Hasan Khan, Dr. Naved Hasan Khan, Farheen Arif and Enaya Farheen Khan. I owe them whatever little I have achieved in my life. My interest in SAARC as the area of study and research began from my postgraduation days at NALSAR, University of Law, Hyderabad, India, where I was associated with the M K Nambyar SAARCLAW Centre under the guidance of Prof. (Dr.) P. V. Rao and Prof. (Dr.) V. Balakista Reddy. Their thought-provoking and insightful discussions motivated me to pursue research in the area of SAARC. I am most indebted to Prof. (Dr.) Sandeepa Bhat B. for his generous guidance in my work. I am sincerely grateful to him for his encouragement, endless patience and intellectual stimulation in the progress and completion of this book. I also appreciate the active help and support extended by Librarians and staff of WB-NUJS Library, NALSAR Library, NLUO Library and ILNU Library in the conduct of this research. I extend my deepest gratitude to Springer Nature and the entire editorial team for believing in my work and agreeing to publish it. Special thanks to Ms. Nupoor Singh for her generosity and continuous support. Last but not least, I wish to thank all my friends, teachers and colleagues for providing me encouragement and a supportive environment. Dr. Owais Hasan Khan

xi

About This Book

The objectives of the present book are three-fold. Firstly, it brings forth the philosophical, conceptual and practical contours of the regionalism exception under the GATT/WTO. Secondly, it examines the functioning of SAARC as a regional integration organisation of the South Asian region, focusing specifically on trade regionalism. Lastly, it identifies the problems faced by SAARC as the regional forum and suggests the ways through which it can achieve fuller integration. The research in this book extends to the study of the regional integration in South Asia under the aegis of SAARC as a regional integration organisation. About regional integration, it predominantly focuses on trade regionalism. However, other areas of integration which have an impact on the trade regionalism are also examined. The book also deals with the comparative analysis of SAARC regional integration with the regional integration under EU and ASEAN. Out of sixteen areas of cooperation under SAARC, only one area that is ‘economic and trade’ cooperation is the part of the present study. Rest of the fifteen other areas of cooperation are not covered in the scope of this research, although brief discussion wherever necessary has been included. Concerning comparative regionalism, the discussion has been confined only to the EU and ASEAN. The EU has been chosen because it is established as one of the most successful regional organisations in the contemporary world. ASEAN has been chosen because of its similarity to the SAARC’s economy, society and political structure. Aligning with the objective of the research, this book is divided into six chapters demonstrating three broad themes. These are, first, exploration of the philosophical, conceptual and practical contours of the regionalism exception under GATT/WTO; second, the critical and comparative analysis of SAARC as the forum of regional cooperation in the South Asian region; third, identification of the problems faced by SAARC as the regional forum and suggestion of ways through which SAARC can achieve fuller integration. A brief overview of the six chapters is given as under: Chapter 1 Introduction: Introduces the topic under consideration. In this chapter, the author has given a brief outline and background of the present work relating to the trade regionalism and SAARC. He attempts to demonstrate the spirit of the xiii

xiv

About This Book

regionalism exception under GATT/WTO along with highlighting its application in the South Asian region under the aegis of SAARC. Chapter 2 Trade Regionalism Under GATT/WTO: This chapter discusses the philosophical and conceptual overview along with the practical application of ‘regionalism exception’ under GATT Article XXIV. It further demonstrates the rationale behind regionalism exception through literature surrounding it and through different rules, regulations and understandings under the ambit of GATT/WTO. Chapter 3 Barriers to Trade and Trade Facilitation in Reference to SAARC Region: Chapter three is the critical study of regional integration in South Asia ushered by the South Asian Association for Regional Cooperation. It appraises the development and functioning of SAARC, primarily focusing on various barriers to trade which hampers intra-regional trade. The chapter covers both tariff and non-tariff barriers to trade in the South Asian region, along with trade facilitation measures. Chapter 4 Comparative Regionalism: SAARC, ASEAN and EU: This chapter is a comparative study of regional cooperation in South Asia under the aegis of SAARC with ASEAN and the EU. ASEAN has been chosen for comparative analysis because of its economic, political and geographical similarity with South Asia. The EU has been chosen predominantly because it is one of the most successful regional integration setups of the world which has been able to achieve regional integration on almost all fronts. The main idea behind the comparative study is to find out the different nuances a particular phenomenon can have in different situations. Lessons for comparative studies can help in strengthening the host phenomenon by adopting good practices from others and learning from others’ mistakes, as the case may be. Chapter 5 Strengthening Trade Regionalism Under SAARC: This chapter covers the ways and methods through which problems and bottlenecks faced by the SAARC can be countered and a fuller integration can be brought amongst the South Asian Nations under the aegis of SAARC as an organisation of South Asian cooperation and integration. The final chapter of this book deals with the conclusion and suggestions.

List of Authorities

• GATT CONTRACTING PARTIES Decision, “Differential and More Favourable Treatment, Reciprocity and fuller participation of Developing Countries” L/4903 of 28 November 1979 • Permanent Court of International Justice Decision, The Mavrommatis Palestine Concessions Greece v. Britain, Permanent Court of International Justice Fifth (Ordinary) Session, File E.C. III Docket V.I Judgment No. 2 30 August 1924 • Report of the GATT Panel on Uruguayan Recourse to Article XXIII Report adopted on 16 November 1962 (L/1923—11S/95) • WTO Appellate Body Report, Canada- Measures Affecting the Importation of Milk and the Exportation of Dairy Products. WT/DS103/R; WT/DS113/R, 17 May 1999 • WTO Appellate Body Report, United States- Import Measures on Certain products from the European Community” WT/DS165/AB/R, 11 December 2000 • WTO Appellate Body Report, Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R, 22 April 1998 • WTO Appellate Body Report, European communities - customs classification of certain computer equipment, WT/DS62/AB/R, 5 June 1998 • WTO Appellate Body Report, Turkey—Restrictions on imports of textile and clothing products, WT/DS34/14/AB, 19 November 1999 • WTO Appellate Body Report, United States—Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea, WT/DS202/AB/R, 15 February 2002 • WTO Appellate Body Report, United States—Measures affecting the production and sale of Clove Cigarettes, WT/DS406/AB/R, 4 April 2012 • WTO Panel Report, Turkey—Restrictions on imports of textile and clothing products, WT/DS34/R, circulated on 31 May 1999 • WTO Panel Report, European Communities- Measures Concerning meat and meat products (hormones) WT/DS26/R/USA circulated on 18 August 1997 • WTO Panel Report, United States—measures concerning the importation, marketing and sale of Tuna and Tuna products WT/DS381/R circulated on 15 September 2011 xv

List of Statutes, Agreements and Declaration

• • • • • • • • • • • • • • • • • • • • • • • • • • •

Agreement on the Establishment of South Asian Regional Standards Organisation. ASEAN Charter. Convention on Mutual Assistance in Criminal Matters. Convention on Promotion of Welfare of Children. Declaration on Partnership for Growth for Our People, Fifteenth SAARC Summit Colombo, 2–3 August 2008. Decision of the European Parliament on the regulation and general condition governing the performance of the Ombudsman’s duties. Doha Ministerial Declaration, WT/MIN (01)/DEC/1, 20 November 2001. EU Visa Code, 2016. European Council Decision of 26 July 2010 establishing the organisation and functioning of the European External Action Service. Final Agreement on Avoidance of Double Taxation. General Agreement on Tariff and Trade, 1994. Maastricht Treaty. People’s SAARC Charter. Protocol of the Provisional Application, 1947. Protocol on the Statute of the European System of Central Banks and of the European Central Bank. SAARC Additional Protocol on Terrorism. SAARC Agreement for the establishment of SAARC Arbitration Council. SAARC Agreement on Avoidance of Double Taxation. SAARC Agreement on establishing the SAARC food bank. SAARC Agreement on Trade in Services. SAARC Charter. SAARC Convention on Combating and Prevention of Trafficking in Women and Children for Prostitution. SAARC Convention on Narcotics Drugs. SAARC Framework Agreement for Energy Cooperation (Electricity). SAARC Preferential Trade Agreement. SAARC Regional Convention on Suppression of Terrorism. Schuman Declaration, 1950. xvii

xviii

• • • • • • • • • • • • • • • • • • • • • • • • • •

List of Statutes, Agreements and Declaration

South Asian Free Trade Area. Statute of the Court of Justice of the European Union. Treaty of Brussels. Treaty of Lisbon. Treaty of Rome. Treaty on the Functioning of the European Union. UN Charter. WTO Agreement on Government Procurement. WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 and Agreement on Subsidies and Countervailing Measures. WTO Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994. WTO Agreement on Import Licensing Procedures. WTO Agreement on Preshipment Inspection. WTO Agreement on Subsidies and Countervailing Measures. WTO Agreement on Technical Barriers to Trade. WTO Agreement on the Application of Sanitary and Phytosanitary Measures. WTO Agreement on the Rules of Origin. WTO Agreement on Trade Facilitation. WTO Agreement on Trade-Related Investment Measures. WTO General Council Decision WT/L/931 of 15 July 2014 entered into force from 22 February 2017. WTO General Council Decision, “Committee on Regional Trade Agreements” WT/L/127 of 6th February 1996. WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreements”, WT/L/671 of 14th December 2006 as notified on 18th December 2006. WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14th December 2006 as notified on 18th December 2006. WTO General Council Decision, Committee on Regional Trade Agreements, WT/L/127 notified on 7th February 1996. WTO Understanding on the interpretation of Article XXIV of General Agreement on Tariff and Trade, 1994. WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. WTO Singapore Ministerial Declaration, WT/Min (96)/DEC, 18 December 1996.

List of Reports

• Asian Development Bank and Federation of Indian Chamber of Commerce Report, “Key Proposals for Harnessing Business Opportunities in South Asia”, March 2010. • Asian Development Bank and United Nations Conference on Trade and Development, “Quantification of benefits from economic cooperation in South Asia”. • CUTS International report, “Building Peace through Trade: The Future of IndoPak Relations” CUTS International, 2011. • European Commission Report, “EU performance in the global economy” European Commission Directorate General For Trade, 2008. • GATT Report, “Working Party on the customs union between The Czech Republic and The Slovak Republic”, L/7501 of 15 July 1994. • SAARC Group of Eminent Persons report, South Asia Economic Journal, September 2001. • UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States report, “Almaty Programme of Action: Addressing the Special Needs of Landlocked Developing Countries within a New Global Framework for Transit Transport Cooperation for Landlocked and Transit Developing Countries”, United Nations Publication, 2003. • United Nations Conference on Trade and Development document UNCTAD/DITC/TAB/2009/3. • United Nations Conference on Trade and Development report, “International Classification of Non-Tariff Barriers”, United Nations Publication, UNCTAD/DITC/TAB/2012/2/Rev.1. • Warwick Commission report, “The Multilateral Trade Regime: Which Way Forward?” 2007. • West Bengal Industrial Development Corporation Limited (WBIDC) Report, “Status Report on Land Customs Station”, 2017. • WTO background note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. xix

xx

List of Reports

• WTO Committee on Regional Trade Agreements, “Note on the meetings of 16– 18 and 20 February 1998” Sixteenth Session, WT/REG/M/16 as notified on 18th March 1998. • WTO World Trade Report, 2015.

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 7

2 Trade Regionalism Under GATT/WTO . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Regulations on Trade Regionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Internal Requirement Regarding the Formation . . . . . . . . . . 2.2.2 External Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Review and Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Theoretical Background to Trade Regionalism . . . . . . . . . . . . . . . . . 2.3.1 Static Welfare and Dynamic Path Analysis of Regionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Functionalism and Regional Integration . . . . . . . . . . . . . . . . 2.3.3 Neo-functionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 Inter-Governmentalism and Liberal Inter-Governmentalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.5 International Political Economy and Trade Regionalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9 9 12 13 19 21 23

3 Barriers to Trade and Trade Facilitation in Reference to SAARC Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Tariff Barrier and Multilateral Regulations . . . . . . . . . . . . . . . . . . . . 3.3 Non-tariff Barriers and Multilateral Regulations . . . . . . . . . . . . . . . 3.3.1 General Obligations Under GATT on Non-tariff Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 WTO Specialised Agreements on Non-tariff Barriers . . . . . 3.4 Trade Facilitation and Multilateral Initiatives . . . . . . . . . . . . . . . . . .

25 28 30 32 34 36 37 41 41 43 48 54 55 60

xxi

xxii

Contents

3.5

Tariff and Non-tariff Barriers in South Asia . . . . . . . . . . . . . . . . . . . 3.5.1 SAARC Visa Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.2 Improving Transit Infrastructure and Transport Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.3 Sanitary and Phytosanitary Measures in South Asia . . . . . . 3.5.4 Inadequate Banking and Financial Facilities . . . . . . . . . . . . 3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63 66 70 76 79 80 81

4 Comparative Regionalism: SAARC, ASEAN and EU . . . . . . . . . . . . . . 83 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 4.2 Comparative Regionalism and SAARC: Theoretical and Methodological Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 4.3 Comparative Regionalism: Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 92 4.3.1 Ideation and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 4.3.2 Regional Governance Model . . . . . . . . . . . . . . . . . . . . . . . . . . 99 4.3.3 Institutions and Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 4.4 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 5 Strengthening Trade Regionalism Under SAARC . . . . . . . . . . . . . . . . . 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Revisiting the Role of India: The Hegemonic Big Brother or Partner in Cooperation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Revival of the Principle of Non-reciprocity and the Gujral Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Strengthening Powers of SAARC as a Potent Supranational Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 Creation of SAARC Robust Conflict Resolution and Dispute Settlement Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 Segregation of Trade from Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 Cultivating Mutual Economic Complementarity . . . . . . . . . . . . . . . 5.8 Governments’ Role: Prisoner’s Dilemma Game . . . . . . . . . . . . . . . . 5.9 Principle of Unanimity to Qualified Majority Voting . . . . . . . . . . . . 5.10 Chapter Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Conclusion and Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125 125 126 131 135 137 141 144 147 150 154 155 157 157 162 172

Annexe I: Selected WTO Provisions on Regional Integration Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Annexe II: Charter of the South Asian Association For Regional Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Contents

xxiii

Annexe III: SAARC Provisional Rules of Procedure . . . . . . . . . . . . . . . . . . 189 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

About the Author

Dr. Owais Hasan Khan is an author and academician, who is presently working as an Assistant Professor of Law at National Law University Odisha, India. Dr. Khan’s research interest lies inter alia in the areas of SAARC Law studies, South Asian regional integration, WTO studies, personal laws, and law and religion. He is an alumnus of West Bengal National University of Juridical Sciences (NUJS) Kolkata, from where he obtained his PhD, National Academy of Legal Studies and Research (NALSAR), Hyderabad and Faculty of Law, Aligarh Muslim University, Aligarh. He has also authored the book “Critique of Anti Dumping Law”.

xxv

Abbreviations

A.D ABTC ADB Agri. AICHR AIPO ALDMK APEC APT APTA ARF ASEAN ASSOCHAM AU BIMSTEC BOP Brexit CAP CERT CEU CFSP CJEU CNN COE CoR CRTA CTD CU DMK DSB DSU

Anno Domini APEC Business Travel Card Scheme Asian Development Bank Agriculture ASEAN Intergovernmental Commission on Human Rights ASEAN Inter-Parliamentary Organisation All India Anna Dravida Munnetra Kazhagam Asia-Pacific Economic Cooperation ASEAN Plus Three Asia Pacific Trade Agreement ASEAN Regional Forum Association of Southeast Asian Nations Associated Chambers of Commerce and Industry African Union Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation Balance of Payment British Exit Common Agricultural Policy Computer Emergency Response Team Council of the European Union Common Foreign and Security Policy Court of Justice of the European Union Cable News Network Committee of Experts European Committee of the Regions Committee on Regional Trade Agreements Committee on Trade and Development Customs Union Dravida Munnetra Kazhagam Dispute Settlement Body Dispute Settlement Understanding xxvii

xxviii

EAS EC ECA ECB ECOWAS ECSC EDPS EEAS EEC EESC EIB EP EPSO EU EURATOM FICCI FOSWAL FTA GATS GATT GDP Gds GEP HS ICT IGEG IR LAFTA LCM MEP MERCOSUR MFN MoU MTN MV NAFTA NDA NER NGO NLC NTBs OAS OECD PAFTA PFA

Abbreviations

East Asian Summit European Community European Court of Auditors European Central Bank The Economic Community of West African States European Coal and Steel Community European Data Protection Supervisor European External Action Service European Economic Community European Economic and Social Committee European Investment Bank European Parliament European Personnel Selection Office European Union European Atomic Energy Community Federation of Indian Chamber of Commerce Foundation of SAARC Writers and Literature Free Trade Agreement General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Goods Group of Eminent Persons Harmonised System of Classification Information and Communication Technology Inter-Governmental Expert Group on Financial Issues International Relations Latin American Free Trade Agreement Land Customs Station Members of European Parliament Mercado Común del Sur/Southern Common Market Most Favoured Nation Memorandum of Understanding Multilateral Trade Negotiations Mega Volt North American Free Trade Agreement National Democratic Alliance North Eastern Region Non-Government Organisation National Logistic Cell Non-tariff barriers Organisation of American States Organisation for Economic Co-operation and Development Pacific Free Trade Agreement Prevention of Food Adulteration Act

Abbreviations

PJCCM PPA PSA PSI PTA QMV RAND RTA SAARC SAARCLAW SAC SADC SAEU SAF SAFA SAFTA SAI SAIEVAC SAPTA SARCO SARSO SATIS SAU SCC SCCI SCM SCZMC SDF SDMC SEC SFC SFRP SHRDC SIC SMRC SMVA SPS STAC STC TBT TFA TRIPS TRP UK UNCTAD

xxix

Police and Judicial Cooperation Protocol of Provisional Application Partial Scope Agreement Pre-shipment Inspection Preferential Trade Agreement Qualified Majority Voting Research and Development Corporation Regional Trade Agreement South Asian Association for Regional Cooperation South Asian Association for regional cooperation in law SAARC Agricultural Centre Southern African Development Community South Asian Economic Union South Asia Foundation South Asian Federation of Accountants South Asian Free Trade Agreement Supreme Audit Institution South Asia Initiative to end violence against Children SAARC Preferential Trade Agreement SAARC Arbitration Council South Asian Regional Standards Organisation SAARC Agreement on Trade in Services South Asian University SAARC Cultural Centre SAARC Chamber of Commerce and Industry Subsidies and Countervailing Measures SAARC Coastal Zone Management Centre SAARC Development Fund SAARC Disaster Management Centre SAARC Energy Centre SAARC Forestry Centre SAARC Fund for Regional Projects SAARC Human Resources Development Centre SAARC Information Centre SAARC Meteorological Research Centre SAARC Motor Vehicle Agreement Sanitary and Phytosanitary SAARC Tuberculosis and HIV/ADS Centre Specific Trade Concerns Technical Barrier to Trade Trade Facilitation Agreement Trade-Related Aspects of Intellectual Property Rights Target Rating Point United Kingdom United Nations Conference on Trade and Development

xxx

UPA USA USSR WB WHO WOA WTO

Abbreviations

United Progressive Alliance United States of America Union of Soviet Socialist Republic West Bengal World Health Organisation World Order Approach World Trade Organisation

List of Figures

Fig. 2.1 Fig. 2.2 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4 Fig. 3.5 Fig. 3.6 Fig. 3.7 Fig. 3.8 Fig. 3.9 Fig. 3.10 Fig. 5.1

Fig. 5.2 Fig. 5.3 Fig. 5.4

Levels of Regional Trade Integration . . . . . . . . . . . . . . . . . . . . . . . RTAs notified to GATT/WTO (1948–2020) . . . . . . . . . . . . . . . . . World Development Indicators (2020): Tariff Barriers Globally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . World Development Indicators, 2020: Tariff Barriers in South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GATT/WTO multilateral trade negotiation rounds (MTNs) . . . . . International classification of non-tariff barriers . . . . . . . . . . . . . . Intra-regional trade in SAARC . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average Tariff rate in South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . World Bank’s Ease of Doing Business Ranking 2020: South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage Share of NTBs to all NTBs in the SAARC region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . List of categories of entitled persons under the SAARC visa exemption scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . List of land customs stations in SAARC Region . . . . . . . . . . . . . Top ten trading partners of the United States of America-April 2020 (Trade in goods on a Census Basis, in billions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Top trading partners of India 2019–20 (April–Feb) (Total Trade Values in US $ Million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prisoners’ dilemma game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spatial model of convention voting . . . . . . . . . . . . . . . . . . . . . . . .

10 14 44 44 45 51 63 64 65 66 67 73

128 142 148 152

xxxi

Chapter 1

Introduction

The WTO targets for barrierless international trade with the paramount objective of creating a white globe, that is a world without boundaries, barriers or hindrances in respect of trade transactions and allied matters. It attempts to create a jus commune in respect of trade regulations by harmonisation and convergence of diverse, often conflicting, domestic trade regulations across different nationalities. For many ‘white globe’ is nothing but sheer fantasy, a utopia which is almost impossible to achieve. Considering the same, GATT/WTO has adopted a piecemeal approach for achieving the global integration, with the ultimate objective of creating a trading white globe where international trade transactions can be done freely without any barrier in the form of a tariff or otherwise. Although regionalism, as provided under the Article XXIV of the GATT, is considered as an exception to its wider free trade objective, however, it is one of the methods under the piecemeal approach of the GATT towards the white globe. It buttresses the multilateralism objective of the GATT/WTO for the global integration and harmonisation of trade rules. The multi-dimensional theory of globalisation emphasises subjectivity and culture as central factors in the current acceleration of globalisation processes.1 It allows conceptual pluralism, regulatory diversity and subjectivity which are moderated through a skeleton framework as provided under different multilateral agreements and provisions under GATT/WTO. Considering subjectivity, piecemeal approach to multilateralism allow regional arrangements in the form of establishing preferential trading setup within a closely allied group of nations through free trade agreements, customs unions, etc. Historically, the term ‘region’ or ‘regionalism’ is associated with the geographical location within a nation which functions under the suzerainty and control of one federal government. Though this region may have a certain level of independence, however, in respect of matters like the foreign policy, defence, etc. the federal government is the one which decides. These types of regions are referred to as sub-national 1 See

Robertson (1992); Giddens (1990, 1991); Waters (2001).

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_1

1

2

1 Introduction

regions or micro-regions. On the other hand, regionalism or regional integration as the part of GATT/WTO refers to macro-regional entities also called as world-regions where two or more sovereign states areComparative Regionalism. involved.2 Regional integration or regionalism is a polysemous concept which is discursive in nature and scope. It can have different meanings depending on the contexts, and it includes variants like social integration, economic integration, trade integration, political integration, military integration, etc. The present work predominantly focuses on trade or economic integration as ushered by GATT/WTO. Theoretically, the trade regionalism or regional economic integration under GATT/WTO is defined as the voluntary linking in the economic domain of two or more formerly independent states to the extent that authority over key areas of domestic regulation and policy is shifted to the supranational level.3 The trade regionalism is the part of the general regional integration phenomenon which is defined by Joseph S. Nye as “a limited number of states linked together by a geographical relationship and by a degree of mutual interdependence which includes political integration, economic integration and social integration.”4 Political integration in the sense of creating a transnational political institution and decision-making, economic integration includes forming transnational economy leading to uniform monetary, fiscal and custom policies; and social integration implies creating transnational society by promoting people to people contact and cross-border mobility. Similarly, Ernest B. Haas in one of the classical definitions of regional integration defined it as the process of political unification without the use of coercive efforts which entails overall integration in the form of economic and social integration. He defined the regional integration process as “voluntary creation of larger political units each of which self-consciously eschews the use of force in the relations between the participating units and groups.”5 Most of the definitions of the trade regionalism explain the regional integration in terms of sovereign states and their interaction. However, it does not mean that the non-state actors like civil society or private corporations or business entities, etc. have no role in the process of the regional integration. In the contemporary world, the so-called ‘new regionalism’ is a multi-dimensional process which goes beyond the sovereign states. In this regard, the following definition given by Philippe De Lombaerde of the ‘new regionalism’ is worth noticing6 : A multi-dimensional process of social transformation whereby actors, associated with national governance levels and belonging to a limited number of different states, intensify their interactions through the reduction of obstacles, the implementation of coordinated or common actions and policies, and/or the creation of regional institutions, thereby creating a new relevant regional space for many aspects of human behaviours and activities. 2 De

Lombaerde (2010). (2001). 4 Nye (1971). 5 Haas (1970). 6 Lombaerde (2011). 3 Mattli

1 Introduction

3

The question that always perplexed the minds of the economists, policymakers and people alike is whether the world is better served by an overall multilateral system or by different trading blocks. Regionalism exception has been incorporated under GATT/WTO with the intention that it would be a stepping stone to the wider aim of multilateralism and barrierless international trade. Wherein initially a closely allied group of nations will reduce and eventually eliminate the trade barriers, which would subsequently be replicated worldwide to achieve the penultimate goal of creating the trading white globe. Alongside multilateral trade openness triggered by GATT/WTO, the international trading setup has witnessed the rapid proliferation of the regional preferential trading arrangements during the past six decades. The growth of the regional trading arrangements has passed through two broad phases, as evidenced by literature surrounding it. The first phase is earmarked by the path-breaking work of Jacob Viner in his treatise the Customs Union Issues published in 1950 which divided regional arrangement into the categories of the trade creating or the trade diverting unions.7 The first phase primarily focused on what Jagdish Bhagwati has referred to as static welfare analysis of the regional trading arrangement in the form of classifying them into the trade creating or trade diverting unioned. Jagdish Bhagwati.8 Trade creating unions are the one which allows replacing the higher-cost domestic supply by the lower-cost partner-country supply, whereas the trade diverting is the one which replaces the lower-cost supply from non-member countries by the higher-cost supply by the partner country.9 The second phase of regionalism ushered in the late 1980s and early 1990s focused on dynamic time path analysis taking political and socio-economic considerations in the account to make regional arrangements as a stepping stone rather than a stumbling block to the multilateral liberalisation of trade.10 In the case of South Asia, the South Asian Association for Regional Cooperation was established as a regionalism exception of GATT/WTO on a dynamic time path approach taking political, economic and social considerations into account. The target of SAARC is not just economic cooperation but also to secure multifaceted cooperation involving various areas.11 7 Viner

(1950). (1996). 9 Viner (1950). 10 Bhagwati (1993). 11 There are sixteen areas of cooperation under SAARC which are as follows: (a) Agricultural and Rural Development. (b) Biotechnology. (c) Culture. ((d) Economic and Trade. (e) Education. (f) Energy. (g) Environment. (h) Finance. (i) Funding Mechanism. 8 Bhagwati

4

1 Introduction

From its very inception, the regional cooperation in South Asia has been plagued with chronic complications which have invariably stalled the process of cooperation in almost all the sphere including trade and commerce. These problems can be traced back to the colonial past of the region for which unfortunately still no permanent and viable solution could be secured. Although after the 1990s with the global force of trade openness and economic integration, conditions have slightly improved still a lot has to be done to bring the region together for effective cooperation. Evaluating it from the standpoint of theories of international relations, regional cooperation in South Asia has been a result of a historical-political-economic approach to international cooperation which has been woven together using the institutional setup in the form of SAARC.12 SAARC success as a regional organisation has been highly questioned, and its initiatives have been severely criticised as being merely rhetorical. The prominent reason for the SAARC’s underperformance is its weak organisational structure which is marred by political distrust and hostility amongst the member nations. For instance, the SAARC Charter under Article X excludes bilateral and contentious issues. This article has been the subject of constant criticism particularly in the situations where the South Asian integration is kept hostage to the bilateral issues, especially the India-Pakistan chronic hostilities. Criticising the Article X approach of SAARC, the then Sri Lankan Foreign Minister observed13 : In our wisdom, we said that bilateral disputes should not be discussed before the SAARC forum. But when conflict confronts us do we turn a blind eye? Could we not evolve a new mechanism where at every meeting at the Foreign Minister’s level we have informal close door meetings where we could air our views candidly? This will provide an opportunity to discuss issues and problems between and among us. SAARC must not end up as a deaf, dumb and blind association. If we brush issues under the carpet because they are unpalatable, we will be taking the first step in crippling SAARC.

The organisation is weak, structurally and politically unsuited to its ambitious role.14 It has been alleged on numerous occasions that SAARC is just ‘a magnificent paper tiger’ which has failed to achieve its objective in all three counts, i.e. for

(j) Information, Communication and Media. (k) People-to-people Contacts. (l) Poverty Alleviation. (m) Science and Technology. n) Security Aspects. (o) Social Development. (p) Tourism. 12 There are four broad theories/ approaches to the international relations: a. Realist or state centric approach. b. Economic or firm centric approach. c. Institutional Approach d. Historical-political– economic approach. 13 As quoted in Gopal (1996). 14 Cha (2010).

1 Introduction

5

promoting peace, development and economic cooperation.15 It remained confined to holding summits from time to time and to pledges made by the leaders of South Asian countries to develop the region into a potential economic market.16 If trade data alone are analysed, it shows that intra-regional trade in SAARC is just around 5% of its total trade.17 Although SAARC has sown the seeds for regional consciousness and cooperation amongst the member nations still a lot has to be done to achieve fuller integration on all possible fronts. SAARC’s record is still very unimpressive when it comes to translating its objectives into concrete policy decisions and implementing them.18 The present book brings forth the philosophical, conceptual and practical contours of the trade regionalism under GATT/WTO in the context of SAARC. It analyses SAARC as the regional cooperation organisation of South Asia along with identifying major challenges and bottlenecks faced by it in the process of achieving regional integration. It also presents ways and methods through which SAARC can be made more effective regional integration organisation. SAARC profile The South Asian Association for Regional Cooperation is a regional integration organisation of South Asian nations which was established on 8 December 1985. Like many other regional organisations, SAARC was also formed to bring South Asian nations together on to a common forum from where they can collectively work for regional peace and stability. The idea of establishing a regional integration organisation for South Asian nations was for the first time mooted by the then President of Bangladesh Zia-ur-Rahman in the late 1970s.19 However, even before Zia-ur-Rahman’s initiatives, the idea of Asian integration has been discussed and deliberated in different forms and on different platforms. For instance, in the Asian Relation Conference, the idea of pan-Asian integration was mooted. The conference was held in New Delhi in March–April 1947 and was presided over by Sarojini Naidu.20 In her closing remark as the president of the conference, Sarojini Naidu calling for the Asian unity observed, “We are reborn in the crucibles of many sufferings and we have emerged as pure gold, the gold of Asian

15 Ahmed

(2010); where it has been quoted that an array of literature calls SAARC ‘ritualistic’, ‘suffocatingly slow’, ‘a magnificent paper tiger’, ‘political white elephant’, ‘a regional pastime’ amongst other things to describe SAARC inconsequential summits and ineffective declarations. 16 Mahmood (2000). 17 Source: The United Nation Conference on Trade and Development Statistics (UNCTADSTAT), 2020. 18 Muni (2011).. 19 Gopal (1996). 20 Indian Council of World Affairs. 2017. About Asian Relation Conference. https://icwadelhi.info/ asianrelationsconference/index.php?option=com_content&view=article&id=51&Itemid=137. Accessed 15 November 2017.

6

1 Introduction

consciousness, of wisdom, scholarship, culture, fellowship, service, dedication, the dignity of the human spirit, and the oneness of men.”21 The Asian Relation conference of 1947 aimed at developing norms and starting an ideation process which was intended to be materialised into pan-Asian cooperation setup. However, the pan-Asian integration could not materialise. Similarly in the Commonwealth Conference of the Foreign Ministers held in Colombo, Sri Lanka in January 1950 the establishment of a regional integration organisation amongst Asia-pacific nations was mooted.22 However, in the present form, SAARC has been the result of President Rahman’s initiatives. In late 1970s, President Rahman addressed a series of communication to different Head of the States in the South Asian region mooting the idea of creating a regional integration organisation. President Rahman’s efforts bore result when the Foreign Secretaries from the seven South Asian nations agreed to meet to identify broad areas for regional cooperation. The meeting was held in Colombo, Sri Lanka in April 1981 where five areas for regional cooperation were identified.23 The Colombo meeting of 1981 was followed by series of meetings which includes the Kathmandu meeting of November 1981, the Islamabad meeting of August 1982 and the Delhi meeting of July 1983 where the Declaration on South Asian Regional Cooperation was signed. The declaration of 1983 finally led to the signing of the Charter in December 1985 in Dhaka by seven nations of the South Asian region which included Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.24 This Charter established the South Asian Association for the Regional Cooperation and it is officially named as the SAARC Charter. Along with eight members, SAARC also has nine observer nations which include Australia, China, EU, Iran, Japan, Republic of Korea, Mauritius, Myanmar and the USA. The observer nations have limited role as compared to the members. As agreed by SAARC member nations, observers are to be engaged in “productive, demand-driven and objective project-based cooperation” in areas such as communication, connectivity, agriculture, public health, energy, environment and economic cooperation.25 The SAARC Charter is the foundational institutional and governance document of the South Asian integration. It consists of ten articles which lay down fundamental normative and functional aspects of SAARC.26 It enumerates the objective of the 21 Sarojini

Naidu’s address, Closing Plenary Session, Asian Relation Conference, 2 April 1947. Plan for Cooperative Economic and Social Development in Asia and the Pacific. 2017. https://www.colombo-plan.org/ Accessed 15 November 2017. 23 First Meeting of Foreign Secretaries of South Asian Countries, Colombo—21–23 April 1981. 24 Afghanistan applied for the membership of the SAARC in 2005 and finally joined the association in the year 2007. 25 SAARC official website. 2017. Relations with observers. https://saarc-sec.org/external_relations/ details/relations-with-observers. Accessed 16 November 2017. 26 Refer to the Chap. 4 for detailed discussion on the SAARC institutional and organisational setup. 22 Colombo

1 Introduction

7

regional integration (Article I), principles of cooperation (Article II), institutional and organisational setup (Article III-VIII), financial matters (Article IX) and decisionmaking/general provision (Article X).27 The trade regionalism under SAARC has failed and has been marred by political and security concerns amongst its member nations. However, with the developing economies as member-nations, SAARC has great potential for trade integration and regional development. Certain structural, normative and organisation alteration along with favourable ideation can make SAARC achieve its full potential.

References Bhagwati, J. (1993). XE “Jagdish Bhagwati” regionalism and multilateralism: An overview. In J. de Melo & A. Panagariya (Eds.), New dimensions in regional integration (pp. 22–51). New York: Cambridge University Press. Bhagwati, J., & Panagariya, A. (1996) Preferential trading areas and multilateralism: Strangers, Friends or Foes?. In J. Bhagwati & A. Panagariya (Eds.), The Economics of Preferential Trade Agreements, (pp. 1–79). Washington, D.C: AEI Press. Cha, V. D., et al. (Ed.). (2010). Asia’s response to climate change and natural disasters: Implications for an evolving regional architecture. Washington D.C: Centre for Strategic and International Studies Publication. De Lombaerde, P., Soderbaum, F., Langenhove, L. V., & Baert, F. (2010). The problem of comparison in comparative regionalism. Review of International Studies, 36(3, 736), 731–753. Cambridge University Press. Giddens, A. (1990). The consequences of modernity. Stanford: Stanford University Press. Giddens, A. (1991). Modernity and self-identity. Stanford: Stanford University Press, Stanford. Gopal, K. (1996). Geopolitical relations and regional cooperation: A study of South Asia (pp. 260– 261). New Delhi: Trans Asia Publications. Haas, E. B. (1970) The study of regional integration: Reflections on the Joy and Anguish of Pretheorizing. International Organization, 24(4, 608), 607–646. Regional Integration: Theory and Research, University of Wisconsin Press. Ahmed, S., & other, (Eds.). (2010). Promoting economic cooperation in South Asia: Beyond SAFTA XE “South Asian free trade agreement (SAFTA)” . India: Sage Publication. Lombaerde, P. D. (2011). Comparing regionalisms: Methodological aspects and considerations. In T. M. Shaw, J. A. Grant & S. Cornelissen (Eds.), The Ashgate Research Companion to Regionalisms, vol. 32, pp. 31–51, England: Ashgate Publications. Mahmood, T. (2000). SAARC XE “South Asian association for regional cooperation (SAARC)” and regional politics. Pakistan Horizon, 53(4), 7–21. Mattli, W. (2001). The logic of regional integration: Europe and beyond. Cambridge: Cambridge University Press. Muni, S. D. (Ed.). (2011). The emerging dimensions of SAARC. New Delhi: Foundation Book, p. 5. Nye, J. S. (1971). Peace in parts: Integration and conflict in regional organisation. Boston: Little Brown and Company. Robertson, R. (1992). Globalization. London: Sage. Viner, J. (1950). The customs union issue. New York: Carnegie Endowment for International Peace Publications. Waters, M. (2001). Key ideas globalization. London and New York: Routledge publication.

27 Refer

to Annex 2.

Chapter 2

Trade Regionalism Under GATT/WTO

2.1 Introduction The World Trade Organisation targets for and aims at the world-centric trading system, yet it is flexible enough to embrace vast realities facing nations across the planet in the form of exceptions.1 Trade regionalism is one such exception as a part of the piecemeal approach to multilateralism by “multilateralizing regionalism”2 and creating a trading white globe. The legal sanctity of the trade regionalism under GATT/WTO comes from Article XXIV of GATT 1947, which provides the general framework for the formation and territorial application of frontier tariff case in the form of the Customs Union and Free-trade Areas. Article XXIV defines regional trade arrangement in Paragraph 2 as “…a customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories.” In addition to the Article XXIV of GATT, Enabling Clause or 1979 GATT decision “Differential and more favourable treatment reciprocity and fuller participation of developing countries” along with Article V of GATS also provide for the regional arrangement in the form of preferential trade in goods amongst developing countries and arrangement in cases of services, respectively. As a part of trade policy, ‘trade regionalism’ is defined as the economic integration between two or more countries based on a certain formal agreement which aims to pursue a free trade or preferential trade internally while maintaining tariffs against the rest of the world.3 The concept ‘regionalism’ refers to a limited number of countries and is used to set it apart from multilateral liberalisation, which includes all member states of

1 Baldwin

and Carpenter (2011). and Low (2008). 3 Feenstra (2016). 2 Baldwin

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_2

9

10

2 Trade Regionalism Under GATT/WTO

Economic Union -common market + common fiscal/ monetary policy

Common Market -Custom union area + free movement of labour and capital

Custom Union - free trade area + common external trade policy

Free Tade Area - removal of trade barriers on all or listed goods

Partial Scope Agreement -low trade barriers amongst the members

Fig. 2.1 Levels of Regional Trade Integration5

the WTO.4 Nonetheless, geographical proximity or regional association is not an indispensable requirement for formulating a regional agreement. The level of economic integration which a regional agreement can trigger varies in its intensity, depth and application. Such a level of economic integration depends upon many factors which, inter alia, include the economic complementarity of its members, political will, legal and policy facilitation, etc. As depicted in Fig. 2.1, economic integration can be divided into five different levels depending upon the depth of the integration. Lowest on the scale of integration being Partial Scope Agreement (PSA) and the highest signifying complete economic integration is the Economic Union. a. Partial Scope Agreement: The first and the very basic form of regional integration is the Partial Scope Agreement sometimes also known as the Preferential Trade Agreement. Under such kind of regional integration two or more nations enter into an agreement which grants preferential treatment in the form of lowering trade barriers and other preferential treatment, etc. to its members. Such lowering of barriers can be on specified goods or services, and it can also be sector-wise. 4 Glania

and Matthes (2005). the classification of economic integration see, Balassa (1962) and Balassa (1987). Figurative presentation: Low (2000). 5 For

2.1 Introduction

11

b. Free Trade Agreement: In the second stage of regional integration, participating members remove all tariff and non-tariff barriers to the trade. Depending on the negotiation of the parties, the removal of the trade barriers can be in all sectors or certain identified sectors. c. Customs Union: Custom unions are an advanced form of free-trade area under which the member nations not only remove the trade barriers inter se but also formulate common external trade policy. d. Common Market: A common market is a customs union area where factors of production can move free amongst the member nations. e. Economic Union: The Economic Union is the highest level of trade integration wherein the member nations along with common external trade policy also coordinate and harmonise domestic market regulations including macroeconomic and exchange rate policies. Regional arrangements and their forms are neither a new phenomenon nor merely a brainchild of GATT/WTO. Some or other kinds of voluntary associations amongst a group of nations were ever existing in the form of commonwealths, leagues, councils, confederations, Staatenbunde, Eidgenossenschaft, etc.6 Drive for these associations ranges from commercial engagements to political and security considerations. Fritz Machlup traced the history of regional economic integration around the world.7 One of the first regional integration has been ‘Customs Associations and Discriminations Import Prohibitions’ in the Holy Roman Empire (of the German Nation) from the sixteenth century until 1806. This Custom Association was between Austria, Spain, Bavaria and some German principalities. Almost simultaneously Unions of Crowns between England and Scotland was functional from 1603 and the Act of Union of England and Ireland was also concluded in 1801, cumulatively leading to the unification of Great Britain and Ireland. Another major regional integration was seen in 1828 when Prussia established a customs union with Hesse-Darmstadt, a German state. Following footsteps of Prussia–Hesse Custom Union, several regional arrangements cropped up amongst the then German states. These include Bavaria–the Wurttemberg Custom Union of 1828, Middle German Commercial Union of 1828, German Zollverein of 1834, the North German Tax Union and the German Monetary Union or the Deutscher Munzverein of 1838 to name a few.8 However, the community of nations had witnessed a rapid proliferation of Regional Trade Agreements (RTAs) since the late 1990s with the coming into existence of the WTO. As of June 2020, around 705 notifications of RTAs had been received by GATT/WTO out of which 490 are in force.9 Since mid-2005 the number of RTAs under the WTO has almost doubled from 403 to 705, showcasing the popularity of regional arrangement over multilateral trading. 6 Mattli

(1999). (1979). 8 Mattli (1999). 9 Source: WTO Secretariat. 2020. Regional Trade Agreements Database. https://rtais.wto.org/UI/ charts.aspx. Accessed 18-06-2020. 7 Machlup

12

2 Trade Regionalism Under GATT/WTO

These more than seven hundred regional trade agreements are highly diverse and cannot be standardised in any one category. They differ in terms of area of coverage, members, mode and success. Most of them are local and confined to a particular geographical region, but many stretched beyond the region, and they may even be bilateral. Some have shown a deep level of integration, and they have gone beyond the WTO objective of free trade, on the other hand, there are many which are superficial and ceremonial. Therefore, it has been said that the WTO working definition of trade regionalism seems to be any trade agreement involving more than one nation but fewer than all the WTO members of any style and nomenclature.10

2.2 Regulations on Trade Regionalism Trade regionalism has been incorporated into the GATT/WTO framework as an exception to its wider obligation of non-discrimination and equality, as emanating from principles like most favoured nation clause and national treatment.11 It has also been claimed as an autonomous right rather than an exception of GATT/WTO obligation, which confers a right to enter into a customs union even in derogation of GATT obligations, provided certain conditions are fulfilled.12 Consequent to the factthat Article XXIV has often been invoked as a defence to the violation of other substantive obligations under GATT,13 there are certain checks and balances which are placed for regulating trade regionalism. The purpose of these checks and balances are not mere regulations, they intend to make the regional arrangement as ‘trade creating’ rather than ‘trade diverting’ unions, as stated by Jacob Viner. Their target is to create the “WTO-consistent preferential trade agreements which can complement but cannot substitute for coherent multilateral rules and progressive multilateral liberalisation”.14

10 Carpenter

(2008). of GATT, 1947 states equality as one of its objective in form of ‘the elimination of discriminatory treatment in international commerce’. 12 See Paragraphs 9 and 10 of WTO Appellate Body Report, Turkey—Restrictions on imports of textile and clothing products, WT/DS34/AB/R, 22 October 1999. 13 See WTO Appellate Body Report, United States—Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea, WT/DS202/AB/R 15 February 2002; where United States to invoke Article XXIV of the GATT 1994 as a defence for violating Articles I, XIII, and XIX of the GATT 1994 and Article 2.2 of the Agreement on Safeguards. See also, WTO Panel Report, Turkey—Restrictions on imports of textile and clothing products, WT/DS34/R, circulated on 31 May 1999 and WTO Appellate Body Report, Turkey—Restrictions on imports of textile and clothing products, WT/DS/AB; adopted on 19 November 1999; where Turkey claimed that the right under Article XXIV to establish a customs union is an autonomous right and not just an ‘exception’ from other GATT obligations. 14 OECD 2001 Ministerial Communiqué as quoted by Ken Heydon, “Regionalism: A Complement, not a Substitute” in “Regionalism and the Multilateral Trading System”, Organisation for Economic Co-Operation and Development publication, 2003 At pg. 12. 11 Preamble

2.2 Regulations on Trade Regionalism

13

Independent negotiations resultingin regional trade agreements have created a feral entangled ‘spaghetti bowl’ situation.15 This spaghetti bowl effect has created a complex, incoherent and counterproductive trade regime. To answer this situation, it is the responsibility of the WTO to create and promote a more inclusive and coherent system of trading whether it is done at the regional or multilateral level. Regulations on trade regionalism are one of the ways to bring coherency between regionalism and multilateralism to make them complementary to each other rather than a substitute or even worse a contradiction. The question of regulations on trade regionalism is also a part of a wider debate concerning the general relationship of the WTO as an institution vis-a-vis regional trading arrangements that are seen as the part of the sovereign treaty-making power. At many quarters it is alleged that existing the WTO law has not been and will not be able to effectively prevent or deter the proliferation of regional agreements around the world which are not in compliance with its regulations.16 The WTO members negotiating a regional trade arrangement enjoy considerable latitude as an overall regulatory mechanism of regional trade arrangements has remained weak allowing superiority to sovereign treaty-making powers.17 Such is the case not because of the fallacies of the WTO law but because of the very nature of international law which lacks robust enforcement and works essentially on the consent of the community of nations. The regulations on trade regionalism can broadly be divided into three categories. First is the internal requirements regarding the formation and working of the regional organisation. Second are the external regulations on the behaviour of the regional arrangement with countries which are not its members. Finally, in addition to these requirements, there is also a ‘review mechanism’ by the Council for Trade in Goods.

2.2.1 Internal Requirement Regarding the Formation The basic framework of formational and internal requirement as to regional arrangement is contained in Paragraphs 7, 8 and 12 of GATT, 1947. These paragraphs talk about the notification requirement at the time of formation of the regional arrangement and the internal workings of the regional arrangement so formed. Further, recognising that regional arrangements have greatly increased in number and importance since the establishment of GATT, 1947 and cover a wide proportion of world trade, the Uruguay Round Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade was promulgated by the WTO in the year 1994.18 15 Bhagwati

(1995). Cottier and Foltea (2010). 17 Cottier and Foltea (2010). 18 Preamble to Understanding on the interpretation of Article XXIV of General Agreement on Tariff and Trade, 1994; See Annex 1. 16 See

14

2 Trade Regionalism Under GATT/WTO

Fig. 2.2 RTAs notified to GATT/WTO (1948–2020)21

Notification requirement, Paragraph 7 The first requirement for the formation of the customs union is contained in paragraph 7 of Article XXIV of GATT, 1947 which mandates that in case any contracting party is going to enter into a customs union or free-trade area it ‘shall promptly’ notify the GATT CONTRACTING PARTIES and make available to them such information as will enable them to make ‘reports and recommendations’ regarding such formation.19 From 1996, through the WTO decision of 6 February 1996 the task of examination of Regional Trade Agreements (RTAs), reporting on their operation and recommendation thereto has been given to the Committee on Regional Trade Agreement.20 As shown in Fig. 2.2, from 1948 till 2020 as many as 705 notifications of regional trading arrangements have been made under para 7 of the Article XXIV. The basic aim of the notification requirement is to bring transparency by disclosing information about a regional arrangement and its functioning. It further aims at checking the compatibility of regional arrangement with Article XXIV and evaluating it on the touchstone of its requirements. However, the reporting/recommendation part of Para 7 has to a larger extent remained unsatisfactory, and there have been very few cases in which a clear-cut assessment of RTAs with Article XXIV requirement have been done. Since the time at which the RTA should be notified is not precisely expressed under Paragraph 7, as per the present practice, most of the RTAs are notified only after they 19 Article

XXIV para 7 of GATT, 1947. Trade Organisation Decision, Committee on Regional Trade Agreements, WT/L/127 notified on 7 February 1996; For detail see point 2.4: Review & Reporting. 21 Source WTO Secretariat (2020). 20 World

2.2 Regulations on Trade Regionalism

15

have been concluded and already in force.22 It has been argued that this practice restrains the effectiveness of the examination and recommendation process.23 The expression ‘promptly notify’ should be read and interpreted as notification before the coming into force of the proposed RTA. As suggested by Secretariat Negotiating Group on Rules, there should be 90 days notice to the Committee on Regional Trade Agreement for a proposed RTA.24 Paragraph 3 of the WTO Transparency Mechanism for RTA provides that all notification shall take place ‘as early as possible’. And it will occur no later than ‘parties’ ratification of RTA’ or “before the application of preferential treatment between the parties”.25 The first major challenge to para 7 requirement was posed by the notification of the Treaty of Rome in 1957 which subsequently established the European Union comprising almost whole of Europe. GATT could not well answer this challenge, and since then examinations of RTAs notified to GATT/ WTO have not lead to any clear-cut assessment and recommendations as per the rules under Articles XXIV, except in the matter of the Customs Union between the Czech Republic and the Slovak Republic of 1993.26 Even before 1957, in matters of Customs Union between South Africa and Southern Rhodesia (BISD II/176), Decision on the Free-Trade Area Treaty between Nicaragua and El Salvador (BISD II/30) and Decision on Participation of Nicaragua in Central American Free-Trade Area (BISD 5S/29), the GATT CONTRACTING PARTY in respect of all these three agreements allowed temporarily waiver from Article XXIV compliance.27 Further present regulation regarding notification has no provision to deal with nonnotified RTAs. As reported, there are several RTAs, presently functioning, which have never been notified under Paragraph 7.28 Since there is no guidance regarding non-notified RTAs, the only thing which is done to tackle them is to raise questions in the WTO meetings, which has been

22 Paragraph

7 uses the expression “shall promptly notify the CONTRACTING PARTIES”. WTO Background Note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. Paragraph 1. 24 See WTO Background Note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. Paragraph 2. 25 Paragraph 3 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreements”, WT/L/671 of 14 December 2006 as notified on 18 December 2006. 26 GATT Report, “Working Party on the customs union between The Czech Republic and The Slovak Republic”, L/7501 of 15 July 1994. 27 As quoted in WTO Panel Report, Turkey—restrictions on imports of textile and clothing products, WT/DS34/R, circulated on 31 May 1999. 28 See Paragraph 3 of WTO Background Note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. 23 See

16

2 Trade Regionalism Under GATT/WTO

proved to be grossly insufficient. There is an urgent need to devise a mechanism to counter non-notified RTAs. ‘Substantially all’ requirement, Paragraph 8 To prevent regionalism exception to be used as a disguise for protectionism, paragraph 8 of Articles XXIV prohibits any la carte approach to regional integration and mandates that free-trade area or customs union under this exception would mean only that which eliminates duties and other restrictive trade practices with respect to ‘substantially all trade’ between the constituent territories. As the regionalism exception has been incorporated under the GATT mandate as a stepping stone to the wider aim of multilateralism and barriers less trade, any regional arrangement which does not cover ‘substantially all trade’ and eliminates ‘duties and other restrictive trade practices’ in respect of them is considered to be not in consonance with the Article XXIV mandate. As pointed out by Bhagwati, this requirement is based on an inchoate rather than strong feeling that integration with 100% preferences is somehow special and consonant with the objective of multilateralism.29 The requirement serves the purpose of preventing selectivity along with blocking regional arrangements which are not in alignment with the wider mandate of GATT/WTO towards multilateral liberalisation. Paragraph 8(b) states. A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.30

However, paragraph 8 requirement suffers from generality and lacks any concrete commitment which is measurable and enforceable. It fails to define the contours of substantiality regarding percentage share or sectors of trade involved, etc. Even 1994 Understanding on the interpretation of the Article XXIV does not provide any clarification on the subject. Although the third recital of the preamble to 1994 understanding states, “Recognising also that such contribution is increased if the elimination between the constituent territories of the duties and other restrictive regulations of commerce extends to all trade, and diminished if any major sector of the trade is excluded,”31 nonetheless, it fails to serve the purpose. There is also no clarity as to whether the ‘substantially all’ requirement intends comprehensiveness qualitatively or quantitatively.32 And if it intends both qualitative and quantitative comprehensiveness, what would be the criteria to measure such comprehensiveness.33 29 Bhagwati

(1992). 8(b) of Article XXIV, General Agreement on Tariff and Trade, 1994. 31 Paragraph 3, Preamble of Understanding on the interpretation of Article XXIV of General Agreement on Tariff and Trade, 1994. 32 See Cottier and Foltea (2010). 33 See Paragraphs 9.148 of WTO Panel Report, “Turkey – restrictions on imports of textile and clothing products”, WT/DS34/R, circulated on 31 May 1999 which stated the following: 30 Paragraph

2.2 Regulations on Trade Regionalism

17

In many of the RTAs, including in the case of Europe, regional trading agreements often exclude agriculture production from its application. If only industrial production is considered, then it would mean that the agreements cover the lion’s share of total trade and thus satisfies the requirement of Paragraph 8, as industrial production in both monetary and quantitative terms is comparatively larger than agricultural production. The WTO Secretariat report of the year 2000 on the Customs Union Treaty, 1923 between Swiss Confederation and the Principality of Liechtenstein is worth noticing in this regard.34 As per the report, consequent on the treaty overall tariff rates between the two nations were reduced to around 9% ad valorem average on almost all industrial products including extra benefits on transactions of crude petroleum, natural gas, certain chemicals, electricity, civil aircraft, information technology sharing, etc. However, tariff rates higher than 400% still apply to poultry and agricultural productions. These high rates apply to live plants, edible vegetables, roots, tubers along with specified dairy products and poultry and bovine meat. If quantitative evaluation alone is undertaken then Swiss–Liechtenstein agreement will fulfil the requirement of paragraph 8 as industrial production constitute more than one-third of Swiss real GDP, whereas the agricultural sector contributes just 2% to its real GDP. The further manufacturing sector accounts for around 96% of the total value of exports of Switzerland, whereas agricultural export is fewer than 4% of total merchandise exports.35 The matter concerning the Article XXIV came before the WTO Dispute Settlement Body in the 1999 case of Turkey—restrictions on imports of textile and clothing products.36 It related to the Turkish imposition of quantitative restrictions on the imports of a broad range of textile and clothing products coming from India.37

[t]he ordinary meaning of the term “substantially” in the context of subparagraph 8(a) appears to provide for both qualitative and quantitative components. The expression “substantially the same duties and other regulations of commerce are applied by each of the Members of the [customs] union” would appear to encompass both quantitative and qualitative elements, the quantitative aspect more emphasized in relation to duties. However, the confusion persists as this ruling was challenged before WTO Appellate body which refused to make any finding on issues arising out of Article XXIV. [Paragraph 65 of of WTO Appellate Body Report, Turkey—restrictions on imports of textile and clothing products, WT/DS/AB; adopted on 19 November 1999]. 34 WTO-Trade Policy Reviews. 2017. Further liberalisation in agriculture could enhance resource allocation in Switzerland and Liechtenstein: First press release, secretariat and government summaries PRESS/TPRB/150 6 December 2000. https://www.wto.org/english/tratop_e/tpr_e/ tp150_e.htm Accessed 22 February 2017. 35 WTO-Trade Policy Reviews. 2017. Further liberalisation in agriculture could enhance resource allocation in Switzerland and Liechtenstein: First press release, secretariat and government summaries PRESS/TPRB/150 6 December 2000. https://www.wto.org/english/tratop_e/tpr_e/ tp150_e.htm Accessed 22 February 2017. 36 WTO Panel Report, WT/DS34/R, circulated on 31 May 1999, as modified by the WTO Appellate Body Report, WT/DS/AB; adopted on 19 November 1999. 37 Hong Kong China, Japan and the Philippines were third party participants in the matter.

18

2 Trade Regionalism Under GATT/WTO

Turkey’s imposition of quantitative restriction was consequent upon the formation of a customs union with the European Community which stipulated the following in Article 12(2) of the EC-Turkey Association Council’s decision of December 1995: In conformity with the requirements of Article XXIV of the GATT Turkey will apply as from the entry into force of this Decision, substantially the same commercial policy as the Community in the textile sector including the agreements or arrangements on trade in textile and clothing.38

India alleged that such restrictions are in violation of Articles XI and XIII of GATT read with Article 2.4 of the Agreement on Textiles and Clothing. It was also alleged that these restrictions are against the spirit of the Article XXIV of GATT.39 The WTO Panel rejected the contention of Turkey and held that Article XXIV does not justify the introduction of the quantitative restrictions at issue.40 Turkey preferred an appeal before the WTO Appellate Body. In reference to the ‘substantially all’ requirement of paragraph 8, the WTO Appellate Body acknowledged that neither GATT CONTRACTING PARTIES nor the WTO Members have ever reached an agreement on the true interpretation of the expression ‘substantially all’.41 Nonetheless, Appellate Body gave its interpretation of ‘substantially all’ in the following terms, ‘Substantially all the trade’ is not the same as all the trade, and also that ‘substantially all the trade’ is something considerably more than merely some of the trade.42

Nonetheless, in its final findings, the Appellate Body refused to assess the general compatibility of Turkey-EC custom union with Article XXIV. It declined to make any finding on the issue of whether Article XXIV will ever justify quantitative restrictions found to be inconsistent with Article XI and Article XIII of GATT 1994. Likewise, many other issues which are constantly debated under Article XXIV were refused to be decided by the Appellate Body.43 38 Article 12(2) of decision No 1/95 of the EC-Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union. Available on https://trade.ec.europa.eu/doc lib/docs/2003/december/tradoc_115267.pdf as on 23 February 2017. 39 Article XI and XIII of GATT provides for the General Elimination of Quantitative Restrictions and Non-discriminatory Administration of Quantitative Restrictions, respectively. 40 Paragraphs 9.86, 9.188 and 9.189 of WTO Panel Report, Turkey—restrictions on imports of textile and clothing products, WT/DS34/R, circulated on 31 May 1999. 41 See Paragraph 48 of WTO Appellate Body Report, Turkey—restrictions on imports of textile and clothing products, WT/DS/AB; adopted on 19 November 1999. 42 Paragraph 48 of WTO Appellate Body Report, Turkey—restrictions on imports of textile and clothing products, WT/DS/AB; adopted on 19 November 1999. 43 Paragraph 68 of WTO Appellate Body Report, Turkey—restrictions on imports of textile and clothing products, WT/DS/AB; adopted on 19 November 1999 states,

We wish to point out that we make no finding on the issue of whether quantitative restrictions found to be inconsistent with Article XI and Article XIII of the GATT 1994 will ever be justified by Article XXIV. We find only that the quantitative restrictions at issue in the appeal in this case were not so justified. Likewise, we make no finding either on many other issues that may arise under Article XXIV. The resolution of those other issues must await

2.2 Regulations on Trade Regionalism

19

Thus, a golden opportunity of clearing the domain of Article XXIV was lost by the WTO DSU leading to a continuing legal dilemma on the issue. Similar was also the case in the WTO Appellate Body Report in the matter of The United States’ definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea.44 In which the United States, inter alia, invoked Article XXIV of GATT 1994 as a defence for violating Articles I, XIII, and XIX of GATT 1994 and Article 2.2 of the Agreement on Safeguards. However, the Appellate Body did not dwell upon the Article XXIV and instead passed the judgement considering the violation of the WTO Safeguard Agreement alone.

2.2.2 External Requirements The external requirement under Article XXIV regulates the conduct of members of regional trade arrangement with the non-members as regional arrangement allows the member nations to have ‘separate tariffs or other regulations of commerce’ to govern substantial part of their trade with respect to other territories.45 External requirements as enshrined under Article XXIV purports to strike a balance between the mandate of equality as contained in principles like Most Favoured Nation under Article I with RTA/Customs Union provision which has often been claimed as an exception. This requirement is a part of jus cogens of International Law based on a principle of pacta tertiis nec nocent nec prosunt which means that ‘a treaty must neither benefit nor impair a third party’. Para 4 of Article XXIV mandates in the following terms that regional trading arrangement should ‘facilitate trade’ amongst member nations without raising barriers to trade for non-members, The contracting parties recognise the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognise that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.46

Kemp and Wan in their approach to customs union theory stated the welfare consequences of this external requirement.47 According to them, keeping external tariff

another day. We do not believe it necessary to find more than we have found here to fulfil our responsibilities under the DSU in deciding this case. 44 WTO

Appellate Body Report, United States—Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea, WT/DS202/AB/R 15 February 2002. 45 Paragraph 1 of GATT, 1947 Article XXIV. 46 Paragraph 4 of GATT, 1947 Article XXIV. 47 See Kemp and Wan (1976).

20

2 Trade Regionalism Under GATT/WTO

structure common for the non-members will make the relevant regional arrangement or the Customs Union as welfare improving for the member nations while maintaining the welfare of the nations outside the Customs Union unaltered. Explaining ‘not to raise barriers’ requirement of Paragraph 4, Paragraph 5 of Article XXIV provides that any kind of regional arrangement in the form of Customs Union or Free-Trade Area or interim arrangement thereto shall not have ‘duties or other restrictive regulation of commerce’ which ‘on a whole be higher or more restrictive’ than the general incidence of such duties and trade regulation prior to the formation of such Custom Union or Free-Trade Area or interim arrangement thereto. The language of Para 5 has been drafting in a very broad manner which can cover any regulation of commerce alongside regulations in the form of duties. Therefore, to find out the impact of certain RTA/Customs Union on third parties, a holistic evaluation has to be done to analyse whether ‘on a whole’ the new regulation brought by RTA/Customs Union concern is impacting the third parties adversely. Since it is very difficult to quantify the incidence of these new regulations of commerce, case-by-case examinations become necessary to make an overall assessment.48 As discussed earlier, in the matter of theUnited States–Korea,49 inter alia, the issue of external requirement of Article XXIV was raised. The US took the defence of Article XXIV for violating Articles I, XIII, and XIX of the GATT 1994 and contended that the impugned measures were taken as the part of the North American Free Trade Agreement (NAFTA) safeguard exclusions. Korea countered the argument inter alia with the plea that NAFTA safeguard exclusion is inconsistent with the external requirement as given in Article XXIV:5(b), which requires that RTA/Customs Union must not increase restrictive regulations on trade with members not a party to a free-trade agreement.50 Para 5 furthers the mandate of the establishment of ‘trade creating unions’ rather than ‘trade diverting unions’. To ‘multi-lateralizing regionalism’ whereby the regional trade agreements will gradually open up the domestic market first within a close group and with the passage of time generate interest in multi-lateralizing regional arrangements by joining them up into larger entities that bring us much closer to a multilateral system of trade arrangements.51

48 See WTO Committee on Regional Trade Agreements, “Note on the meetings of 16–18 and 20 February 1998” Sixteenth Session, WT/REG/M/16 as notified on 18 March 1998. Paragraph 54. 49 WTO Appellate Body Report, United States—Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea, WT/DS202/AB/R 15 February 2002. 50 WTO Appellate Body Report, United States—Definitive safeguard measures on imports of circular welded carbon quality line pipe from Korea, WT/DS202/AB/R 15 February 2002; Paragraph 49. 51 Forward by Pascal Lamy, Director-General, World Trade Organization. 2008. In Multilateralizing Regionalism, ed. Richard Baldwin and Patrick Low, xii. New York: Cambridge University Press.

2.2 Regulations on Trade Regionalism

21

2.2.3 Review and Reporting With the establishment of the WTO, through 1994 ‘Understanding on the interpretation of Article XXIV of GATT’ more sophisticated systems of review and reporting of customs unions and free-trade areas were developed. In 1994 understanding, the main responsibility of such review was put on the Committee on Regional Trade Agreements (CRTA).52 As per this setup, all the notifications made under Article XXIV of GATT and Article V of the GATS have to be examined by the CRTA who shall report to the Council for Trade in Goods and the Council for Trade in Services, as the case may be. Similarly, notifications made in furtherance of paragraph 2(c) of the Enabling Clause shall be entrusted to the Committee on Trade and Development (CTD).53 Before the formation of the CRTA notified regional trade agreements were examined by special working parties created especially for examination of any notified RTA. These special working parties used to report their examination to the GATT Council which after examination can accept or reject the report. Even after the formation of the WTO on 1 January 1995, the same procedure continued. The CRTA was formed in 1996 as a body for review and reporting on the regional trading arrangement, which is open to all the members of the WTO. It was established by the WTO decision of 6 February 1996 in order, inter alia, to give effect to the biennial reporting envisaged in paragraph 11 of the Uruguay Round Understanding on the Interpretation of the Article XXIV of the GATT, 1994.54 The CRTA has the following terms of reference: a.

b.

c. d.

e.

To examine agreements in accordance with the procedures and terms of reference adopted by the Council for Trade in Goods, the Council for Trade in Services or the Committee on Trade and Development, as the case may be, and thereafter present its report to the relevant body for appropriate action; To consider how the required reporting on the operation of such agreements should be carried out and make appropriate recommendations to the relevant body; To develop, as appropriate, procedures to facilitate and improve the examination process; To consider the systemic implications of such agreements and regional initiatives for the multilateral trading system and the relationship between them, and make appropriate recommendations to the General Council and To carry out any additional functions assigned to it by the General Council.55

52 Review: Paragraphs 7 and 8 of the Uruguay Round Understanding on the interpretation of Article XXIV of the General Agreement on Tariffs and Trade, 1994. 53 See Paragraph 18 of WTO General Council Decision, “Committee on Regional Trade Agreements” WT/L/127 of 6 February 1996. 54 See Preamble of the WTO General Council Decision, “Committee on Regional Trade Agreements”, WT/L/127 of 6 February 1996 as notified on 7 February 1996. 55 Article 1 of WTO General Council Decision, “Committee on Regional Trade Agreements”, WT/L/127 of 6 February 1996 as notified on 7 February 1996.

22

2 Trade Regionalism Under GATT/WTO

The functioning of the CRTA was considerably modified, and detailed modalities were provided by the General Council decision of December 2006 which established the ‘Transparency Mechanism for Regional Trade Agreement’.56 Paragraphs 6 to 13 of the Transparency Mechanism contain detailed procedures for examination of RTAs. It is mandated that the examination process by members shall normally be concluded within a period of not exceeding one year after the date of notification.57 A preliminary step in the examination process is the submission of required data to the WTO Secretariat by the parties who are entering into a regional trade agreement. These data include the following: (a) (b) (c) (d) (e)

Tariff concessions under the agreement. MFN duty rates Other data, as applicable (e.g. preferential margins, tariff-rate quotas, special safeguards, seasonal restrictions, etc.) Product-specific preferential rules of origin Relevant import statistics.58

Based on the data provided by the parties and those collected independently, the WTO Secretariat prepares a factual presentation of the RTA under consideration.59 A formal meeting is conducted for considering each notified RTA.60 During consideration, if it is found that the RTA under consideration is in violation of any of the parties’ obligation under the WTO, changes can be prescribed affecting both its implementation and operation.61 These prescribed changes have to be implemented by the party concerned and summary of these changes has to be notified to the Members.62 Along with it, a written report is also required to be submitted to the WTO by the party concerned stating the status of the realisation of the liberalisation commitments as stated in the RTA.63

56 WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 57 Paragraph 6 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 58 Annex to WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 59 Paragraph 7(b) and 9 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 60 Paragraph 11 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 61 Paragraph 14 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 62 Paragraph 14 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006. 63 Paragraph 15 of the WTO General Council Decision, “Transparency Mechanism for Regional Trade Agreement” WT/L/671 of 14 December 2006 as notified on 18 December 2006.

2.2 Regulations on Trade Regionalism

23

Despite detailing the procedure, the functioning of the CRTA has not been satisfactory. It has often been accused of inefficiency and indecisiveness.64 Since the CRTA is a political body which functions on the consensus basis, it constantly suffers from the impasses, and in a few cases only it has been able to complete its examination process. Such impasses are inter alia because of the divergent view and understanding of the Members on the substantive rules for the examination of RTAs.65 However, it is not just the inefficiency of the CRTA, but GATT Article XXIV itself is ambiguous and lacks decisiveness. As pointed out by Professor Kenneth W. Dam, The effort to attain precision and to force future arrangements into Article XXIV’s mould proved to be a failure, if not a fiasco. Ambiguity rather than precision reigned. The regional agreements that came before the GATT did not conform to the tests of Article XXIV, and in the face of the conflict, the GATT and not the regional groupings yielded.66

The indecisiveness of the CRTA can be seen from the fact that since its inception, it has not been able to reach a consensus on any of the RTA notified and examination. Despite the fact that in most cases factual presentation and analysis steps of the examination process were completed.67 Thus, CRTA has largely been a defunct institution which failed to achieve its basic objective of securing WTO compliant RTAs.

2.3 Theoretical Background to Trade Regionalism The theorisation of the regional integration has been one of the most elusive tasks for scholars of international relations and economists alike. The plurality and multidimensionality of regional integration around the world have to lead to a number of theories which examine the motivation, rationale and functioning of regional trading arrangements. Discussions on these theories are important not just for their description and explanation of regional integration but also for their prediction and prescription in a situation of crisis.68 These theories tend to scrutinise regional arrangement from various spectrums ranging from economic benefits to political and security concerns. In the context of trade regionalism, economists have mostly focused on market forces and factors of 64 Nsour

(2010). WTO Background Note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. Paragraph 16. 66 Dam (1970). As quoted in Bhala (2002). 67 See Status vis-à-vis the examination process of RTAs notified to the GATT/WTO under GATT Art. XXIV by CRTA in WTO Background Note by the Secretariat Negotiating Group on Rules, “Compendium of issues related to Regional Trade Agreements”, TN/RL/W/8/Rev.1 notified on 1 August 2002. Paragraphs 16–21. 68 Haas (1970). 65 See

24

2 Trade Regionalism Under GATT/WTO

production. However, any discussion on the trade regionalism is incomplete without taking into account the relevance of the political condition and institutional backing from which the regionalism is emanating. The impetus behind the trade regionalism can be numerous and varied. Such impetus may not just be economic. As pointed out by Bhagwati, “…it is hard to imagine that the arbitrary groupings of countries that seek FTAs and CUs are dependent on economic arguments as their key determinants. Often, politics seems to drive these choices of partners…”.69 Reasons for entering into regional arrangement can range from the quest for the economic dividend to the ‘peace dividend’ and also in many cases just a shortterm political dividend or a TRP stunt. The First Warwick Commission Report of 2007 enumerated ten major motivations for countries to enter into regional trade agreements70 : i. ii. iii.

iv. v.

vi.

vii.

viii. ix.

Protectionist Tool: To safeguard a larger market from the external competition by way of trade divergence and local grouping. Political Leverage Tool: Whereby smaller nations to increase their bargaining power against a giant economy, group together for collective actions. MTNs’ Substitution: As a substitute for Multilateral Trade Negotiations (MTNs) which are often unsuccessful or dead slow. Negotiations amongst a smaller group of similarly placed nations are more likely to result in a decision and succeed. WTO-plus Approach: To achieve greater integration and go even beyond the minimum mandate of GATT/WTO. Non-Trade Objectives: To achieve ‘non-trade objectives’ particularly to achieve the ‘peace dividend’ of trade integration. As the nations which are economically interdependent on each other are more likely to prevent escalation of any issue which may arise. TRP Stunt or CNN Effect71 : Under many occasions, political leaders in power enter into a regional arrangement more for short-term political gains as a part of a publicity stunt. The content of such an arrangement is mostly superficial and lacks any potential for meaningful cooperation. Lock-in domestic reform: Through regional trading agreements domestic reforms which could not be brought about by GATT/WTO can be locked and perpetuated. Laboratory Motive: As a tool for experimenting with different cross-border trading policies and initiatives. Insurance Motive: As a safeguard against insecurities arising out of future political or policy alterations towards foreign investors.

69 Bhagwati

(1992). Report of the first Warwick Commission, “The Multilateral Trade Regime: Which Way Forward?” The University of Warwick, UK, 2007. 71 See, Robinson (1999); Jakobsen (2000a, b). 70 The

2.3 Theoretical Background to Trade Regionalism

x.

25

Domino Effect72 : From the fear of being left behind and to avoid exclusion from the perceived benefits of regional arrangements which are in vogue across the globe.

Along with the motivations stated above, there could be numerous other reasons for which nations enter into the regional trading arrangement. Some of the most prominent economic and political approaches which explain regional integration are discussed below.

2.3.1 Static Welfare and Dynamic Path Analysis of Regionalism73 In a static analysis of regionalism, certain neoclassical economic approaches to trade regionalism are clubbed. First and foremost amongst them is the classic treatise called ‘The Customs Union Issue’ by Jacob Viner.74 They are termed as static analysis of trade regionalism because they are based on certain economic assumptions and ignore dynamic consideration like margin of preferences, non-economic factors, etc. The Customs Union Issues is the pioneering work on the economic explanation of regional integration which unlike functional or inter-governmental explanation does not concern with the political or any non-trade dimension of regional integration.75 It applied a neoclassical economic tool in terms of trade creation versus diversion issue.76 And distinguished regional trade arrangements in trade creating unions or the trade diverting unions. A regional arrangement is a trade creating if it facilitates the member nation to replace the higher-cost domestic supply by the lower-cost partner country supply. Similarly, a regional arrangement is a trade diverting if it tends to block the lower-cost non-member nation supply by higher-cost member nation supply.77 Simply put ‘trade creation’ meant a shift in demand for imports from an inefficient to an efficient source. On the other hand, ‘trade diversion’ implies a shift of import from an efficient source to an inefficient one.78 This theory employs the traditional concept of absolute advantage or comparative advantage theory of trade

72 See

Baldwin (2006); Baldwin and Thornton (2008). nomenclature and division of regionalism into two phases were given by Jagdish Bhagwati. See Bhagwati (1993); Bhagwati and Panagariya (1996), pp. 1–78, Bhagwati et al. (1998), Bhagwati (1968). 74 Viner (1950). This theory was further developed by James Meade and Richard Lipsey. See Meade (1955), Lipsey (1958). 75 See the detail discussion on ‘functionalism’, ‘neo-functionalism’ and ‘inter-governmentalism’ in Sect. 2.3.3 of this chapter. 76 Bhala (2008). 77 Viner (1950). 78 Bhala (Bhala 2008). 73 The

26

2 Trade Regionalism Under GATT/WTO

and exchange. The reflection of the same is also present in the language of GATT Article XXIV Paragraph 4 which says. [t]he purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.79

A ‘perfect custom union’, according to Jacob Viner, would be the one which fulfils the following conditions. First, it fully eliminates all tariffs amongst the member nations. Second, it creates a set of uniform tariff rates for non-members. And finally, it devises apportionment of customs revenue amongst member nations in accordance with an agreed formula.80 Since the attainment of a ‘perfect’ regional arrangement would be immensely difficult if not impossible, a more pragmatic approach can be adopted in which the overwhelming effect of the regional arrangement can be gauged. A more balanced enquiry has to be done to find out whether a particular regional arrangement stimulates more trade than it diverts? In other words, does the ‘trade creation’ effect of a regional arrangement overwhelms or is overwhelmed by the ‘trade diversion’ effect?81 A regional arrangement or a customs union can be made into both protectionist device or the facilitator of free and fair trade. And accordingly, it can be categorised as a ‘good thing’ or ‘bad thing’ while making welfare analysis of trade regionalism. Although there are many scholars, particularly the economists, who dispute this oversimplified proposition that every ‘trade creating union’ would be a ‘good thing’ and thus will lead to welfare consequence.82 In the area of static analysis of thetrade regionalism, the theory of Natural Trading partners or the geographical proximity theory is also included. The expression was coined by Wonnacott and Lutz83 which was further developed by Krugman,84 Murray Kemp and Henry Wan.85 Jacob Viner’s bifurcation of regional arrangement in good or bad that is in the form of trade creating or trade diverting unions opened a floodgate of deliberations on making regional arrangements welfare-oriented.86 Welfare-oriented means the one which promotes free trade and is a stepping stone towards the wider idea of achieving a trading white globe. In the words of Kemp and Wan, “an incentive to form and enlarge customs unions persists until the world is one 79 Paragraph

4 of Article XXIV GATT, 1947. (1950). 81 Bhala (2008). 82 See Lipsey (1957). 83 Wonnacott and Lutz (1989). 84 Paul Krugman, The Move to Free Trade Zones. In Symposium Sponsored by the Federal Reserve Bank of Kansas City, Policy Implications of Trade and Currency Zone, 1991 as quoted in Bhagwati and Panagariya (1996), pp. 1–78. 85 Kemp and Wan (1976). 95–97. 86 See Lipsey (1957). See also Ohyama (1972), Vanek (1965); Panagariya and Krishna (2002), Kühnhardt (2010). 80 Viner

2.3 Theoretical Background to Trade Regionalism

27

big customs union that is until world free trade prevails.”87 And it is well established that free and fair trade promotes welfare in society by offering the best quality goods and services at competitive prices. It also curtails monopolist tendencies and brings about competition in the market by removing protectionism.88 Theory of natural trading partners and advantage of geographical proximity are the part of a wider debate concerning ‘trade creating unions’. According to this theory, nations which are geographically proximate and have been conventionally trading with one another are the natural trading partners. A regional arrangement amongst such nations would largely be ‘trade creating’ unions. In reference to many of the regional integration movements, the arguments based on geographical proximity were particularly made including in case of regional integration like the North American Free Trade Agreement (NAFTA), the Association of South East Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), etc.89 However, geographical proximity is not the only requirement which can lead to the success of a regional trading arrangement. Mutual economic complementarity, political harmony, etc. play a significant role in determining the depth of the regional integration and its success. For example, in the case of SAARC, all the member nations are geographically proximate to each other nonetheless the level of regional integration is abysmal because of the absence of political harmony and mutual trust. As an improvement upon the static analysis of trade regionalism, the system of dynamic path analysis was developed. Dynamic path analysis of trade is a multi-dimension analysis of trade regionalism which as explained by Bhagwati and Panagariya as a ‘political-economy-theoretic question’.90 Unlike static welfare analysis that focuses on the welfare aspect of regional arrangements in terms of trade creating or trade diverting unions, dynamic path analysis acknowledges the role of numerous factors which can lead to regional integration and can determine its success or the failure. Dynamic time path analysis is mostly attributed to the revival phase of regionalism termed as the second wave of regionalism by Bhagwati.91 The first wave of regionalism92 was during the post-world wars era which continued until the late 1960s and early 1970s. It was marked with somewhat ‘utopian ideals’ like ‘peace dividend’, ‘trade creation’ and ‘welfare orientation’. Led by the European Community (EC) regional arrangements like the North Atlantic Free Trade Agreement (NAFTA), the Pacific Free Trade Agreement (PAFTA), the Latin American Free Trade Agreement (LAFTA) amongst other cropped up during the first wave of regionalism. Regional organisations during

87 Kemp

and Wan (1976). Irwin (1996), Irwin (2015). 89 See Wonnacott and Lutz (1989). 90 Bhagwati and Panagariya (1996), p. 2. 91 Bhagwati (1992). 92 In context of contemporary world economics and international relations post-World War II. 88 See

28

2 Trade Regionalism Under GATT/WTO

the first wave were largely unsuccessful except in case of the European Community. The prime reason for such failure was the sidelining of trade liberalisation and overemphasis on political considerations. The second wave of regionalism starting from the 1980s until recent times is a much more nuanced manifestation of regional integration. This phase has witnessed the revival and strengthening of many regional organisations. There are diverse approaches which have been adopted in the second wave of regionalism. However, the majority of the economists and policymakers agrees to the approach which considers regionalism as the part of the wider process of multilateralism, as a ‘stepping stone’ rather than ‘stumbling block’ to the multilateral liberation.93

2.3.2 Functionalism and Regional Integration Functionalism is the political science approach to international trade which sees cross-border trade as the vehicle to promote peace and prosperity amongst the nations. It moves on the basic premise that we live in a world of interdependence. The way God created the earth and the way our world is divided and subdivided in terms of natural resources and geographical endowments, it is indispensable that we integrate and cooperate rather than conflict, contradict and fight. As Plutarch, a Greek philosopher has observed around year 100 A.D about the benefits of cross-border and sea trade, “This element, therefore, when our life was savage and unsociable, linked it together and made it complete, redressing defects by mutual assistance and exchange and so bringing about cooperation and friendship…”.94 The functionalist approach moves on to the proposition that political divisions are the main source of conflict amongst the nations. For preventing these divisions to transmogrify into military or armed conflicts, nations must seek ‘areas of mutuality’ and cooperation to create a ‘working web of international functional institution’ in which the interest of all the nations are integrated and interwoven.95 It aims at conflict prevention more than conflict resolution. Through a complex web of inter-linkages of economy and society, functionalists aim at preventing the escalation of any dispute which may arise. Functionalists consider that nations can maximise their interest owing to the assistance of international organisations based on functional rather than territorial principles.96 The main idea of functionalism is the discord between the extra-territorial scale of human problems and domestic political authority, which generate demands for jurisdictional reforms. Such jurisdictional reforms come in the form of creating supranational authority like international or regional organisations which have 93 See

Bhagwati (1992). quoted in Irwin (1996). 95 Mattli (1999), p. 22. 96 Bolanos (2016). 94 As

2.3 Theoretical Background to Trade Regionalism

29

several welfare benefits particularly securing domestic reforms and bringing together conflicting interests of a different nationality.97 These international organisations may use economic integration as an instrument and political integration as the target or vice versa, that is where political integration would be the groundwork for larger economic integration. There is considerable debate amongst political scientists in identifying whether political integration is the target and the economic integration is the instrument or economic integration a target which works on the foundation laid by political integration. For instance, Vilfredo Pareto98 while addressing the Peace Conference, 1889 in Rome observed that “the customs unions and other international economic arrangement are means to better political relations and eventual pacification.”99 Nonetheless, the argument seems to be futile because the penultimate objective of functionalism remains the same, that is achieving the ‘working peace’ no matter what comes earlier and what latter. The leading proponent of this political science approach to cross-border trade and economics is David Mitrany who coined the expression ‘peace dividend’ as an object of a trading arrangement alongside the economic dividend. David Mitrany provided a ‘the functional alternative’ to signing pacts or constitutions which are lusty been disregarded, for achieving peace and prosperity around the world especially in Europe which has witnessed the two world wars.100 This functional alternative lies not just in the declaration of rights but in engaging nations in low-key economic and social relations which together binds them into common interest leading not to ‘protected peace’ but to a ‘working peace’. Such ‘working peace’ would be of nature which is self-sustainable and perpetual. The novelty of the functional approach lies in the fact that it is not solely dependent upon the authority or the institution or a coercive common power for its success. As David Mitrany observes, The elements of a functionalist system could begin to work without the element of the political authority, but a political authority without active social functions would remain an empty vessel. Society will develop by our living it not by policing it. Nor would any political agreement survive long under economic competition, but economic unification would build up the foundation for political agreement.101

The functional approach aims at creating a complex web of social and economic inter-linkages amongst the community of nations where every member nation finds part of its interest, social and economic, in the territorial limits of the other nation. This cross-border diffusion of interest automatically works as a deterrent for the member nations to engage in any hostility in cases where any dispute arises. Under 97 See

Obydenkova (2011). Federico Damaso Pareto, 15 July 1848–19 August 1923, was an Italian economist, political scientist, and philosopher. 99 As quoted in Machlup (1977). 100 Mitrany (1966). 101 Mitrany (1966). 98 Vilfredo

30

2 Trade Regionalism Under GATT/WTO

the functionalist approach ‘coactivity rather than national coexistence defines the idea of peace’.102 Thus, the functional approach transcends the territorial explanation of interest and presents a liberal tradition of international relations, which aims at maximisation of human welfare rather than preserving sovereignty and ‘harnessing federalist goals’. As David Mitrany reiterated that the functionalist approach, explained through the European Union, did not intent on recreating the follies of nationalism on a larger scale. Functionalist concerns with peace and human welfare, rather than regionalism or federalism.103

2.3.3 Neo-functionalism Neo-functionalist refined the domain of functional explanation of regionalism by giving it a more pragmatic and realist approach. Functional approach suffered from utopian overtones and seemed idealist at certain propositions. Neo-functionalism primarily came as an improvement against the ‘lofty idealism’ of the functional approach. This approach is described as the synthesis of ‘functional approach’ to regional integration and pragmatic approach to management used by Jean Monnet, the first president of the European Coal and Steel Community.104 The main proponents of the neo-functionalism approach to regional integration have been Ernst B. Haas in ‘The Uniting of the Europe’ (1958)105 and ‘Beyond the Nation-State’ (1964)106 along with Leon N. Lindberg in ‘The Political Dynamics of European Economic Integration’ (1963).107 Neo-functionalism reintroduced the utilitarian concept of interest politics and changed the narrative of regional integration from the ideals of selflessness to endeavour for the functional and economic profitability. As Ernst B. Hass puts it, “the good Europeans are not the main creators of the community, the nationally constituted groups dominate the process of community formation with specific interests and aims, willing and able to adjust their aspirations by turning to supranational means when this course appears profitable…”.108 There are three chief features of the neo-functional interpretation of regional integration which are the logic of spillover effect, shifting of loyalties and the role of the institution. Like inter-governmentalism, neo-functionalist also focuses on the state or the government as the chief actor in the area of regional integration and its negotiations. Although the opinions of government are often based on the various 102 Mattli

(1999), p. 21. Mitrany (1965). 104 Schmitter (2005). 105 Haas (2004). 106 Haas (1964). 107 Lindberg (1963). 108 Haas (2004), p. xxxiv. 103 See

2.3 Theoretical Background to Trade Regionalism

31

interest group within the domestic sphere which shapes the social, economic and political mindset. The logic of the spillover effect is the central feature of neo-functionalism. Where integration or cooperation is an achievement even minimally or in one sector, it snowballs the cooperation in other sectors too due to the spillover effect of the first integration. The spillover effect is consequent upon the fact that the contemporary economy is highly interdependent and functions through a complex web of interlinkages. Due to these inter-linkages, integration within one sector begets its impetus and spread to other sectors.109 There are three aspects of the spillover effect. The first being political spillover, which arises out of the perception that national interests are better served by seeking supranational rather than national solutions. As Lindberg explaining neo-functional decision-making puts it, Nations forgo the desire and ability to conduct foreign and key domestic policies independently of each other, seeking instead to make joint decisions or to delegate the decision-making process to new central organs.110

The second category of spillover is the ‘functional spillover’ which is also categorised as the economic spillover. The functional spillover aims at transnational interdependence and is based on the prediction that due to highly inter-linked industrial setup, cooperation in one sector will force cooperation in other areas; gradually leading to the integration of whole economies of the cooperating nations. The third and the last category is the cultivated spillover where the role of the central institution which is spearheading the work of the regional integration comes into the picture. The effectiveness of such institution plays a prime role in upgrading the diverse interests of the member nations to a common regional interest. And thus, creating the phenomenon called shifting of loyalties and decision-making from national authorities to the supranational institution. As per the neo-functional interpretation, these central institutions occupy a midwifery role in the decision-making process of regional integration. Effectiveness and potency of them determine the depth of the regional integration and its success. Therefore, in the case where the central institution of the regional integration is nominal or just a ‘paper tiger’ like in the case of SAARC the integration would be minimal and ineffective.

109 Mikkelsen 110 Lindberg

(1991). (1963). 6.

32

2 Trade Regionalism Under GATT/WTO

2.3.4 Inter-Governmentalism and Liberal Inter-Governmentalism Inter-governmentalism is an alternative explanation to trade regionalism, which considers the states or governments as the major players in the regional integration. Non-state and societal actors are purely external and they exert their influence depending upon the internal political setup of the negotiating state. The negotiations or the interstate bargaining amongst the governments determine the structure of any economic integration.111 It is also referred to as the realist approach to regionalism which focuses on states as the rational actors pursuing their interest and survival.112 For them, the prospect of political and economic benefits is the driving force to enter into a regional arrangement, and it is the sole factor which determines its success or failure. Unlike the functionalist approach which tends to be more utopian, intergovernmentalism considers that nations are motivated by the ‘statistical projection of benefits and drawbacks of a union’.113 Each member state tends to maximise its benefits and gains depending upon its influence on the collective decision-making process. Further, as Haas and Schmitter put it, this projection of benefits may not be purely welfare or economic and may proceed on mere political expediency or some perceived deferred benefits. This could be explained by the phenomenon of so-called ‘nested games’, where an actor seems to be making a suboptimal choice from the perspective of the observers who focus on a given situation or ‘game’. But the actor is involved in the whole network of games or the ‘nested games’. So a choice which seems to be suboptimal from the perspective of one game is, in fact, an optimal choice when the whole network of games is considered.114 Although inter-governmentalism explains significantly about the process of integration, it is infested with various failings. Firstly, inter-governmentalism as a theory suffers from oversimplification. Regional integration is a complex and pluralistic process which cannot be confined merely to the whim and caprices of the head of states or governments. It cannot be considered as the sole explanation of regional integration but only as a significant part of the process of regional integration. By spotlighting on the intergovernmental dealings, this theory sidelines the numerous other causes of regional integration and takes a “snapshot view of integration that is distorted in crucial respects.”115

111 See

Garrett (1992); Moravcsik (1993). 2011). 113 Haas and Schmitter (1964). 114 See Tsebelis (1990), Thiel (2010). 115 Pierson (1995). As quoted in Mattli (1999), p. 29. 112 Obydenkova

2.3 Theoretical Background to Trade Regionalism

33

Secondly, overemphasis on the government’s role as the sole and the ultimate authority in deciding and shaping the regional integration seems overloaded and can have negative repercussions. As nations perusing their ‘selfish gene’ with the main priority of ‘survival and accumulation of power’116 can lead to some very unpleasant and aggressive situations. ‘Might is right’, ‘selfish gene’ and ‘survival of the fitness’ in international relations is not a desirable perspective of human relationship. Many a time preference of a powerful nation is shown as the preference of all the members wherein the weaker nations are bought on side payments offered by the powerful one.117 Considering various fallacies of inter-governmentalism, there has been a certain modification in the approach by way of a new theory called ‘liberal intergovernmentalism’ by Andrew Moravcsik.118 Liberal inter-governmentalism expanded the spectrum of inter-governmental approach and rejected its monocausal explanation. It agreed that there could be multiple factors which can define the trajectory of regional integration with inter-governmentalism as one of the significant factors. It gives a three-pronged explanation of the regional integration assorted in a ‘multistage model’ which includes national preferences, interstate bargaining and the role of the institution.119 In the first stage, the national preferences of a particular member nation decide its entry into the regional integration and the objective which it sought to achieve by becoming the member. These national preferences are in turn shaped by the domestic politics, ideas and aspiration of state concern in the form of foreign policy goals. Second stage deals with the substantive bargains amongst the member nations of the regional integration. These bargains are predominantly interstate bargains which are the reflection of foreign policy goals (national preferences) of the member nations. The outcome of such interstate bargains depends on the geographical, economic and military might of the member concerned. The third stage is the role of the supranational institution which is spearheading the functioning of regional integration. The institution occupies a very crucial position in the substantive bargains as it shapes the result of the bargain. A potent and effective institution shall be the one which can harmonise the diverse aspirations of the negotiating members with the visions and the wider objective of the institution. Although liberal inter-governmentalism has considerably improved the conceptual and practical underpinnings of the original inter-governmental approach, nonetheless it is not immune from criticism. The most widely held criticism against it is why it has been called liberal inter-governmentalism when it is a neo-functional interpretation of the regional integration.120 The premise of liberal inter-governmentalism is identical with neo-functionalism which also believes that 116 Obydenkova

(2011). (1994). On side payments: Lange (1993). 118 See Moravcsik (1993). 119 See Moravcsik (1998). 120 See Caporaso (2000). Also see Mattli (1999). 117 Pierson

34

2 Trade Regionalism Under GATT/WTO

regional integration setup is not just defined by the governments of the participating members but also by numerous non-state actors.

2.3.5 International Political Economy and Trade Regionalism In the globalising world which is marked by economic interdependence, there is growing favourable international political economy opinion towards more open markets.121 The level of economic interdependence is reflected in each stage of commerce in the form of production sharing, resource sharing and market sharing, which is referred by R. Baldwin and Patrick Low as ‘unbundling, off-shoring and fragmentation’ of commerce.122 Till now the task which had to be performed in the adjacent bays in a single factory could now be done in separate factories in different nations.123 This situation has been necessitated by the fact that we live in a world of specialisation which demands greater acumen, precision and expertise in any production line, which will not only bring economies of scale but also lead to quality output. Under this changed setup of the world economy, particularly during post-world wars era, political economy forces strive towards an open market setup and calls for creation and perpetuation of liberal trade regime applicable across the globe. 124 The forum to achieve global open markets is GATT/WTO which tends to achieve ‘the trading white globe’ using the Multilateral Trade Negotiations (MTNs). Since its very inception these MTNs, however, have been slow and show a lack of substantial immediate success. It has led to great scepticism now than it did in the 1960s-70s about what multilateral trade negotiations can deliver. As the substitute to MTNs, nations around the world chose regionalism as a part of the plan B approach ensuing on the perceived failure and dawdling pace of multilateral integration. In contrast to the MTNs in regional trade negotiations arriving on a decision is relatively expedient consequent on the fact that negotiating members are small in number and in most cases they are similarly placed. Additionally, international political economy literature125 has identified many other causes which make governments pursue regional arrangements over and above the multilateral trade negotiations driven by the WTO.126

121 International Political Economy (IPE) has been defined by Robert Gilpin as, “the reciprocal and

dynamic interaction in international relations of the pursuit of wealth and the pursuit of power.” Gilpin (1975). Also see, Gilpin (1981). 122 Baldwin and Low (2008b). 123 Baldwin and Carpenter (2011). 124 Goldstein (1986). 125 White et al. (1997), Krueger (1996), Draper et al. (2009). 126 Krishna (1998).

2.3 Theoretical Background to Trade Regionalism

35

M. Schulz127 and J. Ravenhill128 have identified certain major political economy causes which have led to the rise in regionalism post-Cold War era. These are as follows: (a) (b) (c)

(d) (e) (f) (g)

The rise of the multipolar world order replacing unipolar or bipolarity of the world power and politics. Restructuring of international relations due to the prevalence of globalisation, interdependence and trans-nationalisation. Predominance and favourable opinion towards neo-liberal economic development and political system and its acceptance around the world including amongst the communist countries. The exponential rise in non-tariff barriers to trade and recurrent fear of instability of the MTN rounds. New security needs such as environmental damage, illegal migration, international terrorism, etc. Lock-in domestic reforms Increase negotiating leverage of smaller nations vis-a-vis giant economies.

These political-economic causes coupled with other factors has led to the growth of so-called ‘new regionalism’ which unlike the ‘old regionalism’ is not just based on security and peace concern as has been the case with almost all the examples of ‘old regionalism’ till the 1970s including the European Union.129 R. E. Baldwin termed this phenomenon as a ‘juggernaut effect’130 where political, economic forces catalyse further trade openings through bilateral or regional arrangements amongst certain nations.131 This further lead to ‘domino effect’ whereby nonmembers to avoid being left behind choose to either join an existing regional arrangement or formulate a new one. The cumulative effect of ‘juggernaut’ and ‘dominos’ has been the creation of the ‘spaghetti bowl’ of bilateral or regional trading agreements marked with a manifold increase in the regional trading arrangement around the world. The spaghetti bowl is the phenomenon of multiplication of regional trade agreements whereby a member of one regional arrangement may at the same time be a member of numerous other trading arrangements creating a complex web of agreements. For instance, India is the member of SAARC but at the same time it is also part of numerous other trading arrangements like ASEAN regional forum, the East Asia summit, the Asia Pacific Trade Agreement, the India-Thailand Free Trade Agreement, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free-Trade Area, etc.

127 Schulz

et al. (2001). As mentioned in Damro (2010), pp. 23–42. (2005). As quoted in in Damro (2010), p. 29. 129 Damro (2010). 130 See Baldwin (2006), Baldwin and Thornton (2008), Baldwin (1989). 131 Krueger (1996). 128 Ravenhill

36

2 Trade Regionalism Under GATT/WTO

Thus, in the contemporary global economy, we have reached a stage where regionalism is seen as the viable substitute, a Plan B to multilateralism. However, these regional arrangements are to be taken in the true spirit of being a complementarity to the multilateralism rather than its substitute, a ‘stepping stone’ rather than ‘stumbling block’ to multilateralism.

2.4 Chapter Conclusion Trade regionalism inter alia in the form of free-trade areas and customs unions is an integral part of the GATT/WTO design for barrierless trade. At many quarters, regionalism provision is treated as an exception to the wider WTO mandate of multilateralism. However, if the true intentions of trade regionalism provision are analysed, it would be crystal clear that it is a stepping stone rather than a stumbling block to the idea of multilateralism. Historically, regionalism has been a natural phenomenon where nation-states have come together by sharing elements of sovereignty for varying reasons like external security, trade, socio-cultural reasons, etc. The GATT/WTO has tried to streamline this phenomenon, through various internal and external requirements regulating the functioning of the regional organisation, for achieving the ideals of white globe theory. Although at the normative level, GATT/WTO regulation of trade regionalism is a big step towards achieving the objective of multilateral integration, it still suffers from various lacunas and pitfalls. An overall perusal of the WTO regulation on RTAs showcases that it is structurally week and ill-suited to the ambitious task of regulating regional arrangement. On many occasions, these regulations allow themselves to be eclipsed in the face of the sovereign treaty-making power of the member nations. Historically, regionalism has been a natural phenomenon where nation-states have come together by sharing elements of sovereignty for varying reasons like external security, trade, socio-cultural reasons, etc. GATT/WTO has tried to streamline this phenomenon, through various internal and external requirements regarding the functioning of the regional organisation, for achieving the ideals of white globe theory. There are different theories which explain the phenomenon of regional integration around the world from different angles and perspectives. They seem to be contradictory to each other. However, on deeper perusal of all the theories, it becomes apparent that most of these theories complement rather than contradict or compete with each other. They tend to analyse the same phenomenon focusing on different aspects of regionalism its historical processes and motivation. A deeper understanding of these theories will not only assist in broadening the thematic appreciation of a concern regional organisation but also provides valuable insights to the policymakers to formulate the WTO complaint regional integration organisations which can achieve multilateral integration of the global economy.

References

37

References Balassa, B. (1962). Towards the theory of economic integration. London: George Allen & Unwin Publications. Balassa, B. (1987). Economic integration. In J. Eatwel, et al. (Eds.), The new Palgrave dictionary of economics (pp. 43–47). London: Macmillan publication. Baldwin, R. E. (1989). The political economy of trade policy. The Journal of Economic Perspectives, 3(4). 119–135. Baldwin, R. E. (2006). Multilateralising regionalism: Spaghetti bowls as building blocks on the path to global free trade. The World Economy, 29(11), 1451–1518. Baldwin, R., & Low, P. (Eds.). (2008a). Multilateralizing regionalism. New York: Cambridge University Press. Baldwin, R., & Low, P. (Eds.). (2008b). Multilateralizing regionalism (p. 2). Cambridge University Press: Cambridge. Baldwin, R., & Carpenter, T. (2011). Regionalism: Moving from fragmentation towards coherence. In T. Cottier & P. Delimatsis (Eds.), The prospects of international trade regulation: From fragmentation to coherence (pp. 136–164). New York: Cambridge University Press. Baldwin, R. E., & Thornto, P. (2008). Multilateralising regionalism: Ideas for a WTO action plan on regionalism. London: Centre for Economic Policy Research. Bhagwati, J. (1968). Trade liberalization among LDCs, trade theory and GATT rules. In J. N. Wolf (Ed.), Value, capital, and growth. Edinburgh: Edinburgh University Press. Bhagwati, J. (1992). Regionalism versus multilateralism. The World Economy, 15(5), 21–51, 535– 556, 537. Bhagwati, J. (1993). Regionalism and multilateralism: An overview. In J. de Melo & A. Panagariya (Eds.),New dimensions in regional integration (pp. 22–51). New York: Cambridge University Press. Bhagwati, J. (1995). U.S. Trade Policy: The Infatuation with Free Trade Agreements. Columbia: Columbia University Discussion Paper Series No. 726. Bhagwati, J., & Panagariya, A. (Eds.). (1996). Preferential trading areas and multilateralism: Strangers, friends or foes? In The economics of preferential trade agreements. Washington D.C: AEI Press. Bhagwati, J., Greenaway, D., & Panagariya, A. (1998). Trading preferentially: Theory and policy. The Economic Journal, 108(449), 1128–1148. Bhala, R. (2002). The forgotten mercy: GATT Article XXIV11 and trade on the subcontinent. New Zealand Law Review, 318. Bhala, R. (2008). International trade laws: Interdisciplinary theory and practice, 3rd edn (p. 652). LexisNexis Publication. Bolanos, A. B. (2016). A step further in the theory of regional integration: A look at the UNASUR’S integration strategy. Working Paper GATE. Retrieved December 25, 2016, from https://halshs. archives-ouvertes.fr/halshs-01315692. Caporaso, J. (2000). Regional integration theory: Understanding our past and anticipating our future. In W. Sandholtz & A. S. Sweet (Eds.), Supranational governance: The institutionalization of the European Union. New York: Oxford University Publication. Carpenter, T. (2008). A historical perspective of trade regionalism. In R. Baldwin & P. Low (Eds.), Multilateralizing regionalism (pp. 13–27). U.K: Cambridge University Press. Cottier, T., & Foltea, M. (2010). Constitutional functions of the WTO and Regional Trade Agreements. In L. Bartels & F. Ortino (Eds.), Regional Trade Agreements and the WTO legal system (pp. 43–76). New York: Oxford University Press. Dam, K. W. (1970). The GATT: Law and International Economic Organization. Chicago: The University of Chicago Press. Damro, C. (2010). The political economy of regional trade agreements. In L. Bartels & F. Ortino (Eds.),Regional trade agreements and the WTO legal system (pp. 23–42, 26). New York: Oxford University Press.

38

2 Trade Regionalism Under GATT/WTO

Draper, P., Alves, P., & Sally, R. (Eds.). (2009). The political economy of trade reform in emerging markets crisis or opportunity? UK: Edward Elgar Publishing Limited. Feenstra, R. C. (2016). Advanced international trade: Theory and evidence. New Jersey: Princeton University Press. Garrett, G. (1992). International cooperation and institutional choice: The European Community’s internal market. International Organization, 46(2), 533–558. Gilpin, R. (1975). U.S. power and the multinational corporation (p. 43). New York: Basic Books Publications. Gilpin, R. (1981). War and change in world politics. Cambridge: Cambridge University Press. Glania, G., & Matthes, J. (2005). Multilateralism or regionalism? Trade policy options for the European Union. Brussels: Centre For European Policy Studies Publications. Goldstein, J. (1986). The political economy of trade: Institutions of protection. The American Political Science Review., 80(1), 161–184. Haas, E. B. (1964). Beyond the Nation-state: Functionalism and International Organization. UK: Stanford University Press. Haas, E. B. (1970). The study of regional integration: Reflections on the joy and anguish of pretheorizing. International Organization, 24(4). Regional integration: Theory and research (pp. 607–646). Wisconsin: University of Wisconsin Press. Haas, E. B. (2004). The uniting of Europe: political, social, and economic forces, 1950–1957. University of Notre Dame Press (original publication 1958). Haas, E. B., & Schmitter, P. C. (1964). Economics and differential patterns of political integration: Projection about Unity in Latin America. International Organisation, 18(4), 705–737, 708 Irwin, D. A. (1996). Against the tide: An intellectual history of free trade. Princeton: Princeton University Press. Irwin, D. A. (2015). Free trade under fire. Princeton: Princeton University Press. Jakobsen, P. (2000a). The policy-media interaction model: Measuring media power during humanitarian crisis. Journal of Peace Research, 37(5), 613–633. Jakobsen, P. V. (2000b). Focus on the CNN effect misses the point: The real media impact on conflict management is invisible and indirect. Journal of Peace Research, 37(2), 131–143. Kemp, M. C., & Wan, H. Y. (1976). An elementary proposition concerning the formation of Customs Unions. Journal of International Economics, 95–97. Krishna, P. (1998). Regionalism and multilateralism: A political economy approach. The Quarterly Journal of Economics, 113(1), 227–251. Krueger, A. O. (Ed.). (1996). The political economy of trade protection. Chicago: The University of Chicago Press. Kühnhardt, L. (2010). Region-building: The global proliferation of regional integration (Vol. 01). New York: Berghahn Books Publications. Lange, P. (1993). The Maastricht social protocol: Why did they do it? Politics and Society, 21(1), 5–36. Lindberg, L. N. (1963). The political dynamics of European economic integration. Stanford: Stanford University Press. Lipsey, R. G. (1957). The theory of customs unions: Trade diversion and welfare. Economica, 24(93), 40–46. New Series. Lipsey, R. (1958). The theory of customs unions: A general equilibrium analysis. LSE Research Monographs 7, London: London School of Economics Publication. Low, L. (2000). Political Economy of Regional Trading Arrangements in the Context of the Multilateral Trading System in Asia. Retrieved December 06, 2016, from https://ibrarian.net/navon/paper/ Regional_Trading_Arrangements_in_the_Context_of_t.pdf?paperid=374988. (with alteration). Machlup, F. (1977). A history of thought on economic integration (p. 41). London: The Macmillan Press Ltd. Machlup, F. (1979). A history of thought on economic integration (pp. 105–137). London: The Macmillan Press Ltd.

References

39

Mattli, W. (1999). The logic of regional integration: Europe and beyond. Cambridge: Cambridge University Press. Meade, J. (1955). The theory of customs unions. Amsterdam: North Holland. Mikkelsen, J. P. (1991). Neo-functionalism: Obstinate or obsolete? A reappraisal in the light of the new dynamism of the EC. Millennium: Journal of International Studies, 20(1), 1–22. Mitrany, D. (1965). The prospect of integration: Federal or functional. Journal of Common Market Studies, 4(2), 123–134. Mitrany, D. (1966). A working peace system. Michigan: Quadrangle Books as reprinted in B. F. Nelsen & A. C G Stubb (Eds.). (1994). The European Union: Readings on the theory and practice of European integration (pp. 77–97). UK: Macmillan Education. Moravcsik, A. (1993). Preferences and power in the European Community: A liberal intergovernmentalist approach. Journal of Common Market Studies, 31(4), 473–524. Moravcsik, A. (1998). The choice for Europe, social purpose and state power from Messina to Maastricht. NJ: Cornell University Press. Nsour, M. F. A. (2010). Rethinking the world trade order: Towards a better legal understanding of the role of regionalism in the multilateral trade regime. Leiden: Sidestone Press. Obydenkova, A. (2011). Comparative regionalism: Eurasian cooperation and European integration. The case for neofunctionalism?. Journal of Eurasian Studies, 2, 87–102, 90. Ohyama, M. (1972). Trade and welfare in general equilibrium. Keio Economic Studies, 9, 37–73. Panagariya, A., & Krishna, P. (2002). On welfare-enhancing free trade areas. Stanford: Centre for Research on Economic Development and Policy Reform. Pierson, P. (1994). The path to European integration: A historical institutionalist perspective. Program for the Study of Germany and Europe Working Paper No. 5.2 (p. 5). Harvard University and Russell Sage Foundation. Pierson, F. (1995). The path of European integration: A historical institutionalist analysis. Comparative Political Studies. Ravenhill, J. (2005). Global political economy. U.K: Oxford University Press. Robinson, P. (1999). The CNN effect: Can the news media drive foreign policy? Review of International Studies, 25(2), 301–309. Cambridge University Press. Schmitter, P. C. (2005). Ernst B. Haas and the legacy of neofunctionalism. Journal of European Public Policy, 12(2), 255–272. Schulz, M., Soderbaum, F., & Ojendal, J. (Eds.). (2001). Regionalisation in a globalizing world: A comparative perspective on forms, actors and processes. London: Zed Books Publication. Thiel, R. (2010). Nested games of external democracy promotion: The United States and the Polish Liberalization 1980–1989. Springer. Tsebelis, G. (1990). Nested games: Rational choice in comparative politics. University of California Press. Vanek, J. (1965). General equilibrium of international discrimination: The case of customs unions. Cambridge, MA: Harvard University Press. Viner, J. (1950). The custom union issue (p. 43). New York: Carnegie Endowment for International Peace. White, B., Little, R., & Smith, M. (Eds.). (1997). Issues in world politics. New York: Macmillan Education. Wonnacott, P., & Lutz, M. (1989). Is there a case for free trade areas?. In S. Jeffrey (Ed.),Free trade areas and U.S. trade policy (pp. 59–84). Washington, D.C.: Institute for International Economics Publication. WTO Secretariat (2020). Regional Trade Agreements Database. WTO. Reteieved June 18, 2020, from https://rtais.wto.org/UI/charts.aspx.

Chapter 3

Barriers to Trade and Trade Facilitation in Reference to SAARC Region

3.1 Introduction One of the prominent ways through which trading communities across the globe have increased their cross-border trade is by eliminating various barriers to the trade which are customarily encountered in the form of tariff barriers and contemporarily in the form of Non-Tariff Barriers (NTBs). Trade facilitation measures aim at removing or minimising barriers to trade and to bring transparency, procedural minimalism and regulatory uniformity in bilateral, regional and multilateral trade transactions amongst the trading partners. It also balances the legitimate regulatory concerns of different nations by improving the regulatory interface between the state authorities and overseas traders. For economists and trade law scholars,1 the existence of trade barriers is the ‘hardware issue’ of international trade which until resolved will make the software up-gradation in international trade regime in the form of policy instrument ineffective. The importance of trade facilitation measures can be understood from the fact that trade cost in developing countries is as big as 219% ad valorem tariff and in developed countries, it is equivalent to 134% ad valorem tariff.2 The removal of trade barriers is based on the idea that free, fair and barrier-less trade is welfare creating. As it allows healthy competition in the market and thus makes available best quality products and services to the consumers at reasonable prices. In open competition and free trade scenario, there will be winners and losers but the winner will win more than the loser will lose, and in this process, everyone on an average will be better off than before the free trade.3 Every kind of trading arrangement whether bilateral, regional or multilateral and any institutions created thereof aim at facilitating trade amongst the constituting

1 See

Neufeld (2014). Trade Report 2015, World Trade Organisation. 3 Hanson (2010). 2 World

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_3

41

42

3 Barriers to Trade and Trade Facilitation …

member nations to it by way of mutual accommodation through negotiations rather than unilateral action through legislation.4 GATT/WTO came to the origin for facilitating the trade amongst the community of nations by removing barriers to trade. The preamble to GATT, 1947 in this regard reads Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international commerce…5

The WTO Trade Facilitation Agreement (TFA) of 2014 is the latest effort regarding the same.6 Removal of trade barriers and trade facilitation measures have been the area of concern for trading community bilaterally, regionally and multilaterally for a very long time. There are some provisions of GATT, addressing directly or indirectly, tariff and non-tariff barriers to trade. Along with these GATT provisions, numerous specialised multilateral agreements are addressing various barriers to trade particularly the non-tariff barriers. However, the earliest dedicated step in trade facilitation as an exclusive area under the WTO began with the Singapore Ministerial Conference of 1996. The ministerial declaration in para no. 21 mandates the Council for Trade in Goods to “undertake exploratory and analytical work, drawing on the work of other relevant international organisations, on the simplification of trade procedures.”7 After series of debacles and logjams in the 1999 Seattle Ministerial Conference and initial stages of Doha Ministerial Conference, the Trade Facilitation Agreement (TFA) finally came to the existence in July 2014 and became the first multilateral agreement since the formation of the WTO.8 With the completion of domestic rectification process by the two-thirds of the WTO members, the TFA entered into force on 22 February 2017.9 Along with solving political and security bottlenecks, one of the most prominent means of bringing effective integration in SAARC is through improvement in trade facilitation measures across the region and elimination of NTBs. In the case of SAARC, Non-Tariff Barriers (NTBs) are the major constraints to trade liberalisation and fuller integration. The Report of the SAARC Group of Eminent Persons (GEP 1998) recommended the removal of all non-tariff barriers within seven years.10 However, its incorporation under SAFTA has been in the form of non-binding commitment through the 4 See

Stewart (1969). 2 of General Agreement on Tariffs and Trade, 1947. 6 World Trade Organisation decision WT/L/931 of 15 July 2014 entered into force from 22 February 2017. 7 World Trade Organization, Singapore Ministerial Declaration, WT/Min (96)/DEC, 18 December 1996; paragraph 21. 8 For details refer to World Trade Organization, Economic Research and Statistics Division (2014). 9 World Trade Organisation. Trade Facilitation. https://www.wto.org/english/tratop_e/tradfa_e/tra dfa_e.htm Accessed on 12 May 2017. 10 The Report of the SAARC Group of Eminent Persons, South Asia Economic Journal September 2001. 5 Paragraph

3.1 Introduction

43

method of reporting and recommendation rather than enforcement in terms of binding authority. Accordingly, SAFTA stipulates that the member countries shall inform SAARC Secretariat about any non-tariff and para-tariff measures which would then be examined by the SAARC Committee of Experts and necessary recommendation shall be made thereto to the concerned country.11 This chapter discusses some of the major barriers to trade, particularly the nontariff barriers, along with identifying the means to remove these barriers at both multilateral levels under the WTO and in the South Asian region under SAARC.

3.2 Tariff Barrier and Multilateral Regulations A Trade Barrier is a generic term which refers to any policy or regulatory mechanism which aims at restricting cross-border trade. In international trade transactions, there are two broad categories of trade barriers. These are tariff barriers and non-tariff barriers. Under non-tariff barriers, every category of trade-restrictive measures other than tariff come, and they also include technical barriers to trade and special measures like Sanitary and Phytosanitary measures, etc. Tariff barriers are the most conventional trade-restrictive practice in which direct cost is imposed on the importation of goods or services. It may be ad valorem, where charges are imposed as the set percentage of the value of imported commodities or services; or it may be specific tariff where charges are imposed not on the value but the volume of the importation. The tariff could also be a combination of both ad valorem assessment and the specific tariff assessment. Tariffs are the first, the most direct and the most widely used barrier to trade. Tariffs have been the cause of economic stagnation, depression, recession and so-called ‘trade wars’ across the globe since the beginning of the state-control of commerce.12 From the very inception, multilateral trade negotiations have been trying to address this issue by bringing various tariff reforms. Tariff reforms aim at eliminating or at least rationalising tariff rates and reducing complexity arising out of multifariousness of the tariff valuation and its realisation. However, the tariff reforms have eluded the policymakers and still complete elimination could not be made possible consequent on the revenue that tariff generates for the government and the pressure exerted by domestic lobbying.13 Nonetheless, through continuous efforts for economic cooperation under the aegis of GATT/WTO tariff barriers have been brought down but they still are the cause of significant hindrance in the free flow of goods and services across the globe.

11 Article

7(4) of the Agreement on South Asian Free Trade Area (SAFTA). See also Articles VII, IX and X of the SAARC Preferential Trade Agreement (SPTA). 12 See Bown (2011). See also, Fahey (1931), pp. 41–47. 13 See Pritchett and Geeta (1994), pp. 1–16.

44

3 Barriers to Trade and Trade Facilitation …

(All products; in %) Country/ Group

Sr.

1. 2. 3. 4.

Low Income Countries Middle Income Countries High Income Countries World

Year

Binding Coverage

Simple Mean Bound Rate

Simple Mean Applied Tariff

2017

13.5

18.8

11.0

2017

28.4

40.5

6.2

2017

16.7

37.9

3.9

2017

22.8

35.5

5.2

Fig. 3.1 World Development Indicators (2020): Tariff Barriers Globally 14

(All products; in %) Sr.

Country/ Group

Year

Binding Coverage

Simple Mean Bound Rate

Simple Mean Applied Tariff

1. 2. 3. 4. 5. 6. 7. 8. 9.

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Asia

-2016 -2017 2017 2016 2016 2017 2017

-17.2 -74.4 95.1 99.4 98.7 40.5 13.5

-158.1 -52.0 36.6 26.3 60.8 31.7 31.7

7.0 13.0 12.2 8.9 11.1 12.7 12.6 10.4 9.6

Fig. 3.2 World Development Indicators, 2020: Tariff Barriers in South Asia15

Even in the contemporary international trade scenario tariff across the globe still exists. Average bound tariff across the globe is 35.5% and the average applied tariff is 5.2% (Fig. 3.1). The situation is more critical in cases of low- and middle-income countries and special trade items like agricultural produce, etc. (Fig. 3.2). Even the bound tariff coverage, across the globe, is mere 22.8% of all products trading crossborder. In case of South Asia, the bound tariff coverage is even slimmer at 13.5% of all products traded in international market. The GATT/WTO has taken several initiatives to address the issues of trade barriers and to make cross-border trade free. The importance of addressing the issue of tariff barrier for the international community can be understood from the fact that all GATT/WTO trade negotiation rounds till date had tariff as either sole or the most significant agenda of discussions. 14 Sources: 15 Sources:

World Bank Data (2020). World Bank Data (2020).

3.2 Tariff Barrier and Multilateral Regulations

45

MTN Place/Name

Year

Participating Member Nations

Subject Covered

Geneva Round

1947

23

Tariffs

Annecy Round

1949

34

Tariffs

Torquay Round

1951

34

Tariffs

Geneva II Round

1956

22

Tariffs

Geneva Dillon Round

1960-1961

45

Tariffs

Geneva Kennedy Round

1964-1967

48

Tariffs and Anti-Dumping

Tokyo Round

1973-1979

102

Tariffs, non-tariff measures, "framework" agreements

123

Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, the creation of the WTO, etc.

159

Tariffs, non-tariff measures, agriculture, labour standards, environment, competition, investment, transparency, patents etc.

Uruguay Round

1986-1994

Doha Round

2001 continuing

Fig. 3.3 GATT/WTO multilateral trade negotiation rounds (MTNs)16

In the first five rounds of negotiations from Geneva trade round of 1947 to Dillon trade round of 1960, the tariff was the sole agenda for discussions before GATT contracting parties (Fig. 3.3). Regarding the tariff, GATT/WTO has adopted a piecemeal approach which aimed at a gradual reduction in tariff barriers by way of ‘Schedules of Concession’ as provided in Article II of GATT, 1994. Under which each GATT/WTO member voluntarily agrees to cut down tariff rates by giving a commitment as regards to maximum tariff rate which they will apply on a given commodity, this tariff rate is known as the bound tariff.17 The WTO publishes the Schedule of Concessions of all its Members 16 Source: 17 Article

World Trade Organisation II, Paragraph 1 (a) of the GATT, 1994.

46

3 Barriers to Trade and Trade Facilitation …

which covers more than sixty thousand HS product classification scheme of around 150 members.18 Tariff concessions, in the form of bound tariff, works on ‘give-and-take’ basis amongst the negotiating WTO members in which reciprocal trade-offs occur.19 Once the bound tariff is committed on given merchandise, all the contracting parties shall be exempted from the application of ordinary customs duty in excess of the bound tariff.20 Dispute on interpretation and scope of Article II commitment came before the WTO DSB on several occasions.21 One of the leading cases in this regard is Argentina footwear case of 1998.22 The case arises out of the complaint filed by the United States concerning certain measures maintained by Argentina regarding the importation of textiles, apparel, footwear and other items wherein tariff in excess of the bound rate of 35% ad valorem was imposed.23 Argentina as per its Schedule of Concession LXIV committed to the bound tariff of 35% ad valorem in regard to imports of textiles, etc. 24 Interpreting Article II(a) and Article II(b) as a definite commitment the WTO Appellate Body upheld the panel report and decided that Argentine measure of imposing a duty above bound tariff committed by it under Article II is a violation of Article II obligations.25 The scope of Article II commitment came into the question in EC–Computer Equipment Case of 1998.26 Here an extensive interpretation of Article II obligation was claimed by the USA in terms of ‘legitimate expectations’ of the beneficiaries of the Article II commitment. The USA claimed that the EC had changed the customs classification of certain computer-related equipment to increase their effective tariff duties. This worked against the legitimate expectations of the exporting nations who were under the perception that previous custom classification shall prevail ensuring benefits of the Article II commitment made by the importer (EC).

18 Bhala

(2008). Paragraph 109 of WTO Appellate Body Report on “European communities - customs classification of certain computer equipment”, WT/DS62/AB/R of 5 June 1998. 20 Article II, Paragraph 1 (b) of GATT, 1994. 21 See Ortino and Petersmann (2004). 22 WTO Appellate Body Report, “Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items”, WT/DS56/AB/R of 22 April 1998. 23 European Communities is third party participant to the dispute. 24 See Argentina’s Schedule LXIV, “Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations”, Marrakesh, 15 April 1994, become effective on 1 January 1995. 25 Paragraph 87 of WTO Appellate Body Report, Argentina-Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R of 22 April 1998. 26 WTO Appellant Body Report, “European Communities - Customs Classification of certain Computer equipment” WT/DS62/AB/R of 5 June 1998. 19 See

3.2 Tariff Barrier and Multilateral Regulations

47

Appellate Body rejected the contention of the US that tariff concessions under the Schedule can be interpreted as per the legitimate expectations of the exporter and held that legitimate expectation could not be a basis for Article II claim.27 GATT, 1947 provision on the normative level took a giant leap, but its practical success has not been so impressive. This has been because of the inherent limitations posed by the international scenario of those times where no nation was comfortable in sharing any element of sovereignty. Considering this situation, GATT like other international instruments worked on mutual consent and cooperation of the member states rather than strict enforcement. As the process of mutual consent and no strict enforcement, GATT 1947 was adopted by way of Protocol of Provisional Application (PPA) which allowed nonfulfilment of the GATT obligation in case it is inconsistent with the pre-existing domestic laws of any nation.28 This exception is also known as ‘grandfather right exception’ or ‘grandfather clause’, which in effect allowed the GATT Contracting Parties to continue with their old tariff regime. In contemporary trade regime, revolutionary success could not be made possible because of several exceptions which exist in the GATT/WTO framework. For instance, under Article XX of GATT, 1994, measure inconsistent with the WTO obligations can be permitted if they are necessary for the protection of public morals, human, animal or plant life or health and measures for conservation of exhaustible natural resources. Similarly, a waiver from the WTO obligation can also be exercised in a situation like the Balance of Payment (BOP) problem. In such a situation, not only a post hoc but also a priori waiver can be claimed.29 Certain waivers are also provided under Articles XXV: 5 and IX: 3 wherein under exceptional situations a contracting party may be excused from fulfilling the obligations of GATT/WTO. Most direct category of waiver is available under Article XXVIII where a member may modify or withdraw permanently the tariff concessions committed by it under Schedule of Concession through negotiation and agreement with a member with which the concession was initially negotiated along with any member which has a substantial interest in such concession.30

27 See Paragraph 97, 98 and 99 of WTO Appellate Body Report on “European communities - customs classification of certain computer equipment”, WT/DS62/AB/R of 5 June 1998. Other cases on the interpretation of Article II commitment and its scope are WTO DSU, “Canada-Measures Affecting the Importation of Milk and the Exportation of Dairy Products” DS103 of 1999 and WTO DSU, “United States- Import Measures on Certain products from the European Community” DS 165 of 2000. 28 See Part II of the Protocol of the Provisional Application, 1947. 29 Bhala (2008). 30 See Articles XXVIII of GATT, 1994.

48

3 Barriers to Trade and Trade Facilitation …

3.3 Non-tariff Barriers and Multilateral Regulations Every customs delay, every form to fill out, every uncertainty due to lack of adequate publicity of laws, every governmental requirement and limit are in effect non-tariff barriers to international trade. Non-tariff barriers are defined as any measure or policy other than tariff which interferes with the cross-border transactions and has a trade-distorting effect. UNCTAD defines non-tariff barriers as “policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both.”31 Another closely related concept to non-tariff barriers is the ‘non-tariff measures’. The non-tariff measures are also the policy or administrative measures taken by the State which interferes with the international trade transactions. Such interferences maybe ‘trade promoting’ or ‘trade blocking’. In the case where a non-tariff measure is ‘trade blocking’, it is considered as the non-tariff barriers to trade, and in the case where it promotes trade, it is called as trade facilitating measure. The presence of non-tariff measures in foreign trade laws and policies of a nation is not a new phenomenon and is very common and widely prevalent. Governments, exercising their legitimate regulatory prerogative as provided under GATT/WTO, frequently intervene in the process of production, marketing and consumption of goods and services to answer their regulatory and societal objectives.32 GATT/WTO legitimise governmental regulatory interventions by way of numerous exemptions which are provided within its framework. For instance, under Article XX of GATT general exceptions are provided wherein any of the contracting parties as a part of their societal objectives can impose restrictions on trade necessary for the protection of public morals, human, animal or plant life, etc. Governmental interventions in the course of international trade can be both legitimate and illegitimate. They will be illegitimate if they are unnecessary barriers used as a pretext for disguised protectionism. Legitimacy or illegitimacy of these interventions is decided on the yard-scale of GATT provisions and other specialised agreements. Subject to the fulfilment of non-discrimination and transparency principle GATT accommodates the regulatory diversity in domestic regulations. However, with the agreements like Technical Barriers to Trade (TBT) Agreement,33 Trade Facilitation Agreement (TFA) amongst others the approach has now been shifted more towards imposing disciplines even on non-discriminatory regulations that may have traderestrictive ramifications.34

31 The

United Nations Conference on UNCTAD/DITC/TAB/2009/3. 32 Kudryavtsev (2013). 33 Agreement on Technical Barriers to Trade, 1995. 34 See Howse and Trebilcock (1998).

Trade

and

Development

document

3.3 Non-tariff Barriers and Multilateral Regulations

49

In regard to the dichotomy of approach in dealing with non-tariff barriers under GATT’s general rules and contemporary initiatives in the form of the TBT Agreement and TFA, the WTO Appellate Body in the US–Clove Cigarette case held that both the approaches are complementary to each other and moves towards the penultimate object of bringing harmonisation and transparency in regulatory measures of governments.35 The WTO Appellate Body observed that the balance which the TBT Agreement aims to achieve between the regulatory prerogative of governments and the pursuit of trade liberalisation is in principle, not different from the objective of overall balance which already exists in GATT general provisions. For instance, the balance of interpretation which already exists in GATT between the national treatment principle under Article III and general exceptions under Article XX.36 In addressing non-tariff barriers, GATT/WTO targets both ‘positive integration’ and ‘negative integration’ of the global market. ‘Negative integration’ is achieved by GATT/WTO through obligations like MFN and national treatment which have the effect of nullifying certain national regulations through non-discrimination mandates on regulatory powers of the member nations. In case ‘positive integration’ as through agreements like TBT Agreement, SPS Agreement, GATT provisions like Articles VII, VIII and X37 amongst others, harmonisation of rules are sought to avoid confusion and contradictions in crossborder trade. For example, under Article VII uniform scheme of customs valuation is provided on the line of which member nations are obliged to make their domestic laws on customs valuation.38 In contemporary international trade regime, misuses of regulatory prerogative by governments in the form of non-tariff barriers are the biggest cause of concern for trading communities. They are like chemical weapons in the new trade wars. In most cases, the use of non-tariff barriers is a clandestine way of protectionism referred to as ‘regulatory protectionism’.

35 WTO Appellate Body Report, “United States – Measures affecting the production and sale of clove Cigarettes” WT/DS406/AB/R of 4 April 2012. 36 See Paragraphs 92, 94, 95, 109 and 174 of WTO Appellate Body Report, “United States – Measures affecting the production and sale of clove Cigarettes” WT/DS406/AB/R of 4 April 2012. 37 Article VII contains provisions regarding unification of custom valuation scheme; Article VIII provides legal obligations regarding fees and formalities; Article X deals with publications and administration of trade regulations. 38 For positive and negative integration approach see, Dirk De Bievre, “Governance in international trade: Judicialisation and positive integration in the WTO”, Preprints of the Max Planck Institute for Research on Collective Goods, No. 2004/7 on ECONSTOR available at https://www.econstor. eu/bitstream/10419/85117/1/2004-07_online.pdf as accessed on 13 May 2017. Also see, de Sousa (2012), pp. 979–1011; Petersmann (2000), pp. 1363–1382.

50

3 Barriers to Trade and Trade Facilitation …

For judging the legitimacy of a particular regulatory measure applied by a country, its purposes and ramifications have to be seen. A regulatory initiative in the form of non-tariff measure can be categorised into protectionist policies, assistance policies and non-protectionist policies.39 Non-tariff measure in the form of protectionist policies primarily aims at protecting the domestic producers at the cost of foreign producers trading in the domestic market. In most cases, they curtail healthy competition in the market and have a trade-distorting effect by not allowing free market forces to work. Domestic content requirements, monopolistic rights to domestic firms, import quotas, etc. are few examples of protectionist non-tariff measures. Assistance policies, unlike protectionist policies, are aimed at aiding domestic producers but not at the expense of foreign producers trading in the domestic market. Such aid may be in the form of various financial and production incentives. Subsidies, anti-dumping laws, financial incentives, tax rebates, bailouts, etc. fall into this category. Although assistance policies are enforced in good faith, they could have significant trade-distorting effects. Non-protectionist policies as non-tariff barriers are most difficult to identify and to counter. Unlike protectionist and assistance policies, non-protectionist policies do not aim at either protecting the domestic producers or assisting them. They tend to answer certain legitimate regulatory needs like protection of animal, plant or people. Sanitary and Phytosanitary (SPS) measure is one of the important examples of nonprotectionist policies. Even non-protectionist policies if not regulated properly may have trade-distorting effects. The complexity with the non-tariff barriers arises from the fact that they are deeply institutionalised and unlike tariff barriers, very difficult to detect and to counter as they can easily be camouflaged as the legitimate regulatory prerogative of a nation. UNCTAD classifies non-tariff barriers in the following sixteen categories clubbed under three broad heads which are technical measures, non-technical measures and export-related non-tariff barriers (Fig. 3.4).

39 Deardorff

(2012).

3.3 Non-tariff Barriers and Multilateral Regulations

51

HEAD

SR.

Technical

i.

Sanitary and Phytosanitary Measures

ii.

Technical Barriers to Trade

iii.

Pre-Shipment Inspection and other

iv.

Contingent Trade-Protective Measures

v.

Non-Automatic Licensing, Quotas,

Measures

Non-Technical Measures

CATEGORY

Prohibitions and Quantity Control Measures other than for SPS or TBT reasons

IMPORTS

vi.

Price-Control Measures, including additional Taxes and Charges

EXPORT

vii.

Finance Measures

viii.

Measures Affecting competition

ix.

Trade-related Investment Measures

x.

Distribution Restrictions

xi.

Restrictions on Post-Sales Services

xii.

Subsidies

xiii.

Government Procurement Restrictions

xiv.

Intellectual Property

xv.

Rules of Origin

xvi.

Export-Related Measures

Fig. 3.4 International classification of non-tariff barriers40 40 Source:

United Nations Conference on Trade and Development, “International Classification of Non-Tariff Barriers”, United Nations Publication, UNCTAD/DITC/TAB/2012/2/Rev.1

52

3 Barriers to Trade and Trade Facilitation …

i.

Sanitary and Phytosanitary Measures: Sanitary and Phytosanitary are those measures which are applied for protecting human or animal life from risk arising out of food consumption which is contaminated by way of toxins, additives or disease-causing organism. It also includes the protection of human life and health from diseases carried by animals or plants and protection of plant and animal life risks posed by diseases, pests, disease-causing organism.41 Technical Barriers to Trade: Technical Barriers to trade can arise out of certain technical regulations to trade provided by a trading nation. Annexe 1.1 of the TBT Agreement defines ‘Technical Regulations’ as any product requirement regarding its production, process and characteristics whose compliance is mandatory. It may also relate to terminology, symbols, marking/labelling and packaging requirements in terms of a product and/or its processes and methods.42 Pre-shipment Inspection and other formalities: Measures prescribed by the importing country whereby compulsory pre-shipment inspection is mandated for determining the quality standard, quantity measurement and price determination of importing goods through an earmarked inspection agency or laboratory.43 It may also include direct consignment requirement, transit route or mandated ports stops during transit along with other import monitoring and surveillance requirement. Contingent Trade Protective Measures: Contingent Trade Protective Measures are special measures taken in extraordinary situations which may cause a trade-distorting effect. For example, the imposition of anti-dumping and countervailing duties under Article VI of GATT to offset the impact of dumping of goods and subsidies.44 It also includes safeguarding measures in the form of quantitative restrictions under Article XI and adverse balance of payment safeguard measures under Article XII of GATT, 1994. Licensing Measures: Measures regarding Import licensing procedure whereby the grant of the license depends on discretionary or unreasonable or undeclared criteria. Price-Control Measures: Measures to control or affect the prices of imported goods with the object of supporting the domestic producers. It also includes para-tariff measures which have the effect of increasing the cost of the imported product in the host market. Financial Measures: Financial measures in the form of para-tariff barriers which increase the trade cost of imports or put unnecessary requirement so as to discourage, restrict or curtail imports. It includes measures like advance

ii.

iii.

iv.

v.

vi.

vii.

41 See The WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), 1995. 42 Article 1.1 to the Technical Barriers to Trade Agreement. See Epps and Trebilcock (2013). 43 See, The WTO Agreement on Pre-shipment Inspection. 44 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 and Agreement on Subsidies and Countervailing Measures.

3.3 Non-tariff Barriers and Multilateral Regulations

viii.

ix.

x.

xi. xii. xiii.

xiv.

xv. xvi.

53

import deposits for importers in the host country, advance payment of customs duties, etc. Measures Affecting Competition: Measures which curtail competition in the market by granting exclusive production or marketing rights to an entity or specified groups. It also includes grants of special privileges and concessions which harms healthy competition in the market. Trade-related Investment Measures: Measures which adversely impact foreign trade-related investment in the domestic markets. It includes measures like a compulsory local content requirement, whereby foreign investors are obliged to procure a certain category or amount of local contents while manufacturing or producing anything in the domestic market.45 Distribution Restrictions: Measures which limits or restricts the distribution of foreign goods inside the importing country. It includes distribution restrictions in the form of geographical restrictions, quality restrictions or retail restrictions. Restrictions on Post-Sales Services: Measures which restricts or prohibitions any or all after-sales services. Subsidies: Measures which impact healthy competition by providing financial assistance in the form of subsidies to domestic producers.46 Government Procurement Restrictions: Discriminatory use of government procurement prerogatives whereby a government procures goods preferably from domestic producers. It also includes restrictions on the issuance of tender, etc. to foreign players in domestic jurisdictions.47 Intellectual Property Issues: Inadequacy or irregularity in government regulations in the protection of intellectual property and law thereto which causes an adverse impact on foreign traders. It includes not honouring or recognising patent or industrial designs of certain producers in the domestic market.48 Rules of Origin: Discriminatory rules of origin which are applied by the importing nation to determine the country of origin of the goods.49 Export-Related Measures: Measures which are applied by the exporting country on the export of the goods or services. It includes measures like export licensing, quotas, exports prohibitions, etc.

To counter non-tariff barriers to trade the WTO has taken several initiatives including negotiating scores of specialised agreements dealing with the non-tariff barriers. The multilateral regulations on non-tariff barriers can broadly be classified into two broad categories. The first category of regulations is provided in the form of the general principle under the GATT and second are certain specialised agreements forming part of the WTO law. 45 See,

The WTO Agreement on Trade Related Investment Measures. The WTO Agreement on Subsidies and Countervailing Measures. 47 See, The WTO Agreement on Government Procurement. 48 See, The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. 49 See, The WTO Agreement on the Rules of Origin. 46 See,

54

3 Barriers to Trade and Trade Facilitation …

3.3.1 General Obligations Under GATT on Non-tariff Barriers As earlier discussed, to strike a balance between regulatory prerogative of member nations and the pursuit of trade liberalisation, GATT accommodates regulatory diversity along with providing the framework for transparency, procedural minimalism and harmonisation of rules. There are some general provisions under GATT which aim to address, directly or indirectly, the issue of non-tariff barriers to trade. These, inter alia, include the Most Favoured Nation (MFN) principle under Article I, National Treatment principle under Article III, freedom of transit rule under Article V, customs valuation principles under Article VII, transparency principle under Article X, rules on quantitative restrictions under Article XI, etc. The MFN clause and national treatment clause are the most significant and the most popular provisions of GATT. They are the equality clauses which aim to prevent discriminatory practices in international trade. While the MFN clause provides that no WTO member shall discriminate on measure affecting international trade against other WTO members; national treatment clause concerns with the discrimination against foreign products vis-a-vis domestic products. The subject concern of these clauses could be any law, by-law or administrative order which discriminates by providing privileges to one or detriment to others and thus causes a non-tariff barrier to international trade.50 Freedom of transit, particularly to the landlocked countries, is also a distinguishing feature of GATT which aids in removing the natural barriers to trade created by the fact of geographical position. Freedom of transit under Article V provides that there shall be freedom of transit for each contracting party via the most convenient route for international trade transactions without the application of any customs duties except the reasonable administrative expenses or the cost of services rendered by the host transit country.51 The importance of freedom of transit principle can be understood through the case study of Banglabandha project concerning India, Bangladesh, Bhutan and Nepal (see part 3.5.2 of this chapter). Custom valuation principles of GATT aim at providing a harmonised system of customs valuation amongst all the WTO member nations to make the crossing of the customs barrier a simpler and smoother process. Through its guidance by way of providing a unified method of customs valuation and collection, conflicts and confusion in different domestic customs valuation systems can be removed. Rules regarding publication and administration of trade regulations are another step in the quest for making cross-border trade smoother and trade regulations transparent and non-discriminatory. It is contained in Article X of GATT under the

50 Articles

I and III of GATT, 1994. 4 of Article V GATT, 1994.

51 Paragraph

3.3 Non-tariff Barriers and Multilateral Regulations

55

head ‘publication, and administration of trade regulation’ also known as the transparency principle of GATT. It provides that laws, regulations, international agreements, policies, the judicial and administrative ruling should be promptly published in the manner so that all the stakeholders become acquainted with them.52 Article X further mandates that all contracting parties shall administer their trade regulations in uniform, impartial and reasonable manner.53 Rules on the elimination of quantitative restrictions are provided in Articles XI to XIII of GATT. Quantitative restrictions or quotas are the government decrees which mandate that in a given period the only specific amount of certain product can be traded in the cross-border transactions. Quotas are the second most sought-after concern of GATT after tariff reduction, as part of the non-tariff barrier to trade. Article XI provides for the general elimination of all quotas or similar traderestrictive measures on import or export of any product or merchandise.54 However, it provides that under certain exceptional situations like food shortage, measures to maintain quality and standards, etc. quotas or similar trade-restrictive measures can be maintained.55 On the ground of adverse balance of payment situation import quotas could also be employed provided they are applied in a non-discriminating manner.56 Alongside the provisions mentioned above, there are several other provisions under GATT which aim, directly or indirectly, to address the non-tariff barriers to international trade. For instance, the provision regarding anti-dumping and countervailing duties under Article VI, rules on fees and formalities under Article VIII, rules of origin under Article IX and rules on subsidies under Article XVI of GATT, 1994.

3.3.2 WTO Specialised Agreements on Non-tariff Barriers Along with a number of general provisions on non-tariff barriers, the WTO also has various specialised multilateral agreements to counter non-tariff barriers to trade. The purpose of these specialised agreements is to make international trade transactions simple and efficient by reducing red-tapism, bringing transparency, procedural harmonisation and making state regulations reasonable. In terms of their objective, specialised agreements can be divided into two broad categories. The first category comprises agreements which primarily aim at harmonisation and simplification of certain trade rules. Agreement on Import Licensing, Agreement on Technical Barriers to Trade, Agreement on Sanitary and Phytosanitary Measures, Agreement on Rules of Origin, Agreement on Custom Valuations and Agreement on Pre-shipment Inspection fall in the first category. 52 Paragraph

1 of Article X, GATT. 3 (a) of Article X, GATT. 54 Paragraph 1 of Article XI, GATT. 55 Paragraph 2 of Article XI, GATT. 56 See Articles XII and XIII, GATT. 53 Paragraph

56

3 Barriers to Trade and Trade Facilitation …

The second category comprises the agreements which are the part of the market access policies to ensure healthy competition in the global market. Agreement on anti-dumping, Agreement on subsidies and countervailing measures, Agreement on safeguard measures and Agreement on trade-related investment measures are the part of the second category of the WTO specialised agreements. In post-Uruguay Round international trade law regime, these agreements occupy a significant position as they have moved from ‘plurilateral status’ to ‘multilateral status’ and are therefore binding not just on the parties to the agreement but all the member nations of the WTO. Some of the important specialised agreements on non-tariff barriers are briefly discussed hereunder. Agreement on import licensing procedures, is the part of the first category of the WTO specialised agreement, aims at streamlining the procedure of providing import licenses by member nations so that import licensing does not become barriers to international trade.57 Import licensing agreement concerns at making import license granting system transparent and simple along with recognising the need for automatic import licensing for certain purposes.58 The agreement requires the member nations to publish sufficient information to importers with regard to the procedure followed for granting licenses. It also requires member nations to promptly notify any changes in the existing import licensing procedure or when a new import licensing system is introduced.59 The most novel aspect of import licensing agreement is that it provides for automatic import licensing facilities. Under automatic import licensing any person, firm or institute which fulfils the pre-notified legal requirement of the importing nation is eligible to apply for and get an import license.60 Agreement on Technical Barriers to Trade popularly knows as the TBT Agreement also belongs to the first category of the specialised agreement. It targets harmonisation and simplification of rules regarding technical regulations, standards and conformity procedure. Such technical requirements could be variable and may apply to terminology, symbols, packaging, marking or labelling requirements of a product or product process or production method.61 Agreement on technical barriers, for securing harmonisation, encourage the member nation to adopt the international standard gradually in their domestic trade policy on technical measures. This international standard in Annex 3 of the TBT Agreement known as Code of Good Practice for the Preparation, Adoption and Application of Standards. The TBT Agreement has also established a Committee on Technical Barriers to Trade. The purpose of the Committee is to discuss Specific Trade Concerns (STC) on technical measures taken by the member nations and to find out its compatibility

57 See

recital 4 and 11 of the Preamble, WTO Agreement On Import Licensing Procedures. recital 4 of the Preamble, WTO Agreement On Import Licensing Procedures. 59 Article 3 and 5 of the WTO Agreement On Import Licensing Procedures. 60 Article 2 of the WTO Agreement On Import Licensing Procedures. 61 See Paragraph 1 of Annexe 1 to the WTO Agreement on Technical Barriers to Trade. 58 See

3.3 Non-tariff Barriers and Multilateral Regulations

57

or otherwise with the TBT Agreement obligations.62 Till date, 528 STCs have been raised before the TBT committee for consideration and review.63 Another category of the technical barrier is the sanitary and phytosanitary measures. In the contemporary trade scenario because of the widespread application and ever-rising dispute on sanitary and phytosanitary regulations, Uruguay Round came up with the separate dedicated agreement known as the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement).64 The main aim of the SPS Agreement is to streamline the application of food safety, animal and plant health regulations provided by different member nations in the form of domestic laws and regulations. Rules of origin aids in finding the origin of a particular good or merchandise in terms of the country from where it has originated. Such inquiry is required for the imposition of duties, grant of the benefits, application of regulations, implementation of trade measures, computation of trade statistics, etc. Although ‘rules of origin’ is one of the legitimate regulatory concerns of the government but because of its sheer diversity and wide variation it has become one of the non-tariff barriers to international trade. Before the establishment of the WTO, GATT setup allowed every member nation to frame and enforce their own rules of origin, which added to variation and often a contradiction in the rules of origin.65 The 1994 Agreement on the Rules of Origin came for harmonising the divergent origin rules followed by different member nations.66 For this purpose, the Agreement also established a Technical Committee on Rules of Origin to carry out the harmonisation work and to deal with technical problems relating to the rules of origin.67 The Agreement on Customs Valuation provides for the uniform scheme for customs valuation to avoid contradiction and confusion due to the customs valuation done adopting the different methodology. Customs valuation methodology occupies a contentious position in the foreign trade policy matters as it determines the actual amount of tariff or other duties which would be chargeable on the importing goods. The WTO Agreement on Customs Valuation, formally known as Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 aims for ‘fair, uniform and neutral system’ of valuation of goods for customs purposes.68 As a part of the uniform rule for valuation, the Agreement on Customs Valuation has provided six basic methodologies for customs valuation purposes. The 62 Article

13 of the WTO Agreement on Technical Barriers to Trade. World Trade Organisation (2017). Technical Barriers to Trade Information Management System, World Trade Organisation. http://tbtims.wto.org/ Accessed 26 July 2017. 64 Refer to Part 3.5.3 of this chapter for discussion on SPS measures. 65 See Article IX of GATT, 1947. 66 See Part IV of WTO Agreement on Rules of Origin. 67 See WTO Official Website, “Technical information on Rules of Origin” available at https://www. wto.org/english/tratop_e/roi_e/roi_info_e.htm as on 26 July 2017. 68 Recital 4, Preamble to Agreement On Implementation of Article VII of the General Agreement on Tariffs and Trade 1994. 63 Source:

58

3 Barriers to Trade and Trade Facilitation …

most foundational methodology in this regard is the valuation based on ‘transaction value’ which is defined under the Agreement as a valuation done on the price actually paid or payable for the goods.69 However, in the case where transaction value could not be secured other methodology for customs valuation can be adopted, which includes transaction value of identical goods method, the transaction value of similar goods method, deductive method, computed method and fall back method.70 The Agreement on Pre-shipment Inspection is another Uruguay Round agreement which aims at regulating the conduct of Pre-Shipment Inspection (PSI) companies which are hired by the government. The purpose of these pre-shipment inspection companies is to ensure the quality and quantity of the goods traded as per the sale contract specification. As per the Agreement, it would be the duty of the ‘user member’ (government) to ensure that the PSI companies work in the non-discriminatory, transparent and standardised method.71 The Agreement on Anti-dumping falls in the second category of the WTO specialised agreements on non-tariff barriers. It is the part of trade competition policy which primarily aims at ensuring healthy competition in the international market. Dumping is an unfair trade practice whereby a country exported goods and introduced into the economy of another country at a price lower than the normal price of the goods.72 This unfair trade practice has a great distorting effect on international trade and healthy competition in the market. Therefore to neutralise the adversarial impact of the dumping, anti-dumping duties are imposed which are in the form of the contingent safeguard measure. Although anti-dumping duties were introduced to safeguard competition in the market over time, anti-dumping by itself has become a non-tariff barrier to trade. Anti-dumping has become an area which has led to more disputes and actions under the DSB than any other matter. Since 1995 around 100 cases are annually filed with the WTO DSU relating to anti-dumping issues.73 Like Agreement on import licensing, the anti-dumping agreement aims at preventing anti-dumping regulations to be used as the protectionist mechanism in the hands of domestic producers. It also streamlines calculation of anti-dumping margin and anti-dumping duties along with determining the application of anti-dumping duties and its duration.74 The Agreement on subsidies and countervailing measures, along with Agreement on Safeguard Measures and Agreement on trade-related investment measures are

69 See Article 1 of the Agreement On Implementation of Article VII of the General Agreement on Tariffs and Trade 1994. 70 See Articles 1 to 8 of the Agreement On Implementation of Article VII of the General Agreement on Tariffs and Trade 1994. 71 See Article 2 of The Agreement on Preshipment Inspection 1994. 72 Article VI of GATT, 1994. 73 See Anti Dumping Statistics (2017). 74 Articles 2,3,6 and 11 of Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.

3.3 Non-tariff Barriers and Multilateral Regulations

59

also the part of the second category of the WTO specialised agreements dealing with non-tariff barriers. The Agreement on subsidies and countervailing measures (SCM Agreement) deals with two closely related concerns in international trade. These concerns are subsidies and countervailing duties. Subsidies are financial or other benefits granted to the domestic producers to aid and encourage them in the production, manufacture or sale of a product or merchandise.75 Subsidies have trade-distorting effect and impact competition in the market. To offset the effect of subsidies, countervailing duties are imposed. SCM Agreement disciplines the grant of subsidies and imposition of countervailing duties by the member state. SCM Agreement classifies subsidies into two broad categories that are prohibited subsidies and actionable subsidies.76 Prohibited subsidies are forbidden under Article 3 of the Agreement, and they include subsidies such as export subsidies and local content subsidies.77 In the case of actionable subsidies, absolute prohibition is not enforceable. However, they are subject to regulation where they adversely impact the interest of any member state. Such a challenge may be in the form of adjudication through Dispute Settlement Body or imposition of countervailing duties.78 The SCM Agreement also sets out detailed procedure and criteria for the imposition of the countervailing duties so that it is not used as a disguised form of protectionism to restrict market access.79 Agreement on safeguard measures is also the part of the second category of the WTO specialised agreements on non-tariff barriers. Considering regulatory diversity, special needs and economic exigencies the WTO allows ‘safeguard measures’ in the form of quantitative restrictions, suspension of concessions, etc. However, to streamline the use of safeguard measure, the agreement on safeguard provides that such measures should be implemented in a non-discriminatory manner in a bona fide situation for a temporary period.80 Agreement on trade-related investment measures is also the part of market access policies of the WTO which recognises that certain trade investment measures can cause trade-restrictive and distorting effect.81 The Agreement applies only to the investment measures related to trade in goods only.82 It provides that no member shall apply any trade-related investment measure which is inconsistent with the

75 See

Article 1 of the Agreement on subsidies and countervailing measures. Parts II and III of the Agreement on subsidies and countervailing measures. 77 See Annex 1 of the Agreement on subsidies and countervailing measures for the List of Export Subsidies. 78 Article 4 of the on subsidies and countervailing measures. 79 See Part V of the Agreement on subsidies and countervailing measures. 80 Articles 3 to 9 of the WTO Agreement on Safeguard Measures. 81 Recital 4 of the Preamble, WTO Agreement on Trade related investment measures. 82 Article 1 of the WTO Agreement on Trade related investment measures. 76 See

60

3 Barriers to Trade and Trade Facilitation …

national treatment and qualitative restriction obligations of the GATT.83 Prohibited list of trade-related investment measures as per the Agreement includes local content requirement and qualitative restrictions.84

3.4 Trade Facilitation and Multilateral Initiatives Trade facilitation is the measures which are applied to facilitate trade transactions by way of simplification, modernisation and harmonisation of trade rules concerning cross-border transactions in the global market. Such measures may be adopted domestically by way of municipal laws, bilaterally, regionally and multilaterally by way of bilateral, plurilateral or multilateral treaties and agreements, respectively. GATT/WTO came with the foundational purpose to facilitate trade amongst the community of nations by eliminating various barriers to trade. In every provision and agreement of GATT/WTO, the idea of trade facilitation is interwoven and pervasive.85 However, after the establishment of the WTO, there has been a surge in demand for having trade facilitation as an exclusive area of concern in the world trading system. It has been estimated that full implementation of a trade facilitation mechanism can reduce trade cost by an average of 14.3% and can increase the global trade up to $1trillion per year.86 Accordingly, the WTO Agreement on Trade facilitation of 2014 came as the first multilateral agreement dealing exclusively with trade facilitation.87 It has been argued that the WTO Trade Facilitation Agreement (TFA) is a just reiteration of different principles and obligations which already exist in earlier GATT/WTO framework. For example, Article I of the TFA talks about ‘publication and availability of information’, the obligation which already exists as transparency principle under GATT Article X. Even Doha Ministerial Declaration of November 2001 regarding trade facilitation instructed the Council for Trade in Goods to, “… review and as appropriate, clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 and identify the trade facilitation needs and priorities of members, in particular of developing and least-developed countries.”88

83 Article

2 of the WTO Agreement on Trade related investment measures to the WTO Agreement on Trade related investment measures. 85 Refer to Part 3.3 of this chapter. 86 Source: World Trade Organisation. 87 Notified on 15 July 2014 by WTO Decision WT/L/931 88 Para 27, Doha Ministerial Declaration, WT/MIN (01)/DEC/1 of 20 November 2001. 84 Annex

3.4 Trade Facilitation and Multilateral Initiatives

61

However, if the approach of the TFA is analysed vis-a-vis earlier trade agreements, the significant departure of the TFA’s approach would be apparent. While earlier trade agreements predominantly adopted a negative approach to trade liberalisation in terms of lowering of tariff and non-tariff barriers to trade, TFA exclusively adopted a positive approach to trade liberalisation and integration by facilitating trade over and above removal of various trade barriers.89 The TFA has been the milestone in the WTO history and has a unique accolade for being the first multilateral agreement successfully negotiated upon by the WTO member since the Uruguay Round of MTNs. This agreement has been a result of almost two-decades-long negotiations which started officially with the Singapore Ministerial Conference in 1996, the agreement reached at the Ninth Ministerial Conference in Bali in 2013 and came into force with the completion of domestic ratification process on 22 February 2017 when two-thirds of the WTO members rectified the Agreement.90 Another accolade of the TFA is the negotiation process through which it has been reached. Unlike many of the other GATT/WTO provisions and agreements, the TFA followed a ‘bottom-up’ process or the ‘collaborative approach’ to negotiation where every member was involved in the framing and designing of the Agreement rather than a group of members or any institution imposing a deal on others, as is done in ‘top-down’ approach to negotiation.91 The provisions of the WTO Trade Facilitation Agreement are divided into three sections. Section 1 contains certain provisions which aim at bringing transparency in domestic, foreign trade regulations along with making them non-discriminatory and impartial.92 It also deals with certain trade facilitation measures which can expedite the movement, release and clearance of goods across the border.93 Under Section I, Articles 1 to 5 deal with measures to enhance impartiality, nondiscrimination and transparency. It requires member countries to publish and make available all information regarding their rules and regulations on foreign trade.94 It provides an opportunity for stakeholders to comment and enter into consultations in regard to member nations’ rules on foreign trade.95

89 For

positive and negative integration approach see, Bievre (2004). Also see, de Sousa (2012); Petersmann (2000). 90 See Neufeld (2014). 91 For discussion on top-down and bottom-up approach to trade negotiations see, Danish (1995); Adlung and Mamdouh (2013). 92 See Articles 1 to 5 of the WTO Agreement on Trade Facilitation. 93 See Articles 6 to 12 of the WTO Agreement on Trade Facilitation. 94 Articles 1 of the WTO Agreement on Trade Facilitation. 95 Articles 2 of the WTO Agreement on Trade Facilitation.

62

3 Barriers to Trade and Trade Facilitation …

Section II of the Agreement deals with the special and differential treatment for developing and least-developed country members.96 For the implementation of the trade facilitation measures as discussed in Section I, the Agreement provides ‘assistance and support for capacity building’ which can enable least developed and developing nations to fully incorporate obligations under the Agreement into their regulatory and trade machinery.97 Such capacity building could be in the form of technical or financial assistance or any other mutually agreed on assistance mechanism. As a form of differential treatment to least developed and developing country members, the TFA provides them with a specific grace period for the implementation of its obligations.98 This grace period may differ in tenure from provision to provision depending upon which category the concerned provision falls. Article 14 in this regard divides the TFA provisions into three categories that are Category A, Category B and Category C. Most novel aspect of Article 14 is that it allows the member countries to self-designate on an individual basis, as per their capacity and economic position, which provision it wants to include under each category of A, B or C. Thus, it accommodates less developed countries by assisting them in the capacity building and also allowing them to decide their timeline in which they would be able to implement the provisions of the TFA. Section III of the Agreement deals with the institutional arrangements and final provisions.99 As an institutional arrangement, TFA established the Committee on Trade Facilitation to look after the implementation of its obligations.100 It also provides that each member nation shall establish and/or maintain a national committee on trade facilitation.101 The WTO TFA has been a significant milestone in the history of international trade laws. It occupies a very distinct and path-breaking position vis-a-vis other trade agreements because of its inclusive and accommodative approach both in the process through which it was negotiated and the way it has now been implemented. However, the TFA still has to stand the test of the time and to prove its worth as an effective international trade law mechanism with the capacity to walk the talk.

96 See

Articles 13 to 22 of the WTO Agreement on Trade Facilitation. Article 13 (2) the WTO Agreement on Trade Facilitation. 98 See Articles 14 to 19 the WTO Agreement on Trade Facilitation. 99 See Articles 23 and 24 of the WTO Agreement on Trade Facilitation. 100 Articles 23 of the WTO Agreement on Trade Facilitation. 101 Article 23(2) of the WTO Agreement on Trade Facilitation. 97 See

3.5 Tariff and Non-tariff Barriers in South Asia

63

Percentage of intra-regional trade share to the share of world trade

9 8

7.94

7 6.63

6 4.68

5 4

3.37 2.91

3

5.14 4.55

5.14

6.31

6.58

6.8 6.98 6.1

5.72

3.35

Years

2 1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Fig. 3.5 Intra-regional trade in SAARC102

3.5 Tariff and Non-tariff Barriers in South Asia The intra-regional trade in the South Asian region has always been dismal, and on average it has been around 5% to share of world trade from the region. With the coming into force of the South Asian Free Trade Agreement (SAFTA) on 6 January 2004, the intra-regional trade has slightly improved, and now it hovers around 5–7% to the share of world trade from the region (Fig. 3.5). During initial formational years of SAARC as an organisation of regional cooperation, the prominent cause of such dismal intra-regional trade was the high tariff rates prevalent in the region. However, as discussed earlier103 , with the efforts of the WTO through Schedule of Concession commitments and the SAFTA, tariff rates have been considerably brought down104 . From the formation of the WTO in 1995 the average applied tariff in the South Asian region has been brought down from 23.67% in 1996 to 5.96% in 2017 (Fig. 3.6).

102 Source:

UNCTADSTAT:—United Nations Conference on Trade and Development Statistics (2020). 103 See part 3.2 of this chapter. 104 As per commitment under SAFTA (South Asian Free Trade Agreement) which came into force on 6 January 2004 member nations agreed on reducing the custom duties on all goods to zero by the year 2016.

64

3 Barriers to Trade and Trade Facilitation … Tariff rate, applied, weighted mean, all products (%) 30 28.22 26.17

25

23.67 20.81

20

23.18 21.42 19.88 21.73 19.58

15

14.13

10 10.29

Tariff(%)

11.65 10.55 7.51

7.72

6.89

5

6.88

8.567.83 7.31 5.93

0 1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2017

Fig. 3.6 Average Tariff rate in South Asia105

Even after a substantial decrease in the tariff rates across the region, due to the efforts of the WTO and regional initiatives like SAPTA and SAFTA, no substantial improvement in the intra-regional trade could be achieved because of the prevalence of a large number of non-tariff barriers in the region. SAFTA as the regional initiative has made certain headways towards duty-free regional trade transactions, but the issue of non-tariff barriers has relatively remained unaddressed in the context of SAARC. It has been observed that though SAARC member nations have reduced their tariff against other members, they still maintain numerous non-tariff barriers. Such non-tariff barriers are either maintained as a disguised form of protectionism or a bona fide regulatory prerogative of the country which has a trade-distorting effect.

105 Source:

The World Bank Trade Data on South Asia (2020).

3.5 Tariff and Non-tariff Barriers in South Asia

65

1.

Afghanistan

Trading Across Border –Ranking (amongst 190 countries) 177

2.

Bangladesh

176

168

3.

Bhutan

30

89

4.

India

68

63

5.

Maldives

157

147

6.

Nepal

60

94

7.

Pakistan

111

108

8.

Sri Lanka

96

99

9.

Overall Regional Ranking

109

118

Sr.

Country

Overall Ranking (amongst 190 countries) 173

Fig. 3.7 World Bank’s Ease of Doing Business Ranking 2020: South Asia106

These non-tariff barriers substantially impact the ease of doing businesses in South Asia and add to its economic stagnation and slow pace of development. As per the World Bank’s Ease of Doing Business Ranking-2020, SAARC members as part of South Asian nations on average rank 118 amongst 190 countries. The situation is equally dismal when it comes to ‘trading across the border’ where the region cumulatively has been ranked 109 (Fig. 3.7).107 Some of the major non-tariff barriers to trade in South Asia are discussed below, the removal of which will enhance and facilitate the intra-regional trade significantly. A basic perusal of non-tariff barriers prevalent in South Asia shows that most of the nontariff barriers in the region are very rudimentary and are consequent to infrastructural limitations or policy void which could not be meaningfully quantified (Fig. 3.8).

106 Source:

The World Bank’s Ease of Doing Business Ranking (2020). The World Bank’s Ease of Doing Business Ranking (2020). For the overall ranking in ‘doing business’ the World Bank consider following ten areas: i. Starting a business. ii. Dealing with construction permits; iii. Getting electricity; iv. Registering Property; v. Getting Credits; vi. Protecting minority investors; vii. Paying Taxes; viii. Trading across borders; ix. Enforcing Contracts and x. Resolving Insolvency.

107 Source:

66

3 Barriers to Trade and Trade Facilitation …

Non-Tariff Measures

Share

SPS, TBT and Other Related Measures

86.3

Tariff Quotas

9.8

Anti-Dumping Measures

7.4

License Requirement

5.3

Countervailing Measures

1.2

Fig. 3.8 Percentage Share of NTBs to all NTBs in the SAARC region108

3.5.1 SAARC Visa Regime As a part strengthening business environment and facilitating trade in South Asia, it is an urgent requirement that visa regime in the region should be relaxed allowing more people to people contact particularly amongst business and trading communities. Relaxed visa requirement will ensure greater accessibility in the regional market allowing business interaction, networking and foster new business ties. During the fourth SAARC Summit at Islamabad, the importance of the freedom of movement and promotion of people to people contacts were discussed.109 It was agreed that certain categories of people shall be exempted from visa requirement through a special travel document. The special travel document was placed in the form of visa sticker issued to the entitled categories of the people which remain valid for one year. It entitles the holder to stay for one month without restrictions as to a number of cities visited or police reporting.110 Currently, there are 24 categories of persons divided into two groups who are entitled to the benefit of the SAARC Visa Exemption Scheme (Fig. 3.9). At the normative level, the SAARC Visa Exemption Scheme seems promising in increasing people to people contact in South Asia yet it fails to promote widespread public interaction across the region because of its elitist nature and restrictive approach. More than 90% of the persons entitled to the visa exemption scheme form the part of the elitist group leaving an insignificant scope of the interaction amongst ordinary people and the business community (Fig. 3.9). 108 Source: Asian Development Bank and United Nations Conference on Trade and Development (2008). Quantification of benefits from economic cooperation in South Asia. Macmillan India Ltd. 109 Islamabad, 29–31 December 1988. 110 Official Website of SAARC Secretariat (2017). SAARC Visa Exemption Scheme. http://saarcsec.org/SAARC-Visa-Exemption-Scheme. Accessed 02 June 2017.

3.5 Tariff and Non-tariff Barriers in South Asia Sr.

Entitled Persons

67 Spouse

Dependent Children

Group A 1.

2.

3.

4. 5.

6. 7. 8.

Heads of the State and Government, former head of the States and Government, former Foreign Ministers, former Minister of State for Foreign Affairs and former Foreign Secretaries All Central Government Ministers/ Ministers of States/ Advisors of equivalent rank, Deputy Ministers/ Assistant Ministers in the Member States Serving and retired judges of the Supreme Court, Serving judges of the Provincial High Courts and Attorney Generals. Governors, Chief Ministers, Speakers and Deputy Speakers of Provinces/ States Members of the National Parliament, Secretaries-General/ Secretaries of Lower and Upper House of the Parliament. All serving Heads/Secretaries of Federal/ Central Government Governors of the Central Banks Ambassadors/ High Commissioners of SAARC Countries accredited to SAARC member countries

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

9.

Officers of the Ministers of Foreign/ External Yes Affairs in SAARC Division as well as those handling SAARC matters

Yes

10.

Current and former SAARC Secretary General, Yes Directors, Consultants/ Professionals, and GSS Category-I Officials of SAARC Secretariat

Yes

11.

SAARC Regional Centres: a. b. c. d.

Yes

Governing Board Members Directors Professionals Consultants

a. No b. Yes c. Yes d. Yes

12.

Vice Chancellors of Public Universities, Heads Yes

Yes

of the National Academies and Institutions in the field of Art Culture and National Museums including Heads of the National Academic Institutions. 13.

Executive Head of the National Planning Yes Commission/ Organisation

Yes

Fig. 3.9 List of categories of entitled persons under the SAARC visa exemption scheme111 111 Source: SAARC Secretariat Document, Annex 1 SAARC/1A.4/2 (Rev. 1). 2017. Official Website

of SAARC Chamber of Commerce and Industry.http://www.saarcchamber.org/index.php?option= com_content&view=article&id=88&Itemid=217 Accessed 02 June 2017

68

3 Barriers to Trade and Trade Facilitation … 14.

Inspector-General of Police/ Head of the Yes National Police Force or the Officers so designated to attend SAARC Conference on Police Matters.

Yes

15.

Controllers or Heads of the Department of Yes Immigration and Emigration

Yes

16.

President, Vice President, Office Bearers of Yes SAARC Apex Bodies and heads of the SAARC Recognised Bodies.

Yes

17.

Chairperson, Managing Directors of National Yes Airlines, Civil Aviation Authorities, National Tourism Organisation

Yes

18.

The Members of the SAARC Development Funds:

Yes

a. Governing Bodies b. Officers and Staff

a. No b. Yes

19.

Participants to SAARC meetings, seminars, Yes workshops, study tours, and all other approved SAARC activities, with validity as per the requirement

No

20.

The Presidents of National Chambers of Yes Commerce and Industry including Members of the Executive Committee of the National Federation of Chamber of Commerce and Industry. Two hundred leading business people and industrialists from each Member Country recommended by the SAARC Chamber of Commerce and Industry

No

21.

Heads of National Sports Authorities and Yes Federations, 25 eminent sportspersons on a recommendation by National Sports bodies of the respective Member State.

Mo

22.

One Hundred fifty accredited journalist of five No years standing, to be recommended by the Ministries of Foreign/ External Affairs or Information and Broadcasting of the respective Member State

No

23.

Experts, Managers and others associated with No agreed SAARC projects

No

24.

Participants in SAARC Trade Fair and SAARC No Tourism Mart

No

Group B

Fig. 3.9 (continued)

3.5 Tariff and Non-tariff Barriers in South Asia

69

Considering the intra-regional trade under the aegis of SAARC, the assumption that the trickle-down effect of interactions from top amongst state dignitaries alone will strengthen regional integration has been proved wrong. It has also led SAARC to be called a ‘political white elephant’ and ceremonial ‘regional part-time’ of the State dignitaries. Expanding the scope of the visa exemption scheme by entitling ordinary professionals, members of the general business community, academicians, researchers, social workers, artists, etc. can significantly boost the regional integration in South Asia. Keeping the elitist tag and allowing only high-level dignitaries and post-holders hardly serves the purpose of bringing grassroot level integration. ‘On-Arrival SAARC Visa Exemption Sticker’ should also be provided to the entitled categories of persons. It will fast-track the travel process and also cut on the red-tapism. The reason for the red-tapism in the issuance of visa exemption sticker is the presence of the quota system. Under the present setup, a SAARC member country can issue only 100 visa stickers per year to its entitled citizens under the scheme.112 This quota restriction makes the procurement of sticker even more tedious and time taking than an ordinary visa, frustrating the very object of the scheme. Quota limit to the issuance of the visa stickers must be removed, and it should be issued on a need-based basis allowing people to people contact in true spirit. Freedom of movement is one of the most important facets for strengthening regional integration. Such freedom of movement is present in many regional integration organisations including in the EU. Citizens of the EU countries are exempted from visa requirement and enjoy the freedom to enter and reside in any EU countries coming under the Schengen Agreement. Schengen Agreement was signed in Schengen, Luxembourg on 14 June 1985 amongst five EEC member states. Now it covers 26 European countries which under the agreement have agreed to abolish all border controls including passports with the member countries and agreed on facilitating travel with non-Schengen Agreement countries.113 Schengen Agreement member countries also have a common visa policy for the non-members in the form of ‘Schengen Visas’. The visa is applicable for the short term stays for a maximum of three months.114 Similar kind of freedom of movement is also maintained amongst APEC member nations. Asia-Pacific Economic Cooperation (APEC) is an economic integration forum of 21 Pacific Rim countries which was established in 1989 with headquarters in Singapore. One of the significant steps taken by APEC in strengthening regional integration is the introduction of a visa exemption scheme called APEC Business Travel Card 112 Source:

Asian Development Bank (ADB) and Federation of Indian Chamber of Commerce (FICCI). 113 See EU Visa Code, Amendment 2016. Schengen Agreement covers 22 EU countries and four non-EU countries which includes Iceland, Liechtenstein, Norway and Switzerland. 114 See EU Visa Code 2016.

70

3 Barriers to Trade and Trade Facilitation …

Scheme (ABTC Scheme) in the year 1997. Under the scheme, any business traveller can apply for APEC Business Travel Card which shall remain valid for five years and shall exempt the holder the requirement of securing a visa. It entitles the holder to stay in the APEC member country for a maximum of 60–90 days at a time with multiple entries.115 ABTC scheme helped in strengthening regional integration by significantly cutting down trade cost and border immigration clearance time. Due to political constraints, open border trade may not be possible in South Asia, but a SAARC Business Travel Card can well be introduced with proper pre-clearance procedure. This will increase mobility in the South Asian region along with reducing trade cost and time taking immigration process.

3.5.2 Improving Transit Infrastructure and Transport Mobility The poor state of cross-border transit infrastructure is one of the significant reasons for the lack of intra-regional trade in South Asia. Such poor state of infrastructure is reflected in both policy infrastructure and physical infrastructure. The whole South Asian region follows a different set of administrative, legal and commercial conditions for cross-border transportation and transit. Adaptation to a different set of regulations and poor physical infrastructure causes significant constraint to the freedom of movement and thus inhibits many traders to enter into regional trade in South Asia. For facilitating cross-border trade, transit infrastructure and policy setup thereto must be improved. Dedicated and unified multimodal cross-border transport system must be developed in South Asia which can enhance land, sea and air connectivity in the region promoting both passenger travel and cargo transportation. It is ironical that despite geographical proximity and lack of natural barriers, transport connectivity and transit have always been issues of concern in South Asia. Although all the members of SAARC share land or maritime border with India and with one or other of SAARC member, transport connectivity has always been dismal because of human-made barriers. Most of the connectivity issue in the SAARC region has been the result of a protectionist intra-regional policy by member nations and the absence of a unified, comprehensive scheme of regional transit and transportation from SAARC. There are several studies which have shown that South Asia has not been able to achieve its full potential in the trade because of the absence of regional transit trade.116 Except for partial transit arrangement for landlocked countries like Afghanistan, Nepal and Bhutan, there is no regional transit arrangement in South Asia.117 115 Official

website of APEC (2017). APEC Business Travel Card. http://www.apec.org/About-Us/ About-APEC/Business-Resources/APEC-Business-Travel-Card.aspx Accessed 06 June 2017. 116 De and Iyengar (2014). 117 De et al. (2008).

3.5 Tariff and Non-tariff Barriers in South Asia

71

The 15th SAARC Summit held in Colombo during 2–3 August 2008 deliberated on the need of having inter-regional and intra-regional connectivity and development of all comprehensive transit policy for the SAARC region. The Colombo Declaration directed the SAARC mechanism to fast-track improvement in intra-regional connectivity in order to promote economic, social and people to people contact. It also directed to embody in SAARC programme and projects strong focus on better connectivity not only within SAARC but also between the South Asian region and rest of the world.118 Another significant aspect of the Colombo Declaration is its reiteration of the critical importance of a comprehensive and unified multimodal system of regional transportation. As the first step in the path of the multimodel system of regional transportation, the Colombo Declaration urged the signing of the SAARC Motor Vehicle Agreement (SMVA).119 As mentioned earlier most of the bottlenecks to the regional connectivity in South Asia are human-made rather than natural barriers. A SAARC Motor Vehicle Agreement as a comprehensive and unified system of regulation on transit and transportation can significantly easy down transportation cost and hindrances which transit across border face. As per the present setup, land transit facility in most of the SAARC member nations is not available. Accordingly in case of the land transportation, for example, trucks carrying merchandise have to stop at the Land Customs Station of the importing nation and have to reload their merchandise on importing nation trucks as no transit rights are provided to them, and thus they cannot enter the territory of the importing country. The Banglabandha project of Bangladesh brought the matter concerning transit rights in the SAARC region to the forefront. As per this ambitious project, Bangladesh aims to connect itself to Bhutan and Nepal through land route by getting land transit rights through the part of Indian Territory known as the Siliguri Corridor.120 Bangladesh is separated from Nepal and Bhutan by 52 kilometres and 68 kilometres, respectively, by the Indian territory forming part of the City of Siliguri in the Indian State of West Bengal. Bangladesh has been requesting the direct transit right from India to connect through the land route with Nepal and Bhutan. However, because of the certain disagreements between India and Bangladesh, the project could not still be fully materialised in terms of direct transit routes. However, with the inauguration of Phulbari land port in Jalpaiguri of West Bengal, the project has been made functional. A well-coordinated transit policy here will not only benefit Bangladesh but will also lead to a substantial increase in trade benefits to India, Nepal and Bhutan. 118 Paragraph

7, Declaration on Partnership for Growth for Our People, Fifteenth SAARC Summit Colombo, 2–3 August 2008. 119 Paragraph 20, Declaration on Partnership for Growth for Our People, Fifteenth SAARC Summit Colombo, 2-3 August 2008. 120 Siliguri Corridor, informally known as India’s Chicken Neck, is a narrow stretch of territory in the Indian State of West Bengal. City of the Siliguri in the State of West Bengal is the connecting between of Northeast India to the rest of the country. And it also separates Bangladesh, Bhutan and Nepal.

72

3 Barriers to Trade and Trade Facilitation …

With a unified agreement like the SAARC, Motor Vehicle Agreement regional transit facility could be provided to all pre-approved vehicles from the SAARC region. The ADB and FICCI in this regard suggested ‘vehicle transit card’. This card could be issued to certain specified categories of vehicles for transit beyond international borders.121 Another way through which transit facilities can be smoothened in South Asia is through the establishment of new Land Customs Stations (LCS) and improving the infrastructure of existing LCS. Many of the existing Land Customs Stations are inadequately equipped to deal with the large quantity of cargo particularly the perishable commodities. They lack proper warehousing and cold storage facilities. For instance, in Mahadipur LCS, Malda District, West Bengal (India-Bangladesh Border), there is inadequate infrastructure in terms of offices, cargo handling and passenger handling. There is no proper parking facility nearby the LCS and even the way width of the road leading to border crossing is highly inadequate leading to traffic congestions. Similarly, Hili LCS in Dakshin Dinajpur District has no warehousing facility and lacks even basic amenities like power and water supply.122 The more or less same position is prevalent in the majority of the LCS across South Asia. Presences of numerous time-consuming and tedious formalities are common in cross-border trade in South Asia which makes it very difficult for traders, particularly small-scale traders, to profitably deal in such cross-border transactions. On numerous occasions, the lack of warehousing and cold storage facilities has caused serious financial losses for traders. Thus, large chunks of traders, particularly medium scale or small-scale dealer in foreign trade, are inhibited from participating in cross-border trade in the region. More land customs stations across the SAARC region have to be established to allow greater connectivity and mobility across the region. In the whole of the SAARC region, considering geographical proximity and lack of natural barriers, the numbers of land customs stations are very low. Afghanistan and Pakistan share an international land border (Durand Line) of 2,430 kilometres but just have seven designated land customs stations. There are also few custom posts across Khyber Pakhtunkhwa, for example, Kharlachi custom post near Peshawar. However, they are highly ill-equipped. Kharlachi post has no electricity, desks, adequate office staff, parking facilities or other basic infrastructure to facilitate cross-border trade.123 In the case of India and Bangladesh, numbers of land custom ports are high nonetheless they are not able to significantly aid in intra-regional trade because they lack in basic infrastructural needs (Fig. 3.10).

121 Asian

Development Bank (ADB) and Federation of Indian Chamber of Commerce (FICCI) Report. 2010. Key Proposals for Harnessing Business Opportunities in South Asia. 122 See Report by West Bengal Industrial Development Corporation Limited (WBIDC), New Delhi. Status Report on Land Custom Station. http://wbidcdelhi.in/wp-content/uploads/2011/05/Table-4Report_Proforma_on_LCS_in_WB.pdf. Accessed 14 June 2017. 123 Ali (2015).

3.5 Tariff and Non-tariff Barriers in South Asia Sr. 1.

Particular

Location Countries Pakistan - Afghanistan a Dry Port NLC, Quetta, Pakistan, Quetta Baluchistan, Afghanistan Pakistan and Iran

2.

Custom Chaman

House

3.

Customs Station Zhob

4.

Custom Station Dalbandin

5.

Custom Station Nokundi

6.

Custom Gwadar

7.

Custom House, Gaddani

1.

Land Customs Station, Attari

1.

Sutarkhandi

2.

Karimganj Steamer Ghat

House,

73 Description

Established in 2002, caters the export/import of goods with Iran and other countries through land route. Chaman, PakistanEstablished in 1955, Baluchistan, Afghanistan connects Chaman, Pakistan Pakistan with Kandahar, Afghanistan Zhob, Pakistan Established in 1999, Baluchistan, Afghanistan the principal object is Pakistan to facilitate import of timber, dry and fresh fruits from Afghanistan. Dalbandin, Pakistan, Established in 1983, Baluchistan, Afghanistan mainly serves trade Pakistan and Iran with Iran. Nokundi, Pakistan, Established in 1983, Baluchistan, Afghanistan mainly serves trade Pakistan and Iran with Iran. Also used for trading with Afghanistan Gwadar, Pakistan, Established in 1983, Baluchistan, Afghanistan Gwadar is the gateway Pakistan and Gulf to the vast hinterland countries of Afghanistan and including Central Asia Oman Gaddani, Pakistan, Established in 1979, Baluchistan, Afghanistan also used as Pakistan and Iran shipbreaking yard India-Pakistan Attari, Pakistan and Established in 1965. Punjab, India Most historic and only India rail link between India and Pakistan India-Bangladesh b Assam, India IndiaIdentified as Bangladesh Integrated Check Post by India. Connects Sheola LCS, Bangladesh Assam, India IndiaConnects Zakiganj, Bangladesh Bangladesh

Fig. 3.10 List of land customs stations in SAARC Region124,125,126,127 124 Source Federal Board of Revenue, Revenue Division, Pakistan. https://www.fbr.gov.pk/ShowAr ticle.aspx?actionID=126. Accessed 15 June 2017. 125 Source Ministry of Development of North Eastern Region, Government of India; Bangladesh Land Port Authority. 126 Directorate General of Performance Management, Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India. https://dgicce.nic.in/nepalstn.pdf. Accessed 16 June 2017. 127 Source Ministry of Development of North Eastern Region, Government of India.

74

3 Barriers to Trade and Trade Facilitation … 3.

Mankachar

4.

Golakganj

5.

10.

Karimganj Ferry Station Mahisasan Railway Station Silchar R.M.S. office Dhubri Steamerghat Gauhati Steamerghat Silghat

11.

Borsora

12.

Dawki

13.

Ghasuapara

Meghalaya, India

IndiaBangladesh

14.

Shellabazar

Meghalaya, India

IndiaBangladesh

Connects Sonamganj, Bangladesh

15.

Bholaganj

Meghalaya, India

IndiaBangladesh

Non-functional

16.

Dalu

Meghalaya, India

IndiaBangladesh

Connects Nakugaon, Bangladesh

17.

Mahendraganj

Meghalaya, India

IndiaBangladesh

Connects Dhanua Kamalpur, Bangladesh

18.

Baghmara

Meghalaya, India

IndiaBangladesh

Connects Bijoypur, Bangladesh

19.

Ryngku Balat

21.

Kalaichar

22.

Agartala

IndiaBangladesh IndiaBangladesh IndiaBangladesh IndiaBangladesh

Non-functional

20.

Meghalaya, India Meghalaya, India Meghalaya, India Tripura, India

6. 7. 8. 9.

Assam, India IndiaBangladesh Assam, India IndiaBangladesh

Assam, India IndiaBangladesh Assam, India IndiaBangladesh Assam, India IndiaBangladesh Assam, India IndiaBangladesh Assam, India IndiaBangladesh Assam, India IndiaBangladesh Meghalaya, IndiaIndia Bangladesh Meghalaya, IndiaIndia Bangladesh

Functional

Connects Bhurungamari, Bangladesh Connects Zakiganj, Bangladesh Not Functional Not Functional Connects Rowmati, Bangladesh

Connects Borosora, Bangladesh Being developed as an Integrated Check Post. Connects Tamabil, Bangladesh. Non-functional

Non-functional

Being developed as an Integrated Check Post. Connects Akhaura, Bangladesh

Fig. 3.10 (continued)

As per the different studies conducted, many of the land customs ports across India and Bangladesh border are non-functional and many of those which are functional lack in basic infrastructural requirements like warehousing facilities, office space, electricity, parking facilities, sufficient road width, cargo handling, etc.128 128 See Report by West Bengal Industrial Development Corporation Limited (WBIDC), New Delhi.

Status Report on Land Custom Station. http://wbidcdelhi.in/wp-content/uploads/2011/05/Table-4Report_Proforma_on_LCS_in_WB.pdf. Accessed 14 June 2017.

3.5 Tariff and Non-tariff Barriers in South Asia

75

23.

Srimantapur

Tripura, India

IndiaBangladesh

Connects Bibir Bazaar, Bangladesh

24.

Old Raghnabazar

25.

Manu

Tripura, India Tripura, India

IndiaBangladesh IndiaBangladesh

Connects Betuli, Bangladesh Connects Chatiapur, Bangladesh

26.

Sabroom Belonia (Muhurighat)

IndiaBangladesh IndiaBangladesh

Non-functional

27.

Tripura, India Tripura, India

28.

Dhalaighat

Tripura, India

IndiaBangladesh

Connects Bangladesh

29.

Khowaighat

30.

Kawrapuchciah

Tripura, India Mizoram, India

IndiaBangladesh IndiaBangladesh

Connects Balia, Bangladesh Connects Thegamukh, Bangladesh

31.

Demagiri

32.

Petrapole

Mizoram, India West Bengal, India

IndiaBangladesh IndiaBangladesh

Connects Rangamati, Bangladesh Connects Benapole, Bangladesh. Both road and rail freight.

33.

Changrabandha

IndiaBangladesh

Connects Burimari, Bangladesh.

34.

Mahadipur

West Bengal, India West Bengal, India

IndiaBangladesh

Connects Shibganj, Bangladesh

35.

Hili Land Port

IndiaBangladesh

Connects Hili, Hakimpur, Dinajpur

36.

Phulbari

IndiaBangladesh

37.

Radhikapur

38.

Bhomra Land Port

West Bengal, India West Bengal, India West Bengal, India Satkhira, Bangladesh

39.

Gede

Connects Banglbandha, Bangladesh Connects Birol, Bangladesh. Rail Meter Gauge Connects Gojadanga, 24 Parganas, West Bengal Connects Darshana, Bangladesh. Rail Broad Gauge

West Bengal, India

IndiaBangladesh IndiaBangladesh IndiaBangladesh

Non-functional Khurma,

Fig. 3.10 (continued)

To strengthen intra-regional trade in SAARC region, a common transit policy must be developed along with substantial improvement in the transit infrastructure at existing land customs stations and establishment of new land customs stations, particularly between India and Pakistan and Afghanistan and Pakistan. Provision of direct transit rights to pre-approved vehicles from SAARC member countries can substantially aid in regional cooperation and trade. See also Bangladesh Land Port Authority. Land ports in a brief.t http://114.130.54.109/blpa/ index.php?option=com_content&task=view&id=800&Itemid=229. Accessed 16 June 2017.

76

3 Barriers to Trade and Trade Facilitation … 40.

Chilahati

Chilahati, Bangladesh

IndiaBangladesh

41.

Mujibnagar

Mujibnagar, Bangladesh

IndiaBangladesh

Connects Holdibari, Cooch Behar, West Bengal. Rail (potential) Connects Hridoypur, Nadia, West Bengal.

India-Nepal c 1.

Sukhiapokhri

Galgalia

West Bengal, India West Bengal, India Bihar, India

2.

Naxalbari

3.

India-Nepal

Connects Pashupatinagar, Nepal

India-Nepal

Connects Kakarbhitta, Nepal

India-Nepal

Connects Bhadrapur, Nepal Connects Biratnagar, Nepal Connects Setobandha, Nepal Connects Rajbiraj, Nepal Connects Siraha, Nepal Connects Jaleswar, Nepal Connects Malangawa, Nepal

4.

Jogbani

Bihar, India

India-Nepal

5.

Bhimnagar

Bihar, India

India-Nepal

6.

Kanauli

Bihar, India

India-Nepal

7.

Jayanagar

Bihar, India

India-Nepal

8.

Bhitamore

Bihar, India

India-Nepal

9.

Sonabarsa

Bihar, India

India-Nepal

India-Bhutan d 1.

Darranga

2.

Hatisar

3.

Ultapani

1.

Banglabandha

Assam, India IndiaBhutan Assam, India IndiaBhutan Assam, India IndiaBhutan Bangladesh- Nepal- Bhutan Panchagarh, Bangladesh, Established in 2004. Bangladesh India, Nepal One of the most and Bhutan ambitious projects aims to connect Bangladesh with Nepal and Bhutan through Indian territory. Partially functional

Fig. 3.10 (continued)

3.5.3 Sanitary and Phytosanitary Measures in South Asia Almost all the non-tariff barriers in South Asia are very rudimentary and confined mostly to necessities like infrastructure, transit/ travel permission, etc. Technical measures including Sanitary and Phytosanitary (SPS) measure per se are not the significant cause of concern in intra-regional trade in SAARC. However, it is a major bottleneck to trade when it comes to export of food and related merchandise by SAARC countries to the rest of the world, particularly to EU and USA (Fig. 3.8).

3.5 Tariff and Non-tariff Barriers in South Asia

77

SPS Measures are defined by the WTO SPS Agreement as to any measure by way of laws, regulations and procedures including inter alia product process, method, manufacturing, end product criteria, testing, inspection and certification. Such measures may relate to any of the following: a. b. c. d.

Protection of animal or plant life or health from pests, diseases, diseases carrying or causing organism; Protection of human or animal life or health from additives, contaminants, toxins, etc. in food or beverage; Protection of human life or health from diseases carried by animal, plants or products thereof; Prevention or limitation of other damage caused by entry, establishment or spread of pests, etc.

With the mass production and global trade of food products, food safety has emerged as a new frontier in the cause of fair international trade. The importance of the application of SPS Measures can be understood from the fact that food and water-borne diseases are the biggest cause of illness and death around the world, second only to respiratory tract diseases.129 As per WHO estimates, approximately 420,000 people die every year due to consumption of contaminated food or water. African, South Asian and South-East Asian regions have the highest incidence of foodborne diseases and deaths.130 Consequent to these facts nations around the world have enacted stringent laws and regulations to monitor and control, quality and hygiene of the food products which they are importing from other nations. Although SPS regulations are the legitimate regulatory prerogative of any nation because of the diversity of regulations and lack of uniform standards, it has become one of the major non-tariff barriers to international trade. The same is also true in the case of the SAARC region. There is no uniform rule under the aegis of SAARC applicable across the region. Because of the diversity of technical regulations, the significant hindrance is faced by the traders dealing in cross-border transactions in South Asia. In South Asia, SPS measure as non-tariff barriers is mostly consequent to the lack of laboratory testing facilities at the customs ports, contradictory standards of member nations and mutual non-recognition of SPS certification and laboratory results.131 In relation to India and Bangladesh, as per the study conducted by the Bangladesh High Commission in New Delhi, mandatory testing requirements along with mandatory standard requirements, additional technical regulations and special labelling 129 Source

World Health Organisation.

130 World Health Organisation. WHO’s first ever global estimates of food borne diseases find children

under 5 account for almost one third of deaths. http://www.who.int/mediacentre/news/releases/ 2015/foodborne-disease-estimates/en/. Accessed 23 June 2017. 131 Asian Development Bank (ADB) and Federation of Indian Chamber of Commerce (FICCI) Report. 2010. Key Proposals for Harnessing Business Opportunities in South Asia.

78

3 Barriers to Trade and Trade Facilitation …

requirements are some of the major non-tariff barriers which are imposed on the Bangladeshi imports to India.132 Under, mandatory testing requirements exporters complain that each consignment is subjected to certification by local health officers of the importing nations which take months to secure. The impact of such a requirement is felt very harsh particularly in cases of food and other perishable items.133 Because of the infrastructural drawbacks and non-availability of laboratory facilities at many Land Customs Stations, the sample for SPS compliance testing has to be sent outstation. For instance, land customs stations in and around Shillong, Meghalaya, which are significant land route connection between India and Bangladesh, do not have laboratory facilities for mandatory testing requirements.134 The samples drawn from import consignments from Bangladesh entering through Meghalaya have to be sent to Guwahati, Assam which is the nearest location having required laboratory facility.135 Non-availability of laboratory facilities at Land Customs Stations puts the extra financial burden on traders and considerably delays the movement of the merchandise. It takes weeks to get the test report and to effectuate custom clearance. This situation is further worsened due to lack or non-availability of proper warehousing facilities at many of the land customs stations. Similar is also the situation with other land customs stations across the region including Integrated Check Post at Wagah-Attari between India and Pakistan.136 The problem with the SPS testing is aggravated even further by the fact that only selected pre-designated laboratories are authorised to do the testing and certification for customs clearance. For instance, the Indian State of Manipur has a laboratory equipped with required facilities, but it is not authorised to give certification for customs clearance purposes as it is not sanctioned under Prevention of Food Adulteration Act (PFA), which is the basic Indian law on SPS measures.137 Thus, the whole North-East Indian region which connects India with three SAARC countries that are Bangladesh, Nepal and Bhutan are dependent upon one functioning SPS testing laboratory situated in Guwahati.138 132 Study conducted by Mahbub Hassan Saleh, Bangladesh deputy high commissioner in New Delhi

which was published in September 2011. (2014). 134 See Public Notice No. 04 of 2010, “Customs clearance procedure for clearance of import consignments of non-perishable food items through Land Customs Stations in the Commissioner of Customs (Preventive), NER, Shillong” Issued by the Office of the Commissioner of Customs (Preventive), North Eastern Region, Shillong, Ministry of Finance, Department of Revenue, Government of India. http://shillongcustoms.gov.in/english/wp-content/uploads/2014/06/Pub_Notice_04_ 2010.pdf. Accessed 09 July 2017). 135 State Public Health Laboratory, Bamunimaidan, Guwahati, Assam. 136 See Taneja and Dayal (2016). 137 Ministry of Development of North Eastern Region, Government of India. 2011. Look East Policy And The North Eastern States. F.No.17/8/2009-DONER(LEP). http://www.mdoner.gov.in/ sites/default/files/silo2_content/Look%20East%20Policy/Aspects%20of%20Look%20East%20P olicy.pdf. Accessed 10 July 2017. 138 Indian State of Tripura in North Eastern India also have a PFA authorised State Public Health Laboratory situated in Agartala. However, it is non-functional since 2009 and lacks necessary staff 133 Khan

3.5 Tariff and Non-tariff Barriers in South Asia

79

It is need of the hour that SAARC as the organisation of regional cooperation must formulate an agreement on SPS and other technical barriers to trade which could provide a uniform standard of rules applicable to the region. The diversity of SPS standards and mutual non-recognition of SPS certification is one of the biggest hurdles in smooth trade transaction in the region. All the major land customs stations across the region must be provided with laboratory facilities to do the required SPS certification testing. SAARC member nation must also formulate a mechanism to recognise the testing certification done by approved laboratories and agencies of other nations. Mandatory host nation laboratory certification requirement must also be removed for customs clearance.

3.5.4 Inadequate Banking and Financial Facilities Non-availability of regional banking facility and the absence of any meaningful regional cooperation in the commercial banking field is also turning out to be a major non-tariff barrier in intra-regional trade amongst the SAARC countries. In many cases, the existing banks do not facilitate regional financial transactions which considerably hamper the ease of doing business.139 There is an urgent need that along with the development of physical infrastructure, regional financial infrastructure should also be developed. Financial infrastructure improvements require regional cooperation in banking, insurance and capital market sector which could aid in regional business transactions and foreign regional investment. Although finance is one of the areas of cooperation under SAARC mandate alongside economic and trade, so far no regional agreement dealing with financial sector cooperation could be secured. However, there are few bilateral arrangements in the form of the Memorandum of Understanding (MOU) which have been signed between India-Sri Lanka and India-Pakistan to enhance cooperation in the financial sector especially in the securities market and stock exchange.140 To increase financial cooperation amongst SAARC countries, SAARC Finance Ministers through Ministerial meetings are defining the roadmap. As the first step, Inter-Governmental Expert Group on Financial Issues (IGEG-Finance) was constituted in the year 2006 to work for financial cooperation including achieving the

and equipment. In December, 2010 the Tripura State Government has recruited a Public Analyst nonetheless the laboratory is still not fully functional. 139 See Key note address by Mr. Tariq Sayeed, President SAARC CCI, Regional Conference on Deepening South Asian Economic Integration 24 July 2008, New Delhi. 140 See Bilateral MOU between Securities and Exchange Board of India and Securities and Exchange Commission of Sri Lanka signed on 23 January 2003; MOU between Securities and Exchange Board of India and Securities and Exchange Commission of Pakistan signed on 23 January 2008.

80

3 Barriers to Trade and Trade Facilitation …

ultimate aim of creating South Asian Economic Union (SAEU).141 SAARC Finance Ministers conducted a total of eight meetings the latest one was in August 2016 in Islamabad. In 18th SAARC Summit held in Kathmandu on 26–27 November 2014, the Heads of State or Government have expressed their strong determination to deepen financial cooperation and to accelerate the process towards the South Asian Economic Union (SAEU). One of the significant achievements in the area of financial cooperation in South Asia has been the constitution of SAARC Development Fund (SDF) in 2005 as per the decision in 13th SAARC Summit held in Dhaka. SDF is an ‘umbrella financial mechanism’ for all the SAARC development activities, and it is a reconstituted form of SAARC Fund for Regional Projects (SFRP) and the SAARC Regional Fund.142 SDF has its permanent secretariat in Thimphu, Bhutan working on the following three aims: i. ii. iii.

promote the welfare of the people of the SAARC region, improve their quality of life and accelerate economic growth, social progress and poverty alleviation in the region.143

Another distinctive achievement in the area of financial cooperation has been the establishment of SAARCFINANCE in September 1998 in furtherance of the decision in 10th SAARC Summit, Colombo. SAARCFINANCE is the Group of Central Bank Governors of the SAARC Member States. The purpose of SAARCFINANCE is to enhance cooperation amongst the Central Banks of the member countries on macroeconomic policy issue by providing a forum for financial networking.144

3.6 Conclusion Since the very inception of the modern world trading mechanism with GATT 1947, tremendous advancement has been made to achieve barrier less international trade. Regarding tariff reduction, GATT/WTO has been highly successful, and it has been able to substantially reduce the average global bound tariff and average global applied tariff.145 141 See

Official website of SAARC. Economic and Financial Cooperation.http://saarc-sec.org/ areas_of_cooperation/area_detail/economic-trade-and-finance/click-for-details_7. Accessed 13 July 2017. 142 Official Website of SAARC Development Fund. About SDF. http://www.sdfsec.org/about-sdf. Accessed 13 July 2017. 143 Official Website of SAARC Development Fund. About SDF. http://www.sdfsec.org/about-sdf. Accessed 13 July 2017. 144 Official Website of SAARCFINANCE. Brief History, Objectives and Activities. http://www.saa rcfinance.org/SaarcBriefHistory.html, Accessed 13 July 2017. 145 See Table 3.1 of this chapter.

3.6 Conclusion

81

GATT/WTO has also established the exhaustive normative mechanism as well as the institutional setup to regulate non-tariff barriers. However, the success of the WTO in the removal of non-tariff barriers is limited as compared to tariff barriers and still has to prove itself in the form of binding commitment which is institutionally enforceable. In the case of South Asia, the situation regarding barriers to trade and trade facilitation is very distinct. Despite substantive efforts at GATT/WTO level and normative efforts taken at the regional level, barriers to trade could not be sufficiently reduced in the South Asian region. Most of the barriers to trade in South Asia are very rudimentary and concerns primarily with the lack of infrastructural facilities, unlike in regions like Europe, South East Asia or America where measures like technical requirements or Sanitary and Phytosanitary measures are the major barriers to trade. In South Asia, poor land connectivity, lack of transit facilities, inadequate banking services, lack of amenities at land customs stations, the absence of visa facilitation, etc. are the major non-tariff barriers to trade. Although SAARC has taken certain measures to remove different non-tariff barriers to trade in the form of agreement like SAFTA, nothing substantial could be achieved and South Asia still suffers from lack of basic facilities when it comes to cross-border trade. Most of the initiatives of SAARC, particularly relating to the non-tariff barriers have been only at the normative stage and could not be materialised into the binding commitment from the member states.

References Adlung, R., & Mamdouh, H. (2013). How to design trade agreements in services: top down or bottom up? Economic Research and Statistics Division, World Trade Organisation, Staff Working Paper ERSD-2013-08. Ali, Z. (2015). Kharlachi—a hub of cross-border trade but an eyesore too. The Dawn Newspaper, June 30, 2011. https://www.dawn.com/news/1191382. Accessed 17 June 2017. Anti Dumping Statistics. (2017). Anti dumping Publishing House. http://www.antidumpingpublish ing.com. Accessed 25 July 2017. Bhala, R. (2008). International trade law: Interdisciplinary theory and practice. Lexis Nexis, p. 350. Bievre, D. D. (2004). Governance in international trade: Judicialisation and positive integration in the WTO. Preprints of the Max Planck Institute for Research on Collective Goods, No. 2004/7 on ECONSTOR.https://www.econstor.eu/bitstream/10419/85117/1/2004-07_online.pdf. Accessed 13 May 2017. Bown, C. P. (ed.). (2011). The great recession and import protection: The role of temporary trade barriers. The International Bank for Reconstruction and Development/The World Bank Publication. Danish, K. W. (1995). International environmental law and the ‘bottom-up’ approach: A review of the desertification convention. Indiana Journal of Global Legal Studies, 3(1). De, P., & Iyengar, K. (2014). Developing economic corridors in South Asia. India: Asia Development Bank. de Sousa, P. C. (2012). Negative and positive integration in EU Economic law: Between strategic denial and cognitive dissonance. German Law Journal, 13(8), 979–1011.

82

3 Barriers to Trade and Trade Facilitation …

De, P., Khan, A. R., & Chaturvedi, S. (2008). Transit and trade barriers in Eastern South Asia: A review of the transit regime and performance of strategic border-crossings. Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 56. Deardorff, A. (2012). Easing the burden of non-tariff barriers. The International Trade Forum, the quarterly magazine of the International Trade Centre. Epps, T., & Trebilcock, M. J. (ed.) (2013). Research Handbook on the WTO and Technical Barriers to Trade. U.K: Edward Elgar Publication. Fahey, J. H. (1931). Tariff barriers and business depression. Proceedings of the Academy of Political Science, Depression and Revival, 14(3), 41–47. Hanson, D. (2010). Limits to free trade: Non tariff barriers in European Union, Japan and United States. UK: Edward Elgar Publishing Limited. Howse, R., & Trebilcock, M. (1998). Trade liberalisation and regulatory diversity: Reconciling competitive markets with competitive politics. European Journal of Law and Economics, 6. Kudryavtsev, A. (2013). The TBT agreement in context. In Epps, T. & Trebilcock, M. K. (eds.) Research handbook on the WTO and technical barriers to trade. UK: Edward Elgar Publication. Neufeld, N. (2014). The Long and Winding Road: How WTO Members finally reached a trade facilitation agreement. Staff Working Paper ERSD-2014-06, Economic Research and Statistics Division, World Trade Organisation. Ortino, F., & Petersmann, E.-U. (ed). (2004). The WTO Dispute Settlement System, 1995–2003. Kluwer Law International. Khan, Owais Hasan. 2014. Indo-Bangladesh Trade Agreements: A critical Appraisal, Law Mantra Journal. Volume 1 Issue 9. Petersmann, E.-U. (2000). From negative to positive integration in the WTO: Time for mainstreaming human rights into WTO law. Common Market Law Review, 37(6), 1363–1382. Pritchett, L., & Seth, G. (1994). Tariff rates, tariff revenue, and tariff reform: Some new facts. The World Bank Economic Review, 8(1), 1–16. Stewart, E. L. (1969). District of Columbia address to the American Society of International Law, “Non-tariff trade barriers”. published in 63 American Society of International Law Proceeding No. 209. Taneja, N., & Dayal, I. (ed.). (2016). India-Pakistan trade normalisation: The unfinished economic agenda. Springer. The World Bank’s Ease of Doing Business Ranking. (2020). https://www.doingbusiness.org/con tent/dam/doingBusiness/media/Profiles/Regional/DB2020/SA.pdf. Accessed 20 June 2020. The World Bank Trade Data on South Asia. (2020). http://data.worldbank.org/indicator/TM.TAX. MRCH.WM.AR.ZS?end=2012&locations=8S&start=1996&view=chart&year_low_desc= false. Accessed 20 June 2020. World Trade Organization, Economic Research and Statistics Division. (2014). The long and winding road: How WTO members finally reached a trade facilitation agreement. Staff Working Paper ERSD-2014-06. UNCTADSTAT: United Nations Conference on Trade and Development Statistics. (2020). https:// unctadstat.unctad.org/wds/TableViewer/tableView.aspxas. Accessed 20 June 2020.

Chapter 4

Comparative Regionalism: SAARC, ASEAN and EU

4.1 Introduction Comparative regionalism as a specialised area of research is of very recent origin and has started with the second wave of regionalism since the 1970s and 80s when many Asian, African and North American nations started entering into the different regional settings for varying purposes. With the mushrooming of regional integration institutions in the 1970s and 80s, the quest for finding out the success mantra for regional institutions triggered the comparative studies on the intra-regional and crossregional bases. The main idea behind the comparative study is to find out the different nuances a particular phenomenon can have in different situations. As defined by Shmuel Eisenstadt, comparative study is a ‘cross-societal’ and ‘cross-institutional’ study of a phenomenon.1 It is a method of discovering the relationship between variables and the resultant effect this relationship causes.2 Lessons from comparative studies can help in strengthening the host phenomenon by adopting good practices from others and learning from others’ mistakes, as the case may be. Comparative regionalism is a quest for finding the factors which strengthen or inhibit the growth of regional integration. It is a branch of the comparative studies or more especially of comparative law. In the contemporary world, regionalism or regional integration is a widespread phenomenon which involves almost all nations of the world. Almost all the members of the WTO are part of one or more regional integration setups of varying forms and scopes. From 1948 to 2020, as many as 705 RTAs have been notified to the WTO.3 With this tremendous rise in the number of regional integration setups which entails the 1 Eisenstadt

(1968). (1971). 3 Source: WTO Secretariat—June 20, 2020. Regional Trade Agreements Database, WTO. https:// rtais.wto.org/UI/charts.aspx Accessed 20 June 2020. 2 Lijphart

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_4

83

84

4 Comparative Regionalism: SAARC, ASEAN and EU

governments of all the WTO members, the complexities involved in comparative regionalism have also increased. Comparative regionalism has become a complicated enterprise as not only the governments/states are part of the regional integration, but there is also a significant role played by non-state actors. This ‘plurality and multi-dimensionality of the contemporary regionalism’ has made comparative regionalism a very challenging and complex exercise.4 The present chapter is a comparative study on a micro-comparative basis which focuses on the trade aspect of the regional integration in South Asia, to understand the region’s lack of integration and to explore ways through which integration could be strengthened. However, the ancillary factors like institutional strengths, social, ideational factors, etc. which determine the scope of trade regionalism are also analysed. For comparative regionalism, both exogenous and endogenous perspectives are considered. An exogenous perspective compares external factors which lead to the success of regional integration like the impact of globalisation on a particular regional organisation whereas, an endogenous perspective examines the internal factors which determine the success of regional integration, for example, factors like the economic position of member nations and economic complementarity.5 Different comparative perspectives like realism, rationalism and internationalism are also employed for the present comparative study. Realism, rationalism and internationalism are the three major political viewpoints or schools of thought in the studies of international relations. In comparative regionalism, the adoption of these viewpoints shapes the perspective with which comparison is approached between the regions. For comparative regionalism, rationalism and internationalism are used to approach the comparative study and to analyse its results. Rationalism has been taken as the path with internationalism as the destination. In the context of SAARC, internationalism in the form of creating a potent supranational organisation is an ultimate objective. However, the study is grounded in reality by acknowledging the role of states and the national governments in regional dynamics. Although there are numerous regional integration organisations across the globe, the researcher has chosen the case of the EU and ASEAN for comparative regionalism with SAARC. The EU has been chosen as it is widely considered as the role model for regional integration across the world and the most successful amongst all the regional integration setups of the world. ASEAN has been considered for comparative analysis because of its similarity with the South Asian economy, its society and political situation. Although in a technical sense, ASEAN and particularly the EU may not be entirely comparable with SAARC because of their differences in historical origins, 4 De 5 For

Lombaerde et al. (2010). discussion on exogenous and endogenous perspectives, see Hettne (2002).

4.1 Introduction

85

the degree of integration, economic situations along with other qualitative criteria like the regional sense of belongingness, regional leadership, etc. the comparison can give greater insights into finding the reasons for the relative success of ASEAN and the EU in bringing deeper integration and the measures which SAARC should take to strengthen its regional integration. Before undertaking the comparative analysis, ASEAN and the EU as the organisations of regional integration are briefly introduced as follows. Association of Southeast Asian Nations (ASEAN) Association of Southeast Asian Nation or ASEAN was formed on 8 August 1967 as the regional inter-governmental organisation by Thailand, Singapore, Malaysia, Indonesia and Philippines. Membership was further extended to include Brunei, Myanmar, Lois, Cambodia and Vietnam. Presently, ASEAN has ten member nations and two observer nations that include East Timor and Papua New Guinea.6 The association was formed to counter the spread of communalism along with promoting economic development and social prosperity. During the initial decades of ASEAN, it could not have any significant achievement because of the Vietnam– Cambodia conflict and power struggle in the region consequent to the Cold War. After the end of the Cold War, in the 1990s ASEAN achieved significant progress in strengthening regional integration and achieving socio-economic prosperity and stability.7 The founding document of the organisation is the ASEAN Declaration also known as the Bangkok Declaration of 8 August 1967. It serves as the primary document for ASEAN which provides for its aims and purposes. It is also a foundational document which establishes a framework for ASEAN’s principles of regional cooperation, the ASEAN community vision and the ASEAN Charter. The primary purposes of ASEAN are to promote peace and stability in the region and to accelerate economic growth, social progress and cultural development in the region.8 ASEAN members to define their relations inter se have adopted certain fundamental principles of regional cooperation. These principles were adopted through the Treaty of Amity and Cooperation in Southeast Asia signed in 1976, which are as follows: i. ii. iii. iv. v. 6 See

Mutual respect for the independence, sovereignty, equality, territorial integrity and national identity of all nations; The right of every State to lead its national existence free from external interference, subversion or coercion; Non-interference in the internal affairs of one another; Settlement of differences or disputes in a peaceful manner; Renunciation of the threat or use of force; and

the official website of ASEAN. http://asean.org/. Accessed 11 Jan. 2018. Simon (1979), Ahmad and Ghoshal (1999). 8 Paragraphs 1 and 2, Bangkok Declaration. 7 See,

86

vi.

4 Comparative Regionalism: SAARC, ASEAN and EU

Effective cooperation amongst themselves.9

In the 9th ASEAN Summit 2003, the ASEAN Community was established to promote a sense of belongingness and oneness in the region. The ASEAN Community has three subdivisions or pillars, namely, the ASEAN Political-Security Community, the ASEAN Economic Community and the ASEAN Socio-Cultural Community. The purpose of these communities is to develop a strategic framework in their concerned areas to strengthen regional integration. The ASEAN Charter is the most significant document after the ASEAN Declaration. The Charter was agreed upon and came into force on 15 December 2008. It establishes the legal status and institutional framework for ASEAN along with providing its norms, rules, values and objectives.10 In the process of community building, regional identity and unity, the ASEAN Charter has taken several initiatives. It provides for the ASEAN motto which is “One Vision, One Identity and One Community”, the ASEAN flag, the ASEAN emblem, the ASEAN day and the ASEAN Anthem.11 Although the success of these initiatives is a matter of question and debate given the Asian financial crisis of 1997, the Rohingya crisis in Myanmar, Vietnam and Cambodia border conflicts, etc.12 European Union (EU) The European Union is the most successful regional integration organisation in the contemporary world. It has been able to achieve significant integration in almost all respects and has some unique accolades to its credits which include having common citizenship, common currency, foreign policy, harmonised market law, open border, European Parliament, European Court of Justice, etc. In its present form, the EU came into existence in 1993 through the Maastricht Treaty, but it has a long history which dates back to the early nineteenth century. In one of the most famous speeches at the International Peace Congress in 1894, Victor Hugo vouched for the idea of pan-European integration for lasting peace and prosperity in the region. He stated, “A day will come when all nations on our continent will form a European brotherhood … A day will come when we shall see … the United States of America and the United States of Europe face to face, reaching out to each other across the seas.”13 This nineteenth-century idea of European integration is different from the earlier quest for regional consolidation in the form of Third Reich, Tsardom of Russia or Roman consolidation. Regional integration of the nineteenth century was based on democratic principles and aims at achieving peace and prosperity rather than attaining imperialistic ambitions. 9 Article

2, Treaty of Amity and Cooperation in Southeast Asia, 1976. Article 3 (Legal Personality of ASEAN), Article 5 (Rights and Obligations), Articles 8–16 (Institutional framework) of the ASEAN Charter. 11 Articles 36–40, respectively, ASEAN Charter. 12 See Ahmad and Ghoshal (1999), Leighton (1978), Paribatra (1994), Sung An (1978). 13 Victor Hugo, International Peace Congress, 1894. 10 See

4.1 Introduction

87

The EU like many other regional integration organisations is the result of the many historical facts which framed the ideology of its proponents. It is argued that more than historical facts (two world wars), the EU has been the result of ideas. These were ideas which brought the tectonic shift from ultra-nationalist and imperialistic stands to international democracy, peace and equality.14 With the idea of securing sustainable peace and economic prosperity, the first supranational organisation was established in 1951 in the form of the European Coal and Steel Community (ECSC). The ECSC was first proposed by the French foreign minister Robert Schuman in his celebrated Schuman Declaration of 9 May 1950. The Schuman Declaration ultimately led to the signing of the Treaty of Paris in 1951 which officially established the ECSC. The Treaty of Paris was signed by the six western European countries which included France, Italy, West Germany, Belgium, the Netherlands and Luxemburg. The primary objective of the ECSC was to neutralise competition in the member states market by establishing a common market of coal and steel, the two most important materials for the twentieth-century industrial world. The normative and institutional framework established by the ECSC led to the formation of the European Economic Community (EEC). The EEC extended the scope of regional integration started by the ECSC and created a common market and customs union for the six founding members of the ECSC. The EEC was established, through the Treaty of Rome in 1957, along with the European Atomic Energy Community (EURATOM).15 The establishment of the EEC was a major achievement in the area of pan-Europeanism and regional integration of Europe into one federal area. Although EEC faced some challenges, particularly in the form of the Common Agricultural Policy (CAP), membership of the UK, etc. it was able to present Europe as a single united entity based on the principle of international democracy. With the increasing role of the three communities (ECSC, EURATOM and EEC) and to avoid confusion and contradictions, in 1965 through the Treaty of Brussels, the executive bodies of all three communities were merged into a single institutional setup. After this treaty all the three communities, though legally independent, were together known as European Communities.16 In 1973, the membership of the EEC was expanded to include the UK, Denmark and Ireland. In 1981 and 1986, its membership was further extended by including Greece followed by Spain and Portugal. The EU in the present form was the result of the Maastricht Treaty of 1992.17 The Maastricht treaty, officially named the Treaty of European Union, created the

14 For

discussion on ideational process and regional integration, see Sect. 4.3.3 of this chapter.

15 The Treaty of Rome was the result of Intergovernmental Conference on the Common Market and

EURATOM held in 1956 at Val Duchesse, Brussels, Belgium. 16 Treaty of Brussels is also known as the Merger Treaty. 17 Signed on 7 February 1992, came into force on 1 November 1993.

88

4 Comparative Regionalism: SAARC, ASEAN and EU

three-pillar structure of the EU (between 1993 and 2009) and established a common European currency called the Euro.18 The three pillars of the EU were as follows: i. ii.

iii.

The European Communities: Comprising the European Community (reincarnation of EEC), ECSC and EURATOM. Common Foreign and Security Policy (CFSP): Dealt with the EU foreign policies including trade and commercial policies. Also engaged in security and defence diplomacy and action. Police and Judicial Cooperation in Criminal Matters (PJCCM): Originally known as the Justice and Home Affairs (JHA) wing, dealt with law enforcement.

The Maastricht Treaty also amended the treaty establishing the EEC.19 Through this amendment, the name of the EEC was changed to the European Community, which is the immediate precursor to a single organisation called the EU. The three-pillar structural system continued from 1993 till 2009 and was abolished by the Treaty of Lisbon. The final shape to the present-day EU was given by the Treaty of Lisbon, which was signed on 13 December 2007 and came into force on 1 December 2009. This treaty is also called the Reform Treaty as it brought about many structural and institutional reforms in the EU setup. The Treaty of Lisbon consolidated the different EU treaties, agreements and institutions. The three-pillar structure was merged into one single legal entity called the EU.20 The Lisbon treaty brought about many reforms in the EU structures. The voting system in the EU internal working was changed from unanimity to Qualified Majority Voting (QMV) in certain areas.21 New presidential and foreign policy posts were also created. The treaty created the post of permanent Presidency of the European Council. The President of the European Council is appointed for the tenure of two and a half years, renewable once.22 It also created a single foreign policy post that is High Representative of the Union for Foreign Affairs and Security Policy. This post was created by merging the external relations commissioner and the high representative for foreign affairs posts.23 In relation to the European Parliament, the European Constitution and European Court of Justice; certain structural and policy changes were made through the Treaty of Lisbon.24 Presently, the EU consists of 28 member nations and is regarded as one of the most successful regional integrations in the contemporary world.25 However, it does 18 Article

3a of Article G under Title II of the Maastricht Treaty. II of the Maastricht Treaty. 20 See Article 47, Treaty of Lisbon. 21 See Articles 7, 10, 16 and 18 of the Treaty of Lisbon. 22 Article 15 (5), Treaty of Lisbon. 23 Article 15 (2). 24 Official website of the European Union. History of European Union. https://europa.eu/europeanunion/about-eu/history_en. Accessed 29 January 2018. 25 EU members with year of accession: Austria (Accession 1995), Belgium (1957), Bulgaria (2007), Croatia (2013), Cyprus (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Finland 19 Title

4.1 Introduction

89

not mean that the EU has achieved perfect integration in all manners possible. The EU still suffers from a series of issues and problems, even to the extent that threatens its very existence. Recent events particularly the ‘Brexit’ has put a question mark on the strength of the regional integration ushered by the EU. The ‘Brexit’ is a popular term which is an abbreviation of ‘British exit’, a prospective withdrawal of the UK from the EU. On 23 June 2016 by way of a referendum, 51.9% of the participating UK electorate voted in favour of an exit from the EU. On the basis of the referendum, the UK invoked Article 50 of the Treaty of the European Union for withdrawal of its membership from the union. Along with the enormous economic uncertainty which the Brexit has created for both the UK and the European Union, it has also unearthed the deep quandary in the normative foundations of the European integration and the strength of its union.26 The Brexit, along with many other contemporary political events, is also quoted as an example of the post-truth world phenomenon. The post-truth world is the new phenomenon in world politics which is marked by regressive policies, ultranationalist attitude and claims based on emotions and falsehood served as truth by certain formal and informal media entities. ‘Post-truth’ was adopted as the ‘word of the year 2016’ by the Oxford Dictionary. And it is defined by the Oxford Dictionary as an adjective which is “relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief.”27 One of the most dangerous aspects of the Brexit is that it is regressive and it undoes all the lessons which history has taught. The history of the world provides enough examples that ultra-nationalist and isolating policies, which does not believe in international democracy and fairness, are bound to fail and can lead to some very unpleasant events. The two world wars are the biggest examples of how ultranationalist and jingoistic ambitions can bring the world on the verge of annihilation.

4.2 Comparative Regionalism and SAARC: Theoretical and Methodological Concerns Before embarking on the journey of comparative research in the context of SAARC, there are certain theoretical and methodological concerns and limitations which have to be understood. These concerns extend from a theoretical understanding of varying (1995), France (1957), Germany (1957), Greece (1981), Hungary (2004), Ireland (1973), Italy (1957), Latvia (2004), Lithuania (2004), Luxembourg (1957), Malta (2004), the Netherlands (1957), Poland (2004), Portugal (1986), Romania (2007), Slovakia (2004), Slovenia (2004), Spain (1986), Sweden (1995) and the UK (1973). 26 For economic impact of Brexit, see Global Counsel Document (2015), European Movement International Document (2016). 27 Source: Oxford English Living Dictionary. https://en.oxforddictionaries.com/word-of-the-year/ word-of-the-year-2016. Accessed 24 April 2018.

90

4 Comparative Regionalism: SAARC, ASEAN and EU

concepts under comparative regionalism to the choice of methodological tools for undertaking a comparative regionalism study. Some of these theoretical and methodological concerns in the context of comparative regionalism study under SAARC are briefly discussed hereunder. ‘Perils of Comparison’ For any scholar of comparative regionalism, the so-called “perils of comparison” is the biggest hurdle to tackle before embarking on the journey of comparative research. In the case of South Asia, because of the region’s unique political and economic matrix vis-a-vis other regional organisations the comparison becomes riskier, and the results may turn unreliable. ‘Perils of comparison’ says that to have meaningful comparisons, it is essential to select systems that are at a similar stage in their legal, political, economic and social development. Such parity in growth level and socio-cultural setup shall ensure a ‘baseline of similarity’ which will lead to reliable results.28 In the process of comparative regionalism, the rightful choice of the entity with which the comparison is intended is quintessential. All the regional organisations may not be equally comparable with each other. Only those regional organisations which have certain parity amongst themselves regarding the socio-economic position can be meaningfully compared. Considering the ‘perils of comparison’, ASEAN and the EU have been selected for comparative study vis-a-vis SAARC. Although both ASEAN and the EU are not identical in their political, economic and social standards, they are similar in many respects including their objectives. SAARC like the EU and ASEAN also aims for regional peace and prosperity for which South Asian nations have come together. For comparative study, finding a case which matches and is identical with the host case is not just difficult but also not necessary. As mentioned earlier, the purpose of the comparison is to adapt where feasible good practices of the others and to learn from their mistakes and evolve a new practice. Micro and Macro Comparatives In the contemporary world scenario, regionalism has become a more comprehensive and multifaceted phenomenon. It is not just states or the governments who are the players, but numerous non-state actors also play a very prominent role. These nonstate actors include business entities, civil society representatives, corporations, etc. This multi-dimensional regionalism is also termed as the “new regionalism” where both the formal and informal nature of regionalism exists.29 In macro-comparative analysis, the comparison is done comprehensively by considering the analysis of all possible areas, facets and factors which concerns the phenomenon under study. On the other hand, in the case of the micro-comparative methodology, only a specific area is considered for comparison rather than all the aspects of the phenomenon under study. 28 De 29 For

Cruz (2008). discussion on ‘new regionalism’, see Shaw et al. (2011). And Grant et al. (2012)

4.2 Comparative Regionalism and SAARC: Theoretical and Methodological Concerns

91

The present comparative analysis would predominantly be on a microcomparative basis where only the trade aspect of the regional integration is considered. Nonetheless, considering the multi-dimensionality of regional integration, macro factors such as political, security and social factors. shall be considered for the analysis. Thus, an accurate balance between the micro- and macro-comparative methodologies for the present study shall be maintained. Realism, Rationalism and Internationalism Realism, rationalism and internationalism are the three major political viewpoints or the schools of thought in the studies of International Relations. In comparative regionalism, the adoption of these viewpoints shapes the perspective with which comparison is approached between the regions. The distinction between realism, rationalism and internationalism lies in the importance which each approach gives to the sovereign state of international relations. In their approach, realism and internationalism occupy two extreme positions. While realists negate any substantive role of international organisations by focusing solely on the state, internationalism focuses on the international organisations as the supranational entities over and above states. Rationalism is the middle ground between two extreme positions of realism and internationalism. As per realists, states are the central actors who determine the dynamics of world politics and international relations. And there is no or very little authority of any supranational organisation in world politics. Thucydides, Thomas Hobbes and Machiavelli are considered as the architects of the classic realist theory which considered the pursuit of power and supremacy by the states as the reflection of basic human nature which likes to gain power and to maintain it.30 In contemporary world politics, internationalism is gaining a lot of popularity with the establishment and the relative success of certain international organisations like the United Nations, World Trade Organisation and World Bank. Internationalism aims at creating the ‘white globe’ which transcends nationalism and creates greater cooperation amongst the community of nations.31 Rationalism is the middle ground between realism and internationalism. It gives importance to the international organisation without negating the indispensability of the states or the national government. Rationalists believe the world government is not feasible for bringing lasting global peace, with increasing global cooperation, interaction and strengthening international law mandates through treaties, and agreements can secure lasting global peace.32 For comparative regionalism in the present chapter, rationalism and internationalism are being used to approach the comparative study and to analyse its results. Rationalism has been taken as the path with internationalism as the destination. In the context of SAARC, internationalism in the form of creating a potent supranational organisation is an ultimate objective. However, the study is grounded in 30 See

Reus-Smit and Snida (2008), Forde (1995), Jervis (1998), Walker (1987). Reus-Smit and Snida (2008), Hobson (1906), Paris (1997), Patterson (1919). 32 See Reus-Smit and Snida (2008), Glaser (2010), Kahler (1998), Setear (1997). 31 See

92

4 Comparative Regionalism: SAARC, ASEAN and EU

reality by acknowledging the role of states and the national governments in regional dynamics. Idiographic Research and Nomothetic Research For any scholars of comparative studies, the choice between idiographic and nomothetic research methodology is also a significant concern to be addressed while undertaking comparative research. Idiographic and nomothetic research approaches are part of the general debate on micro- and macro-comparative analyses and have their origins in natural sciences and psychology but are widely used in social sciences also. Nomothetic research deals basically regarding the generalisation of principles and laws by studying numerous cases and finding out a general explanation that accounts for them. And idiographic research aims at the discovery of particular scientific facts and processes as opposed to general laws by studying a single case or phenomenon.33 The choice between nomothetic and idiographic approaches becomes very complex consequent on the fact that individuals or the institutions under study might be unique in themselves (idiographic) but they may have properties or behaviours which are common and general across the board (Nomothetic).34 For present comparative regionalism study in this chapter, the nomothetic approach is employed where certain regional organisations are studied to find out common explanations which are applicable across the broad amongst all the regional organisations.

4.3 Comparative Regionalism: Analysis The success of any regional integration depends largely on its ideas, governance model, institutions and structures. Regional integration with weak ideational, institutional and structural models is bound to fail. In the analysis of the comparative regionalism of SAARC vis-a-vis the EU and ASEAN, different aspects of these three regional integration setups are examined to find the reasons for their success or failure.

4.3.1 Ideation and Integration Regional integration is a product of ideas and motivations. Although often ignored, ideas on which the regional initiatives are based occupy a prominent role in determining its success. A regional integration setup which lacks any motivation and idea for integration is bound to fail. 33 Haynes 34 See

and O’Brien (2000). Beltz et al. (2016), De Lombaerde et al. (2010).

4.3 Comparative Regionalism: Analysis

93

Ideas and motivations are the normative foundation of any regional initiative. They not only provide vision and structure to the regional setup but also work as the guiding light to its administrators and charter of rights/duties to its stakeholders. Ideas and norms establish a common regional identity which strengthens the integration in a complete sense. Regarding ideas and motivations as the determinant of the success of regional integration, the observation of Ernest B. Hass is worth noticing. He observed, “The study of regional integration is concerned with explaining how and why states cease to be wholly sovereign, how and why they voluntarily mingle, merge, and mix with their neighbours so as to lose the factual attributes of sovereignty while acquiring new techniques for resolving the conflict between them.”35 The aspect of ideas and motivation of the regional integrations lie in their ‘how and why’ questions. For most of the regional integration, economic prosperity and lasting peace are the core objectives, which invariably come in the background of armed conflicts and political mistrust. The philosophy of social constructivism explains the regional integration phenomenon in terms of ideas. It considers the idea as the catalyst and the building block of regional integration. As per social constructivism, regional integration is primarily a social phenomenon. And like any phenomenon in the social realm, regional integration is a polysemous concept which is discursive. Social constructivism is an ontological analysis of human society and its institutions. According to it, human development and their institutions are socially situated, and they are created gradually through interactions within and amongst the communities. Individuals and groups interacting in the social system create over a period certain norms and concepts. These norms and concepts gradually get habituated leading to the formation of social institutions.36 The normative stage of the society’s development is shaped by their collective experience, their ideas and rationality. Social constructivism as a school of thought has its origin in sociological studies. The phrase was coined by Peter L. Berger and Thomas Luckmann in 1966.37 Its use in the area of international relations (IR) was witnessed for the first time in the late 1980s and early 1990s.38 In the area of IR, social constructivism has come as an antithesis to theories like realism, neo-liberalism and rationalism.39 Realism, neo-liberalism and rationalism are the mainstream theories of IR which believe that the interactions in the community of nations are based on material forces and perfect rationality. Rationality, objectivism and universalism are the attributes which are common to these mainstream IR theories.40

35 Haas

(1970). and Luckmann (1966). 37 See Berger and Luckmann (1966). 38 See Vertzberger (1990), Singer and Hudson (1994), Onuf (1989). 39 See Jervis (1976), Katzenstein (1996), 40 Shannon and Kowert (2012). 36 Berger

94

4 Comparative Regionalism: SAARC, ASEAN and EU

Constructivism literature, however, maintains that human society and institutions are discursive, and they cannot be holistically explained through material or rational theories. Constructivism, in its essence, is complementary to realism and rationalchoice perspectives. It merges the theoretical foundations of conventional IR theories. These theoretical foundations are the individual ontological foundation and the structural imperative foundation. Individual ontological analysis prefers individual over structures. It asserts that an individual is an autonomous agent who exerts her/his choices independent from the larger structural imperatives.41 On the other hand, the structural approach gives primacy to the institutional and structural imperatives. It asserts that an individual exercises her/his volition within the scope provided by the structures. As per the Neorealism literature, these structures are dependent upon martial factors like wealth and power.42 Thus, for example, actors in international relations, like a policymaker or a diplomat, are tightly constrained and respond rationally to the political or economic imperatives.43 Constructivism provides a middle ground by asserting that both individual and institutional structures impact each other and shapes the society. Regional integration as the phenomenon in the social realm is also inspired by material factors, institutional imperatives and individual ideational aspects. An individual ideational aspect which gradually becomes part of social structures, with popular acceptance, defines the scope and the depth of a regional integration setup. This is the reason why the ideational stage, where the idea is conceived and shaped, is considered as the most important stage in the formation of anything in the social realm including regional integration organisations. Glyn Morgan explained regional integration from a social constructivist perspective. He opined that regional integration is the result of three consecutive progressions or stages, which are ‘project’, ‘process’ and ‘product.’44 ‘Project’ is an ideational stage which is the result of the collective experiences and rationality of the actors involved in conceiving the inspiration for forming a regional integration organisation. Ideation is the first and the most important stage in the establishment of a regional integration organisation. This stage defines how actors shall move ahead in forming a regional organisation and how they will behave with it once it is formed. The second stage is the ‘process’ which consists of ways and means through which actors intend to achieve their project. The process stage may include policies, agreements or schemes for the formation and functioning of the regional integration organisation. The final stage is the ‘product’ where regional integration is achieved by bringing certain nations together under the regional organisation. In international relations, it is an accepted fact that ideas affect actions and they determine the nature and scope of any regional integration. However, it may not be 41 See

Ashley (1986). Van Evera (1999). 43 See Shannon and Kowert (2012), p. 3. 44 Morgan (2005). 42 See

4.3 Comparative Regionalism: Analysis

95

empirically possible to demonstrate with mathematical accuracy the degree of impact ideas have on actions. All the regional integration initiatives are the result of certain ideas, intuitions and motivations. Economic prosperity, the quest for lasting peace, the establishment of democratic principles, non-alignment, etc. are basic ideas which form the background of almost all the regional integration setup. The EU was established in the background of two world wars in which Europe was deeply devastated. The two world wars and the death trail they left lead to a general realisation that imperialistic, ultra-nationalist and cultural jingoistic mindsets can only lead to further bloodshed. It was realised that only cooperation, on the principles of democracy and equality, will secure lasting peace and socio-economic prosperity. Europe to cultivate and sustain cooperation started with establishing supranational economic institutions which can link up economies together. Nations which are economically linked with a complex chain of interdependence are less likely to go hostile in cases of disputes. In the words of Robert Schuman, the former foreign minister of France, the cross-border economic linkages will make war “not merely unthinkable but materially impossible.”45 For instance, if Country A has a billion dollar stake in Country B in the form of direct investment, market potential, etc. she shall be reluctant in starting any hostility in case of a dispute. Economically interdependent countries are more likely to resort to the peaceful settlement of their disputes than economically isolated countries. This phenomenon is termed as ‘peace dividend’ of trade.46 As the first step towards ‘working peace’, in 1951 certain nations of Europe established the European Coal and Steel Community (ECSC).47 The ECSC was a French idea of supranational engagement in Europe with the aim of integrating Europe into one entity. Many European nations did not widely accept the idea of supranationalism including the UK which refused to join the ECSC. However, five western European countries that are West Germany, Belgium, the Netherlands, Luxemburg and Italy agreed to the French idea, although reluctantly, leading to the formation of the ECSC in 1951 through the Treaty of Paris. Thus, the ECSC became the first international organisation based on the idea of supranationalism.48 The formation of the ECSC has been a true ideational process for the European integration. This ideational process saw the departure from Gaullism, ultranationalism and politics of dominance to principles of international democracy, equality and peace. The Schuman plan was the formal declaration of the tectonic shift in an ideology which Europe witnessed post-World War II. The paradigm shift in ideology and principles were the result of societal experience and interactions of 45 The Schuman Declaration of 9 May 1950. The ECSC was first proposed by French Foreign Minister Robert Schuman in his famous Schuman Declaration of 1950. 46 For a detailed discussion on ‘peace dividend’, see Sect. 2.3.2. 47 See Sect. 2.3 for a detailed discussion on ‘working peace’. 48 ECSC has six founding members which include France, the Netherland, West Germany, Belgium, Italy and Luxemburg.

96

4 Comparative Regionalism: SAARC, ASEAN and EU

the general populace of Europe. On the Morgan scale, this was the first stage of the social constructivism towards regional integration. Many scholars deny the establishment of the ECSC as the product of ideational processes. As per these scholars, the supposedly French idea was, in fact, the result of geopolitical constraints faced by Europe rather than an idea of international democracy.49 The geopolitical constraints were in the form of a devastated economy and social life in Europe, which could not have been able to afford another war. Although the non-ideational factors played a prominent role in the formation of the ECSC, it cannot be denied that the collective societal experience during two world wars shaped the outlook of Europe in the post-world wars era.50 The ideational process and the blueprint which the ECSC has established determined the nature and features of the present-day European Union and its institutions. All the prominent institutions of the EU owe their origin to ECSC’s institutions. The ECSC had five institutions, namely, a High Authority (consisting of independent appointees, representing the general interest of the community), a Common Assembly (consisting of national parliamentarians, represents the people of the States united with the community), a Special Council of Ministers and a Court of Justice. Also, there was the fifth committee known as the Consultation Committee for aiding and advising the High Authority. The Consultation Committee consisted of representatives of producers, workers, consumers and dealers of the member states.51 The four EU committees are the direct reincarnation of ECSC’s committees. These are the European Commission (from the High Authority), the European Parliament (from the Common Assembly), the Council of the European Union (from the Special Council) and the European Court of Justice (from the Court of Justice). In the case of ASEAN, its founding members have given special importance to the development of ideas and its incorporation as the behavioural norms in its institutional setup. The foundation of ASEAN lays in its ideas and normative strength which is institutionalised through different means like the ASEAN Charter, etc. One of the novel aspects of ASEAN’s ideation process is that it has institutionalised ideas and motivation, to cultivate and sustain the regional sense of belongingness, unity and common identity. The institutionalisation of the ideas has been done through internalising norms like the ‘ASEAN way’, ‘ASEAN process’, ‘one vision, one identity and one caring and on sharing community’.52 49 Hitchcock

(1998), Milward (1984). Parsons (2002). 51 Source: Centre Virtuel de la Connaissance sur l’Europe, Luxembourg (CVCE) (Virtual Centre for Knowledge about Europe). CVCE is the interdisciplinary research and documentation centre dedicated to European Integration studies. It is headquartered in Sanem Castle, Luxembourg. 52 Para 5 of Preamble, ASEAN Charter; The ‘ASEAN way’ is the regional anthem of the ASEAN which presents South East Asia’s dignity, solidarity and cooperation. It also reflects the diversity of region’s cultural and ethnicity. Lyrics of the ASEAN official anthem- ‘ASEAN Way’: Raise our flag high, sky high Embrace the pride in our heart ASEAN we are bonded as one Look-in out-ward to the world. 50 See

4.3 Comparative Regionalism: Analysis

97

From its very inception, ASEAN has paid considerable attention to the development of the regional identity for the purposes of strengthening and sustaining regional integration. The foundation of ASEAN was laid down by its five founding members to preserve peace and promote the economic and social prosperity of the region.53 However, the immediate reason for the formation of ASEAN was to counter the threat of communalism and to avoid the Cold War impact.54 To evade the threat of communism and damage from the Cold War, the founding members of ASEAN overlooked their differences and forsook mutual hostilities, historical and borderline issues. These initiation motivations were also internalised and implemented by ASEAN through various policy documents for creating a ‘common identity’ of the region.55 After the formation of ASEAN, though regional disputes kept flaring, it was successful in managing and preventing them from escalating into armed conflicts. For the success of the regional organisation, the creation of a common identity is indispensable. Identity, in relation to regional integration, has to be understood in a very simplistic manner. The creation of common identity is basically about developing ‘regional identity’ rather than identity issues per se in the name of culture, language or religion.56 Regional identity, just like national identity, is not a natural phenomenon but it has to be developed and constructed. As pointed out by Acharya, regions are constructs and contested notions. And there is nothing natural about them.57 Regions and regional identities have to be developed gradually through the ideation process. This process includes the development of ideas and norms for regional identity building. However, it has to be kept in mind that the task of developing ‘common identity’ and common norms can also be counterproductive if it is done with a parochial and culturally jingoistic mindset. The creation of a common identity does not mean the imposition of one language or culture or religion or societal behaviour. The spirit of common identity lies in accommodating differences and creating an inclusive and pluralistic society. In the case of regional integration in South Asia, SAARC is not able to bring meaningful integration because it could not internalise norms, create favourable motivation and regional identity. On Morgan’s scale, as discussed earlier, SAARC seems to be half-baked on both the project and process stages. For peace, our goal from the very start And prosperity to last. We dare to dream we care to share. Together for ASEAN we dare to dream, we care to share for it’s the way of ASEAN. 53 Para 6 of the Preamble, ASEAN Charter. 54 Collins (2003). 55 See Articles 1 and 2, ASEAN Charter. 56 See Jonsson (2010). 57 See Acharya (2000).

98

4 Comparative Regionalism: SAARC, ASEAN and EU

Unlike the EU and ASEAN, the general masses in South Asia lack any regional connect and identity. It is a fact that regional integrations do not succeed merely by signing treaties or agreements but through general interaction amongst its masses. Most of the norms established by SAARC remained a dead letter and could not bring satisfactory results. For instance, the SAARC Charter mentions regional peace and stability and mutual respect for sovereignty and territorial integrity nonetheless, the same norms could not be implemented successfully.58 Almost all the disputes which were there at the formation of SAARC still exist, and SAARC has achieved little or nothing regarding managing and resolving regional disputes. Unlike the EU and ASEAN, SAARC members could not rise above their national interests and develop a regional identity. Both SAARC as an organisation and its member nations are not able to evolve common regional interest. Bilateral issues and perusal of national interests shape the actions of SAARC’s members rather than regional common interest. For the development of regional integration, shifting of loyalties from local to regional and sharing elements of sovereignty are indispensable requirements. In many respects, the ideation process of SAARC looks like a half-hearted attempt at regional integration. For instance, the SAARC Charter under Article X prohibits discussion on bilateral and contentious issues, thus making an unrealistic norm which blinds it from the ground realities prevalent in South Asia and makes SAARC a mute spectator in cases of bilateral issues, even when they have a wide regional implication. This is also the reason why SAARC has been kept hostage to the bilateral issues in the region, particularly between India and Pakistan.59 In the ideation process, the ‘logic of consequence’ and the ‘logic of appropriateness’ have to be finely balanced. In all the three regional integration organisations discussed in this chapter, it is seen that although the logic of consequence has been able to bring nations together and initiate the regional integration, however, their success and depth were determined by how the logic of appropriateness was employed. In the case of the EU and ASEAN, both logic of consequence and logic of appropriateness are to a large extent successfully applied. However, the same could not be done in the case of SAARC. The ‘logic of consequence’ and the ‘logic of appropriateness’ are the concepts of organisational behaviour studies. The expressions were coined by organisational theorists James G. March and Johan P. Olsen.60 These concepts examine the behaviour of an individual as a part of an organisation and the functioning of an organisation as the constituent of different individuals. 58 Para 1 of the Preamble to SAARC Charter provides, “Desirous of promoting peace, stability, amity

and progress in the region through strict adherence to the principles of the UNITED NATIONS CHARTER and NON-ALIGNMENT, particularly respect for the principles of sovereign equality, territorial integrity, national independence, non-use of force and non-interference in the internal affairs of other States and peaceful settlement of all disputes.” 59 Refer to Chap. 5 for a detailed discussion on SAARC as a supranational institution and Article X of SAAARC Charter. 60 March and Olsen (2006).

4.3 Comparative Regionalism: Analysis

99

The ‘logic of consequence’ analyses the functioning of an organisation in terms of its ultimate aims and targets. The decision-making of an organisation which functions on the ‘logic of consequence’ strictly follows the cost–benefit analysis. And its final decision is determined by the benefits the decision will lead in terms of its objectives. On the other hand, the ‘logic of appropriateness’ demands that actions must be based on social/institutional norms rather than cost–benefit calculations. As per the ‘logic of appropriateness’, an action taken at a given time by an institution may not give the desired benefit immediately but if it is as per the institutional norms, it will give benefit eventually, and such benefit shall be sustainable. As defined by the Encyclopaedia Britannica, in the logic of appropriateness the “basis for decision–making is biased towards what social norms deem right rather than what cost–benefit calculations consider best.”61 In the ‘logic of appropriateness’, it is quintessential that the norms and behavioural rules are strongly internalised and institutionalised in the setup of the regional integration. Further, to make the norms and behavioural rules function properly, they must be socially acceptable. Only those norms are socially acceptable which are based on democratic principles rather than authoritarian tendencies. Norms and behavioural rules are followed only when they are appropriate in themselves and come naturally in a given situation. Therefore, the framing of rules, norms and laws must be done in a very careful manner. It can be properly done by way of codifying the collective experience or done on principles such as international democracy, equality, freedom and respect for diversity. The ‘logic of appropriateness’ has moral overtones which preach rule-making-based principles.62 The ideational process has a strong role to play in any regional integration setup around the world. The strength of its normative foundations and the depth of the integration depend to a larger extent on the ideas on which a regional integration setup is founded. Norms and rules on which integration is promulgated determine its future course of actions and works as a guiding light for its actor. In the case of regional integration in South Asia, unlike Europe or South East Asia, the ideation process could not be concluded properly. Although many efforts were made which set the norms of the regional integration, the same could not be widely internalised and institutionalised. For instance, the Gujral Doctrine could never be institutionalised nor could it be implemented in letter and spirit.63

4.3.2 Regional Governance Model Sharing elements of sovereignty and the creation of constitutionalism beyond the states are the first steps towards a meaningful integration. A regional framework 61 Encyclopaedia Britannica. https://www.britannica.com/topic/logic-of-appropriateness. Accessed

29 January 2018. Tyler (1990), Berman (1983). 63 For a detailed discussion on the Gujral Doctrine, refer to Chap. 5. 62 See

100

4 Comparative Regionalism: SAARC, ASEAN and EU

which is shackled by state-centric dynamism, arising out of the members’ overemphasis on sovereignty, and the sole pursuit of the national interests at the cost of mutual or common interest, cannot bring a meaningful integration. Such kind of regional framework lacks an effective regional governance model. A governance model is defined as “the processes and institutions, both formal and informal, that guide and restrain the collective activities of a group.”64 As it is often witnessed in the case of SAARC, its members lack the sense of regional identity and they act based on their national interests at the cost of the regional interest. The lack of sharing elements of sovereignty and regional identity has resulted in SAARC being an inconsequential regional organisation. One of the prominent reasons for the success of the EU is its ability to create a potent regional governance mechanism. The EU has been able to create a system which is a balance between the two extremes of the regional institution’s power position. On one extreme, although only theoretically, is a supranational regional institution which is all-powerful and before it the will of the national governments may not matter. The other extreme is a regional institution which is nominal and lacks any significant power or decision-making authority. Such kind of institution is simply ceremonial or, worse, a puppet in the hands of one or more powerful nations who are the party to the regional integration spearheaded by such institution.65 The theory of inter-governmentalism considers regional institutions as the mere inter-governmental bodies which serve the national interest or at most harmonise the conflicting national interests.66 There are many scholars of inter-governmentalism who are against the idea of supranationalist explanation of regional institutions.67 John P. McCormick, regarding the regional governance model, has propounded the concept of Sektoralstaat—a vision of regional supranational constitutional democracy. Sektoralstaat is a German word which means the sectoral state, that is to say, a regional state comprising more than one nation. The idea of Sektoralstaat aims at advancing liberal democracy on a regional basis by integrating nations to form a supranational democracy.68 The concept of Sektoralstaat is a synthesis of Max Weber’s and Habermas’ work on ideas like Sozialstaat and Rechtsstaat.69 Rechtsstaat is a German word which means a ‘pure republic’. It refers to the liberal constitutional state or a ‘legal state’ which is based on the rule of law and is bound by the principles of justice and equity. Sozialstaat, popularised in the twentieth century, aims not just at a legal state but a socio-welfare state. Sozialstaat is also a German word which means a welfare state.

64 Keohane

and Nye (2000), p. 12. As quoted in Foot (2011). Isiksel (2016). 66 Refer to Chap. 2 for a detailed discussion on inter-governmentalism and other theories on regional integration. 67 See Garrett et al. (1998). 68 McCormick (2009), p. 233. 69 See Weber (1978), Habermas (1999, 2000). 65 See

4.3 Comparative Regionalism: Analysis

101

According to John P. McCormick, the idea of Sektoralstaat is the transposition of the Rechtsstaat and eventually the Sozialstaat to a supranational level.70 The idea of Sektoralstaat aims at a supranationalist explanation of regional integration in order to create a liberal socio-welfare regional state. As mentioned earlier, a regional integration setup in the contemporary world, in contrast to the world of the pre-world wars, is not based on imperialistic ambitions but the principles of democracy, cooperation, equality and fairness. Nations and governments become part of the regional integration and stay as a member not by military force or political pressures but by their own volition in the quest for economic prosperity and lasting peace. Such a liberal socio-welfare regional setup allows members to freely join or withdraw from it. For instance, in the case of the EU, the Treaty of European Union under Article 50 provides for the withdrawal of any member state from the union. The United Kingdom’s prospective withdrawal from the European Union is an example of how democratic principles and freedom of choice dominate the working of the EU rather than military or political pressures. Many opine that the year of the Brexit marks the annus horribilis of the EU history which has shaken its very foundation and its claim as the most successful regional integration organisation of the contemporary world. Some take an extreme stand and opine that the Brexit is the ‘nail in the coffin of the EU’ or it is an event which will take the EU to ‘its deathbed or at least emergency room’ for a long time. However, despite all the prospective adverse implications, the Brexit shows that the regional governance model of the EU is based on democratic principles rather than political, military or neo-imperialistic pressure tactics. It allows members to freely become its part and to continue being the same as per their free wish. The EU Sektoralstaat is the union which tolerates and allows its members to opt in or out of the EU or its agreements.71 The principle of comitology is another example of the EU’s Sektoralstaat model. Comitology refers to set of procedures through which EU member nations control how the EU’s laws and policies are implemented. The process of comitology is done through the group of the EU committees, which are referred to as the ‘comitology committee’. The comitology committee consists of the representative of all the member states of the EU. Comitology proceedings are chaired by the European Commission (EC), in which suggestions are given by the comitology committee regarding the implementation of any proposed measures. The opinions or suggestions of the committee are more or less binding upon the EC which is entrusted with the implementation of the proposed measure.72 The process of comitology ensures the democratic essence of the EU’s setup both at the lawmaking and law implementing stages, and allows every EU member to 70 McCormick

(2009), p. 233. (2009), p. 236. 72 For details on Comitology proceedings see European Commission. Comitology Register. http://ec. europa.eu/transparency/regcomitology/index.cfm?do=implementing.home. Accessed 17 October 2017. 71 McCormick

102

4 Comparative Regionalism: SAARC, ASEAN and EU

participate in the EU’s work completely and holistically from law formation to the implementation stage. In the case of SAARC, as mentioned earlier, regional integration is shallow and in most cases nominal. For strengthening and ensuring meaningful integration in South Asia, a strong regional governance model has to be developed.73 The SAARC Charter is the Magna Carta of regional integration in South Asia. However, for the regional governance model, the SAARC Charter has no guidance. It does not mention the kind of regional governance model which SAARC envisions, that is, whether it aims to create regional federalism or supranational constitutional functionalism or mere inter-governmental organisation. The preamble of the SAARC Charter, which highlights its broad vision and principles, does not talk about the governance model which SAARC founders aim to establish. The preamble simply puts SAARC as the initiative for achieving regional cooperation in the increasingly interdependent world to ensure peace, prosperity and stability in the region.74 It can be implied from the SAARC Charter that its founders merely aimed at creating SAARC as an inter-governmental organisation. Any concrete plan or the vision for the establishment of the strong supranational regional organisation or regional federalism is absent. The institutional setup of SAARC is provided in its Charter, which consists of five bodies or committees. On the top is the body consisting of Heads of the State of SAARC member nations. It is followed by the Council of Ministers, the Standing Committee, Technical Committees and Action Committees.75 The top institutional body of SAARC consists of the Heads of the State or Government of different member states. Article III of the Charter, without giving any nomenclature to this body, provides that the Heads of State or Government shall meet once in a year or more often as and when considered necessary by the member states.76 The next body is the Council of Ministers.77 The Council of Ministers consists of foreign ministers of member states who are primarily entrusted with the legislative functions.78 The executive functions of SAARC are discharged by three committees. First of them is the Standing Committee which comprises Foreign Secretaries of different member states of SAARC. The Standing Committee performs the overall supervisory work of different programmes of cooperation along with other related works like 73 Refer

to Chap. 5 for a comprehensive discussion on measures to strengthen regional integration in SAARC. 74 Paras 2 and 4 of the Preamble, SAARC Charter. 75 Articles III to VIII, SAARC Charter. 76 Article III, SAARC Charter. 77 Article IV, SAARC Charter. Para 2 of Article IV provides that Council of Minister shall meet twice a year, with extraordinary meetings as and when required. 78 Functions of the Council of Ministers: Formulation of the policies; Review of the progress of cooperation under the SAARC; Decision on new areas of cooperation; Establishment of additional mechanism as deemed necessary; Decisions on other matters of general interest.

4.3 Comparative Regionalism: Analysis

103

the determination of inter-sectoral priorities, mobilisation of regional and external resources, etc. The Standing Committee directly reports to the Council of Ministers.79 The Standing Committee functions through the group of two committees that are Technical Committees and Action Committees. Technical Committees comprise representatives of member states. They work under the Standing Committee and have the main responsibility of implementing, coordinating and monitoring different programmes of regional cooperation in South Asia.80 Standing Committees for implementing different projects can establish Action Committees as and when required, which shall have a specific term of reference as delegated to them by Standing Committees.81 For bringing effective integration in South Asia, it is quintessential that SAARC is developed into a potent supranational organisation of capabilities that can establish norms and can enforce them.82 The purpose of establishing a potent supranational organisation is to secure regional federalism in South Asia. However, considering the history of political mistrust amongst SAARC members and the fact that South Asia still moves on nationalism and sovereignty as the prime factors in decision-making, the establishment of South Asian regional federalism is a humongous task.83 For establishing regional federalism, the Jean Monnet approach to regional integration is worth noticing. Monnet’s approach is particularly useful for the region where nations suffer from mutual distrust and are extremely hesitant in sharing elements of sovereignty, like in the case of South Asia.84 As per Monnet’s approach, the creation of regional federalism is a gradual phenomenon which can be achieved by fostering specific functional economic linkages. Such linkages have to be created in a way that does not directly challenge the national sovereignty domain. The piecemeal approach in the form of creating specific and steady economic links along with establishing social connect will bring mutual trust and confidence amongst its member. Mutual trust along with economic and social connects leads to the functional integration of the region. Only after the foundation of functional integration, constitutional integration or the creation of regional federalism is possible. The creation of regional federalism is the ultimate aim of regional integration initiatives which could bring about a complete integration of the region.85 For South Asia, the attainment of regional federalism, in the present scenario, seems to be a humongous if not impossible task. In order to create regional federalism, many normative and institutional changes are required to be done including

79 Article

V, SAARC Charter. VI, SAARC Charter. 81 Article VII, SAARC Charter. 82 See Chap. 5 for a detailed discussion on SAARC as a potent supranational organisation. 83 See Sect. 4.3.3 for further discussion on the institutional setup of SAARC. 84 Jean Gabriel Monnet was a French economist and politician. He is considered as one of the proponent of the idea of the European unification and the founder of the present-day EU. 85 See Arts and Dickson (2004), Burgess (1996), Duroselle (1966). 80 Article

104

4 Comparative Regionalism: SAARC, ASEAN and EU

amending the SAARC Charter.86 Such changes are easier said than done. It requires considerable political will amongst the member nations. The first step towards cultivating the political will is by initiating deliberations and creating positive opinions favouring the regional integration for its economic and peace dividends. For socio-economic functional linkages, SAARC has taken several initiatives. It has created six ‘apex bodies’ in certain specialised areas of interest in order to increase cooperation amongst SAARC members. These apex bodies are as follows: i. ii. iii. iv. v. vi.

Foundation of SAARC Writers and Literature (FOSWAL), SAARC Chamber of Commerce and Industry (SCCI), South Asian Association For Regional Cooperation In Law (SAARCLAW), South Asian Federation of Accountants (SAFA). South Asia Foundation (SAF) and South Asia Initiative to End Violence Against Children (SAIEVAC).

As a part of creating functional social linkages and people-to-people contact, the South Asian University (SAU) was established to provide world-class academic and research facilities to students from across the region. The SAU was established as the result of the Inter-governmental Agreement for the Establishment of the South Asian University signed during 14th SAARC Summit, 2005. SAARC has also established a number of regional centres for enhancing cooperation amongst its members. These regional centres deal in specialised and specific fields concerning the South Asian region.87 However, still, a lot has to be done for creating regional federalism in the true sense in South Asia for achieving fuller and meaningful integration. Although not expressly mentioned, the regional governance model under ASEAN also aims at regional federalism through the help of a strong ideation process and social and economic linkages. ASEAN has chosen a very effective way of attaining regional federalism. It tends to achieve the ideas of regional federalism and constitutionalism beyond the state by means of the ASEAN community building. The ASEAN community building is a three-pronged activity which includes the ASEAN Socio-cultural Community, the ASEAN Security Community and the ASEAN Economic Community.88 86 See Chap. 5 for a detailed discussion on normative and institutional change required in South Asian regionalism. 87 SAARC Agricultural Centre (SAC), Dhaka, Bangladesh; SAARC Coastal Zone Management Centre (SCZMC), Maldives; SAARC Cultural Centre (SCC), Sri Lanka; SAARC Development Fund, Bhutan; SAARC Disaster Management Centre (SDMC), India; SAARC Documentation Centre (SDC), India; SAARC Energy Centre (SEC), Pakistan; SAARC Forestry Centre (SFC), Bhutan; SAARC Human Resources Development Centre (SHRDC), Islamabad; SAARC Information Centre (SIC), Nepal; SAARC Meteorological Research Centre (SMRC), Dhaka, Bangladesh; SAARC Tuberculosis and HIV/AIDS Centre (STAC), Kathmandu, Nepal. 88 See Bali Declaration of ASEAN Concord II and Para 11 of the ASEAN Charter.

4.3 Comparative Regionalism: Analysis

105

Another novel aspect of the ASEAN regionalism is the fact that it aligns with the letter and spirit of Article XXIV of GATT/WTO.89 Article XXIV of the GATT provides that regional integration should be in the manner that furthers the cause of multilateralism rather than one which hinders the idea of multilateral integration. In the words of Jagdish Bhagwati, regionalism should be a ‘stepping stone’ rather than a ‘stumbling block’ to the multilateralism objective. ASEAN has taken numerous initiatives for making regional integration a stepping stone towards multilateral integration. In this process, it has created many plurilateral setups by adopting the ASEAN plus approach. The ASEAN plus approach looks beyond ASEAN in order to enter into cooperation with nations and organisations from across the globe. Some of the organisations resulting from the ASEAN plus approach are the ASEAN Regional Forum (ARF),90 the Asia-Pacific Economic Cooperation Forum (APEC),91 the ASEAN Plus Three (APT)92 arrangement and the East Asian Summit (EAS).93 All these ASEAN plus organisations take cooperation beyond South East Asia by taking ASEAN as the launch pad and a base.

4.3.3 Institutions and Structures The growth and success of any regional integration organisation depend to a large extent on the strength of the institution which is spearheading its functioning. A structurally fragile institution is bound to fail and cannot bring meaningful regional integration. The most important reason for the success of the EU as the regional integration organisation is the strength of the institution which it has been able to create. There are two approaches try to explain the reasons how the EU has been able to create a potent international institution at the pan-European level. The first approach is a so-called structuralist approach which says that structural imperatives in post-world war Europe was the reason for the development of the 89 See

Chap. 2 for a detailed discussion on Article XIV of the GATT. Regional Forum (ARF) was established in the year 1994 and presently has 27 member countries. The main objectives of ARF are to foster cooperation in the Asia-pacific region on the areas of political and security issues of common interest and to promote confidence-building and preventive diplomacy in the Asia-Pacific region. 91 APEC is the economic cooperation forum of 21 Pacific Rim countries in the Asia-Pacific region. Its objective is to promote free trade amongst the member nations. 92 APT cooperation started in the year 1997. It includes members of ASEAN plus China, Japan and Republic of Korea (South Korea). The objective of APT is to promote cooperation in the area of Political-security concern, economics and finance, environment, climatic change and sustainable development. 93 EAS was established in the year 2005 and presently consists of 18 members including India, China, USA and Russia. EAS is a ‘Leaders-lead forum’ of the 18 Asia-Pacific counties and it aims at initiating dialogue and cooperation amongst the member nations in the area political, security and economic concerns. 90 ASEAN

106

4 Comparative Regionalism: SAARC, ASEAN and EU

strong regional institution.94 In the post-world war era in which Europe was deeply devastated, it was a general realisation that broken Europe could not recover and save itself from going into another war without mutual interdependence and integration based on democratic principles, equity and fairness. The institutional imperatives and need for regional interdependence motivated states to build strong institutions to meet the policy challenges.95 The second approach is called the institutionalist approach which has its foundation in the structuralist approach. As per this approach, the structuralist imperative was the initial motivation for the development of post-war strong institutions. However, the complete European regional integration could only be secured because of the supranational institutions which spearheaded its functioning. Thus, the supranational institution like the European Coal and Steel Company (ECSC) founded in 1952 lead to the formation of the European Economic Community (EEC) in 1958 which ultimately lead to the deeper integration in the form of the present-day EU.96 Probably amongst all the regional organisations of the world, the EU has one of the most extensively structured institutions which cover every dimension and area of cooperation. These institutions cover cooperation in diverse areas like foreign policy, economic policy, trade policy, banking, security, politics, legislative functions, judicial functions, social and cultural interaction, etc. The various institutions of the European Union are introduced as follows: i.

European Parliament (EP)

The European Parliament is a legislative body and a regional parliament of the EU. It owes its origin to the Common Assembly of the ECSC and in its present form it was established in the year 1979.97 The EP consists of 751 Members of the European Parliament (MEPs) which are directly elected by voters of each EU member nations for 5 years. Every EU member nation has a representation in proportion to their population in the EP. It follows degressive proportionality with every member country having not less than 6 or not more than 96 MEPs representation. The European Parliament performs three broad categories of functions which are legislative, supervisory and budgetary.98 The EP has played a pivotal role in strengthening the European integration by materialising the ideation of creating regional federalism in Europe. It has successfully been able to establish a political structure which is beyond the nation-state paradigm.

94 See

Milward (1984), Moravcsick (1998). Parsons (2002). 96 See Haas (2004), Sandholtz and Stone (1998). 97 Decision and Act concerning the election of the representatives of the European Parliament by direct universal suffrage; signed on 20 September 1976; came into force in July 1978; the first election held on 7 and 10 June 1979 leading to the constitution of first European Parliament. 98 Official Website of the European Parliament at http://www.europarl.europa.eu/portal/ and official website of the EU at https://europa.eu/. 95 See

4.3 Comparative Regionalism: Analysis

107

The EU is able to create a pan-European legislative structure by formatting mechanism which defined the role of national parliaments in the European Union. Article 12 of the Treaty of Lisbon and Protocol on the role of national parliaments in the European Union defined the interface between the EP and the national parliaments of the member nations of the EU. The effect of Article 12 and the Protocol on the role of national parliament has been the transferring of the decision-making power hitherto exercised by the national parliament of the individual member nation to the EP. Thus, with the establishment of the EP, the decision-making power of the national parliaments has been diminished in cases where regional interest is involved.99 To moderate the sharing of legislative powers between the EP and national parliaments, the principle of subsidiarity has been evolved by the Treaty of Lisbon.100 Article 5 (3) of the Treaty of Lisbon defines subsidiarity as “the Union shall act only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at the regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”101 The principles of subsidiarity along with the principle of conferral are the general principles of the EP’s functioning. The principle of conferral obliges the EP to act only within the limit of competence which has been conferred upon it by the member nations of the EU.102 ii.

European Council (EC)

The European Council is the highest executive body of the EU which consists of the head of the state or government of each member nations of the EU. Its primary responsibility is to define the general political directions and priorities of the EU. The EC was established as an informal forum in the year 1974 and was given the formal status in the year 1992.103 The EC does not itself have any legislative power but on the basis of conclusions drawn in EC meetings, it identifies issues and sets forth agenda for future action including proposing legislative instruments. Another important function of the EC is to set the EU’s common foreign and security policy. The formulation of the common foreign policy is one of the biggest steps towards creating regional federalism in Europe. These foreign policy matters include economic relations, cultural relations, etc. 99 See the official website of the European Parliament. European Parliament: relations with the national parliaments. http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId= FTU_1.3.5.html. Accessed 25 April 2018. 100 Article 5, Treaty of Lisbon. 101 Article 5(3), Treaty of Lisbon; See Protocol (No. 2) on the application of the principles of subsidiarity and proportionality. 102 See Articles 2–6 of the Treaty on the Functioning of the EU. 103 See the official website of the European Council. http://www.consilium.europa.eu. Accessed 27 April 2018.

108

4 Comparative Regionalism: SAARC, ASEAN and EU

iii.

Council of the European Union (CEU)

The CEU is part of the bicameral EU legislative framework which works with the European Parliament in the legislative affairs. It was established in the year 1958 as the Council of EEC. It is one of the main decision-making bodies of the EU which functions along with the European Parliament. It consists of government ministers from each EU member country. On the recommendation of the European Commission, CEU along with the European Parliament negotiates and adopts the EU laws and policy initiatives. The government ministers participating in CEU negotiations are authorised to commit on behalf of their home country.104 iv.

European Commission

The European Commission is akin to the cabinet ministry of domestic governance. It consists of one representative from each EU member state. These representatives are called the Members of the Commission. The European Commission has 28 members appointed by the national government; they are informally known as ‘commissioners’. The main responsibilities of the European Commission are proposing legislation to the European Parliament, implementing decisions and managing regular affairs of the EU.105 As a form of inter-governmental policy-making, the European Commission along with the European Council employs the open method of coordination (OMC). OMC is the ‘soft law’ method of policy-making and regional integration which aims at increasing coordination between the EU and its member nations. OMC targets those areas of governance which fall under the full or partial competence of the member states. OMC as the policy-making instrument was formally adopted in the EU functioning during the Lisbon European Council meeting of 23–24 March 2000.106 With the help of the OMC initiatives, the Commission has been able to achieve integration and cooperation even in the areas which are beyond the EU’s coverage. For instance, there are 14 OMC culture groups which are working for increasing cooperation in the areas like the mobility of artists, intercultural dialogues, cooperation in cultural and creative industries, etc. v.

Court of Justice of the European Union (CJEU)

The CJEU is one of the unique sui generis judicial setups and the supranational institution of the EU. It was established in the year 1952 with the objectives of reviewing the legality of the action taken by the EU along with interpreting and applying the EU law and treaties. 104 See

the official website of the Council of EU. http://www.consilium.europa.eu. Accessed 27 April 2018. 105 See the official website of European Commission. https://ec.europa.eu. Accessed 27 April 2018. 106 See Presidency Conclusion of the Lisbon European Council meeting of 23–24 March 2000. http://www.europarl.europa.eu/summits/lis1_en.htm. Accessed 27 April 2018.

4.3 Comparative Regionalism: Analysis

109

The CJEU is seated in Luxembourg and consists of two courts that are the Court of Justice and the General Court. In the year 2004, the Civil Service Tribunal was created, however, it was disbanded in September 2016 and its jurisdiction was transferred to the General Court. The Court of Justice consists of one judge from each EU member nation (28 judges) along with 11 Advocates Generals.107 The jurisdiction of the Court of Justice extends to references for the primary ruling. In certain cases, the national court of the member nation of the EU may refer a matter to the Court of Justice with regard to the interpretation of the EU laws. This reference is particularly done in order to have a uniform interpretation in the cases where the regional law is in question.108 The Court of Justice also has jurisdiction to annul actions taken by the EU which are against the EU’s law or to order it to perform certain obligations as mandated under various EU laws. It can also pass orders in cases where the EU member nation fails to fulfil its obligation undertaken as a part of the EU membership.109 The appellate jurisdiction against the judgements of the General Court also lies with the Court of Justice. The General Court consists of 46 judges, and unlike the Court of Justice, it does not have a permanent Advocates General.110 It is proposed that by 2019 the number of judges in the General Court would be increased to 56.111 The jurisdiction of the General Court extends to the actions brought against the EU institutions and bodies by natural or legal persons, actions brought by the member states against the Commission and Council, actions seeking compensation for damages caused by the EU, actions based on contracts made by the EU which give jurisdiction to the General Court, and actions relating to intellectual property brought against the EU and employment disputes between the staff and the EU institutions.112 vi.

European Central Bank (ECB)

The ECB is the central bank of the EU which was established in the year 1998 and seated in Frankfurt, Germany. The main function of the ECB is to formulate and implement economic and monetary policies of the EU along with managing its common currency.113 107 Article

252 of the Treaty on the Functioning of the European Union; See the official website of the Court of Justice. https://curia.europa.eu/jcms/jcms/Jo2_7024/en/#jurisprudences. Accessed 27 April 2018. 108 See Protocol (no 3) on the Statute of the Court of Justice of the European Union. 109 See Articles 263 and 265 of the Treaty on the Functioning of the European Union and Article 50a of the Statute of the Court of Justice of the European Union. 110 See the official website of the General Court. https://curia.europa.eu/jcms/jcms/Jo2_7033/en/. Accessed 27 April 2018. 111 See the official website of the Court of Justice of the European Union at https://curia.europa.eu. Accessed 27 April 2018. 112 See the official website of the General Court at https://curia.europa.eu/jcms/jcms/Jo2_7033/en/. Accessed 27 April 2018; Article 256 of the Treaty on the Functioning of the European Union. 113 See the official website of the European Central Bank at https://www.ecb.europa.eu. Accessed 27 April 2018.

110

4 Comparative Regionalism: SAARC, ASEAN and EU

The ECB has played an instrumental role in strengthening the economic integration of Europe by merging monetary policies of member nations and safeguarding economic stability in the region. The Statute of the ECB under Article 2 provides that the basic objective of the ECB shall be to maintain price stability in the region. It shall act on the basis of free competition and an open market economy which favour efficient allocation of economic resources.114 The major functions of the ECB include managing foreign exchange, defining and implementing monetary policy, holding and managing foreign exchange reserves and facilitating the smooth operation of the payment system.115 vii.

European Court of Auditors (ECA)

ECA was established in the year 1977 in Luxembourg. It is an independent external auditor which audits the EU budget and finances. It audits the EU revenue and expenditure along with checking any person or organisation handling the EU’s money.116 The European Court of Auditors is not a judicial body and does not hold adjudicatory powers. It is an external professional audit agency which deals with the audit of the EU’s finances. One of the basic documents in the functioning of the ECA is the Declaration of Assurance (DAS). DAS, also known as the Statement of Assurance, aims at providing the stakeholders of the EU, particularly the European Parliament, the Council of Ministers and EU citizens, an appraisal regarding the way finances of the EU have been spent.117 For achieving effective audit performance, the ECA works in close collaboration with supreme audit institutions (SAIs) of each EU member state. SAI of different member nation provides practical support in the course of the spot audit of the concerned nation. SAI also takes part in a joint audit with the ECA in certain cases.118 viii.

European External Action Service (EEAS)

The EEAS is another unique achievement of the EU which has been established in order to provide uniform a foreign affair and security policy framework to the region. It is the first supranational diplomatic service of its kind in the contemporary world.

114 Article 2, Protocol on the Statute of the European System of Central Banks and of the European

Central Bank. 115 Article 3, Protocol on the Statute of the European System of Central Banks and of the European

Central Bank. the official website of European Court of Auditors at https://www.eca.europa.eu. 117 European Court of Auditors. The DAS methodology. https://www.eca.europa.eu/Lists/ECADoc uments/DAS_BROCHURE/DAS_BROCHURE_EN.PDF. Accessed 27 April 2018. 118 Official website of the European Court of Auditors. International Cooperation. https://www.eca. europa.eu/en/Pages/InternationalOverview.aspx. Accessed 27 April 2018. 116 See

4.3 Comparative Regionalism: Analysis

111

The EEAS is the result of the Treaty of Lisbon which came into force on 1 December 2009. It was formally established in the year 2010.119 It is akin to the foreign ministry and serves as the diplomatic and foreign relation corps of the EU.120 The EEAS is headed by the High Representative for Foreign Affairs and Security Policy. It does not by itself implement the foreign policy but prepares acts to be adopted by the European Commission, Council and Parliament through the High Representative.121 The EEAS works in close collaboration with the foreign ministries of each of the EU member states to frame a common foreign and security policy.122 The functions of the EEAS inter alia include carrying out Common Foreign and Security Policy, Common Security and Defence Policy, Crisis Management and Planning, and Civil Planning and Conduct Capacity.123 The functioning of the EEAS has been equated with the so-called ‘smart power’ diplomacy, which works on the effective combination of both hard and soft powers in order to achieve a policy goal. Accordingly, through permutation and combination of military, economic, social and cultural tools, EEAS tries to bring every the EU member nation on the same platform.124 ix.

European Economic and Social Committee (EESC) and the European Committee of the Regions (CoR)

The EESC is yet another unique institution of the EU which was established in order to strengthen regional democracy and encourage people’s participation in the EU functioning. It was set up in the year 1957 by the Treaty of Rome. It works on the principle of institutional building from the grassroots level by engaging the general masses in the process of regional integration. It is a consultative body which advises EU decision-making and administration. It gives a forum for consultation and dialogues to the civil society representatives of the EU region. Representation from different sectors of the civil society is ensured in the EU through EESC. It includes representation from employers, employees, trade unions, social service groups, professionals, community associates, youth organisations, women’s organisations, etc.125 Some of the recent notable works of the EESC include the EU Action plan for tackling the gender pay gap, funding of the European Pillar of Economic Rights, 119 Council Decision of 26 July 2010 establishing the organisation and functioning of the European

External Action Service (2010/427/EU). the official website of the European External Action Service at https://eeas.europa.eu. Accessed 27 April 2018. 121 Article 2 Decision establishing the organisation and functioning of the European External Action Service. 122 See the official website of the European External Action Service, “What we do”, https://eeas. europa.eu/headquarters/headquarters-homepage/2725/what-we-do_enas. Accessed 27 April 2018. 123 Preamble and Article 1 of Decision establishing the organisation and functioning of the European External Action Service. 124 Davis Cross (2011). 125 See the official website of European Economic and Social Community. http://www.eesc.eur opa.eu. Accessed 27 April 2018. 120 See

112

4 Comparative Regionalism: SAARC, ASEAN and EU

socially sustainable concept for the digital era, free flow of non-personal data in the EU, etc.126 The CoR is another EU institution which works for strengthening democratic principles in the EU functioning. It provides a forum for local and sub-national representatives to have a direct voice in the EU’s decision-making. The CoR consists of 350 members who are regional and locally elected representatives of the EU member states. It works as an advisory body which makes recommendations and representations to the EU’s decision-making bodies like the European Commission, the Council of the European Union and the European Parliament.127 x.

European Investment Bank (EIB)

The EIB was established by the Treaty of Rome in the year 1958. It is the EU’s bank which is owned and represented by each member nation of the EU. It works for furthering the EU’s policy objective and it provides long-term loans for investment projects, etc.128 The EIB performs three-pronged functions, namely, lending, blending and advising. The vast majority of the EIB work deals with lending money to the borrowers, especially from the EU member nations. It also performs blending function by merging the EU budget with loans which form a full financial package. It also provides financial advice to various EU bodies and institutions in regard to various developmental and investment aspects. xi.

European Ombudsman

The European Ombudsman is the investigative and grievance redressal body of the EU. It is the European network of ombudsmen functions from over 95 offices from across the region. This network of ombudsmen was established in the year 1995 and its primary function is to investigate complaints against the EU institutions, bodies, agencies or officials.129 The presence of the Ombudsman strengthens democracy and good governance in the EU functioning. Over time, the functioning of the European Ombudsman has helped to create a sense of confidence amongst the EU general masses in the institutions and the activities of the EU. As per Article 2, any citizen of the European Union or any natural or legal person may, directly or through a Member of the European Parliament, file a complaint before the Ombudsman in respect of any maladministration in the activities of the EU 126 The

ffficial website of European Economic and Social Community. Our Work in the spotlight. https://www.eesc.europa.eu/en/our-work/opinions-information-reports/in-the-spotlight. Accessed 27 April 2018. 127 See the official website of European Committee of the Regions at http://cor.europa.eu. Accessed 27 April 2018. 128 See the official website of the European Investment Bank. http://www.eib.org. Accessed 27 April 2018. 129 See the official website of the European Ombudsmen. https://www.ombudsman.europa.eu. Accessed 27 April 2018.

4.3 Comparative Regionalism: Analysis

113

institution or bodies.130 All actions before the Ombudsman brought by the member of the general public of the EU are considered as part of the actio popularis. Under the principle of actio popularis, a lawsuit can be brought by a third party in the interest of the public as a whole even in cases where he is not directly party to the matter concerned. xii.

European Data Protection Supervisor (EDPS)

The EDPS is the independent data protection authority of the EU which was established in the year 2004. It is seated in Brussels, Belgium, and its main function is to ensure the protection of personal data and privacy when the EU or its bodies and institutions process the personal data of the individuals.131 The EU has created an exhaustive web of institutions and bodies to secure integration and cooperation in Europe by covering almost every aspect and the dimension of cooperation. Along with these thirteen institutions and bodies, the EU also has four inter-institute bodies. These are the Computer Emergency Response Team (CERT),132 the European School of Administration,133 European Personnel Selection Office (EPSO)134 and Publication Office. The EU has been able to establish a strong institutional setup for achieving its objective of securing fuller regional integration. However, it has often been criticised in certain aspects for not been GATT/WTO compliant. Allegedly, the most non-compliant aspect of the EU institution with the GATT/WTO mechanism is the Common Agricultural Policy (CAP) of the EU. CAP has historically been part of the European integration and is considered as an indispensable part of the European welfare state initiatives. In various GATT and WTO DSB pronouncements, the common agricultural policy of the EU has been questioned. In 1961, Uruguay filed a complaint under Article XXIII of GATT claiming that certain provisions of the EU’s common agricultural policy violate various GATT provisions.135 The GATT panel concluded that the contracting parties have not been able to sufficiently establish the legality of the CAP vis-a-vis the GATT mandate.136

130 Article 2, Decision of the European Parliament on the regulation and general condition governing

the performance of the Ombudsman’s duties. the official website of the European Data Protection Supervisor at https://edps.europa.eu. 132 Established in 2012, provides security and prevents threats to the computer system and Internet of the EU and its institutions. 133 Established in 2005, provides training to EU staff members. 134 Established in 2003, manages recruitment of EU staff members. 135 Article XXIII, GATT, 1947 deals with nullification or impairment provision, where a complaint can be filed by the any GATT contracting party under Paragraph 2 in case where any benefit as accruing under the Agreement is denied directly or indirectly to the complaining party because of the act or omission of the other contracting party. 136 Report of the Panel on Uruguayan recourse to Article XXIII Report adopted on 16 November 1962 (L/1923—11S/95). 131 See

114

4 Comparative Regionalism: SAARC, ASEAN and EU

Since the Uruguay case, the EU has created a very poor record of compliance in respect of agricultural policy issues.137 On various other occasions also, the EU has been classed as the least cooperative regional entity of the world in respect of the GATT/WTO compliance and legal adjudication of the trade dispute.138 In United States v. European Community: Programme of Minimum Import Prices, Licenses, Etc. for Certain Processed Fruits and Vegetables, a similar issue arose in respect of the EU’s CAP incongruity with the GATT obligation.139 The EU rigorously tired and blocked the formation of the GATT Panel in respect of this 1972 complaint by the US. This case became so notoriously famous that it is considered as the “textbook lesson in many ways a GATT lawsuit could be obstructed.”140 After the establishment of the WTO, numbers of changes were made in the dispute settlement mechanism in order to strengthen it and to ensure compliance. The WTO DSU provides for a two-tier system of adjudication by establishing the WTO Appellate Body, and it eliminated the chances of one member blocking the establishment of panel or adoption of the report by incorporated negative consensus rule. Even after the establishment of the WTO and changes made in the dispute settlement mechanism, there are cases which came to the surface that show incongruity between the EU’s institutions and bodies with the WTO mandates. Two of the leading cases in this regard are the EC Beef Hormone case and the EC–US Canada leghold trap regulation case.141 The EC beef hormone case was the result of the ban imposed by the EU on the import of meat and meat products from the countries which use growth hormones. This caused a lot of financial hardship particularly for the meat exporters from the US and Canada. The complaint was filed before the WTO Panel and it adjudicated that the ban violates the WTO SPS Agreement. Even after the Panel report and its confirmation in the WTO Appellate Body, the EU refused to comply, resulting in the imposition of retaliatory duties by the US and Canada in July 1999. A similar situation also existed in the case of the EC–US Canada leghold trap regulation. The European leghold trap regulation banned the importation of furs and fur products from the countries which have not imposed a ban on leghold trap. This regulation of the EU was in direct contravention to the panel report in the TunaDolphin case, in which the WTO panel held that a member cannot ban imports from another country exclusively based on the way a product has been produced.142 However, the matter did not reach the WTO panel and was settled through a negotiation amongst the US, Canada and the EU by formulating humane standards 137 Davis

(2005), p. 317. Davis (2007). 139 United States v. European Community: Programme of Minimum Import Prices, Licenses, Etc. for Certain Processed Fruits and Vegetables, 1972. 140 Davis (2005), p. 317. 141 WTO Panel Report. European Communities-Measures Concerning meat and meat products (hormones). WT/DS26/R/USA circulated on 18 August 1997. 142 WTO Panel Report, “United States—measures concerning the importation, marketing and sale of Tuna and Tuna products” WT/DS381/R circulated on 15 September 2011. 138 See

4.3 Comparative Regionalism: Analysis

115

relating to animal leg traps.143 These cases show that although the EU has been able to establish the most integrated regional setup of the contemporary world, it still has to work in order to make its institutions and bodies WTO compliant. Moving on to ASEAN, it has gained considerably in the area of regional cooperation by establishing numerous institutions covering different areas, levels and dimensions of regional integration in South East Asia. The various institutions and the organisational structure of ASEAN are introduced as follows: i.

ASEAN Summit

The ASEAN Summit is the top executive body of ASEAN and it comprises the Heads of State or Government of the member nations. It is the supreme policy and decision-making body of ASEAN which is entrusted with deciding actions of key issues pertaining to the realisation of ASEAN’s objectives.144 Since the establishment of ASEAN, thirty-two ASEAN summits have been organised dealing with various aspects of integration and development in the region. The latest ASEAN summit was conducted in Singapore during 27–28 April 2018, which dealt with themes like cybersecurity, smart cities and innovation-driven growth.145 The success of ASEAN as the regional integration organisation is consequent to the policy foundation laid down by various ASEAN summits. These summits have provided the blueprint on which the cooperation amongst the South-East Asian countries is progressing.146 ii.

ASEAN Coordinating Council

The ASEAN Coordinating Council consists of the Foreign Ministers from each member nation of ASEAN. Its main functions, inter alia, are to coordinate in the implementation of ASEAN agreements and decisions along with the different ASEAN Community Council, consider the annual report of the Secretary-General on the work of ASEAN, and approve the appointment of Deputy Secretary-General upon the recommendation of the Secretary-General.147 The meetings of the ASEAN Summit and the agenda thereto are also set by the ASEAN Coordinating Council in consultation with various stakeholders. iii.

ASEAN Community Councils

The ASEAN Community is the group of three councils which are engaged in facilitating cooperation in three different areas of cooperation, that are political-security concern, economics and socio-cultural aspects.148 143 See

Princen (2004). 7, ASEAN Charter. 145 32nd ASEAN Summit, Singapore, 27–28 April 2018, available at http://asean.org/asean/aseanstructure/asean-summit/ as on 29 April 2018. 146 See Antolik (1989), Green (2008). 147 Article 8, ASEAN Charter. 148 Article 9, ASEAN Charter. 144 Article

116

4 Comparative Regionalism: SAARC, ASEAN and EU

These community councils are the ASEAN Political-Security Community Council, the ASEAN Economic Community Council and the ASEAN Socio-Cultural Council. The main functions of these councils are to secure the implementation of relevant ASEAN decisions and to coordinate the work of the different sectors under its purview.149 The establishment of the councils is based on the ideology that a holistic approach can only provide complete integration and cooperation in the region. Economic integration cannot be achieved without political cooperation and social linkages. In the 27th ASEAN Summit, ‘ASEAN 2025: Forging Ahead Together’ plan of action was adopted. This plan of action included the ASEAN Community Vision 2025 along with a blueprint to three ASEAN Community Councils, namely, the ASEAN Community Vision 2025, the ASEAN Political-Security Community (APSC) Blueprint 2025 and the ASEAN Socio-Cultural Community (ASCC) Blueprint 2025. iv.

ASEAN Sectoral Ministerial Bodies

In reference to the ASEAN Community Councils and each area of cooperation, sectoral ministerial bodies are established. These sectoral ministerial bodies work directly with their relevant community council. The main function of the sectoral body is to implement the decision and policies of the community under which they are working.150 Under the ASEAN Political-Security Community, there are total seven ministerial bodies including Foreign Ministers, Defence Ministers, Law Ministers, Ministerial Meeting on Transnational Crime, Ministerial Meeting on Drug Matters and the ASEAN Regional Forum. Under the ASEAN Economic Community, there are seventeen ministerial bodies covering a wide area of operation including Economic Ministers, Finance Ministers, Central Bank Governors, Ministers of Energy, Ministers of Agriculture and Forestry, etc. Similarly, under the ASEAN Socio-Cultural Community, there are nineteen ministerial bodies including education ministers, ministers responsible for information, health ministers, labour ministers, the ASEAN university network, etc.151 v.

ASEAN Secretary-General and Secretariat

The Secretary-General is the chief administrative officer of ASEAN who is appointed from amongst the member nations of ASEAN for a non-renewable term of five years. The Secretary-General is entrusted with the overall monitoring and supervision of ASEAN and its related institutions. The Secretary-General is assisted by four Deputy Secretaries-General and such staff as deemed necessary.152 149 Article

9 (4), ASEAN Charter. 10, ASEAN Charter. 151 Annex 1, Article 10 (2) ASEAN Charter, List of the ASEAN Sectoral Ministerial Bodies (Annex 1). http://asean.org/storage/2012/05/ANNEX-1-ASEAN-Charter-updated-13-February-2018.pdf. Accessed 29 April 2018. 152 Article 11, ASEAN Charter. 150 Article

4.3 Comparative Regionalism: Analysis

vi.

117

Committee of Permanent Representatives and the ASEAN National Secretariats

In order to decentralise and secure the presence of ASEAN in every member nation, the Committee of Permanent Representatives and the ASEAN National Secretariats were constituted. Committee of Permanent Representatives consists of representatives from each ASEAN member country. Every member state of ASEAN is required to appoint one representative of the rank of an Ambassador to ASEAN. The main functions of the Committee are to assist different ASEAN Councils and to coordinate with National Secretariat and Sectoral Ministerial bodies.153 National Secretariats are constituted under the ASEAN Secretariat’s umbrella in the territory of each member nations. It works as the national focal point and coordinator at the national level.154 Committee of Permanent Representative and National Secretariat ensures participation and active involvement of each of the ASEAN members into its functioning and organisation. vii.

ASEAN Human Rights Body—The ASEAN Intergovernmental Commission on Human Rights (AICHR)

To secure human rights for all its citizens, ASEAN established AICHR as the regional human rights body. AICHR has been the result of the regional implementation of the multilateral norms and commitments. In 1993, ASEAN member nations attended the UN World Conference on Human Rights in Vienna, Austria. To implement the mandates of the world conference, Foreign Ministers of ASEAN member nations during the 26th ASEAN Foreign Ministers Meeting held in July 1993 decided to constitute a regional human rights body in the form of AICHR.155 viii.

ASEAN Foundation

The ASEAN Foundation assists Sectary-General and other ASEAN bodies for supporting the ASEAN community building encouraging people-to-people contact, building ASEAN identity and securing close collaboration between the business sector, civil society, academia and other stakeholders of South-East Asian integration.156 Along with these institutions and bodies, ASEAN also has numerous other entities associated with it, as mentioned in Annex 2 of the ASEAN Charter. To secure regional democracy and constitutionalism beyond the state, the ASEAN Inter-Parliamentary Organisation (AIPO) was established by ASEAN in the year 1977.157 AIPO now 153 Article

12, ASEAN Charter. 13, ASEAN Charter. 155 See the official website of AICHR at http://aichr.org. Accessed 29 April 2018. 156 Article 15, ASEAN Charter. 157 In 2007, the ASEAN Inter-Parliamentary Organisation (AIPO) was renamed as ASEAN InterParliamentary Assembly (AIPA). 154 Article

118

4 Comparative Regionalism: SAARC, ASEAN and EU

renamed as the ASEAN Inter-Parliamentary Assembly (AIPA) was conceived on the line of the European Parliament. It was established with the aim and purpose, inter alia, to promote solidarity, coordination, understanding, cooperation and close relations amongst parliaments of the ASEAN member states, other parliaments and parliamentary organisations.158 On a normative level, the AIPA has been a path-breaking initiative in South East Asia. It provides a forum for closer dialogue and cooperation amongst the parliamentarians of ASEAN member nations and observers. However, owing to its structural weaknesses marked by a lack of regional legislative power and predominantly consultative role, the AIPA functioning is often criticised.159 Further, AIPA’s resolutions are non-binding and it does not vote on the budget of ASEAN.160 In case of SAARC, the institutional and organisation setups are either very thin or non-existent particularly in the areas of dispute settlement, security aspect, foreign relations, common communication or transportation policy, human rights, regional custom policies, etc. The basic institutional setup of SAARC is provided in its Charter. The institutional setup of SAARC is discussed as follows: i.

SAARC Summit

Without specifically constituting any Committee unlike in case of the EU, SAARC Charter simply says that Head of the State or Government shall meet once in a year or more often as deemed necessary.161 ‘Meeting of the Head of the State or Government’ is considered as the apex body of the SAARC. The meeting of the head of the State is the highest decision-making body of the SAARC which sets the blueprint of the SAARC functioning and decides on the key policy issues. The outcome of the SAARC Summit is called a Declaration. Since the establishment of SAARC, eighteen summits have been conducted.162 ii.

Council of Ministers

The Council of Ministers is the apex legislative body which consists of the Foreign Ministers of the member states. The main functions of the Council of Ministers are to formulate policies, review the progress of the cooperation and decide on the new areas of cooperation.163 The Council of Ministers meets before the conduct of the SAARC Summit and prepares reports reviewing the progress of implementing the decisions taken in

158 Article

3, Part III, The Statutes of the ASEAN Inter-Parliamentary Assembly. Chirathivat et al. (1999), Vandewalle (2015). 160 Article 9, The Statutes of the ASEAN Inter-Parliamentary Assembly. 161 Article III, SAARC Charter. 162 Official website of SAARC. SAARC Summit. http://saarc-sec.org/saarc-summits. Accessed 30 April 2018. 163 Article IV, SAARC Charter. 159 See

4.3 Comparative Regionalism: Analysis

119

summits. Report of the Council of Ministers is placed before the Head of the States during summits for consideration.164 iii.

Standing Committee and Technical Committees

The Council of Ministers is assisted by the Standing Committee which comprises the Foreign Secretaries from every member nation of SAARC. The main functions of the Standing Committee are the overall monitoring and coordination of different decisions on cooperation by SAARC.165 The Standing Committee is assisted by various technical committees. For the execution of any project or decision on regional cooperation, technical committees can be constituted by SAARC. Such technical committee may consist of such representatives from SAARC member nations who are deemed fit for the concerned area of cooperation. The main functions of the technical committees are implementation, coordination and monitoring of the programmes of cooperation as agreed by SAARC.166 So far, SAARC has constituted six technical committees: Technical Committee on Agriculture and Rural Development, Technical Committee on Health and Population Activities, Technical Committee on Women, Youth and Children, Technical Committee on Science and Technology, Technical Committee on Transport and Technical Committee on Environment. iv.

Action Committees

Technical Committees may constitute Action Committee/s for the ground level implementation of the SAARC decision.167 Along with Action Committees, specific working groups could also be constituted in regard to a specific area of cooperation. So far, SAARC has constituted four working committees which are Working Group on Biotechnology, Working Group on Energy, Working Group on Information and Communication Technology, and Working Group on Tourism.168 v.

SAARC Secretariat

As per the mandate of Article VIII of its Charter, the SAARC Secretariat was established in Kathmandu, Nepal. The SAARC Secretariat is entrusted which administration and managerial aspects of the SAARC working. It is headed by the Secretary-General who is appointed for the term of three years by SAARC Council of Ministers. Secretary-General is assisted by a group of eight directors: Director (Agriculture and Rural Development), Director (Human Resources Development and Tourism), Director (Environment, Natural Disaster 164 Official website of SAARC. Council of Ministers. http://saarc-sec.org/Council-of-Ministers/53/.

Accessed 30 April 2018. V, SAARC Charter. 166 Article VI, SAARC Charter. 167 Article VII, SAARC Charter. 168 See the official website of SAARC. http://saarc-sec.org/working-groups. Accessed 03 Nov. 2017. 165 Article

120

4 Comparative Regionalism: SAARC, ASEAN and EU

and Biotechnology), Director (Economic Trade Finance), Director (Social Affairs), Director (Information and Poverty Alleviation), Director (Energy, Transport, Science and Technology) and Director (Education Security and Culture).169 The analysis of institutions and bodies created by the EU and ASEAN shows how the SAARC structure is highly inadequate for achieving the ambitious objective of bringing regional integration. For the creation of a potent regional integration system, three basic stages or requirements must be satisfied, namely, normative stage, institutional stage and enforcement stage. In the normative stage, basic norms and objectives of the organisation are set out. At the institutional stage, organisational setup and institutional bodies are created which are obligated to carry out the objectives of the organisation. Finally, at the enforcement stage, institutions so created are conferred with the power to enforce the mandate of the organisation. Such power is a combination of hard and soft law techniques. Hard law techniques use the coercive element for enforcement whereas soft law uses diplomacy to secure the enforcement of the law. In terms of stages, the EU has been able to secure all the three stages/requirements for regional integration and it is continuously striving to further strengthen its norms, institutions and enforcement. As for ASEAN, the organisation has secured the three stages but still, it has to work a lot to strengthen its integration process. SAARC has been able to reach only up to two stages of building the regional integration system. Normative and institutional stages have been achieved in a truncated form and it lacks completely on the enforcement stage. Even in cases of normative and institutional stages, the work done under SAARC is half-baked and grossly insufficient to bring about meaningful integration in South Asia. The norms which are set out by SAARC seem shallow and it lacks a specific blueprint on which systematic action can be taken for bringing economic integration in the region. Most of the institutions are also rudderless and could not impact the general masses of the region. However, blaming SAARC alone for the lack of regional integration in South Asia would be unjustified. The lack of political will amongst the member nations is the real cause for the failure of SAARC. The member nations of SAARC have not been successful in developing it as a potent regional integration organisation. As the first step for strengthening regional integration in SAARC, the SAARC Charter must be amended so as to allow discussion on bilateral and contentious issues of the region.170 Without the resolution of chronic bilateral issues which are plaguing the region, SAARC would not be able to bring any meaningful integration of South Asia.

169 See

the official website of SAARC. SAARC Directors. http://saarc-sec.org/saarc_directors. Accessed 03 November 2017. 170 See Article X (2), SAARC Charter.

4.4 Chapter Conclusion

121

4.4 Chapter Conclusion The comparative regionalism study in the present chapter has been taken in order to find out the good practices of other regional organisations and learn from other mistakes if any. The comparative analysis has shown that SAARC lags far behind other regional organisations like the EU and ASEAN because of the weak ideational foundations and inadequate institutional machinery. In the case of regional integration in South Asia, it is very naive and is still struggling with some rudimentary and basic concerns. Still, after three decades of its establishment, SAARC has not been able to achieve the regional identity, awareness and cohesiveness within itself, which forms the foundation on which a strong organisational setup can be created. The institutional and organisation setup of SAARC shows a shallow attempt at regional integration. For accelerating economic cooperation and integration in South Asia, it is quintessential that the organisational machinery of SAARC is revamped and strengthened. The strength of the regional organisation and its institutions are dependent on how they are perceived by their members, and what objectives and destination they intend to achieve through the vehicle of the regional setup. Here the role of the ideation process and motivation comes. In the case of SAARC, regional integration seems to be a half-baked attempt which tends to merely create an inter-governmental organisation having very limited implications and authority.

References Acharya, A. (2000). The quest for identity: International relations of Southeast Asia. Singapore: Oxford University Press. Ahmad, Z. H., & Ghoshal, B. (1999). The political future of ASEAN after the Asian crisis. International Affairs (Royal Institute of International Affairs, 75(4), 759–778. Antolik, M. (1989). The pattern of ASEAN summitry. Contemporary Southeast Asia, 10(4), 362– 374. Arts, K., & Dickson, A. (Eds.). (2004). EU development cooperation: From model to symbol. New York: Manchester University Press. Ashley, R. (1986). The poverty of Neorealism. In R. Keohane (Ed.), Neorealism and its critics. New York: Columbia University Press. Beltz, A. M., Wright, A. G. C., Sprague, B. N., & Molenaar, P. C. M. (2016). Bridging the nomothetic and idiographic approaches to the analysis of clinical data. Sage Journal. Berger, P. L., & Luckmann, T. (1966). The social construction of reality: A treatise in the sociology of knowledge. New York: Anchor Books. Berman, H. J. (1983). Law and revolution: The formation of the western legal tradition. Cambridge: Harvard University Press. Burgess, M. (1996). Federalism and building the European Union. Publius (Oxford University Press), 26(4), 1–15. Chirathivat, S., Pachusanond, C., & Wongboonsin, P. (1999). ASEAN prospects for regional integration and the implications for the ASEAN legislative and institutional framework. ASEAN Economic Bulletin, 16(1), 28–50.

122

4 Comparative Regionalism: SAARC, ASEAN and EU

Collins, A. (2003). Security and Southeast Asia: Domestic, regional, and global issues. Singapore: Institute of Southeast Asian Studies. Davis, C. L. (2005). Food fights over free trade: How international institutions promote agricultural trade liberalization. Princeton University Press. Davis, C. L. (2007). A conflict of institutions? The EU and GATT/WTO dispute adjudication. Department of Politics, Princeton University Publication. Davis Cross, M. K. (2011). Europe, a smart power? International Politics, 48(6), 691–706. De Cruz, P. (2008). Comparative law in a changing world (3rd ed., pp. 227–228). New York: Routledge-Cavendish. De Lombaerde, P., Soderbaum, F., Van Langenhove, L., & Baert, F. (2010). The problem of comparison in comparative regionalism. Review of International Studies (Cambridge University Press), 36(3), 744, 731–753. Duroselle, J. B. (1966). General De Gaulle’s Europe and Jean Monnet’s Europe. The World Today (Royal Institute of International Affairs), 22(1), 1–13. Eisenstadt, S. N. (1968). Social institutions: Comparative study. In D. Sills (Ed.), International encyclopaedia of the social sciences. New York: Macmillan & Free Press. European Movement International Document. (2016). The consequences of a British exit from the European Union. European Movement International. Foot, R. (2011). The role of East Asian Regional Organizations in regional governance: Constraints and contributions. Carnegie Asia Programme, Carnegie Endowment for International Peace. Forde, S. (1995). International realism and the science of politics: Thucydides, Machiavelli, and Neorealism. International Studies Quarterly, 39(2), 141–160. Garrett, G., Keleman, R. D., & Schulz, H. (1998). The European court of justice, national governments, and legal integration in the European Union. International Organization, 52(1), 149–176. Glaser, C. L. (2010). Rational theory of international politics: The logic of competition and cooperation. Princeton University Press. Global Counsel Document. (2015). BREXIT: The impact on the UK and the EU. Global Counsel. Grant, J. A., Mitchell, M., & Nyame, F. K. (2012) New regionalism, micro-regionalism, and the migration-conflict nexus: Evidence from natural resource sectors in West Africa. In T. M. Shaw, J. A. Grant, & S. Cornelissen (Eds.), The Ashgate research companion on the regionalisms. England: Ashgate Publications. Green, D. J. (2008). The role of ASEAN economic community as a commitment to policy certainty. ASEAN Economic Bulletin, 25(2), 209–227. Haas, E. B. (1970). The study of regional integration: Reflections on the Joy and Anguish of pretheorizing. International Organization, 24(4). Regional Integration: Theory and Research, 610, 607–646. Haas, E. B. (2004). The uniting of Europe: Political, social, and economic forces, 1950–1957. University of Notre Dame Press [2004 reprint, original publication 1958]. Habermas, J. (1999). The European Nation-State and the pressures of globalization. New Left Review, I/235. Habermas, J. (2000). Beyond the Nation-State?: On some consequences of economic globalisation. In E. O. Eriksen & J. E. Fossum (Eds.), Democracy in the European Union: Integration through deliberation? (pp. 29–41). Routledge Publication. Haynes, S. N., & O’Brien, W. H. (2000). Idiographic and nomothetic assessment. In S. N. Haynes & W. H. O’Brien (Eds.), Principles and practice of behavioural assessment. Applied clinical psychology book series (pp. 109–126). New York: Kluwer Academic and Plenum Publishers. Hettne, B. (2002). The Europeanisation of Europe: Endogenous and exogenous dimensions. Journal of European Integration., 24(4), 325–340. Hitchcock, W. (1998). France restored: Cold War diplomacy and the quest for leadership Europe, 1944–1954. Chapel Hill: University of North Carolina Press. Hobson, J. A. (1906). The ethics of internationalism. International Journal of Ethics (The University of Chicago Press), 17(1), 16–28.

References

123

Isiksel, T. (2016). Europe’s functional constitution: A theory of constitutionalism beyond the state. Oxford University Press. Jervis, R. (1976). Perception and misperception in international politics. Princeton: Princeton University Press. Jervis, R. (1998). Realism in the study of world politics. International Organization, 52(4). International organization at fifty: Exploration and contestation in the study of world politics (pp. 971–991). MIT Press. Jonsson, K. (2010). Unity-in-diversity? Regional identity-building in Southeast Asia. Journal of Current Southeast Asian Affairs, 2, 41–72. Kahler, M. (1998). Rationality in international relations. International Organization, 52(4). International organization at fifty: Exploration and contestation in the study of world politics (pp. 919–941). MIT Press. Katzenstein, P. (Ed.). (1996). The culture of national security: Norms and identity in world politics. New York: Columbia University Press. Keohane, R. O., & Nye, J. S. (2000). Introduction. In Nye & J. D. Donahue (Eds.), Governance in a globalizing world. Washington: Brookings Institution Press. Leighton, M. K. (1978). Perspectives on the Vietnam-Cambodia border conflict. Asian Survey, 18(5), 448–457. Lijphart, A. (1971). comparative politics and the comparative method. The American Political Science Review, 65(3), 682–693. March, J. G., & Olsen, J. P. (2006). The logic of appropriateness. In M. Moran, M. Rein, & R. E. Goodin (Eds.), The Oxford handbook of public policy (pp. 689–708). Oxford: Oxford University Press. McCormick, J. P. (2009). Weber, Habermas and transformations of the European state: Constitutional, social and supranational democracy. New York: Cambridge University Press. Milward, A. S. (1984). The reconstruction of Western Europe, 1945–1951. London: Methuen Publication. Moravcsick, A. (1998). The choice for Europe: Social purpose and state power from Messina to Maastricht. Cornnel University Press. Morgan, G. (2005). The idea of a European super state: Public justification and European integration. Princeton: Princeton University Press. Onuf, N. (1989). World of our making: Rules and rule in social theory and international relations. Columbia: University of South Carolina Press. Paribatra, S. (1994). From ASEAN six to ASEAN ten: Issues and prospects. Contemporary Southeast Asia, 16(3), 243–258. Paris, R. (1997). Peace building and the limits of liberal internationalism. International Security (MIT Press), 22(2), 54–89. Parsons, C. (2002). Showing ideas as causes: The origins of the European Union. International Organization, 56(1), 47–84. Patterson, E. M. (1919). Economic internationalism. The Annals of the American Academy of Political and Social Science, 83. International economics (pp. 1–15). Sage Publication. Princen, S. (2004). EC compliance with WTO law: The interplay of law and politics. European Journal of International Law, 15(3), 555–574. Reus-Smit, C., & Snida, D. (Eds.). (2008). The Oxford handbook of international relations. New York: Oxford University Press. Sandholtz, W., & Stone, A. (Eds.). (1998). European integration and supranational governance. New York: Oxford University Press. Setear, J. K. (1997). Responses to breach of a treaty and rationalist international relations theory: The rules of release and remediation in the law of treaties and the law of state responsibility. Virginia Law Review, 83(1), 1–126. Shannon, V. P., & Kowert, P. A. (Eds.). (2012). Psychology and constructivism in international relations: An ideational perspective. Ann Arbor: The University of Michigan.

124

4 Comparative Regionalism: SAARC, ASEAN and EU

Shaw, T. M., Grant, A., & Cornelissen, S. (2011). Introduction and overview: The study of new regionalism(s) at the start of the second decade of the twenty-first century. Simon, S. W. (1979). China, Vietnam, and ASEAN: The politics of polarization. Recent International Developments in Asia, Asian Survey (University of California Press), 19(12), 1171–1188. Singer, E., & Hudson, V. (Eds.). (1994). Political psychology and foreign policy. Boulder Colorado: Westview Press. Sung An, T. (1978). Turmoil in Indochina: The Vietnam-Cambodia conflict. Asian Affairs, 5(4), 245–256. Tyler, T. R. (1990). Why people obey the law. New Haven: Yale University Press. Van Evera, S. (1999). Causes of war. Ithaca: Cornell University Press. Vandewalle, L. (2015). The ASEAN Inter-Parliamentary Assembly (AIPA): A privileged interlocutor for the European Parliament in South East Asia. Directorate-General for External Policies. Policy Department, European Parliament, DG EXPO/B/PolDep/Note/2015_237. Vertzberger, Y. I. (1990). The world in their minds: Information processing, cognition, and perception in foreign policy decision making. Stanford: Stanford University Press. Walker, R. B. J. (1987). Realism, change, and international political theory. International Studies Quarterly, 31(1), 65–86. Weber, M. (1978). Economy and society: An outline of interpretive sociology. University of California Press.

Chapter 5

Strengthening Trade Regionalism Under SAARC

5.1 Introduction The regional integration amongst the SAARC nations is marred by numerous bottlenecks which have completely plagued its growth. These bottlenecks range from chronic security concern, military rivalry, economic nationalism and mutual distrust of every member against one or the other. The parochial attitude of various political parties from across the region, hate-mongering and mutual distrust disguised as the economic non-complementarity have always been the cause of the lack of the success of SAARC as a regional cooperation organisation. It must be recognised that the SAARC region is highly interwoven by the web of overlapping and shared culture, ethnicity, history and geographical endowment including common rivers, mountains and ecology. The whole region is destined together, and it can rise and fall together. Any political, economic and social problem in any one of the member nations will have repercussions on other members, and there is no immunity from it. The ‘beggar thy neighbour’1 policy is a mediaeval idea, and it would not be good for any nation in SAARC if its neighbour is bleeding and suffers from governance anarchy. Peter Sutherland concerning ‘peace dividend’ of international trade once observed, The greatest economic challenge facing the world is the need to create an international system that not only maximises global growth but also achieves a greater measure of equity, a system that both integrates emerging powers and assists currently marginalised countries in their efforts to participate in the worldwide economic expansion … The most important means available to secure peace and prosperity into the future is to develop effective multilateral approaches and institutions.2

1 Smith

(1778). (1997).

2 Sutherland

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_5

125

126

5 Strengthening Trade Regionalism Under SAARC

Ironically around the world, cross-border or international trade has been more about politics than economics. In the case of South Asia, this situation is even worse. Despite the fact of geographical proximity, in respect of land and sea transportation, trade relations amongst the member nations of SAARC have been dismal. The present chapter puts forth certain ways through which regional cooperation in South Asia could be strengthened in order to achieve both the ‘peace dividend’ and the economic dividend of the regional integration. It covers four broad aspects which are also considered as basic factors that determine the success of regional integration. These factors are the functional demands, leadership, common exigencies and common identity.3

5.2 Revisiting the Role of India: The Hegemonic Big Brother or Partner in Cooperation? Considering its geographical size and economic enormity, India is the largest member country of SAARC. It occupies a unique position by the fact that it shares borders, maritime or land, with all the other seven members and constitutes more than 70% of SAARC’s area, population and resources. The locational advantage of being in the centre of South Asia and connecting almost all the members of SAARC also adds to its strength. Allegedly, power and size imbalances amongst the member nations have adversely impacted the growth of regional cooperation in South Asia. As argued by Thomas Thornton, regional cooperation could be immensely tough amongst the nations “when one has a significant advantage in power over the other states.”4 India’s relations with its neighbours have been shaped by India’s great size and strength, by its desire to limit the regional role of external powers, and by its neighbours corresponding sense of vulnerability to Indian power.5 The comparative geographical, economic and military enormity of India vis-a-vis other SAARC members is one of the key reasons for the creation of fear psychosis and suspicion of dominance amongst the members of SAARC. Allegations of economic dominance, political hegemony and interference in domestic affairs have frequently been levied against India in respect, inter alia, of SAARC dealings. The South Asian region also suffers from the ‘imperialistic nostalgia’ and views the functioning of SAARC particularly the role of India through a ‘centre-periphery approach’ which causes threat perception of dominance and interference.6 To smaller South Asian nations, with a Leviathan neighbour [like India] can be like living with an elephant.7 3 See

Mattli (2001), Choi et al. (2002). (1991). 5 Schaffer and Schaffer (1998). 6 Dadhich (2005). 7 Gupta (1986). 4 Thornton

5.2 Revisiting the Role of India …

127

Although many of the smaller member nations of SAARC recognise the fact that trade relations with India can boost the domestic economic growth nonetheless they are sceptical that such relations can increase India’s dominance and importance over the region.8 Almost all the members, particularly Nepal and Bangladesh, on many occasions accused India of domination and interference in their domestic politics. Bangladesh is cynical about India using its geographical position to redirect river water flow. Nepal and Bhutan, which are landlocked countries, fear for India’s control over their world trade and transit links.9 And to make matters worse, the region suffers from the chronic rivalry between India and Pakistan, the two largest economies of the region having nuclear military capabilities. About India’s geographical and size asymmetries, the observation of Mr. Bhabani Sen Gupta is worth noticing.10 He observed, The Indian elephant cannot transform itself into a mouse. If South Asia to get itself out of crippling bonds of conflicts and cleavages, the six will have to accept the bigness of the seventh. And the seventh, that is India, will have to prove that big can indeed be beautiful.11

However, international trade analysts view that size asymmetry may not necessarily impede regional cooperation or any trade agreement. On the other hand, the concept of regional cooperation can be used as a strategic policy initiative by smaller weaker nations to safeguard their economic and security interests by collaborating with the relatively strong economy and reaping the economic or other benefits thereof.12 Statically speaking, size asymmetry with the trading partner is mostly for the benefit of the smaller economy. The smaller economy tends to gain more when it enters into a regional trade or bilateral trade agreement with a giant economy. One of the best examples is Mexico who became part of North American Free Trade Agreement (NAFTA) with a giant economy of the USA. From 1993 to 2019, Mexican exports to the USA increased from $151 billion to $614.5 billion.13 In April 2020, amongst the 10 top trading partners of the USA, Mexico occupies the third position with a 10.9% share in the total trade of the United States with the rest of the world.14 This top position occupied by Mexico in United States’ trade is due to NAFTA, 8 Reed

(1997). and Schaffer (1998). 10 Professor Bhabhani Sen Gupta was an eminent political scientist, writer and foreign affairs commentator. He has authored many books on foreign affairs including the Fulcrum of Asia: Relations among China, India, Pakistan, and the USSR’, ‘The Gorbachev Factor in World Affairs: An Indian Interpretation’, ‘Communism in Indian Politics’, and ‘Afghanistan: Politics, Economics, and Society Revolution, Resistance, Intervention’, among others. 11 Gupta (1984). 12 See Singer (1972). 13 Source: United States Census Bureau. https://www.census.gov/foreign-trade/statistics/highlights/ top/top1912yr.html. Accessed 21 June 2020. 14 Source: United States Census Bureau. Top Trading Partners—April 2020. https://www.census. gov/foreign-trade/statistics/highlights/top/top2004cm.html. Accessed 21-06-2020. 9 Schaffer

128

5 Strengthening Trade Regionalism Under SAARC

Total Trade

% of Total Trade

165.4

261.2

100.0%

8.6

31.1

39.7

15.2%

Canada

14.8

15.0

29.8

11.4%

3

Mexico

12.5

15.8

28.4

10.9%

4

Japan

5.5

9.7

15.1

5.8%

5

Germany

4.1

8.4

12.5

4.8%

6

Korea, South

4.1

6.6

10.7

4.1%

7

Switzerland

1.3

8.4

9.7

3.7%

8

UK

3.6

4.2

7.8

3.0%

9

Taiwan

2.4

4.6

7.0

2.7%

10

Netherland

3.4

2.6

6.0

2.3%

Rank

Country

Exports Imports

---

All Countries

95.8

1

China

2

Fig. 5.1 Top ten trading partners of the United States of America-April 202015 (Trade in goods on a Census Basis, in billions of dollars)

which has opened all avenues of trade by removing both tariff and non-tariff barriers to trade amongst Canada, the United States and Mexico (Fig. 5.1). The same is also true for South Asia. In the 13th SAARC Summit, the then President of Sri Lankan Ms. Chandrika Kumaratunga pointed out that there has been a lot of scepticism and doomsday prediction when Sri Lanka entered into a free trade agreement with two of the largest economies of SAARC, India and Pakistan. It was predicted and warned that through the free trade agreement ‘the big will swallow the

15 Source: United States Census Bureau. https://www.census.gov/foreign-trade/statistics/highlights/

top/top2004cm.html. Accessed 21 June 2020.

5.2 Revisiting the Role of India …

129

small’. However, as per the data, through these agreements, Sri Lankan trade volume has grown up to 1.8 billion dollars, and trade imbalance has dramatically declined.16 Pointing towards enormous gains prospect from regional and bilateral trade in South Asia, the then Foreign Minister of India Mr. Pranab Mukherjee said, 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 from trade and businesses, the smaller countries are expected to be the biggest beneficiaries…17

It is the obligation of India, just like the obligation of any other member of SAARC, to be very responsive towards the functioning of SAARC and its mechanism. It is not SAARC which failed, but it is its members who have failed SAARC. The SAARC Charter under Article III mandates that “The Heads of State or Government shall meet once a year or more often as and when considered necessary by the Member States”. Hence, it requires that at least a yearly meet should be organised. Calculating from the year of the formation of SAARC that is 1986, around 30 summits should have been conducted. However, since the very formation, only 18 SAARC summits could be conducted. There have been no SAARC summits in 1992, 1994, 1996, 1999, 2000, 2001, 2003, 2006, 2009, 2015, 2016, 2017, 2018, 2019 and 2020 for various reasons, like member states pulling out of the summit, refusal to host, refusal to attend, etc. which showcase devious and insincere attitude of the member nations towards SAARC. Responsibility is even greater on India who is being dubbed as the leader of developing countries and regional superpower having geographical, economic and military enormity along with locational advantage.18 As mentioned earlier, the power imbalances and size asymmetry have led to the fear of dominance and hegemony amongst the smaller members of SAARC. India has to allay this fear and scepticism for SAARC to succeed and to make regional integration deeper. To date, the partial implementation of the Gujral Doctrine by India has done little to allay the fears of other South Asian states.19 Realising its considerable advantage in military and economic power, India has consistently acted in an ‘arrogant and uncompromising’ manner with the neighbours.20 More recently, India refused to attend the 19th SAARC Summit, 2016, scheduled to be held in Islamabad on the grounds of security concerns in the form of frequent incidents of cross-border terrorism. The fact of India’s refusal to attend the summit

16 Address

of President C Kumaratunga 13th SAARC summit, Inaugural session, 12th Nov 2005. Seminar, 10 March 2007. 18 Firstpost News Wednesday, November 16, 2016, “India remains leader of developing world, NAM: US” available at http://www.firstpost.com/fwire/india-remains-leader-of-developing-worldnam-us-131456.html (as on 16-11-2016). 19 Thapar (2006). 20 Schaffer and Schaffer (1998) as quoted in Thapar (2006). 17 RIS

130

5 Strengthening Trade Regionalism Under SAARC

led to its cancellation.21 As the SAARC Charter under Article X Clause 1 says the “decision at all levels shall be by unanimity”, refusal to attend or being absent by any one member nation in a SAARC conference or summit shall make the whole exercise futile.22 The then official spokesperson of the Ministry of External Affairs, Government of India, Mr. Vikas Swarup released the following statement in this regard, India has conveyed to the current SAARC Chair in Nepal that increasing cross-border terrorist attacks in the region and increasing interference in the internal matters of member states by one country has created an environment that is not conducive to the successful holding of the SAARC summit…Regional Cooperation and terror don’t go together.23

The 19th SAARC Summit is not the first incident of cancellation and postponement of a SAARC summit. There have been numerous other incidents whereby the rivalry, political or military disturbances in the region mostly between India and Pakistan have led to the cancellation of SAARC summits. Therefore, it is not farfetched to argue that the success of SAARC has to a larger extent been held hostage by the mutual rivalry of India and Pakistan. The 11th SAARC Summit of 1999 which was scheduled to be held in Kathmandu was cancelled and finally conducted in the year 2002 due to withdrawal by India and Bangladesh consequent to the successful coup staged by General Pervez Musharraf that ousted Mr. Nawaz Sharif.24 Similarly, 13th SAARC Summit was postponed due to the refusal by India to attend the summit on the grounds of the grave concerns resultant from the takeover of power by King Gyanendra of Nepal by removing Sher Bahadur Deuba’s elected coalition government.25 However, the stand taken by India in pulling out from the SAARC summit is counterproductive and cannot lead to any sustainable results. In the terminology of international relations, this kind of diplomatic reaction is called the ‘Empty Chair Policy’. India which is called the ‘regional superpower’ and the ‘leader of the developing nations’ must use its position in strengthening the democratic values and help SAARC in getting sustainable results. The idea of staying aloof, pulling out or postponing any SAARC meet, will not bring a solution to the problems faced in the region. It is well established that ‘Empty Chair Policy’ as a diplomatic reaction does not lead to any result, and it only lingers on the unresolved issues and perpetuate animosity. History provides ample evidence of the futility of this policy and its adverse impact on regional integration. 21 The

Hindu September 29, 2016. SAARC summit to be cancelled. http://www.thehindu.com/ news/international/after-india-bangladesh-bhutan-pull-out-of-saarc-summit/article9157600.ece. Accessed 16 November 2016. 22 SAARC Charter Article X.1. 23 Twitter official page of Mr. Vikas Swarup @ MEAIndia, “Regional cooperation and terror don’t go together. India pulls out of the SAARC Summit in Islamabad” tweet on 27 September 2016. 24 The Hindu, 2 November 2001. Vajpayee set to meet Musharraf in Kathmandu. http://www.the hindu.com/2001/11/02/stories/01020005.htm. Accessed 16 November 2016. 25 The Dawn, 31 December 2004. 13th SAARC Summit postponed. http://www.dawn.com/news/ 378608/13th-saarc-summit-postponed. Accessed 16 November 2016.

5.2 Revisiting the Role of India …

131

One of the best examples in this regard is the French government pulling out and postponing the European Economic Community (EEC) meet as a result of disagreements and deadlocks on the funding of Common Agricultural Policy of the EEC and change in decision-making from the principle of unanimity to qualified majority voting.26 In the form of protest, France decided to boycott the meetings and the conference of the EEC from July 1965 to the end of January 1966.27 During these times, ‘the French chair’ remained empty during Community meetings and the French viewpoint unstated, apart from periodic ‘delphic utterances’ from the French authorities.28 The ‘Empty Chair Crisis’ finally ended with the Luxemburg Compromise which included provisions for veto power, amendments to Common Agricultural Policy and inclusion of qualified majority voting. The empty chair policy of France under Charles De Gaulle completely paralysed the economic integration of Europe for years and threatened its peace and stability again. It’s high time that India redefined its role and walk an extra mile of non-reciprocity along with other members for the reinforcement of the idea that ‘big can indeed be beautiful’. As the responsive regional power, it must act as the leader amongst leaders to secure complete cooperation and regional integration. On the other hand, size asymmetry is obvious in South Asia, and it should be seen as an opportunity by the other members as the giant market and investment avenue.

5.3 Revival of the Principle of Non-reciprocity and the Gujral Doctrine In the context of redefining the role of India in SAARC also comes the discussion of the Gujral Doctrine. This doctrine is the part of the foreign policy approach of India propounded by the then Foreign Minister of India Mr. Inder Kumar Gujral, which to a large extent shaped the role of India in South Asia. Mr. Inder Kumar Gujral served as the Foreign Minister of India for two terms between December 1989 to December 1990 and June 1996 to April 1997 in the cabinet of the then Prime Minister V. P. Singh and the then Prime Minister H. D. Deve Gowda, respectively. He further went on to become the Prime Minister of India from 21 April 1997 to 18 March 1998. However, foreign relations always remained his first love, and therefore he was also dubbed as the ‘Prime Minister for External Affairs.’29

26 See,

Treaty of Rome. et al. (2006). 28 Ludlow (1999). 29 Basu, Tarun. 2016. It Was a Year of the Gujral Doctrine. Business Standard, December 29, 1997. http://www.business-standard.com/article/specials/it-was-a-year-of-the-gujral-doctrine197122901053_1.html. Accessed 25 Nov. 2016. 27 Palayret

132

5 Strengthening Trade Regionalism Under SAARC

During his experience as a Minister of Foreign Affairs, while defining the role of India in South Asia, he promoted the following five principles which were later termed by Bhabani Sen Gupta as the Gujral Doctrine.30 i.

ii. iii. iv. v.

In respect of smaller neighbours of India in South Asia like Bhutan, Bangladesh, Nepal and Sri Lanka, India must deal with the principle of non-reciprocity. Rather than a give and take relationship, the association should be governed by mutual trust and good faith for the wider prosperity and peace in the region. No South Asian nation should allow its territory to be used against the interest of other nations. Non-interference in the domestic internal affairs of any nation. Territorial integrity and sovereignty of nations. Peaceful settlement of the dispute.

This foreign policy principle was endorsed keeping in mind the size asymmetry of India vis-a-vis other members of SAARC. To answer this situation, unilateral commitments from India are desirable for the greater good of the region that are not based on an immediate quid pro quo basis. This is also known as the principle of non-reciprocal magnanimity. It is believed that through conferment of these non-reciprocal behaviours by India, South Asia as a region shall grow, which shall be immensely beneficial for India in the long run also. As we have discussed earlier, the SAARC region is deeply interwoven, and the region has a potential of rising together and falling together. The Gujral Doctrine is a counter-thesis of a wider international trade law regime working on the principle of reciprocity and sovereign equality. The principle of reciprocity occupies a prominent place in the WTO and other trade liberalisation schemes. It is said, “It’s the principle of reciprocity which determines the depth and breadth of trade liberalisation”31 and it is particularly more important in a global economic setup where there is no real “external authority to enforce agreements, in a world that exists in a Hobbesian state of nature.”32 GATT’s framework works on the principles of reciprocity and non-discrimination, which states that where one country reduces the trade barriers or provides certain benefits or facilitation, the other partner must do the same as a part of mutual trade policy change. The principle of reciprocity is a GATT norm where every member nation agrees to reduce its level of protection in return for a reciprocal concession from its trading partner.33 Reciprocity is defined as a fundamental rule by which plural parties maintain the balance of treatment by means of granting the same or equivalent rights and benefits and/or undertaking obligations to each other.34 30 Gupta

(1997). (2001). 32 Parisi, Francesco, and Ghei, Nita. 2016. The Role of Reciprocity in International Law. http://www. law.gmu.edu/assets/files/publications/working_papers/02-08.pdf. Accessed 22 November 2016. 33 Staiger, Robert W. The Economics of GATT The National Bureau of Economic Research. http:// www.nber.org/reporter/spring99/staiger.html. Accessed 22 November 2016. 34 Yamamoto (1998) as mentioned quoted in Yanai (2001). 31 Yanai

5.3 Revival of the Principle of Non-reciprocity and the Gujral Doctrine

133

The preamble of the GATT reiterating the principle of reciprocity provides, “Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international commerce,”35 However, reciprocity under GATT/WTO is not specific reciprocity but diffused reciprocity.36 The diffused reciprocity doesn’t work on direct reciprocal behaviours but on the general acceptance of cooperation. It aims for a long-term relationship with open cooperation without the object of direct give and takes. Considering the same, GATT/WTO also adopts the principles of non-reciprocity and preferential treatment in respect of the least developed and developing member nations. These unilateral trade preferences, technically called Preferential Trade Agreements (PTAs), come from the GATT Council’s decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (Enabling Clause).37 Article 5 of the 1979 decision provides that during trade negotiation of any nature particularly in terms of reduction of tariff or removal of any other barriers to trade, the developed nations shall not expect reciprocity from the developing nation. Accordingly, the developed nations shall unilaterally confer benefits and shall not seek return benefits from developing nations where such return benefits are inconsistent with the development, financial and trade needs of any such developing nations. The rationale for this provision is to accommodate the special economic difficulty and any developmental, financial and/or trade needs of developing or least developed countries.38 It ultimately aims at creating a level playing field in the global market by correcting economic imbalances. The idea of unilateral conferment of benefits and accommodation of developing and least developed nations is the cornerstone of the new world order in a globalised economy. It has been redefining the relationship amongst developed nations and developing or least developed nations. The same approach of non-reciprocity and unilateral conferment of benefits is also a trusted area of the Gujral Doctrine. However, instead of defining it in terms of developed and developing nations, the relationship is classified in terms of the comparative geographical and economic enormity of one nation vis-a-vis its neighbours. The Gujral Doctrine of non-reciprocal accommodation led to some initiatives by India to instill confidence and trust amongst the neighbouring nations. A few of them include the signing of the Farakka Water Treaty, a river water sharing agreement with

35 Para

03, Preamble of General Agreement on Tariffs and Trade, 1994. classification of reciprocity refer to Keohane (1986). 37 WTO General Council Decision, 28 November 1979 (L/4903); https://www.wto.org/english/ docs_e/legal_e/enabling_e.pdf. Accessed 24 Nov. 2016. 38 Article 6 of Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries, WTO General Council Decision, 28 November 1979. 36 For

134

5 Strengthening Trade Regionalism Under SAARC

Bangladesh on 12 December 12 1996.39 This agreement was in limbo for eight years because of stiffness and inflexibility from both the countries. It ensured Bhutanese consent for digging of a canal from a Bhutanese river to augment the flow of water to Ganga and the revision of the controversial Mahakali Treaty with Nepal which was not well received in Nepal.40 Recognising a common regional stake, India provides flood data on all the major rivers that flow into Bangladesh from India. In 2008 both countries, to preserve the Sundarbans ecosystem, agreed to facilitate river navigation and the joint patrolling of waterways along Kolkata–Haldia and Karimganj river routes.41 After Mr. Gujral, the doctrine was followed to a certain extent by National Democratic Alliance (NDA) government from 1998 till 2004 and by United Progressive Alliance Government from 2004 till 2014 recognising the need to have a “peaceful, stable and constructive environment in India’s neighbourhood” for the overall development of India and the South Asian region.42 Nonetheless, on many occasions, it was kept on the back burner on the grounds of mutual disagreements, particularly during the India–Pakistan rivalry. On many occasions, this doctrine has been criticised, scoffed off and ignored as an idealism which talks about a utopia. It cannot be applicable between antagonistic neighbours, which have been the case in South Asia. It drew ab-initio scepticism from national security establishments of India and today it lies in the ‘geopolitical dump.’43 For the success of SAARC, India should work on the equal partner basis rather than as ‘big brother’, ‘leader’, ‘patron-client’ or the ‘guardian of the region’. As long as the narrative of India of being a big brotherly figure and the region to develop under the guardianship of India, scepticism from the mindset of the smaller neighbours of India shall not go. This scepticism and mistrust will affect the regional cooperation in South Asia adversely. Considering the size asymmetry and the geographical enormity of India, fear of imbalances shall prevail, but through the application of the Gujral Doctrine in its letter and spirits, this fear can be allayed to a larger extent. India must emerge as the factor of regional peace and stability that could be assured not through showcasing of power but by mutual help and respect.

39 Treaty Between the government of the Republic of India and the government of the People’s Republic of Bangladesh on Sharing of the Ganga/Ganges Waters at Farakka, 12 December 1996. 40 Institute of Defense Studies and Analysis. Anil Kumar Reddy asked: What is Gujral Doctrine? http://idsa.in/askanexpert/GujralDoctrine%3F Accessed 24 November 2016. 41 Jayaram (2013). 42 Institute of Defense Studies and Analysis. Anil Kumar Reddy asked: What is Gujral Doctrine? http://idsa.in/askanexpert/GujralDoctrine%3F Accessed 24 November 2016. 43 Dixit, Kanak Mani. 2015. Gujral Doctrine in Modi Darbar. The Hindu Opinion Page, 18 November 2015.

5.4 Strengthening Powers of SAARC as a Potent Supranational Institution

135

5.4 Strengthening Powers of SAARC as a Potent Supranational Institution Any market integration cannot be examined without the reference to the institution which is spearheading its function and discharging its role. The success or failure of market integration depends to a large extent upon the effectiveness and the potency of such institution in implementing its mandate and policies. An ineffective or ceremonial institution without any real power and authority is bound to fail. An institution can be categorised as an effective body if it has undisputed leadership, centralised monitoring and supranational enforcement capabilities.44 The ineffectiveness of SAARC emanates from its Charter itself which puts disabilities on SAARC as an institution. For instance, Article X of the SAARC Charter provides that all “Bilateral and contentious issues shall be excluded from the deliberations”. As trade relations in SAARC are always bogged down by security and contentious issues, discussions on which are prohibited under the Charter, it leads to a complete crumbling halt in its trade machinery and integration efforts of SAARC. An endeavour to strengthen economic integration, while doing little to resolve regional disputes and conflicts, has made SAARC’s mission look almost impossible.45 In the words of former Sri Lankan Foreign Minister, “when conflict confront us do we turn a blind eye? SAARC must not end up as a deaf, dumb and blind association. If we brush issues under the carpet because they are unpalatable, we will be taking the first step in crippling SAARC.”46 Article X is an unrealistic provision which instead of addressing the problem wants to ignore and sweep it under the carpet. For the success of SAARC and the strengthening of regional cooperation in South Asia, it is indispensable that Article X of the Charter be abolished. The mechanism has to be evolved under SAARC through which bilateral or multilateral political or security issues can be discussed in an open forum and resolved. Although SAARC has been able to create a setup, this setup should be given enough power through which it can act as a supranational institution that can lay down rules that enforce them and help in conflict mediation and resolution. Walter Mattli, while terming such institutions as ‘committed institutions’, observed that such “committed institutions can help to catalyse the process” of regional integration by resolving contradictions and conflicts, particularly in the region where there is strong market pressure for integration, political will for cooperation and undisputed leadership.47 There are some unresolved issues in South Asia which have halted the growth of trade cooperation and converted SAARC into a mere ceremonial institution which has little success in trade regionalism and integration. These issues range from political 44 Mattli

(2001). (1997). 46 As quoted in Gopal (1996). 47 Mattli (1999). 45 Reed

136

5 Strengthening Trade Regionalism Under SAARC

and security concerns to economic issues and border disputes. The dispute in South Asia can be divided into five broad categories which are as follows: i. ii. iii. iv. v.

Historical disputes (especially of colonial legacies). Political and ideological conflicts. Strategic and military balance. Internal conflicts and turmoil of the states. Resource and developmental conflicts.48

The resolution of these disputes can immensely help regional integration in South Asia and help to sustain peace and prosperity in the region. Thomas Jefferson has once said, “We have seldom seen neighbourhood affection among nations. The reserve is almost a universal truth.”49 It’s an unfortunate phenomenon amongst nations that they seldom have a feeling of neighbourhood affections. South Asian relations also suffer from the same unfortunate phenomenon, particularly between India and Pakistan. It’s indispensable for these two neighbouring countries to accelerate their economic ties as it has a great stake in the peace and prosperity of South Asia. India and Pakistan trade relations are always full of irony and contradictions. Both nations are members of GATT/WTO and are amongst founding members of SAARC, which obliges them to have greater mobility in cross-broader exchanges among themselves and the community of nations under SAARC. However, trade has never been up to the expectation between them. Trade relations between the two nations have been a roller coaster ride with more negative vibes than positive ones. Between India and Pakistan, unfortunately, trade moves on more on political conditions rather than on economic and social realities. Policymakers in India and Pakistan have so far been insisting that unless all disputes between two countries are resolved, trade and economic cooperation will proceed on a case-by-case basis.50 Their relationship has always been very turbulent. Four full-fledged wars have been fought between the two nations, and they still have many active controversies like Kashmir, Sir Creek, Siachen, etc. With the signing of the South Asian Free Trade Agreement (SAFTA) in 2004 and it’s coming into effect in 2006, the scope for intra-SAARC multilateral trade has also been widened. The two governments and the private sectors are required to take initiatives to explore the potential of mutual economic engagement through joint ventures. However, the fact remains that the trade between Pakistan and India is not an easy phenomenon. It involves certain issues, problems, political and economic compulsions that make it a more challenging task than merely engaging the two parties in any economic activity.51 If the trade transactions of India and Pakistan are compared with their global trade transactions, they showcase that trade relations between the two neighbouring 48 Muni

(1995). from Thomas Jefferson to John Breckinridge, 12 August 1803. 50 Cuts International. 2011. Building Peace through Trade: The Future of Indo-Pak Relations. New Delhi: CUTS International. 51 Gul (2009). 49 Letter

5.4 Strengthening Powers of SAARC as a Potent Supranational Institution

137

countries have been negligible for a long time. India’s total foreign trade with Pakistan was US $2,606.66 million in the financial year 2012–13 and was US $ 2,276.36 million in the financial year 2016–17, which constitutes just 0.34% of total foreign trade of India. In the financial year 2018–19, the total trade stood at US $ 2,561.44 which is a mere 0.30% of the total foreign trade of India.52 The magnitude of official trade between Pakistan and India remains minimal compared to their respective global trade volumes and neither country falls in the category of top ten trading partners of each other. This is partly due to their history of being relatively closed economies, but more importantly, past political frictions have influenced their mutual trade relations. However, there are cases where disputes or even armed conflicts have never prevented economic cooperation between nations. France and Germany had been at loggerheads for a millennium, but now both are major players in the European Union. Likewise, Malaysia and Thailand had border disputes, but this has not prevented them from cooperating economically through the ASEAN Free Trade Agreement. Since political disputes are the primary cause behind negligible economic integration and cooperation in South Asia, it should be the first task of SAARC to resolve these dispute if it wants to foster cooperation in the region. SAARC has an excellent opportunity of resolving disputes as it provides a neutral forum for authorities of different nations to talk and deliberate. There is an immediate need for the creation of a robust dispute settlement mechanism under the mandate of SAARC. Through dispute settlement capacity, SAARC can instil confidence amongst its members for the deeper cooperation and integration. As Ernst B. Haas observed that regional integration is the “process whereby political actors in several distinct national settings are persuaded to shift their loyalties, expectations and political activities toward a new centre, whose institutions possess or demand jurisdiction over the pre-existing national states.”53 This shift of ‘loyalty, expectation and political activities’, however, can only take place if the ‘new centre’ is worthy enough to be entrusted with and can answer such expectations by being an effective supranational entity.

5.5 Creation of SAARC Robust Conflict Resolution and Dispute Settlement Body Another aid through which SAARC can be made a potent supranational body is through the creation of conflict resolution and a dispute settlement mechanism within its mandate. In any human association, be it economic, political, social, cultural or personal, dispute or conflict can normally arise.

52 Source:

Import Export Data, Department of Commerce, Ministry of Commerce and Industry, Government of India, 2020. 53 Haas (2004).

138

5 Strengthening Trade Regionalism Under SAARC

Conflict can arise due to incompatible goals, aspirations, national interests and situations. As defined in the Mavrommatis case, “a specific disagreement concerning a matter of fact, law or policy in which a claim or assertion of one party is met with refusal, counterclaim or denial by another… In the broadest sense, an international dispute can be said to exist whenever such a disagreement involves governments, institutions, jurist persons or private individuals in different parts of the world.”54 However, how effectively and quickly a conflict is resolved determines the success or the failure of a human association. Conflict avoidance, mediation and resolution, therefore, should occupy a prime function in any institutional setup. With the role of the regional organisation, it is believed that regional organisations have emerged as a viable framework for the maintenance of regional peace and security. In the process, they have ‘rescued’ the global institution, the United Nations, in its mandate to maintain international peace and security.55 This is particularly true with the EU, ASEAN, the Asia-Pacific Economic Cooperation and the North American Free Trade Area. However, under the framework of the SAARC Charter, there is no formal mechanism for the settlement of dispute of any nature. In fact, for the worse, the SAARC Charter under Article X prohibits by providing that “Bilateral and contentious issues shall be excluded from the deliberations”. Thus it postulates that in case there are any bilateral and contentious issues they should be ignored, making an unrealistic presumption that regional cooperation can move even amongst non-cooperating and conflicting members. The Charter’s only reference to conflict resolution and dispute settlement is in the preamble, which provides that the principle which will govern the functioning of SAARC would inter alia by the principle of “peaceful settlement of all disputes.”56 The South Asian Free Trade Agreement (SAFTA) also has provisions regarding dispute settlement,57 although in many quarters it has been referred to as a ‘trivial attempt for dispute resolution’. However, to capitalise on the benefits of free trade agreements, it is quintessential that all mechanisms under a treaty function effectively, especially the dispute settlement mechanism.58 The SAFTA under Article 4 provides that “Consultations and Dispute Settlement Procedures” shall be one of the instruments through which the SAFTA agreement would be implemented.59 The SAFTA establishes the SAFTA Ministerial Council (SMC) which is the highest decision-making body, responsible for administration 54 The Mavrommatis Palestine Concessions Greece v. Britain, Permanent Court of International Justice Fifth (Ordinary) Session, File E.C. III Docket V.I Judgment No. 2 30 August 1924. 55 Biswaro (2013). 56 Para 1 of the Preamble, SAARC Charter. 57 South Asian Free Trade Agreement (SAFTA) was signed on 6 January 2004, and it entered into force on 1 January 2006. 58 Taneja (2004). 59 SAFTA Article 4, “The SAFTA Agreement will be implemented through the following instruments: 1. Trade Liberalisation Programme 2. Rules of Origin 3. Institutional Arrangements 4. Consultations and Dispute Settlement Procedures 5. Safeguard Measures 6. Any other instrument that may be agreed upon.”

5.5 Creation of SAARC Robust Conflict Resolution and Dispute Settlement Body

139

and implementation of the Agreement.60 SMC is assisted by another prime body of the SAFTA knows as the Committee of Experts (COE). This committee acts as the dispute settlement body under the SAFTA.61 The detailed procedure for the settlement of disputes under the SAFTA is provided under Article 20. It says that in case a dispute arises, the contracting parties in the dispute shall settle it amicably through the bilateral consultation process. However, in a case where such consultation fails or the other party does not respond to the consultation request within 15 days or does not hold consultation within 30 days or a period otherwise agreed, from the date of receipt of consultation, the party who has requested the consultation can proceed to the Committee of Experts to settle the dispute.62 Article 20 procedures suffer from serious drawbacks and are hardly capable of instilling confidence amongst the parties where in case a dispute arises the, same could be appropriately resolved and enforced. The first lacuna is that it does not define the word ‘dispute’, nor does it mention the kind of dispute on which the SAFTA will have jurisdiction. The SAFTA also lacks in creating a comprehensive dispute settlement process and works on ad-hocism. This ad-hocism is reflected in Para 4 of Article 20 which says that the COE shall settle the dispute by working procedures to be drawn up by it. Further as provided by Para 10 of Article 20, the decision of the COE shall be in the form of recommendations. Since the decisions of the COE are mere recommendations, they give room for non-compliance and further worsen the matter by perpetuating conflict. The most problematic situation on which the SAFTA is silent is where actions or domestic laws of a particular Contracting State, while not expressly violative of the SAFTA, may nevertheless inadvertently contradict or nullify the purposes of the agreement.63 Under this situation, does the SAFTA Ministerial Council or Committee of Experts (COE) or SAARC itself have the power to issue an order and enforce a direction? The answer is negative, which makes SAARC more like a ‘paper tiger’. In fact, in addition to disputes arising from the violation of the agreement, the aggrieved party should also be allowed to raise non-violation claims of apparent or indirect conflicts between their domestic laws and the SAFTA.64 Unfortunately, even the SAARC Agreement on Trade in Services (SATIS) instead of coming up with a robust dispute settlement mechanism applies mutatis mutandis the SAFTA dispute settlement provision in cases of trade in services’ disputes.65 About dispute settlement and enforcement, Article 26 of the SATIS provides that the mechanism as provided under Articles 19 and 20 of the SAFTA shall be applicable.

60 Article

10, South Asian Free Trade Agreement, 2004. 7, Article 10 of SAFTA, 2004. 62 Para 1, 2, 3 and 4 of Article 20 of SAFTA, 2004. 63 Nath (2012). 64 Nath (2012, 353). 65 SATIS was signed in April 2010 and came into force in December 2012. 61 Para

140

5 Strengthening Trade Regionalism Under SAARC

Concerning the resolution of purely commercial disputes, a significant step was taken with the signing of the Agreement for Establishment of SAARC Arbitration Council (SARCO) in 2005 at the Dhaka Summit. Under this Agreement, the SAARC Arbitration Council (SARCO) was constituted as the specialised body to provide, “fair and efficient settlement through conciliation and arbitration of commercial, investment and such other disputes as may be referred to the Council by agreement.”66 High hopes hinge upon SARCO, and it is yet to prove itself as an effective and robust dispute resolution body that could draw the confidence of the investors, merchants and stakeholders of the region. The argument for the development of SAARC sui generis robust conflict avoidance, dispute settlement and enforcement mechanism is a ‘peace-building from below’ approach. This approach which developed in the 1990s and gained currency at the beginning of the twenty-first century suggests that any conflict avoidance and dispute settlement would be more sustainable if it comes locally from within the region rather than being enforced by powerful outsiders. The principal proponent of the ‘peace-building from below’ approach is Prof. John Paul Lederach,67 who opined that building peace in today’s conflicts calls for a long-term commitment to establishing an infrastructure across the levels of society, an infrastructure that empowers the resources for reconciliation from within that society.68 This is the significant shift away from ‘top-down’ peacebuilding, whereby powerful outsiders act as experts, importing their conceptions of conflict and conflict resolution and ignoring local resources.69 Therefore, bringing foreign power for resolving internal disputes in South Asia would be ineffective and unsustainable. Whether it is a dispute between India and Pakistan or any other dispute instead of bringing in world powers, the dispute should be regionally solved through the good offices or mediation under the aegis of SAARC or bilaterally. It must be recognised that it’s not the size of the nation but its status which matters the most. History provides ample evidence that no neighbouring countries have ever survived and progressed in the background of prolonged belligerent relations.70 For this purpose, SAARC must necessarily be developed into an organisation of nature and capability that can enforce rules and directions for the better integration of the region.

66 Article

II (a), Agreement for Establishment of SAARC Arbitration Council. John Paul Lederach is a Professor at the University of Notre Dame, Notre Dame, Indiana. He is a scholar with practical experience in Central America and Africa. He is the author of the books Preparing for Peace: Conflict Transformation Across Cultures, Syracuse University Press, 1995 and Building Peace: Sustainable Reconciliation in Divided Societies, U.S. Institute of Peace, 1997. 68 Lederach (1997). 69 Woodhouse and Langholtz (2015). 70 Pradeep S. Mehta: Secretary-General of CUTS International, a leading research, advocacy and networking group based in Jaipur. 67 Mr.

5.6 Segregation of Trade from Politics

141

5.6 Segregation of Trade from Politics Around the world, one could find several examples where disputes or even armed conflicts have never prevented economic cooperation. Trade relations played a positive role in conflict resolution between neighbouring countries and brought up ‘peace dividend.’71 Many ASEAN countries have bitter political relations, still, they share healthy economic ties. Laos and Thailand had a long-standing boundary dispute which even led to a Laos–Thai war of 198872 ; even then, trade share between Laos and Thailand is about 70% of their total trade.73 Similar boundary disputes also exist between other ASEAN countries including Cambodia and Vietnam.74 The situation amongst the present EU member countries was also the same. The whole of Europe was a major player in two world wars. Germany, Italy, France, the United Kingdom, etc. were all belligerent states to each other. Nonetheless, their bitter political relation didn’t prevent them from entering into a successful regional integration block. Now the EU maintains its world market share at 19.5% for merchandise trade (excluding energy).75 Another example is the Sino-India trade relations. Amongst India’s top ten foreign trading partners, the People’s Republic of China occupies the second position with a total trade of US $ 77,919.45 million in the year 2019–20 (Apr–Feb) (Fig. 5.2). This is irrespective of their bitter political relations and boundary disputes.

71 Lahiri,

Sajal and Vlad, V. 2011. Peace Dividends in a Trade-theoretic Model of Conflict. SSRN: https://ssrn.com/abstract=1888405 or http://dx.doi.org/10.2139/ssrn.1888405. Accessed 24 Nov. 2017. 72 Official website of Peace Direct, http://www.insightonconflict.org/conflicts/thailand/?gclid. Accessed 22 July 2020. 73 Vixay (2006). 74 Amer and Thao (2009). 75 The European Commission Report (2008).

142

5 Strengthening Trade Regionalism Under SAARC

Rank

Country

Export

Import

Total Trade

--

Total Trade

222,060.08

375,910.86

597,970.94

1.

USA

49,366.89

33,604.11

82,970.99

2.

China

15,540.06

62,379.39

77,919.45

3.

UAE

27,174.37

28,251.46

55,425.83

4.

Saudi Arabia

5,688.98

25,007.83

30,696.81

5.

Hong Kong

9,933.38

15,682.34

25,615.71

6.

Iraq

1,790.77

21,900.47

23,691.25

7.

Singapore

8,314.41

13,777.52

22,091.93

8.

Germany

7,725.67

12,642.60

20,368.27

9.

Korea RP

4,527.78

14,488.95

19,016.73

10.

Indonesia

3,884.04

14,193.82

18,077.85

Fig. 5.2 Top trading partners of India 2019–20 (April–Feb)76 (Total Trade Values in US $ Million)

In the top ten trading partners of India, there is no country from the SAARC region despite the fact of geographical proximity and land connectivity of India with almost all the member nations of SAARC. Only two SAARC nations’ figures are there in the top 30 trading partners with India. These are Bangladesh ranked 27th and Nepal ranked 28th, with the total trade of US $8,700.15 million and 7,308.41 million, respectively, in the year 2019–20 (Apr–Feb).77 Mixing politics with economics always entails losses. One of the examples of the same is the case of the Hambantota Port on the Indian Ocean region in Sri Lanka. Port of Hambantota, also known as Magampura Mahinda Rajapaksa Port, is situated in the Hambantota District in Southern Province of Sri Lanka. As per the Sri Lankan government plan, they are fashioning Hambantota has to be developed as the new urban hub after Colombo and the creation of the port is the major economic and strategic initiative.78 Southern Province of Sri Lanka lies almost in the middle of the Indian Ocean, and it is a few nautical miles away from the busiest route of the Indian Ocean that is 76 Source:

Export-Import Data Bank, Department of Commerce, Government of India. Export Import Data Bank, Department of Commerce, Government of India. 78 See the official website of Hambantota District Chamber of Commerce. http://www.hdcc.lk/. Accessed 22 July 2020. 77 Source:

5.6 Segregation of Trade from Politics

143

the east–west shipping route. This route connects the whole African continent and the Middle Eastern region to the South-East Asian region.79 The initial interest and the first offer for the construction of the port were given by Sri Lanka to India in 2007, but India refused the same despite the fact that the then President of Sri Lanka Mr. Mahinda Rajapaksa was desperate about the construction work.80 The refusal of India was allegedly consequent upon the political pressure put on the then United Progressive Alliance (UPA) government by the parties of the Dravidian Movement and Tamil Nationalism led by Dravida Munnetra Kazhagam (DMK) and All India Anna Dravida Munnetra Kazhagam (AIDMK), the political parties in the states of Tamil Nadu and Puducherry in India. The pressure was in the form of the withdrawal of support from the then UPA coalition government if it went on with any cooperation with President Mahinda Rajapaksa’s government. The Anti-Sri Lankan sentiment of these parties was the result of the high-handed manner through which the Sri Lankan Government has dealt with Tamil ethnic issues in Sri Lanka on some occasions.81 However, taking advantage of the situation, a non-member to SAARC that is China grabbed the opportunity and agreed to the construction of the Hambantota Port. The Chinese government did the construction at the cost of around $ 360 million of which 80% came from China’s Export-Import Bank. The construction was launched in January 2008 by Chinese companies China Harbour Engineering Company and Sinohydro Corporation.82 Through the construction of this port, China filled the economic void left by India and gained a strategic advantage at the cost of India. Segregating trade from political logjam is indispensable and is not an impossible task which could also be secured amongst SAARC member nations as has been done around the world in different regions. For the prosperity of the region, it is quintessential that they must not keep their economic and trade relations hostage to their political frictions. A healthy economic and trade relation would be a precursor to peaceful coexistence. During conflicts, disagreements or hostility between two nations, ceasing trade relations and other areas of cooperation, only worsen the situation and lead to its escalation. If one nation has a billion-dollar stake in the economy of its rival, it will think a thousand times before indulging in any hostility or war. Thus, trade relations and economic linkages have their ‘peace dividend’.

79 See the official website of Indian National Centre for Ocean Information Services, Ministry of Earth Sciences, Govt. of India. http://www.incois.gov.in/portal/index.jsp. Accessed 22 July 2020. 80 Rediff News March 18, 2010. India refused to build Hambantota port: Rajapaksa. http:// www.rediff.com/news/report/what-mahinda-rajapaksa-says-about-indo-lanka-ties/20100318.htm. Accessed 22 July 2020. 81 Mukherjee (2013). 82 See the official website of Magampura Mahinda Rajapaksa Port. http://mpmc.lk/. Accessed 22 July 2020.

144

5 Strengthening Trade Regionalism Under SAARC

5.7 Cultivating Mutual Economic Complementarity The success of a regional agreement is not merely dependent upon the goodwill and selflessness of the parties. In many cases, mere peace motive may be insufficient to bring regional cooperation. About the regional integration in Europe, Mr. Ernst Bernard Haas once pointed out, “The ‘good Europeans’ are not the main creators of the community, the process of community formation is dominated by the nationally constituted groups with specific interests and aims, willing and able to adjust their aspirations by turning to supranational means when this course appears profitable…”83 For any regional cooperation to succeed, it also requires that member nations have mutual economic complementarity with each other. The long-run effectiveness of regional cooperation can be assured if members are beneficial somehow to each other on trade gains front either in the same sector or any other. This will attract and lead to the participation of various nationally constituted interest groups taking the region to wider and deeper cooperation. If there is no or little potential for trade gains amongst the member nations, because of the lack of economic complementarity or because of the small size of the economy, the process of integration will not succeed and fade away sooner or later.84 Mutual economic complementarity demands that within a region there should be dissimilarities in the production line, range and variety so that members can trade and exchange with each other. It is simple economics that trade agreements with a nation that would not be able to offer anything which cannot be produced domestically either on an absolute or comparative advantage basis, the trade relationship with such nation will not prosper and regional integration will not last for long. Further, mutual economic complementarity not only demands diversity in product structures but also requires satisfactory balance within the region of infrastructural development, legal framework, political interest, etc. for regional cooperation to succeed. In the case of SAARC, it is believed that all the member nations almost have a similar line of production, economies and endowment, leading to a similar comparative advantage. Furthermore, all of them differ in terms of legal and policy coherence, political willingness and infrastructure trade facilitation. The production structure similarity and internal imbalances hardly leave any scope for significant exchanges and put South Asian neighbours into low ‘complementarity index for trade’. However, on analysis of trade data, this assumption seems to be wrong particularly in the context of number and variety of products that are being exchanged amongst the SAARC nations. As per the data of the Ministry of Commerce and Industry, Government of India, during 2015–2016 there have been 9159 different commodities which were exported

83 Haas

(2004). (1999, 42).

84 Mattli

5.7 Cultivating Mutual Economic Complementarity

145

by India in the South Asian region.85 Similarly, during 2015–2016 India imported from other South Asian countries around 2939 commodities.86 Beyond the data, there are many potential product ranges and services, which can be traded in South Asia. However, because of security concerns, political conflicts and mistrust amongst the member nations of SAARC, they prefer trading outside the region rather than with each other. Economic complementarity amongst SAARC member nations can be increased in many ways; one such way is by exploiting the economies of scale and comparative advantage. Trade amongst the nations takes place either out of an absolute advantage situation or a comparative advantage basis. Considering the development of modern technology and a scientific process, a list of products under the absolute advantage category is relatively low. Hence, it is on a comparative advantage basis only that nations around the globe are trading with each other. The Heckscher–Ohlin theorem argues that nations will export those goods that make intensive use of factors that are locally abundant while importing goods that make intensive use of locally scarce factors. Accordingly for illustration, “A capitalabundant country will export the capital-intensive good, while the labour-abundant country will export the labour-intensive good.”87 In South Asia, absolute advantage relatively lacks, and the South Asian nation must cultivate a comparative advantage to enhance intra-regional trade by concentrating in areas of relative advantage. This comparative advantage can be exploited through economies of a scale which has the impact of lowering the average cost of production. It also cultivates specialisation leading to a better quality of products and services at reasonable prices. The diffusion of technology and investment in research and development works could also be of considerable help. Because the South Asian market is one of the biggest markets in the world, largescale production and exchange within the region and outside can completely alter the economies of the region. Joint ventures amongst public or private sector undertakings between SAARC nations can increase the economic complementarity index of SAARC to a larger extent. Such joint ventures can be in the form of industrial development, investment, transfer of technology, marketing, transportation ventures, etc. Pointing to the importance of joint ventures for SAARC, former President of the Associated Chambers of Commerce and Industry of India Mr. Anil K. Agarwal once suggested that future projections for trade could be achieved if trade competitiveness amongst SAARC countries was turned into trade complementarities through joint ventures.88 However, for the creation of such ventures, the political will of the nations 85 Indian Export, Region-wise all commodities (8 digit HS Code), South Asian Region during 2015– 2016, Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. 86 Indian Imports, Region-wise all commodities (8 digit HS Code), South Asian Region during 2015– 2016, Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. 87 Ohlin (1933). Also see Leamer (1995). 88 Wickramasinghe (2007, 409).

146

5 Strengthening Trade Regionalism Under SAARC

are immensely necessary. They should be created in a manner in which the interests of both the parties are well protected, and there is no hidden agenda of dominance or interference of any form. There are many areas in which joint ventures can be extremely fruitful. As per the ASSOCHAM India reports and other research, the following areas can have profitable joint ventures in South Asia: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi.

Natural Resource Exploration, particularly for energy requirements Textile Industries Tourism Information and Communication Technology Infrastructural Development Education Research and Development Drugs and pharmaceuticals Agrochemicals and chemicals Automobile Ancillary Leather, rubber and jute Industries.

For instance, Nepal has great hydroelectric potential which is mostly underutilised. Nepal has 2.27% of the world water resources, about 6,000 rivers including rivulets and tributaries totalling about 45,000 km in length.89 Nepal has enough energy potential that could not only satisfy its own energy needs but could also be of considerable assistance to energy-starved nations like Bangladesh and India. Unfortunately, most of the hydroelectric potential of Nepal is untapped and the nation still suffers from a yearly power gap of 20%. A similar situation also exists in Bhutan whose hydroelectric potential is 30,000 MW; however, only 6% has been utilised.90 Considering asymmetry in the energy sector in the SAARC region, Piyush Goyal, India’s Minister of State for Power, Coal, New and Renewable Energy observed, “Some (nations in South Asia) are in surplus, while some are in deficit. So a twoway trade and a two-way exchange in the energy sector can be a win-win situation for all countries.”91 Similarly, Nirmala Sitharaman, the then Indian Minister of State for Commerce and Industry pointed out the fact that the South Asian region has a hydroelectric potential of 3,00,000 megawatts out of which 80% is not yet harnessed.92 89 Nepal Hydropower Overview, Hydroelectricity Investment and Development Company Limit, Government of Nepal. http://www.hidcl.org.np/nepal-hydropower.php. Accessed 28 November 2016. 90 Dharmadhikary (2016). 91 South Asia Economic Conclave, New Delhi, September 28 to 30, 2015, reported by Rejaul Karim Byron, SAARC nations can generate 300,000 MW of hydropower: Regional leaders say at South Asia Economic Conclave in New Delhi. http://www.thedailystar.net/business/saarc-nations-can-gen erate-300000mw-hydropower-152968. Accessed 15 July 2020. 92 South Asia Economic Conclave, New Delhi, September 28 to 30, 2015, reported by Rejaul Karim Byron, SAARC nations can generate 300,000 MW of hydropower: Regional leaders say at South

5.7 Cultivating Mutual Economic Complementarity

147

Through joint ventures in terms of technology transfer, infrastructure development, financial services, etc., this untapped energy potential can be harnessed for the overall development in the region.

5.8 Governments’ Role: Prisoner’s Dilemma Game For the success of SAARC, governments of every member must play a prime role. They must stay committed to SAARC’s objectives particularly to the objective under Article 1(d) which requires that every member nation “contribute to mutual trust, understanding and appreciation of one another’s problems”. As explained by Walter Mattli, government’s role is the supply condition of the regional integration in the form of how willing and able governments are to accommodate the demands of the integration in a given situation. Such willingness to a larger extent depends upon the ‘payoff of the integration’ for the member nations and their political leaders.93 If the nation is economically well off and it sees no advantage from the regional setup, there is less a chance that the regional setup will succeed. In the case of SAARC, the payoff of the integration could be huge. All the nations of SAARC are either developing or least developed counties of the world and often suffer from political and military unrest. A deeper integration can lead to both a peace dividend and the economic dividend to the region. Despite such potentials, regional integration in South Asia is highly unsatisfactory. One of the reasons for such failure is the coordination and collective action problem stemming from mutual mistrust and hostility amongst the member nations. The intra-regional relationship under SAARC can be explained through the prisoners’ dilemma and coordination games. The prisoners’ dilemma game is the game-theoretical model of conflict and cooperation. It arises in cases where two actors (nations) are involved, who suffer from long drawn mistrust and mutual hostility. In such cases, both actors in pursuit of their private gains impose costs on each other independently of each other’s actions. This model was developed by Merrill Flood and Melvin Dresher while working for RAND Corporation (Research and Development), an American global policy think tank.94 Subsequently, Albert W. Tucker named it as the Prisoners’ Dilemma Game and presented it in terms of criminal suspects and incarceration possibility as follows95 :

Asia Economic Conclave in New Delhi. http://www.thedailystar.net/business/saarc-nations-can-gen erate-300000mw-hydropower-152968. Accessed 15 July 2020. 93 Mattli (1999, 50). 94 Dresher (1961). 95 See the official website of the Institute of Operations Research and the Management Sciences (INFORMS). https://www.informs.org. Accessed 20 July 2020.

148

5 Strengthening Trade Regionalism Under SAARC

Fig. 5.3 Prisoners’ dilemma game

Country B Cooperate

Defect

3/3

0/4

Defect

4/0

0/0

Country A

Cooperate

“Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other. The prosecutors lack sufficient evidence to convict the pair on the principal charge. They hope to get both sentenced to a year in prison on a lesser charge. Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to betray the other by testifying that the other committed the crime, or to cooperate with the other by remaining silent. The offer is a. b. c.

If A and B each betray the other, each of them serves two years in prison If A betrays B, but B remains silent, A will be set free, and B will serve three years in prison (and vice versa) If A and B both remain silent, both of them will only serve one year in prison (on the lesser charge).”96

As the possibility equation shows the well-being of both of the members are best ensured when they don’t betray each other (possibility c.). But it also opens temptation for betrayal since it offers no sentence in case any one of them betrays and the other keeps silent (possibility b.) However, the chances of possibility (b.) are very slim as the moment one of them betrays, the other would also betray and both of them would end up at the possibility (c.) and would be worse off. Figure 5.3 shows coordination possibilities between the two negotiating countries, country A and country B, and the resultant effect in terms of the payoff on the scale of 0 to 4 (4 being the highest). There could be the following four possibilities of the payoff: a. b.

If both countries cooperate, they get a good payoffs of 3 each. (Box: Top Left) If country A cooperates and country B defects, country A will get 0 payoffs whereas country B will get the maximum which is 4. (Box: Top Right)

96 See

Poundstone (1993), Rapoport and Chammah (2009).

5.8 Governments’ Role: Prisoner’s Dilemma Game

c.

d.

149

If the country B cooperates and the country A defects, country B will get 0 payoffs whereas country A will get the maximum which is 4 (Box: Bottom Left) If both the countries defect, they will end up worse off at 0 payoffs each. (Box: Bottom Right)

This possibility matrix shows that if both countries abstain from their narrow self-interest and cooperate, they would be better off (3/3), rather than defecting and betraying each other and being worse off (0/0). Further, the temptation of probability (b.) and (c.) for taking the fullest payoff may prove counter-effective in the realworld scenario. It may get a country short-term lucrative benefit, however, they would be unsustainable and may prove very harmful in the long run as it leads to a bad reputation for the betraying country. In inter-government coordination, there could be two kinds of rationality in play: first, ‘individual rationality’ where countries pursue their selfish interests sometimes even at the cost of others; second, ‘group rationality’, where cooperation is chosen over defection and long-term sustainable benefits are preferred over lucrative shortterm profits.97 Explaining prisoners’ dilemma in the context of the Cold War era between the United States of America and the former Soviet Union, Robert Axelrod observes that if both the USSR and the USA cooperate, they would be better off and both will do fairly well. But if one defects and the other cooperates, the defecting side gets higher payoff at the cost of and adversity affecting the cooperating side. This gives temptation to defect and in case both defect, both end up losing and do poorly.98 Similar to the prisoners’ dilemma, a coordination game also dissects the decisionmaking and cooperation problem which government can encounter while in bilateral or multilateral negotiation. However, unlike in prisoners’ dilemma where parties are ignorant about each other’s actions, in the coordination game, each imposes costs or benefits on the other contingent upon other’s action.99 Collective action and coordinative decision-making have been a problem in SAARC from its very inception. The prisoners’ dilemma scenario is widely prevalent in the South Asian region. For instance, amongst India–Pakistan, Pakistan– Afghanistan, India–Bangladesh, India–Nepal and India–Sri Lanka. However, the payoff projections of prisoners’ dilemma and the coordination game show that for the sustainable future and prosperity of the South Asian region, cooperation is the only way. If every South Asian nation follows individual rationality and pursues their self-interest at the cost of others, the region will never move forward. Although South Asia has a history of mistrust, rivalry and betrayal, it’s quintessential for the prosperity of the region that the vicious cycle of ‘tit for tat’ must end. Every nation of the region must recognise that its well-being lies in the well-being of the whole region. 97 Axelrod

(1980, 3–25). (1980, 4). 99 Snidal (1985). 98 Axelrod

150

5 Strengthening Trade Regionalism Under SAARC

5.9 Principle of Unanimity to Qualified Majority Voting Article X(1) of the SAARC Charter provides that, “decisions at all levels shall be taken on the basis of unanimity”. One of the major reasons that SAARC has not been able to do anything substantial regarding the removal of trade barriers, trade facilitation and an overall improvement in regional integration is the compulsory requirement of unanimous decision-making under the SAARC Charter. Under the unanimity principle, getting the consensus of all the members has been very challenging. On many occasions, it has been the major cause of embarrassment for South Asian cooperation. The incorporation of the unanimity principle under the Charter can be traced to the very formation of SAARC. There has been an argument at various quarters that SAARC has been proposed to counter the size asymmetry in South Asia particularly against India, in the form of smaller South Asian nations ‘ganging up’ against India. As an answer to this situation, during the first ministerial meeting of 1983 to the formation of SAARC, India put forward two reservations for joining the new regional organisational setup: first, the exclusion of bilateral and contentious issues from the SAARC deliberations; second, to incorporate the principle of unanimity in the decision-making process.100 However, the principle of unanimity has led to ineffectiveness and disabling of the SAARC decision-making potential. The problem with the principles of unanimity can be seen from the number of SAARC summits conducted. As per the SAARC mandate under Article III, “The Heads of State or Government shall meet once a year or more often as and when considered necessary by the Member States”. Accordingly, from the year of its establishment at least 30 summits should have been conducted. However, so far only 18 could be conducted because of the refusal to attend or the absence of one or the other member nations of SAARC. And since all the decisions have to be taken unanimously, the absence of even one member frustrates the very purpose of any summit. The unanimity principle has the effect of giving every nation of the SAARC, a veto power. Because of this veto power, many important decisions could not be taken which has hindered SAARC in achieving its full potential. Although so far under SAARC, nine agreements101 and six conventions102 have been signed, however, SAARC could have done better particularly on the implementation front. 100 See

Syed (2003).

101 1. SAARC Framework Agreement for Energy Cooperation (Electricity); 2. Agreement for estab-

lishment of SAARC Arbitration Council; 3. Final Agreement on Avoidance of Double Taxation; 4. Final Agreement on Customs Matters; 5. Charter of SDF; 6. Agreement on establishing the SAARC food bank; 7. Agreement on South Asian Free Trade Area (SAFTA); 8. Agreement on the Establishment of South Asian Regional Standards Organisation (SARSO); 9. Agreement on Avoidance of Double Taxation. 102 1. SAARC Convention on Combating and Prevention of Trafficking in Women and Children for Prostitution; 2. Convention on Promotion of Welfare of Children; 3. Convention on Mutual Assistance on Criminal Matters, July 2008; 4. SAARC Convention on Narcotics Drugs; 5. SAARC Regional Convention on Suppression of Terrorism; 6. Additional Protocol on Terrorism.

5.9 Principle of Unanimity to Qualified Majority Voting

151

For effective integration and decision-making, SAARC must gradually move from unanimity to qualified majority voting (QMV). A qualified majority is a system of voting which is less rigorous than unanimity decision but more arduous than simple majority decision. Considering the present level of animosity and mistrust, particularly between India and Pakistan, this would be a humongous task. Further, it could also alienate nations by nullifying and not considering the will of one or more of the member nations. To avoid such kind of alienation and escalation of matters, SAARC can gradually phase out unanimity with a qualified majority voting in certain areas. Such areas could be areas which are purely commercial, cultural, social or educational and have no impact on the sovereignty concern of the nations. Along with it, the quorum system should also be included for the conduct of the SAARC summit so as to prevent the situation whereby the absence of even one member leads to the postponement/cancellation of the summit as has been previously experienced at scores of situations. Qualified majority voting is a technical phraseology which perhaps for the first time is used in the EU parlance. QMV happens to be the most common mode of decision-making in the EU in all areas except the most sensitive ones. During the initial years of the European integration, it was criticised on many occasions that cooperation in the EU has been moving at a snail’s pace because of the rule of unanimity in decision-making. It was realised that the scope of unanimous decisionmaking should be reduced and it should be confined to the ‘most sensitive issues’. As the literature on international relations shows, the decisions in any intergovernmental negotiations where two or more nations are involved, the outcome is mostly based upon ‘bargaining in the shadow of the law’ or ‘bargaining in the shadow of power.’103 ‘Bargaining in the shadow of law’ entails decision-making based upon substantive and procedural legal endowment by the institution or the treaty. The condition precedent for such a decision is the effectiveness of the institution under which the decision is taken. On the other hand, in the case of bargaining negotiation in the shadow of power, the outcome is based on the size of the nation and its military and economic might through which it can influence and shape the decision. In most cases when the decision is taken under the aegis of the weaker institution, a combination of both ‘bargaining in the shadow of the law’ and ‘bargaining in the shadow of power’ takes place. This situation creates a very typical condition to arrive at the desired outcome for which the institution has been created in the first place. Decision-making in SAARC falls into this category.

103 Steinberg

(2007, 547).

152

5 Strengthening Trade Regionalism Under SAARC

0

1

Status Quo

2

3

4

5

6

7

8

Median

9

10 Full Cooperation

Fig. 5.4 Spatial model of convention voting104

As given in Fig. 5.4, in any form of inter-governmental negotiation there could be three kinds of outcomes: a. b. c.

Maintaining the Status Quo (null outcome) Median Position Desired Outcome (Full cooperation).

Figure 5.4 shows a scale of ‘0’ to ‘10’, ‘0’ signifying no cooperation or status quo and ‘10’ signifying the full cooperation. In between is the transition phase, marked as median, which though does not imply full cooperation shows gradual growth in the cooperation. Decision-making and the voting system could either be by unanimity, simple majority or qualified majority. In the case where the decision is by unanimity, there is more probability that the party with the stronger bargaining power will veto any change and keep the status quo as the outcome of the deliberation. In cases where a simple majority is a requirement, there is more probability of arriving at the desired stage of full cooperation irrespective of the relative bargaining power of any members, although there are chances of trampling over some of the genuine concerns of the minority group, which may not be good in the long run for the organisation. However, in cases of the qualified majority, with certain regulations, decisionmaking could be much effective. Although qualified majority might not have immediate results, the gradual move towards fuller cooperation would be more promising. Unlike unanimity, the parties would not be stuck at status quo and would be gradually moving towards the median and from there to fuller cooperation. Considering the advantages of the qualified majority, it was introduced in the European Council’s decision-making. From the date of its proposal on 1 July 1965, the qualified voting system under the European Union went through a series of changes in modalities and processes. It was for the first time introduced by an amendment in the Treaty of Rome which continued till 1973. Subsequent changes were made through accession treaties from 1973 to 2003. The present position is the result of the Treaty of Nice signed in 2003 and amended in 2014. As per the latest rule, also known as ‘double majority rule’, qualified majority voting in the decision of the European Council requires the fulfilment of, inter alia, the following criteria. These criteria would be applicable only in the cases where the Commission or the High Representative of the Union for Foreign Affairs and Security Policy has proposed the following: 104 König

and Slapin (2006). Also see Naurin and Wallace (2008).

5.9 Principle of Unanimity to Qualified Majority Voting

a. b.

153

55% of member states vote in favour. the proposal is supported by member states representing at least 65% of the total EU population.105

In cases where the proposal has been made by anybody other than the Commission or the High Representative, the decision shall be taken on the fulfilment of the following conditions: a. b.

at least 72% of Council members vote in favour. they represent at least 65% of the EU population.106

Further, to effectuate any minority’s concern, ‘minority blocking’ provision has also been incorporated whereby at least four member countries representing more than 35% of the EU population can block a decision made as per the above rule.107 From the Treaty of Rome, 1957, till the Treaty of Nice, 2003, legislative decisionmaking under the EU has been incrementally reformed numerous times to facilitate institutional cooperation. This showcases that although decision-making by unanimity is difficult, it is equally difficult to set fair rules for the qualified majority voting system.108 Therefore, for implementing qualified majority voting in South Asia, special emphasis should be put on the rules which shall govern such voting. The conditions to the population equation shall not work in the case of SAARC because of its size asymmetry particularly as India holds around 75% population of the South Asian region. Therefore for the incorporation of the QMV, the population equation has to be removed. However, there could be certain other criteria that can be used. For example, the subject matter of the decision in consideration should be commercial, social, educational or cultural and must not have an impact on the sovereignty concerns of any members. In cases of the sensitive nature affecting the fundamental sovereignty of any nation, an only unanimous decision can be taken. This model of voting will provide SAARC new and more effective institutional setup, which will strengthen its decision-making power and help deeper integration in the region.

105 Official

website of the European Council, Voting System. http://www.consilium.europa.eu/en/ council-eu/voting-system/qualified-majority/. Accessed 20 July 2020. 106 Official website of the European Council. Voting System. http://www.consilium.europa.eu/en/ council-eu/voting-system/qualified-majority/. Accessed 20 July 2020. 107 Official website of the European Council. Voting System. http://www.consilium.europa.eu/en/ council-eu/voting-system/qualified-majority/. Accessed 20 July 2020. 108 DeGori (2008); 01-12-2016.

154

5 Strengthening Trade Regionalism Under SAARC

5.10 Chapter Conclusion For regional cooperation to thrive in South Asia, it is quintessential that the region should not remain prisoners to the past and should make a concentred afford towards regional growth and development. Nobody wins in a war and prolonged hostility; it only leads to loss all around. Although there is certain well-founded scepticism and legacy of mistrust, there is growing common realisation amongst all the member nations of SAARC that peace and cooperation are the only way forward for the well-being and prosperity of the region. Member nations of SAARC must come out of the ‘imperialistic nostalgia’ and the legacy of mistrust. The future of SAARC should not be kept hostage to the past, and every member nation has a role to play as an equal partner in cooperation. India, which is dubbed as the ‘regional superpower’ and ‘leader of developing nations’, must redefine its role by walking an extra mile of non-reciprocity by reviving the Gujral Doctrine as the essential instrument of the state policy. It must also allay the scepticism and fear in the mind of the smaller South Asian neighbours by being an equal partner in cooperation rather than a ‘hegemonic big brother’. Since the success of any regional integration depends to a large extent upon the effectiveness and the potency of the institution which is spearheading its policies and implementing its decision, it is required that SAARC as an institution be made stronger and more effective. And it must be developed into a supranational Institution of nature and calibre that can lay down rules, enforce them and help in conflict mediation and resolution. This could be done through certain structural changes in the SAARC Charter including the removal of Article X, the creation of robust dispute avoidance and settlement body under SAARC, and changing the decision-making setup from unanimity to the qualified voting system. Since political disputes are the primary reason behind negligible economic integration and cooperation in South Asia, it should be the first task of SAARC to resolve these dispute if it wants to foster cooperation in the region. SAARC has an excellent opportunity of resolving disputes as it provides a neutral forum for authorities of different nations to talk and deliberate. The members of SAARC must move towards the ‘group rationality’ from ‘individual rationality’. Pursuing self-interest at the cost of other nations shall not be a sustainable option though it may lead to lucrative short-term profits. The vicious cycle of hostility between nations particularly India and Pakistan must end. Further, cooperation doesn’t just sustain from authorities or the institutions or the Governments but also from ground-level economic and social dealings including people-to-people contact. The promotion of people-to-people interaction, art and cultural exchanges can immensely help in sustaining the level of integration and remove mutual mistrust and prejudices.

References

155

References Amer, R., & Thao, N. H. (2009). Regional conflict management: Challenges of the border disputes of Cambodia, Laos, and Vietnam. Austrian Journal of South-East Asian Studies, 2(2), 53–80. Axelrod, R. (1980). Effective choice in the Prisoner’s dilemma. The Journal of Conflict Resolution, 24(1) (Sage Publications, Inc.). Biswaro, J. M. (2013). The role of regional integration in conflict prevention, management, and resolution in Africa—The case of African Union. Brasilia: Alexandre de Gusmão Foundation (Funag). Choi, Y. J., & Lee, N. Y. (2002). A comparative study of regionalism in East Asia and the Americas. Asian Perspective, 26(3), 169–192. Dadhich, R. (2005). Understanding SAARC: Regional cooperation in neo-colonial context. Indian Journal of Asian Affairs, 18(1), 56. DeGori, E. (2008). Majority voting in the EU: Beneficial or just equally harmful. Claremont-UC Undergraduate Research Conference on the European Union, 7. Retrieved July 20, 2020, from http://scholarship.claremont.edu/urceu/vol2008/iss1/7. Dharmadhikary, S. (2016). Hydropower in Bhutan—Time for a rethink? International Rivers Blog. Retrieved July 15, 2020, from https://www.internationalrivers.org/blogs/328-5#_ftn1. Dresher, M. (1961). Games of strategy: Theory and application. New Jersey: RAND Corporation, Prentice-Hall and Englewood Cliff Publication. European Commission Report. (2008). EU performance in the global economy. European Commission Directorate General for Trade. Gopal, K. (1996). Geopolitical relations and regional cooperation: A study of South Asia (pp. 260– 261). New Delhi: Trans Asia Publications. Gul, N. (2009). Enhancing Indo-Pak trade: Perspectives from Pakistan. Indo-Pak dialogue on conflict resolution and peace building issue brief. Gupta, B. S. (1984, 30 April). The big brother syndrome. India Today. Gupta, B. S. (Ed.). (1986). Regional cooperation and development in South Asia (p. 25). New Delhi: SA Publishers. Gupta, B. S. (1997). India in the twenty first century. International Affairs, 73(2), 308–309. Haas, E. B. (2004). The uniting of Europe: Political, social, and economic forces, 1950–1957. University of Notre Dame Press: reprint 2004. Original publication 1958. Jayaram, D. (2013, 20 December). India-Bangladesh river water sharing: Politics over cooperation. International Policy Digest. Keohane, R. (1986). Reciprocity in international relations. In International organisation (Vol. 40, No. 1). König, T., & Slapin, J. B. (2006). From unanimity to consensus: An analysis of the negotiations at the EU’s constitutional convention. World Politics, 58(3), 413–445 (Cambridge University Press). Leamer, E. E. (1995, February). The Heckscher-Ohlin model in theory and practice. Princeton Studies in International Finance, No. 77. Lederach, J. P. (1997). Building peace: Sustainable reconciliation in divided societies. Washington, DC: United States Institute of Peace Press. Ludlow, N. P. (1999). Challenging French leadership in Europe: Germany, Italy, the Netherlands and the outbreak of the empty chair crisis of 1965–1966. Contemporary European History, 231–248 (Cambridge University Press). Mattli, W. (1999). The logic of regional integration. Cambridge University Press. Mattli, W. (2001). The logic of regional integration: Europe and beyond. Cambridge University Press. Mukherjee, A. (2013, December 28). Tamil Nadu and the Sri Lankan conflict: Evolving centrestate understanding on the ethnic issue. Mainstream Weekly, LII(1). Retrieved July 22, 2020, from https://www.mainstreamweekly.net/article4679.html. Muni, S. D. (1995). Coping with contentious issues in South Asia. In L. L. Mehrotra, H. S. Chopra, & G. W. Kueck (Eds.), SAARC 2000 and beyond. New Delhi: Omega Scientific Publishers.

156

5 Strengthening Trade Regionalism Under SAARC

Nath, A. (2012). The SAFTA dispute settlement mechanism: An attempt to resolve or merely perpetuate conflict in the South Asian region? American University International Law Review, 22(2). Naurin, D., & Wallace, H. (Eds.). (2008). Unveiling the council of the European Union: Games governments play in Brussels. Hampshire: Palgrave MacMillan. Ohlin, B. (1933). Interregional and international trade. Cambridge: Harvard University Press. Palayret, J. M., Wallace, H. S., & Winand, P. (Eds.). (2006). Visions, votes, and vetoes: The empty chair crisis and the Luxembourg compromise forty years on. Brussels: Peter Lang Presses Interuniversitaires Europeennes. Poundstone, W. (1993). Prisoner’s dilemma: John von Neumann, game theory, and the puzzle of the bomb. Anchor Publication. Rapoport, A., & Chammah, A. M. (2009). Prisoners’ dilemma. The University of Michigan Press. Reed, A. M. (1997). Regionalization in South Asia: Theory and praxis. Pacific Affairs, 70(2), 235–251. Schaffer, H., & Schaffer, T. (1998). Better neighbours? India and South Asian regional politics. SAIS Review, 120. Singer, M. R. (1972). Weak states in a world of powers: The dynamics of international relationships. Free Press Publication. Smith, A. (1778). An inquiry into the nature and causes of the wealth of nations. London: W. Strahan and T. Cadell Publication. Snidal, D. (1985). Coordination versus Prisoners’ dilemma: Implication for international cooperation and regimes. American Political Science Review, 923–942. Steinberg, R. H. (2007). In the shadow of law or power? Consensus based bargaining and outcome in GATT/WTO. In B. A. Simmons & R. H. Steinberg (Eds.), International Law and International Relations: An International Organization Reader (p. 547). Cambridge University Press. Sutherland, P. (1997, February). Beyond the market: A different kind of equity. International Herald Tribune. Syed, M. H. (Ed.). (2003). Encyclopaedia of SAARC nations. Delhi: Gyan Publishing House. Taneja, N. (2004). Informal and free trade arrangements. South Asian Journal. Thapar, R. (2006). SAARC: Ineffective in promoting economic cooperation in South Asia. Stanford Journal of International Relations. Department of International Relations, Stanford University. Thornton, T. (1991). Regional organisation in conflict management. Annals of the American Academy of Political and Social Science, 518, 135. Vixay, S. (2006, December 12–15). Coverage and time recording of local border trade. Country paper National Statistics Centre Lao; presented at International Workshop on Country Practices in Compilation of International Merchandise Trade Statistics, Bangkok. Wickramasinghe, U. (2007). Operationalizing SAFTA: Issues and options. In B. L. Das & B. S. Chimni (Eds.), South Asian yearbook of trade and development. New Delhi: Academic Foundation. Woodhouse, T., & Langholtz, H. J. (2015). Peacekeeping and international conflict resolution. Peace Operations Training Institute. Yamamoto, S. (1998). Functional change of reciprocity in international economic law. In Y. Takano (Ed.), Considerable issues in international relation law. Tokyo. Yanai, A. (2001). Reciprocity in trade liberalisation. Working Paper Series No.00/01-No.2 APEC study centre. Institute of Developing Economies.

Chapter 6

Conclusion and Suggestions

6.1 Conclusion Regional integration in the contemporary world is a multi-dimensional and multifaceted phenomenon which is spearheaded by organisations with multi-sectoral functions. It is the third wave of regional integration which is highly amorphous and discursive in nature which covers every nation of the globe. The third wave started in the early 1990s and it is marked, predominantly, by consolidation and strengthening of regional institutions. The first wave of regional integration mostly concentrated on normative aspects followed by the second wave which was marked by the institutional building.1 The third wave of regionalism has two distinctive features because of which it is also called ‘new regionalism’. The first distinctive feature is its approach towards multilateralism. It is an ‘open regionalism’ rather than a closed one. The objective of new regionalism is not to create exclusive clubs or trading blocs, rather it aims at creating regional integration which is a ‘stepping stone’ towards multilateralism. The ideals of the third wave are more towards the white globe objective of the WTO. The ‘spaghetti bowl’ phenomenon is also the aspect of ‘open regionalism’. Regional integration setups are no more exclusive clubs and their members can be associated with various other integration setups. For instance, the ASEAN plus approach looks beyond the South East Asian region in order to enter into cooperation with nations and organisations from across the globe. The second distinctive feature of new regionalism is its polysemous and discursive nature. Unlike regional integration of the past, the third wave of regionalism looks beyond tariff reductions and aims at achieving multifaceted integration which includes integration in the area of socio-political collaborations, economic integration, defence cooperation, technological and knowledge exchange, etc. 1 On the basis Jagdish Bhagwati’s classification which divided the development of regional integra-

tion into two phases, namely, the first wave of regionalism and the second wave of regionalism. For a detailed discussion, refer to Chap. 2. Bhagwati (1992). © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7_6

157

158

6 Conclusion and Suggestions

However, the benefit of the third wave of regionalism could not reach every regional integration setup. SAARC is one of such regional setups which could not achieve substantially at the regional integration front. It lags in all aspects of regional integration. The intra-regional trade under SAARC is a mere 5% of the total trade. It is the least integrated regional integration setup despite the fact that it has great potential particularly in terms of demographic dividend, availability of natural resources, geographical proximity, etc. SAARC presently is undergoing the phase of ‘turbulent non-growth’.2 This phase is marked by minimal or no improvement in the growth trajectory coupled with political, economic, security and civil instabilities. Almost every member nation of SAARC is facing internal or external turbulence which has negatively impacted the growth and integration prospects of the region. It is appalling to know that even after three decades of the formation of SAARC, numerous barriers to trade and integration exist in the region. For instance, as per one of the World Bank studies, it is 20% cheaper for India to trade with Brazil than with neighbouring Pakistan, despite the fact that India shares more than three thousand kilometres of land border with Pakistan.3 The high trade cost in the South Asian region is due to the presence of numerous tariff and non-tariff barriers in the region. The argument that the lack of intra-regional economic complementarity amongst the SAARC members is the reason for its low intra-regional trade is a false pretext. As discussed earlier, the SAARC member countries have great potential for trade and exchange in terms of commodities and services. There are more than 13,000 different commodities which are traded by India alone in the South Asian region during 2019–20.4 The real cause, which has crippled the SAARC from its very inception, is the mutual distrust amongst each of the SAARC member nations against one another. This distrust is particularly towards India as it occupies a unique position in the region in terms of its physical positioning in the region and its economic and geographical enormities. There is a constant fear in the minds of the smaller nations of SAARC that India nurses hegemonic ambition and could overpower them economically and militarily. This fear prevents them from smoother cooperation and makes them see even pure economic questions from a sovereignty angle. The lack of land customs stations, tough visa regime, the absence of regional connectivity, poor people-to-people contact and the absence of business inter alia are the result of this political distrust. 2 Expression used by Ernest B Haas in reference to the functioning of international organisations in

Haas (1990) Also see Haas and Haas (1995). World Bank Report, 2016. http://www.worldbank.org/en/news/infographic/2016/05/24/thepotential-of-intra-regional-trade-for-south-asia. Accessed 22 July 2020. 4 Indian Export, Region-wise all commodities (8 digit HS Code), South Asian Region during 2019– 20 [April–Feb. (P)]. Source: Export Import Data Bank, Department of Commerce, Government of India. https://commerce-app.gov.in/eidb/default.asp. Accessed 22 June 2020. Indian Imports, Region-wise all commodities (8 digit HS Code), South Asian Region during 2019–20 [April–Feb. (P)]. Source: Export Import Data Bank, Department of Commerce, Government of India. https://commerce-app.gov.in/eidb/default.asp. Accessed 22 June 2020. 3 The

6.1 Conclusion

159

Similar suspicion also lurks in the minds of Indian policymakers which at many quarters sees SAARC as the platform by the smaller nations of South Asia to gang up against India. For the prosperity and the well-being of the region, it is indispensable that regional trust is built. The history of SAARC shows that a blinded or qualified approach to the cooperation in the region has proved to be counterproductive and has escalated the regional tension.5 It has been argued in many quarters that SAARC lacks any meaningful cooperation as there is no common threat perspective which can tie member nations together. For instance, the reason that made Europe come together was the fear of another world war and the general realisation that imperialistic ambition can lead to bloody episodes in history. Similarly, the ASEAN nations came together because of the external threat which they saw in the form of the rise of communalism and Cold War dynamics. The contagious positioning of the SAARC members in terms of their geographical positioning to each other, common heritage, and demographic and cultural spillovers binds them together into one organic whole. No member nation is immune from the problem or conflicts which plague the other nation. The whole region can rise together and fall together. If examined closely, the SAARC region also has a common threat in terms of poverty, underdevelopment, social inequalities and environmental degradation amongst numerous other threats which have been destabilising the region from a considerable period. One of the steps to answer these problems would be the SAARC nations coming together and cooperating with each other. This book has examined the regional integration amongst the South Asian countries under the aegis of SAARC. One of the aspects of regional integration is the economic or trade integration, which has been the focus of the present work. Since economic activities do not take place in isolation and require an overall favourable environment, ancillary matters like political, security, and social and policy aspects are also analysed. SAARC was established as a part of regionalism exception under Article XXIV of GATT/WTO. GATT/WTO targets for the trading white globe where goods and services can be exchanged across borders without any kind of tariff or non-tariff barriers. Although GATT/WTO targets for the global unification of trade regulations, it is mature enough to accommodate conceptual pluralism, regulatory diversity and subjectivity which are moderated through a skeleton framework as provided under different multilateral agreements and provisions under GATT/WTO. Regionalism exception is also the part accommodating pluralism and adopting a piecemeal approach towards multilateralism. As Article XXIV has often been invoked as a defence to the violation of other substantive obligations under GATT, there are certain checks and balances which are provided for regulating trade regionalism. The basic purpose of these checks and balances is to ensure that regional arrangements are trade creating rather than trade diverting union. 5 Bastiampillai

(1996).

160

6 Conclusion and Suggestions

The WTO regulatory mechanism on trade regionalism is three-pronged. It covers the internal requirements regarding the formation and working of the regional organisation. Second, it covers the external regulations on the behaviour of the regional arrangement with countries which are not its members. Finally, in addition to these requirements, there is also a ‘review mechanism’ by Council for Trade in Goods. Although at the normative level, the WTO regulation of trade regionalism is a big step towards achieving the objective of multilateral integration, it still suffers from various lacunas and pitfalls. In order to make the WTO regulations on regional setups effective and potent, there is an urgent need that certain structural changes be made in the normative and institutional setup of these regulations. Although SAARC has been established as the regionalism exception under GATT Article XXIV, it has not been able to achieve meaningful economic integration. The main reasons for the lack of economic integration of the region are the presence of numerous barriers to trade and the lack of trade facilitation in the region. Every kind of trading arrangement whether bilateral, regional, or multilateral and any institutions created thereof aim at removing barriers and facilitating trade amongst the constituting member nations. The importance of trade facilitation measures can be understood from the fact that trade cost in developing countries is as big as 219% ad valorem tariff and in developed countries; it is equivalent to 134% ad valorem tariff.6 Barriers to trade and trade facilitation measures can be studied at two levels, that is, on an international level and at the regional level under SAARC. At the international level, there is a mechanism developed by GATT/WTO to address the problem of trade barriers. GATT/WTO has taken numerous initiatives to address the issues of trade barriers and to make cross-border trade free. The importance of addressing the issue of tariff barriers for the international community can be understood from the fact that all GATT and the WTO trade negotiation rounds till date had tariff as either sole or the most significant agenda of discussions. In the first five rounds of negotiations from the Geneva trade round of 1947 to the Dillon trade round of 1960, the tariff was the sole agenda for discussions before GATT contracting parties. From the sixth rounds of negotiations onwards, the WTO has taken several initiatives including negotiating scores of specialised agreements to deal with specific non-tariff barriers. The multilateral regulations on non-tariff barriers ushered by GATT/WTO can be classified into two broad categories. The first category of regulations is provided in the form of the general principle under GATT and the second are certain specialised agreements forming part of the WTO laws. The intra-regional trade in the South Asian region has always been dismal, and on average it has been around 5% of the share of world trade in the region. Since the formation of SAARC, for most of the 1990s, the intra-regional trade in South Asia has been less than 4%. With the coming into force of South Asian Free Trade Agreement

6 World

Trade Report 2015, World Trade Organisation.

6.1 Conclusion

161

(SAFTA) on 6 January 2004, the intra-regional trade has slightly improved, and now it hovers around 5–6% of the share of world trade in the region. A basic perusal of non-tariff barriers shows that most of the non-tariff barriers in the South Asian region are very rudimentary and are consequent on infrastructural limitations or policy void. These non-tariff barriers include stringent visa rules, the absence of regional transport policy, infrastructure inadequacy of land customs stations, poor transport infrastructure and connectivity, SPS measures, inadequate banking and financial facilities, etc. Although SAARC has taken certain measures to remove different non-tariff barriers to trade in the form of agreement like SAFTA, nothing substantial could be achieved. Most of the trade facilitation initiatives of SAARC have been only at the normative stage and could not be materialised into the binding commitment from the member states. The presence of tariff and non-tariff barriers along with the lack of political will have been the main reasons for the lack of regional integration under SAARC. With the mushrooming of regional integration institutions in the 1970s and 80s, the quest for finding out the success mantra for regional institutions triggered the comparative studies on the intra-regional and cross-regional bases. Comparative regionalism is a quest for finding the factors which strengthen or inhibited the growth of regional integration. Although there are numerous regional integration organisations across the globe, the researcher has chosen the case of the EU and ASEAN for comparative regionalism with SAARC. The EU has been chosen as it is widely considered as the role model for regional integration across the world and the most successful amongst all the regional integrations. ASEAN has been considered for comparative analysis because of its similarity with the South Asian economy, its society and political situation. In the analysis of the comparative regionalism of SAARC vis-a-vis the EU and ASEAN, different aspects of these three regional integration setups have been examined to find the reasons for their success or failure. These aspects include ideation and integration, regional governance models, and institutions and structures of the three regional integration organisations under the study. The analysis of norms, institutions and bodies created by the EU and ASEAN shows how the SAARC structure is highly inadequate for achieving the ambitious objective of bringing regional integration. SAARC lacks on all three counts of building ideation, establishing institutions and enforcing its mandates. However, SAARC as a region has great economic potential owing to its demographic advantage, geographical proximity, natural resources and a large market. By bringing certain structural changes in the functioning of SAARC, greater integration can be achieved. There are four broad aspects which are considered as basic factors that determine the success of regional integration. These factors are the functional demands, leadership, common exigencies and common identity. The relative success of regional organisations like the EU and ASEAN has been possible because of the fulfilment of these four broad factors. There are different ways through which regional cooperation in South Asia could be strengthened to achieve both the ‘peace dividend’ and the economic dividend of the

162

6 Conclusion and Suggestions

regional integration. These suggested ways included revisiting the role of India from a hegemonic big brother to partner in cooperation, the revival of the Gujral Doctrine, creation of a robust SAARC dispute settlement body, cultivating mutual economic complementarity, revisiting governments’ roles, changes in the voting system of the SAARC decision-making, etc.

6.2 Suggestions For achieving the full potential of the regional integration under SAARC, it is required that certain normative, institutional and structural changes are implemented. Through this research work, the author proposes certain suggestions; the implementation of these can significantly assist SAARC in achieving full integration in the South Asian region. Ideation and norms Ideation is the first step in the creation of a regional federation. It is the foundation on which a superstructure of regional integration is created by establishing norms and building institutions. Ideation is the motivation or rationale for action. It defines how member nations approach the regional setup. An institution with a weak ideational foundation is bound to fail as its stakeholders and successors would lack the motivation and guiding light for carrying out the work of the regional association. For strengthening regional integration in SAARC, ideational and normative foundations have to be reworked. Actions have to be taken which can create a sense of regional identity and belongingness amongst the general populace of South Asia. The most prominent ways of building ideation are by showcasing the importance of SAARC for the prosperity and stability of the region and making SAARC’s presence felt amongst the South Asian general public. Since SAARC hardly has any grassroots presence, fails to impact everyday life and is seen purely as an elite diplomatic forum, the general populace of the region is barely interested in the existence of SAARC. Hence, in terms of ideation, SAARC should change its approach from a trickle down to the grassroots approach. Alongside deciding on state-centric issues, SAARC must take action which improves ordinary life and business to make itself relevant to the general public. The establishment of South Asian University at New Delhi is one such step towards making the presence of SAARC felt in the region. Other similar steps could be the regional transportation connectivity, common business visa rules, regional visa regime regional human right network, regional communication network, regional law enforcement, common currency, etc. Positive and negative integration spillovers The SAARC integration must be employed in a way which achieves both positive and negative spillovers of the regional integration. The positive spillover effect of

6.2 Suggestions

163

integration arises when the integration in one sector leads to the integration in another sector as the economic interactions are highly inter-linked and amorphous in its ramification. Most of the integrations across the world target positive spillover. Positive spillover gradually brings about complete and all-encompassing regional integration in terms of the political, economic and social relations. For instance, suppose if two nations decide to integrate the car manufacturing sector of their economies, it would integrate not just car manufacturing but also incidental areas like marketing, technological transfer, human resource movement, visa policy, business and commercial regulations, people-to-people contact, environmental regulations, etc. On the other hand, negative spillover of the integration ensures that the integration in one area impedes the pursuits of the objective in another area. If properly used, negative spillover can be particularly helpful in cases where integration is undertaken in a given sector to prevent an escalation in another sector on which nations are at loggerheads. Thus, for instance, economic integration can be employed as a measure to prevent or to de-escalate political or security disagreements which exist between nations. Many of the regional organisations including the EU and ASEAN were founded on the negative spillover objective in the background of armed conflict and political hostility. Similar is also the case with SAARC. However, negative spillover may become counterproductive if it is not taken as the foundational measure on which positive spillovers have to be built. Conventional understanding that both positive and negative spillovers may separately lead to greater integration would be a fallacy if on the foundation laid by negative spillover positive spillover is not built.7 As part of the SAARC ideation and norms, it must be understood that political harmony and economic integration are both the means and the end. Ideation in terms of considering SAARC as merely a diplomatic forum to ease out and prevent the escalation of political or security disagreements without any positive steps in terms of exhaustive socio-economic linkages may nullify the effectiveness of SAARC as a regional integration organisation. Strengthening democratic institutions Liberal democratic institutions are the best vehicles for carrying out the objectives of a regional forum. Such institutions have to be created which have local roots and a global outlook. They should work based on equal participation, diversity and liberal democratic viewpoints and must not be bogged down by ultra-nationalist or jingoistic attitude. Democratic institutions have to be strengthened at both regional levels as the part of organisation setup of the integration forum and at the national level as the part of each member nation domestic governance setup. SAARC as an institution can further the cause of regional democracy, as democracy is no longer an exclusive national

7 See

Haas (1980), Sebenius (1983), Stein (1980), Johnson and Urpelainen (2012).

164

6 Conclusion and Suggestions

subject, and an international or regional organisation can play a quintessential role in establishing and preserving democracy. At the regional level, democratic institutions should be strengthened in a way that the general public at large is involved in the decision-making of SAARC. The increase in the democratic institutions will create regional federalism and improve the integration dynamics of the region. As of now, SAARC’s working is mostly about member nations’ top brass meets and it lacks significant people-to-people interaction. Most of the SAARC functioning is done through bureaucratic setups with a representation from the governments. It’s high time that South Asia introduced election whereby the SAARC authorities are directly or indirectly elected by the people of South Asia. Such election will bring about greater accountability and transparency in the functioning of SAARC along with making it socially relevant for the general populace. It will lead to the democratic participation of the general public in the decision-making functions of the regional institution. Further, elections will also ensure that SAARC is not abused as a diplomatic leverage by different state actors to satisfy their political ends. Strengthening the WTO regulatory mechanism of trade regionalism In order to make the WTO regulations on RTAs effective and potent, it is required that certain structural changes are made in the normative and institutional setup of these regulations. The following changes inter alia are required to be brought into the regulatory setup of the WTO: i.

ii.

iii.

The notification requirement in the form of reporting/recommendation under Para 7 has to be strengthened. The time at which the RTA should be notified under Para 7 must be strictly enforced. All notifications for the establishment of the RTAs must be presented before the coming into force of the proposed RTA. Notification must be followed by a clear-cut assessment and based on the assessment report, permission for establishing a regional setup should be granted or refused, as the case may be. As the present regulation regarding notification has no provision to deal with non-notified RTAs, there are several RTAs, presently functioning, which have never been notified under Paragraph 7. Since there is no guidance regarding non-notified RTAs, the only thing which is done to tackle them is to raise questions in the WTO meetings, which has been proved to be grossly insufficient. There is an urgent need to devise a mechanism to counter non-notified RTAs. ‘Substantially all’ requirement under Para 8 suffers from generality and lacks any concrete commitment which is measurable and enforceable. It fails to define the contours of substantiality regarding the percentage share or sectors of trade involved, etc. Para 8 requirements must be made measurable. And it must be clear whether it intends comprehensiveness in a qualitative or quantitative sense or does it also include sectoral distinction.

6.2 Suggestions

iv.

165

The functioning of the CRTA must be modified and strengthened. As the CRTA is a political body which functions on the consensus basis, it constantly suffers from the impasse, and in a few cases only it has been able to complete its examination process. For making the CRTA more effective, it should be made a non-political executive body of the WTO which functions on pre-established norms and procedures.

With the adoption of these suggestions, the administration and regulation of the regional setups or RTAs could be done more effectively. It will also assist the WTO to get closer to its objective of a trade white globe. Regional federalism With the creation of a normative base and favourable ideation, the creation of regional federalism can be achieved. By regional federalism, it means establishing the institution’s supranational authority. It is achieved when members of a regional forum start sharing elements of sovereignty and agree on being governed under commonly accepted rules and regulated enforced through a supranational institution. However, the creation of a regional federation is not an enterprise which can be achieved overnight through a treaty or policy instrument. It is a gradual process which emerges in a piecemeal incremental fashion. For creating regional federalism and a sense of regional belonging in South Asia, the direct participation of the general masses of the region should be involved in the organisational setup of SAARC. It must also develop a pan-regional institution which works on the ground level and has cross-border jurisdiction in the region, for example, common currency, the banking system and transportation network. SAARC lacks grassroots presence and pan-South Asian bodies working for its objectives. Bilateral and contentious issues The SAARC functioning and its trade relations were always kept hostage to the bilateral and contentious issues amongst its member nations. From the very inception, issues like the Kashmir dispute, India–Bangladesh water sharing, illegal migrants, India–Sri Lanka Tamil issue, Afghanistan–Pakistan border dispute, etc. have completely plagued and paralysed SAARC. Considering the intensity of the above-mentioned issues and its impact on regional cooperation and trade, it seems ironical that discussion over them is prohibited by the SAARC Charter. The SAARC Charter, particularly its Article X, must be amended to allow discussion on bilateral issues at the SAARC forum. Considering present integration dynamics, SAARC may not be able to act as an adjudicator but it can provide its good offices and act as the regional forum for the discussion and resolution of the regional issues. Redefining the role of India India occupies a unique position in SAARC because of its sheer geographical size and its physical positioning in the region. It shares borders, maritime or land, with all the other seven members and constitutes more than 70% of SAARC’s area, population

166

6 Conclusion and Suggestions

and resources. The locational advantage of being in the centre of South Asia and connecting almost all the members of SAARC also adds to its strength. The comparative geographical, economic and military enormities of India vis-avis other SAARC members is one of the key reasons for the creation of fear psychosis and the suspicion of dominance amongst the members of SAARC. For the success of SAARC, India should work on the equal partner basis rather than as ‘big brother’, ‘leader’, ‘patron-client’ or the ‘guardian of the region’. As long as the narrative of India of being a big brotherly figure and the region to develop under the guardianship of India continues, scepticism from the mindset of the smaller neighbours of India shall not go. On the other hand, a smaller member nation of SAARC must also realise size asymmetry which may not necessarily impede the regional cooperation or any trade agreement. The concept of regional cooperation can be used as a strategic policy initiative by smaller weaker nations to safeguard their economic and security interests by collaborating with the relatively strong economy and reaping the economic or other benefits thereof. There are numerous such examples where smaller nations have reaped great benefits while being a part of a regional arrangement with a giant, for instance, as in the case of the Mexico–USA trade relationship under the NAFTA. Revival of the Gujral Doctrine The revival of the Gujral Doctrine is one of the very closely related aspects of India’s role in SAARC. It is one of the prominent measures through which India can instil confidence amongst its relatively smaller neighbours of South Asia which fear hegemonic behaviours from India. The Gujral Doctrine is the part of the foreign policy approach of India propounded by the then Foreign Minister of India Mr. Inder Kumar Gujral. This foreign policy principle was endorsed keeping in mind the size asymmetry of India vis-a-vis other members of the SAARC. The fact that the South Asia has been for too long remained mired in suspicion, acrimony and conflict with the result that it was left far behind in development and quality of life.8 To answer this situation, unilateral commitments from India are desirable for the greater good of the region and not on immediate quid pro quo basis. This is also known as the principle ‘non-reciprocal magnanimity.’. As per Mr. Inder Kumar Gujral, in respect of smaller neighbours of India in South Asia like Bhutan, Bangladesh, Nepal and Sri Lanka, India must deal with the principle of non-reciprocity. Rather than a give and take relationship, the association should be governed by mutual trust and good faith for the wider prosperity and peace in the region. In the recent past, the doctrine has been kept on the back burner, scoffed off and ignored as an idealism which talks about a utopia. It cannot be applicable between antagonistic neighbours, which have been the case in South Asia. Considering the size asymmetry and the geographical enormity of India, fear of imbalances shall prevail, but through the application of the Gujral Doctrine in its letter and spirits, this fear can be allayed to a larger extent. India must emerge as the 8 Basu

(1997).

6.2 Suggestions

167

factor of regional peace and stability that could only assure not through showcasing power but by mutual help and respect. Regional Dispute Settlement forum In order to instil confidence amongst the trading communities, SAARC must strengthen the functioning of its regional dispute settlement bodies. Although SAARC Arbitration Council (SARCO) and SAFTA dispute settlement mechanism have been established to resolve commercial disputes, they are yet to prove themselves as effective dispute settlement bodies on which traders can repose their trust. Along with commercial disputes, the bilateral contentious disputes between member nations should also be addressed by SAARC. Under the present framework of the SAARC Charter, there is no formal mechanism for the settlement of disputes of any nature. In fact, the SAARC Charter under Article X prohibits by providing that “Bilateral and contentious issues shall be excluded from the deliberations”. Thus it postulates that in case there are any bilateral and contentious issues they should be ignored, making an unrealistic presumption that regional cooperation can move even amongst non-cooperating and conflicting members. The history of SAARC has proved that the approach to exclude bilateral and contentious issues from the SAARC deliberation has been counterproductive. It is high time for SAARC to develop a robust dispute settlement mechanism where not just commercial disputes are resolved but also contentions bilateral or regional issues are addressed. People-to-people contact In a democracy, public opinion is the major factor which determines the success or the failure of any initiative. Public opinion, in turn, depends upon the cost and benefit of an initiative and how the public at large can relate to it. In the case of SAARC, not only do the member nations have contagious geographical space, but they also have shared cultural, ethnic and linguistic heritages. This commonality of heritage can be utilised as the bedrock for creating an integrated society in South Asia by facilitating and promoting people-to-people contact. Governments of the region and SAARC as an institution must implement policies and programmes which provide greater freedom to South Asians to interact and cooperate. As a part of strengthening the business environment and facilitating trade in South Asia, it is an urgent requirement that the visa regime in the region should be relaxed allowing more people-to-people contact particularly amongst business and trading communities. Relaxed visa requirement will ensure greater accessibility in the regional market allowing people-to-people contact, business interaction, networking and fostering new business ties. Strengthening cross-border transport infrastructure The most common non-tariff barrier in South Asia is the lack of proper cross-border transport infrastructure. Despite the great potential for transportation connectivity owing to shared land and maritime border, the region lacks cross-border connectivity.

168

6 Conclusion and Suggestions

For strengthening economic integration, several land customs stations (LCS) have to be increased manifold, particularly between India–Pakistan and Pakistan– Afghanistan. The infrastructure of the existing LCS must be further improved and facilities inter alia like cold storage warehousing, laboratory testing and digitisation of customs documentation must be provided. Regional travel and transportation policy Regional connectivity is one of the major impediments to the economic integration of the South Asian region. Despite geographical proximity and shared land border, travel within the South Asian region is extremely difficult due to lengthy formalities, tough visa rules and lack of transparency. The whole South Asian region follows a different set of administrative, legal and commercial conditions for cross-border transportation and transit. The adaptation to a different set of regulations and poor physical infrastructure causes significant constraints to the freedom of movement and thus inhibits many traders to enter into regional trade in South Asia. For facilitating cross-border trade, transit infrastructure and policy setup thereto must be improved. Dedicated and unified multimodal cross-border transport system must be developed in South Asia which can enhance land, sea and air connectivity in the region promoting both passenger travel and cargo transportation. The bottlenecks to the regional connectivity in South Asia are human-made rather than natural barriers. A SAARC Motor Vehicle Agreement, as a comprehensive and unified regional system of regulation, on transit and transportation can significantly ease down transportation cost and hindrance which transit across border face. As per the present setup, land transit facility in most of the SAARC member nations is not available. Accordingly in case of the land transportation, for example, trucks carrying merchandise have to stop at the Land Customs Station of the importing nation and have to reload their merchandise on importing nation trucks as no transit rights are provided to them, and thus they cannot enter the territory of the importing country. With a unified agreement like the SAARC Motor Vehicle Agreement, regional transit facility could be provided to all pre-approved vehicles from the SAARC region. ADB and FICCI in this regard suggested ‘vehicle transit card’. This card could be issued to certain specified categories of vehicles for transit beyond international borders. SAARC Business Visa As part of the regional transportation and transit policy, SAARC must also provide for a privileged business visa for the trading community of South Asia. A privileged business visa shall be a big boost to the trade transactions as it eases down cross-border transit regulations and formalities. A relaxed visa requirement will ensure greater accessibility in the regional market allowing business interaction and networking and fostering new business ties. Presently, under the SAARC, visa relaxation is provided through the SAARC Visa Exemption Scheme. However, the scheme does nothing substantial either for

6.2 Suggestions

169

the business community or general masses. Currently, there are 24 categories of persons divided into two groups who are entitled to the benefit of the SAARC Visa Exemption Scheme.9 At the normative level, the SAARC Visa Exemption Scheme seems promising in increasing people-to-people contact in South Asia yet it fails to promote widespread private sector interaction across the region because of its elitist nature and restrictive approach. More than 90% of the persons entitled to the visa exemption scheme form part of the elitist group leaving an insignificant scope of the interaction amongst ordinary people and the business community. For facilitating trade, SAARC must provide a special business visa which allows travel and transit across SAARC. Freedom of movement is one of the most important facets for strengthening regional integration. Such freedom of movement is present in many regional integration organisations including the EU. Citizens of the EU countries are exempted from visa requirement and enjoy the freedom to enter and reside in any EU country coming under the Schengen Agreement. A similar kind of freedom of movement is also maintained amongst APEC member nations. Asia-Pacific Economic Cooperation (APEC) is an economic integration forum of 21 Pacific Rim countries which was established in 1989 with headquarters in Singapore. One of the significant steps taken by APEC in strengthening regional integration is the introduction of a visa exemption scheme called APEC Business Travel Card Scheme (ABTC Scheme) in the year 1997. Under the scheme, any business traveller can apply for APEC Business Travel Card which shall remain valid for five years and shall exempt the holder from the requirement of securing a visa. It entitles the holder to stay in the APEC member country for a maximum of 60–90 days at a time with multiple entries.10 SAARC Common Currency The adoption of the common currency signifies one of the highest levels of regional cooperation where monetary integration is achieved. Monetary integration or more especially currency union is one of the best ways to ensure protection from exchange risk and to instil the ease of doing business in the regional trade. It reduces transaction costs by eliminating exchange rate fluctuations and thus facilitates smoother trade and investment. For instance, the adoption of different exchange rate policies by the SAARC nations has always been a bone of contention. India and Pakistan follow a managed float exchange rate policy where the exchange rate of their currency is determined by the forces of demand and supply of the domestic currency in the international market. The managed float is different from the floating exchange as it allows the intervention of the regulatory authorities in certain cases to guide the value of the domestic currency rather than working purely on the demand and supply interplay.

9 See

Chap. 3. the official website of APEC. APEC Business Travel Card. http://www.apec.org/About-Us/ About-APEC/Business-Resources/APEC-Business-Travel-Card.aspx. Accessed 23 July 2020. 10 See

170

6 Conclusion and Suggestions

Sri Lanka in principle follows the free float exchange rate policy whereas Bangladesh, Nepal, Bhutan and Maldives follow pegged exchange rate policy. Under the pegged exchange rate system, the value of the domestic currency is set relative to another currency or the group of currency.11 For South Asia, the adoption of the common currency seems far-fetched considering the formidable political opposition which it may have to encounter. More than economic viability, the adoption of common currency requires absolute political consensus as it entails not just agreeing on common currency but also the formulation of the regional monetary policy and the establishment of the regional regulatory institution that is a regional central bank. The first step for regional monetary unification is the calculation of the economic viability of common currency amongst a group of nations. The economic viability of a common currency for a region can be analysed by the theory of optimal currency area (OCA). OCA was developed by an economist Mr. Robert A. Mundell in the year 1961 as an answer to the balance of payments crises and problems posed by exchange rate adjustments.12 As per the OCA, the following conditions are required for the adoption of a common currency in a region13 : a. b. c. d.

The cross-border mobility of labour Cross-border capital mobility Risk sharing and fiscal transfer mechanism Joint Central Bank.14

In the context of SAARC, these conditions for the adoption of the common currency are absent. However, it has to be considered that these conditions are not those which naturally occur and have to be gradually developed with the political and economic machinery of the participating nations. The basic foundational condition which is required for the common currency application is the economic parity and geographical connectivity amongst the nations who are planning for the common currency. Conditions like cross-border mobility, regional central bank, etc. can be further developed once the idea of a common currency is accepted on the normative level. Although not economically identical, most of the SAARC member nations are placed almost at a similar level of relative economic potential and development. The SAARC nations are classified as developing or the least developed nations. The similarity of their relative economic position and geographical proximity are motivating factors for adopting a common currency. Expecting complete economic parity before introducing common currency would be unrealistic as complete economic parity is not even possible within a nation amongst its various provinces. For instance, different provinces of India are not

11 Jayasuriya

et al. (2005). (1961). 13 See Mundell (1961), Frankel and Rose (1998). 14 See McKinnon (1963), Grubel (1970). 12 Mundell

6.2 Suggestions

171

economically at parity with each other and have a different level of growth and development. WTO complaint regionalism So far since the inception of SAARC as the trade regionalism exception, no issue has come to surface which showcases it to be non-compliant to trade regionalism as structured by GATT/WTO. The reason for GATT/WTO compliance of SAARC is not its meticulous structuring but the fact that it has not been able to bring about any meaningful integration in the South Asian region. In strengthening trade regionalism under SAARC, it has to be composed and configured in a way that it leads to a WTO compliant regional arrangement in South Asia. In the simplest understanding, a WTO complaint regionalism would be one which is a stepping stone rather than a stumbling block towards the multilateralism objective of the WTO. GATT/WTO regulations on trade regionalism can broadly be divided into three categories. First is the internal requirements regarding the formation and working of the regional organisation. Second is the external regulations on the behaviour of the regional arrangement with countries which are not its members. Finally, in addition to these requirements, there is also a ‘review mechanism’ by the Council for Trade in Goods. The strengthening of SAARC as a regional integration organisation may not be a panacea for all its problems. However, its effective and robust existence will provide a forum to its members to deliberate, cooperate and launch effectual programmes and projects for the all-around development and stability of the region. The geographical position and demographic inter-linkages of South Asia also make it imperative for the people of South Asia that SAARC should succeed. The SAARC region is highly interwoven by the web of overlapping and shared culture, ethnicity, history and geographical endowment including common rivers, mountains and ecology. The whole region is destined together, and it can rise and fall together. Any political, economic and social problem in any one of the member nations will have repercussions on other member/s, and there is no immunity from it. For the development of SAARC, its members must move towards the ‘group rationality’ from ‘individual rationality’. Pursuing self-interest at the cost of other nations shall not be a sustainable option though it may lead to lucrative short-term profits. The vicious cycle of hostility between nations particularly India and Pakistan must end. A potent regional organisation in the form of SAARC can be an instrument of economic development, political stability and social prosperity along with being a channel for social, economic and security ties. The recent series of unfortunate incidences of the biblical proportions, from COVID-19 to locusts’ attack, all buttress the need for cooperation and concerted effect at the regional and global levels. In this regard, the vision of the ‘People’s SAARC Charter’ is worth noticing: Vision of an alternative political, social, economic and cultural system in the region that will do away with all distinctions and discriminations of gender, caste, religion, language and

172

6 Conclusion and Suggestions

ethnicity; lead to a situation free from exploitation and oppression; inaugurate a climate in which each individual will have the opportunity, in concert with the collectivity, to realise the full development of her or his human potential; restore the balance and harmony with nature; liquidate the artificial and human barriers that divide lands, collectivities and minds; and transcend all boundaries.15

References Bastiampillai, B. (1996). A Sri Lankan looks at SAARC: A decade later. Sri Lankan Journal of International Law, 8(11). Basu, T. (1997). It was a year of The Gujral doctrine. Business Standard, December 29, 1997, Retrieved July 23, 2020, from http://www.business-standard.com/article/specials/it-was-a-yearof-the-gujral-doctrine-197122901053_1.html. Bhagwati, J. (1992). Regionalism versus multilateralism. The World Economy, 15(5), 535–556. Frankel, J. A., & Rose, A. K. (1998). The endogeneity of the optimum currency area criteria. The Economic Journal, 108(449), 1009–1025. Grubel, H. G. (1970). The theory of optimum currency areas. The Canadian Journal of Economics, 3(2), 318–324. Haas, E. B. (1980). Why collaborate? Issue-linkage and international regimes. World Politics, 32(3), 357–405. Haas, E. B. (1990). When knowledge is power: Three models of change in international organisations. Berkeley: University of California Press. Haas, P. M., & Haas, E. B. (1995). Learning to learn: Some thoughts on improving international governance of global problematique. In Issues in global governance, ed. Commission on Global Governance (p. 304). London: Kluwer Law International, London. Jayasuriya, S., Maskay, N. M., Weerakoon, D., Khatiwada, Y. R., & Kurukulasuriya, S. (2005). A single currency for South Asia: Economics and politics of monetary integration. Economic and Political Weekly, 40(29), 3159–3166. Johnson, T., & Urpelainen, J. (2012). A strategic theory of regime integration and separation. International Organization, 66(4), 645–677. McKinnon, R. I. (1963). Optimum currency areas. The American Economic Review, 53(4), 717–725. Mundell, R. A. (1961). A theory of optimum currency areas. The American Economic Review, 51(4), 657–665. Sebenius, J. K. (1983). Negotiation arithmetic: Adding and subtracting issues and parties. International Organization, 37(2), 281–316. Stein, A. A. (1980). The politics of linkage. World Politics, 33(1), 62–81.

15 People’s SAARC Charter, 25 March 2007, Kathmandu, Nepal. People’s SAARC is an independent civil society body and people’s movement to unify South Asia for deepening democracy, social justice and peace. Its main objective is to establish a people-to-people forum.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

Article XXIV of the General Agreement on Tariffs and Trade XXIV. Territorial Application—Frontier Traffic—Customs Unions and Free-trade Areas 1.

2.

3.

The provisions of this Agreement shall apply to the metropolitan customs territories of the contracting parties and to any other customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application. Each such customs territory shall, exclusively for the purposes of the territorial application of this Agreement, be treated as though it were a contracting party; Provided that the provisions of this paragraph shall not be construed to create any rights or obligations as between two or more customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application by a single contracting party. For the purposes of this Agreement, a customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories. The provisions of this Agreement shall not be construed to prevent: (a) (b)

4.

Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic; Advantages accorded to the trade with the Free Territory of Trieste by countries contiguous to that territory, provided that such advantages are not in conflict with the Treaties of Peace arising out of the Second World War.

The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7

173

174

5.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

between the economies of the countries parties to such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; Provided that: (a)

(b)

(c)

6.

7.

with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement, as the case may be; with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free-trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time.

If in fulfilling the requirements of subparagraph 5 (a), a contracting party proposes to increase any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply. In providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the union. (a) Any contracting party deciding to enter into a customs union or freetrade area, or an interim agreement leading to the formation of such a union or area, shall promptly notify the Contracting Parties and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate. (b) If, after having studied the plan and schedule included in an interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due account of the information made available in accordance with the provisions of sub-paragraph (a), the Contracting

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

8.

Parties find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the Contracting Parties shall make recommendations to the parties to the agreement. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations. (c) Any substantial change in the plan or schedule referred to in paragraph 5 (c) shall be communicated to the Contracting Parties, which may request the contracting parties concerned to consult with them if the change seems likely to jeopardize or delay unduly the formation of the customs union or of the free-trade area. For the purposes of this Agreement: (a)

(b)

9.

10.

11.

175

A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that (i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories.

The preferences referred to in paragraph 2 of Article I shall not be affected by the formation of a customs union or of a free-trade area but may be eliminated or adjusted by means of negotiations with contracting parties affected.* This procedure of negotiations with affected contracting parties shall, in particular, apply to the elimination of preferences required to conform with the provisions of paragraph 8 (a) (i) and paragraph 8 (b). The Contracting Parties may by a two-thirds majority approve proposals which do not fully comply with the requirements of paragraphs 5–9 inclusive, provided that such proposals lead to the formation of a customs union or a free-trade area in the sense of this Article. Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent States and recognizing the fact that they have long constituted an economic unit, the contracting parties agree

176

12.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

that the provisions of this Agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis. Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories.

Ad Article XXIV Paragraph 9 It is understood that the provisions of Article I would require that, when a product which has been imported into the territory of a member of a customs union or freetrade area at a preferential rate of duty is re-exported to the territory of another member of such union or area, the latter member should collect a duty equal to the difference between the duty already paid and any higher duty that would be payable if the product was being imported directly into its territory. Paragraph 11 Measures adopted by India and Pakistan in order to carry out definitive trade arrangements between them, once they have been agreed upon, might depart from particular provisions of this Agreement, but these measures would, in general, be consistent with the objectives of the Agreement. Understanding on the Interpretation of Article XXIV of the General Agreement On Tariffs and Trade 1994 Members, Having regard to the provisions of Article XXIV of GATT 1994; Recognizing that customs unions and free trade areas have greatly increased in number and importance since the establishment of GATT 1947 and today cover a significant proportion of world trade; Recognizing the contribution to the expansion of world trade that may be made by closer integration between the economies of the parties to such agreements; Recognizing also that such contribution is increased if the elimination between the constituent territories of duties and other restrictive regulations of commerce extends to all trade, and diminished if any major sector of trade is excluded; Reaffirming that the purpose of such agreements should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other Members with such territories; and that in their formation or enlargement the parties to them should to the greatest possible extent avoid creating adverse effects on the trade of other Members; Convinced also of the need to reinforce the effectiveness of the role of the Council for Trade in Goods in reviewing agreements notified under Article XXIV, by clarifying the criteria and procedures for the assessment of new or enlarged agreements, and improving the transparency of all Article XXIV agreements;

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

177

Recognizing the need for a common understanding of the obligations of Members under paragraph 12 of Article XXIV; Hereby agree as follows: 1.

Customs unions, free-trade areas, and interim agreements leading to the formation of a customs union or free-trade area, to be consistent with Article XXIV, must satisfy, inter alia, the provisions of paragraphs 5, 6, 7 and 8 of that Article.

Article XXIV:5 2.

3.

The evaluation under paragraph 5(a) of Article XXIV of the general incidence of the duties and other regulations of commerce applicable before and after the formation of a customs union shall in respect of duties and charges be based upon an overall assessment of weighted average tariff rates and of customs duties collected. This assessment shall be based on import statistics for a previous representative period to be supplied by the customs union, on a tariff-line basis and in values and quantities, broken down by WTO country of origin. The Secretariat shall compute the weighted average tariff rates and customs duties collected in accordance with the methodology used in the assessment of tariff offers in the Uruguay Round of Multilateral Trade Negotiations. For this purpose, the duties and charges to be taken into consideration shall be the applied rates of duty. It is recognized that for the purpose of the overall assessment of the incidence of other regulations of commerce for which quantification and aggregation are difficult, the examination of individual measures, regulations, products covered and trade flows affected may be required. The “reasonable length of time” referred to in paragraph 5(c) of Article XXIV should exceed 10 years only in exceptional cases. In cases where Members parties to an interim agreement believe that 10 years would be insufficient, they shall provide a full explanation to the Council for Trade in Goods of the need for a longer period.

Article XXIV:6 4.

5.

Paragraph 6 of Article XXIV establishes the procedure to be followed when a Member forming a customs union proposes to increase a bound rate of duty. In this regard Members reaffirm that the procedure set forth in Article XXVIII, as elaborated in the guidelines adopted on 10 November 1980 (BISD 27S/2628) and in the Understanding on the Interpretation of Article XXVIII of GATT 1994, must be commenced before tariff concessions are modified or withdrawn upon the formation of a customs union or an interim agreement leading to the formation of a customs union. These negotiations will be entered into in good faith with a view to achieving mutually satisfactory compensatory adjustment. In such negotiations, as required by paragraph 6 of Article XXIV, due account shall be taken of reductions of duties on the same tariff line made by other constituents of the customs union upon its formation. Should such reductions not be sufficient to provide the

178

6.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

necessary compensatory adjustment, the customs union would offer compensation, which may take the form of reductions of duties on other tariff lines. Such an offer shall be taken into consideration by the Members having negotiating rights in the binding being modified or withdrawn. Should the compensatory adjustment remain unacceptable, negotiations should be continued. Where, despite such efforts, agreement in negotiations on compensatory adjustment under Article XXVIII as elaborated by the Understanding on the Interpretation of Article XXVIII of GATT 1994 cannot be reached within a reasonable period from the initiation of negotiations, the customs union shall, nevertheless, be free to modify or withdraw the concessions; affected Members shall then be free to withdraw substantially equivalent concessions in accordance with Article XXVIII. GATT 1994 imposes no obligation on Members benefiting from a reduction of duties consequent upon the formation of a customs union, or an interim agreement leading to the formation of a customs union, to provide compensatory adjustment to its constituents.

Review of Customs Unions and Free-Trade Areas 7.

8.

9.

10.

11.

All notifications made under paragraph 7(a) of Article XXIV shall be examined by a working party in the light of the relevant provisions of GATT 1994 and of paragraph 1 of this Understanding. The working party shall submit a report to the Council for Trade in Goods on its findings in this regard. The Council for Trade in Goods may make such recommendations to Members as it deems appropriate. In regard to interim agreements, the working party may in its report make appropriate recommendations on the proposed time-frame and on measures required to complete the formation of the customs union or free-trade area. It may if necessary provide for further review of the agreement. Members parties to an interim agreement shall notify substantial changes in the plan and schedule included in that agreement to the Council for Trade in Goods and, if so requested, the Council shall examine the changes. Should an interim agreement notified under paragraph 7(a) of Article XXIV not include a plan and schedule, contrary to paragraph 5(c) of Article XXIV, the working party shall in its report recommend such a plan and schedule. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations. Provision shall be made for a subsequent review of the implementation of the recommendations. Customs unions and constituents of free-trade areas shall report periodically to the Council for Trade in Goods, as envisaged by the CONTRACTING PARTIES to GATT 1947 in their instruction to the GATT 1947 Council concerning reports on regional agreements (BISD 18S/38), on the operation of the relevant agreement. Any significant changes and/or developments in the agreements should be reported as they occur.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

179

Dispute Settlement 12.

The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreements leading to the formation of a customs union or free-trade area.

Article XXIV:12 13.

14.

15.

Each Member is fully responsible under GATT 1994 for the observance of all provisions of GATT 1994 and shall take such reasonable measures as may be available to it to ensure such observance by regional and local governments and authorities within its territory. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked in respect of measures affecting its observance taken by regional or local governments or authorities within the territory of a Member. When the Dispute Settlement Body has ruled that a provision of GATT 1994 has not been observed, the responsible Member shall take such reasonable measures as may be available to it to ensure its observance. The provisions relating to compensation and suspension of concessions or other obligations apply in cases where it has not been possible to secure such observance. Each Member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of GATT 1994 taken within the territory of the former.

Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (The Enabling Clause)—Decision of 28th November 1979 (L/4903) 1.

2.

Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties. The provisions of paragraph 1 apply to the following: (c)

Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another;

Articles V and V bis of the General Agreement on Trade in Services Article V: Economic Integration

180

1.

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement: (a) has substantial sectoral coverage, and (b)

2.

3.

In evaluating whether the conditions under paragraph 1(b) are met, consideration may be given to the relationship of the agreement to a wider process of economic integration or trade liberalization among the countries concerned. (a) Where developing countries are parties to an agreement of the type referred to in paragraph 1, flexibility shall be provided for regarding the conditions set out in paragraph 1, particularly with reference to subparagraph (b) thereof, in accordance with the level of development of the countries concerned, both overall and in individual sectors and subsectors. (b)

4.

5.

6.

7.

provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through: (i) Elimination of existing discriminatory measures, and/or (ii) Prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis.

Notwithstanding paragraph 6, in the case of an agreement of the type referred to in paragraph 1 involving only developing countries, more favourable treatment may be granted to juridical persons owned or controlled by natural persons of the parties to such an agreement.

Any agreement referred to in paragraph 1 shall be designed to facilitate trade between the parties to the agreement and shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement. If, in the conclusion, enlargement or any significant modification of any agreement under paragraph 1, a Member intends to withdraw or modify a specific commitment inconsistently with the terms and conditions set out in its Schedule, it shall provide at least 90 days advance notice of such modification or withdrawal and the procedure set forth in paragraphs 2, 3 and 4 of Article XXI shall apply. A service supplier of any other Member that is a juridical person constituted under the laws of a party to an agreement referred to in paragraph 1 shall be entitled to treatment granted under such agreement, provided that it engages in substantive business operations in the territory of the parties to such agreement. (a) Members which are parties to any agreement referred to in paragraph 1 shall promptly notify any such agreement and any enlargement or any significant modification of that agreement to the Council for Trade in Services. They shall also make available to the Council such relevant information as may be requested by it. The Council may establish a working

Annexe I: Selected WTO Provisions on Regional Integration Arrangements

8.

181

party to examine such an agreement or enlargement or modification of that agreement and to report to the Council on its consistency with this Article. (b) Members which are parties to any agreement referred to in paragraph 1 which is implemented on the basis of a time-frame shall report periodically to the Council for Trade in Services on its implementation. The Council may establish a working party to examine such reports if it deems such a working party necessary. (c) Based on the reports of the working parties referred to in subparagraphs (a) and (b), the Council may make recommendations to the parties as it deems appropriate. A Member which is a party to any agreement referred to in paragraph 1 may not seek compensation for trade benefits that may accrue to any other Member from such agreement.

Article V bis: Labour Markets Integration Agreements This Agreement shall not prevent any of its Members from being a party to an agreement establishing full integration of the labour markets between or among the parties to such an agreement, provided that such an agreement: (a) exempts citizens of parties to the agreement from requirements concerning residency and work permits; (b) is notified to the Council for Trade in Services.

Annexe II: Charter of the South Asian Association For Regional Cooperation

We, the Heads of State or Government of Bangladesh, Bhutan, = India, Maldives, Nepal, Pakistan and Sri Lanka; 1.

2.

3.

4.

5.

6.

Desirous of promoting peace, stability, amity and progress in the region through strict adherence to the principles of the UNITED NATIONS CHARTER and NON-ALIGNMENT, particularly respect for the principles of sovereign equality, territorial integrity, national independence, non-use of force and noninterference in the internal affairs of other States and peaceful settlement of all disputes; Conscious that in an increasingly interdependent world, the objectives of peace, freedom, social justice and economic prosperity are best achieved in the SOUTH ASIAN region by fostering mutual understanding, good neighbourly relations and meaningful cooperation among the Member States which are bound by ties of history and culture; Aware of the common problems, interests and aspirations of the peoples of SOUTH ASIA and the need for joint action and enhanced cooperation within their respective political and economic systems and cultural traditions; Convinced that regional cooperation among the countries of SOUTH ASIA is mutually beneficial, desirable and necessary for promoting the welfare and improving the quality of life of the peoples of the region; Convinced further that economic, social and technical cooperation among the countries of SOUTH ASIA would contribute significantly to national and collective self-reliance; Recognising that increased cooperation, contacts and exchanges among the countries of the region will contribute to the promotion of friendship and understanding among their peoples;

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7

183

184

7.

8.

Annexe II: Charter of the South Asian Association For Regional …

Recalling the DECLARATION signed by their Foreign Ministers in NEW DELHI on August 2, 1983, and noting the progress achieved in regional cooperation; Reaffirming their determination to promote such cooperation within an institutional framework;

Do Hereby Agree to establish an organisation to be known as South Asian Association For Regional Cooperation hereinafter referred to as the Association, with the following objectives, principles, institutional and financial arrangements: Article I Objectives The objectives of the Association shall be: to promote the welfare of the peoples of South Asia and to improve their quality of life; to accelerate economic growth, social progress and cultural development in the region and to provide all individuals with the opportunity to live in dignity and to realise their full potentials; to promote and strengthen collective self-reliance among the countries of South Asia; to contribute to mutual trust, understanding and appreciation of one another’s problems; to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; to strengthen cooperation with other developing countries; to strengthen cooperation among themselves in international forums on matters of common interests; and to cooperate with international and regional organisations with similar aims and purposes. Article II Principles Cooperation within the framework of the ASSOCIATION shall be based on respect for the principles of sovereign equality, territorial integrity, political independence, non-interference in the internal affairs of other States and mutual benefit. Such cooperation shall not be a substitute for bilateral and multilateral cooperation but shall complement them. Such cooperation shall not be inconsistent with bilateral and multilateral obligations. Article III Meetings of the Heads of State or Government

Annexe II: Charter of the South Asian Association For Regional …

185

The Heads of State or Government shall meet once a year or more often as and when considered necessary by the Member States. Article IV Council of Ministers A Council of Ministers consisting of the Foreign Ministers of the Member States shall be established with the following functions: formulation of the policies of the Association; review of the progress of cooperation under the Association; decision on new areas of cooperation; establishment of the additional mechanism under the Association as deemed necessary; decision on other matters of general interest to the Association. The Council of Ministers shall meet twice a year. An extraordinary session of the Council may be held by agreement among the Member States. Article V Standing Committee The Standing Committee comprising the Foreign Secretaries shall have the following functions: overall monitoring and coordination of programme of cooperation; approval of projects and programmes, and the modalities of their financing; determination of inter-sectoral priorities; mobilisation of regional and external resources; identification of new areas of cooperation based on appropriate studies. 2. 3.

The Standing Committee shall meet as often as deemed necessary. The Standing Committee shall submit periodic reports to the Council of Ministers and make reference to it as and when necessary for decisions on policy matters.

Article VI Technical Committees Technical Committees comprising representatives of Member States shall be responsible for the implementation, coordination and monitoring of the programmes in their respective areas of cooperation. They shall have the following terms of reference: determination of the potential and the scope of regional cooperation in agreed areas; formulation of programmes and preparation of projects; determination of financial implications of sectoral programmes; formulation of recommendations regarding apportionment of costs; implementation and coordination of sectoral programmes;

186

Annexe II: Charter of the South Asian Association For Regional …

monitoring of progress in implementation. The Technical Committees shall submit periodic reports to the Standing Committee. The Chairmanship of the Technical Committees shall normally rotate among the Member States in alphabetical order every two years. The Technical Committees may, inter-alia, use the following mechanisms and modalities, if and when considered necessary: meetings of heads of national technical agencies; meetings of experts in specific fields; contact amongst recognised centres of excellence in the region. Article VII Action Committees The Standing Committee may set up Action Committees comprising the Member States concerned with the implementation of projects involving more than two but not all Member States. Article VIII Secretariat There shall be a Secretariat of the ASSOCIATION. Article IX Financial Arrangements The contribution of each Member State towards the financing of the activities of the Association shall be voluntary. Each Technical Committee shall make recommendations for the apportionment of costs of implementing the programmes proposed by it. In case sufficient financial resources cannot be mobilised within the region for funding activities of the Association, external financing from appropriate sources may be mobilised with the approval of or by the Standing Committee. Article X General Provisions Decisions at all levels shall be taken on the basis of unanimity. Bilateral and contentious issues shall be excluded from the deliberations. IN FAITH WHEREOF We Have Set Our Hands And Seals Hereunto. DONE In DHAKA, BANGLADESH, On This The Eighth Day Of December Of The Year One Thousand Nine Hundred Eighty-Five. Hussain Muhammad Ershad President of the People’s Republic of Bangladesh Jigme Singye Wangchuk King of Bhutan Rajiv Gandhi

Annexe II: Charter of the South Asian Association For Regional …

Prime Minister of The Republic of India Maumoon Abdul Gayoom President of the Republic of Maldives Birendra Bir Bikram Shah Dev King of Nepal Muhammad Zia-ul-Haq President of ohe Islamic Republic of Pakistan Junius Richard Jayewardene President of Democratic Socialist Republic of Sri Lanka

187

Annexe III: SAARC Provisional Rules of Procedure

The Rules shall apply to the meetings of the Council of Ministers, the Standing Committee, the Programming Committee, the Technical Committees or any other ad hoc SAARC bodies that may be set up by the Heads of State or Government, or the Council of Ministers, or the Standing Committee. Rule 1 Composition of Delegation Each State participating in the Meeting shall be represented by a Head of Delegation and other representatives of the State, as may be required. The names of the representatives shall be submitted to the host country and the Secretary-General as early as possible, preferably not less than one week before the date fixed for the opening of the Meeting. Rule 2 Appointment of Officers of the Meeting The Meeting may appoint the following officers from among the representatives of the states participating in it: a Chairperson, a Vice-Chairperson and other officers for sub-committees, working groups, drafting groups. Rule 3 Acting Chairperson If the Chairperson finds it necessary to be absent from a meeting or any part thereof, he/she shall designate the Vice-Chairperson to take his/her place. The Vice-Chairperson acting as Chairperson shall have the same powers and duties as the Chairperson. Rule 4 Participation by the Secretary-General © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7

189

190

Annexe III: SAARC Provisional Rules of Procedure

The Secretary-General, or, in his/her absence, an officer of the Secretariat who shall be designated by the Secretary-General, shall act in that capacity at the Meeting. Rule 5 Statement by the Secretariat The Secretary-General, or any officer of the Secretariat designated by the SecretaryGeneral for the purpose, may, subject to Rule 10, make statements concerning any questions under consideration. Rule 6 Conclusions of the Meeting The Meeting shall adopt a report at the conclusion of its session. Rule 71 Conduct of Business The Chairperson may declare a meeting open and permit the debate to proceed only when the representatives of at least five Member States are present. The presence of all the Member States shall be required for any decision to be taken. Rule 8 General Powers of the Chairperson The chairperson shall preside over the Meeting. He/she shall declare the opening and the closing of each sitting, direct the discussions, ensure observance of the Rules of Procedure, accord the right to speak and announce decisions. He/she shall rule on points of order. The Chairperson, subject to these Rules, shall have complete control of the proceedings and over the maintenance of order thereat. The Chairperson in the exercise of his/her functions remains under the authority of the Meeting. Rule 9 Points of Order During the discussions on any matter, a representative may at any time raise a point of order, which shall be immediately decided by the Chairperson in accordance with these Rules. Rule 10 Speeches No one may address the Meeting without having previously obtained the permission of the Chairperson. Subject to Rule 9, the Chairperson shall call upon speakers from member countries in the order in which they signify their desire to speak. 1 This

Rule shall not apply to bodies established with a membershipless than the total membership of SAARC.

Annexe III: SAARC Provisional Rules of Procedure

191

Debate shall be confined to the question before the Meeting and the Chairperson may call the speaker to order if his/her remarks are not relevant to the subject under discussion. The Meeting may limit the time allowed to speakers and the number of times participants may speak on a question. Rule 11 Basic Proposals All draft proposals or reports submitted to the Meeting following its last session shall constitute the basic proposals for consideration by the Meeting. Rule 12 Submission of Other Proposals and Substantive Amendments Other proposals and substantive amendments shall normally be introduced in writing and handed over to the Chairperson of the Meeting for circulation to delegates in the language of the Meeting. As a general rule, no proposal shall be discussed unless copies of it have been circulated to all delegations. The Chairperson may, however, permit discussion and consideration of amendments even though these have not been circulated in advance if the Meeting so decides. Rule 13 Decision Making The Meeting shall adopt its decisions and make recommendations on the basis of unanimity. Rule 14 Language of the Meeting English shall be the language of the Meeting. A representative may deliver his/her statement(s) in his/her national language if he/she provides for interpretation into English. Rule 15 Record of Meeting Sound recordings of the meetings of the plenary may be kept. Rule 16 Public and Closed Meetings All the meetings under SAARC shall be closed meetings. If it is decided to have inaugural and closing ceremonies of some of the meetings, these shall be held in public.

192

Annexe III: SAARC Provisional Rules of Procedure

Rule 17 Status and Participation of Invitees Representatives of the international organizations of the United Nations System or those international organizations outside the System with which SAARC has reached an agreement for cooperation shall be admitted as invitees to inaugural and closing ceremonies. They may also be invited to be present during discussions on proposals or projects involving collaboration with their organizations.

Bibliography

Books Arts, K., & Dickson, A. (Ed.), (2004). EU development cooperation: From model to symbol. New York: Manchester University Press. Bartels, L., & Ortino, F. (Ed.), (2010). Regional trade agreements and the WTO legal system. New York: Oxford University Press. Bartels, L., & Ortino, F. (Ed.), (2006). Trade agreements and the WTO legal system. New York: Oxford University Press. Berman, H. J. (1983). Law and revolution: The formation of the western legal tradition. Cambridge: Harvard University Press. Bethlehem, D., McRae, D., Neufeld, R., & Van Damme, I. (Eds.). (2009). The oxford handbook on international trade law. New York: Oxford University Press. Bhagwati, J., & Panagariya, A. (Ed.), (1979). Economics of preferential trade agreements. Washington DC: AEI Press. Bievre, D. D. (2004). Governance in international trade: Judicialisation and positive integration in the WTO. Preprints of the Max Planck Institute for Research on Collective Goods, No. 2004/7 on ECONSTOR. Cooper, A. F., Hughes, C. W., & De Lombaerde, P. (Eds.). (2008). Regionalism and global governance: The taming of globalisation. New York: Routledge Publication. Cottier, T., & Delimatsis, P. (Ed.), (2011). The prospects of international trade regulation: From fragmentation to coherence. Cambridge University Press. Dash, K. C. (2009). Regionalism in South Asia. New York: Routledge Publication. Dresher, M. (1961). Games of strategy: Theory and application. New Jersey: Prentice-Hall and Englewood Cliff publication, New Jersey. Evera, S. V. (1999). Causes of war. Ithaca: Cornell University Press. Glaser, C. L. (2010). Rational theory of international politics: The logic of competition and cooperation. Princeton University Press. Guira, J. (2013). MERCOSUR: Trade and investment amid financial crisis. Hague: Kluwer Law International. Gupta, B. S. (Ed.). (1986). Regional cooperation and development in South Asia. New Delhi: South Asian Publishers.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7

193

194

Bibliography

Haynes, S. N., & O’Brien, W. H. (2000). Principles and practice of behavioural assessment. New York: Kluwer Academic and Plenum Publishers. Jackson, J. H. (1969). World trade and the laws of GATT . New York: Bobbs-Merrill. Jackson, J. H. (2000). The jurisprudence of the GATT & the WTO: Insights on treaty law and economic relations. Cambridge: Cambridge University Press. Jeffrey, S. (1989). Free trade areas and U.S. trade policy. Washington D.C: Institute for International Economics. Kuhnhardt, L. (2010). Region-building. Oxford: Volumes I & II Berghahn Books. Mehrotra, L. L., Chopra, H. S., & Kueck, G. W. (Ed.), (1995). SAARC 2000 and beyond. New Delhi: Omega Scientific Publishers. de Melo, J., & Panagariya, A. (Eds.). (1993). New dimensions in regional integration. New York: Cambridge University Press. Moravcsik, A. (1998). The choice for Europe, social purpose and state power from Messina to Maastricht. Ithaca, NJ: Cornell University Press. Morgan, G. (2005). The idea of a European superstate: Public justification and European integration. Princeton: Princeton University Press. Nye and Donahue, J. D. (Ed.), (2000). Governance in a globalizing world, Washington DC: Brookings Institution Press. Ohlin, B. (1993). Interregional and international trade. Cambridge: Harvard University Press. Onuf, N. (1989). World of our making: Rules and rule in social theory and international relations. Columbia: The University of South Carolina Press. Palayret, J. M., Wallace, H. S., & Winand, P. (Eds.). (2006). Visions, Votes, and Vetoes: The empty chair crisis and the luxembourg compromise forty years on. Brussels: Peter Lang Presses Interuniversitaires Europeennes. Rapoport, A., & Chammah, A. M. (2009). Prisoners’ dilemma. The University of Michigan Press. Sandholtz, W., & Stone, A. (Eds.). (1998). European integration and supranational governance. New York: Oxford University Press. Sandholtz, W., & Sweet, A. S. (Eds.). (2000). Supranational governance: The institutionalization of the European union. New York: Oxford University Publication. Schiff, M., & Winter, L. A. (2003). Regional integration and development. Washington: The World Bank and Oxford University Press publication. Schott, J. (1989). Free trade areas and U.S. Trade policy. Washington: Institute for International Economics Publication. Shaw, T. M., Grant, J. A. & Cornelissen, S. (Ed.), (2011). The ashgate research companion to regionalisms. England: Ashgate Publications. Sills, D. (Ed.). (1968). International encyclopaedia of the social sciences. New York: Macmillan & Free Press. Simmons, B. A., & Steinberg, R. H. (Ed.), (2007). International law and international relations: An international organization reader. Cambridge University Press. Singer, E., & Hudson, V. (Eds.). (1994). Political psychology and foreign policy. Boulder Colorado: Westview Press. Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. London: W. Strahan and T. Cadell Publication. Soderbaum, F., & Shaw, T. M. (Eds.). (2003). Theories of new regionalism: A palgrave macmillan reader. U.K: Palgrave Macmillan Publication. Syed, M. H. (Ed.), (2003). Encyclopaedia of SAARC nations. Delhi: Gyan Publishing House. Wolf, J. N. (Ed.). (1968). Value, capital, and growth. Edinburgh: Edinburgh University Press.

Bibliography

195

Articles Acharya, A. (2003). Democratisation and the prospects for participatory regionalism in Southeast Asia. Third world quarterly, 24(2), 375–390. Axelrod, R. (1980). Effective choice in the prisoner’s dilemma. The Journal of Conflict Resolution, Sage Publications, Inc. 24(1), 3–25. Beltz, A. M., et al. (2016). Bridging the nomothetic and idiographic approaches to the analysis of clinical data. Sage Journal. Bhagwati, J. (1995). U.S. Trade policy: The infatuation with free trade agreements. Columbia University, Discussion paper series no. 726. Bhagwati, J., Greenaway, D., & Panagariya, A. (1998). Trading preferentially: Theory and policy. The Economic Journal, 108(449), 1128–1148. Bhala, R. (2002). The forgotten mercy: GATT Article XXIV11 and trade on the subcontinent. New Zealand Law Review, 301. Biswaro, J. M. (2013). The role of regional integration in conflict prevention, management, and resolution in Africa- the case of African Union (p. 2013). Brasília: Alexandre de Gusmão Foundation (Funag). Burgess, Michael. (1996). Federalism and building the European union. Publius, Oxford University Press, 26(4), 1–15. Cho, S. (2001). Breaking the barrier between regionalism and multilateralism: A new perspective on trade regionalism. Harvard International law Journal, 42(2). Do, V. D. & Watson, W. (2006). Economic analysis of regional trade agreements. In Regional Trade Agreements and the WTO Legal System, ed. Lorand Bartles and Federico Ortino. New York: Oxford University Press. Foot, R. (2011). The role of east asian regional organizations in regional governance: constraints and contributions. Carnegie Asia Programme, Carnegie Endowment for International Peace’s Article. Forde, S. (1995). International realism and the science of politics: Thucydides, machiavelli, and neorealism. International Studies Quarterly, 39(2), 141–160. Haas, E. B., & Schmitter, P. C. (1964). Economics and differential patterns of political integration: projection about unity in Latin America. International Organisation, 18(4), 705–737. Habermas, J. (1999). The European nation-state and the pressures of globalization. New Left Review I/235. Haynes, S. N. & O’Brien, W. H. (2000). Idiographic and nomothetic assessment. In S. N. Haynes & W. H. O’Brien (Eds.), Principles and Practice of Behavioural Assessment, Applied Clinical Psychology book series. New York: Kluwer Academic and Plenum Publishers, pp. 109–126. Hettne, B. (2002). The Europeanisation of Europe: Endogenous and exogenous dimensions. Journal of European Integration, 24(4), 325–340. Hobson, J. A. (1906). The ethics of internationalism. International Journal of Ethics, 17(1), 16–28. Jayaram, D. (2013). . International Policy Digest. Jervis, R. (1998). Realism in the study of world politics. International Organization, 52(4), 971–991. Jong, C. Y., & Lee, N. Y. (2002). A comparative study of regionalism in East Asia and the Americas. Asian Perspective, 26(3), 169–192. König, T., & Slapin, J. B. (2006). From unanimity to consensus: An analysis of the negotiations at the EU’s constitutional convention. World Politics, 58(3), 413–445. Leamer, E. E. (1995). The heckscher-ohlin model in theory and practice. Princeton Studies in International Finance (77). Lederach, J. P. (1997). Building peace: Sustainable reconciliation in divided societies. United States Institute of Peace Press. Leighton, M. K. (1978). Perspectives on the vietnam-cambodia border conflict. Asian Survey, 18(5), 448–457. Low, L. (2000). Political economy of regional trading arrangements in the context of the multilateral trading system in Asia. Department of Business Policy National University of Singapore.

196

Bibliography

Mitrany, D. (1965). The prospect of integration: Federal or functional. Journal of Common Market Studies, 4(2). Mukherjee, A. (1997). Regionalization in South Asia: Theory and Praxis. Pacific Affairs, 70(2), 235–251. Murray, K., & Wan, H. (1976). An elementary proposition concerning the formation of customs unions. Journal of International Economics. Niou, E. M. S., & Ordeshook, Peter C. (1994). Alliances in anarchic international systems. International Studies Quarterly, Wiley Publication on behalf of The International Studies Association, 38(2), 167–191. Paribatra, S. (1994). From ASEAN Six to ASEAN Ten: Issues and Prospects. Contemporary Southeast Asia, 16(3), 243–258. Paris, R. (1997). Peacebuilding and the limits of liberal internationalism. International Security, 22(2), 54–89. Robinson, P. (2000). The policy-media interaction model: Measuring media power during humanitarian crisis. Journal of Peace Research, 37(5) Sage Publications: 613–633. Saha, S. C. (2005). South Asian association for regional cooperation (saarc) and social development in South Asia: A study of some successful experiences. Indian Journal of Asian Affairs, 18(2), 1–44. Simon, S. W. (1979). China, Vietnam, and ASEAN: The politics of polarization: Recent international developments in Asia, Asian Survey, 19(12), University of California Press, 1171–1188. Smith, A. A. (1985). Kant’s political philosophy: Rechtsstaat or council democracy? The Review of Politics, 47(2), 253–280. Steinberg, R. H. (2007). In the shadow of law or power? Consensus-based bargaining and outcome in GATT/WTO. In B. A. Simmons & R. H. Steinberg (Eds.), International Law and International Relations: An International Organization Reader. Cambridge University Press, p. 547. Sung, A. T. (1978). Turmoil in Indochina: The vietnam-cambodia conflict. Asian Affairs, 5(4), 245–256. Sutherland, P. (1997). Beyond the market: A different kind of equity. International Herald Tribune. Thapar, R. (2006). SAARC: Ineffective in promoting economic cooperation in South Asia. Stanford Journal of International Relations. Department of International Relations, Stanford University. Vandewalle, L. (2015). The ASEAN inter-parliamentary assembly (AIPA): A privileged interlocutor for the European Parliament in South East Asia. Directorate-General for External Policies, Policy Department, European Parliament, DG EXPO/B/PolDep/Note/2015_237. Walker, R. B. J. (1987). Realism, change, and international political theory. International Studies Quarterly, 31(1), 65–86. Woodhouse, T. & Harvey J. L. (2015). Peacekeeping and international conflict resolution. Peace Operations Training Institute. Zakaria, H. A. & Ghoshal, B. (1999). The political future of ASEAN after the Asian Crisis. International Affairs [Royal Institute of International Affairs 1944-] 75(4), 759–778.

Web Sources Anti-dumping Publishing House:- http://www.antidumpingpublishing.com. ASEAN Intergovernmental Commission on Human Rights:- http://aichr.org. ASEAN:- http://asean.org/. Asia Pacific Economic Cooperation:- https://www.apec.org/. Asian Development Bank:- https://www.adb.org/. Centre Virtuel de la Connaissance sur l’Europe, Luxembourg (CVCE) (Virtual Centre for Knowledge about Europe):- https://www.cvce.eu/.

Bibliography

197

Colombo Plan for Cooperative Economic and Social Development in Asia and the Pacific:- http:// www.colombo-plan.org/. Corporate Law Advisor Online:- http://www.claonline.in/. Court of Justice of the European Union:- https://curia.europa.eu. European Central Bank:- https://www.ecb.europa.eu. European Commission:- https://ec.europa.eu. European Committee of the Regions:- http://cor.europa.eu. European Council:- http://www.consilium.europa.eu . European Court of Auditors:- https://www.eca.europa.eu. European Data Protection Supervisor:- https://edps.europa.eu. European Economic and Social Community:-http://www.eesc.europa.eu. European External Action Service:- https://eeas.europa.eu. European Investment Bank:- http://www.eib.org. European Ombudsmen:- https://www.ombudsman.europa.eu. European Parliament:- http://www.europarl.europa.eu/portal/. European Union:- https://europa.eu/ . Federation of Indian Chamber of Commerce:- http://ficci.in/. HeinOnline:- https://home.heinonline.org/. Indian Council of World Affairs:- www.icwa.in/. Indian National Centre for Ocean Information Services, Ministry of Earth Sciences, Govt. of India:http://www.incois.gov.in. Institute of Operations Research and the Management Sciences:- https://www.informs.org. Jstor:- https://www.jstor.org/. Law Finder Live:- https://www.lawfinderlive.com/. Magampura Mahinda Rajapaksa Port available:-https://mpmc.lk/. Manupatra:- http://www.manupatrafast.com/. Ministry of Commerce and Industry, Govt. Of India; http://commerce.nic.in. Peace Direct:- http://www.insightonconflict.org. People’s SAARC Charter: https://www.peoplesaarc.org/. SAARC Chamber of Commerce and Industry:- https://www.saarcchamber.org/. SAARC Development Fund:- http://www.sdfsec.org. Sage Journals:- http://journals.sagepub.com/. SCC Online:- http://www.scconline.com/WebEdition.aspx. South Asian Association for Regional Cooperation:- http://saarc-sec.org/. The World Bank Group:- http://www.worldbank.org/. United Nations Conference on Trade and Development Statistics:- http://unctad.org. United Nations Conference on Trade and Development United Nations Conference on Trade and Development:- http://unctad.org/en. United Nations:- http://www.un.org/. United States Census Bureau:- https://www.census.gov/foreign-trade/statistics/. Westlaw India:- http://www.westlawindia.com/. World Health Organisation:- http://www.who.int/. World Trade Organisation:- https://www.wto.org.

Index

A Ad-valorem tariff, 41 Anti-dumping, 56, 58, 196 Article X SAARC Charter, 4, 7, 49, 54, 55, 60, 98, 130, 135, 138, 150, 154, 186 Article XXIV, xiv, xviii, 1, 9, 11–21, 23, 26, 105, 173, 176–179 ASEAN way, 96 Asian Relation Conference, 6 Asia-Pacific Economic Cooperation (APEC), xxvii, 69, 70, 105 Associated Chambers of Commerce and Industry (ASSOCHAM), xxvii, 146 Association of Southeast Asian Nations (ASEAN), xiii, xiv, xvii, xxvii, 27, 35, 83–86, 92, 96–98, 104, 105, 115– 118, 121, 137, 138, 141, 196

B Banglabandha project, 54, 71 Brexit, xxvii, 89, 101

C Colombo Declaration, 71 Committee on Regional Trade Agreements (CRTA), xxvii, 14, 15, 21–23 Common Market, xxviii, 11, 82, 87, 196 Comparative Regionalism, xiv, 92 Constructivism, 94 Contingent Trade Protective Measures, 52 Council of the European Union, xxvii, 96, 108, 112

Court of Justice of the European Union, xxvii, 108, 109, 197 Customs Union Issues, 3, 25 Custom unions, 1, 11 Custom valuation principles, 54

D David Mitrany, 29, 30, 196 Distribution restrictions, 53 Dynamic time path analysis, 3

E Economic integration, 2, 4, 9–11, 29, 32, 69, 131, 135, 137, 154, 180 Economic Union, xxix, 10, 11, 80 Eidgenossenschaft, 11 Empty Chair Policy, 130 Enabling Clause, 9, 11, 21, 133, 179 Ernest B. Haas, 2 European Central Bank, xxviii, 109, 197 European Coal and Steel Community (ECSC), xxviii, 87, 88, 95, 96, 106 European Commission, 96, 101, 108, 112, 197 European Committee of the Regions, 112, 197 European Council, 88, 107, 152, 153, 197 European Court of Auditors, 110, 197 European Data Protection Supervisor, xxviii, 113, 197 European Economic and Social Committee, 111 European External Action Service, xxviii, 110, 111, 197

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 O. H. Khan, Strengthening Regional Trade Integration in South Asia, https://doi.org/10.1007/978-981-33-6777-7

199

200 European Investment Bank, xxviii, 112, 197 European Ombudsman, 112 European Parliament, xxviii, 86, 88, 96, 106, 108, 112, 118, 196, 197 European Union (EU), xiv, xvii, xix, xxviii, 69, 76, 81, 83–89, 92, 95, 96, 98, 100, 101, 103, 105–113, 118, 121, 138, 141, 151, 153, 193, 195 Export-related measures, 53

F Financial measures, 52 Free trade agreement, 1, 128 Functionalism, 28

G GATT contracting parties, xv, 14, 18 General Agreement on Tariffs and Trade (GATT), xiii, xiv, xv, xix, xxviii, 1–3, 5, 9, 11–16, 18–21, 23, 24, 26, 34, 42– 49, 52–55, 57, 58, 60, 61, 80, 81, 105, 132, 133, 136, 176–179, 194–196 German Zollverein, 11 Government procurement restrictions, 53 Grandfather right exception grandfather clause, 47 Gujral Doctrine, 99, 129, 131–134, 154

H Heckscher-Ohlin theorem, 145

I Ideation, 92, 94 Inter-governmentalism, 32 Internationalism, 84

J Jacob Viner, 3, 12, 25, 26 Jagdish Bhagwati, 3, 13, 16, 24, 25, 27, 28, 105, 193, 195 Juggernaut effect, 35 Jus commune, 1

L Latin American Free Trade Agreement (LAFTA), xxviii, 27 Liberal inter-governmentalism, 33 Licensing measures, 52

Index Logic of appropriateness, 98, 99 Logic of consequence, 98, 99 Luxemburg Compromise, 131 M Maastricht Treaty, xvii, 86–88 Most Favoured Nation (MFN), xxviii, 22, 44, 49, 54, 63 Multi-dimensional theory of globalisation, 1 Multilateral Trade Negotiations (MTNs), 24, 34, 61 N National treatment clause, 54 Neo-functionalism, 30 Nested games, 32 New regionalism, 2 Non-tariff barriers, xiv, 11, 35, 41–43, 48– 50, 53–59, 61, 64, 65, 76–78, 81, 82, 128 North American Free Trade Agreement (NAFTA), xxviii, 20, 27, 127 P Partial Scope Agreement, xxix, 10 Peace building from below, 140 Peace dividend, 24, 27, 29, 95, 104, 125, 126, 141, 143, 147 Perfect custom union, 26 Peter Sutherland, 125, 196 Piecemeal approach to multilateralism, 1, 9 Pre-shipment Inspection, xxix, 52, 55, 58 Price-control measures, 52 Principles of non-reciprocity and preferential treatment, 133 Prisoners’ dilemma game, 147 Q Qualified majority voting, 151 R Raj Bhala, 23, 25, 26, 46, 47, 81, 195 Rationalism, 84, 93 Realism, 84, 93, 195, 196 Rechtsstaat, 100, 101, 196 Regional integration, xiii, xiv, 2, 5–7, 10, 11, 16, 23, 25, 27, 28, 30–33, 69, 70, 83– 89, 92–106, 115, 121, 125, 126, 129– 131, 135, 136, 141, 144, 147, 150, 154

Index Regionalism, xiii, xiv, 1–3, 5, 7, 9, 12, 13, 16, 20, 23–28, 30, 32, 34–36, 83, 84, 92, 104, 105, 121, 135, 195 Restrictions on post-sales services, 53 Rules of origin, xviii, 53, 55, 57, 138

S SAARC Arbitration Council (SARCO), xxix, 140 SAARCFINANCE, 80 SAARC Fund for Regional Projects, xxix, 80 Sanitary and phytosanitary measures, 50 Schedule of Concessions, 45 Schengen Agreement, 69 SCM Agreement, xviii, 52, 59 Sektoralstaat, 100, 101 South Asian Association for Regional Cooperation (SAARC), xi, xiii, xiv, xvii, xix, xxviii, 3–7, xxix, 27, 31, 35, 41–43, 63–67, 69–72, 75–81, 83, 84, 92, 97, 98, 100, 102–104, 118–121, 125–132, 134–140, 142–147, 149– 151, 153, 154, 189–192, 194, 196, 197 South Asian Association for regional cooperation in law (SAARCLAW), xi, xxix, 104 South Asian Free Trade Agreement (SAFTA), xxix, 42, 43, 63, 64, 81, 136, 138, 139, 150 Sozialstaat, 100 Spaghetti bowl, 13, 35 Spatial model of convention voting, 152 Staatenbunde, 11 Static welfare analysis, 3, 27

201 T Technical barriers to trade, xviii, 48, 52, 55–57, 82 Theory of inter-governmentalism, 100 Trade barrier, 43 Trade creating unions, 3 Trade diverting union, 3 Trade facilitation measures, xiv, 41, 42, 61, 62 Trade integration, 2, 11, 24 Trade-related investment measures, 53 Treaty of Lisbon, xviii, 88, 111

U United Nations Conference on Trade and Development document (UNCTAD), xix, xxix, 48, 50, 51 Uruguay Round, 13, 21, 46, 56–58, 61, 177

V Visa regime, 66

W White globe, 1, 3, 9, 26, 34 Working peace, 29, 95 World Trade Organisation (WTO), xiii, xiv, xv, xviii, xx, xxx, 1–3, 5, 9–24, 34, 42–49, 52–64, 77, 80–83, 105, 133, 136, 173, 177, 193–196

Z Zia-ur-Rahman, 5