SAARC

Article IX: finance. The contribution of each member State towards financing the Association's activities is voluntary. External financing may be mobilised with the approval of the Standing Committee if enough cannot be raised within the region.

Article X: general provisions. Two sentences, and they are the heart of the subject:

1. "Decisions at all levels shall be taken on the basis of unanimity."
2. "Bilateral and contentious issues shall be excluded from the deliberations."

Article X, and why SAARC does not work

A student who can explain those two sentences has answered the whole question, and one who merely lists the organs has not.

Unanimity at all levels means that any one of eight States can stop anything. It is stricter than the World Trade Organization's consensus, which at least permits a vote where consensus fails under article IX of the Marrakesh Agreement. SAARC has no fallback at all.

The exclusion of bilateral and contentious issues was written in to make the Association possible: the founders knew that if the India and Pakistan dispute could be raised, nothing else would ever be discussed. But the effect is that the organisation is forbidden to discuss the very things that obstruct regional cooperation, and those things do not go away because they cannot be tabled. They simply operate through the unanimity rule instead: a State that cannot raise a dispute inside SAARC can still block every decision until it is addressed outside.

The two rules together are a design that assumes goodwill and provides nothing for its absence. Compare the European Union, which has qualified majority voting in most fields and a court, or the World Trade Organization, which has voting in reserve and had binding dispute settlement. SAARC's Charter deliberately has neither.

The evidence is the Summit list. Article III requires the Heads of State or Government to meet once a year. The Secretariat's own list of Summits runs from the First at Dhaka on 7 and 8 December 1985 to the Eighteenth at Kathmandu on 26 and 27 November 2014, and stops there. That list is the Association's own official record, so the absence of any later entry is not an inference: the Summit that article III requires annually has not been held since 2014.

What SAARC has nonetheless produced

An answer that says SAARC has achieved nothing is as wrong as one that says it works.

1. The trade agreements.

• SAPTA, the Agreement on SAARC Preferential Trading Arrangement, signed at Dhaka on 11 April 1993, providing for trade liberalisation on a preferential basis.
• SAFTA, the Agreement on South Asian Free Trade Area, signed at Islamabad in 2004, which entered into force on 1 January 2006 and superseded SAPTA.
• SATIS, the SAARC Agreement on Trade in Services.

SAFTA's design, from the Agreement itself:

• Article 7, the Trade Liberalisation Programme. Non least developed contracting States were to cut tariffs to 20 per cent within two years of entry into force, and thereafter from 20 per cent to 0 to 5 per cent within a further five years (six for Sri Lanka). Least developed contracting States were to reach 30 per cent in two years and 0 to 5 per cent over a further eight years.
• Sensitive Lists, which a contracting State may exclude from the programme altogether, subject to a mutually agreed ceiling and to review every four years.
• Article 10, institutions. The SAFTA Ministerial Council, composed of the Ministers of Commerce or Trade, is the highest decision making body and meets at least annually, supported by a Committee of Experts which reports every six months and acts as the Dispute Settlement Body.

The Sensitive Lists are where a free trade area goes to die. A programme that permits each State to name the products it will not liberalise, and that then requires unanimity to shorten the list, produces an agreement whose text is ambitious and whose coverage is not. Intra regional trade in South Asia remains among the lowest of any region in the world, and the standard explanation is the Sensitive Lists, the non tariff barriers, and the closure of the India and Pakistan land route.

2. The institutions and instruments, from the Secretariat's own list of agreements and conventions: the SAARC Development Fund and its Charter; the SAARC Arbitration Council; the South Asian University; the SAARC Food Bank and the earlier Food Security Reserve; the SAARC Seed Bank; the South Asian Regional Standards Organisation; an agreement on the avoidance of double taxation and mutual administrative assistance in tax matters; conventions on terrorism, on narcotic drugs, on trafficking in women and children and on child welfare; and the SAARC Visa Exemption Scheme.

3. The stated goal. At the Eighteenth Summit the Leaders renewed their commitment to achieve a South Asian Economic Union in a phased and planned manner through a Free Trade Area, a Customs Union, a Common Market, and a Common Economic and Monetary Union. That is the classical ladder of economic integration, and naming its four rungs in that order is worth a mark in itself.

The four stages of integration, since SAARC names them

SAARC is at the first rung, and imperfectly. The European Union is the standard example of a body that climbed all four.

Why South Asia integrates so poorly

1. The political dispute at its centre, which article X forbids the Association to discuss and which the unanimity rule therefore expresses as paralysis.
2. Asymmetry. India is larger than all the others combined in population and output, which makes every proposal look to the smaller members like an Indian proposal, and makes India's concessions politically expensive at home.
3. Similar rather than complementary economies. South Asian countries export similar things, textiles, garments, agricultural produce and light manufactures, and largely to the same outside markets. Regional trade grows where economies complement each other, and here they compete.
4. Non tariff barriers and poor connectivity. Testing requirements, customs procedures, missing road and rail links and closed border crossings raise trade costs above what tariff cuts can remove.
5. Voluntary financing under article IX, which means the Secretariat has no assured resources.
6. A Secretariat with no power, since article VIII creates it and gives it nothing.

India's response has been to work through other groupings where the obstacle is absent, which is the honest context for [BRICS] and for the bilateral agreements described in [India's Trade Policy: The Institutions and the Current Policy].

A worked example: what article X does to an ordinary proposal

Take a proposal that nobody would think controversial: that the eight members recognise one another's pharmaceutical testing certificates, so that a medicine tested in one need not be tested again in another. It is cheap, it saves lives, and every member gains.

Follow the rows and the design is exposed. Every stage is reasonable on its own. Together they mean that a proposal all eight would benefit from can be stopped by one, for a reason the organisation is forbidden to hear, and that the only route round the block is a voluntarily funded committee of the willing. Article VII is the most under used provision in the Charter, and it is the one an answer should recommend.

What beginners get wrong

"SAARC has seven members." Seven signed the Charter in 1985. Afghanistan was admitted later and there are eight.

"The Secretariat is in Delhi." It is at Kathmandu, since 17 January 1987.

"Summits are held every year." Article III requires it, and the Secretariat's own list stops at the Eighteenth, Kathmandu, 26 and 27 November 2014.

"Decisions are by majority." Article X: unanimity at all levels.

"SAARC can mediate disputes between its members." Article X excludes bilateral and contentious issues from its deliberations.

"SAFTA created a free trade area in South Asia." It entered into force on 1 January 2006 and set a tariff reduction programme, but each State keeps a Sensitive List outside the programme.

"Members are required to pay for it." Article IX: contributions are voluntary.

Limits

The Charter is short and general, and much of what SAARC does rests on later agreements and on Summit declarations rather than on the Charter itself.

Trade data for the region is not in this book's sources, so the statement that intra regional trade is low is given as the standard explanation and not as a measured figure.

Afghanistan's admission is recorded on the Secretariat's own pages, and the Declaration on its admission appears in the Secretariat's list of agreements; the date is not given in the sources read for this book.

The position may change. A Nineteenth Summit could be held at any time, and an answer should give the Secretariat's list rather than assert that SAARC is finished.

Quick revision

1. Charter signed at Dhaka on 8 December 1985 by seven States: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka. Afghanistan admitted later; eight members. Secretariat at Kathmandu from 17 January 1987.
2. Article I, eight objectives: welfare and quality of life; economic growth, social progress and cultural development; collective self reliance; mutual trust; collaboration in economic, social, cultural, technical and scientific fields; cooperation with other developing countries; cooperation in international forums; cooperation with international and regional organisations.
3. Article II, principles: sovereign equality, territorial integrity, political independence, non interference, mutual benefit; complementary to and not inconsistent with bilateral and multilateral obligations.
4. Institutions: Summit of Heads of State or Government, article III, once a year, outcome a Declaration; Council of Ministers of Foreign Ministers, twice a year; Standing Committee of Foreign Secretaries; Technical Committees, chair rotating alphabetically every two years; Action Committees for projects involving more than two but not all members; Secretariat.
5. Article IX: contributions are voluntary.
6. Article X: decisions at all levels by unanimity; bilateral and contentious issues excluded from deliberations. Together these give every member a veto and forbid the Association to discuss what actually blocks it.
7. The Secretariat's own Summit list runs from the First, Dhaka, 7 and 8 December 1985 to the Eighteenth, Kathmandu, 26 and 27 November 2014.
8. Trade: SAPTA, Dhaka, 11 April 1993; SAFTA, Islamabad 2004, in force 1 January 2006, superseding SAPTA; SATIS for services. SAFTA article 7 tariff programme to 0 to 5 per cent, with Sensitive Lists reviewed every four years; article 10, the SAFTA Ministerial Council and a Committee of Experts which is also the Dispute Settlement Body.
9. Other institutions: SAARC Development Fund, Arbitration Council, South Asian University, Food Bank, Seed Bank, South Asian Regional Standards Organisation, double taxation agreement, conventions on terrorism, narcotics, trafficking and child welfare, and the Visa Exemption Scheme.
10. The Eighteenth Summit's goal: a South Asian Economic Union through a Free Trade Area, Customs Union, Common Market and Common Economic and Monetary Union.

Test yourself

1. Describe the objectives, principles and organisational structure of SAARC. The South Asian Association for Regional Cooperation was established by a Charter signed at Dhaka on 8 December 1985 by the Heads of State or Government of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka; Afghanistan was admitted subsequently, making eight members, and the Secretariat was set up at Kathmandu on 17 January 1987. Article I states eight objectives: to promote the welfare of the peoples of South Asia and improve their quality of life; to accelerate economic growth, social progress and cultural development and to give every individual the opportunity to live in dignity and realise their full potential; to promote and strengthen collective self reliance; 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 interest; and to cooperate with international and regional organisations with similar aims. Article II bases that cooperation on sovereign equality, territorial integrity, political independence, non interference in internal affairs and mutual benefit, and provides that it shall complement rather than substitute for bilateral and multilateral cooperation and shall not be inconsistent with bilateral and multilateral obligations.

The structure follows in articles III to VIII. The Meeting of the Heads of State or Government, the Summit, is the highest authority and is to be held once a year, its outcome being a Declaration. A Council of Ministers of the Foreign Ministers formulates policy, reviews progress, decides new areas of cooperation and establishes additional mechanisms, meeting twice a year. A Standing Committee of the Foreign Secretaries monitors and coordinates programmes, approves projects and their financing, determines inter sectoral priorities, mobilises resources and identifies new areas, reporting to the Council. Technical Committees of national representatives implement, coordinate and monitor sectoral programmes, their chairmanship rotating alphabetically every two years. The Standing Committee may set up Action Committees for projects involving more than two but not all members. Article VIII provides that there shall be a Secretariat, and article IX makes each member's financial contribution voluntary.

2. "Article X of the SAARC Charter explains both why SAARC exists and why it does not work." Discuss. Article X contains two sentences. The first is that decisions at all levels shall be taken on the basis of unanimity. The second is that bilateral and contentious issues shall be excluded from the deliberations. Both were necessary to bring the Association into existence. The founders knew that South Asia's most consequential relationship was also its most hostile, and that if the dispute between India and Pakistan could be raised at every meeting, nothing else would ever be discussed; excluding it was the price of having an association at all. Unanimity likewise reassured smaller members that an organisation containing a State larger than all the rest combined could not be used to impose decisions on them.

The consequence, however, is an organisation that is forbidden to discuss the things that obstruct it and that gives any one of eight States a veto over everything else. The obstruction does not disappear because it cannot be tabled; it merely operates through the unanimity rule instead, so that a State which cannot raise its grievance inside SAARC can still block every decision until the grievance is met outside it. The design assumes goodwill and provides nothing for its absence, which is precisely what distinguishes SAARC from the World Trade Organization, where article IX of the Marrakesh Agreement keeps a vote in reserve when consensus fails, and from the European Union, which has qualified majority voting and a court. The evidence is in the Association's own records: article III requires the Heads of State or Government to meet once a year, and the Secretariat's official list of Summits runs from the First at Dhaka in December 1985 to the Eighteenth at Kathmandu on 26 and 27 November 2014, and stops.

3. What has SAARC achieved in the field of trade? Three agreements. The Agreement on SAARC Preferential Trading Arrangement, signed at Dhaka on 11 April 1993, provided for the adoption of instruments of trade liberalisation on a preferential basis. It was superseded by the Agreement on South Asian Free Trade Area, signed at Islamabad in 2004, which entered into force on 1 January 2006; and a SAARC Agreement on Trade in Services followed for services. SAFTA's central provision is article 7, the Trade Liberalisation Programme, under which the non least developed contracting States were to reduce tariffs to 20 per cent within two years of entry into force and thereafter from 20 per cent to a band of 0 to 5 per cent within a further five years, six in the case of Sri Lanka, while the least developed contracting States were to reach 30 per cent in two years and 0 to 5 per cent over a further eight. Article 10 establishes the SAFTA Ministerial Council of Commerce or Trade Ministers as the highest decision making body, supported by a Committee of Experts which reports every six months and which also acts as the Dispute Settlement Body.

The achievement is qualified by the same article that creates the programme. Article 7(3) permits each contracting State to maintain a Sensitive List of tariff lines to which the programme does not apply, subject to a ceiling to be mutually agreed and to review every four years. Since shortening a Sensitive List requires the agreement of all, the Agreement's text is ambitious and its coverage is not, and intra regional trade in South Asia remains among the lowest of any region, the standard explanations being the Sensitive Lists, non tariff barriers such as testing and customs procedures, and the closure of the India and Pakistan land route. Beyond trade, SAARC has produced the SAARC Development Fund, the SAARC Arbitration Council, the South Asian University, the Food Bank and Seed Bank, the South Asian Regional Standards Organisation, an agreement on the avoidance of double taxation, conventions on terrorism, narcotic drugs, trafficking and child welfare, and a Visa Exemption Scheme.

4. Why does South Asia integrate so poorly, when the countries are neighbours with shared history? Six reasons, of which only the first is political. The political dispute at the centre of the region is one that article X forbids the Association to discuss, so it is never resolved within SAARC and instead expresses itself through the unanimity rule as a general paralysis. Second, there is extreme asymmetry: India is larger than all the other members combined in population and in output, which causes every Indian proposal to be received by smaller members as an attempt at dominance and makes Indian concessions politically costly at home, so that neither generosity nor firmness produces agreement. Third, the economies are similar rather than complementary: South Asian countries export textiles, garments, agricultural produce and light manufactures, largely to the same markets outside the region, and regional trade grows where economies complement one another whereas here they compete for the same buyers.

Fourth, non tariff barriers and poor physical connectivity raise trade costs above anything tariff reduction can remove: divergent testing and certification requirements, slow customs procedures, missing road and rail links and closed border crossings. Fifth, article IX makes financial contributions voluntary, so the Association has no assured budget. Sixth, article VIII creates a Secretariat and confers no power on it, so there is no institution with an interest in and the capacity for driving integration forward, which is exactly the role played by the Commission in the European Union. India's response has been to pursue its economic objectives through other groupings and through bilateral agreements, where the structural obstacle is absent.

5. Explain the stages of economic integration that the Eighteenth SAARC Summit committed the members to. At the Eighteenth Summit at Kathmandu on 26 and 27 November 2014 the Leaders renewed their commitment to achieve a South Asian Economic Union in a phased and planned manner through a Free Trade Area, a Customs Union, a Common Market, and a Common Economic and Monetary Union. Those are the four classical stages of economic integration, in ascending order of depth. In a free trade area the members remove tariffs and other restrictions on trade among themselves while each retains its own tariff against the rest of the world, which requires rules of origin to prevent goods entering through the member with the lowest external tariff. In a customs union the members add a common external tariff, so that rules of origin become unnecessary but each member loses the power to set its own trade policy towards outsiders.

In a common market the members add the free movement of the factors of production, that is of labour and capital, so that a worker or an investor from any member State may move and be treated as a national. In an economic and monetary union the members go further still, coordinating economic policy and adopting a common currency, which means surrendering independent monetary policy and, in practice, accepting limits on fiscal policy. SAARC stands at the first rung and imperfectly, since SAFTA's Sensitive Lists remove a substantial part of trade from the liberalisation programme, and the European Union is the standard example of a grouping that has climbed all four. Naming the four stages in order, and stating what each one costs a member in sovereignty, is the substance of this question.