Reinvigorating SAARC to rejuvenate SAFTA. Written by Civil Services Times Magazine Wednesday, 30 July :10

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1 It is often said that economic imperatives determine the polity and political decisions. But, political condition may also influence the economic conditions. But ultimately, even that political condition is also decided by the economy. In other words, it seems to be a classic chicken-egg syndrome, but in most cases, the economic turmoil has a direct bearing on the political system. An incapable polity may or may not negatively impact the economy in every scenario, but a bad economy has unilaterally caused political upheaval throughout human history. For example, the economic conditions of Germany and Italy after the First World War, coupled with the Great Depression of 1929, completely uprooted the popularity of the democratic institutions and led to the emergence of Nazism and Fascism based on economic assurances and optimism. The support to these kinds of militant nationalist ideologies stemmed mainly from the fact that it is the military which would go for aggressive policy, win colonies and bring booty and bounty for the nation. Through this method, the economic conditions may be ameliorated. Recently, the ongoing Ukraine crisis has polarized most of the world into two opposing camps reminiscent of the Cold War. But strong German-Russian economic ties are constraining both nations and their partners to negotiate for a middle path and avoid an uncompromising extremist stance against each other. Closer to home, the deteriorating economic conditions have led to the decline of democratic institutions in Thailand and the world witnessed a coup in the nation. The defeat of UPA II by NDA, especially by BJP, can also be attributed to the failures of UPA II s economic policies in tackling unemployment, inflation, fiscal deficit etc. Both the primary and secondary sector failed to perform at a satisfactory level and the growth in real terms was jeopardised. The newly elected prime minister of India Narendra Modi, who made Gujarat vibrant only through liberal economic policies, has already realized that this victory has been given to neither NDA nor RSS or any other sectarian factors. It is solely a mandate to transform the economic situation of the world s most populated nation by 2028, with 1.45 billion expected inhabitants as per the latest United Nations report. 1 / 5

2 Considering the growing popularity of regional trade agreements (RTA) like ASEAN, NAFTA and MERCOSUR, especially among the neighbouring countries, let us evaluate the performance of a few landmark agreements. In an RTA two or more countries decide to remove all tariffs on trade amongst themselves to form a free-trade area (FTA). If they also maintain a common tariff vis-a-vis the rest of the world, this RTA becomes a customs union (CU) which, with complete integration, becomes an economic union. Examples of RTAs are SAPTA and NAFTA. The only major economic union in place is, of course, the European Union (EU). However, whatever the form of the RTA, it is clear that it is supposed to benefit the members by discriminating against non-members. NAFTA has more than tripled trade among USA, Canada and Mexico within 20 years, from $297 billion in 1993 to $1.15 trillion in Intra-NAFTA trade constitutes 48 per cent of overall trade by the group. As expected, Canada and Mexico were the top two purchasing nations of US exports in 2013 as well as the 2nd and 3rd largest suppliers of US imports. In 2013, the US goods trade deficit of $86 billion is only partially covered by a services trade surplus of $43.7 billion. Therefore, not only are all nations benefiting from greater market access, economies of scale and productivity, but the so-called weaker nations are also deriving greater benefits relative to their stronger counterparts. Strong political will overruled sectarian concerns of manufacturing job losses in US, environmental and labour exploitation in Mexico, and corporate takeover of Canadian firms by a sudden US investment avalanche. ASEAN conducted $602 billion or nearly 25 per cent of its cumulative trade in goods with fellow 2 / 5

3 member nations in This figure has almost quadrupled from 2000 s $167 billion. Steadfast political support and regional cooperation over the past decade has ensured elimination of customs duties for nearly 50 per cent of all commodities involved in intra-asean trade; gradual expansion of the group s membership; and signing of FTAs with other nations such as China, Japan, South Korea, India, Australia and New Zealand. The European Union (EU) follows the single market principle that grants the free movement of goods, services, capital and people across national borders. To facilitate such movement, EU institutions are empowered to enact laws that take precedence over national laws and are binding on national authorities. Between 1992 and 2011, cross-border trade between EU member nations has risen from Euro 800 billion to Euro 2.8 trillion, while international trade has leaped from Euro 500 billion to Euro1.5 trillion. The benefits of EU can be seen from tackling of the PIGS-Portugal, Italy, Greece and Spain crisis. The strong economies within EU, especially Germany, planned a road map and helped those nations financially to get rid of their crisis situation. Mercosur s intra-group trade reached $67 billion in Despite repeated rounds of political instability and unrest as well as the major 2001 Argentinian economic meltdown, the group has managed to register respectable annual rates of growth (10-year average) of 14.9 per cent and 14.5 per cent for all exports and imports respectively by Still, stronger political will and coordination is needed to change the protectionist nature of the customs union against imports from non-members and hostility to trade liberalization. Leftist ideological forces within Mercosur still view the protectionist customs union as a political body that should oppose free markets as a threat to South American unity. Trade within Mercosur currently represents only 16 per cent of the group s total trade. 3 / 5

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