SAARC AS SOUTH ASIAN ECONOMIC UNION

(SAEU)

INTERDEPENDENCE WITH CHINA

Submitted By : Raza Ul Munem Supervised By : Professor Dr Pervaiz Iqbal Cheema

Registration No : NDU-IR/Ph.D/F-11/015 A Dissertation Submitted in Fulfillment of the Requirements for Doctor of Philosophy in International Relations (IR)

Department of International Relations Faculty of Contemporary Studies (FCS) National Defence University Islamabad

Pakistan July 2019

ii

CERTIFICATE OF COMPLETION

We hereby recommend that the dissertation submitted by Mr. Raza Ul

Munem S/o Muhammad Siddique titled “SAARC as South Asian Economic

Union (SAEU) – Interdependence with China” be accepted in partial

fulfilment of the requirement for the degree of PhD in the Discipline of

International Relations.

_________________________

Prof Dr. Pervaiz Iqbal Cheema (Late)

(Supervisor)

____________________ ____________________

Dr. Tughral Yamin Dr. Manzoor Khan Afridi

(External Examiner) (External Examiner)

Countersigned by

____________________ ____________________

Brig. Abdul Saboor Zahid (R) Prof. Dr. Lubna Abid Ali (Controller of Examinations) (Head of Department)

iii

CERTIFICATE OF APPROVAL

This is to certify that the research work presented in this thesis, entitled “SAARC as South

Asian Economic Union (SAEU) – Interdependence with China” was conducted by Mr. Raza Ul Munem S/o Muhammad Siddique, Regd No. NDU-IR/PhD-11/F-015 under the supervision

of Prof Dr. Pervaiz Iqbal Cheema (Late).

No part of this thesis has been submitted anywhere else for any other degree. This thesis is

submitted to the International Relations Department of National Defence University, Islamabad in partial fulfilment of the requirements for the degree of Doctor of Philosophy in the Field of

International Relations.

Student Name: Mr. Raza Ul Munem Signature:_______________

Examination Committee:

a. External Examiner 1: (Name/Designation & Office Address) Dr. Tughral Yamin Signature:_______________ Associate Dean, Centre for International Peace & Stability (CIPS), NUST, Islamabad

b. External Examiner 2:

(Name/Designation & Office Address) Dr. Manzoor Khan Afridi Signature:_______________ Tenured Associate Professor/Chairman, (Male Campus) Dept of Politics and IR, IIU, Islamabad

c. External Examiner 3:

(Name/Designation & Office Address)

Prof. Dr. Lubna Abid Ali, HoD IR Dept Signature:_______________

Dr. Musarrat Jabeen, Associate Prof IR Dept Signature:_______________

Dr. Afsah Qazi, Asst Prof IR Dept Signature:_______________

Supervisor Name: Prof Dr. Pervaiz Iqbal Cheema (Late) Signature:_______________

Name of HoD: Prof Dr. Lubna Abid Ali Signature:_______________

Name of Dean: Prof Dr. Lubna Abid Ali Signature:_______________

COUNTERSIGNED

Dated:________________ Controller of Examinations

Brig. Abdul Saboor Zahid (R)

iv

Author’s Declaration

I Mr. Raza Ul Munem S/o Muhammad Siddique hereby state that my PhD thesis titled “SAARC as South Asian Economic Union (SAEU) –

Interdependence with China” is my own work and has not been submitted previously by me for taking any degree from National Defence University or anywhere else in the country/world.

At any time if my statement is found to be incorrect even after my Graduate the university has the right to withdraw my PhD degree.

Signature of Scholar: _________________________

Name of Scholar: Mr. Raza Ul Munem S/o Muhammad Siddique

Date: _____________________

v

Plagiarism Undertaking

I solemnly declare that research work presented in the thesis titled “SAARC as

South Asian Economic Union (SAEU) – Interdependence with China” is solely my research work with no significant contribution from any other person. Small contribution/help wherever taken has been duly acknowledged

and that complete thesis has been written by me.

I understand the zero tolerance policy of the HEC and National Defence University towards plagiarism. Therefore I as an Author of the above titled

thesis declare that no portion of my thesis has been plagiarized and any material used as reference is properly referred/cited.

I undertake that if I am found guilty of any formal plagiarism in the above titled thesis even after award of PhD degree, the University reserves the rights to

withdraw/revoke my PhD degree and that HEC and the University has the right to publish my name on the HEC/University Website on which names of

students are placed who submitted plagiarized thesis.

Scholar/Author

Signature: ______________________

Name of Scholar/Author: Mr. Raza Ul Munem S/o Muhammad Siddique

Countersigned

Supervisor Signature:______________________

Name of Supervisor: Prof Dr. Pervaiz Iqbal Cheema (Late)

vi

TABLE OF CONTENTS

Abstract

x

Acknowledgments xi

List of Figures xii

Acronyms/Abbreviations xiii

0.1 Introduction 01

0.2 Scope of the Study 05

0.3 Thesis Statement 05

0.4 Hypothesis 06

0.5 Objectives and Phases of Study 06

0.6 Research Question 07

0.7 Literature Review 07

0.8 Knowledge Gap 31

0.9 Significance of Study 32

0.10 Research Methodology 33

0.11 Research Method and Design 34

0.12 Relevant Sources, Data Collection and Sample Size 35

0.13 Organization of Study 36

CHAPTER ONE:REGIONALISM, INTERDEPENDENCE AND INTEGRATION 38

1.1 A Historical Prospective 38

1.2 Understanding Regionalism and Regionalisation 38

1.3 Economic Cooperation and Regionalism 39

1.4 Regional Integration in 21st Century 40

1.5 Interdependence and Regionalism 42

1.6 Conceptual Aspects of Regionalism and Economic 44

Integration

1.7 Pluralistic Approaches in Comparative Regionalism 46

1.8 The Globalisation and the New Regionalism 47

1.9 Role of Interdependence in Regional Integration 49

1.10 Complex Interdependence and Economic Integration 50

1.11 Complex Interdependence in 21st Century 52

1.12 Summary and Conclusions of Chapter One 54

CHAPTER TWO: CONCEPTUAL FRAMEWORK AND THEORETICAL PERSPECTIVE 57

2.1 Types of Revisionism 58

2.2 Forms of Modernizations 58

2.3 Regional Integration and Security Community 58

2.4 Levels of Economic Integration 59

2.5 Concept of Greater South Asian Region and Economic 59

Identity

2.6 Theoretical Concepts of Regionalism and Economic Integration 59

vii

2.7 Complex Interdependence in South and East Asia 62

2.8 Impact of Globalisation and Complex Interdependence on 64

South Asia

2.9 Theoretical Framework and Complex Interdependence 65

2.10 The modifications injected by neoliberal proclaim 68

2.11 Role of Complex Interdependence in Formation of 68

SAEU/SAEA

2.12 Theoretical Linkage between Agglomeration and Economic 71

Integration

2.13 Summary of Chapter Two 72

CHAPTER THREE:IMPACT OF HISTORICAL LEGACIES ON SOUTH ASIA 73

3.1 Colonial Legacies and Imprints on the Sub-continent 74

3.2 Contemporary Political Economy of South Asia 76

3.3 Paradigm Features of Subcontinent 78

3.4 State of Economy and Trade in the Subcontinent 81

3.5 Socio-Political Setup of Post-Partition Punjab 83

3.6 The Seeds of Disintegration in Indian Union 85

3.7 Pros and Cons of Punjab’s Partition 89

3.8 Fallout of Indian Union’s Partition 90

3.9 Summary of Chapter Three 92

CHAPTER – FOUR: SAARC, EU AND ASEAN – A COMPARISON 94

4.1 Brief Overview of SAARC and its Transformation 96

4.2 Main Principles of SAARC 97

4.3 SAARC Charter 97

4.4 SAARC Policy-making Institutions 98

4.5 Decision-making Process in SAARC 99

4.6 Economic Cooperation in SAARC 99

4.7 Poverty Levels in SAARC Region/States 102

4.8 Achievements of SAARC 103

4.9 China - A Prospective Member of SAEU/SAEA 105

4.10 Overview of the European Union (EU) 108

4.11 Lisbon Treaty and Decision-making Mechanism in the EU 111

4.12 EU‟s Trade Policy and Processes 112

4.13 Trade as an Instrument of Policy 112

4.14 Lessons from the Brexit 113

4.15 Brief Overview of ASEAN 115

4.16 AEAN Community 116

4.17 Dispute Resolution Mechanism in ASEAN 117

4.18 Comparison of ASEAN and SAARC 119

4.19 SAARC, EU and ASEAN – A Comparative Analysis 120

4.20 SAARC, China and Prospective SAEU/SAEA 122

4.21 Deductions Drawn from Comparison of SAARC, EU and 123

ASEAN

4.22 Summary of Chapter Four 125

viii

CHAPTER FIVE: PROSPECTS AND CHALLENGES OF SAEU/SAEA 128

5.1 SAARC‟s Transformation into SAEU/SAEA 131

5.2 Game Theoretical Modelling for SAARC Only Vs SAEU/SAEA 131

5.3 Role of China and India in South Asia’s Economic 135

Integration

5.4 India’s Domestic Political Outlook towards SAEU/SAEA 137

5.5 Application of Complex Interdependence on SAEU/SAEA 141

5.6 CPEC – A Catalyst in Formation of SAEU/SAEA 142

5.7 Role of CPEC in Comparative Advantage and Economies of 147

Scale

CHAPTER SIX: VERIFCATION OF STUDY HYPOTHESIS AND SUMMARY OF

SURVEYS, INTERVIEWS AND STATISTICAL ANALYSIS 153

6.1 China as Prospective Member of SAEU/SAEA 154

6.2 Empirical Results of SAEU/SAEA Interdependence with 162

China

6.3 Validation of Hypothesis of the Study 167

6.4 Myths and Realities of SAARC‟s Prolonged Impasse 169

6.5 Interplay of Strategic Goals of the Key Regional States 171

6.6 Institutional Framework for Functioning of SAEU/SAEA 174

6.7 Summary of Chapter Four 176

6.8 Specific Areas for Future Study 177

6.9 Summary of Previous Chapters 178

6.10 Summary of Surveys, Interviews and Statistical Analysis 181

CONCLUSIONS AND IMPLICATIONS 184

ix

APPENDIXES AND BIBLOGRAPPHY

APPENDIX-I: Surveys, Interviews and Results 201

APPENDIX-II: Interviews and Summary of Responses 204

APPENDIX-III: Regression Analysis of Surveys – SPSS 207

APPENDIX-IV: SAARC Charters 222

APPENDIX-V: SAARC Countries at a Glance 227

APPENDIX-VI: The European Union and Aspirant Member Countries 228

APPENDIX-VII: National Power Potential of China 229

BIBLIOGRAPHY 241

x

ABSTRACT

This dissertation presents evaluation and validation of South Asian Association of

Regional Cooperation (SAARC)‟s transformation into a South Asian Economic

Union/Association (SAEU/SAEA) due to the catalytic project of China Pakistan Economic

Corridor (CPEC) as a function of interdependence. The dissertation is the outcome of

historical and Case Studies‟ analyses whereby prospects of SAARC‟s transition into

SAEU/SAEA are affirmed through both the qualitative as well as quantitative regression

analysis of the primary data, collected through extensive surveys and invaluable

interviews with subject specialists.

Contrary to the normally held view, the study reveals that a high level of regional

economic interdependence by way of intraregional trade and commerce activities was

existing in the subcontinent especially; prior to the arrival of the British. The volume and

character of the trade is indicated in 7:34 ratio of agriculture versus manufactured goods.

The viability and productivity of the South Asian intra-regional trade and positive scope of

economic integration was also confirmed in multiple Case Studies using regression

analysis. This study draws few stark lessons through comparison of SAARC with

contemporary models of European Union (EU) and Association of South East Asian

Nations (ASEAN) to identify bright prospects of forming SAEU/SAEA due mainly to

China’s CPEC. Few Case Studies on the inclusion of China in SAARC or prospective

SAEU/SAEA, based upon Game Theoretical and Gravity Modelling techniques also

vindicate the dissertation’s claim. The study concludes that a mix of endogenous

socioeconomic compulsions together with exogenous politico-strategic considerations is

most likely to produce an enabling environment of cooperation between China and India.

As a spin-off, the CPEC may also have positive implication for South Asia by providing a

forum in the shape of SAEU/SAEA to resolve the perennial Kashmir conundrum. This

construct is visualised through Complex Interdependence (CXI) lens, currently witnessed

in China-SAARC exponentially growing trade and economic relations, thus causing Spill-

over in other sectors of political and social life of SAEU/SAEA.

Other than Introduction, which includes research proposal, the dissertation has Six

Chapters. Chapter One highlights the contemporary developments in regionalism,

cooperation and integration. Chapter Two provides the Conceptual Framework, while

Chapter Three digs out the state of economic integration prior to the arrival of the British

and assesses the Impact of Historical Legacies in South Asia. Chapter Four discerns the

lessons from comparative study of the EU and ASEAN with SAARC suggesting an

institutional framework like the ASEAN. Chapter Five offers the Prospects and Challenges

of SAEU/SAEA through Game Theoretical Modelling, while Chapter Six verifies the Study

Hypothesis and gives Summary of Surveys, Interviews and Statistical Analysis by

quantitatively vindicating the hypothesis. The final part of the study gives conclusions and

implications of China’s CPEC and the growing economic interdependence of Pakistan

and South Asia.

xi

ACKNOWLEDGEMENTS

In writing this thesis, I was particularly inspired by the epic opportunity of China

Pakistan Economic Corridor (CPEC), which is likely to propel South Asian regional trade and economic interdependence between China and SAARC countries. The academic pursuit to conduct thorough literature review on South Asia, China and CPEC further

coagulated my belief that the current level of regional cooperation as well as trade and economic interdependence can lead to formation of South Asian Economic Union/and, or an Association (SAEU/SAEA). I was particularly fortunate to directly engage with highly

learned national security policy planners, academicians, South Asian specialists at the National Defence University, Washington D.C USA; Cranfield University the UK; heads of

think tanks in Beijing, Shanghai, China, Germany as well as Malaysia and Egypt respectively. Similar interactions with the incumbent SAARC‟s Secretary General; HE

Ambassador Amjad Sial, specialists of regional integration, EU, ASEAN and SAARC

(SAFTA), China’s CPEC together with twelve years of teaching Government officials and senior bureaucrats from Pakistan and Overseas gave me sufficient confidence to

complete such a momentous assignment.

The supervisory role played by (now late) Professor Dr Pervaiz Iqbal Cheema, and the current Dean, Faculty of Contemporary Studies and Head of IR Department, NDU

Islamabad, Professor Dr Lubna Abid Ali has been of great strength and core importance. I am also grateful to Dr Mujeeb Afzal, Quaid-e-Azam University (QAU), Dr Tahir Amin, Vice Chancellor Baha-Uddin Zakria University Multan, Dr Fahimul Islam and Dr Rasool Buksh

Raees LUMS Lahore, Ambassador Amjad Sial, Secretary General, SAARC Secretariat Kathmandu, Nepal, Ambassador Riaz Muhammad Khan, Ambassador Najam-u-Din A

Sheikh, Senator Mushahid Hussain Syed, Mr Ahmed Chinoy, Arch Business Group, Dr Ashfaq Hussain Khan and Dr Hussan Jawad, NUST, Islamabad, Dr Ishrat Hussain, Ex-Governor State Bank and Member Planning Commission, Pakistan, Dr Salman Shah, Ex

Finance Secretary and Minister of State, Mr Waseem Sajjad, Ex Speaker National Assembly and EX-Chairman Senate, Pakistan, Mr Sartaj Aziz, Advisor to the PM on

Foreign Affairs, Pakistan, Dr Noel Israel, Senior DEAN, Forman Christian University, Lahore, Pakistan and numerous others to whom my heart goes out but I cannot count them due mainly to the paucity of space.

I was also able to visit The Library of Congress, Washington DC, USA, Library of the Royal Defence University Cranfield, UK and numerous libraries within Pakistan like;

LUMS, Lahore, Qaid-e-Azam University, Islamabad and NUST, Islamabad which added value to my dissertation. Several reference documents and relevant material was also

provided by ISSRA, NDU and respective Think Tanks located at Islamabad, Pakistan.

I endorse that I bear full responsibility and ownership of all the findings, conclusions and implications discerned in this dissertation. I cannot miss-out on counting thousands of hours and solo moments, which my wife and lovely children spent without

me. During all these months and years they were left alone to meet social obligations, while I devoted the precious years of my life working in the study. I cannot compensate for this long time period, however, as a family, we would cherish, solace and consider

ourselves fulfilled if this dissertation could contribute towards possible economic integration of South Asia and set the future course on a prosperous path for the coming

generations

xii

List of Figures

0.1 Evolution of Economic Integration, P 72.

3.1 Canal System Coming from India into West Punjab, Pakistan, P113.

3.2 Map of Punjab during the British Raaj in India, P 116.

3.3 India Before and After Partition of Punjab & Bengal, P 117.

4.1 SAARC Countries Map, P128.

4.2 Asia’s (China’s) Classical Silk Route, P141.

5.1 One Belt One Road (OBOR) with Silk Road Initiative, P 192.

5.2 Impact of CPEC on Formation of SAEU, P 194.

5.3 Link between Infrastructure and Regional Cooperation, P 200. 5.5 China trade with Bhutan, Maldives, Sri Lanka, P 212.

6.1 China & India FDI in South Asia, P 208.

6.2 Comparison – Emerging Markets & Developing Markets in South Asia, P 208.

6.3 China trade with India, P 211.

6.4 China trade with Pakistan, P 211.

6.5 Coefficient of Variation of GDP per Capita with and without China, P 221.

6.6 GINI Values of GDP per Capita with and without China, P 221.

xiii

ACRONYMS / ABBREVIATIONS

ABBREVIATIONS TERM

ACs Aircraft Carriers

ADB Asian Development Bank

AIIB Asian Infrastructure Investment Bank

ASC ASEAN Security Community

ASEAN Association of South East Asian Nations

ASYCUDA Automated System for Customs Data

ATP ASEAN Plus Three

BCIM Bangladesh China India Myanmar

BCIMEC Bangladesh, China, India, Myanmar Economic Corridor

BIMSTEC Bay of Bengal Initiative for Multi-sectorial Technical and

Economic Cooperation

BJP Bhartia Janta Party

BOE Bank of England

BOP Balance of Power

BOT Build-Operate-Transfer

BRI Belt and Road Initiative

BRICS Brazil, Russia, India, China and South Africa

CAPMSC Common Agriculture Production, Manufacturing and

Services Community

CAS Central Asian States

CBM Confidence-Building Measures

CCG Concerned Citizens Group

CDP Centre for Policy Dialogue

CEI Cooperative Economic Interdependence

CFSP Common Foreign and Security Policy

CFSP Common Foreign and Security Policy

CHI Cooperative Hegemonic Interdependence

CI Cooperative Interdependence

CICCI Confederation of International Chambers of Commerce and

Industry

CII Confederation of Indian Industry

CIISS Chinese Institute of Strategic Studies

CNP Chinese National Party

CP Comparative Politics

CPEC China-Pakistan Economic Corridor

CRO Consociational Regional Order

CSD Cold Start Doctrine

CSDP Common Security and Defence Policy

CV Coefficient of Variation

CXI Complex Interdependence

DOMD Drug Offences Monitoring Desk

ECO Economic Cooperation Organisation

ECSC European Coal and Steal Community

EEC European Economic Community

EMU Economic and Monetary Union

ESCAP Economic and Social Commission for Asia and the Pacific

xiv

EU European Union

EWC East-West Corridor

FDIs Foreign Direct Investments

FEZ Free Economic Zone

FTA Free Trade Agreement

GATT General Agreement on Tariff and Trade

GCC Gulf Cooperation Council

GDP Gross Domestic Production

GEP Group of Eminent Personalities

Measure of statistical dispersion representing the income or

GINI Index wealth distribution of a nation's residents, and is the most commonly used measurement of inequality

GNP Gross National Production

HDI Human Development Index

HSF Hanns Seidel Foundation

ICT Information, Computers & Telecommunication

IHK Indian Held Kashmir

IIT Indian Institute of Technology

IMF International

INTA International Trade Committee

IORA Indian Ocean Rim Association

IOK Indian Occupied Kashmir

IOs International Organizations

IPO Initial Public Offering

IPR Intellectual Property Rights

IPS Institute of Policy Studies

IR International Relations

JHA Justice and Home Affairs

KPK Khyber Pukhtoon Khawa

LDCs Least Developed Countries

LIC Low Intensity Conflict

LOC Line of Control

MDG Millennium Development Goals

ME Middle East

MEA Ministry of External Affairs

MEPs Members of the European Parliament

MERCOSUR Argentina, Brazil, Paraguay and Uruguay membership

MID Militarised Interstate Dispute

MIT Massachusetts Institute of Technology

MNC Multinational Corporation

MNEs Multinational Enterprises

MOUs Memorandum of Understandings

MPI Multidimensional Poverty Index

MRA Mutual Recognition Agreement

MRAs Mutual Recognition Agreements

NAC National Accreditation Centre

NAFTA North America Free Trade Area

NAM Non-Aligned Movement

NATO North Atlantic Treaty Organization

NDB New Development Bank

xv

NGO Non-governmental Organizations

NLDCs Non-Least Developed Countries

NSA Non-State Actors

NSC North-South Corridor

NSG Nuclear Supplier Group

NTBs Non-tariff Barriers

NWFP North-West-Frontier Province

OBOR One Belt One Road

UK's leading provider of Document Scanning Services,

ORS Business Process Outsourcing and Information Management Services

PDP People’s Democratic Party

PITB Punjab Information Technology Board

QGC Quadrilateral Group of Countries

REI Regional Economic Integration

RIA Regional Integration Accord

RIS Research and Information System

ROO Rules of Origin

RTA regional trade agreement

SAARC South Asian Association for Regional Cooperation

SAES South Asia Economic Summit

SAEU South Asian Economic Union

SAFTA South Asian Free Trade Agreement

SATIS South Asian Tariff Implemented Strategy

SAWTEE South Asia Watch on Trade, Economics and Environment

SCC SAARC Cultural Centre

SCO Shanghai Cooperation Organization

SCZMC SAARC Coastal Zone Management Centre

SDGs Sustainable Development Goals

SDMC SAARC Disaster Management Centre

SDPI Sustainable Development Policy Institute

SEZ Special Economic Zone

SFC SAARC Forestry Centre

SIPRI Stockholm International Peace Research Institute

SLOC Sea Lanes of Communication

SMI Small and Medium Industries

SMRC SAARC Meteorological Research Centre

SOEs State Owned Enterprises

SPO SAEU Plus One

SREB Silk Road Economic Belt

SRF Silk Road Fund

SSO SAARC Standard Organisation

TLP Tariff Liberalization Programme

TNW Tactical Nuclear Weapons

TOMD Terrorist Offences Monitoring Desk

TPP Trans-Pacific Partnership

T-TIP Transatlantic Trade and Investment Partnership

UAE United Arab Emirates

UN UNITED NATION

UNCTAD United Nations Contact Conference on Trade & Development

xvi

UNESCAP United Nations Economic and Social Commission for Asia

and Pacific

UNSC United Nations Security Council

VGI Variable Geometrical Interdependence

VGTS Variable Geometrical Trading System

WTO World Trade Agreement

1

SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION

(SAARC) AS SOUTH ASIAN ECONOMIC UNIONSAEU

INTERDEPENDENCE WITH CHINA

INTRODUCTION

It is well known that SAARC was created in the Dhaka Summit during December

1985. The member countries comprise Pakistan, Bhutan, Bangladesh, Maldives,

Afghanistan, India, Nepal and Sri Lanka.1 It was possible because SAARC leaders

understood the value of cooperation and working jointly for finding solution for common

regional socio-economic issues to ensure regional development and cooperation for

securing all round prosperity. The main aim of SAARC leaders was to achieve socio-

economic development for creating employment for their masses and investment of

material capitals. Hence, they wanted to work together for the well-being of their peoples

for raising the standard of living. Since their independence the critical triangle of India-

Pakistan-Afghanistan has been locked in acrimony and power play where each of these

states is pursuing progress without forging economic returns prosperity of their peoples.

In particular; India and Pakistan have always been marred by geopolitics acerbating their

territorial disputes resulting in mutual mistrust and have even gone to war thrice over

Kashmir. However, from 2004 onwards, the bilateral trade between the South Asian

states and China really took-off to a maximum locus point on economic surveys.

Nonetheless, the downside of very low intra-regional trade among SAARC countries still

continues till this day.2 This catalytic change, injected by China; the number two world

economy, has launched” CPEC considered the main catalyst transforming SAARC and, or

Association (SAEU/SAEA).

Review of literature indicates that the trade in sub-continent was once thriving due

(raw &finished), labour capital. Interestingly, share agricultural products were just 0.44

percent compared to non-agricultural trade forming 1.69 percent. Accordingly, the ratio of

productive growth between agriculture vs non-agriculture products was 7:34. 3 Clearly, the

subcontinent states were actually operating like (an informal) economic union or an

economic association, thriving mostly on trade of finished products as well as raw

materials many times more than the agricultural sector. Therefore a pertinent question

arises as to why in the 21st century, South Asian intra-regional trade hovers around5-6

percent, compared to other regions accounting 30-40 percent? 4

The answer lies in the historical and unjust partition of the subcontinent in 1947 on

the eve of independence, as we will see later in this thesis. Bearing these facts in mind, it

is a miracle that SAARC, ever since 1985, have not only survived but has also achieved

1 “Ranjit Kumar, South Asian Union- Problems, Possibilities and Prospects, Manas Publications, New Delhi, India, Annexture-II, p.247.” 2 Potentialfor Enhancing Intra-SAARC Trade: A Brief Analysis of Indian Axim Bank Report, Working Paper No.31(2014)” 3 Tirthankar Roy, “Economic History and Modern India: Redefining the Link, Journal of Economic Perspectives, Volume 16, Number

03, Summer 2002, p 109-130.” 4 UNCTAD Statistical Report-2012.

2

reasonable progress in establishing institutions and operating mechanism up until 2017.

SAARC Secretariat in 2014, giving broader road-map. 5 Itgave-out four pillars strategy in

its Phase One, while the detailed road-map was to be given in Phase Two. It is a primary

document, outlining a road-map of SAEU albeit without China’s inclusion in SAARC.

Catalytic “CPEC” without China cannot be factored in. Therefore, this dissertation is

aimed at carrying out a detailed study on Association-SAEA. Best way to study would be

to compare the prospective SAEU/SAEA.

Contrary to existing of around Five percent, bilateral all states with China has been

growing since 2004 because it had developed a huge extra human and material capital

for export abroad. The India has grown $100 2017/2018 as per Ambassador Munir

Akram. Additionally, Indian Ambassador to Pakistan also asserted that India-Pakistan

trade potential is at $30 billion. 6Moreover, according to Waterhouse Coopers

Forecasting-2018, China‟s import demand in the coming year, is most likely to grow $10

trillion while at the same time investing over $500 billion overseas. Clearly, it indicates

that potential to trade through an economic union in South Asia is huge but SAARC states

particularly; India-Pakistan’s perpetual acrimony and mutual mistrust has resulted into an

impasse. With China, now declared as the second most powerful world economy; poised

to surpass US by 2030, 7 the environments have changed in drivers. Not only that current

SAARC impasse can be unleashed but instead, the opportunities and drivers offered by

as well as CPEC will be huge catalysts in formation of SAEU/SAEA. This possibility or

probability can be studied through a detailed analysis of an erstwhile devastated Europe’s

evolutionary journey to the present day EU and tumultuous pathways leading to what is

now called ASEAN. Even with Briton’s possible Exit from the EU (Brexit) experience,

there are numerous models, which can be implemented for CPEC evolution SAEU/SAEA.

Thus, considering intraregional trade potential of SAARC countries together with

economic opportunities and drivers of CPEC, there exists a real possibility to establish a

progressive and an economically vibrant SAEU/SAEA in 21st century.

With the onset of 2017, a global trend of fierce economic competition is

manifesting through US unilateral revocation of Trans-Pacific Partnership (TPP), hands-

off approach on EU (NATO), assigning India a leading role in South Asia in exchange for

containing rising China, threatening to repeal Iran’s nuclear deal and Paris Accord were

not good news for South Asia. US President Trump’s May 2017 signing of the defence

contract with Saudi Arabia worth $110 billion leading to a total sum of $350 billion multi-

dimensional contracts over the next 10-years8 once read together with US National

Security Strategy-2017 indicates9 that US is likely to turn the international and Indo-pacific

regional security matrix more complex and volatile. Importantly, US Administration’s

5 “Next Steps to South Asian Economic Union (SAEU)-ADB Report”-Sponsored by the SAARC Secretariat, Katmandu (2014).

6 Ishu Jain, Illustrated by Peter C. Espina, “Understanding India‟s Trade Deficit with China”, Global Times, (December, 7, 2016),

“Indian Exim Bank Report-2014”andAmbassador Ajay Bisari (Daily Dawn 31 March 2018), Ambassador Munir Akram“Complex Equations” (Daily Dawn October 2017 & April 15, 2018).

7Geoff Colvin, “China‟s Economy Would be Bigger than USA by 2030” (February 9, 2017) - A Comprehensive Study by Price

Waterhouse Coopers Forecasting – Investors Guide 2018. 8 Javier E. David, “US – Saudi Arabia Sealed Weapons Deal Worth Nearly $110 Billion Immediately, $ 350 Billion Over 10 Years”, CNBC, (22 May 2017). 9 Manoj Joshi, “What Trump’s New National Security Strategy Means for India”, Observer Research Foundation (December 20, 2017).

3

biased security and preferences likely propel prevailing scenario towards a fiercer and a

more competitive regional order in the future.

In the backdrop of above analysis, it is pertinent to explore some of the

foundational questions about the most likely socio-economic future of South Asia. For

example; can Indian policy of Pakistan’s regional exclusion and playing western’s proxy

against China’s rise materialise her great power goal or would it be more prudent to

cooperate with China in forging an economic integration among SAARC states? Does

Afghanistan’s conundrum need a compromised solution for securing peace deal to realise

connectivity of with CPEC) for region CA? For how long India-Pakistan will keep their

poor masses hostage to conundrums like Kashmir and poverty? These are important

questions based on which critical policy reviews by China, India, Pakistan and indeed

Afghanistan may future 21st century. Outcome, at regional level, will depend largely on the

policy choices and, US, Russia as main extra-regional stake-holders.

Today’s globalised world is bound to adopt economic interdependence and trade

complementarities. For interdependence and trade complementarities to grow, formation

of SAEU can material is using inter connectivity and developing physical infrastructure,

creating economic routes and organization all structures through regional policy

coordination to bring neighbouring states under a set of formal obligations. With these

phenomenal developments, South Asian nations will have to forecast their own road map

to safeguard economic and security interests, which are likely to be impacted by

protectionist policies of the US. A fierce international economic and trade competition,

already became visible through likely Brexit in 2019 points at future vulnerabilities of a

globalised and an interdependent world. The future environments are most likely to

compel various regions of the world to come together and adopt mutually supportive

economic policies primarily to protect their own national interests but also to fend-off

fiercely evolving competitive international order. Various strategies could be adopted to

deal with such an environment but can SAARC (prospective SAEU/SAEA) follow a

strategy of Cooperative Hegemonic Interdependence (CHI) 10 for the outside regions while

a Cooperative Economic Interdependence (CEI) approach is implemented within South

Asia? Can this strategy enhance mutual economic interdependence among SAARC

(prospective SAEU/SAEA) member states thus gravitating them towards a gradual

economic integration particularly; if, India joins the CPEC – has to be evaluated? To

manifest such a strategy, China can provide logistic corridors like; CPEC and BRI but it

can also afford the required capital outlays. Together with India, it can bring in a huge

Foreign Direct Investments (FDIs) within Greater South Asia(SAARC plus

China).However, a preliminary study on SAEU, sponsored by SAARC Secretariat and

conducted by Asian Development Bank (ADB) in its Report-201411doesn‟t factor in China

10 “Thomas Pedersen,”“Cooperative Hegemony: Power, Ideas and Institutions in Regional Integration”, (pp. 677-697). Cooperative

Hegemonic Interdependence or CHI theory was developed to formulate a grand design by the main regional powers in response to the economic balancing through institutionalisation, power-sharing and differentiation. Preconditions for regional institutionalisation are competence, capacity hegemon or powerful states in a region (e.g. China-India in South Asia).The term „ideational–institutional realism‟ together with the earlier explanation of „cooperative regional hegemony‟ can be equated with neo-liberal sub-set of Complex

Interdependence of states. This theoretical perspective adds a very interesting dimension to the theory of Complex Interdependence in formation of SAEU/SAEA. In this context, inclusion of China in SAARC or its preferred form of SAEU/SAEA can create a substantive level of interdependence to help speed up economic integration within South Asia. 11 See footnote 5.

4

or CPEC. The vision of SAEU was to be presented during the 19th SAARC Summit in

2016, which was scuttled mainly by India and Bangladesh.

Being a comparative study, it is intended to draw on the past and current

experiences of Europe and South East Asia where EU and ASEAN, owing to initial

challenges and consequent difficulties, like Brexit and East Asian financial Crisis, were

compelled to initially follow a strategy of „Variable Geometrical Interdependence (VGI). 12

The term VGI means a method of segregated integration in the seminal years of an

economic union as followed in the case of EU. This concept recognizes that because the

EU's association expanded exponentially within less than a decade or so hence, there

may have been a mechanism to resolve irreconcilable differences among member states.

The VGI strategy enables region al states to pursue integration, while allowing differences

of opinion, to hold back.

Another concept of „deepening and widening‟ was introduced in Europe

considering the prospective challenges of 20th century, which refers to such a strong

union, developed by adopting an enhanced integration of the EU. The traces in the shape

of EU's ability to sustain itself as a monitory union to adopt Euro the main currency. 13The

proponents of widening the union in 21st century wanted that the EU should expand in

terms of membership primarily with the consent of a group of European countries who are

willing to advance their common interests. This implies that the remaining countries of the

union will become member in a later timeframe. 14A flexible strategy of VGI, followed

during the formative years of EU, is considered a much better option compared to policy

of CHI or CEI, which is least likely to work in formation of SAEU.

According to major powers of the world account for 80percent of the global

defence spending, comprise 75% with well over 50% can no longer use brute force

against specially the nuclear weapons or nuclear capable states.

Collectively the BRICS comprising of South Africa, India, Brazil, Russia and

China along-with US form 68percent of global nominal GDP, 62.4% more than 50%one

third mass and15. Despite huge national power potential, even US together with Europe

can‟tadoptunilateral economic policies due to complexly interdependent world.

In addition to above, it is also noteworthy that exponential growth of GDP

producing heaps of wealth in India, China, Kuwait, Russia, UAE and Saudi Arabia has

started impacting the geo-politics and geo-economics decisions at the regional and

international levels. Multiple stock exchanges areal so drawing away entrepreneurs from

the US as well as introducing the Initial Public Offerings (IPOs) in the regional markets.

For example London together with US financial capital of New York is unable to isolate

12 Peter Lloyd, “The Variable Geometry Approach to International Economic Integration, International Journal of Business and

Development studies p51.Peter Lloyd is a professor of Economics at University of Melbourne, Australia. ”Article on variable geometry has emerged as a possible strategy to accommodate differences in views among nations and break a situation of impasse. It may apply to either a regional agreement or a multilateral agreement. The strategy was employed in integration of EU but can be used in other negotiations e.g. WTO. Like variable geometry within a fixed group, it is an opt-in provision with respect to membership of the group and all of the commitments and obligations which its members have agreed to. 13 RobertGilpin and Jean M. Gilpin, Global Political Economy – Understanding the International Economic Order, Oxford Press, Princeton, London, UK.” 14 ”Accessed on 9 September 2013. 15 https://www.ipri.global-issues-potential-superpowers.html/IPRI Papers, Accessed on 17 January 2013.

5

Asian economies the impacting world markets and tourism. Even major international

powers need liquidity funds for developmental projects to sustain welfare based policies

and maintain internal political stability. Thus the unipolar system is now being defused

where even the most powerful states have to share economic sovereignty with multiple

poles in an evolving international system. Hence, in an interdependent and a globalized

world, even USA, Russia, China or India would have to operate in a complexly

interdependent format. This evolving and fiercely competitive geo-economic order may

form the basis of SAARC‟s integration into a SAEU/SAEA for reasons of perceived

economic insecurity particularly if China’s CPEC is joined by all states of Greater South

Asia (SAARC plus China). Such a vision of regional integration in the contemporary

international and global economic order may not be successful within the conceptual

framework of Cooperative Hegemonic Interdependence (CHI) at the global level and, a

Cooperative Economic Interdependence (CEI) 16 approach at the regional level. Hence, in

view of an evolving multipolar economic world order, we will conduct this research

employing theoretical lens of Complex Interdependence and Ernst Haas conception

based upon functionalist approach of Spill-over17leading to integration and hence,

SAARC‟s transformation into a SAEU/and, or SAEA.

0.2 Scope of the Study

This thesis is aimed at exploring whether possibility of SAARC’s economic

integration into SAEU exists. The study evaluates whether formation of SAEU/SAEA can

be realised by exploiting drivers and opportunities offered by CPEC and catalytic impact

of China’s inclusion in SAARC, which may be called as Greater South Asia (GSA). The

thesis would assess viability of such a concept through historical and content analysis,

link it with contemporary experiences of regional integration in EU and ASEAN and

validate findings through case studies without indulging in detailed structures, institutions,

statutes and mechanism of SAEU/SAEA for which a separate study is required. All in all,

the focus of this research will be time period from 2013 onwards when Chinese President

announced the much awaited OBOR/BRI with CPEC as its flagship project. Coincidently,

the SAARC Secretariat at Kathmandu also conducted a study on formation of a SAEU

through an ADB Report in2014 but without the inclusion of China’s BRI or CPEC.

Towards the end, the findings of this dissertation will be corroborated through surveys

and interviews with the key professionals who have been directly or indirectly engaged

with SAARC (SAFTA), CPEC and China study.

0.3 Thesis Statement

Despite a huge potential, for over 30 years, SAARC has yet to fully transform into

an effective regional organisation compared to EU or ASEAN. Although most SAARC

states‟ relations with China are improving. Also the bilateral trade between all South

Asian states is exponentially rising with China thus enhancing their mutual economic

interdependence, however, regional integration still remains hostage to India-Pakistan’s

historical legacy thus impinging on the prosperity and well-being of the peoples of the

16 See foot 10. 17 Andrés Malamud, “Spill-over in European and South American Integration. An Assessment, by Latin American Studies Association,

Washington DC, (September 6-8, 2001).”Andrés Malamud

6

region. At the global level, the developed nations are following protectionist economic

policies to preserve home industry and secure more jobs. Conversely, China is exporting

huge surplus men and material capital as well as development capacities to economically

engage neighborhood and beyond into a web of economic interdependence.

To break SAARC‟s perennial impasse, China’s plan to launch BRI and CPEC can

act as catalysts. To address socio-economic imperatives, CPEC is most likely to ignite

South Asian economies thus enhancing their mutual economic interdependence. The

Spill-over effect, as a consequence of mutual economic interdependence between China

and South Asian states (in Greater South Asia). May thus increase probability of forming

a SAEU or a SAEA. In formation of a SAEU/SAEA, both China and India can play the

same role as did the erstwhile Germany the Malaysia manifesting such an economic and

trade vision, political reconciliation between India-Pakistan is an essential but not a

mandatory factor. In fact even if India misses out this golden opportunity to join

OBOR/BRI and CPEC, an economic and trade association could still be formed Pakistan,

States (CAS). Nonetheless, an ideal arrangement would be that China’s CPEC and BRI

projects become the main links between South and East Asian economies.

0.4 Hypothesis:

Growing trade and economic interdependence between SAARC states and China

together with CPEC can lead to formation of SAEU/and, or SAEA in Greater South Asia

(GSA). In the above hypothesis, the phenomena of Growing trade and economic

interdependence between SAARC states and China is an independent variable and

formation of SAEU or a SAEA is a dependent variable, which has a direct relationship

with the cause, i.e. growing trade and economic interdependence between SAARC and

China and, the effect, i.e. formation of SAEU or SAEA. China’s CPEC is an intervening

variable, which is likely to act as the main catalyst for SAARC‟s transformation into a

SAEU or a SAEA.

0.5 Objectives and Phases of Research:

The hypothesis is to be verified with focus on the following main objectives and

phases during the course of this research:-

• A conceptual and theoretical framework for a SAEU or a SAEA.

• The state of trade, economic and social integration prior to and, in the post partition

of subcontinent.

• Identifying the root causes and obstacles to the formation of a SAEU or a SAEA to

reduce poverty in GSA.

• Comparison of the EU and ASEAN with SAARC to ascertain suitability of forming a

SAEU or SAEA, respectively.

• Economic interdependence of SAARC states with China and likely Spill-Over

impact on formation of a SAEU/SAEA.

7

• Effect of OBOR (BRI) and CPEC on economies of scale, intraregional trade and

comparative advantage on formation of a SAEU/SAEA.

• India’s reconciliation to formation of SAEU together with

China, owing domestic compulsions.

• Implications CPEC &China’s growing cooperation with Pakistan on regional

economic dynamics in Greater South Asia (GSA).

0.6 Research Questions

The above discussion and analysis has covered almost all dimensions like;

internal, regional and extra-regional dynamics, which may impact formation of a

SAEU/SAEA with China on board. However, to add value to the existing body of

knowledge, following questions shall be answered in completion of dissertation:-

• How new regionalism, interdependence and ensuing cooperation, in a globalised

world, may impact economic integration in Greater South Asia – GSA (China plus

South Asia)?

• What theoretical and conceptual framework explains likely transition of SAARC into

a SAEU/SAEA to benefit Greater South Asia (GSA)?

• How SAARC‟s institutions, decision making process, economic and trade

structures are comparable to EU or ASEAN?

• Can SAARC’s interdependence with China through

„CPEC‟, augment economies of scale and comparative advantage to form

SAEU/SAEA?

• What implications of China’s projects like; BRI/CPEC are envisaged for Pakistan

and Greater South Asia or GSA (South Asia plus China)?

0.7 Literature Review

Historically, there is always a lack of intra-regional focus on economic integration

by South Asian states mainly due to the mind-sets as well as exogenous factors. The rent

seeking attitude of its leaders have led SAARC states to become more dependent on

extra-regional than the regional great powers like China. The literature review has

glaringly pointed out legacies of the colonial past on the internal dynamics of South Asian

states, which resulted in a typical mind-set to ignore huge potential for socio-economic

development from within the region. Hence, petty political considerations of the

subcontinent rented elite has been preventing economic integration of South Asian states

(within SAARC). However, in recent years, due to China’s extra-regional socio-economic

focus by way of BRI and CPEC the overall dynamics of Greater South Asia (China plus

SAARC region) are likely to undergo a major change. Therefore, this study starts with

deeper look into regionalism, regionalisation, interdependence and economic integration

concepts based upon the case studies of EU and ASEAN. The dissertation presents

multi-dimensional aspects and conceptual leanings for regional economic integration

8

instead of politically integrated community of EU. It stipulates that for economic

integration scope within Greater South Asia can be expanded with huge socio-economic

incentives like; BRI and CPEC.

An array of literature is available on SAARC, EU and ASEAN, however, thus far an

insignificant scholarly discourse, based on a cogent quantitative and qualitative research

has been found with China’s BRI and CPEC projects affecting the formation of

SAEU/SAEA. Documents have been consulted and interviews performed to cover the

relevance of SAARC‟s regional cooperation and interdependence resulting into formation

of SAEU/SAEA. All aspects have been analysed in the light of South Asia’s political,

economic and security milieus, European Coal and Steal Community, British Exit from EU

(Brexit) and China’s CPEC project catalytic role in SAARC‟s transition to SAEU/SAEA

have been thoroughly explored. In addition to the classical understandings of regionalism

and regional economic integration, case studies of EU and ASEAN‟s evolution to the

present status in 21stcenturyprovide foundational basis of modern conceptions covering

neo-liberalism and neo-functionalism domains. A conceptual framework and theoretical

perspective discerns to explore new form of regionalism, regionalisation and

interdependence leading to an integrated economic bloc of a prospective SAEU/SAEA.

To encompass the complexities of South Asian economic integration, theoretical

eclecticism has also been considered to realise the vision of SAEU/SAEA.

While, literature review brought out that interdependence leads to peace, its

mention can also be traced in Immanuel Kant’s essays.18His essays bring out that

regionalism, even though acknowledged by most scholars, was a complementary factor of

post-World War II phenomena. Kant’s essay ignores diversities of regions and

regionalisation. Such a view has not allowed scholars to understand historical basis to

ignore global moorings. According to Fredrik Soderbaum19German Customs Union is the

best example to affect political integration among regional states within Europe, which

through instituting customs union finally sealed the fate of Europe as a political union. An

Oxford paper has described regionalism process in four stages: initial inceptions, old

regionalism, new regionalism, and the contemporarystage. 20Leaving aside the early

conception, dilating a vast array of concepts from different epochs about the remaining

three discourses needs to be further completed in this dissertation.

Fredrik Söderbaum also divides regionalism in three waves: European regionalism

up to 1970‟s; Multilateral trade liberalisation of the early 1980‟s in North America and,

thirdly; the onset of WTO of late 1990‟sgiving rise to a number of RTAs among

developing countries. 21 Jagdish Bhagwati22 equates Fredrik Söderbaum waves with the

economic space created by the inadequacy of the international financial system.

Consequently, Ivana Miková explains23 the spread of RTAs and regionalism -for trading

because emergence (fortresses) form ASEAN. Thus disintegration of trading system

18 ViljarVeebel, “A Choice between Dependence and Interdependence”, (November 2014) 19 FredrikSöderbaum, Early, Old, New and Comparative Regionalism”(October 2015). 20 FredrikSöderbaum, Oxford Handbook of Comparative Regionalism”, University Press (2016). 21 Fredrik Söderbaum, “Comparative Regional Integration and Regionalism” Research Gate, (May 24, 2016). 22 (See Bhagwati 1993). 23 Ivana Miková, “Causes of Regionalism. How ASEAN-China FTA Fits the New Regionalism?” Charles University, Prague.

9

visible in the current sub-trading blocs and sub-regional integration groups around the

globe (like ASEAN or BIMSTEC) is a new form of economic competition. However, the

literature on multilateral regionalism and its liberal processes reveals that the failure of an

equitable global cooperation mechanism has actually created an alternate credible

structure of global security and peace for settlement of various regional conflicts is the

most important spinoff of regionalism, regionalisation, interdependence and regional

economic integration, which will become handy in writing dissertation on the subject of

SAEU/SAEA.

Björn Hettneprovides description of regionalism from two perspectives i.e. from an

endogenous as well as from exogenous angle. According to himendogenous complex

forms. However. 24Thus we can also set a framework to study the and regionalisation

Greater plus China, which essentially means China as part of SAARC, at least

economically, if not politically.

Mario B Lamberte25 dilates that there is a difference in regionalism and

regionalisation. The regionalism is driven by market of individual states or region e.g.

South Asia or GSA, whereas regionalisation is mechanism through which the process of

regionalism takes place by way of production in Regional Trading Areas (RTAs)indulging

in Free Trade Agreements (FTAs) within the framework of WTO regime. However,

studying regionalism and regionalisation from the CPEC perspective may be more helpful

once we come across, „economic regionalism‟ – a term coined by Jiangyu Wang26 who

says that regionalismis a formal economic cooperative mechanism performed by

governments for achieveing economic integration. However, such a mechanism may not

be confined to a specific region for example Greater South Asia (GSA – China plus South

Asia).

Another writer Bela Balassa claims that the term integration of economy can be

defined from two perspectives; in terms ofcalling.27 The processes are the procedures

intended to eliminated is crimination among the set of economic entities. However,

through creation of state of affairs or environment, it is ensured that there is no

discrimination among the standings of various countries‟ economies. Nonetheless, the

integration of economies is also achieved by Sector alI ntegration like by establishing

specific industries by co-joining one sector of an economy with another. This is also called

Functional Integration, which is done through price incentives within a free market

economy as well as an Institutional Integration which is acquired with the help of various

institutions. It can be secured by adapting monetary policies, coordinating financial

practices and facilitating trade procedures. Thus, the Sectoral or Functional economic

integration is market-driven, whilst institutional economic integration is policy based both

of which need political ownership.28

24 Bjorn Henatte and Andras Inotai, “The New Regionalism – Implications for Global Development and Security”, Preface by Mihaly Simai, Director, UN (February 1994). 25 Mario B. Lamberte, "An Overview of Economic Cooperation and Integration in Asia" 26 Jiangyu Wang, “China, India, and Regional Economic Integration in Asia: The Policy and Legal Dimensions”, pp 1 27 Bela Balassa, The Theory of Economic Integration, Illinois: Richard D. Irwin Incpp1, (1961).” 28 EisukeSakakibara& Sharon Yamakawa, "Market-driven Regional Integration in East Asia" (22-23 September 2004).

10

According to a reference, the regionalization intensity is assessed amount out in

percentage terms.29 This is so because for any kind of regional integration higher political

acceptance, even though it may not necessarily require the political commitment from all

the stake-holders. All this means is that desire to accept political or economic integration

is not mandatory for creating political or economic institutions particularly for economic

integration only. It means, economic cooperation within SAARC and/or between China,

like ASEAN, may lead to regional economic integration particularly due to CPEC and BRI

providing catalytically strong incentives within Greater South Asia (GSA).

Another significant literature review conclusion on regionalism in 21stcenturyis that

less powerful or semi-peripheral countries in the developing world will have more

incentives to advance their brokering position in the worldwide policy-making domain by

forming collective sub-regional constituencies.Its manifestation can be seen in a more

prominent role being played by Euro and the Deutschmark, or Yen-based or Renminbi-

RMB pivoted economic blocs led mainly by China, Turkey and few countries of South as

well as East Asia.30

The main point to explore is that whether EU and ASEAN are comparable to

SAARC or prospective SAEU/SAEA. In the view of some writers, asking this question

means as if the US is analogous to Pakistan. But theoretical framework not questions

itself. For example if the question is whether or not SAARC is comparable with EU or

ASEAN from economic integration point of view, the answer is yes, but SAARC and

ASEAN would be better in comparison since both are not at an advance stage of

economic integration. Secondly, most writings on „new regionalism‟ don’t agree with the

role of state in the „old regionalism‟. Nonetheless, the underscores constructivism in

various plays in the existing market but importantly unrestricted flows of capital, trade and

people. Hence, the state is no longer the only proprietor of regionalism particularly so

towards manifesting a regional economic integration in 21st century.

The literature on EU studies distinguish cooperation and integration as two diverse

consequences of regionalism process in the EU. Institutional and political overhead is not

required to establish global intergovernmental economic and political coordination.

Regional integration, however, can be expeditiously achieved through multinational

institutions for which political authority is relegated for collective decision-making.

Towards this end, Robert Keohane, Joseph S. Nye and other likeminded scholars

declare, functional equivalent‟ and „Spill-over‟ effects as more significant for European

integration. However, the gap in literature on how much these variables could be effective

in South Asia, especially the catalytic role played by China’s CPEC and BRI would need

to be filled through research? Robert Keohane and Joseph S. Nye School believes that

integration through regional cooperation are only the means to achieve economic

prosperity. Thus, the transformed version of interdependence in a globalised world called

„Complex Interdependence‟ which together with neo-functionalist „Spill-over‟ concept

may be an ideal lens to study South Asian regional economic integration. Within this

29 C., "Regional Economic Integration and Institution Building", supra note 19, pp 79. 30 Ibid.

11

framework China’s CPEC and BRI as intervening catalysts are essential for regional

integration within Greater South Asia (GSA).

Thus, the contemporary process of regionalism is a new political dimension,

characterised by both state and NSAs. Such an economic integration can function across

several inter connected chastisement e.g.; comprehensive security, socio-economic

development, regional trade, terrorism and environment. In the classical concept of

regional economic integration, it is complementary that members share cultural,

economic, linguistic, or political ties besides having a joint external threat as the basis to

cooperate. However, in a globalised world of 21st century, Regional Economic Identity‟

has emerged to be a common denominator to achieve regional economic integration

disregarding a particular type of region.

As has been discovered, regionalism and globalisation both are intertwined and

complex phenomena, which can be operationalised by developing and exploiting

Complex Interdependence relationship. One of the consequences of regionalism in EU is

the current uncertainty due to an illegal immigration as well as unrestricted movement of

people, capital and raw material. Thus the Brexit is considered as an outcome of

globalisation impacting regional integration as well regional economic integration. Most

scholars think that the ruthless consequences of globalisation process can be managed

only through a new form of multidimensional or the globalised form of regionalism or

economic integration. Thus, is shaping a new trend cooperative various. In the coming

days, academia-industry-civil society-media-intergovernmental collaborations

are likely to make nation-states more interdependent where both weak and powerful

nations will have comparable if not equally affairs.

From the above discussion, it can be discerned that regionalismin a globalised

world also means commonality of multiple interests within a particular region. 31 These

common factors relate to typical South Asian identity as well as demographic and

geographical features. 32 Joseph S. Nye concept about macro-regions primarily relates to

geographical contiguity as indeed the level and intensity of mutual interdependence‟.33 It

can be seen that Joseph S. Nye was able to differentiate between the economic

integration relating to, which relates to system and; the which fundamentally talks about

transnational societies. 34 As is well known that the external regional characteristics are

„exogenous‟ while, the internal is defined as „endogenous‟.35 Here again consider the

concept of Greater South Asia (GSA); China plus SAARC region. Hence for any practical

research on SAEU and, or SAEA the definition of region or regionalism is in the

exogenous category particularly in the context of regional economic integration.

As observed so far, Lambrate‟s focus is on the essential features like;

„regionhood‟, who considers smaller corresponding to the national and global level

31 Nikki Slocum and Luk Van Langenhove, „The Meaning of Regional Integration, (2004), pp. 227–52. 32 “Luk Van Langenhove, „Theorising Regionhood‟, (2003), nr. 1. 33 Joseph S. Nye, “Peace in Parts, Little, Brown and Company, 1971), p. vii. 34 Ibid, pp. 26–7. 35 Ibid.

12

respectively. 36 The essential characteristic of a region could thus be understood in terms

of either a common identity or socially recognised. Another lens could be the concept of

security communities in which there is least regional interdependence, 37 a complex of

countries bounded in security arrangement, 38 a hierarchical or in a region, 39 a cluster

approach in a region to maintain security and40 or an ideal currency area method. 41 The

readers may note that none of these characteristics laydown the presence or absence of

sovereignty as precondition for defining region or regionalism. Thus, it can be concluded

that conceptual pluralism in research theses although is inevitable but formation of

research question is also linked with it. Hence, the definition of region, regionalism or

regional economic integration essentially depends on the perception of a particular

geographical area in which it is presented as a region (e.g. Greater South Asia - GSA).

Secondly, it also depends on the research question (for example; formation of SAEU and,

or SAEA with the intervention of CPEC). 42

Another question is whether or not the EU or ASEAN are comparable with SAARC

or SAEU and, or SAEA within Greater South Asia (GSA). The scholars may consider

whether the US can be compared. Again, however, from external or internal

characteristics view EU, ASEAN or SAARC can be broadly categorised as macro-regions,

which represent non-sovereign governance systems even though they have treaties,

agreements, MOUs with other regions and global state and NSAs. For example if the

question is whether or not SAARC is comparable with EU or ASEAN from economic

integration point of view, the answer could be yes, but SAARC and ASEAN would be

better in comparison since both are not in an advance stage of economic integration,

however, there is no harm to compare all the three as an economically interdependent

region. From this perspective, the preoccupation with identical systems seems to be

exaggerated because the possibility depends upon the type of research question and

typology as well as topology of regional states.

Most of the articles written by Fredrik Soderbaum and Bjorn Hettne regarding

explaining theories about rise of regionness highlight criticality of geographical

proximity/contiguity of a region than bringing out economic characteristics of society. This

needs a platform like; Free Trade Area (FTA). An example is the North Americas‟FTAs or

the EU‟s FTAs as well as the AU‟s FTA. To qualify as a region, there may be a

framework comprising political and economic priorities like new framework in African

Continent. 43 This is also true that businessmen priorities and entrepreneurs‟ interests

work at the global level and also configure regional economic dynamics without affecting

the political agendas.44Moreover, civil societies are generally ignored, while

understanding the process of regionalism but their role is very critical. The civil society is

36 See footnote 32. 37 Karl W. Deutsch, “Political Community and the North Atlantic Area”, 38 Barry Buzan, “People, States and Fear: An Agenda for International Security Studies in the Post-ColdWar Era”, Cambridge University Press, (2003). 39 David, “Regional Orders. Building Security in a New World, Pennsylvania University Press, (1997). “ 40 Rodrigo, “Understanding Regional Peace and Security. A Framework for Analysis, (2008), pp. 107–27. 41 Robert, “A Theory of Optimum Currency Areas‟, American Economic Review, (1961), pp. 509–17. 42 Ibid. 43 Zoleka V. Ndayi, “Theorising the Rise of Regionness by Bjorn Hettne and Fredrik Soderbaum”, (August 20, 2006). 44 Alan M. Rugman, “Regional Multinationals and the Myth of Globalization, (2008), pp. 99–117.

13

an essential part of transnational activist grids and therefore mutually support their

counterparts at the global level.45 In one of the leading studies. Petri46 the writers have

developed signs to gauge the levels of mutual understanding and economic integration in

South East Asis. The aim of this study was to compare such measures using a yardstick

for measuring mutual dependence in other regions.

In his most contemporary discourse of Nabil Huda, he has pitched liberalist

paradigm with realist to dilate on the economic rise of China. 47 In his view, liberalism

consists of multiple interconnected ideas and components. Nabil Huda also asserts that

using military power appears to be more costly, hence, states are normally inclined to

cooperate thus resulting in outright gains, which becomes a win–win for all stake-

holdersina region. 48 Although economic interdependence within the liberalist paradigm is

one of the strongest strands, however, in a globalised and a complex world of today,

theoretical eclecticism may have to be adopted to form the basis of transforming SAARC

into a prospective SAEU/SAEA.

Economic interdependence has been explained by Richard Cooper as an

ambiance generating economic activity among regional or global entrepreneurs resulting

in economic prosperity of nations. David Starr Jordan puts EU as a beacon for economic

interdependence, which has led to no war since 1945.49 However, few scholars opine that

the arguments of Richard N. Cooper and David Starr undermine and perhaps oversimplify

the frictions that accompany economic interdependence, resulting in lesser probability of

war between nations. This school argues that as the interdependence grows into complex

areas of daily interaction, likely-hood of friction or conflict becomes highly probable. 50

However, on the average, over a longer time periods and in most cases the argument of

„more interdependence ensures peace and prosperity in an economically integrated

region‟ has stood the test of times.

Contrary the democratic peace theory, which claims that there is least probability

of war occurring amongst the democratic countries Samuel Huntington considers51 that

the high level of economic interdependence may also some time be a reason to start a

conflict as against building peace only. He cited example of liberalists who failed to factor

in, the deteriorating Sino–Japanese relations thus damaging the mutual economic

interdependence. He further qualified his assertions by quoting that political dispute

adversely affected trade between various nations like Japan and Korea, Japan and China

etc. This not only reduces the quantum of investment by global players but also the local

one.Samuel Huntington also claimed in his famous dissertation that the investment by

China in Japan was substantially reduced during 2013.52Without giving any political

45 Amitav, “Democratization and the Prospects for Participatory Regionalism in Southeast Asia” (2007), pp. 319–37. 46 Giovanni Capannelli, Jong-Wha Lee and Peter A. Petri, Economic Interdependence in Asia-Developing Indicators for Regional

Integration and Cooperation”, (2010), pp. 125-161. 47 Nabil Huda, “Interpreting the Rise of China: Realist and Liberalist Perspectives” (April 3, 2015). 48 Ibid. 49 Ibid. 50 Ibid. 51 Huntington, “The Clash of Civilizations and the Remaking of World Order Penguin Books India, 1997. 52 See footnote 19.

14

reasons he blames China for deploying the state of the art Air Defence System, which

provoked Japan to develop its own and also deploy US made counter Air Defence

System PATRIOT over East China Sea region. Nonetheless, it could not prove

quantitatively that such conflicts are necessarily invoked by increasing trade

interdependence. This aspect is an important factor in SAARC‟s prospective economic

integration particularly, to claim that even though there are intractable conflict between

India-Pakistan, however, the two nations can still be trade interdependent. Hence,

besides the pros and cons of China’s CPEC role in forming SAEU/SAEA, aspects on

Sensitivity and Vulnerability have to be considered.

Contrary to Samuel Huntington, claim that can impact the growing interstate ties

together with transnational actors since the two are economically dependent. Hence there

is a fear that two or more than two mutually dependent states can become vulnerable and

sensitive to the actions and demands of each other respectively. 53OmojarabiWasiu Femi

in his thesis54explains that Sensitivity occurs once policy change in a group of integrated

countries or nations causes a corresponding effect on policy formulation process in other

depended countries. Vulnerability exposes the dependent countries‟ economics, security

and miscellaneous systems to cause serious threat to national interest due mainly to

absence of alternate choices in policy matters. If there are alternative choices available,

then the dependent states have to assess to what cost? 55 This complex interdependent

economic relation runs deep into crosscutting areas of cooperation to sustain the mutual

trust and accommodation amongst an integrated regional bloc.

A number of writers disagree about the interpretation of economic integration

based upon the state or community models. The state model underscores an overarching

constitutional mechanism or a supranational authority while the community concepts lay

no particular emphasis. Such a concept, therefore, demands sharing some degree of

state sovereignty as an alternate to supranational structure. Thus, the community-model

lays more emphasises on the charisma and the bond between the elite and the general

masses. Therefore, the community thinking considers that growth of similar acuities,

ideals, characteristics and identities among a group of nation-states can create a

community without renouncing their sovereign particularly; in terms. Since sovereignty

nation state is both sensitive to make them more vulnerable, therefore, achieving

economic integration through the community-model may be more feasible. 56

Literature on regionalism, regionalisation, cooperation, interdependence and

integration reveals very fine variations. Mark Beeson and Troy Lee-Brown57 make a

distinction between forms of „regionalism‟ referring to the collaborative political efforts of

states and „regionalisation‟ as the actions of and support for regions by Multinational

Corporations (MNCs) for economic integration within a geographical area. Philippe De

53 Ibid, P 291. 54 OmojarabiWasiu Femi, “The Relevance of Interdependence Theory in the Age of Globalization”. A Paper Presented at Ahmad u

Dello University, Zaria, Nigeria. For Consultations email: phemmymarsh@gmail.com. 55 Ibid. 56 SanauChudhary, “SAARC at Crossroads”, p27. 57 Mark Beeson and Troy Lee Brousn, “The Future of Asian Regionalism: Not What It Used to Be? Asia and the Pacific Journal, DOI: 10.1002/app5.168 (24 January 2017).

15

Lombaerde considers trade in services and deepening of agreements on regulatory

issues like; investment, competition, trade facilitations and technical barriers as

components of regionalism.58On the other hand, Mario B. Lamberte defines

regionalisation as a market driven integration i.e. Lazes‟ Fair factor. But he refers the

process of regionalism and integration through economic cooperation, executed among

regional countries through treaties. Lamberte also distinguishes regional cooperation in

terms of orientation in their policies, which is done consciously by the regional states‟

governments where the integration is primarily due to geographic proximity. Thus the

market alone doesn’t drive regionalism instead it may be more due to policy orientation by

a group of regional countries willing to cooperate.

Both Ernst Bernard Haas and Michael Hass have explained the similar concepts

within the framework of communitarianism. For attributes such as interdependence and

integration sovereignty is not the only but a prime consideration, while cooperation

becomes more acceptable in non-homogeneous communities. These complementary

views presenting a wholesome concept on regionalism through interdependence,

integration and cooperation with emphasis on sovereignty by Ernst B Haas and Michael

Hass can be handy during the analysis of SAARC‟s prospective transformation into a

SAEU/SAEA with China on board.

As was adopted by the EU, formation of economic integration and union is

conceived as part of functionalist approach. Other than such a union there could be

conceptual variations like; North America Free Trade Area (NAFTA) or ASEAN, which are

operational manifestations of a neoliberal paradigm-considered a branch of

communitarianism. The two main protagonists of communitarianism; Ernst Bernard Haas

and Michael Haas gave concepts of communities contributing to regional socio-economic

integration, interdependence and states‟ sovereignty, which can be used to build a

conceptual and theoretical framework and construct a meaningful thesis on SAEU/SAEA.

Michael Haas gave a “communitarian concept” 59 which essentially discusses in detail as

to how regional cooperation takes the place of regional integration. In the process, he

studied some seventy five institutions in Pacific area as well as Asia from 1950‟s

onwards. The literature on international cooperation (Robert Keohane 1884)60 and

international regimes (Krasner 1983)61provides useful insights on the basis of cooperation

among nation states where liberal institutionalism, first used in the mid-eighties, was

accepted by the contemporary theorists like Robert Owen Keohane. On the other hand,

58 Philippe De Lombardi and Michael Schulz, “The EU and World Regionalism: The Mak ability of Regions in the 21st Century”, USA

(2011). 59 Michael Haas a political scientist was born in 1938. He was a professor at California Polytechnic University. During his Ph.D. he

produced a thesis on “International Political Behaviour” by employing digital correlations formula to develop an idea of “mass society” claiming that aggressive warfare persists if there is no civil society. This was a multidisciplinary quantitative research to relate the condition of decision-making among asymmetrical societies within the then global structures with maximum chances of war. Michael Haas gave idea of Asian Way to cooperation which is the prime recipe to achieve regional economic integration. His thesis can be usefully employed to draw relevant conclusions in this study.

60 Michael E. Brown, “Theories of War and Peace: An International Security Reader”. 61 Stephen Krasner was an IR professor at Stanford University. His extensive on the concept of sovereignty and state is applied as an

international rule around the globe as an authentic piece on international law. His conceptions can be applied to analyse the sensitive

subject of sovereignty in the context of India-Pakistan’s role in formation of SAEU/SAEA.

16

Ernst Bernard Haas62 defines social, economic and policy of reference. Ernst Bernard

Haas and Michael Hass have touched the core critical concept of integration,

interdependence and cooperation within the framework of communitarianism. In the first

two attributes sovereignty is not the only but a prime consideration, while cooperation

becomes more acceptable in non-homogeneous communities63 for example in South

Asia. SAARC states‟ internal dynamics look synonymous to Michael Hass and Bruce

Olav Solheim’s construct of communities. Inclusion of China in SAARC can be considered

an important catalyst if the idea of forming a SAEU/SAEA is to materialize within Greater

South Asia (GSA).

Karl Deutsch developed different theory to seek understanding on community

building or communitarianism. He emphasised nation-states where traditional state

sovereignty results in an international anarchy due to which nation-states have to live in a

security. Thus different countries are fighting for their survival in this age of conflicts and

intense competition. This view was challenged by Hugo Grotius claiming that normative

are sufficiently and pervasive reject of as being inapplicable especially in 21st century.

Deutsch understands that political communities are divided in pluralistic as well as

amalgamated international security community. He feels that for these two communities,

asocial fabric can be gradually developed by changing the political attitude and behaviour

by individuals of a nation-state. Hungarian political economist David Mitrany believes that

existing political divisions and conflicts among nations can be transcended to reach a

working web of international institutions and; in today’s interdependent and globalised

world, no nation-state can individually resolve all economic and social problems. The

interdependence in Mitrany’s dictionary leads to a process of „Spill-over‟,64 which snow-

balls to multiply international dependence leading to a process of Complex

Interdependence, which may ultimately result in regional integration.Robert Keohane and

Joseph S. Nye65 acknowledge the successful role of Complex Interdependence towards

regional integration. Richard N Cooper coined the same concept as „Economic

Interdependence.66However, its application in the South Asian context is marred due to

structural imbalances where the most powerful regional state, although interdependent,

will still accrue relatively higher gains albeit preserve peace and not resort to war e.g.

India in SAARC and, China if it joins SAARC. Richar N. Cooper in his article

„Contemporary South Asia‟67 does point out „India-Pakistan - the two nation-states being

perennial opponents based upon legacy of partition and hinges on rifts between them.

Democratisation of SAARC and role of China may construct a comprehensive

explanatory model. Cooper also points at the catalytic role of China to bridge the

62 Ernst Bernard Haas is considered to be the father of classical theories on IR. His theory of neo-functionalism formed the basis of

integration in Europe ultimately becoming what is now called the European Union (EU). In many ways, Haas’s theory provides a conceptual perspective to the prospects of a SAEU/SAEA.

63 Bruce Olav Solheim, “The Nordic Nexus: A Lesson in Peaceful Security”, p23 (January 1994).

64 See footnote 17. 65 Robert, “Power and Interdependence”, (1977). 66 Richard, “The Economics of Interdependence: Economic Policy in the Atlantic Community (New York:McGraw-Hill,1968).“ 67 Subrata K Mitra, “War and Peace in South Asia-A Revisionist View of India-Pakistan Relations”, (July 2010). pp 361- 379.

17

structural imbalance as well as cultural and ideational divides amongst SAARC states to

manage war and peace.

Ernst B Haas and Karl W Deutsch68 both of them have extensively researched on

those environment in which security communities came into being? He further narrows

down to question; under what conditions were measures designed to increase economic

integration, led to political integration of various communities? More variations are

observed in literature e.g. Ernst B Haas’s orientation towards somewhat institutional focus

than that of Lindberg69 and Scheingold70 or Joseph S Nye, 71 whose analysis takes „Policy

Integration‟ as the dependent variable. To fill this knowledge gap, both „institutional‟ as

well as „policy integration‟ approach can be compared with achieved integration leading

to an economic union.

Agnes Ghibutiu gave concept of „Variable Geometrical Trading System (VGTS). 72

He preferred a system of interdependence, which can be followed on the basis of inter-

governmentalism to which Maurice Schiff and LA Winters also subscribed. In the current

geopolitical and geo-economic environment, VGTS is also affirmed by World Trade

Organisation (WTO). The system resonates well with the ontological model of (South

Asian) regional economic growth. Instead of getting all the SAARC states to reach

consensus agreement on all economic and political issues, more flexible approach of

VGTS can bypass differences that transcend a fixed agenda (Dadush, 2014).The

neorealist approach of„ cooperative Hegemonic Interdependence (CHI) presented by

Thomas Pedersen placates the ideational institutional realism based theory. 73 Pedersen

differs from Agnes Ghibutiu‟s strategy to handle fierce international economic and politic-

economic competition at the intergovernmental as well as non-governmental to state

levels. In his view SAARC can protect regional economic agreements from domination of

international regimes, powerful states and influential blocs by including China. How do

these two concepts play-out to determine the future of South Asia may be a subject of

new academic investigation in this dissertation?

Kishore C Dash in his book74 quotes Ernst Haas to dwell on ideology of „Pragmatic

Anti-dependency‟ for promotion of complex interdependence in the developing world but

not ignoring their parallel linkages with other global powers or system. His writings appear

to be more biased where only India has been presented as a natural leader, which must

be accepted by other smaller states without recognizing the right of independent nations

to play their part. This he writes has been. Kishore C. Dash although boasts about India

as the only hegemonic power but ignores China’s role in South Asia all together. He also

68 The renowned scientists like Karl Wolfgang Deutsch have worked day and night on operational analysis modelling of socio-

economic and socio-political dynamics within various regions for drawing relevant conclusions. Interestingly Barry Buzan‟s

concepdtions of security communities were equated with that worked-out by Donella Meadows. 69 A very unique style of conducting comparative research based on political dynamism, democracy and democratisation of corrupt

practices was introduced by Staffan I. Lindberg. 70 The progressive social movements of 16th century were beautifully analysed to recommend their effectiveness by Stuart A.

Scheingold in his masterpiece series of books covering socio-political aspects. 71 Ibid. 72 Agnes Ghibutiu, “Economic Scientific Research - Theoretical, Empirical and Practical Approaches”, (2015) pp. 422 – 431. 73 See footnotes 10. 74 Kishore C. Dash, “Regionalism in South Asia; Negotiating Cooperation, Institutional Structures”, (2008).

18

ignores China being the benevolent hegemon, which can provide an institutional

framework and weight to implement rule-based regional integration policies. The, the

argument to advance Indian role to play an economic hegemon should have been

actually used for inclusion of China in the prospective SAEU/SAEA to which even Kishore

C Dash cannot disagree.

Within South Asia, subject since her role is crucial for regional integration. For

example Feroz Khan highlights her. However, opines that.75 But Feroz Khan also

questions the role of China’s (OBOR and CPEC), which have been dilated by other

contemporary writers. Using the same logic as Kishore C. Dash about an external

hegemon or powerful state to influence regional integration, role of China and India has to

be evaluated together with the current US Administration’s focus to use India as proxy to

contain rising China.

Another relevant book written by Zahid Shahab Ahmed76 as part of the series on

the „International Political Economy of New Regionalism‟ presents an excellent study into

the nature of regionalism. He has probed deep into both SAARC and ASEAN with

alacrity. There are many critics of the SAARC but Mr Zahid’s profundity of reasons for a

rather staggered development and working of the Association differentiated him by

suggesting reforms in the existing institution to make it as vibrant as ASEAN. Thus not

only that the book presents a succinct quantitative analysis on subjects of Human and

National security it also provides a cogent comparison of structures and institutions in

ASEAN. Mr Zahid goes against the general perception that EU, being an ideal and a

model regional organisation to suggest SAARC‟s spirit, structures and institutions to

emulate ASESN instead. He supports this with an appeal to ensure Human Security – a

subject which is rather new, to consider it a basis for regional cooperation in SAARC

region. Thomas Pedersen77 theory of „Co-operative Hegemonic Interdependence or CHI‟

based on an ideational–institutional realism in which major regional is very close to

Kishore C Dash ideology of „Pragmatic Anti-dependency‟.

One of the main areas of research may be to explore the role of China together

with India as part of forming a SAEU/SAEA for protection of regional interests. An

excellent example of Brazil exists where it was apprehensive of American dominance in

North America Free Trade Area (NAFTA) and, while perceiving it as competing with

Brazil’s national goal. Here the US dominant role of using enlarged NAFTA as

springboard, nonetheless was able develop. Thus, both the US and Brazil till today

project each other's as threat to the main South American continent78. In South Asian

context, similar area of research could be whether China can play the same role as that of

Brazil to win-over SAARC states including India to join visionary project of CPEC and

become part of a SAEU/SAEA.

75 Feroz Khan, “Security Impediments to Regionalism,” p. 227.

76 Zahid Shahab Ahmed, “Regionalism and Regional Security in South Asia-The Role of SAARC”, (2013).

77 See footnote 10. 78 Arlos Gustavo Poggio Teixeira, “Brazil and the Institutionalization of South America: From Hemispheric Estrangement to

Cooperative Hegemony”.

19

Kishore C Dash’s idea of policy coordination for promoting regionalism in South

Asia to make it more feasible than global cooperation has been questioned as to under

what conditions political actors would become amenable to regionalism at the bilateral

and multilateral platforms. Following his book, in another article emphasises on to shape

the future South Asian regional economic interdependence by linking production and

trade with laws, customs and distribution of national income and wealth. David N. Cooper

like Mr Kishore considers historical legacies of the subcontinent partition leading to

protectionist mind-set of political elite preventing India-Pakistan from opening up the

economic spillways beyond.

Ayesha Jalal’s work, „The Rule‟ also to trace root causes of military and

bureaucratic domination. 79Her work understand existing policy and since she emphasises

on the. Her study about role religion and trends of authoritarianism is also important to

understand the decisions with regards to rapprochement with India. Perspective is

accounts for complete explanation of the dictatorship cum sub-continent which Pakistan is

the main focus.80 Ayesha Jalal’s extensive research based on her first hand experiences

of South Asia give her a unique place to back the writings with ground pulse in the region.

On account of discrete decision making process, comparative study of South Asian

countries, the work of presents. Philip Oldenburg work brings out core reasons by citing

the dynamics of three decades afterwards. 81 The second part provides an insight into the

historical paroxysms that are reflected in the mutual distrust and acrimony between India-

Pakistan resulting in SAARC‟s impasse, which will be explored further in the light of

contemporary paroxysm – a role recently assigned by the US.

Ramsha Jahangir published herthesis82 on „Psychosis of Partition across

Generations‟, which presents a cogent review supported by an interesting online survey.

Ramsha brings out the xenophobic environment created by Indian Bhartia Janta Party

(BJP) to claim that India is yet to gain independence from chauvinism. An online survey

conducted from 1340 participants, aged 18 to 35 years, comprising 45 percent from India

and 55 percent from Pakistan concluded that 47.8 percent Indians relate terrorism with

Pakistan, while only 13 percent Pakistanis relate India with terrorism. Interestingly, 58

Percent thought, present generation is more intolerant than their forefathers 70 years

ago.83 These together with some other factors outlined by the writer will need to be

analysed thoroughly to determine policies on how to ameliorate media and intellectual

circles to complement regional integration.

The only book on SAEU by an Indian writer, „Mr Ranjit Kumar‟ acknowledges the

enormous potential of SAARC‟s transformation into something like EU in his book, „South

Asian Union‟84 however he considers, antagonistic history between India-Pakistan and

the huge disparity in national power potential as the main impediment in regional

79 Ayesha Jalal, “The State of Martial Rule: The Origins of Pakistan’s Political Economy of Defence”,( 1991). 80 Ayesha, “Democracy and Authoritarianism in South Asia”, (1995). 81 Philip Oldenburg, “India, Pakistan and Democracy: Solving the Puzzle of Divergent Paths”, (London: Rutledge, 2010). 82 Ramsha Jahangir, “70 Years On: The Partition Psychosis across Generations”, Daily Dawn, Islamabad (14th August 2017). 83 Ibid. 84 See footnote 1.

20

integration of South Asia. Ranjit Kumar also identifies India‟s lack of political reconciliation

to be the main stumbling block in SAARC‟s integration. Puran Ghale complements Ranjit

Kumar in his thesis to conclude that political imperatives. 85 Also agrees with Puran Ghale

quote „the‟.86Muchkund Dubey echoes similar conclusion quote. 87

Asad Ali Khan88 aptly explain the internal dynamics in his article to claim that, “The

political dimensions are mainly overshadowed by security concerns among SAARC states

vis-à-vis their neighbours, which, have been exaggerated to protect vested interests of

rented political elite of the region. With more focus on perceived external threats,

domestic politics rooted in nationalism largely down plays non-traditional security threats,

such as poverty, environment, extremism, corruption, money laundering and inequitable

growth. However, all these scholars consider „power asymmetry amongst SAARC

countries and politics by elite to be the main sources of sustaining disputes by ignoring

the role that unjust partition play on the security imprints of subcontinental politics. ”also,

“the subsequent partition of the sub-continent leaving leaders mind-set‟.”89 Mind-set thus

far like EU or even ASEAN. Obliging herself of SAARC. These views are also shared by

Asad Ali Khan. Thus the literature produced on both sides of the divide corroborates

these conclusions. Most scholars, however, fail to bring out reason of why prior to the

division of subcontinent, the region was thriving in free movement of raw material,

finished goods, labour indicating much better state of intraregional trade and economic

integration.

Empirical observers in academia have often highlighted the enormous potential of

intra-SAARC trade, however, quantitatively, the data quoted by Indian Exim Bank Report-

2014 glaringly digs out a huge intraregional trade potential of SAARC countries. 90 For

example Bangladesh, importing products worth $594.893 billion from around the world,

while SAARC states are exporting the same products worth $489.304 billion outside the

SAARC region. The report, however, presents a cogent quantitative assessment to

negate general perception about the inadequacy of SAARC on account of economies of

scale and economic integration. The 7thSouth Asin Economic Summit (SAES) held at

New Delhi in 201491gave a number of useful recommendations to deepen South Asian

integration. Formation of SAEU was concluded as a unanimous measure for affecting

cooperation and deeper integration of South Asia. Again majority of the recommendations

fell short on proposing as to how these measures can be implemented in an atmosphere

of mistrust, acrimony and non-cooperation by India.

Dr Salem Raihan of Bangladesh presented a working paper at the 7thSAES

claiming a huge cost and welfare benefits if Non-tariff barriers are reduced by all the

SAARC states. Dr Salem used the bilateral trade and trade cost data of South Asian

85 PuranGhale, “Asymmetric Power Balance and its Implications for Regionalism in South Asia”, p.20, (March 2015). 86 Bimal Prasad, “Prospects for Greater Cooperation in South Asia”, p.64. 87 Muchkund, “Regional Economic Integration in South Asia: The Development of Institutions and the Role of Politics,”p.. 88 Asad Ali Khan, “A Temporal View of Socio-Political Changes in Punjab”, (July-December 2009), p. 269-361. 89 Anasua Chaudhury, “SAARC at Crossroads”, p.143. 90 Mr. David Sinate, Mr. VanlalruataFanai, and Ms. Snehal Bangera, “Potential for Enhancing Intra SAARC Trade”, (June 2014), Exim Number 91 Research and Information System (RIS) for Developing Countries, South Asia Development and Cooperation Report, (2015), New Delhi, India.

21

countries from 2005 to 2011 employing the Gravity Modelling technique for quantitative

findings.92He proposed to sign Mutual Recognition Agreement (MRA) and allocate human

and financial resources for SAARC Standard Organisation (SSO). Besides improving the

customs management Dr Salem also suggested to establish National Accreditation

Centres (NACs) in collaboration with designated SAARC states‟ agencies. Dr Salem

recommended a South Asian Tariff Implemented Strategy (SATIS), which proposed

developing to remove trade barriers, follow an incremental, phased and prioritised

approach for Sectoral and country coverages and signing of a short movement

agreement for professionals and specialised skilled manpower under a common

framework. Another set of treaties in Regional Investment and Double Taxation for a

common SAARC investment and FTZ with institutional regulatory frameworks and

effective regional financial networking through SAARC or a South Asian Banking System

was also recommended.

Dr Salem‟s report also emphasised other areas to form a SAEU such as; creation

of a regional supply chain, financial integration, formalising informal Border trade, energy

cooperation and institutional strengthening. Finally, Dr Salem enumerated the main

elements of a SAEU like; creation of efficient cross-border infrastructure especially; free

flow of goods through FTAs, integration of a regional production network, in a arranging

financial resources for regional institutions, for energy cooperation, state of the art

regional economic institutions, deciding on a common external tariffs through customs

union, harmonising economic fiscal and monitory policies, and finally a common currency,

which for an economic union is necessary but for a cooperative mechanism like ASEAN,

it may not be adopted. All in all Dr Salem’s report prepared for SAARC Secretariat is by

far the most comprehensive document. All these recommendations have been finalised in

the 19th SAARC Summit for which formation of a SAEU was determined to be discussed.

However, the impact of China’s addition to SAARC in formation of the prospective

SAEU/SAEA has never been assessed before in any study.

Another study without the intervention of China’s CPEC was carried out93 to

assess SAFTA‟s robustness and increase trade potential and, volume to benefit the

member countries in SAARC region. The study was done on 28 countries, which have

been the top most data includes who almost all. Therefore, study includes (intraregional

and interregional) such that; SAFTA-1, SAARC. ASEAN-1, ASEAN-2 includes is a group

countries like; Mexico, US, whereas the comprise; France, UK, Germany, Netherlands,

Italy, Spain, Belgium, and Denmark. The analysis of Gravity Modelling showed a much

enhanced bilateral trade flows based on cross-sectional data from 2003 to 2008. 94

Irrespective of above considerations, India’s top priorities especially in the post

2017 elections were to focus on the current account deficit, high economic growth for

poverty alleviation, as quoted by „The Economists-May 2014‟95. But most Indian think

tanks consider it a monographic conception due to the deeply ingrained social, political

92 Dr Salem Raihan, “South Asian Economic Union: Challenges and Tasks Ahead”, SAARC Summit, New Delhi, (5-7 November

2014), Kathmandu, Nepal. 93 Nasim Akhtar & Ijaz Ghani, “Regional Integration in South Asia – An Analysis of Trade Flows Using the Gravity Modelling”, 94 Blanchard, O. J, “Commentary on Akhter and Ghani Study on South Asian Dynamics”, Published in pp 112. 95 AnsuyaHarjani, “The Top Four Priorities for India's new Government”, The Economist, (May 2014).

22

and structural factors. The literature review consider sit to be dichotomous issue where

Indian five years‟ national plan claimed to ensure economic development and poverty

alleviation as a centre piece of their national strategy yet it declined to join in CPEC. The

World Bank Report 2014 highlights that due to rising bilateral trade and cooperation on

infrastructure and energy development projects with China, poverty in almost all SAARC

states is commensurately on the decline then why India is reluctant to join CPEC or

OBOR Initiative as proposed by China. Factors such as political economy of SAARC

countries; in particular India-Pakistan, structural imbalances as well as international

political and economic dimensions are important insights, to be explored further in the

analysis part.

Conception of SAEU immediately reminds scholars to compare SAARC with an

ideal regional integration models like the EU or cooperative mechanism of ASEAN.

Archick Kristin gives a succinct account of EU, its structures, functioning and institutions

for comparative analysis with SAARC and ASEAN96. Dr Axel Berkofsky is asenioranalyst

in the EU,97who asserts that integration of EU is mainly a political integration, a processes

that cannot take place in Asia because the governments of Asian continent; in particular

South Asian countries prefer bilateral over multilateral free trade agreements and the

Asian institutionalisation process is underdeveloped. He declares, discussion on security,

built in the charter of SAARC and ASEAN as prerequisite, acting as. However, in the light

of Brexit, resurgent Russia, US alienation from transpacific multilateral pact, Greece

economic crisis, immigrants‟ crisis and international terrorism, the impression of EU being

a role model has been questioned specially by the current American administration. It has

raised the issue of form and type of regional integration that can suit the imperatives of

21st century. For example, Congressional Research Report on EU-201798 indicates that

the process of integration in the EU was two-paced due to varying degree of acceptance

by some out of many countries. Hence, while Syed Mohsin comparison of EU, SAARC

and ASEAN99 is undertaken, the type and form of integration in South Asia is to be

carefully evaluated.

Colonel (Retired) Hariharan in his article published in South Asia‟s Analysis Group

presented a stark comparison of EU and ASEAN with SAARC100. Hariharan fore-claims

that SAARC and EU or ASEAN were formed in different historical contexts and set of

environment where India dominates her smaller neighbours. Hariharan claims that for

SAARC (SAEU/SAEA) to take any concrete form, existence of a common purpose,

national will and joint economic goals is essential. Similar views are expressed by Raghav

Thapar who quotes that unlike EU or ASEAN, SAARC suffers from power differential

mainly due to Indian huge potential to force bilateral over multilateral interdependence.

Raghav blames lack of regional approach in SAARC, Indian self-centred economic and

bilateral focuscausinga stalemate in the intraregional trade, which negates regional

economic integration. Achieve due to power potential differential between the most

96 Archick, Kristin. “The European Union: Questions and Answers” (5 July 2013). Retrieved from www.crs.gov. 97 “Comparing EU and Asian Integration Processes-The EU a Role Model for Asia”, 98 Kristin Archick, “The European Union: Current Challenges and Future Prospects”, 99 Mohsin, Syed, “A Comparison among EU, ASEAN and SAARC”, Retrieved. 100 Colonel (Retd) R Hariharan, “Adding Substance to SAARC: India-Sri Lanka Experience”, (13 November 2012).

23

powerful and the weakest regional state. Mr Raghav Thapar points out that SAARC has

no institutional mechanisms to prevent or fully resolve political disputes. Miss Saba Javed

highlights short comings of SAARC compared with EU to point out that the EU is much

more developed with higher level of institutions, structures and have similar ideologies.

Her article provides pros and cons of China as a permanent member of SAARC. 101

However, the main question of how India could be taken on board and what factors could

compel Indian political elite to nod China’s inclusion in SAARC as a permanent member,

especially after launching OBOR Initiative and CPEC. She also claims that China,

together with India, can provide a leadership role to sustain international political and

economic pressures especially from USA, UN, WTO and MNCs much better than India

leading SAEU/SAEA alone.

To answer, whether EU is playing a complementary role for SAARC‟s integration,

Lombaerde, Schulz edited book “The EU and World Regionalism: The Makability of

Regions in the 21st Century” 102presents case studies of the complementary efforts by EU

for case studies method of quantifying EU‟s strategies for exporting the much cherished

model through policies, institutional, structural strengths and economic incentives. Can

SAARC be South Asian EU? This question was debated at a two-day conference in New

Delhi “Transforming South Asia.” 103 The speakers claimed that before its colonization, the

subcontinent was made up of Two-Third of global GDP during the 18th century, compared

to just 6-7percent now. Various speakers at the conference quoted similar positive factors

indicating huge potential of SAARC region to enhance trade and develop economies

resulting in poverty alleviation subject to the level of integration achieved. Ironically,

however, the conference agenda didn’t focus on how to resolve political disputes but

rather how to bypass politics and the core contentious issues all-together. The basic spirit

was to only embrace economics to demolish the invisible wall that keeps the SAARC

countries aloof from each other. Here again what is invisible are: very clear political and

security fault lines amongst SAARC countries. The answer to question, „does economic

development of a region causes poverty alleviation in the regional states?‟ was provide

by the Indian Export-Import Bank Report-2014, whichconcludes that economic

development actually leads to poverty alleviation. 104

Urjita Sudula qualitative and quantitative analysis of trade vs Militarised Interstate

Disputes (MID) concludes that „Trade Interdependence in South Asia may lead to

decreased MID leading to more stable security environment in the region.‟ 105 Her thesis

vindicates liberals‟ view that trading and social development would outweigh any benefits

of resorting to aggression. Urjita Sudula‟s hypothesis is generally supported but a study

by106 militarised conflicts. According to them, the SAARC states, given their political and

economic Militarised disputes may also depend on figure 1.3 below points at such

101 Javed Saba, “Making SAARC an Effective Regional Grouping”, (December 5, 2011). 102 “The EU and World Regionalism: The Makability of Regions in the 21st Century”, (England 2011). 103 “Transforming South Asia: Imperatives for Action”. Council of World Affairs and the Association of South Asian Scholars

(April 11, 2013). 104 “Potential for Enhancing Intra-SAARC Trade – Working Paper Number 31, Export Import Bank of India (2014).” 105 “Trade Conflict Model in South Asia”, Studentpulse.com. 106 Shaheen “Regional Integration, Trade and Conflict in South Asia”-Project Paper.

24

distortions among SAARC countries except Maldives and Bhutan, which are relatively

stable: -

Figure 0.3: Governance Indicators for 1996-2002.

Note: Higher values imply better ratings (in EU Standards 2005) for Political Stability.

Source: Governance Indicators for 1996-2002, World Bank Report (2003).

Based on the above discussion, it can be concluded that for SAARC to reduce

conflicts or military disputes leading to formation of a SAEU/SAEA the intraregional trade

must be enhanced. Nonetheless, the situation can be judged from a UNCTAD paper,

which claims107 that in 2002 regional trade in South Asia 76percent, while 4percent as

compared to 62 percent, Eastern Africa 22 percent, ASEAN 26 percent and EU

67percent. SAARC trade in share was mere 8percent amongst of SAARC amounted

16percent indicating a bilateral trend. One of the main studies based on regression

analysis proves108 that South Asia together with China will have better comparative

advantage and economies of scale conclusions study would be used in the final chapter

of this study. However, the main challenges to SAARC‟s integration are; unstable bi-

lateral relations between India-Pakistan, lack of a common threat, protectionism policies,

lack of comparative advantage or complementarities, national power potential differential,

geographic dependency and attraction of higher economic returns, which are generally

available from outside than the intra-regional benefits.

Mr Chandra D Bhatta’s article, published in Stanford Journal of International

Relations, „Economic Integration Leads to Regional Integration‟ proclaims; since the

current world’s economic conditions are affected by therefore, there is greater economic

cooperation needed by SAARC, ASEAN, EU, NAFTA”. He also used the same argument

in another article “Prospects of Peace in South Asia through Economic Integration” 109 but

it may not be practicable in South Asia due to the legacy of state formation and beliefs as

well as mistrust among states. Mr Chandra D Bhatta doesn’t set any yardstick to measure

efficacy that economic integration leads to peace in South Asia and hence formation of a

SAEU/SAEA. His finding of political stability resonates with the views of Urjita Sudila and

107 Priyanka Kher. “Political Economy of Regional Integration in South Asia”, UNCTAD Report 2012. P3. 108 Adnan Akram, “Pak-SAARC Intra-industry Trade”,Working Paper Number 93, (PIDE),- (2013) Afia Malik, Ejaz and Musleh ud Din, “An Assessment of Pakistan‟s Export Performance and the Way Forward”. 109 Bhatta, Chandra D. “Prospects of Peace in South Asia through Economic Integration”.

25

in their study on Similar findings have been reached by Dr Pervaiz Iqbal Cheema. 110 All

these studies can be used for an incisive analysis and recommendations of this thesis.

Muhammad Atique Khokhar in his essay „Recommendations for Strengthening

SAARC‟ suggests some cogent measures to remove SAARC’s impasse e.g. by revising

to include devise a mechanism to resolve bilateral or multilateral regional conflicts.

However, he didn’t bring out dialectal and functional gaps in SAARC as a regional

organisation. Subramanian Swamy111 subscribes to Muhammad Atique Khokhar’s view

that SAARC charter instruments and multilateral and contentious security issues.

Subramanian also considers „decision through unanimity‟ to be another bottleneck for

SAARC‟s impasse. But Mr Muhammad Ali in his critical study112 points out; Indian

hegemony and absence of a common threat as the main impediments to progress of

SAARC. Comparing the it can overcome dilemma of decision-making.

Jaycee Sengupta in his article „An Impasse in SAARC‟113 points at the rise of

nationalism, leading to Brexit, which is also a threat to the least economically integrated

region of SAARC. However, the literature doesn’t explore the absence of South Asian

identity (unlike EU). The elections results in France and Germany negated the view held

by Jayshree Sengupta on Brexit. However, Neelum Deo, Ex Indian Ambassador114 does

factor the identity politics, nurtured by cross-border ethno-religious communities,

separatism and in some cases state-supported terrorist activities within the SAARC

region. According to her SAARC is also hamstrung due to increasing Chinese bilateral

economic interdependence upon all states other than India. However, Chinese President

Xi in 2013 invited all nations including India to join CPEC betterment this region. Volume

China-India bilateral trade in 2013 was already in access of $70 billion, which is growing

close to $100 billion in 2017. 115 With India joining CPEC, this figure is likely to go twice as

high within the first year of CPEC completion leading to economic integration of South

Asia.116

(QAU)in an international conference pointed out, there is a disharmony between

political systems and political cultures in SAARC countries, causing challenges for the

stage as they collectively contribute to the policy-makers considerations.‟117This

dichotomy between multifarious cultures and political systems causes bottlenecks to

further aggravate the decision making process. Dr. Andrea Fleschenberg suggests. While

President Azad Kashmir, Pakistan and Ex Ambassador „Mr Masood Khan‟ proposed, a

conflict resolution mechanism to be instituted within SAARC‟s Charter. The concept of an

economic union is not new; however, formation of SAEU/SAEA with China’s CPEC as a

flagship project of BRI adds a new dimension to this study. During the 9th SAARC Summit

at Male (1997) a Group of Eminent Persons (GEP) of SAARC countries suggested to

110 Cheema, Pervaiz Iqbal. “SAARC in the Twenty-First Century: Time to Re-Examine”, (2001). 111 Subramanian Swamy, “A Case for SAARC Reform” (08 August 2015). 112 Muhammad Ali, “A Critical Study of Regionalism in South Asia: Challenges and Perspectives (A Case Study SAARC).” 113 Jayshree Sengupta, “An Impasse in SAARC” (04 January 2017). 114 Neelam Deo, “Can SAARC Succeed Despite Itself” (01 December 2014).

115 See footnote 6. 116 Ross Masood Hussain, “SAARC 1985–1995: A Review and Analysis of Progress”, p35. 117 Policy - Two-day Islamabad, Pakistan (June 2-3, 2015).

26

establish a South Asian Economic Union(SAEU) with a single market and achieving

macro-economic policy harmonization through a monetary system like single currency.

But despite creation of SAARC Free Trade Area (SAFTA) no substantial headway is seen

due to the lack of political will, mainly by India. Mohanan B Pillai, the editor of

International Journal of South Asian Studies quotes: „India vigorously pursued its entry

into ASEAN with which it has struck an FTA‟. In the same Journal, Indian Ambassador T.

P. Srinivasan claims that China has systematically cultivated SAARC states to be more

dependent at the cost of reducing Indian influence. Mr Srinivasan asserts that it’s the

regional interdependence through economic cooperation and not competition that will

propel an all-encompassing growth and poverty alleviation in SAARC.

Literature review not only brings out the effect of China’s entry to break SAARC‟s

impasse but also highlights the value of BRI or OBOR Initiative as well as CPEC. This

platform is absolutely essential to provide skill and capital support for realising integration

in South Asia as well as its seamless connection with the outside world. Chinese (CIISS),

during a conference in Myanmar Institute of Strategic and International Studies (MISIS),

Yangon offered Chinese economic strength and political clout to be used for South Asia

and its rightful voice at the major international forums. He further alluded „China can join

South Asia’s Free Trade Zone to develop her western regions in sectors such as energy,

trade, transportation and border security‟.118 claims that sustained (IT Industry,

manufacturing and infrastructure development) in both Indian and Chinese economies

can transform the fate of SAARC. The EU, MNCs impact on the regional integration. Four

important questions would need to be answered; what will convince India to accept in

SAARC‟s folds, how China can bring balance to ensure peaceful and stable environment

in SAARC, how it can ensure equal treatment of South Asian and, how China can be a

permanent member country on SAARC’s circuit with no objection from other observer

countries.

Mizan-ur Rehman, while exploring, Will China’s joining SAARC make the

organization more functional119‟ concludes in affirmative where Pakistan, Nepal and

Bangladesh supported the idea of SAEU 18th. During same year, the SAARC Secretariat

through Asian Development Bank (ADB) conducted a study, 120 which provides a broader

road map on formation of a SAEU. It is a singular and most relevant document with

regards to formation of a SAEU through institutional and structural reforms. It stands

outfrom all other generic and often summation of repeated analytical resumes, which are

available in abundance. However, it doesn’t consider China’s inclusion into SAARC to

provide it a semblance of politico-economic balance.

On subject inclusion SAARC, Indian scholars and policy makers during numerous

seminars, argue that China shouldn’t be admitted to being a nondemocratic country or

else, China would overwhelm to dominate the intra-SAARC trade. Similar views were

recorded in Dutta, Sujit and Dingli, Shen article published in Strategic Analysis, UK121. But

118 “Anil K. Gupta and Haiyan Wang, China and India – Greater Economic Integration” (01 September 2009). 119 Rehman, Mizan-ur. Department of International Relations, South Asian University. 120 Next Step to South Asian Economic Union – ADB Report 2014. 121 Dutta, Sujit and, (May 2011).

27

Abiderda Md Abdujjaher argues122. Moreover, India itself is overwhelming the intra-

SAARC trade, which needs to be balanced. Professor S. D. Muni also agrees with Smruti

S. Pattanaik on these points. Professor S. D. Muni, disagrees with Professor Dutta on a

number of points i.e. The 2017 China-India stand-off on Sikkim (Doklam) is a testimony of

Indian hegemony in the region.

“China’s Strategy Towards South and Central Asia” 123 a comprehensive study

reveals that the leadership in China considers South Asia as the basic building block to

prop up radicalism, which may get outside support and attract millions of fighters from

around to world to create unmanageable Islamic revolutionary protests in their Western

Province of Xinjiang, which can also get support from the Western powers. This is a real

issue for China and her CPEC plan of South Asian economic integration is considered the

best solution to affect control both through internal and external coordination with the

neighbours. It would be interesting to explore, what effect other than economic

development, social cohesion and poverty alleviation CPEC can bring to South Asian

dynamics.

Another question is whether a SAEU/SAEA be formed without India and by

including Economic Cooperation Organisation (ECO) member states of Iran and Turkey,

apart from Afghanistan, Pakistan and China? Contrarily, what are the likely pros and cons

of India joining or not joining the prospective SAEU/SAEA? This question relates to

India‟s political will or reconciliation. Sara Affler back and Melissa Howlett, in 2016124

used a consultative firm „ORS ‟for gauging the impact of social opinions and surveys for

manoeuvring the public sentiments. Such modelling technique is generally used to plan

and strategies the acceptance of change in policies by public. This is normally called as a

theory of affecting change in strategy and policy. The sampling data comprise only a few

of the political decision makers to change public opinion about for example; formation of

SAEU/SAEA along with measuring the depth of public opinion, which is done through

selected surveys and interviews plus the significance that is attached by government

functionaries as perceived by the general public. One example could be the opinion of the

governmental elite on the issue of joining CPEC or forming a SAEU/SAEA in view of the

fierce international competition.

Thus it is not the question of China being accepted as a member of SAARC (or

prospective SAEU/SAEA) but should India join or not is the subject of Indian policy-

makers being fed by their Ministry of External Affairs (MEA). Case studies exist where

Game Theory125 was applied to see whether USA or Japan should participate in the

process of regionalism or (Asia-Pacific) regional framework to affect integration in Asia

Pacific? 126

122 Abiderda Md. Abdujjaher, “China as SAARC Member-A Debate” (2015). 123 Michael Beckley, Andrew Scobell, “China‟s Strategy toward South and Central Asia an Empty Fortress”

124 Sara Afflerback and Melissa Howlett, “Measuring Political Will-Lessons from Policymakers‟ Rating Method”, ORS, Centre for

Evaluation Innovation Report -2016. 125 David K. Levine, “What is Game theory?” Department of Economics, UCLA. 126 ShintaroHamanaka, “Regionalism Cycle in Asia-Pacific: A Game Theory Approach to the Rise and Fall of Asian Regional Institutions”, ADB Working Paper

28

Muhammad Adil Sivia, a scholar disclosed that Kashmir Chamber of Commerce

Ex-President; „Mr Mubeen Shah‟ in a seminar, organised in Indian Held Kashmir (IHK),

suggested that both the Indian and Pakistani governments should declare divided

Kashmir as one combined Free Economic Zone (FEZ). In this way the distance,

resources, time and cost to travel between Kashmir and Central Asia will be much

reduced by connecting -part CPEC. Chief Minister Mehbooba Mufti and Chairman

Hurriyat Conference, Mirwaiz Umar Farooq also supported this venture for economic

stability and peace in the Kashmir Valley. The Chief Minister, „Mehbooba Mufti‟ also

called for opening of LOC border areas or strategic route of Kargil-Skardu- and Tutuk-

Khaplu to initiate a process of trade in J&K and peace process in South Asia. 127

Muhammad Adil Sivia, genuinely considered it a great opportunity offered through

China’s OBOR and CPEC, which found mention in Mr A.G. Noorani‟s article of daily

dawn.128This public demand was also defended by Mr Mubeen Shah in a Seminar as well

as Chief Minister IHK „Miss Mehbooba Mifti‟ in which both demanded that divided part of

Kashmir as FTA to open borders for trade and commerce with CAS. It would allow China,

Pakistan and, other SAARC countries like; Bhutan and Nepalto be connected toCAS. Mr

Noorani quoted Jawaharlal Nehru’s address to Indian Lok Sabha in 1952 to where he

acknowledged that Kashmir was and it should indeed be the Subcontinent‟s Bridge to

Central Asia (CA). A famous Kashmiri scholar, „K. Warikoop‟ also recorded in his book,

„Central Asia and Kashmir‟ affirming the views. Mr Noorani recorded that after 60 years in

2008, both India-Pakistan had agreed to open trade across Line of Control (LOC) as a

CBM. Mr Haseeb Drabu of IHK, in 2008, as head of the People‟s Democratic Party (PDP)

programme „Aspirational Agenda-2014‟ underscored that the accord on across-LOC is

incomplete without banking and telecommunications facilities. Thus Kashmir to reclaim

once lost status of a gateway to CA was a public demand, which also captured by a

respected journalist „Iftikhar Gilani‟ in an article „DNA India‟ on 18 August, 2017. Mr

Iftikhar claimed that until the early 20th century, the Kashmir valley was an economic hub,

liking South and CA. The proposal is very significant from both geo-economics and

geopolitics viewpoints, which may be seriously considered by India-Pakistan to resolve

the eternal dispute between the two nuclear armed nations. While assessing the political

will or state of India‟s domestic political outlook, these statements should be analysed for

their impact on the final outcome in forging the South Asian economic integration.

Gihan DhanushkaIndra guptha from the University of British Columbia, in his

dissertation129 concluded that an economics-driven commercial liberalism perspective

may fail to fathom internal complexities and perceived vulnerabilities faced by China in its

relations with South Asia. This perspective is based on realist assumptions of periphery

vis-à-vis the core to underscore domination of SAARC by the China core. Dr Swaran

Singh from Jawaharlal Nehru University, India and Major General (Retired) Gong Xianfu

from Chinese International Institute of Strategic Studies (CIIS) in a seminar130 also

127 Muhammad Adil Sivia, “China-Pakistan Economic Corridor and Peace Building in Kashmir”, Euratia Review Analysis, (April 25,

2017). 128 Mr A. G. Noorani, “Kashmir Suffocated”, Daily Dawn Islamabad (Saturdat, August 26, 2017).

129 Gihan DhanushkaIndraguptha, “China‟s South Asia Policy through a Domestic Sovereignty Perspective”(27 August 2011). 130 „China and the Emerging Asian Century‟, , Islamabad under Hanns Seidel Foundation (HSF), 27-28 September 2005. arranged by HSF on 2-3rd June 2015.

29

questioned rising China and emerging India not as driving force in formation of a

SAEU/SAEA due to political factors. Contrary to it, HSF during another international

conference in June 2015 titled acknowledged SAARC region‟s rising economic growth

from 4.9percent in 2013 to 5.5percent in 2014-projected to reach 6.8percent by 2017.

This assessment corroborates more incases of rising bilateral trade of South Asian

SAARC with China, which is a good indicator for SAARC‟s transformation into a SAEU.

Prabir De and Kavita Iyengara concludes in an Asian Development Bank study131

that transport corridors within a geographical proximity are absolutely critical to provide

much needed logistical infrastructure for rapid and exponential economic growth in any

region of the world. For example “Silk Economic Corridor” which President Xi Jinping of

China is tossing to lure regional and global trade would be used as economic corridor.

Obviously such economic corridors are best suited to force-multiply the effect of

heightened trade flows thus creating jobs and, commensurately reducing poverty. This

concept can be further expanded, analysed and implemented in the light of China‟s

OBOR Initiative and CPEC plan, which is considered a main catalyst in formation of a

SAEU/SAEA.

Haroon Sharif‟s essay on new economic and political geography in Daily Dawn132

outlines three main structural reforms. Although brought out many times these are to

boost role of institutions for force-multiplying the positive impact of CPEC for teething

millions labour force in South Asia. The structural changes would also be introduced in

bureaucracy, foreign services and custom ministries together with the public-private

partnership with help from China‟s R&D to sustain Pakistan‟s position as a key regional

market player. The author, however, discounts India from the new South Asian geography

and include Afghanistan, Iran and Turkey together with China and Pakistan - an

approach, which is an antithesis to interdependence and a globalised world.

Maurice Schiff and LA Winters present a very interesting model for Regional

Cooperation and Inter-linkages amongst different sectors133. This UN model accounts for

some very essential elements necessary for cooperation and integration encompassing;

physical infrastructure, ICT, energy, transport and technology. However, their analysis

focuses very narrowly on development of trust amongst regions with expertise and

financing by International Organizations (IOs) like the UN and World Bank. It doesn‟t take

into account the regional politico-military challenges and the role played by major world

powers; USA, Russia, China and India. Nor does it account for SAARC‟s historical pangs

especially; with respect to India-Pakistan. Nonetheless, the economic model based on

inter-governmentalism, presented in this study also complements an essay published by

Journal of the Institute of World Economy.

An instructive methodology suggests to assess the interplay of strategic goals and

objectives of the key regional states to ascertain the overall prospects for a SAEU/SAEA.

Aligning himself with many writers, Mr Robert Black will has revealed that China‟s

strategic goal is to surpass whole of Asia‟s and US‟s ability to compete in regional

131 Asian 132 Haroon Sharif, “New South Asia Geography”, Daily Dawn, (March, 26 2018).

133 Maurice Schiff and LA, “Regional Cooperation, and the Role of International Organizations and Regional Integration”, World, P-26.

30

economic pre-eminence.134 China‟s concern for Pakistan is explained who explains that

besides economic dependence China wants to ensure non-emergence of anti-Chinese

Islamic groups and preventing their establishment in western Xingjian province. Sergei De

Silva-Ranasinghe describes that Indian main goal to restrict and prevent from regional

interferences. 135 Mr Sartaj Aziz states that Pakistan‟s national objectives‟ primary focus

is to ensure state‟s survival and eliminate menace of terrorism with focus.136 Similarly,

Afghanistan‟s main national objective is to ensure internal peace and provide (CAS) for

economic gains. It is clear that India openly considers herself to be a rightful contender

not only for the regional dominance but also as the main competitor of China in the Indian

Ocean and ultimately attain great power status. How international powers and institutions

may use India as a proxy against rising China and what impact it might cast on the

prospects of SAEU/SAEA will need to be explored.

Dr. Ahmar, Director Peace Studies and Conflict Resolution Project, Karachi

University highlighted the limitations of Nine Track Multi Track Diplomacy model. He

quarries. He lists obstacles such as the lack of political will, apprehensions of India's

neighbours, least marginal role that Governmental Organizations in the policy process as

factors that work against applying the Helsinki model. According to Dr. Ahmar, the

ultimately opt for regional cooperation and adopt CBMs for conflict resolution. Ultimately,

it comes down to costs that nations, not individuals, have to pay. So the solution as per

Lewis K. Elbinger lies in establishment of strong commercial links,137 ecological

cooperation,138 education and teaching tolerance139 and CBMs. 140

The Strategic Foresight Group of Mumbai also presented a study about the costs

of South Asian conflict. 141 In their short, powerful and perceptive study titled, actual and

opportunity costs are examined, political, diplomatic costs incurred for Jammu and

Kashmir conflict. A separate chapter on the cost of a nuclear confrontation is particularly

sobering. The group has also measured cost of narcotics, rise of military influence, loss of

civil liberties, cultural deterioration and loss of international influence, internally displaced

persons and psychiatric impact of violence, environmental damage, and stress on tourism

industry. Although Niaz A Naik, Pakistan‟s former foreign secretary, believes that such

costs are manageable, however, in a review of the same book, Bibek Debroy142 claims,

by implication, and as this study argues, the costs aren‟t actually manageable.

Since China‟s OBOR (BRI) Initiative together with CPEC is expected to greatly

impact formation of SAEU/SAEA, therefore, case studies validating positive linkages

between spatial agglomeration, regional typology and economic growth are very pertinent

134 Robert “China‟s Strategy of Asia: Maximum Power, Replace America”, 135 Sergei De Silva-Ranasinghe, “India‟s Strategic Objectives in the Indian Ocean Region”, (October, 20, 2011). 136 Mr Sartaj Aziz, Advisor on National Security & Foreign Affairs “Strategic Vision of Pakistan‟s Foreign Policy” (2014). 137 Ahmed Rashid and Jonathan Karp, "Most-Favoured Enemies," Far Eastern Economic Review, February 08, 1996. 138 Waslekar Sundeep, “The Indus Waters Treaty: A History, Henry L. Stimson Center, South Asia Research Program, undated”., “The

Final Settlement: Restructuring India-Pakistan Relations, International Centre for Peace Initiatives, Strategic Foresight Group, Mumbai” (2005). 139 Ibid. 140 KreponMichale, “Confidence-Building Measures (CBMs) in South Asia,” The =SA2001112047. 141 International Mumbai, (May 2004). 142 Head of Economic Advisory Council and Special advisor to Prime Minister Modi, India.

31

for this study. Richard E. Baldwin and Philippe Martin from University of Paris, in their

research concluded143 that growth in Europe during 17th century. Theoretically, therefore,

it can be proved that there is a very close linkage between agglomeration of industry,

technological innovations and their spatial concentration in the major economic centres of

South Asia on account of China‟s OBOR and CPEC. Geographical proximity further

squeezed by OBOR(BRI) and CPEC can further lower, which Consequently, will CPEC

regions but may fall in the commutatively. Vera Ivanova in her article144 supports findings

of Richard E. Baldwin and Philippe Martin by using a quantitative analysis.

0.8 Knowledge Gap

The literature review brings out certain inadequacies and knowledge gaps, which

would be bridged with the help of this comparative study on formation of SAEU/SAEA

with special reference to China‟s OBOR (BRI) and CPEC. Although, a lot has been

written on the subject of SAARC and its revitalisation but there is no doctoral level

research done on its transformation into a SAEU/SAEA or South Asian Union (SAU) with

special reference to China‟s CPEC. Also, there is a general dearth of conceptually

developed theory based research on SAU or a SAEU/SAEA both in only limited research

materials available on this subject especially, after officially announced idea of (BRI) with

as flagship project. However, till date no doctoral research has been attempted to

evaluate the impact of CPEC on SAARC‟s transformation into a prospective SAEU/

SAEA.

Ever-since the previous studies on SAARC, the subjects of regionalism,

regionalisation, cooperation, interdependence and integration have undergone

phenomenal transformation from a traditional West phalian conceptions to the present

day understanding in a globalised world of 21st century, which need be dilated. To bridge

the existing gap, eras prior to and in the post-colonial periods of British Rule also need to

be researched using case studies method for qualitative and quantitative comparison to

future regional interdependence in South Asia. Significantly, the literature review has also

discovered a primary reference in the shape of SAARC Secretariat’s study, “The Next

Steps to SAEU”, sponsored2014.145However, study only presents Phase Oneonly,

proposing a four pillars‟ strategy of while roadmap to achieve Regional Economic

Integration (REI) leading up to form SAEU/SAEA. However, this preliminary study was

conducted without taking into account interventions of China‟s CPEC as a function of

interdependence within the overall framework of OBOR (BRI).

The next closest study on the subject was done in the form of a book on South

Asian Union (SAU), written by Ranjit Kumar in the early 2000. However, it only contains

an ambitious wish list to form a SAU without any substantive groundwork, surveys,

interviews or rationally balanced input from the remaining SAARC countries. 146 In fact, it

fails to factor in the core contentious issues between India and the remaining SAARC

countries or provide any catalytic factor, which might change the status-quo. Thus, it is

143 Richard E. Baldwin and Philippe Martin, “Spatial Agglomeration and Economic Growth”, Paris (2002). 144 Vera Ivanova, “Spatial Interaction of Russian Regions as a Factor of Their Economic Growth: An Empirical Analysis”. 145 See Footnote 5. 146 See footnote 1.

32

fair to claim that no study on SAEU/SAEA has ever been conducted before, which factor-

in China and CPEC as a function of interdependence. The second major gap in the

existing body of knowledge is the inadequacy of a cogent conceptual and theoretical

framework future and interdependence in relation to SAEU/SAEA. The third main area

needing to fill the knowledge gap is a comprehensive comparative analysis among

SAARC, EU and ASEAN to evaluate whether formation of a SAEU or a SAEA like the EU

or ASEAN is most viable form of the future? Thus practical application of a future South

Asian regional economic integration model, in the backdrop of Brexit experience of EU is

to be explored. Finally, the uniqueness of this study would be rightly claimed if the impact

of force-multipliers such as China‟s inclusion in SAARC together with CPEC as a function

of interdependence can realize the formation of a SAEU/SAEA. An extensive data set of

World Bank and India‟s Exim Bank is available to trace the rising trade and economic

interdependence between China and SAARC states including India, since 2001 onward.

However, whether the Spill-over effect of China‟s CPEC within the framework of OBOR

(BRI) can lead to formation of a SAEU or a SAEA like the EU or ASEAN respectively,

needs to be studied in detail.

Thus, this study not only fills the above mentioned gaps but it also provides

answers to some of the foundational questions about South Asian political reconciliation

within a regional institutional frame work through realizing formation of a SAEU/SAEA.

Accordingly, the road-map of achieving the vision of SAEU/SAEA, with China on board,

can then be used to modify SAARC Secretariat‟s extended study on Phase Two. Even

the book by Kishore C. Dash147 with follow up articles comprising South Asian think tank

compilations148 or even SAARC secretariat papers149 have not filled the enunciated

knowledge gap in terms of conceptual framework and theoretical perspective, which are

so essential for a doctoral level dissertation.

0.9 Significance of Study

Exploring formation of either SAEU/and or SAEA, like the EU or ASEAN

respectively with China‟s CPEC, is a newer approach towards South Asian Regional

Economic Integration (REI). To achieve such a REI, China and the CPEC project, as a

function of interdependence within South Asia, are most likely to be catalysts for the

overall development and consequent poverty alleviation – the main reasons of creation of

SAARC. Secondly, very few studies have explored subcontinent‟s REI potential

addressing the core socio-economic and historical legacies of SAARC states, leading to

form either SAEU or SAEA. Thirdly, there is near absence of even a serious, let alone a

doctoral level research on SAEU/SAEA, conducted within a conceptual framework of

South Asian dynamics in 21st century. Lastly but more importantly, majority if not the

entire literature on South Asian REI presents either or perspective from India or

Pakistan‟s points of view. Nonetheless, this dissertation will endeavour to strike a balance

by incorporating few case studies and their conclusions involving almost all the SAARC

147 See footnote 74. 148 Dr Nishchal N Pandey, “Realizing the Vision of a South Asian Union”, Konrad Adenauer Stiftung-COSATT (2012). 149 See footnote 4.

33

states in addition to China‟s CPEC, which is likely to be a huge catalyst in the formation

of SAEU/SAEA.

This research is significant for many reasons. Foremost being; more than greater

is yearning peace, stability and prosperity resulting into an overall economic uplift of the

peoples of this region. Secondly, it is a first doctoral level thesis on a contemporary

subject of SAEU with China on board, taking advantage of drivers and catalysts like;

CPEC. Thirdly and more importantly, the study suggests a way out of the Kashmir

conundrum, thus contributing to peace, security and prosperity. It presents quantitative

and empirical evidence that China along with CPEC can positively impact poverty

alleviation in South Asia – a key objective of SAARC. Fourthly, it would be useful for

foreign, domestic and National Security policy planners as well as scholars. Lastly, this

study also brings out new areas for future exploration, which may be undertaken by other

scholars, government officials, private entrepreneurs, think tanks as well as students of IR

subjects.

0.10 Research Methodology

Paradigm Assumptions of Research

This dissertation focuses on SAARC‟s transforming into a SAEU/and, or SAEA

with China‟s CPEC as a function of interdependence, involving political economy of the

subcontinent as well as China – called Greater South Asia (GSA). Conclusions drawn

from the comparative study of EU, ASEAN and SAARC will also provide the corecriteriain

formation of SAEU/and, or SAEA. Therefore, research based on either qualitative or

quantitate methodology alone may not yield a complete understanding of the research

problem. This study is geared to assess an expected positive change in the existing

performance of SAARC albeit, with the intervention of CPEC,as a major factor of

reinvigorating the regional interdependence. The same change is being sought in the light

of lessons learnt from the EU, ASEAN gauging through regression analysis. Hence, to

measure such an expected outcome within Greater South Asia, the research design has

to be based upon a mixed method approach using both qualitative as well as quantitative

technique. More importantly, in a study where a part of the expected outcome is

somewhat predictive, it has to be based on the well-founded theoretical assumptions.

Hence, research has been adopted completing this dissertation.

Traditional cooperation, inter depedence political or economic remain extremely

vague in a globalised world of 21st century. Therfore, in the past, these terms used.

However, phenomena globalisation has evaporated classical understanding of such

terms. Nonetheless, there is still an exception to it. For example; economic integration,

regioness based upon geographical contiguity and closeness has still takes presedence

over politically affiliated or controlled regions, which may be far apart like APEC. Hence,

this study assumes that both South Asia (SAARC region) and China are located in an

extended yet the same region, which we may called Greater South Asia (GSA). This

assumoption becomes paramount in the sense of forming a regional economic union or a

regional economic association.

34

Secondly, since globalisation has diminished nations‟ borders in virtual sense,

hence, the challenge is to theorise phenomenon of cooperation and economic integration

where even the Brexit episode has become questionable to be anemulated model.

Hence, in a globalised yet a multipolar world order, it is important to compare both EU

and ASEAN with SAARC to evaluate the feasability of forming a SAEU or SAEA with

intervention of China‟s CPEC as a function of interdepedence.

Thirdely, the Brexit episode in EU has also pointed towards the nature of

interdepedence; whether be economic or political, which is also likely to be confronted

within Greater South Asia (GSA). Looking at the empirical evidence in case of EU,

ASEAN and SAARC as well as other such regional forums around the globe, it is

assumed that the quantum and the nature of economic not political interdependence can

lead to formation of a SAEU/and, or SAEA.

Fourthly, 21st century interdependence and integration phenomenon has

empirically demonstrated that an identity is no more historically constructed or based on

civilisational or geographical factors alone. Therefore, it is assumed, that a supreme level

of aggregation in complex cultural region of Greater South Asia (GSA) can be forgedas

an Economic Identity, with a decentralised political order in which the states retain their

sovereignty but not in a classical sense. However, they readily cooperate owing to

political constituencies, bounded in a web of socio-economic interests thus, carving out

development regionalism. A framework of, commonly called.

Fifth, as China central East, regions, therefore is assumed that subject to formation

of SAEU/SAEA, it can play the key role of a positive hegemon towards economic

integration within Greater South Asia. To further develop an inter-regional cooperation

between ASEAN and the prospective SAEU/SAEA in Greater South Asia (GSA), China‟s

CPEC can actually work as a spring-door for too and froe economic activities thus

embracing other sub-regional economic corridors.

0.11 Research Method and Design

For a number of reasons, discussed herein, the envisaged design of this

dissertation will bea mix of qualitative and quantitative research techniques. To start with,

a historical evidence will be traced about the subcontinent‟s intraregional trade prior to

and, in the post partition periods with particular focus on the ratio of manufactured goods

versus the agrarian products. This data can then be pitched against the current volume of

trade and the type of products/raw materials being imported by SAARC countries from

outside, despite their availability within the region. Ananalysis of comparative regionalism

in case of EU, ASEAN and SAARC can yield valuable lessons to achieve economic

integration through mutual interdependence. The positive Spill-over is assumed to take

place due mainly to China‟s CPEC intervention thus enhancing mutual economic

interdependence within Greater South Asia. The nature of such an interdependence may

appear to be quite complex, at least in political terms but not so, once viewed from an

economic regional identity point of view. Within this framework, the qualitative analysis

and conclusions of the study can be drawn using theoretical lens of Complex

Interdependence.

35

In Greater South Asia, there exists an important phenomena of agglomeration as a

factor of geographical proximity, a key consideration in cost of conducting an efficient

intraregional trade is likely. Combined with a huge attraction of China‟s OBOR (BRI) and

CPEC, complemented by India‟s capacity and willingness to open its western trade

routes, agglomeration is likely to propel the and expedited the process of regional

economic integration. Therefore, conclusions drawn from Gravity Modelling, employed

inempirical case studies on SAARC and ASEAN regions, revealed through literature

review, can become very handy. Thus, qualitative analysis of the first half of this

dissertation can be validated through regression analysis, performed by Gravity modelling

of the assorted case studies in SAARC and ASEAN regions, which can provide cogent

assessment of the regional economic integration potential within Greater South Asia

(GSA).

The next planned step of the research design comprises collection of experimental

data through direct and indirect surveys and interviews with SAARC (SAFTA) subject

specialists, focus groups, Secretary General of the SAARC Secretariat, heads of SAARC

directorate in the Foreign Office, think tanks as well as, Pakistan. Structured

questionnaire interviews and feedback proformae would be used to collect the required

data. In addition to this, comparative analysis would also be used by employing Game

Theoretical modelling between China-India as well as for India-Pakistan, being the main

protagonists within Greater South Asia. This analysis past the current EU and ASEAN

like; Brexit and, 1997 East Asian Financial Crisis respectively. Thus the overall framework

of research is neither deterministic nor socially constructed, rather it is a blend of both.

The ontological explanation is rooted into pragmatism mainly initiated by intervention of

Chain‟s CPEC as a factor of economic interdependence. Both the primary and secondary

set of data, collected through qualitative empirical assessment, literature reviews,

structured surveys and interviews can be used to augment the deductive outcome of the

study in a cause-effect mode. The empirical case studies, based on regression analysis

using Gravity Modelling technique and, collection of primary data through surveys and

interviews would then be analysed through an IBM-Social Package for Social Sciences

(SPSS) computer software to validate the findings and conclusions of this study. Thus, an

overall design of the research is a mix-method technique. The suggested method of

research is designed to collect, analyse, interpret the outcome following which

quantitative and qualitative research conclusions could be combined to study the

outcome. Thus the mix method research technique is most likely to provide a better set of

conclusions as well as implications of forming a SAEU/and, or SAEA in GSA.

0.12 Relevant Sources, Data Collection and Sample Size

Miscellaneous sources like; SAARC Secretariat study, “The Next Steps to SAEU”,

SAARC Summit paper on “Formation of SAEU”, Gravity Modelling analysis of SAARC‟s

intraregional trade as well as interviews with Secretary General SAARC (HE Mr Amjad

Sial) and miscellaneous think tanks, intellectuals, diplomats, bureaucrats, subject

specialists and scholars will be conducted. Sources such as; SAARC and EU‟s

foundational Conferences‟ Agendas, Summits, Charter, Objectives, Heads of State

addresses, Trade and Commercial policy declarations, MOUs and other such documents

36

are likely to be very handy. Secondary sources comprising research papers, studies and

surveys published by UN, Asian Development Bank (ADB), US Congressional Research

Reports, Think Tanks and Academia, Strategic and Political Analysis of Western Europe,

South East Asia and more importantly, SAARC countries will also be used to validate the

findings of the study.

The sample size from the given population has been determined by choosing the

number of observations or replicas, which were then fed in a statistical formula150, which

is particularly important for an empirical study of predictive nature. More importantly, if the

inferences are drawn from subject specialists‟ views in the given population, it is most

likely to add authenticity and credibility to this research. Therefore, on purpose, the

population from which the sampling is to be performed comprise incumbents from SAARC

Secretariat, SAARC Government officials, Foreign office practitioners, Ambassadors, IR

scholars, Think Tanks and subject specialists on economic integration as well as

representatives of Trade Unions and members from commerce and industry.

The expected response in above formula comes to be approximately 85% and the

recommended sample size as 195 respondents. However, the actual sample size for

conducting surveys for this dissertation comes out to be 212.

Based on a cogent set of data retrieved through structured surveys, a computer

based statistical cum analytical tool; IBM Special Package for Social Sciences

(IBM-SPSS) will be employed to validate the claimed hypothesis. The results of the

multiple surveys will then be complemented by the data collected from interviews with

some of the renowned SAARC specialists from across the board. The historical Case

Studies on SAARC and ASEAN regions and their conclusions of regression analysis

using Gravity Modelling as well as Game Theoretical Modelling techniques will be applied

on the current empirical analysis to affirm the findings. In addition to this, the regression

analysis would also be undertaken on the feedback data sets: One; collected from over

110 respondents through surveys based on a structured questionnaire and, Two;

collected from interviews of subject specialists from across a diverse group of

interviewees. Thus, the conclusions drawn from the rigorous analysis of previous Six

Chapters would once again be verified. The multi-layered crossectional analysis and

double confirmation through surveys and interviews of the most relevant subject

specialists, is likely to add credibility to this dissertation.

0.13 Organization of Study

0.14 Introduction.

0.14.1Chapter One: Regionalism, Interdependence and Integration.

0.14.2Chapter Two: Conceptual Framework and Theoretical Perspective.

0.14.3Chapter Three: Impact of Historical Legacies of South Asia.

0.14.4ChapterFour: SAARC, EU and ASEAN – A Comparison.

150 Derived from: http://www.raosoft.com/samplesize.html.

37

0.14.5Chapter Five: Prospects and Challenges of SAEU/SAEA.

0.14.6 Chapter Six: Verification of Study Hypothesis and Summary of

Surveys, Interviews and Statistical Analysis.

0.15 Conclusions and Implications.

38

CHAPTER ONE

REGIONALISM, INTERDEPENDENCEAND INTEGRATION

1.1 A Historical Perspective

The focus of this study is „Interdependence‟ which is generally synonymously

understood with „Region‟, „Regionalism‟, „Regionalisation‟ or „Globalisation‟. Since these

terms often mean different things to different people therefore, misunderstanding. Hence,

cause and effect a policy or shift thereof must be understood for wholesome

comprehension of these terms.

Even though the proverb „interdependence generally leads to peace‟ its origins

were traced in article on „Perpetual Peace: A Philosophical Sketch‟,151 which brings out

that regionalism, as also acknowledged by most scholars, was a complementary factor of

post-World War II phenomena. However, Kant‟s essay ignores diversities of regions and

regionalisation, which was apparent during various historical periods. The inappropriate

maxim of regionalism overstatement organisations understandable forms regionalisation

around the globe. An Oxford paper distinguishes between four different phases of

regionalism: will be briefly discussed this chapter. 152

Does that mean that we are likely to witness another wave of regionalism in the

current geo-economic landscape? Ironically, against the US and EU trend of

protectionism, China‟s flagship project CPEC is a pre-cursor for OBOR/BRI, which plans

to link various continents through the historic Silk Route both on land andthe Seas. It

would be interesting to study its impact on the already existing regional organisations like

SAARC, ASEAN, EU, Eurasian Economic Union (UAEU) and Shanghai Cooperation

Organisation (SCO).

1.2 Understanding Regionalism and Regionalisation

The main question for debate is to what do we mean by regionalism or

regionalisation? As has been discussed so far, different scholars describe these

processes differently. Multidimensional is easily possible amongst various countries

relative to the rest of the world or states, which are located outside of this region. If region

is defined basing on the geography, it is a land-mass within which political cooperation is

linked to historical legacies, heterogeneity of the population thus leading to cooperative

relationship. Especially in the third world countries (of South Asia for example), the typical

regional culture has been developed with similarity of historical belonging. The diversity

encompassing lifestyle, religion distribution, ethnicity identities, languages and

miscellaneous factors developing multiple characteristics develop a specific strategic

culture in South Asian societies. A typical example is of the sub-continent where India-

Pakistan-Bangladesh and Afghanistan and remaining SAARC states share particular

historical legacies with specific and biased historical traces from their past. But if China is

151 ViljarVeebel, “A Choice between Dependence and Interdependence”, (November, 2014). 152 Fredrik Söderbaumfor Tanja Börzel and Thomas Risse, “Oxford Handbook of Comparative Regionalism, Oxford University Press, (2016).

39

also included, the same region may be called „Greater South Asia‟ (GSA). Thus all

geographically contiguous or global.

Fredrik Söderbaum. 153According to him decades of 1980‟s up until the early

1990‟s point towards strengthening of the regionalisation process alongside downside of

extending cooperation globally. During the cold war era, the institutional structures

required to strike economic, political and economic cooperation had undergone major

changes to bring balance to the global fall growing concerns about the collapse of the

world‟s trading systems resulting into formation of sub-regional economic groups, thus a

new form of conflict and competition was to ensue, which was not the case.

The study of multilateral processes brings out some very socio-socio-economic

lessons. Some of these are traditional, while the other are quite contemporary in nature.

For example; the failure of an equitable global cooperation in failed establish cogent

peace and security mechanism, which could manage the regional inadequacies for

promoting regionalisation or economic cooperation. Study of regionalism in the post-Cold

War also reveals that regional and international socio-political disputes, confined to

specific regions like South Asia, Asia Pacific, Europe and North America etc are easier to

accomplish successfully due to a limited geographic and political area than to be resolved

by the UN Security Council. For a multipolar world system now emerging, typical

approaches of 17th or 18th century regional politics have become outdated and will not be

successful.

1.3 Economic Cooperation and Regionalism

Regionalism, regional economic cooperation and integration processes can be

understood through a deeper look at the role that is played by Regional Trade

Agreements (RTAs) and Free Trade Agreements (FTAs). In essence, RTAs and FTAs

generally refer national governments to multilateral initiatives the World "as any policy

designed to reduce trade barriers between a subset of countries regardless of whether

those countries are actually contiguous or even close to each other".154

"As a process, it encompasses measures designed to abolish discrimination

between economic units belonging to different national states; as a state of affairs, it is

represented by the absence of various forms of discrimination between national

economies".155Economic integration, is generally means integration of regional

economies. The process may be conducted through threeapproaches. 156 First, there is

sectoral integration, which is limited to "(i) particular industries or sectors of the economy

or economies concerned; (ii) gradually, proceeding successively from sector to sector."

Second, functional integration, refers to "(i) gradually proceeding successively from sector

to sector; (ii) by means of price incentives operating in a free market." Third is institutional

153 See footnote 17 & 19. 154 Alan Winters, "Regionalism versus Multilateralism" World Bank Policy Research Working Paper 1687(Washington D.C. 155 See footnote 27. 156 Ibid.

40

integration, is "by means of adaptations of national or international institutions in areas for

example; monetary practices and trade arrangements".157

Contrast to EU, East Asia (e.g. ASEAN) (sectoral or functional). East Asia are fairly

weak and ineffective, together with FDIs by Corporations (MNCs) are encouraged by

significant liberalisation of economic sector. These corporations in East Asia".158 China

has been playing a major role in this production-sharing regime and is shaping the

market-driven integration in the whole of Asia. But this regime cannot be characterised as

entirely market-driven or policy-driven. Similarly, even though the EU‟s nature of

integration is political, however, the role of market forces can never be underestimated.

For instance, as per Julie McKay, Maria Oliva Armengol & Georges Pineau study may not

be attainable inthenearfuture. However, economic cooperation like ASEAN can lead to

regional integration particularly so once China‟s CPEC or BRI are factored in as

catalytically strong incentives particularly for South Asia.

1.4 Regional Integration in 21st Century

Has the regionalism and regional integration been impacted by the globalisation in

21st century and, if yes, how? Even during a bipolar order and also with the onset of

multiplorism, even the smaller states can restart alliances to assert themselves through

economic bonding. Some unembellished examples of this can be witnessed by way of

China and India in South Asia, South Africa and Brazil in African and South American

continents as well as Russia in the Balkans. The impact of globalisation in 21st century is

thus visible as new form of regionalism and regional integration. Thus, the regionalism of

21st century has offered less powerful or semi-peripheral countries, especially those in the

developing world the chance to improve their bargaining positions in the global policy-

making arena by forming an arduous collective sub regional constituencies. In the 21st

century, therefore, growth of regionalism in accordance with the enduring economic

integration trends is most likely to be sustained. In this environment of an evolving

multipolar world, capital flows and technological cooperation between and amongst

various region scan actually off-set the traditional advantages of innovation,

industrialisation, IT and infrastructural development capacity. Consequently, certain

currencies have started playing a more prominent role within particular regions. Hence in

today‟s world we see talks of bypassing the leading world currency of US Dollar to

establish bilateral or even multi-lateral trade mechanism using their preferred currency,

which is also allowed by the term of WTO. Such movements in the wake of trade war

between the world‟s powerful countries are being steered and eulogised mainly by

Turkey, China and a few countries of South East Asia, South Asian as well as Northern

hemisphere.

The product of 21st century regionalism and globalisation are also likely to cause

disintegration or at least weakening of the dominant global economic structures like; the

Bretton Woods, tied mainly to the rich countries and non-state actors. Regional

institutions, like the European Community, SCO as well as ASEAN Community or ASEAN

157 EisukeSakakibara& Sharon Yamakawa, "Market-driven Integration in East Asia", (22-23 September 2004), pp 158 Julie McKay, Maria Oliva Armengol& Georges Pineau, ibid. at 12.

41

plus Three have become more assertive to attract regional states into a network of

economic integration. All in all the international system has now altered the dynamics of

both the bilateral as well as multilateral arrangements, which is manifested in what is

famously and most contemporarily discussed subjects of Brexit, Iran‟s Nuclear deal, arms

reduction and test ban treaties etc. Nonetheless, Brexit phenomena and the division on

immigration issue has to be monitored for drawing up relevant lessons? Whether or not

regional economic cooperation leading to integration and interdependence can actually

fulfil the national interests of all or smaller or weaker countries in the foreseeable

multipolar world will have to be seen. All these questions shall be answered through the

study of regionalisation and regional economic integration in Greater South Asia (which

includes China plus SAARC).

Joseph S. Nye in his comparative study on regionalisation, has not supported

formation of Far Eastern Economic Cooperation, European Union, and even North

American regional organisations. He argues that such organisations have not benefitted

the International Corporations, have usurped the rights of smaller, less or least developed

countries on account of quotas, tariff barriers etc. Moreover, these organisations have not

been able to diminish the factor of insecurity from the military and economic hegemons

within the unions or from their neighbourhood159 Nonetheless, we have to wait and see

how the formation of regional economic unions differ from the early 1980‟s and how such

affiliations could be sustained in the face of trade wars now being waged playing up

21stcentury power politics, which can actually work against the basic spirit of regionalism.

This phenomena may be studied by increasing inter-regionalor intra-regional conflicts and

regionalism, with competing regions structured as security and economic networks

centred on major regional powers like China and India in Greater South Asia (GSA), a

subject, which will be broached in subsequent chapters.

According to Bjorn Henatte and Andras Inotai, bilateral or regional and global

multilateral cooperation in the age of globalisation is not anti-regionalism but its forms

may be different from the classical cooperative mechanism. Ironically both systems can

live together and may actually be supportive to the world economic structures,

nonetheless, the benefit has to be judged in the light of human values, which are likely to

deteriorate with the wicket nature of competition. Whereas the ICT would be available to

add efficiency yet the same capacity will most likely undermine the basic spirit of regional

cooperation. The ultimate barometer of the success of regionalism will be to measure the

economic prosperity and fulfilment of the needs of the inhabitants in that geographical

landmass. 160

According to Bruce M. Russett not much of conceptual clarity exists in the research

world comparative regionalism and regionalism. The scholars indulged in extensive

writings on regional integration in the early sixties and seventies. 161 However, the

concept was mainly understood as a small geographical space within the state

boundaries, mostly called as micro or sub-regions. Nonetheless, there are macro-regions

159 Please refer to Deutsch et al. 1957; Nye 1971; Russett 1967; and Thompson 1973.

160 Bjorn Henatte and Andras Inotai, “The New Regionalism – Implications for Global Development and Security”, (February 1994). 161 Bruce M. Russett, “International Regions and the International System.” (1969),pp. 361–80.

42

at the world level, quite different from the sub-regions. 162 Finally the regions were mostly

referred to when referring to different phenomena such as Northern sector over River-

Rhine-Westphalia, EU, or e.g.Eurasia. 163 Drawing corollary from this debate it can be

claimed that region emphasises commonality of characteristics like; territory, governance,

demography and, human identity of a particular region. 164 This provides us the gist of

concept which can be used as tool to discriminate them from states. Hence, we can now

define in a more precise terms that what actually makes up a region. This can be

achieved by referring to the concept of region-hood: which distinguishes a region from a

non-region. 165

A classical definition of a macro-region is elaborated by Joseph S. Nye‟s: „a limited

number of states linked together by a geographical relationship with a degree ofmutual

interdependence‟.166 However, the meaning of a number of geographically contiguous

states is although obvious, but Nye also recognised that the degree of interdependence

could vary between different fields. With this definition as a point of departure, Nye could

distinguish between political integration (the formation of atrans national political system),

economic integration (the formation of a transnational economy) and social integration

(the formation of a transnational society),167 for which interdependence is a common

factor.

1.5 Interdependence and Regionalism

Most scholars including Lombarte don‟t recommend reading too much into the

exact definitions, however, the readers need to concentrate on the mandatory typicality in

various regions to know what geographical area does not bear the same characteristics.

Let us see how regionhood characteristics differ from regions, which e.g. may be areas

with least system of governance by way of sovereignty. If the region is too big like GSA

(South Asia plus China) the factor of sovereignty becomes that much amorphous or

elusive. Thus in large swath of geographical region, non-sovereign governance systems

becomes governable exceeding the limits of global and national system of authority.168

This can be a broad concept within GSA to carry out comparative research with ASEAN

but there could be many other likelihoods. For example, some of the main characteristic

of GSA could be referred like; the existence of a similar identity or common social norms

etc. But some of us may find that some level of economic interdependence in a security

community,169 a security complex, 170 South Asian regional style, 171 or security cluster

162 Markus Perkmann and Ngai-Ling Sum (eds), “Globalization, Regionalization and the Building ofCross-Border Regions”(Basingstoke: Palgrave, 2002). 163 Martin W. Lewis and Kären E. Wigen, “The Mythof Continents. A Critique of Meta-geography” (Berkeley, Los Angeles and London: University ofCalifornia Press, 1997). 164 See footnote 29. 165 Luk Van Langenhove, “Concept of Regionhood”, (Asghate 2001). 166 Joseph S. Nye, “Peace in Parts. Integration and Conflict in Regional Organization”(1971), p. vii. 167 Ibid. pp. 26–7.

168 Also see footnote 32. 169 Karl W. Deutsch, “Political Community and the North Atlantic Area”, (Westport Conn.: Greenwood Press, 1957). 170 Barry Buzan, “People, States and Fear: An Agenda for International Security Studies in the Post-Cold War Era”(Cambridge University, 2003). 171 David A. Lake and Patrick M. Morgan, “Regional Orders. Building Security in a New World” (Pennsylvania Press, 1997).

43

approach172 may serve as a bottom line. 173These definitions do not refer to sovereignty

and so do not essentially rely on the absence or presence of sovereignty within GSA.

Thus, whether or not the EU or ASEAN are comparable to SAEU/SAEA within

Greater South Asia (GSA) is same to the question of asking whether Pakistan is

comparable to USA. The answer is that it depends on the research question. And if they

are defined as non-sovereign governance systems involving treaties, agreements then

they may qualify to be called regions. For example if the question is whether or not

SAARC is comparable with EU or ASEAN from economic integration point of view, the

answer could be yes, but SAARC and ASEAN would be better in comparison since both

are not in an advance stage of economic integration, however, there is no harm to

compare all the three as an economically interdependent region. From this perspective,

the preoccupation with identical systems seems to be exaggerated because the

possibility depends upon the type of research question and typology as well as topology

of regional states.

Thus, it can be concluded that conceptual pluralism in research theses although is

inevitable but formation of research question is also linked with it. Hence, the definition

and understanding of region, regionalism and regional economic integration may qualify

for Greater South Asia – GSA. Secondly for example; formation of SAEU or SAEA with

intervention of CPEC. The implication, therefore, is that an explicit description and

analytical framework for this research work concerning conceptual confusion is more

essentially needed. In view of this, we should focus on the „hard core‟ of the various

categories of definitions and on the broader contexts in which they are used. It should be

understood that the choice of the definition (and therefore, the phenomenon to be

studied) has implications for the identification of the relevant cases to be selected in

comparative research. 174

As we know that the dominant theories of regional cooperation and integration

focus on taking states as the main drivers of regionalism and believe on processes of

formal institution-building at the regional level. Let us explore as to what extent this dual

bias allows theories of cooperation and regional integration to undertake study of

comparative regionalism. On these particular subjects, new regionalism approach (of

Söderbaum) and non-Western approaches (of Acharya) emphasise the role of NSAs and

informal institutions. Rather than substituting the main stream theories, statist and formal

institutionalist bias the frame of reference should be Governance. This alternative

approach to study regionalism and regional integration needs to be explored since

Governance gives equal status to state and non-state actors and does not prioritize

formal over informal institutions. It thereby provides a useful framework to systematically

compare varieties of regionalism across time and space. Tanja A. Börzel in her article175

considers both the formal and informal approaches within a single frame for comparative

regionalism and integration discussed in the succeeding paragraphs.

172 Rodrigo Tavares, “Understanding Regional Peace and Security. A Framework for Analysis”,(2008), pp. 107–27. 173 Robert A. Mundell, “A Theory of Optimum Currency Areas”, American Economic Review, (1961), pp. 509–17. 174 Ibid. 175 Tanja, “Theorising Regionalism: Cooperation, Integration, and Governance”.

44

1.6 ConceptualAspectsofRegionalism and Economic Integration

The early or classical approaches to regional integration were concerned with

peace, and tended to view the nation-state as the problem rather than the solution. To

determine the role of cooperation, the most relevant theories were federalism,

functionalism, neo-functionalism and transnationalism. Within Europe, there was no

obvious theorist associated with federalism, whereas, functionalism has been much

strongly identified with David Mitrany. Neo-functionalism enjoyed an enormous reputation

during the 1960s. The central figure was Ernst Haas, who challenged the functionalists,

and claimed a greater concentration on the centres of power. In fact, Haas theorised the

„community method‟, which was pioneered by Jean Monnet. However, even if the

outcome of this method could be a federation, it was not to be constructed through

constitutional design. The basic mechanism in neo-functionalist theory was „Spill-over‟,

which referred to „the way in which the creation and deepening of integration in one

economic sector would create pressures for further economic integration within and

beyond that sector. However, for the existence of Spill-over mechanism, the precondition

is „Regional Cooperation‟ among the geographically contiguous states. The regional

cooperation is most likely to result in „Interdependence‟ - a concept spread by Joseph

Nye and Robert Keohane.

Thus both Joseph and S. Nye Robert Keohane and contemporary scholars also

recognised value of functionalism resulting into Spill-over as observed in numerous

sequence of events in Europe. Importantly, the question of how much of these functional

equivalents and Spill-over variables could be effective for regionalism and regional

integration in South Asia needs to be researched? From European perspective the

rationale of regional cooperation and integration among Less Developed Countries

(LDCs) was not found in functional cooperation or marginal economic advantages within

their existing structure, but rather, through combination of„ structural transformation‟ and

the encouragement of productive capacities, whereby investment and trading

opportunities clearly outperform the present set of financial earnings. Joseph and Nye

Robert Keohane School thus shifted focus away from economic integration as a means of

political unification to relatively purely towards regional Economic cooperation and

ultimately integration as a means of economic development and prosperity. Thus, the

transformed version of interdependence i.e. „Complex Interdependence‟ in a globalised

world can be an ideal lens through which South Asian regional integration is studied.

Within this theoretical framework both CPEC and BRI can intervene to provide a requisite

fillip to the process of regional economic integration in Greater South Asia (GSA).

Björn Hettne, emphasises that regionalism needs to be understood from

anexogenous perspective, according to which globalism and regionalism are knots of

stronger global transformation. While in case of endogenous perspective,a group of

actors from within the region shape the environment. However, the time period in which

Ernst B. Haas and the early regional integration scholars, today there are many type sand

varieties of regionalisms thus, a different base line has to be established for undertaking

comparative study such as this. It is apparent that neither the object for study (ontology)

nor the way of studying it (epistemology) has remained inert. Consequently, a rich variety

45

of the oretical frame works are available to study regionalism and regional integration.

According to Fredrik Soderbaum, the current regionalism may be seen as a new political

landscape in the making, characterised by an increasing set of state and NSAs operating

on the regional arena and across several interrelated dimensions of security,

development, trade, environment, culture and, so on. 176

There exists no overall consensus for a definition of the Asian region or about the

nature of Asian regionalism in the globalised world. This is so because regionalism can

also be studied in terms of sub-regions to include and exclude factors of interdependence

like; security, economics, politics, poverty and identity. Accordingly, a particular

theoretical perspectives can be developed and employed. Conventionally Asia has been

divided into the regions Central Asia, Northeast Asia, Southeast Asia and South Asia,

with a blurred border towards the Middle East. During recent decades a debate about

regionalism in East Asia has focused on the formation of collective identity in terms of

economic development and political consent in decision-making. These scholars seek to

account for a non-legalistic style of decision-making without actually transferring national

sovereignty to a supranational regional authority. Nevertheless, the study of ASEAN

model indicates that there exists a dense network of informal gatherings, working groups

and advisory councils not only within the ASEAN Regional Forum but also in the Asia-

Pacific Economic Cooperation (APEC), and more recently the Asia-Europe Meeting

(ASEM) and ASEAN Plus Three (China, Japan and the Republic of Korea) platform.

Soderbaum claims that this style of decision-making incorporates its own innate code of

conduct – often referred to as the „ASEAN Way‟, which, in contrast with EU‟s formal

bureaucratic structures and legalistic decision-making procedures, is built around

discreetness, informality, pragmatism, consensus-building, and non-confrontational

bargaining styles. 177

The above conceptual discussion points at a possible near similar informal

arrangement in Greater South Asia (GSA) comprising China and SAARC states. Such a

framework may turn to an economic, not a political community either in the form of a

SAEU and, or SAEA. In a wider sense, within such an economic community, China can

provide a common driving force for cooperation between the ASEAN on the East and the

SAARC together with Western Asian regions. However, we have to recognize that

regional economic cooperation is a contested process that may present different

challenges in Greater South Asia (GSA). There is, however, greater space for mutually

reinforcing cross-fertilisation and cooperation between the prospective SAEU/SAEA and

Shanghai Cooperation Organisation (SCO).

The concept of GSA also bode well with New Regionalism Theory (NRT).

According to this concept, the regionalism process should be seen in the light of

interactions characterised by geographic contiguity and limited by geographic boundaries.

The focus is more on socio-economic cross-fertilisation through regional economic

integration. Bjorn Hettne and Fredrik Soderbaum article illustrate the importance of

geography and geographic contiguity over social processes by making reference to the

176 Fredrik Söderbaum, “Comparative Regional Integration and Regionalism” RsearchGate, (May 24, 2016). 177 Ibid.

46

Free Trade Area of the Americas (FTAA), the enlargement of the European Union (EU)

as well as the African Union (AU) and the continent-wide economic and political

framework proposed in the New Partnership for Africa's Development (NEPAD) as the

modus operandi of the new regionalism. 178

The scholars have always centred their discussions on the core question of

sovereignty, which is thought to either allow or prevent regional integration. Secondly and

perhaps more importantly, it also considered essential to find the existence of formal and

macro-regional arrangements involving the state and non-state actors. 179But formal

organisations and synergised regional cooperation policies are also admitted as pre-

requisites for an organised regionalism. 180The conceptualisation of regionalism may also

be guided by the principles of non-comparability if and only if some characteristics of the

two organisations are overlapping. Moreover, the process of regional integration is too

comprehensive to be confused with non-regions in which the states and non-state actors

have no common interest; businessmen, MNCs, Bretton Wood institutions working ininter-

stateframeworks.181 Similarly, the writers, artists, peace activists and Human Right

organisations are often not factored in the analysis of regionalism even though they have

transnational and even global appeal for all the public at large. 182

1.7 PluralisticApproachesin Comparative Regionalism

Like many scholars and writers, Breslin also brings-out the main variations in

informal and formal types of regionalism. This has actually broken the traditions of

ascribing the first wave only from a particular lens to read multiple responses to the

concept of regionalism. This here we shall dilate on the exclusive inquiry of this

questions‟.183The second aspect is more pressing to discern the advantage of studying

more than one types of regionalism and assess their usefulness for a particular region

under study. From the point of view of pluralistic regionalism, more important is the

method of forming regions through which they come into being instead of looking for a

particular set of activities in a region or regional geographical settings. Hence, in this kind

of analysis, regional inter-state organisations are seen as a second order phenomenon,

compared to the processes that underlie processes of regionalization and region-

building. 184

Regions are constructed and reconstructed through social practices and within a

discourse. Thus, calling a certain geographical area a region needs to be seen as a

broader tool that is used to obtain certain goals. It is therefore possible that various

regional spaces overlap in territorial terms, and as Neumann eloquently points out,

„multiple alien interpretations of the region struggle, clash, deconstruct, and displace one

another‟.185 For example, if SAARC is to be compared to its near compatibles like; the EU

178 Bjorn Hettne and Fredrik Soderbaum, “Theorising the Rise of Regionness”, (2003). 179 For further study of „Regional Cooperation‟ andRegional Integration‟ refer to EU Case Studies – 2005. 180 Andrew Hurrell, “Regionalism in Theoretical Perspective”‟, Oxford University Press (1995), pp. 39–45. 181 Alan M. Rugman, “Regional Multinationals and the Myth of Globalization” (2008), pp. 99–117. 182 See footnote 45.

183 Ben Rosamond, Richard HiggottandShaun Breslin, “Regions in Comparative Perspective”, (2002), p. 13. 184 Ibid. 185 Iver B. Neumann, “The Region-building Approach”, (2003)

47

and ASEAN, China could be included as part of the Greater South Asia particularly so

once the main reference for analysis is CPEC or BRI. Such an overlap in defining

regionalism or regionalisation can be acceptable for undertaking a comparative study on

possibility of forming a South Asian Economic Union/Association (SAEU) or a South

Asian Economic Association (SAEA). If the unit of analysis is identity based both state as

well as economics can be taken as South Asian regional identity. Notice the overlap in the

regional term; Greater South Asia as well as between state and economics. 186

At first sight the pluralistic perspective on regionalism appears to be somewhat

difficult to reconcile with hermetically sealed and pre-defined regions. It may also appear

that the constructivist and post-structuralist understandings of regions pose certain

challenges for systematic comparison. However, increased communication between

different the oretical standpoints requires more precise definitions and increased

emphasis on explaining what, exactly, is „regional‟ and what is not. This can best be done

by looking at the different broader contexts such as security-related discourse or

economic discourse, in which references to being or becoming a region occur. Above

example of SAEU or SAEA in Greater South Asia ideally fits into this percept. Therefore,

it becomes incumbent to explore inquiry of comparative regionalism to nail down to those

specific reasons, which actually become the core basis due to which these variations

could be traced. Only then should we go into the studies related to comparison. 187The

identification of „comparable‟ cases should take this into account. Rather than comparing

different regionalisation processes in the same historical moment or lapse of time, it might

make sense to compare the cases in comparable logical moments or lapses of time. 188

Once such logical moment in history is China‟s offer to revive the old silk route of which

the CPEC is a flagship project of BRI.

1.8 The Globalisation and the New Regionalism

Any study on regionalism or regional economic integration cannot escape an all

pervasive international phenomena of globalisation. A unique styled conceptual

description on regionalisation and globalisation can be found in the guise of Bjorn

Hettne‟s writings, which apparently seem non-compatible. It is believed that

regionalisation and globalisation processes co-exist even when the modern state system

of 1848 injected a new regional and international order. This so called order actually

brought the perils of disorder to challenge the classical conceptions of both

regionalisation and globalisation. So the questions of whether or not these two are

synonymous, harmonious, in support of each other had to explored. Hence, the

interpretation by scholars and writers from different backgrounds of observing empirical

phenomena tended to define each according to their own school of thoughts. However,

each definition differed because of different framework of conception and interpretation

186 Ibid. 187 Ibid. 188 Ettore Dorrucci, Stefano Firpo, MarcelFratzscher and Francesco Paolo Mongelli, “The Link between Institutional and Economic Integration: Insights for Latin America from the European Experience”, (2004), pp. 239–60.

48

influenced by their own empirical observations.189 Thus, it is important to clarify these

concepts or processes and their impact on the regionalism or new of regionalism.

The interplay and outcome of discussion between these two schools of thought

should have been influenced by the dynamic and a non-linear set of empirical

observations based on multiple developments taking place at that moment of evolution.

Instead the writers attached no significance to the fluid international order, which has

dialectical and not a straight forward relationship. This type of relationship is very difficult

to be bade the basis of any let alone academic research since there are human being at

the conclusion end. Regionalisation in the current times relates to globalisation as

response to its challenges. Compared to 'regional', with an impressive theoretical tradition

behind it, 'global' is a more contemporary social phenomina, which appears to be a more

informal bondage than an obligatory one. However, on the ideological plan, it makes more

sense to use globalism. Globalism can thus be defined as the vision of a borderless

world, in which territory has lost all importance and functionalism is predominant. More

precisely, it indicates a qualitative change in the internationalization process, thus further

strengthening the functional and weakening the territorial dimension. 190

Like regionalism, globalisation is also not very well defined and understood. Thus,

in spite of its obvious importance for understanding the emerging world order, we lack a

theoretical framework explaining what globalisation is all about. The reason is that both

are complex and multidimensional phenomenon. The scholars approach it from the point

of view of many different disciplines which illuminate different dimensions and sometimes

contradict their own explanations. Let us pick the division of labour framework to

understand globalisation and its impact on a traditional regionalism process. The

avaricious theories concerned with international division of labour identify three categories

of labour. The old division of labour, which is analysed by classical political economy. The

new international division of labour, concerned with the spatial reorganisation of

production chain in the 1960s till 1970‟s; and the global division of labour during the

1980‟s and 1990‟s, where domestic economies were penetrated by global labour to

transform it as diffusion phenomena.

Thus the skilled labour in the traditional regionalisation centres was replaced with

relatively unskilled labour from the developing countries. This massively changed the

scale of production because of huge investment by MNCs through banks who profited by

lending and trapping some of the third world countries into what is called debt servicing.

Easy credit thus turned the newly industrialised countries into a further regression

enlarging the gap between the developed core and the underdeveloped periphery. Only

China together with a handful of countries came out to be the beneficiary of this new

process of regionalisation. This changed the core-periphery demography as some states

moved up the scale to join the core and so did the movement of labour. This together with

regression of the periphery further led to massive illegal immigration to alter the dynamics

of regionalism in Europe the signs of which can be witnessed in the form of Brexit. Thus

the Brexit can be seen as a clear manifestation of the impact of globalisation on regional

189 Bjorn Hettne, “Globalisation and the New Regionalism: The Second Great Transformation”, pp. 37. 190 Ibid.

49

integration as well regional economic integration. Most scholars think that the ruthless

consequences of globalisation process can be managed only through a new form of

multidimensional or the globalised form of regionalism or economic integration.

Bjorn Hettne, however, acknowledges that the globalised regionalism has

impacted both the contents and the context of regionalisation and regional economic

integration. The process of globalisation also homogenises regional space, reduces the

sovereignty and changes the role of nation-states. The vital interaction between the

regionalism and globalisation processes has developed a new logic, which has

incorporated 'the political' dimension of regionalisation in one form or the other.

1.9 Role of Interdependence in Regional Integration

Interdependence and integration are generally understood to be synonymous

concepts, however, although they may be complementary but are not the same.

Interdependence is a mean, while integration is a process to achieve peace, prosperity,

development or positive outcome for community or states. Traditionally, the motive

cooperation among the nations and states is thought to be the main mover in prevention

of war. The economic cooperation particularly lowers typical sovereignty based guards of

nation states to indulge in the wake of more economic spin-off. However, the main inquiry

should be as to how sustainable security and stability can be and to what extent these are

actually related to the level of interdependence and integration. The economic logic of

cooperation and integration, came to the spotlight much later, once it was realised by

states to adopt policies of interdependence for achieving peace through economic

development. 191

A number of writings produced by Kant claim that the only logical way leading to

avoidance of conflicts is to form an international alliance of states, which would compel

them to forego their autonomous status of making independent decisions. However, still it

would not result in a global governable state structure, albeitas a federation of

international alliances. Hence, states in a global network of alliances will agree on an

integration framework, while still attempting an integration at the regional and extra-

regional levels. Thus it is concluded that mutual interdependence will remain a driving

force behind any type of integration. 192Such processes can be understood through a

detailed study of EU‟s integration based on Jean Monnet conceptions in which the

potential of the Coal and Steel Community (CSC) became a starting point of what we see

today as a modern set of Schengen States. Like the Europe, similar models were copied

by North American Free Trade Area (NAFTA) as well as ASEAN.

From the above, it was observed in the formation of EU that the process

integration progresses through a series of phases; i.e. from bilateral cross-border

economic activities to transnational economic dependence, ultimately leading to political

integration of regional states. Thus a stage reaches where even the most contentious

issues both bilateral and multilateral can be resolved without resorting conflicts. A phase

reaches where all regional states easily agree to founding of a supranational structure of

191 ViljarVeebel, “A Choice between Dependence and Interdependence”, (November 2014). 192 Ibid.

50

governance to frame rules for unravelling the perennial historical legacies.193In certain

situations, however, the interdependence may never be universal „win-win‟ particularly in

terms of security and prosperity hence some member states might become the victims of

the „commonly agreed principles‟. For example, as discussed before, Brexit process in

the EU has brought in new lessons to challenge this traditional road-map of following the

model of economic interdependence leading to permanently successful regional

integration.

All in all, in terms of picking choice of either going for political or an economic

integration or both, Pakistan and India could exercise choice of becoming totally

independence, partially dependence or opting to become completely interdependent. We

should also learn some lessons from the process of integration and, now the beginning of

so-called disintegration of the EU in 221st century. Number one is that there are no

peripheral or weak state in any framework of regional integration; economic or political.

Secondly, the peripheral or weaker regional states cannot be permanently at the receiving

end to accept the majority decisions. The nature and structure of economic

interdependence should have sound foundations to set up a mechanism of transparency

not trepidation.

1.10 Complex Interdependence and Economic Integration

As is well-known, the concept of dependence or interdependence was shared in

Europe by Immanuel Kant in his famous book, “Towards Perpetual Peace” and also by

Norman Angel‟s memoire, “The Great Illusions”. Off course the interdependence of states

couldn‟t prevent the WW-I. After WW-II, this idea or concept was further refined and

presented by the two prominent scholars; Robert Keohane and Joseph S Nye Jr. Being

pioneers of not only the liberal institutionalism and liberal trans-nationalism, they

developed comprehensive theory of Complex Interdependence in their seminal book,

„Power and Interdependence‟ in 1977, whose subsequent editions have also

incorporated the latest phenomena of globalisation. According to Keohane and Nye‟s

theoretical assumptions, what makes societies‟ integration complex through the

phenomena of „Complex Interdependence‟, is that, societies are connected through

multiple channels not just diplomatic, bureaucratic, national or intergovernmental but also

informal transnational non-governmental elites like Multi-National Corporations (MNCs),

influential businesses and entrepreneurs. These multiple transnational informal channels

of communications and interaction influences the formal elements of states, which makes

interdependence very complex. Secondly, according to Keohane and Nye, these

transnational informal channels of communications and interaction with states set multiple

agendas, which are not arranged in a particularly order or hierarchy like the realist

assumptions in the order of military-political-economic etc. This means that military,

security or comprehensive security doesn‟t necessarily always dominate international

agendas in the same order of priority. Hence, in a Complex Interdependent relationship,

there is no distinction between the high-politics (military, security) and low politics (human

or comprehensive security). For example economic and societal considerations like

poverty alleviation etc are also very important in transnational.

193 Ibid.

51

Thirdly, Complex Interdependence brings such a level of economic and societal

connectivity amongst states that destruction or destabilisation of which may bring severe

consequences or cause damage to national or international economy and society.

Therefore, use of force to resolve conflicts is not considered an appropriate or a priority

option. Hence, states cannot afford to adopt extreme path of war to solve political or

economic conflicts. Thus an already established level of interdependence, between states

cannot be broken easily because it may sag socio-economic progress in both powerful as

well as weaker states. Hence, it is most likely that the rising economic or trade

relationship amongst interdependent states transforms their political acrimony to mutual

cooperation and economic prosperity. Therefore, even in times of tension, cooperation

amongst states continues at the regional and global levels. However, for positive growth

of development and a stable relations, Complex Interdependence has to be symmetric

not asymmetric. It means if State A depends more than State B, it would cause unilateral

vulnerability for State A being probably a weaker state. In such a case State B may

exploit vulnerability of State A and the relationship would not remain interdependent

hence may become unstable thus threatening the rising socio-economic development.

Examples of Complex Interdependence are EU as a whole, transatlantic relations

between the EU and US, China-US relations, Russia-EU relations as well as the

contemporary interdependence between Russia-Germany and Italy. Another most recent

example is economic relationship between China and India for which Indian Prime

Minister has to frequently shuttle between Beijing and New Delhi to sustain US$ 100

billion bilateral trade between the two countries. It may also be noted that whereas

interdependence stabilises national and international security situation, sometimes due to

negative development, it was not able to maintain peace or prevent war. Examples are;

initiation of war between Germany and the UK in 1914, Russia and Poland and Baltic

states, Russia and Ukraine since 2014, Russia and the EU in 2014 and, may be China

and USA in the future due mainly to the ongoing trade war in 2018.

To sum up Complex Interdependence, it is an old concept but was mainly refined

by Robert Keohane and Joseph S Nye in order to demonstrate that states are completely

tied together in various aspects of their national resources, whether they be economic,

military, agricultural, political or social etc. The main characteristics or assumptions of

Complex Interdependence are three; first, multiple channels (national and transnational)

exists amongst states or states and NSAs to facilitate actions between communities.

Secondly, low salience means less possibility of use of force as a non-viable tool in

international relations by offering diplomacy and synergising various policies as substitute

routes. Thirdly, the Complex Interdependence experiences non-hierarchical issue areas

and regimes, with wide agenda of topics that link states together in order to achieve their

national objectives. It means, the line between domestic or interior and foreign policies

becomes blurred, as genuinely there is no clear hierarchical agenda in interstate

relations. If we analyse these three characteristics or assumptions, we can attempt to

synthesise and compare elements of realism with liberalism. With the growing complexity

of interdependence, fewer and fewer goals are achieved by relying exclusively on military

threats but also on raw economic incentives. The utility of hard power methods has

52

therefore, in general minimised, as it is less likely than in the past to produce the desired

outcomes through use of force.

1.11 Complex Interdependence in 21st Century

The onset of globalisation phenomena opened up a whole new world in the study

of international relations, displaying how powerful nations such as US, Great Britain, and

Russia were involved in interdependent relations with under developed nations, which

were exploited to the hilt. Therefore, the growing rate of transnational flows and the

increase in channels of communication are creating an uprising in interdependence

between states and nations. These relations influence contemporary issues of states in

many ways not only to material needs but also their political, ideological or cultural

concepts. Thus today‟s Complex Interdependence has become multifaceted, which

includes diversity of issues, far from the past, where these were solely dependent on

economic objectives and the support of military power. This in terms of international

relations shows us that the evolution of international relations has gone from military and

economic dominance to the safety of our cities and population in the context of

comprehensive security. We need to recognise the fleeing opportunities and the

embedded dangers of the interdependent but more complex world. New and unclear

threats of environmental, biological bacteria viruses and other living organisms with

disastrous consequences to the nation states are cases in point.

Another aspect of globalized world is ecology and all issues related with it.

Ecological interdependence is only more contemporary and its current importance as a

result of the major advances in technology, manufacturing, transportation and mass

consumption during the twentieth century can be tackled through interdependence. One

result of these qualitative changes is that any alteration in a local environment can have

major ecological, economic and political repercussions on a global scale, creating a

conservationist or protectionist mind-set across the globe. For example, the deforestation

of the Amazon jungle has had serious repercussion as far away as Italy and Japan as

well as more locally in Brazil. Consequently, environmental interdependence is having

devastating impact on the global society.

Thus, the Complex Interdependence is shaping a new trend by developing in-

depth dependency within the regionalnation-states. In the coming days, academia-

industry-civil society-media-intergovernmental collaborations are likely to make nation-

states more interdependent where both weak and powerful nations will have comparable

if not equally important role to play. While the core problem of international relations in the

20th century was states that were too strong like Germany, Imperial Japan, and the

Soviet Union, the leading problems of international relations in the 21st century are states

that are too weak for playing a complementary role at the global level. It may prove a

setback for complexly interdependent relations due to the weak domestic economies and

political structures. In a globalised world, nations will have to improve their infrastructure

and socio-economic life to become as a strong and potential hot-spot for external

investments through a process of regionalisation. Nations used to have rigid foreign

policies, mostly limited to imports and exports, but thanks to globalisation, the foreign

policies have expanded exponentially. National priorities in terms of agriculture, fiscal aid,

53

terrorism, the environment, health, education, poverty alleviation, immigration and money

laundering are now being set through a collaborative mechanism between the states as

well as MNCs, NGOs and the UN. This unbounded relationship of Complex

Interdependence can never by bypassed by any nation.

Ernst B. Haas defined the concept as follows: „regional cooperation is a vague

term covering any interstate activity with less than universal participation designed to

meet commonly experienced need‟.194 Andrew Axline asserted that „regional cooperation

can only be understood from the perspective of the national interest of the individual

member states, and that the politics of regional negotiations will involve accommodating

these interests for all partners‟.195 Regional integration is, in contrast, normally taken to

imply some change in terms of sovereignty. According to Haas, „the study of regional

integration is concerned with explaining how and why states cease to be wholly

sovereign‟.196

In one of the leading studies conducted by the famous Giovanni Capannelli, Jong-

Wha Lee and Peter A. Petri197, accounted those factors, which are needed to calculate

the level and depth of integration or cooperative strength among some of the East Asian

countries, which concluded similar pointers of different regions in the world. The factors

considered were; exchange of labour, capital and resources, financial volumes in terms of

regional trade and the Foreign Direct Investments. The additional factors made part of

this study included; the intensity of trade relationship, measured through country to

country trade summits, conferences, policy meetings and physical steps taken to boost

trade among a group of regional countries. The operational analysis of the study revealed

that among the Sixteen Group of East Asian economies the trade dependence FDIS,

movement of capital and other forms of trade policy meetings with agenda to discuss

tariff, boarder clearance systems etc actually sky-rocketed only to indicate that there was

more economic interdependence in the region. A similar profile was observed in the case

of European Union or EU, however, the Asia‟s overall trade and economic cooperation

remains very weak and underdeveloped, which least institutional or political will to

achieve high levels of regional economic integration. The reasons for the this lack of will

poltical or economic were measured through regressional analysis factoring in cultural

complexities. The conclusions indicated that compared to Europe or EU, the East Asian

countries had minimum level of similarities of cultures, political will and economic

prosperity. However, it was also found that if economic interdependence continues to

grow even slowly together with social interactions, requirements for joint decision-making

are also likely to expand, leading to stronger frameworks of official cooperation.198

Regionalism mayalso cause a formal economic cooperation or arrangement

between groups of countries aimed at facilitating or enhancing regional integration. For

194 Ernst B. Haas, “The Uniting of Europe: Political, Social and Economic Forces” (Stanford University Press, 1958), p. 16. 195 W. Andrew Axline (ed.), “Cross-regional comparisons and the theory of regional cooperation: lessons from Latin America, the

Caribbean, South East Asia and the South Pacific”, W. Andrew Axline (ed.), “The Political Economy of Regional Cooperation: Comparative Case Studies” (Pinter, 1994), p. 217. 196 Ernst B. Haas, “The Study of Regional Integration: Reflections on the Joy and Anguish of Pre-theorizing”, International Organization, Vol. 24, No. 4 (1970), p. 610. 197 See footnote 39. 198 Ibid.

54

instance, a group of countries enter into a Regional Trade Agreement (RTA) to facilitate

their economic integration. RTAs can be in various forms indicating different levels of

regional integration: Preferential Trade Area (PTA), Free Trade Area (FTA), Customs

Union, Common Market, and finally an Economic Union. In case of PTA, trading partners

grant partial preferential tariff reductions to each other. In a FTA, members eliminate all

tariffs and nontariff barriers to trade among themselves, but each member can set its own

tariff rates on non-members. A customs union is aFTA, but members adopt a common

external tariff on non-members of the union. A common market allows has certain pre-

conditions e.g. it has permission to move capital, labour and resources without any

hurdles. 199Diagramme below explains progressive stages of economic integration.

Figure 0.1 –Shows the Roots to Developing an Economic Integration.

1.12 Summary and Conclusions of Chapter One

The chapter starts with the history of regionalism, interdependence, integration,

peace and prosperity, which are generally used synonymously since no formalised

definitionexisted. Kant assumed that regionalism started from WW-II, while, Fredrik

Söderbaumclaims that although itexisted in Germany as a full customs union. Fredrik

Söderbaum perspectives on globalization about the ongoing European integration is a

testimony of the obsolescence of international financial institutions, consequences of

which according to him appeared as financial crisis leading to regionalism in East Asia.

Jagdish Bhagwati equates Fredrik Söderbaum waves of regionalism with the first

economic space leading to formation of the EU, the second culminating into the American

economic space as NAFTA and, the third, giving birth to the Asian economic space as

APEC.Mario B Lamberte brought out that regionalism should be distinguished from

regionalisation, which is „market-driven integration, spurred by unilateral reforms in

individual economies within a particular region while, regionalisation refers to actual

process of regionalism predominantly establishing production houses in RTAs bounded

by FTAs within the WTO regime.

Another term, „economic regionalism‟ was coined by Jiangyu Wang, who defined it

as formal economic cooperative measures, undertaken by governments to facilitate

economic integration, which may or may not be confined to a specific geographical

region. Bela Balassa defines economic integration both as a process and a state of

affairs. As a process, it encompasses measures designed to abolish discrimination

199 Ibid.

Preferential Trading Areas

Lower trade barriers

Free Tade Area All trade barriers for goods members but each retain own barriers with worlds

Customs Union Free trade

aqmongst members and adoption of

common external trade policies

Common Market Customs Union status plus free movements of

goods labour and capital

Economic Union Common market with

harmonizing fiscal policies polipolicies.

55

between economic units; as a state of affairs, it is represented by the absence of

discrimination between national economies.

The chapter highlights that the process of regional economic integration can be

undertaken through sectoral integration; in which specific industries or sectors of the

regional economy gradually integrate with another or, as functional integration;

proceeding from one sector to another through price incentives of a free market economy

and, or asan institutional integration; in which case the economic integration becomes an

adaptation of national or international institutions in monetary practices and trade

procedures. Here, the sectoral and/or functional integration is characterised as „market-

driven‟ whilst institutional integration is policy-driven and relates to political decisions.

The chapter also brought out that the extent of regionalisation is commonly

assessed by the share of intra-regional trade in total trade. Moreover, although regional

integration requires the existence of substantial political will to cooperate, it does not

necessarily include the political commitment to achieve political integration or form a

political union. In other words, aspirations for political union are not a necessary

precondition for building regional institutions particularly to foster economic integration. It

means, economic cooperation within SAARC and between China, can lead to regional

economic integration like ASEAN, subject to a catalyst and strong incentives within

Greater South Asia (GSA – China plus SAARC region).

For regionalism to take effect in globalised world of 21st century less powerful or

semi-peripheral countries, especially those in the developing world will have more

incentives to improve their bargaining positions in the global policy-making arena by

forming collective sub-regional constituencies. It is very important to understand that the

phenomena of globalisation will alter the existing international structures, tied to only the

powerful international actors rather than the interests of individual countries, regions and

NSAs. The examples ASR; Trans-National Corporations (TNCs) as well as the Multi-

National Corporations (MNCs), the World Bank and the IMF. Thus the new regionalism

emphasises the social construction of regions, the active role of market and civil society

as well as the importance of capital flows, trade and people. Hence, the state is not the

only regionalism‟s gatekeeper particularly, for manifesting a regional economic

integration.

Robert Keohane and Joseph S. Nye and other likeminded scholars found

„functional equivalent‟ of regionalism in „Spill-over‟. But for the Less Developed Countries

(LDC) they recommended structural transformation and the stimulation of productive

capacities. Robert Keohane and Joseph Nye School shifted focus away from political

unification to regional economic cooperation and integration as a means of economic

development and prosperity in the developing world regions. Hence, the transformed

version of interdependence in a globalised world called „Complex Interdependence‟

which, together with neo-functionalist „Spill-over‟ concept can be an ideal lens to study

South Asian regional integration.

Importantly, as per Björn Hettne, the contemporary regionalism may be seen as a

new political landscape in the making, characterised by an increasing set of actors (both

56

state and NSAs) operating on the regional arena and across several interrelated

dimensions like; security, development, trade, environment, culture, and so on. The

classical concept of regional integration used to bring out that members of a common

region must share cultural, economic, linguistic, or political ties besides having a common

external threat as the basis of motivation to affect regional integration. The chapter also

brings out cultural, developmental, economic and geographical regionalism. However, in

a globalised world of 21stcentury, „Regional Economic Identity‟ has emerged to achieve

integration disregarding a particular type of region.

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CHAPTER – TWO

CONCEPTUAL FRAMEWORK AND THEORETICAL PERSPECTIVE

The conceptual framework and theoretical perspective sets the direction and

determine parameters for exploring the basis for SAARC‟s transformation, leading to

formation of SAEU/and, or SAEA based upon the quantitative and qualitative analysis and

conclusions of this comparative study. The SAEU/SAEA conception is based on the

premise of „Neo-liberal Institutionalism‟, and „Neo-liberal Functionalism‟, which

encompass the contemporary era looking through the IR lens of Complex

Interdependence, developed by Robert Keohane and Joseph S. Nye. It refers to various

complex transnational connections, based on interdependencies, between states,

societies, Multi-National Corporations (MNCs) or Trans-National Corporations (TNC) and

Non-State Actors (NSAs). Interdependence theorists realise that complex relations,

particularly economic ones, are increasingly effective in developing regional integration.

While the use of military force and power balancing are relatively decreasing,

nonetheless, they still remain important, albeit not in the longer run. Thus, both Robert

Keohane and Joseph S. Nye argue that the decline of military force as a policy tool and

the increased significance of economic as well as other forms of interdependence,

exponentially enhance the probability of cooperation among states. 200Thus, the Complex

Interdependence framework is an attempt to synthesise elements of realist and liberal

thought. Finally, anticipating problems of duplicitous and relative gains raised by realists,

neo-realists inter dependence theorists introduced the concept of 'Regimes' to mitigate

anarchy and facilitate cooperation. Here, we can see an obvious connection to neo-liberal

institutionalism.

All in all, the theoretical framework of this thesis is based upon structural theory of

Complex Interdependence. 201 Accordingly, the overall perspective will relate to economic,

political, institutional, structural and broader aspects of prospective SAEU. However, the

catalytic role of OBOR (BRI) together with CPEC202 will also be assessed as the main

determinants informing a SAEU/SAEA.

It may be realised that the CPEC has been launched into an increasingly volatile

global order in which state authority has been eroded to the extent that conflicts in

Afghanistan, Iraq, Libya, and Syria has to be managed and resolved by extra-regional

actors. This erosion of state apparatus has internal dimensions which are always

exacerbated by the external interference that ultimately transforms into a major negative

trend. These trends in the international system are explained hereunder. 203

200 Robert O. Keohane, and Joseph S. Nye. “Power and Interdependence”, 3rd edition. New York: Longman, 2001. Mark Beavis,

IR Paradigms, Approaches and Theories. Last up-dated on 14 March 2013. 201 CXI is an offshoot of neo-functionalism and neoliberalism theory, which will be explained in later part of chapter. 202 Li Xiguang, “Building a New Civilisation along the One Belt One Road (OBOR) Initiative”, Institute of Strategic Studies (ISSI), Islamabad, (2015). 203 Ali Shah, “China-Pakistan Economic Corridor (CPEC): Humanising Geopolitics”, (09 December, 2015).

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2.1 Types of Revisionism–In the First Type of interstate system, there is an effort to

protect the western values and cultures keep their ability to exert force. In case of Type

Two, another group of countries confronts the Type One; e.g. countries like Russia,

China, India, and Brazil which now enjoy a stronger level of growth and economic

prosperity and, are keen to counter the pressure screated by the policies of Type One

revisionist system. Accordingly, the revisionist interstate system also experience certain

types or forms of modernisations. 204

2.2 Forms of Modernizations– There are primarily two forms; the Vertical or Western

Style modernisation, which represents a group of developing countries, which have

progressed from pre-modern to a post-modern state of legal, economic, social, and

cultural conditions. While the Type Two is constructed upon a strong set of technological

and scientifically developed sub-set of advance westernised. The purpose of Type Two

modernisation is to transfer a highly advanced set of value based norms to the

underdeveloped states like; mutual respect for human rights, equal gender based job

distribution among a group of regional countries. Drawing inference from above, it is

believed that there is a proximity of these two forms of revisions and modernisations in

Greater South Asia (GSA), which is likely to raise future challenges necessitating multiple

solutions. 205For any future development through economic integration of Greater South

Asia (GSA), implications of these revisionisms and modernisations have to be factored in.

Two types of modernisation explained above since use entire collisional strategies

against the developing countries, which act as test beds, therefore, their overall impact on

the local makeup and speed of modernisation within Greater South Asia (GSA) would be

extremely negative. Such a situation may call for employing a Strategy of Cooperative

Hegemonic Interdependence. Therefore, in order to complete the flagship project of

CPEC within Greater South Asia (GSA), the leadership of both China-Pakistan would

have to come to terms with any implications.

2.3 Regional Integration and Security Community - It is an agreement involving states

to enhance political and economic alignment guided by institutions and rules. As

discussed previously, regional integration requires addressing the important issues like;

tariff and Non-Tariff Barriers (NTB) to promote global and regional trade within a certain

geographical area like Free Trade Zone (FTZ), Free Trade Area (FTA) and Customs

Union etc. It can be structured either through multinational institutional or high level

decision making bodies of states or a combination there off. An integration of this manner

is called a „security community.‟ 206Ginkel, opines that while following the process of

regional integration main areas of security, political, economic, and more importantly

cultural should be focused. Hill also defines regional economic integration as „agreements

among countries‟, in a geographic region to reduce, and ultimately remove tariffs, and

non-tariff barriers to allow free flow of goods, services, and factors of production. 207By

implication as per this definition, if economic integration is achieved as stipulated within

204 Ibid. 205 Ibid. 206 Two different sets of security communities must be differentiated by scholars; one led by Barry Buzan and the other led by Joseph

S. Naye and Robert Keohane. 207 Oladapo O Babalola Jonathan D. Danladi John K. Akomolafe, “Challenges and Prospects for Africa”. Department of

Economics, Afe Babalola University, Ado Ekiti, Nigeria.

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Greater South Asia (GSA), the region will automatically be formed into a typical security

community in which regional economic interdependence will always be translated in terms

of regional as well as national security of all the member states, as one whole.

2.4 Levels of Economic Integration - Regional economic integration can exist in

numerous levels. To start with a Preferential Trading Area (PTA) leading to a FTA,

whereby no barriers exist for trade of goods and services among member states; called

the first level. Customs Union, in which a free trade zone involving common external

policy is made; called the second level. A Common Market will allow production to move

between members, called the third level. Monitory or Economic Union can also have

same currency, tax rate with uniform monetary and fiscal policies, which is fourth level of

integration in a union. Finally, a Political Union, called the fifth level, where a central

political unit coordinates the economic, social and foreign policy of the member states. 208

It can be seen that while EU is a perfect example of political level ASEAN, though,

moving towards an economic union, has not even achieved the fourth level yet.

2.5 Concept of Greater South Asian Region and Economic Identity – The minimum

definition of a region is typically;„a limited number of states linked together by a

geographical relationship and a degree of mutual interdependence‟.209A region may

consist of „states which have some common ethnic, linguistic, cultural, social, and

historical bonds‟.210However, regions can be differentiated by way of ethnicity; race,

language, religion, culture, history or based upon consciousness; common heritage or

trade patterns, economic complementarity or regime type, ideology and existence of

formal supranational institutions. 211But really, in an economically interdependent

globalised world, these parsimonious definitions of specific regions have evaporated like

physical borders of nation states, in virtual sense. The fact is that definitions of a „region‟

vary according to the particular research question under investigation. Therefore, for the

purpose of this dissertation, Greater South Asia (GSA) conceptually means; SAARC

region plus all regions under the national sovereign of China. Similarly, it may appear that

there is no natural collective identity, but a contrived and constructed sense of

togetherness within Grater South Asia (GSA). This collective sense of togetherness has

carved out its own identity over the years, which may be called „Economic Identity‟. The

platform to further consolidate Economic Identity has already been provided by China‟s

CPEC as a function of economic interdependence within Greater South Asia (GSA). The

elements of such an economic order account for an evolving multipolar world order.

2.6Theoretical Concepts of Regionalism and Economic Integration

2.6.1 Impact of Spill-Over on Regional Integration

Integration is a process not theory, however, majority of the theories of regional

integration can be viewed as individual field of IR. Neo-functionalist theory for example; is

composed of individuals and various interest groups and claims that such integration

208 Ibid. 209 Joseph Nye, “Peace in Parts: Integration and Conflict in Regional Organization” (Ashgate, 2001). 210 L. J. Cantori& S. L. Spiegel, “The International Politics of Regions: A Comparative Approach”, (Prentice-Hall, 1970). 211 Andrew Hurrell, “Regionalism in theoretical perspective”, (Oxford University Press, 1995), p 38.

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must satisfy and withstand the test of time. In other words, Spill-over effect212 cannot be

taken away from integration, because there is a need to permeate other sectors of the

economy, making the integration to take roots from the economic sense to the political

reconciliation leading into an integrated region with the status and characteristics of a

community. For inter-governmentalism to succeed, an active role of the state is essential

to achieve regional integration but it only focuses on the regional and, ignores or excludes

the oxymoronic international order, which directly impacts regional integration. For

example, Trump Administration South Asian policy review is propping India to affect its

decision to join CPEC or collaborate with China on the issue of BRI. However, realist and

libera list IR theories emphasize to factor in the complex international system such that

the purpose of integration can be achieved.

The realists assign importance to security policies and strategies while the liberals

believe in economic interdependence. However, neo-functionalism opines that political

Spill-over can only be achieved through a process from the citizens or state to the high

authority i.e. the government. The triangle approach is used to evaluate the relationship

between the State, which is a political unit, Market, representing economic activity and the

use of common Currency, called monetary integration. 213 An article on EU in International

Peer-review Journal214 highlights that the initial goal of political synergy and formation of

Economic Monetary Union (EMU) actually caused the political integration of Europe

culminating into what is today EU. But it is also important to know that the introduction of

the Euro did not start as progressive economic integration of EU developed in the

1990‟s.215 Nonetheless, the rise of Trumpism in 2017 and Brexit conundrum of in Europe

amply highlight the vulnerability of States and the pre-eminence of Governments,

Individuals or Interest groups both at national as well as international levels. Hence, the

value of neo-functionalism based on neo-liberal thought cannot be underestimated even

in 21st century.

It is true that adoption of cooperative policy choices by India-Pakistan can surely

enhance trade and interdependence amongst all South Asian states. These policy

choices are likely to integrate SAARC and, if China forms part of SAEU/SAEA then a

strategy of Cooperative Hegemonic Interdependence (CHI) can be used as a balancing

tool in the current multipolar global system. To understand as to why India would prefer

joining SAEU/SAEA, we analyse the excerpts from Thomas Pedersen‟s thesis, quoted

here. “For realists regionalism remains a difficult phenomenon to explicate because they

cannot justify the puzzle of why major states opt for regional institutionalisation.” 216 More-

212 Andres Maalamud, “Spillover in European and South American Integration-An Assessment”. (September 6-8, 2001). Spillover is a

concept coined by Neo-functionalism in the 1960‟s in order to give count of the process of European integration. It refers to inner

dynamics where the member of a regional scheme would be compelled to either enlarging the scope or increasing the level of their mutual commitments or both. More of it will be discussed in later part of this research. 213 Lindberg 1963; Haas and Schmitter 1964 and Rosamond 2001. In economics, Spillover effects are economic events in one context

that occur because of something else in seemingly unrelated context in another field of economics. Same way economic benefits of

increased trade are the Spillover effects anticipated in the formation of multilateral alliances of many of the regional nation states: e.g. SAARC, ASEAN. 214 The British University in Egypt, Publication List,Volume14, Number 169 in 2017. Is an International Peer Reviewed Journal in

which scholarly peer review referencing is catalogued with subjects or ideas are scrutinised by multiple experts in IR and other

subjects. 215 Ibid. 216 See footnote 3.

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over, in a globalised world the interdependence even the existence of institutions,

strategy of Cooperative Economic Interdependence (CEI) cannot be effectively employed

by the leading states of prospective SAEU/SAEA; namely China, India and Pakistan.

Besides, such a strategy is most likely to negatethe very concept of economic

interdependence and regional integration.

For moving SAARC states slowly but surely towards a SAEU a strategy of Variable

Geometrical Interdependence (VGI), 217 like in the formative years of EU, can be

employed where common economic goals are pursued without fully enforcing a

supranational institutional mechanism to start with but voluntary acceptance by SAARC

states and the stake-holders would materialise as positive Spill-over of economy take the

root to positively impact India-Pakistan policies.

Theoretical precepts of Regional Economic Integration (REI) within the

conceptions of Democratic Peace Theory218 can be considered, but it would also be

important to study the effect of Commercial Peace Theory, which argues that free trade

may not bring pacifying effects for REI in South Asia. Hence, we will have to study theory

of Complex Interdependence with positive Spill-Over from economics to other key areas

of integration. The process of globalization, cooperation and interdependence are a

broader aspects of these theoretical propositions e.g. the Institutional Peace Theory

attempts to demonstrate how cooperation can be sustained in anarchical world, how long-

term interests can be pursued over short-term, and how actors may realize absolute gains

instead of seeking relative gains. It can be seen that these theoretical drivers aptly apply

and corroborate to the declared charter and policies of SAARC nations.

Jean Monnet,219 also believed that positive „Spill-over‟ is critical in achieving

integration. If it is achieved in one sector of common policy of sovereign states, it would

eventually lead to a „Spill-over‟ into another policy area, which would then lead to

integration of multiple policy areas and in turn, more „Spill-over‟ would occur. In the case

of South Asian REI, the „Spill-over‟ is expected to cause snowballing effect to the point

where national political systems and economies would become so entangled that as

functions are transferred then the expected gains will compel the key domestic and

international stake-holders to start extending support for a supranational mechanism. Like

e.g. Robert Schuman220 defined „Spill-over‟ as the process of generating new political

goals thus harmonising the regional policies. Thus members of prospective SAEU may

agree on some collective goals but may still remain unequally satisfied with the

attainment of these goals. Hence, the member states may resolve their dissatisfaction

either by resorting to collaboration in other related sectors or by intensifying their

commitment to the original sector. The underlying functional relationships between issues

in South Asia would lead policy integration to spread from sector to sector until eventually

regional states would be united. Could SAARC‟s transformation to SAEU along with

217 See footnote 5. 218 See footnote 21. A Paper Presented at Ahmadu Dello University, Zaria, Nigeria. For Consultations email:

phemmymarsh@gmail.com. 219 Jean Monnet was born in 1888. He was a French political economist and diplomat who became President of High Authority of the

ECC and later, Deputy Secretary General of the League of Nations. Jean Monnet is one of the founding fathers of EU. 220 Robert Schuman was a French Statesman and a political thinker and activist. Born in 1886.

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China yield such a spirit of integration, is a question to be dilated in the succeeding parts

of this thesis.

Another driver in formation of SAEU could be writings and conclusions reached by

Donald Puchala (1972).221 His writings are generally characterized for an ideal

environment reflecting mutual interdependence in the EU. For example; Donals Puchala

idealises an interdependent region where actors consistently harmonise their interests,

reconcile their differences and reap mutual rewards from their dependence on each other.

Conceptually in such a system the states remain predominant but other actors are

increasingly important too. Thus the actors in these system bargain through

institutionalized structures in which the process of international interaction is much more

bureaucratic than it is diplomatic. However, in Complex Interdependence the states are

as dominant as the Non-State Actors (NSAs). We are witnessing South Asian

complexities where policies of playing a zero-sum game are now outdated.

2.7Complex Interdependence in South and East Asia

Conceptualisation of grand theories and their applicability on Asia has been

succinctly treated in an essay by Amitav Acharya.222 According to him, as elsewhere,

theoretical arguments and claims about Asian IR closely approximate with the global and

regional IR. The typical manifestations can be witnessed in the economic rise of China

and also emerging India who is apparently a Western proxy for containment of China.

However, as the geo-economics is becoming more complex, it is exceedingly difficult for

India to sustain her classical realist stance against China. India‟s economy is complexly

dependent both on US and China.

2.7.1 Complex Interdependence in Greater South-Asia (China SAARC).

Newer approaches of liberal perspectives such as Complex Interdependence is

impacting on the nature of IR in the whole of Asia, which in the light of BRI and CPEC

have to be factored in. China-Russia as well as Russia-Pakistan‟s evolving collaborations

on economic and defence cooperation are a reaction to policy preferences by the US and

India. If one was to discern the real intent, India‟s benign diplomatic moves, opting to

negotiate trade and border dispute resolution with China in April 2018 speak louder than

her rhetoric‟s to fight proxy war on behalf of the US. It means that India‟s strenuous

efforts of joining the Shanghai Cooperation Organisation (SCO) will go futile. Hence, in

Greater South Asia, India cannot deny complexly intertwined regional economic order due

to China.

2.7.2 Complex Interdependence in ASEAN – As discussed, the evolving international

geopolitical and geo-economic order is more complex than ever. Hence, Complex

Interdependence cannot be conceptualised like done by Keohane and Nye. There is thus

221 Dimitris N. Chryssochoou, “Theory and Reform in the EU”, Manchester University Press, P-34. The book explains the theoretical

lenses employed in the Concordance System, which capture aspects of structural, attitudinal and procedural conditions of integration, while freeing the analyst from normative, hypothetical and ideologically defined interpretations of integrative phenomenon. Puchala‟s approach to international integration talks of consensus formation, pragmatic politics, institutionalized compromises and cooperative behavior. Indeed this spirit is needed by nations of prospective SAEU/SAEA. 222 Amitav Acharya, “Theoretical Perspectives on International Relations in Asia”. (Draft Paper for the Conference on International

Relations in Asia: The New Regional System,” George Washington University, 27-29 September 2007).

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a growing tendency towards „analytic eclecticism‟223 i.e. study of both within and across

paradigms. Since prospective formation of SAEU cannot be forecasted from tightly held

paradigmatic frameworks, therefore, synthesis between and across is inevitable. For

example, both classical thinkers see multipolar rivalry as the likely prospect, moderated

by regional institutions like SAEU. However, modern writers view South East Asia‟s IR as

an outcome of Complex Interdependence imposed by internal political order dominated

by China. To cater for overlapping between Complex Interdependence and other

paradigms, ASEAN concept of mutual existence, while still managing conflicts and Spill-

Over is being very successful.

The above conceptual framework of Peter J. Katzenstein and Rudra Sil224

indicates that classical concepts can have their basis in even in the normative and South

Asian social foundations, which are becoming increasingly relevant. Thus theoretical

eclecticism presents Complex Interdependence as a more practical and realistic theory

for an evolving multipolar world in 21st century. Therefore, Complex Interdependence

encompasses even the normative construct of classical framework and therefore, it can

accommodate both South Asian and East Asian cultural diversity. In Greater South Asia,

it may provide an uneven and multipolar configuration of authority in which China and

India will have to respect the lesser or weaker SAARC states and, Malaysia and

Indonesia in East Asia, are already striking a flexible cooperative mechanism within

SAEAN. Thus whereas conflicts may persist within the prospective SAEU/SAEA but the

cooperation will continue without any major breakdown of the entire system. Even though

it may appear that there is no natural collective identity, but a contrived and constructed

sense of togetherness. This collective sense of togetherness in a Greater South Asia can

carve out its own identity called „Economic Identity‟ for which a platform has already been

provided by China and CPEC. The elements of such an order account for an evolving

multipolar world. 225

2.7.3 State, Community and Sovereignty in SAEU - Sanau Chudhary‟s concept of

State Vs Community Integration226 can bring further transparency to as certain suitability

of their application in formation of a SAEU. The State-model focuses on the need to have

superordinate authority for regional integrated, which calls for relinquishing certain degree

of state sovereignty as trade-off for supra-nationality. The community model puts more

stress on the character of the relationship between the elite and the general public during

the process of integration. This approach realises that nation-states can form a

community without relinquishing their full sovereignties. Applying Peter J. Katzenstein and

Rudra Sil thesis of Consociational Regional Order (CRO) 227 encompassing analytical

eclecticism, State or Community models of Sanau Chudhary may theoretically be suitable

individually but practically their overlapping features in formation of a SAEU/SAEA may

be unavoidable. These overlapping feature are necessary to cater for SAARC nations‟

223 Peter J. Katzenstein and Rudra Sil, “Rethinking Asian Security: A Case for Analytical Eclecticism” & Rethinking Security in East Asia: Identity, Power and Efficiency, ed. J.J. Suh, Peter J. Katzenstein, Allen Carlson, (Stanford: Stanford University Press, 2004), Chapter 1. 224 Ibid. 225 Ibid. 226 See footnote 49. 227 See footnote 129.

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acceptance on relinquishing a portion of their sovereignties and, to measure up to the

treaties, rules and bindings of an economic union. Therefore, the challenges and

opportunities of 21st century can be realised through a combination of both the State as

well as Community models of integration. It is in this conceptual and theoretical

framework that China-India, like Germany-France in EU, are envisioned to lead a SAEU

employing institutionalisation, power sharing and differentiation. Only the balance of

power instruments of hegemonism can deal with the evolving fiercely

competitiveinternational economic order of 21st century.

2.7.4 Pragmatic Anti-dependency and Regional ID - Kishore C Dash quotes Ernst

Haas on „Pragmatic Anti-dependency‟228 to promote regional interdependence amongst

developing nations without delinking them from the global system, which is applicable to

this study too. Dash‟s thesis, in many ways, can be compared with the concept of

Variable Geometrical Interdependence – a strategy employed by EU during the initial

years of inception. Another thesis229 coins a number of similar ideas, which can be used

to corroborate Complex Interdependence theory supporting Interdependence and positive

Spill-over. For example; trade in services and deepening of agreements on regulatory

issues like; investment, competition, trade facilitations and technical barriers have been

considered by Lombaerde as components of regionalism. Similarly, regional cooperation

is defined as harmonisation of policies by a group of countries to affect integration, while

regional integration entails laws, rules of economic engagement and treaties or

agreements to enhance economic integration. In the backdrop of preceding discussion,

consider if China is factored as a member of SAARC then the concept of Economic

Identity and Positive Spill-over can lead to formation of SAEU.

2.8 Impact of Globalisation and Complex Interdependenceon South Asia

Dr Umar Saif in his review presented that Pakistan‟s foreign debt and Apple

Company‟s total assets rose from over $80 billion to $800 billion respectively. It means

only a single international company‟s starts up assets are more than ten times the total

debt of Pakistan. Google‟s total assets are estimated to be around $350-400 billion,

which is five times of Pakistan‟s total national debt. This is the power of private

company‟s start-ups and MNCs. Indian Tata Consulting Services‟ total assets are equal

to Pakistan‟s total national debt of $80 billion. India is exporting software worth $164

billion that is twice as much Pakistan‟s foreign debt. MIT, USA through 30000 start-up

programmes of students generates 300,000 jobs per annum earning whooping revenue of

around $1.9 trillion. If MIT and Stan-worth amalgamate, their total revenues can go up to

$4.7 trillion, which can become the 4th largest world‟s economy influencing some of the

most advanced countries and regions including North America and Western Europe. 230

Another phenomenon, which catapulted manifestation or application of IR theories,

is „Globalization‟. The globalisation and hence, the speed of making economic decisions

has created additional challenges for all stake-holders. They are now required to

228 See footnote 67. 229 See footnote 51. 230 Dr. Umar Saif, Vice Chancellor Information Technology University (ITU), Punjab Presentation of MIT Review-2017. Also available

at: www.technologyreview.pk/page/2/?s=MIT+Review+2017&submit=Search&submit=Search

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reflexively respond to the instant crash of world markets thus vitiating the contending

trends in international trade and commerce activities. Thus add to the consequences of

globalisation, the resurgence of NSAs and innovative fundamentalists with a global

agenda to create security syndrome, interrupting international trade flows. In such conflict

ridden environment theorising a phenomena of cooperation or integration based on

conventional wisdom may not apply. A globalized world is thus integrated but not

harmonious, a single place but also diverse, a construct of shared consciousness but

prone to fragmentation. 231 Thus it posits a bigger challenge to find a straightforward

theoretical framework covering such a diverse and rapidly changing international order.

Another impact of globalizationis the variation in behaviour of societies, which

together with the reaction of states to shape their behaviour determines the outcome of

world‟s affairs. This is the central insight of a liberal IR theory. It can be expressed

colloquially in various ways: What matters most is what states want, not how they get it.

Ends are more important than means. 232 Again, example of both US and Indian current

political leadership truly reflect similar manifestations in a globalised yet a fragmented

World System of 21st century.

In conclusion, the above discussion follows that the drivers of globalisation pose

several challenges but concurrently present a number of opportunities. This is so because

Globalisation has shifted initiative from states to individuals, interest groups, MNCs, NSAs

and International Organisations (IOs), which purely on the basis of their financial

standing, are capable of shaping national, regional and international economic

imperatives. The conceptual and theoretical perspective in today’s globalised world will

have to factor in all these NSAs. Thus in order to achieve REI leading to formation of

SAEU, Keohane, Joseph S Nye and Cooper‟s framework of Complex Interdependence is

considered most suitable.

2.9Theoretical Frame work and Complex Interdependence

Omojarabi Wasiu Femi in his thesis claims that Sensitivity and Vulnerability as an

internal components of Complex Interdependence theory are very important. Sensitivity in

interdependence occurs once policy change in a group of integrated countries causes a

corresponding effect on policy formulation process in other depended countries.

Vulnerability on the other hand exposes the dependent countries‟ economics, security

and miscellaneous systems to serious threat of national interest due mainly to absence of

alternate choices on policy matters or if there are alternative choices available then one

has to assess to what cost? 233

Liberal scholars‟ view Power and Interdependence conceptually reinforcing to

argue that in a Complex Interdependence frame work, military force is obsolete yet

benign economic interference would condemn one to equally grave consequences,

though differently. To understand this concept within the framework of interdependence,

231 Globalization Theories, retrieved from http://sociology.emory.edu/faculty/globalization/theories03.html. 232 Andrew Moravcsik, “Liberal Theories of International Relations: A Primer”, Princeton University, (2010). 233 See footnote 14.

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let us consider three major assumptions: Nature of Interdependence; Complex

Interdependence and International Regime. 234

2.9.1 Nature of Interdependence - Interdependence generates classic problems of

political strategies and national policy choices since it indicates that the actions of states

and significant Non-State Actors (NSAs) will impose costs on all members of the system

(Sensitivity). Thus, interdependence sees international system as a unit of interlocking

interconnected entities, which uses bargaining rather than force to push home only their

own interest. Importantly, the degree of Interdependence (ID) varies inversely with the

Effectiveness of Force (Feff), which mathematically is depicted as ID ∞ 1/Feff, once seen in

the light of the role that significant NSAs play. Additionally, interdependence points us to

division of labour, exchange, mutual benefits, dependence on other parties and very

importantly that force is usually not the solution. Another powerful argument of ID is that

mutual dependence is a necessary reality of life. Rappard (1930) cites „the First World

War in which the costs of breaking off trade were so high that two states on opposite

sides continued their trade with each other.‟ ID was noticeable even during the cold war

where US and USSR continued trading despite their ideological and military antagonism

of near war relationship (Rourke 2001, Keohane and Nye 2001). The most contemporary

examples are; US-China, US-EU and China-India rapprochement on trade and political

issues without using or threat of use of force in 2017 and 2018. ID is usually demands

some sacrifice to a state‟s sovereignty in order to enjoy the benefits that come with it.

Cooper (1972) opined that “as with marriage, the benefits of close international economic

relation can be enjoyed only at the expense of giving up a certain amount of national

independence.” 235

• If we apply Cooper‟s theory on the prevailing level of ID amongst SAARC states, we

may realise that there exists least interdependence but a bloated sense of national

sovereignties, which is projected as winning or losing battles on the domestic political

landscape. Nonetheless, Nepal, Bangladesh or Maldives, have higher volumes of

investment from India as a percentage of their total GNPs or GDPs because they have

ceded some percentage of their national sovereignties.

• It means ceding a part of national sovereignty by China, India and Pakistan is also

essential for a prospective SAEU/SAEA. However, the stronger states become more

interdependent in trade, agriculture, commerce, energy, technology, cultural

exchanges and environmental protection. Hence, there is a huge scope to cooperate

on critical issues of terrorism, education, poverty, economy and HRD.

• Translating the thoughts of Rappard about trade interdependence, we may conclude

that South Asian nations‟ trade may continue to be as interdependent even during

hostilities. However, ID can be used as a bargaining chip by member states to cede

partial sovereignty in favour of SAEU/SAEA.

234 See footnote footnotes 107 and 109 p37. 235 Ibid,p38.

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2.9.2 Complex Interdependence– In conceptualizing Complex Interdependence, theorist

of ID modified central realists‟ assumptions to declare; Firstly, instead of states multiple

channel connect societies. It means that in addition to states the ID exists between

governmental elites as well as formal foreign office arrangement; Trans-National

Organizations, Governmental elites, Non-Governmental Organizations (NGOs), MNCs

and, Advocacy Groups etc who play increasingly significant role in the world politics.

There has been increasing rise in these significant groups whose membership cut across

international boundaries for meeting socio-economic needs like the Human Rights Watch,

Greenpeace etc. Secondly; in future conflicts hard core military has minor or receding role

since, it is not sure that military conflicts will produce positive results e.g. Vietnam, Iraq,

Libya, Syria, as well as Iran-Iraq war. Thirdly; the IR are not structured in a fixed

sequence or hierarchy. To explicate the relevance of a variety of issues and not

necessarily military taking the centre stage, former US Secretary of States, Henry

Kissinger in the 1970s, provided insights into it by saying „ideology and territorial rivalry

have traditionally made up the diplomatic agenda. A new and unprecedented set of

problems like energy, resources, environment, pollution, the uses of space and the Seas

now rank with questions of military security.‟ In addendum to what Kissinger enumerated,

in the years following the cold war, issues of human rights, economic and human security,

immigration, international terrorism, AIDS, identity crisis have now become central for

states. 236

2.9.3 International Regime – Relations of interdependence often occur within and may

be affected by networks of rules, norms and procedures that regularize behaviour of

states (e.g. SAARC, ASEAN, UN or EU bounded from within, in accordance with charters,

rules of engagement and treaties etc). These set of governing arrangement is what is

referred to as International Regime. Rules in world‟s politics are not coherent and there

exists no overarching authority. In the absence of well-orchestrated rules in world politics,

there is a need to integrate structure with process. The Structure (realist paradigm) refers

to the existing form while the Process (liberal paradigm) refers to the bargaining

behaviour within a power structure. International regime affects the behaviour of states

and how governmental actions influences various patterns of interdependence.

International regime also help creates procedures, institutions or rules, regulates

government actions and control interstate relations. The international regime comprising

various institutions acts as an assurer for other states to reduce uncertainty and the cost

of making and enforcing agreements. In a nutshell, international institutions are very

important because they provide platform for interstate relations and an avenue to reach

common ground. Therefore, international regime becomes even more central.

The Liberal School employing Complex Interdependence tends to enhance and

promote interdependence, therefore, the concept applies more to formation of SAEU for

which regional states have to share part of their economic sovereignty for an increased

dependence on each other. Other critical issues like terrorism, trade, and border dispute

settlement, environmental protection and socio-cultural aspects also assume significance,

which must complement positive Spill-Over enhancing more interdependence.

236 Ibid, p46.

68

Since neoliberal theoretical lens and concept of Spill-overforms the basis of this

thesis, therefore it can be developed within the conception of COMPLEX

INTERDEPENDENCE. 237 Both Keohane and Nye later modified previously articulated

assumptions about realists‟ paradigm as under:-

2.10. The modifications injected by neoliberal proclaim that:-

2.10.1. Multiple channels of contacts exist among societies, where expanding range of

policy instruments limits governmental control over policies. Besides official and unofficial

channels, informal ties among nongovernmental elite and transnational organisations play

a dominant part.

2.10.2. Strategic goals and objectives of states are not fixed but their priority may change

overtime and are subject to trades-off.

2.10.3.Use of military force in a region has become largely irrelevant when Complex

Interdependence prevails because in a globalised and interdependent world traditional

conflicts and use of military instrument as a means of policy have largely become

irrelevant.

The conceptual and theoretical frame work provides a succinct perspective in

which process of SAEU is likely to evolve. Although numerous models within the neo-

liberal and positivist paradigms exist like in the case of current UK‟s Brexit from EU or

ASEAN‟s ID on China or even trade row on NAFTA, however, conditions and dynamics of

SAARC‟s transition to SAEU are quite different hence, theoretical conceptions and their

applicability in South Asia has to be carefully judged based on realistic assumptions. It is

intended here to assess the applicability of an appropriate theory to South Asian regional

integration withthe inclusion of China. Readers may recall that that intervening variable

„CPEC‟ was tipped to make a catalytic impact on the process of forming a SAEU. The

succeeding part of this chapter shall provide the readers enough insight to assess

applicability of Complex Interdependence lens in SAARC‟s progression to a SAEU.

2.11 Role of Complex Interdependence in Formation of SAEU

In South Asia Kenneth Waltz‟s neo-realism perspective stresses on an uneven

distribution of power causing conflicts thereby downplaying the typical nature of domestic

politics. This is quite visible in India-Pakistan‟s current policies, which are primarily based

upon realist or neo-realist paradigm. John Mearsheimer as neorealist believes238 that

least interdependent states are always maximising their national power therefore the

stronger states (e.g India in SAARC) would always like to dominate the other countries.

Another neo-realist „Kenneth Waltz‟ admits that that the concept of power in the post-cold

war period is no more applicable in its classical sense. Therefore, in South Asia realism

based zero sum policies cannot serve the national purpose or strategic goals and

objectives of countries like India or Pakistan. Hence, China‟s inclusion in SAARC can

readdress the balance of power calculus that is essential in formation of SAEU. So once

we apply realist paradigm to the process of economic integration in South Asia it appears

237 See footnote 27. 238 Michael E. Brown, “Theories of War and Peace: An International Security Reader” The MIT Press, p469

69

out of synch with the ground realities of 21st century. Thus application of theoretical

concepts on South Asian IR is quite different from EU‟s growth of integration in the

1990‟s. For example, India-Pakistan relations may still be affected by the classical

application of neo-realist school of thought, while India-China or India-SAARC (less

Pakistan) relations generally follow a neo-liberal profile and may actually be moving

towards a more interdependent conceptions espoused by theory of Complex

Interdependence.

The realism or neo-realism school takes an oblique position on the nature of

human philosophy. It acknowledges the realist view of the international system to be

anarchic, however, it still compels states to remain interdependent. This is why it supports

that idea that Complex Interdependence is realistically more applicable on theories of

cooperation, integration, regionalism and regionalisation. However, the supporter of

neoliberalism feel that the Non-state Actors together with International Organisations can

actually reshape states‟ behaviour and also their decisions to whether or not they should

follow avenues for peaceful resolution of conflicts239. Therefore, recognition of

international regime by Complex Interdependence for applicability on South Asia

becomes realistic within this conceptual framework. Once Complex Interdependence

comes to be translated in terms of Asia‟s internal dynamics the practical manifestation

begins to differ from EU or ASEAN. For example, post-war IR of South Asia were set-out

not only by the region‟s distinctive geography, culture, complex security dynamics

amongst SAARC nations, but rather by the neoliberal policies encouraged by international

institutions such as the IMF, the WB and the General Agreement on Tariff and Trade

(GATT) and now WTO thus setting norms of economic interdependence.

In the theoretical perspective described hitherto fore, Complex Interdependence

can be said to have been a breakthrough in the IR subject. In the 21stcentury the

globalised world has been calibrated into a smaller village. Large MNCs like; Toyota, IBM,

China Mobile, General Electric, Johnson and Johnson, Amazon and Exxon Mobil have

much bigger budgets than some of the individual nation states. The IOs and transnational

movements transcend national boundaries by governmental or state functionaries as well

as NSAs. Looking at Western Europe, North America, Japan, Australia, China, New

Zealand or NAFTA and EU, Complex Interdependence appears to be more applicable to

industrialised regions. Nonetheless, once Complex Interdependence is built into an

institutional arrangement of South Asia like the prospective SAEU then effects of

„Vulnerability‟, „Sensitivity‟ and „Spill-over‟ (positive and negative) 240 will start to impact

their domestic, regional and international policy choices. Hence, for SAARC‟s transition to

a SAEU inclusion of China and success of CPEC project is very essential.

In the prospective SAEU/SAEA, individual member states‟ bilateral strategic

dependence on extra-regional powers may oblige them to carefully manage dual nature

of politico-economic and trade relations. The most contemporary manifestations are; US-

239 David Shambaugh and Michael Yahuda, “International Relations of Asia”, Series Editor: Samuel S Kim, Rowman & Littlefield

Publishers, Inc. 240 See footnote 135 & 136.

70

China, US-EU and China-India rapprochement on trade and political issues vividly

observed in 2017 and 2018.

This complex relationship can be charted out for a prospective SAEU in tabular form,

shown hereunder.

High Probability of Liberalism or Neo- Complex Inter-

Forming a SAEU liberalism dependence

Low Probability of Classical Realism or Functionalism/Neo-

Forming a SAEU

Neo-realism functionalism

To gauge which particular box i.e. theory, is best suited for integration of SAARC

and formation of prospective SAEU, it would largely depend on the type of evolving

international system in the 21st century. The above table points out an inverse relationship

to forecast probability of successful integration in South Asia. From applicability view

point, theory of Complex Interdependence in the top right quadrant indicates a high

probability of SAARC‟s progression to SAEU, while the bottom left corner Classical

Realist or Neo-realist theory depicts a low probability of success. There has to be a huge

inceptive for India to accept China‟s CPEC by adopting a CRO approach with a mix of

State cum Community models of integration. It means taking some postulates from both

schools of thought to strike high and low probability of regional integration.

If one has to see how a particular theory changes its quadrant each time success

of a regional organisation is to be predicted, we can consult the four quadrant table

shown above. For example, if the above table is to be prepared for EU, Functionalism or

Neo-functionalism will shift to the top right corner of the above table and Complex

Interdependence to bottom right corner. However, if above table is to be drawn to predict

probability of success amongst EU nations Liberal/Neo-liberal theory will fill the top right

quadrant, Functional/Neo-functionalism will move to top left quadrant and Complex

Interdependence to bottom right quadrant. Thus application of Complex Interdependence

to this thesis‟ hypothesis can give us a theoretical reference point, which can then be

used for empirical evidence later in the analysis part. It has been observed that various

theories of IR are generally constructed around a particular set of assumptions that are

not very specific in scope therefore, only a few assumptions are applicable to all the

regions around the world. In reality, however, theoretical debates of IR are developed

around the key issues of that particular region. South Asia is no exception hence in

formulating conceptual framework and theoretical perspective certain metaphors have

been summarised here. 241

241 First three columns of above table have been taken from a draft paper prepared by Amitav Acharya for the Conference on

international Relations in Asia: The New Regional System, George Washington University, 27-29 September 2007. Forth column has been added by the author based on his own empirical analysis.

71

Asian Classical Neo-realism Liberalism, Neo- Complex Inter-

Region Realism (Offensive) liberalism, dependence

(Defensive) Institutionalism

What kept US or Bi-polarity Inter- Not applicable

the order West‟s dependence during Cold military induced by War power economic growth

Rise of Multi-polar Regional Multi-polarity Interdependence

China after rivalry hegemony assisting stimulated by

end of Cold mainly by stability due to Globalisation

War China expansion of together with

commerce Neo-realism

Role and Adjunct to Instruments Building Promoter of

impact of Balance of of Chinese economic and regional and

regional Power influence security regimes extra-regional

institutions (BOP), for free trade trades ensuring

(SAARC, effective and manage protection of

ASEAN, EU only if it disputes arising individual

SAEU ) (BOP) from growing countries‟

already inter- commerce exists dependence

South Europe‟s Asia‟s pre- ASEAN‟s history ASEAN‟s Way

Asia‟s state in colonial era of conflict leading to

Future 19th& 20th avoidance integration

centuries Like EU i.e.

forming SAEU

/SAEA

Table 1.1: Theoretical Construct of International Relations (IR) in South Asia.

2.12. Theoretical Linkage between Agglomeration and Economic Integration

It can be theoretically proved that there is a very close linkage between

agglomeration of industry, technological innovations and their spatial concentration in

the major economic centres of South Asia242 which will expand due to China‟s OBOR

(BRI) and CPEC. Geographical proximity squeezed by OBOR (BRI) and CPEC can

242 Richard E Baldwin and Martin, Philippe. “Spatial Agglomeration and Regional Growth”, (July 2003), CEPR Discussion Paper

Number 3960. Available at SSRN:https://ssrn.com/abstract=436996, Graduate Institute of International Studies, Geneva and

University of Paris.

72

further lowers trade costs, which produces uneven spatial development. This theoretical

conception placates Keohane and Nye theory of economic integration within the context

of Complex Interdependence.

2.13. Summary of Chapter Two

A common thread running all along this chapter has been to evolve a South Asian

perspective of IR theories and assess its application vis-à-vis EU but with the addition of

China as SAARC member, where CPEC is perceived to be a major catalyst to lure

regional nations to form a SAEU . It is with this realisation that above conceptual

framework of theories originated from English or Copenhagen school of IR were analysed

with their practical application to South Asian economic integration keeping its history,

culture, norms, customs, economic, political and security imperatives in view. The chapter

has briefly discussed various theoretical concepts like Realism, Liberalism, Neo-realism,

Neo-liberalism, Liberal-institutionalism, Neo-institutionalism and Neo-functionalism based

on EU and ASEAN experiences to build conception of an interdependent South Asia

leading to a state of Complex Interdependence with China providing catalyst to form

SAEU.

The popularity of liberal and constructivist school of thought in Asia on the whole

and in South East Asia (ASEAN) has grown particularly with the onset of globalisation

process. However, with the beginning of 21st century and later rise of President Trump in

2017 elections, evolving US-India nexus to contain China is once again injecting fresh

impetus to realist pessimism in Asia. The Trump nationalistic factor in US politics may

cause negative Spill-over and Sensitivities to the prospective integration of South and

South East Asia. However, such a development is not sustainable because South Asia

with Realist or Neo-realist paradigm cannot work with Liberalists or Neo-liberalist

international settings existing outside its influence.

Within SAARC nations, massive growth potential is not being realised mainly due

to India-Pakistan‟s Neo-realist political antagonism with remaining member states waiting

to benefit from the normalisation relations. We have seen in the 18th and 19th century

Europe that ID not dependence or use of force or war is the recipe for economic

development. Its most recent manifestations are; US-China, US-EU and China-India

rapprochement on trade and political issues in 2017 and 2018 in which negotiations, not

force was the preferred option. A historical rapprochement, in April 2018 between North

and South Korea, after an almost 70 years of realist or neo-realist based policies is

another stark reminder of an economically ID World in 21str century. Therefore, if

universal and a lasting application of IR theory is to be judged in the context of a SAEU

with China on board, Complex Interdependence is the most appropriate theoretical lens.

Thus, Complex Interdependence framework lays-down well defined parameters to steer

this study towards a purposeful and a productive outcome by closely associating the most

relevant theory with the practical manifestations of 21st century.

73

CHAPTER TREE

IMPACT OF HISTORICAL LEGACIES ON SOUTH ASIA

The conceptual framework and theoretical perspective, discussed in previous

chapter, sets-out a comprehensive road map and a clear direction to empirically test the

hypothesis of this thesis, which has three main components: growing SAARC states‟

trade with China - an independent variable; formation of SAEU/SAEA- a dependent

variable, while CPEC is an intervening variable, which can be quantitatively analysed

through regression analysis using primary data, collected through surveys. CPEC as an

intervening variable, has a direct relationship with the cause i.e. dependent variable -

growing China-SAARC states‟ trade and the effect or the outcome-formation of

SAEU/SAEA. The impact of intervening variable also needs to be qualitatively linked to

the two main factors; achieving comparative advantage and, economies of scale through

transforming SAARC into a SAEU/SAEA. The quantitative analysis‟ results can also be

compared with the state of regional integration in subcontinent from 17th century onwards.

If the results corroborate findings, then argument of forming a SAEU/SAEA will stand

tested and verified. Thus, it is very important to explore the state of integration before

and, in the post partition periods of subcontinent. This is where Chapter Three fits in the

overall scheme and structure of this dissertation.

Clearly, India-Pakistan‟s political willingness to embrace economic integration is at

the heart of South Asia‟s prospective transformation to forge a SAEU/SAEA. The

dependent variable; “growing China-SAARC trade”is the most critical factor for successful

outcome; i.e. formation of SAEU/SAEA.

As the thesis has discovered that hesitation to adopt reconciliatory policy Choices

is rooted in the subcontinental strategic culture, predominantly fomented by fallout of the

perceived unjust partition. It is therefore very important to clearly understand the political

economy and domestic dynamics of SAARC region. It is done to identify the seeds of

mistrust, especially between India-Pakistan, which is keeping South Asia from being an

economically well-integrated region. Many scholars also claim that the subcontinent in

South Asia was an integrated region, which was economically thriving and socially very

well weaved. They ascribe British imperial occupation of the subcontinent to the high level

of productivity and richness in raw materials, labour and connectivity. 243

This chapter assesses the state of trade and economic integration in the

subcontinent to examine its nature and quantum prior to and in the post partition period. It

is important to ascertain this fact because if an extra-ordinary trade and economic

development activities were taking place then why India-Pakistan‟s chronic impasse still

persists. While doing so, the chapter surveys three different time-spans; starting from a

period of unified Indian sub-continent, the British period of colonial era and, the post

partition period. The aim is to study the periods of unification, integration and

disintegration. First, to see the state of integration, trade and economic activities in

243 See footnote 52.

74

various time periods of subcontinental history? Secondly, if the state of economic

integration was much better in the pre-partition period, then how seeds of discord and

mistrust in the subcontinent have led to the current state of impasse in SAARC? The

answers to these questions will help find out prospects of future economic integration in

Greater South Asian region by factoring in China‟s CPEC.

The study of history reveals that South Asia was once a physiographical part of a

bigger landmass Eurasia. This region even now bares signs of a cohesive entity with

Indus Civilization and distinct land, people, cultures, environment, communication

infrastructure and productivity in agrarian activities. Visualizing its possible integration or

transformation into a SAEU like EEC or the EU in contemporary geopolitical times may

not appear very feasible. Nonetheless, a great consolation can be drawn from near

similar environment existing before the inception of European Coal and Steal Community

(ECSC) maturing into the present day EU. Secondly but more importantly the changing

landscape of geo-economics in today‟s globalised and more complexly interdependent

world where mutual economic sustainability has become essential for states, non-state

actors, IOs, MNCs is a compulsion than an option.

The state of economic integration in the subcontinent before, during and after its

invasion and imperial occupation by foreign powers will provide the readers an insight to

what we see in today‟s face of South Asia. The transformation of IR in the post-cold war

period provided a great opportunity, which was availed by most regions like Euro Zone,

ASEAN, NAFTA etc, however, South Asia; in particular, sub-continent couldn‟t take-off.

SAARC countries‟ political and administrative history has left peculiar signatures on its

demographic makeup, keeping it unique from other regions of the world; Europe, East

Asia or Africa. The peculiar strategic culture, characteristics and attitude of its nationals;

especially their socio-political and economic makeup reflects very strongly the imprints of

its multicultural demographic characteristics, history and traditional moorings. To

understand this unique demographic chemistry with particular reference to India-Pakistan

in sub-continent, Indus region has been picked as a case study. For a dissertation such

as this, it is very important to understand the key reasons behind the perennial impasse

existing in the SAARC region. To trace the historical legacy, study of brief history and

temporal phases of the subcontinent is an essential aspect.

3.1 Colonial Legacies and Imprints on the Sub-continent

Following temporal phases of history left indelible imprints on the chemistry and

character, visible in the contemporary political economy of sub-continent: -244

The Dravidians were the original inhabitants of sub-continent and that their role

was not as vital in the history of subcontinent due to widely inhabitant areas, which were

encountered by the greatest civilization of new invaders (Aryan) from North-West. 245

Aryans came through Hindu Kush Mountains from Central Asia after 1000 years

BC of Dravidians. Aryan means gentle; a farmer, which is an elevated caste being

244 Mughees Ahmed and Fozia Naseem, “Socio-Political System in Sub-Continent Perception of Discriminatory Behaviour of

Invaders”, Berkeley Journal of Social Sciences Vol. 1, No. 1, (January 2011). 245 Ibid.

75

cultivators. The Aryans were divided into three castes, Brahmana; Kshatriya and,

Vaishya. The Hindu caste system began to develop because the Indo-Aryans wanted to

secure their newly established superiority over the indigenous population. 246

Many of the social scientists of the Indian caste system declare it as the factor of

cultural conflict between Aryan and non-Aryan. To ensure that the two groups could never

be racially mixed, a caste system was developed, which would prevent not only non-

Aryans from mixing with Aryans but also kept various classes within the Aryan population

separate. 247 The native inhabitants, whose duty was to sweep the country, were called

Shudras. Another section of outcaste, known as untouchable remains outside the Varna

System. Thus the history of over 1000 B.C. was punctuated with caste conflicts where

powerful heads of tribes – mostly Brahmans occupied separate territories and became

self-proclaimed Kings or Rajas of the sub-continent with full patronage from the British

Raaj. 248

With regards to influence of the Persians, a major portion of Indus valley was

named Punjab, which became the main hub of agricultural, economic and trade activities.

Other than Hinduism, Buddhism, Jainism, Egyptians and Tatars, Punjabis were also

influenced by Persian Empire. Importantly, Punjab due owing to Persia was famous for

manufactured and agriculture goods in those days. 249

The Alexander conquered and broke the back of Persians by occupying plains of

Punjab. Majority of his army consisted of Greeks and Macedonians. Culture of Punjab

was influenced by Porus, Chandragupta Maurya, Ashoka, Mauryan dynasty, Greeks from

Afghanistan, Buddhist Kings, Caucasian nomads and Huns from Central Asia. All these

personalities and cultures make Indus Valley and its people a unique blend of militarism,

arts, culture, agrarians, traders and commerce activities. 250

The 6th century AD saw Muslim rulers commanding the entire Indus Valley from

Multan. Northern subcontinent was divided into small kingdoms. Sultan Mahmud

Ghaznavi and his off springs ruled until challenged by Gakhars who also invited Mongols

to occupy some territory. The region took sigh of relief under Khilji, Ghorides and

Mamluks dynasty. Tughluk pioneered the canal system in Punjab. It became

economically vibrant, politically dynamic and determined the financial health and served

as food basket for almost entire India. Afghans, Turks and later Mughals ruled this area

for quite some time. 251

The Sikh rule in Punjab was marked by violent struggle among the troika – Sikhs,

Afghans and Mughals. Skirmishes between Sikhs and Afghans and Mughals left lasting

impressions on the culture and physical history of the sub-continent. Ranjit Singh

established a system of governance in Punjab and Kashmir with over 90percent

peasants‟ population in rural areas. Land revenue – around 50percent was received as

246 Romila Thapar, “Cultural Pasts: Essays in Early Indian History”, p25-26. 247 Farooq Bajwa, “Pakistan, a Historical and Contemporary Look of South Asia”, pp6. 248 K.N. Dash, “Invitation to Social and Cultural Anthropology”, pp211. 249 Ibid. 250 Ibid. 251 Ibid.

76

share of gross production for government. The political situation after his death became

fluid, thus geopolitical forces negatively influenced Ranjit Sigh‟s control even though

Tiwanas, Mamdots, Noons and other Punjabis supported him. 252

3.2. Contemporary Political Economy of (Sub-continent) South Asia

Having seen the fate of subcontinent and the fluctuating phases of influences it has

gone through, it is now important to study the current political economy of South Asia to

link the perennial SAARC impasse. Robert Gilpin, defines political economy as „the way

in which political forces impact and shape the system through which economic

interactions occur and vice versa. David Ricardo interprets political economy„ as a study

of production and trade and their relations with law, custom and government as well as

with the distribution of national income and wealth‟.253South Asian region in particular the

subcontinent has been invaded and ruled by many different imperialist powers and

empires. It was occupied by Alexander and other imperial powers like; Dutch, Portuguese

and the British, therefore, the boundaries have been oscillating over different epochs of

history. The most glaring and consequential act was committed by the British where

division of Bengal and Punjab into East and West parts gave birth to unnatural

boundaries dividing political, economic, archaeological as well as ethnic and religious

minorities violating their political, religious and human rights. Many intrigues were also

injected by Lord Mountbatten‟s connivance with Jawaharlal Nehru due to inclusion of

Muslim majority areas into the Indian Union against the wishes of local populace. 254 The

modified South Asian boundaries turned majority ethno-religious groups into pockets of

minority and division of endowment areas yielding negative socio-political fallout. It also

swayed from communal to economic to strategic factors, followed no natural features, cut

across villages, canal systems and also dissected the existing communities and

communication lines between now India-Pakistan-Bangladesh. It shattered the entire

political economy of the region and gave birth to the most contentious South Asian issue

of Kashmir, thus threatening stability of the entire South Asian region. 255

The state of political and economic integration in subcontinent has been aptly

mirrored by Asad Ali Khan in his work on „Temporal View of Punjab‟ His study reveals

that Political economy of the subcontinent is affected by the two main factors; the land

and the people. An ideal climate and abundance of fertile land together with mineral

resources provided enough incentives to multiple invaders of different religious beliefs,

cultural ethos and ethnic backgrounds. A number of religious, social and political conflicts

fuelled multiple invasions by the world‟s major races and cultures, which left indelible

traces on the subcontinent and its inhabitants. Therefore, people of South Asia have

enduringly brave and belligerently violent culture complemented by hot and humid

climate. It produced an excellent mix of aggressive fighters and religious zealots on the

western side, while the eastern side of Indus produced an exceptional blend of complex

252 Ibid. 253 Robert Gilpin & Jean M. Gilpin, “International Political Economy-Understanding the International Economic Order”-Princeton

University Press – Oxford (2010). 254 Dr Pervaiz Iqbal Cheema, “The Politics of the Punjab Boundary Award”, Heidelberg Papers in South Asian and Comparative

Politics, Working Paper Number 1 (2001), p8. 255 See footnote 149.

77

cast ridden Hindu society tramping multiple strata‟s within the same community. This

complex cast ridden community has always felt aggrieved and insecure from aggressive

fighters and religious zealots. 256 It is this fear of unknown and perpetual insecurity that

haunts most of the leaders of Indian subcontinent and beyond even in 21st century.

Miss Anahata‟s article on “Political Integration of India” 257provides comprehensive

expose on state of integration in various time periods of subcontinent history, which can

be used as a reference point for further inquiry into future integration of SAARC as

SAEU/SAEA. Tirthankar Roy, in his research titled, “Economic History and Modern India:

Redefining the Link” 258 connects the politico-economic history of modern India with the

state of political integration of Indian Union. The excerpts from various sources have been

used to present a brief analysis in the succeeding paragraphs.

It was revealing to know that before arrival of the British and their occupation of the

sub-continent, the entire region had informally instituted a very deep and intense network

of economic and financial working. It means even before the process of EU took roots,

South Asia got developed. It was the same economic and commercial network, which

strengthened to make inroads for achieving their imperial objectives. Further fissures

were made a permanent feature due to unrealistic division of political boundaries within

subcontinent, carving out unnatural international borders. 259

To prevent negative consequences of the British imperialistic policies on Indian

economy in 1947 two main planks of congress development strategy were: strong

sentiments against collaboration in foreign trade, investments and statism. Thus any

change from being united India to divided India as a non-aligned state had never

experienced a perfect state of integration in the subcontinent. 260 In the post-colonial era,

India‟s economic history has suffered a number of interruptions to cause failure in

continuity of socio-economic policies, which mainly arise from narrow political and

security considerations, weak economic structure and domestic political considerations.

Market oriented British policies did initiate process of economic growth based on

production of goods, utilizing cheap labour and raw materials drawn from natural

resources of the subcontinent.

The Hindu caste system took roots in the subcontinent because Aryans were

implicitly superior to the non-Aryans and they took pride in being the conquerors. The

caste system ensured that the two groups could never be racially mixed. Hindus as a

society were inherently divided into various tiers where the Aryans maintained their

domination over Non-Aryans with others declared out-caste either as Shudras or

untouchable like Varna system. The domination of Brahmans in Hindustan has continued,

which formed the core of policy making mechanism in India since the partition of 1947.

On its West, the aristocratic rent seeking Pakistani elite always protected their personal

256 Ibid, p24. 257 Miss Anahata, “Political Integration of India”, (2014), Available at: https://www.scribd.com/archive/plans?doc, and

http://sirco.ro/general/political-integration-of-india. 258 Tirthankar Roy, “Economic History and Modern India: Redefining the Link”, Journal of Economic Perspectives – Volume 16,

Number 3, Summer 2002, p109-130. 259 Ibid,p116. 260 Ibid,p103.

78

interests by spearheading national policies based on security oriented mind-set. 261 This

typical mind-set in India-Pakistan exposes the roots of SAARC‟s inability integrate as a

successful regional organisation. Nonetheless, no other region of the world bares such a

diverse cultural mosaic with innumerable dialectical characteristics, geographical

contiguity and synergized demographic identities where people belonging to one cast or

race in a religion could also be traced following the other religious beliefs. Multiple

communities were harmonised as belonging to the Indus valley civilisation with no

discrimination or parochial considerations of caste, religion, ethnicity or sectarian

orientation. This cultural and regional synergy can be used as a great attribute for

potential integration of South Asia.

The inferences drawn from above discourse will lay a strong foundation for

subsequent comparative analysis of SAARC region‟s capacity in terms of regional

economic development, political accommodation, trade and investment, geographical

connectivity to allow free movement of labour, goods and capital especially from the

resource endowment point of view. Nonetheless, it is important to remember that there

will be overlapping extensions and correlation between subjects related to politics and

economy; the case in point being Kashmir and water disputes between India and her

neighbours as a consequence of unjust division of political boundaries and natural

endowments like water, land and other mineral resources.

3.3 Paradigm Features of Subcontinent

The British Crown ruled over India for approximately 90 years, from 1858 to

1947. 262 The period of British colonial rule was long enough to defy any simple summary.

However, in discussing theses time periods, it is important to focus on three main features

of the political economy:-

3.3.1 Structural features –These include the vastly available natural resources and role

of agriculture and labour towards economic growth as well as welfare of the people

of subcontinent. It confirms that agriculture, labour-intensive industry and services

were the main livelihoods throughout this period and beyond.

3.3.2 Global features -Indian union‟s economy during this phase was more open and

free compared to the time-periods before and after the British colonialism. During

this time period the Indian economy became part of glob in transport,

communication, and especially Canal System, Railways and the Telegraph.

3.3.4 Colonial features - The third set of features can be categorised as colonial

features. During this time period, Indiaas a colony, had to impose certain taxes to

maintain and sustain British economy. In addition a large sum was also collected

from the expatriate Indians working around the world to be remitted to the British

Headquarters in London. This is not to deny that the British managed a higher rate

of FDIs to raise the levels and quality of production in the sub-continent, which

totalled more than their predecessors i.e. Mughals.

261 See footnote 159. 262 See footnote 161, p 1.

79

Tirthankar Roy263 in his article also claimed that the structural features of India‟s

economy were gradually changed to embrace new trends. The difference was that the

British‟s reign didn‟t develop agricultural sector as much as the manufacturing. They had

to change the existing rudimentary agrarian practices with automation and manufacturing

because not only they sent most output back to London but also exported to get more

revenues from around the world. Obviously they had to sustain their domestic economy

for which they also immigrated millions of subcontinent labourers. But all this was

changed once the British left subcontinent. The South Asian Governments preferred to

join the Non-aligned Movement to group themselves with most of the developing

countries instead of working to develop more interdependence with the West. In the post

WW-II timeframe and with the start of globalisation and implementation of various

economic regimes, the principal argument for subcontinent‟s dismal economic

performance was found in routine critique on the role of British during the Raj. 264

As we have seen so far, that even though informally observed, but even before the

arrival of British, South Asia was economically and geographically an integrated region

especially in trade, social affinity and even cultural ethos. The British, however, used it

more as a source for raw material who exported it to their country, added value to

produce finished products and exported back to South Asia as well as rest of the Europe.

Nonetheless, the British also developed most of the communications and economic

infrastructure though mainly to facilitate its own export of raw material. Even the regions

outside sub-continent were indirectly integrated with it namely; Sri Lanka, parts of North-

West-Frontier Province (NWFP), now Khyber Pukhtoon Khawa (KPK), and Federally

Administered Tribal Areas (FATA) of Pakistan right up to Afghanistan, Nepal, Bhutan and

Maldives. 265

A strong and the most critical argument in support of state of integration was

discerned as a result of the above analysis. That is the percentage of growth and profit

margins of both the agricultural as well as manufacturing sectors were much higher

before the partition period than what actually existed after the partition. The second more

relevant conclusion came to fore is that there existed no historical or cultural legacies

before the partition since the whole of subcontinental society was very well integrated in

every respect. Therefore, the subcontinent was thriving as a cohesive body as one whole

be it economy, social values, cultural ethos or religious non-discriminatory attitude. 266

Relationship of local resources and production with custom codes, government

institutions and distribution of wealth among the South Asian states provided the context

of regional spirit. It means even in 21st century, all states in this region are by and large

well-tuned to accept individual cultures as was prevailing before the arrival of British in

India. From the hindsight, it can be said that other than the British, the seeds of

disintegration and mistrust were actually sworn by SAARC nation‟s rented political elite. It

may be noted that most of the rented elite was trained and groomed by the West to

maintain their influence over poor masses. Postcolonial development of subcontinent was

263 See footnote 161, p3. 264 Ibid. 265 Ibid. 266 See footnote 159, p7.

80

based on an attempt to reshape the impact of resource endowments with restrictions on

trade. From this analysis, conclusions can be drawn for three distinct historical time-spans

i.e. the state of interdependence and integration in subcontinent before, during and post

partition periods respectively.

It is clear that before partition, he subcontinent was thriving in regional and extra-

regional trade especially in agricultural products, manufactured goods (mainly from

Punjab) as well as free movement of finished products, people (labour), raw material and

capital (or in kind). The movement took place by roads or riverine from central Asia till

Saloon (now Sri Lanka). Almost zero taxes and tariffs were levied for cross-regional trade,

which promoted commercial, trade and cultural activities amongst various parts of South

Asia. It indicates that the level of interdependence and free movement of capital (or in

kind), goods and people was very high whereas integration of EU was not even

conceptualised in that period of history. Tariff and non-tariff barriers were as minimal as is

set out for well integrated regional economies. Hence, all the preconditions for an

interdependent and a well-integrated region were prevalent in South Asia before the

arrival of British East India Company. Nonetheless, formalised structure of a union, based

on multiple treaties, as in the case of EU was not present. Because the economy and

trade in that period was not documented therefore, it is difficult to predict the percentage

of trade with respect to overall volume or GDP. However, the factors of production were

growing on a phenomenal rate compared to population growth, therefore, overall

productivity was very high.

In regards to other indicators of economy, in the post British era, land sales and

agricultural prices went up, transaction costs fell, rents increased, credit ceilings

expanded, labour became more mobile and millions of Indians went overseas to provide

military services to the imperial power. Commercialising agriculture products by the British

made phenomenal improvements in common people‟s lives, income per capita increased

due to new road-rail links, business infrastructure and efficient processes. On account of

global trade and capital, Britain managed the in-flows of large sums by exporting finished

goods to Europe. Thus the subcontinent flourished well as compared to before or even in

the post partition period. 267

In the period from 1800 to 1900 Mukherjee analysed the labour intensive growth,

public investment in irrigation, railways and other public works, which enhanced the

production by adding land under cultivation yielding varying rates of growth. The

expansion of trade and commercialization between various parts of subcontinent and

internationally, took advantage of the private and public sector investments. By 1900,

additional land in subcontinent was scarce hence, it affected the growth rate by rise in

volume of trade. Note the sources of growth and percentage of productivity in agriculture

and non-agricultural products:- 268

267 See footnote 149,p13. 268 Ibid, p24.

81

Sources of Growth – Real GDP 1900

to 1947 (Percentage per Anumm) Agriculture Non Agriculture

Overall Growth 0.44 1.69

• Labour

• Capital Including Land.

• Total Productivity Factor.

0.33

0.08

0.03

0.31

0.90

0.57

Productivity Growth (Percent) 7 34

Table-2.1: Sources of Growth – Real GDP From 1900 to 1947 (percentage per annum). Source: Sivasubramonian (2000, Table 7.21), Mukherjee (1973). Statistical abstracts of India. Contributions are products of basic period factor shares and rates of growth of factor inputs.

3.4 State of Economy and Trade in the Subcontinent

Any historical interpretation of the subcontinent economy needs to be read in the

domains of culture as well as the great variety of invaders; Turks, Mongols, Persians,

Arabs, Afghan, and so on who came from the North and North-West. While unravelling

the complex weave of India‟s pre-modern history readers may note the two recurring

themes. First, the infusion of new peoples and ideas, in the form of an invasion from the

North-West, and second, temporal cycles of imperial consolidation and decentralization.

Invasions were not sharp disjunctures, and were most commonly followed by fresh

processes of accommodation, assimilation and cultural fusions. The high points of great

imperial epochs were often characterized by political cohesion, social vitality, economic

prosperity and cultural glory. But it was also abundantly clear that periods of political

decentralization were not necessarily accompanied by social and economic decay.The

British Raj represented a straightforward plunder of India‟s revenuesin the purchase of

Indian manufactured products, especially textiles, for sale in the world‟s markets with

London brand name. 269

Table3.2:Showing the historical profile of GDP in Millions of US$. Source: See footnote 164.

269 Sugata Bose and Aeysha Jalal, “Modern South Asia – History, Culture, Political Economy”First published 1998 by

Routledge, London, New York, NY by Oxford University Press. Sugata Bose is Professor of History and Diplomacy and Director of the

Centre of South Asian and Indian Ocean Studies, Tufts University, USA. Ayesha Jalal is Associate Professor of History, Columbia University, USA.

82

3.4.1 Mughal Time-period up to 1858–The level of economic growth and purchasing

power parity was the highest from 1500 up to 1858 for the whole of the subcontinent

where the regional GDP was calculated to be running over 25 percent of the total global

economy. The general perception is that the Mughal Emperor Akbar‟s GDP was around

17.5 million pounds sterling (in contrast to the entire treasury of Great Britain two hundred

years later in 1800 AD, which totalled £16 million). The GDP of Mughal India in 1600 AD

was second in the world, which can be studied in the table below.

As is obvious from above discussion, the main economic activities in the region

were agriculture, trade and moneylending both within and outside the region. For the

majority agriculture became a sustenance especially for Muslims. Though, some Muslims

were also involved in trade activities but mainly Hindus and Sikhs dominated the

remaining casts in the fields of industry, commerce and banking. The trade and money

lending were mainly Hindu professions and high proportion of Hindu traders were found in

Muslim dominating North-Western regions. Hindus enjoyed better opportunities of wealth,

jobs and education while Muslims remained ignorant and suffered at the hands of poverty

and wealthy Hindus. 270

Before partition, Punjab produced one-third of the country‟s wheat at a time when

other provinces were facing agricultural crises. Punjab was divided into six regions, on the

basis of geopolitical and socio-economic conditions; Potwar Plateau, Sub-mountainous

Regions, Central Plans, Eastern Regions, Colonisation Region and South-Western

Region. Although the region was politically and economically well integrated with good

communication network, however, Hindus always dominated the undereducated Muslims

and other casts. The agricultural and trade incentives before 1860 lured numerous tribes,

warriors, nomads and invaders to converge on central Punjab, which became a huge

nursery for sustenance of the entire subcontinent. 271

Thus a detailed study on political economy of Indus region in the pre-partition

period reveals that a frequent but diverse demographic shifts occurred due to the lure of

agriculture sustenance, communes surviving on joining hand with aristocrats, tribal chiefs,

landlords and rich tycoons lending money to generate trade activities. Therefore, a mix

bag of trade, peasantry, raw industrial activity, mercenaries and farming commerce was

observed depending on different parts of Punjab. The actual trans-community and trans

regional trade activity started with acquisition of land grabbing by invaders and, in the

process of demographic shifting from and across the six divisions of Punjab. Hence, the

political economy of the Indus region was transformed once multiple invaders came to

conquer, occupy land and established a system of local banking, coin casting and money

lending criteria, commerce rules and division of land in which the local aristocrats joined

in. It was during this time when the central Punjab in Indus region became the agro-

economic centre and intra-regional trade hub. 272

3.4.2 The British Rule- In the 18th century, Mughals were replaced by the

Marathas in much of central India while the other small regional kingdoms who were

270 Ibid. 271 Ibid. 272 Ibid.

83

mostly late Mughal tributaries such as the Nawabs in the north and the Nizams in the

south. The British imperial empire began to grow in India in the middle of 18th Century

with which the phase of decline of Indian industry set in. Hence, the British Rulers ability

to collect revenues from both the agricultural as well as manufacturing sectors

exponentially grew to complement their ability to take roots for taking over the political

administration of the subcontinent. They very cunningly exploited and marketed the much

cherished Indian spices through ships and caravans to not only the neighbouring

countries and regions but also used international global trade space to create a complex

system of trade, land revenues and other taxes that the total percentage of FDIs coming

in reduced substantially. That deficiency was made up by fleecing the local population,

which was also abetted by the so called rent-seeking political and dynastic chiefs of the

subcontinent origin. The golden crops of local silk, sapphire and cotton, not available

anywhere around the globe was also exported to various regions, which after value

addition would be shipped back to the subcontinent to be pouched at much higher prices

than what their actual value was. Thus the British became more ruthless with each

passing year and as their overall revenue form the subcontinent spiked. On top of that the

regional whether stood by with the British and for many years, rains didn‟t appear. Hence,

the famine divastated Indian polity, their factories, labour and the house income, which

dropped from around 27 percent down to about 3 percent. 273

3.4.3 Prospects of Subcontinent Economy–The total volume of Indian economy

in 2017 rose to about 5 trillion US dollars, which purchasing power parity ranging from

over 2500 to 2700 US dollars. After the election of 2019, Indian economy is nose diving

from an average GDP growth of 7 percent to again 5 percent – a level, which it attained in

2014. As given in the table below, if its percentage of share compared to global volumes

rise by 21 percent in 2040, it is likely to surpass many regional economies of the world.

This conclusion can be drawn from the figures given in the table below:- 274

Table 3.3: Future Economic Power Shifts From 2008-2040 as Percentage Share of World GDP in PPP Source: World Bank for GDP in terms of Purchasing Power Parity in 2008;

Projections for 2014-2040 by Mr Mathew Joseph, Senior Consultant, ICRIER

3.5 Socio-Political Setup of Post-Partition Punjab

Let us now briefly discuss the socio-political architecture of the most affluent part of

Indus region in the post-partition period. We pick up from the reign where British having

ruled Punjab for one hundred years deliberately left this region woefully underdeveloped.

273 Ibid, p7. 274 Ibid.

84

The old Punjab province was unjustly divided under a Radcliffe Award275 into four

different parts in both India-Pakistan. Though, present Punjab, being the heart of newly

born Pakistan, appeared on map about 70 years ago on 14th August 1947; but, its history

spanned many epochs. The partition had been agreed on 3 June 1947, decided on 14th

August 1947 but practically announced and implemented on 21st August in the same year.

The divided border was very long with no natural barriers to separate the territories of two

independent neighbouring Punjab; one in Pakistan with Provincial capital at Lahore and,

the other in India with its capital at Amritsar. The unjust division caused innumerable

border clashes resulting into the existing high level of mutual antipathy and antagonisms.

The scholars must now pin point the reasons of Indian continent‟s division. More

importantly, there were three main consequences; first off-course the division of the

largest Indian province of Bengal, the second the overall effect of the legacies connected

mainly to the issue of Kashmir and the third was degradation in mutual trust, which

actually stare any positive move both on the part of India-Pakistan, which follow seven

today.

During partition, the boundary commission headed by Radcliff unfairly awarded

some Muslim majority areas; contiguous to Punjab such as Gurdaspur, Jalandhar,

Ferozepur and some portion of Lahore district to India, disrupting the existing canal

system in Punjab thus generating water dispute between Pakistan and India. The award

also gave three rivers; Jhelum, Chenab and Ravi to West Punjab while two rivers Beas

and Sutlej to East Punjab. Main dispute was over water, which was settled in 1960

through Indus Water Treaty (IWT). 276

Figure3.1: Canal System Coming From India into West Punjab, Pakistan Source: See footnote 153.

Thus it can be concluded that the pre-partition period in South Asia‟s intra-regional

trade was much higher than what exists today. It was noteworthy that the subcontinent

formed more than One-fourth of the world GDP in PPP. The sub-continent, being an

economically vibrant part, became a big attraction for the British East India Company. As

per British economist, Angus Maddison India's share of the world income went from 27

275 Dr Pervaiz Iqbal Cheema, “The Politics of the Punjab Boundary Award”, Heidelberg Papers in South Asian and Comparative

Politics, Working Paper Number 1 (2001),p8. 276 See footnote 149, p347.

85

percent in 1700 AD (compared to Europe's share of 23percent) to 3 percent in 1950. This

just sums up the state of economic integration in the subcontinent.

3.6 The Seeds of Disintegration in Indian Union

If one is to explore the impact of partition and consequential relations between

India-Pakistan, Yasmin Khan‟s book, “The Great Partition” 277 is a good reference.

According to Khan, the DNA of this modern Hindu extremism can be traced straight back

to the Partition of united India. Even today, there are echoes of 1947 and 1948, which can

be witnessed in the violence being perpetrated by Vishva Hindu Prasad (VHP), Rashia

Savakh Sunk (RSS), Bajrang Dal, Shiv-Sena of the current Bhartia Junta Party‟s (BJP)

militant wings. What is left now is a permanent legacy of mischief, distrust, anguish and

acrimony whose seeds were actually sworn by the British Raj. There are unsubstantiated

fears on both sides of divide. The fears of India dismembering Pakistan go back to 1947,

as noted by Nisid Hajari, in his book, “Midnight‟s Furies: The Deadly Legacy of India‟s

Partition.” 278When the roots of these anxieties were first created, there‟s enough blame

to go around. For example, India did intend to make Pakistan smaller„ moth-eaten‟ in the

words of Muhammad Ali Jinnah „they hoped Pakistan would it be weaker‟. Jawaharlal

Nehru particularly hoped Pakistan would return to Indian Union as he weren‟t looking to

create a strong viable nuclear armed neighbour.

From 1839 onwards, British East India Company captured province of Punjab to

further expand its rule in India. The seeds of Indian disintegration were sworn with defeat

of Sikhs in Punjab and its annexation with British India on the instructions of Lord

Dalhousie, executed by Sir Henry M Elliot – the then Governor General. A series of

lessons, which worked to sow the seeds of disintegration and mischief extracted from the

quoted source are given in the succeeding paragraphs. 279

The British introduced a method of treaties to annex any territory, strike any kind of

political, economic, financial, trade or diplomatic agreements in any part of the sub-

continent with any local ruler. This also interrupted the free flow of trade and commerce

activities. The British made subcontinent, a major source of raw material and brought

them back into the subcontinent for consumption of their value added machinery, goods

and services. Instead of enhancing regional and demographic integration in political,

economic, trade and cultural sectors, the British injected acrimony and promoted divide

and rule politics in the sub-continent. They created their own rented elite by granting

disproportionate rewards to aristocrats, Nawab sand tribal heads. Communal and

religious sections of the society were marginalized. Land reforms (transfers on

individuals‟ name etc) bill and collection of revenues were introduced to strengthen local

aristocrats. John Lawrence as Chief Commissioner of Punjab administered it through

Deputy Commissioners and Tehsildars. 280

277 Yasmin Khan, “The Great Partition-The Making of India and Pakistan”, (November 5, 2008), Kellogg College, University of Oxford. 278 NisidHajari, “Midnight‟s Furies: The Deadly Legacy of India‟s Partition”, Penguin Press, Viking (2015). 279 See footnote 149, p277. 280 Ibid.

86

After the bloody Anglo-Afghan wars, between 1859 to1902, the British established

Durand Line. Resultantly, a temporary border between Pakistan-Afghanistan, was

created, which still acts as a simmering cause of dispute between Pakistan and

Afghanistan. The fence being erected by Pakistan is causing anger and frustration in

Afghan camps. The period from 1902 to 1932 saw massive anarchy, confusion,

lawlessness and domination by Hindu money lenders on Muslim peasants. Those

Muslims from arid zones of the subcontinent especially in the North-West made massive

contribution to World War - 1. To ensure security of their Raaj, the British enlisted loyalty

of Punjabis by introducing western education systems, extensive canal network to

generate agro-economy and development of railways thus bringing phenomenal socio-

cultural and economic changes at the grass-root level in Indian society. 281

In 1901, Punjab was partitioned to carve out NWFP. In 1912, Delhi was separated

and made capital of Indian Territory on the west of Punjab. So the native states linked

with Punjab and India both got divided by the British. 282 Thus the Punjab partition left all

the stake holders; i.e. the British, the Hindus, the Muslims and the local Rajas Monarchies

in a state of disarray sowing discontentment, which later was to be at the core of

perennial disputes in South Asia. 283

A similar fate was meted out with Bengal before and after partition in the form of

East and West Bengal. With Punjab capital at Lahore, its boundaries enclosed Himalayas

on the North, divided a triangle piece of land from Kashmir and NWFP. Indus River

formed its western boundary, while in the South-West, it extended to West of Indus to

form DG Khan District thus projecting its frontier to the Sulaiman Range to separate it

from Baluchistan. Sindh and Rajputana desert formed its Southern boundary. Jamuna on

the East formed its border with Uttar Pradesh (now in India), see map below. 284

Figure 3.2: Map of Punjab during the British Raaj in Indi

281 Ibid. 282 See footnote 160. 283 Ibid. 284 Ibid. p123.

87

Figure – 3.3, India Before and After Partition of Punjab & Bengal

The situation in subcontinent was much conducive in 18th century for trade,

commerce and community welfare. This was in complete contrast to the main land

Europe or what is present day European Union (EU). However, multiple invaders and, in

particular the British Raaj accentuated brewing sub-continental complexities of casts,

religion, cultures and deteriorated various production systems thus weakening the

previously prevalent politico-economic cohesion of this region. 285 Succeeding paragraphs

stand a testimony of this fact.

To measure the effect of cultural fault lines we recall excerpts from Romila Thapar

article; „the Aryans were implicitly superior to the non-Aryans as they were the initial

conquerors who had founded civilizations in Europe and Asia‟.286 Another excerpts from

K.N. Dash writing quotes; „To ensure that the two groups (i.e. Aryans and non-Aryans)

could never be racially mixed, a caste system was developed, which would prevent not

only non-Aryans from mixing with Aryans but also keep various classes within the Aryan

population, separate‟.287 Thus such divisions and dissections were artificially erected

amongst various cultures and religious communities by the British for their own vested

interests. Otherwise the same region was thriving in all factors of production, economic

development, religious harmony and cultural affinity as explained in the preceding part of

this chapter.

If we compare the above situation with EU, it comes to light that the civil society

comprising mainly the scholars, writers and economists conceptualised the tenets of an

integrated and an interdependent community later became a union. Unfortunately, the

part played by the British in subcontinent has now been taken over by the subcontinent‟s

rented political elite. The role of masses and media guided by the civil societies of

SAARC states; in particular, India-Pakistan therefore, assumes greater importance now.

Thus only the political elite need to harmonise their respective national policies for

achieving integration as was informally existing before partition of South Asia. Gohar

285 Ibid. 286 Romila Thapar, Cultural Pasts: Essays in Early Indian History, p25-26. 287 K.N. Dash, Invitation to Social and Cultural Anthropology, p211.

88

Rizvi‟s key note address to Chicago Congress sums up this as; „South Asian peoples,

region and community before the partition was woven by threads drawn from multiple

religions, myths, faiths, languages, traditions yet were linked by a common civilizational

unity, lasting for over two millennia‟.288

In 2017 mainly due to BJP‟s divisive and anti-integration policies, politico-

economic situation in the subcontinent has grown more complex where domination and

non-cooperation or lack of accommodation mainly by powerful states are preventing

regional economic integration in South Asia. Like the British rulers granted

disproportionate rewards to both aristocracy and peasants thus injected seeds of

disintegration in the society, the present rented political elites in India-Pakistan is

preventing the free market driven economic growth in South Asia. As the British Raaj

utilised local endowments for petty selfish reasons, development growth of the region is

being subjected to multiple constraints by the rented elite on trade and commerce

activities.

Interestingly, Latasinha Weblog has conducted an in-depth analysis as to how

seeds of Indian disintegration were sowed in a benign manner? 289 In his view, British

rulers inflamed the differences that were already prevalent in the society owing to the

diverse backgrounds of its people. Latasinha also opined that for from 1858 to1905, was

the period of annexation and apparent association under British Government in India.

From 1905 to 1940, British rulers adopted the policy of „Divide and Rule‟ and after 1940,

they decided to quit India. The British Government disintegrated Indian society in three

stages: –290

• First they appeased the Hindus.

• Then was the turn of Muslims.

• Lastly they devoted their attention to backward castes.

The British strategy gave them the credit for improving and protecting the down-

trodden segments of the Indian society and also ensured distribution of power on the

communal basis, which kept balance of power and prolonged the British rule in India.

Thus British Government very cleverly, created a split in Indian society. Even though the

British has left subcontinent in 1947, yet their cultural legacies still persist in almost every

aspect of Indo-Pakistan‟s polity both in official and private circles. Thus, the contemporary

politicians of South Asia are still following the British foot-steps to prove that seeds sown

by them have fully blossomed. The British used these tools to economically exploit India

and to perpetuate their rule in the subcontinent. 291 However, the indigenous politicians

are deepening not bridging the societal divisions by means of religion, extremism, caste,

288 Gowher Rizvi, “The Role of the Smaller States in the South Asian Complex”, Article on „South Asian Insecurity and the Great Powers‟, (May 2015),pp 127-156, 289 Latasinha Weblog, “Divide and Rule Policy in India before and after the Independence Issue”, Worldpress.com, (16 January

2018). 290 Ibid,p9. 291 Ibid.

89

community, and ethnicity only for self-interest. The domestic and regional policies of the

current BJP Government in India amply reflect these perfidious political strategies.

A number of factors discussed thus far have repeatedly brought India and Pakistan

to stand-off since their independence. Therefore, the seed sown by the British rulers

continue to blossom reflected in today‟s rent seeking political elite in the subcontinent.

Hence, the opposing political and ideological schools of thought then between Nehru and

Jinnah, and now between India-Pakistan‟s contemporary leaders continue to keep more

than quarter of the world population suffer in a state of abject poverty and misery. It is the

non-accommodative culture in the Indian political hierarchy and Pakistan‟s security

establishments, which is considered the main stumbling block in SAARC‟s transition to

SAEU/SAEA. Both India-Pakistan political leaders have to learn lessons from the EU or

ASEAN to sacrifice their vested interests for the greater good of their general masses.

3.7 Pros and Cons of Punjab‟s Partition

Punjab is being taken as a sample case because the main thrust of this chapter is

to trace the roots of India-Pakistan‟s discord and not to analyse division of whole of India

by the British. However, almost similar overlay would fit the political economy of both East

and West Bengal matching its consequences till date. The purpose is to bring out the core

reasons for SAARC states‟ mutual mistrust and acrimony preventing its economic

integration as a cohesive politico-economic bloc in South Asia.

As Alex von Tunzelmann defines communities on the basis of religious identity in

the sub-continent to attach political representation. So the division according to her

ranged from being Muslims to being a Non-Muslim. The mentality of either you are with

Muslims or not was summarised in various writings like;„ The Great Partition, which was a

source of political divide in this community‟292

In Punjab, Muslim dominance and rule was strengthened by their descendants and

conquerors for conversion of locals to Islam by Sufi saints. So Muslims were in majority

compared to their counterparts like; Hindus, Sikhs, Christians, Janis, Buddhists, Parses,

Jews (1921 Census in India).No other region of the world had such diverse cultures with

innumerable dialectical characteristics yet synergized demographic identities. People

belonging to one cast or race in a religion could also be traced following the other

religious beliefs. This is a great attribute for potential integration in a region. 293

As discussed before, the main economic progress in the region was due to

agriculture, trade and money lending – dominated by Hindus. Lack of equal opportunities

in education, government jobs, businesses, politics and other spheres of life caused

major antagonism and divisions between Muslims and Hindus. The partition of Punjab by

British into four different portions in both India and Pakistan caused division in peoples,

families, religious and ethnic factions, saints‟ tombs, archaeological and religious shrines

292 292William Dalrymple, “The Great Divide,The Violent Legacy of Indian Partition”, June, 29, 2015.

293 See footnote 149, p353.

90

as well as civil society, natural resources, water and above all political economy of India.

294

The west and east Punjab generated a number of disputes, major being; sharing of

Indus water, further division of east Punjab in 1966 into Himachal, Haryana and Punjabi

parts. It was a major disruption of commercial and agricultural activities in the region

denting its capacity of being food basket for whole of India. Muslim majority areas were

unfairly given to India of which Kashmir became an International conflict resolution

enigma. 295It is the main bone of contention between India-Pakistan over which both have

fought three wars and forms the main threat of their national and regional security policy

framework. However, more importantly, it is preventing any form of regional reconciliation

or mutual accommodation.

3.8 Fallout of Indian Union‟s Partition

Following specific excerpts have been drawn from the book, “The Aftermath of

Partition in South Asia” 296 to highlight the roots of mistrust preventing SAARC‟s possible

integration:-

• The main political and economic hubs of India; Punjab and Bengal were divided,

known as the most affluent and synergizing parts of subcontinent. Thus their ability

to add cohesiveness was diluted with the division of the most affluent part.

• The core Hindu mythology of cast system caused a dent in India‟s ideological

facade of secularism, which was also exposed by Muslims conviction of two

nation‟s theory.

• The partition generated multifarious centrifugal tendencies amongst the Indian

union; mostly demanding independence, which threatened the very fabric of its

cohesion – the leading ones being Kashmir, Mizoram, Nagaland and Sikh

movements.

• Partition triggered the biggest demographic shifts from south to north and vice a

versa in which minorities suffered the most.

• British withdrawal from Asia resulted in carving out boundaries in South Asia by

foreigners without mutual consultations among locals and agreement of political

elites. The new South Asian boundaries turned majority ethno-religious groups into

pockets of minority. The dividing lines between the East and West, swayed from

communal to economic to strategic factors, followed no natural dividing features,

cut across villages, canal systems and also dissected the existing communities

and communication lines in subcontinent.

294 Ibid p324. 295 Ibid, p337. 296 Tai Yong Tan &GyaneshKudaisya, “The Aftermath of Partition in South Asia”, Rutledge Studies in the Modern History of Asia, p

97-235.

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• The cohesiveness of South Asian nations till date has remained fragile and its

inhabitants are still divided into small ethno-religious and insignificant political

communities, which is being exploited by political leaders of the sub-continent.

• Ever-since 1947, Kashmir dispute has institutionalized mutual hatred, suspicion

and mistrust between Indo-Pakistan‟s general masses – mostly played by self-

serving political leaders on both sides, which together with so called independent

media houses portray congenially flawed India-Pakistan relations.

Gowher Rizvi sums up India-Pakistan‟s conundrum in next few sentences. 297 The

existence of one threatens the other e.g. the dispute of Kashmir, a legacy of partition,

reactivated all the issues and the traumas, which partition was intended to stop. South

Asian peoples, region and community before the partition were woven by threads drawn

from multiple religions, myths, faiths, languages, traditions yet linked by a common

civilizational unity lasting for over two millennia298.

On the eve of 70th Pakistan‟s Independence Day, Ramsha Jahangir‟s article on,

“Psychosis of Partition Across Generations” 299 brought-out cogent analysis, which lays-

out the results of a substantive online survey. The main points of her survey are briefly

mentioned here:-

• Compared to partition period, the younger generations of today want to know their

historical roots more than the past generations.

• The displayed xenophobia of PJP is more about anti-Muslims than anti-

Pakistan, which is against the very roots of a secular ideology. That „India is

yet to gain independence from…..xenophobia‟.

• Compared to partition, information access is a norm over privilege now.

Consequently, on both sides of divide, the social media has been able to

create a right wing narrative that incorporates bigotry and hatred for the

other. It concludes that the lobbying against peace is far greater than

building bridges.

• In an online survey from India-Pakistan, out of 1340 participants, aged

between18-35 years, 45 percent from India and 55 percent from Pakistan

based on factors influencing public perception yielding surprising

conclusions. For example 61 percent believed, they were more involved

with current affairs than their parents; 57 percent contested faith based

conflicts drive individuals into violence, however; 47.8 percent Indians

related terrorism with Pakistan, while only 13 percent Pakistanis related

India with inciting terrorism. Similarly 58 percent believed that present

generation was more intolerant than their forefathers 70 years ago.

297 See footnote 184. 298 See footnote 180. 299 See footnote 78.

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The above survey clearly indicates that the current phenomena of xenophobia by

BJP is most likely to be temporary or else it will threaten the very fabric of Indian Union.

The opinion making by social media has virtually been taken over from the civil society in

both India-Pakistan. It is therefore very important to harness social media both in India

and Pakistan and regulate it to play a positive and complementary role to regional

integration and economic development. If the civil society is to make vibrant contribution

towards regional economic integration, it must purposefully regain the lost prominence

especially in India.

The remedy is to take advantage of geographically proximate areas and network of

logistic or economic corridors in the subcontinent for achieving regional economic

integration. This requires India-Pakistan to opt for accommodative and reconciliatory

policies in the interest of the people of this region. Towards this end, China‟s OBOR (BRI)

and CPEC can play a catalytic part, which presently India is avoiding at the cost of its own

and greater regional development. It means, if the top leadership of each SAARC nations

demonstrate political reconciliation to share part of their economic sovereignties for the

collective good of general masses, South Asia can be turned into an interdependent and

a productive SAEU/SAEA.

3.9 Summary of Chapter Three

With the main focus on SAEU/SAEA, Chapter Three has attempted to trace the

roots of political economy of the subcontinent with two main goals; One, to explore the

state of political and economic activities as well as intraregional trade before, during in the

post partition period of subcontinent. Secondly, to discern the roots of Indian

disintegration and identify crisis as the real conundrum behind SAARC‟s current impasse

with particular reference to India-Pakistan. It was concluded that prior to the arrival of the

British in the subcontinent, South Asia was economically (though informally) a well-

integrated region of the world where ratio of agro-based vs the indusial production using

local raw material was 7:34 and the intraregional was thriving. However, with the onset of

British imperial rule, South Asia per se, became more as source of raw material and

manufactured goods for export to Britain and its trade partners. However, the British, by

design, created few inherent contradictions in the political, economic and demographic

structures with consequences on regional policies. These contradictions have their roots

in the sub-continent‟s historical legacies, which are at the core of SAARC‟s current

impasse. Ever since, India-Pakistan are engaged in an elusive zero-sum game haunted

by their past history and baptised by fabricated sense of insecurities. This state of affairs

can be attributed more to India-Pakistan‟s political leaders‟ myopic outlook, weak

institutional structures, divergent cultural mosaic and more dependence on extra regional

than regional states. More importantly, the British trained and rented political elite on both

sides of divide only to pursue self-aggrandisement and perpetual rule at the cost of

tittering millions living below the internationally accepted poverty scales.

The next chapter, mainly focuses on comparing SAARC with EU and ASEAN to

ascertain the efficacy of forming a SAEU/and, or a SAEA with particular reference to

interdependence with China and catalytic impact of CPEC. The lessons discerned

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through the comparison of the EU and ASEAN with SAARC would be used to assess

possibility of forming either a SAEU/and, or a SAEA.

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CHAPTER – FOUR

SAARC, EUAND ASEAN – A COMPARISON

In this chapter SAARC structures, statues and functioning is compared with EU

and ASEAN‟s state of economic cooperation, interdependence and integration

processes. The purpose is to find out how both the EU and ASEAN were evolved from

almost incorrigible past to the present state of integration and cooperation. If these two

organisations have been able to achieve a substantial level of economic

interdependence, integration and development then what is the probability of SAARC‟s

transition to a SAEU/and, or a SAEA particularly due to interdependence with China and

its epic project of CPEC. China‟s willingness to join the prospective SAEU/SAEA and use

its catalytic project of CPEC are the new dimensions to force-multiply economic

interdependence, cooperation and integration of Greater South Asia (GSA)? The

comparison between EU, ASEAN and SAARC would be drawn on account of

organisational structure, type of functioning and, methods of decision-making towards

integration as well as conflict resolution mechanisms in all the three regional

organisations. The focus would be to identify those variations that are essential for

regional interdependence and cooperation culminating into an economic integration of

Greater South Asia as an economic union/association. The key conclusions will be used

as benchmark for SAARC‟s prospective transition to SAEU/SAEA. As discussed in

Chapter One, the critique; „whether the three organisations are comparable‟, the answer

to still is that it depends on the research question and the purpose as well as the type of

study being undertaken. Let me reiterate that, it is only a comparative study to inject a

new thinking and a vision.

In comparison to SAARC, EU undoubtedly represents a successful, well

integrated, an established yet an evolving regional organization. The UK‟s 2016

referendum on possible exit from the EU, commonly called Brexit, may have raised a

number of questions for the prospective members of SAEU/SAEA, however, EU is still the

best and largely a successful international model of regional political as well as an

economic union. More-over, after all the review of pros and cons up until 2018, the UK is

considering to withdraw its bid for Brexit, which is likely to be counter-productive in the

developing multipolar world order of 21st century. Therefore, SAARC should learn from

EUand to great extent from ASEAN‟s past experiences to develop Greater South Asia

(GSA) into a seamless economic union/association. On comparison, EU is presented as a

model for others regions to emulate whereas SAARC has made little progress in meeting

the objectives and desire of its inhabitants especially; in terms of regional economic

integration and poverty alleviation. However, there are visible features for learning from

institutions, structures, policies and dispute settlement mechanism of EU as well as

ASEAN. It is important to note that unlike SAARC, ASEAN hails as one of the most

successful experiments in regional cooperation within the developing world particularly, in

its ability to manage conflicts and maintain peace without having to reach at any formal

treaty.

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Being „South Asian‟ is an essential part of the multiple and cross-cutting cultures

and identities of the people of this region. These cross-cutting relations run from the local

to the provincial, national and sub-continental tiers. The origins of this amorphous,

penumbrae regional identity goes back to the growth of Indic civilization, and some would

say earlier still. Imagine a sub-continent, which could have been known as „India‟ as its

identity roots of being Indian - is no more. 300 This aspect once studied from the point of

view of a South Asian strategic culture makes one to believe that concept is waxing

certain classical thinking of „no outside power can and should even constructively engage

any regional nation because it is considered an intervention in the internal affairs of South

Asia‟ by Hindu mythology301 – discussed at length in Chapter Three. This myth was

particularly exposed to a large extend on the onset of „globalisation‟ by laying barean

introvert nations‟ prerogative on accounts of economic growth, social justice, defence,

security, pluralism and human rights etc. Hence, unless South Asian leaders positively

affect the lives and livelihood of millions of their peoples and develop human empathy

through cultural harmony and community strengths, they cannot benefit from the

economic opportunities of 21st century such as CPEC or BRI. What may be obvious is,

„South Asian regionalism will help to make economic growth more symbiotic as

economies of scale are accounted for and, efficiencies of intraregional trade help to bring

down prices, generate employment and raise standards of living. In particular, the tens of

millions living in deep poverty in the border regions from Bangladesh, Nepal, Bhutan to

Pakistani Baluchistan and FATA are yearning for regional uplift. Not with standing an

important aspect of religion, the most distinctive feature of EU‟s comparison with SAARC

and ASEAN, is „cultural mosaic‟ reflected in the national characters of regions.

Chapter Three brings out the historical South Asian legacies and political economy

generating complex subcontinental dynamics, which is precluding possible regional

integration and economic progression into a cohesive entity . This typical South Asian

culture and character heavily impacts both the tone and tenor of policy formulation and

the choices made by the political elite. Since most of the elite and political leaders are

rent seeking class always looking for extra-regional or international support therefore,

their policy choices do not reflect aspirations of the indigenous South Asian people. More-

over, the issue of national security and national defence is by and large perceived in

terms of preserving their individual national sovereignties and either-or mind-set. This

zero sum approachis always at work even at the perils of ignoring the substantive issues,

seriously impacting their national interests. What ferments at the back of this visibly

negative subcontinental attitude has been amply brought out, however, it appears that the

set-out national goals and objectives can never be achieved by SAARC if these states

continue to follow the chequered history.

In order to undertake a broad comparison, it is important to refresh the readers by

presenting a brief overview of each regional bloc; i.e. SAARC, EU and ASEAN. In doing

300 Kanak Mani Dixit, “The South Asian Sensibility” – A HIMAL South Asian Trust, SAGE Publications India Pvt Ltd 2012. Also

available in Library of Congress Cataloging in Publication in E Form. 301 Ibid, P-xi and xii.

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so it is assumed that those concerned with political science subject or dealing with IR are

most likely to have a generic if not detailed knowledge about these organisations.

Secondly, only those aspects of SAARC (prospective SAEU/SAEA), EU and ASEAN

have been picked, which have a direct bearing with the title or thesis hypothesis.

However, it will be a very interesting study to compare typical South Asian regional

organisation with the most successful model blocs, which have an all pervading spirit of

interdependence and cooperation than competition found within the SAARC.

4.1 Brief Overview of SAARC and its Transformation

South Asian Association for Regional Corporation (SAARC) was established in the

year of 1985. Prior to this, the idea of South Asian regional cooperation was discussed at

least on three different occasions. 302In the late 1970s, the President of Bangladesh; Zia-

ur-Rahman had put forward the idea of a trade bloc that would comprise the South Asian

countries. This idea was accepted by India, Bangladesh, Pakistan and Sri Lanka in

Colombo in 1981.Later, three other countries of Nepal, Bhutan and Maldives joined to

form SAARC.303 Afghanistan began negotiating their accession to SAARC and then

formally applied for membership in 2005. The SAARC member states imposed a

stipulation for Afghanistan to hold a general election; following which the non-partisan

elections were held in late 2005. At last Afghanistan joined SAARC as its eighth member

state in April 2007. 304 The figure below generally depicts map of the whole of South Asian

region.

Figure 4.1: SAARC Countries (Regional) Map

Source: Google maps

302 Akshaykumar, “SAARC–An Overview from its Inception”, Guru Mavin, International Articles, (December, 16, 2014). 303 AkkirajuChandralekha, “Regional Cooperation in the World – A Comparative Study of the European Union and the SAARC”, SLS

Pune, (February 14, 2015). 304 See footnote 193.

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According to Dr. Muhammad Ali SAARC is an intergovernmental regional

cooperation forum of eight South Asian countries. The region occupies a potentially

critical geo-strategic position; bordered by India, Indian Ocean, China, the Gulf as well as

the Caspian Sea. The energy rich areas could serve as an engine of world economic

growth in the future particularly; if it forms a union. Australia, USA, Myanmar, South

Korea, Iran, China, Mauritius, the EU and Japan, are observers305.

Vision of SAEU, a brilliant idea, was conceived and put forward by a Group of

Eminent Personalities (GEP) in 1997.306To give effect to the shared aspirations for a more

prosperous South Asia, the leaders agreed to the vision of a phased and planned process

eventually leading to a SAEU. Although non-tariff barriers, infrastructure constraints and

other factors continue to hamper regional cooperation and integration in South Asia,

reference by SAARC leaders to SAEU indicates a willingness to consider bold action. 307

Thisvision can be realised since SAARC is full of diversities and complementarities in

terms of land area, geographical features, population, ethnicity, culture and natural

resources. In 21st century, the traditional vision of regionness and regionalism has been

transformed by the phenomena of globalisation, if not politically at least in the sense of

regional economic integration. Therefore, SAARC states, as part of Greater South Asia

(GSA-China plus South Asia),can hugely benefit from external geographical linkages like

China‟s OBOR(BRI) and CPEC as well as by proximity to energy rich Central Asian

States (CAS) to expedite economic development. Subject to political reconciliation by

India-Pakistan and support from international community in particular, China SAARC can

quickly transform itself into a productive entity as SAEU/SAEA. China can also play an

integrative role in realising the dream of SAEU/SAEA by being a member of the

prospective union.

4.2Main Principles of SAARC

There are mainly ten SAARC Charters with multiple Articles. However, as per

SAARC Secretariat, there were three main principles on which its formation was

based:- 308

• To respect the internal affairs of other states and mutual benefit.

• Not to substitute regional cooperation with bilateral or multilateral cooperation.

• Cooperation shall not be inconsistent with bilateral or multilateral cooperation

obligation.

4.3SAARC Charter

The SAARC Charter was adopted in the first Dhaka summit (1985), which set-out

the principles, objectives and institutional arrangements of the association. There are ten

main Articles in the SAARC Charter. Additionally, some protocol and testimonials have

305 Received fromDr. Muhammad Ali, Assistant Professor, Department of Political Science, University of Karachi. 306 Sultan Hafeez Rahman and Sridhar Khatri, Hans-Peter Brunne, “Economic Development and Regional Integration in South

Asia”,Edward Elgar Publishing, (April, 1st, 2012), p20. 307 See footnote 4. 308 Devina Das, “SAARC – An Overview” Youth Forum, (February 14, 2017).

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been accepted by the member states from time to time. The Charter emphasizes that

cooperation should be based on „respect for the principles of sovereign equality, territorial

integrity, political independence, non-interference in internal affairs of other States and

mutual benefit‟. The member countries are expected to avoid the bilateral and

contentious issues and reach all decisions through a unanimous vote. Main headings of

SAARC Charter include: Preamble, Objectives, Principles, Summit of The Heads of State

or Government, SAARC Council of Ministers (Foreign Ministers), Standing Committees,

Technical Committees, Action Committees, The Secretariat (Kathmandu, Nepal),

Financial Arrangements, General Provisions and Signatures. 309 For details of the Charter

and Articles, see the source. 310

4.4 SAARC Policy-making Institutions

The institutional arrangement of SAARC has a four tier mechanism where

functions of various committees are clearly delineated. At the apex level there is an

Annual Summit where the heads of State meet to discuss various issues in the last year

and set-out future agendas. At second, third and fourth tier are the Council of Ministers,

Standing Committees and Technical Committee, which determine various objectives of

cooperation amongst members states. The SAARC Secretariat is situated at Kathmandu,

Nepal, which is the main Headquarter of the organisation. The SAARC arrangement is an

extension of the diplomatic interaction in the world. This regional arrangement has six

Apex Bodies namely: SAARC Commerce and Industry (SCCI), SAARCLAW (SLaw),

SAARC Federation of Accountants (SAFA), SAARC Foundation (SAF),SAARC Institution

to End Violence against Children(SAIEVAC) and Foundation of Writers and Literature

(FOSWAL) to deal with some special subjects and areas of focus. 311

4.4.1 Council of Ministers - Council of Ministers is made up of the Foreign Ministers of

the member states, is mandated to meet twice a year. It is responsible for formulating

policies, reviewing progress, deciding on new areas of cooperation, establishing

additional mechanisms as deemed necessary and deciding on other matters of general

interest to the association. 312 The Standing Committee comprise of Foreign Secretaries

and also meet twice a year. The committee is responsible for monitoring and coordination

of financing, determining priorities, mobilizing resources and identifying areas of mutual

cooperation. It submits its reports to the council of ministers. 313

4.4.2 Technical Committees - In addition, under the articles VI and VII of the charter,

there are six technical committees and various action committees, which cover different

area of cooperation and programmes, including Agriculture, Rural Developments,

Environment, Transports, Health, Population, Science and Technology, Women, Youth

309 Professor Dr Khawaja Amjad Saeed, “Geo-politics SAARC Rejuvenation: Economic Implications”, Presentation at the Round table

conference of International Business & Economic Society Conference (January 2013). 310 Available at: http://www.saarc-sec.org/SAARC-Charter/5/. 311 See footnote 199. 312 Article IV of the SAARC Charter. 313 Article V of the SAARC Charter.

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and Children. Each technical committee comprises representative of member country,

and meets annually.314

4.4.3 The Secretariat– Located in Kathmandu, it is the highest executive body of the

SAARC, which was set up in 1987. As the SAARC‟s highest administrative body, it is

responsible for initiating legislative proposals, implementing policies and decisions and

managing the organization. It comprises the Secretary-General and eight directors, one

from each member states. The Secretary-General is appointed from member countries by

the Council of Ministers in alphabetical order for a tenure of three years, which may be

extended in special circumstances. He is assisted by the professional and the general

services staff. The Secretariat coordinates and monitors implementation of activities,

prepares for services meetings, and acts as a communication channel between the

association and its member states as well as other regional organizations315. The

previous Secretary General was Arjun Bahadur Thapa, from Nepal who served from 2014

to 2017, while the present head is, Ambassador Amjad Sial from Pakistan.

4.5 Decision-making Process in SAARC

As set out in the SAARC Charter, the decisions are dominated by the

intergovernmental method. Article IX provides that each member country contributes to

the funds of SAARC on a yearly basis. The share of different countries is: India

32.1percent, Pakistan 23.8percent, Bangladesh 11.35percent, Sri Lanka 11.35percent,

Nepal 11.35percent, Bhutan 5percent and Maldives 5 percent. In the case of regional

institutions 40percent of the expenditure is met by the host country316.As per Article X of

SAARC Charter, no contentious issues can be discussed in any of the Summit, which is

so illogical. 317 Since SAARC is an intergovernmental organisation, therefore, the

proceedings, decisions and implementation is subject to decisions taken by governments

in various SAARC states. It is important to note that the decisions made by SAARC head

of States and Council of Ministers are either accepted or rejected based on individual

personalities of the political leadership of the time, therefore, SAARC progress

periodically fluctuates to remain in an impasse.

4.6 Economic Cooperation in SAARC

Generally, SAARC has lagged behind the other blocs of the world, despite the fact

that its leaders have taken concrete measures. This realisation came after about a

decade of its inception. However, despite the fact that few major landmarks have been

achieved such as signing of South Asian Preferential Trade Agreement (SAPTA) in April

1993 and South Asian Free Trade Agreement (SAFTA) in 2004, the goal of economic

integration is still far from being realised.

314 “South Asia 2014”, Regional Surveys of the World (London: Routledge, 2014), P, 753. 315 SAARC Secretariat Home Page, Article VIII of the SAARC Charter.

Available at: http://www.saarc-sec.org/SAARC-Charter/5/. 316

Bhuwan Chandra Upreti, “Contemporary South Asia”, Kalinga Publications-India, (2004), p189.

317 Naveed Ahmad Tahir, “Integrationist and Cooperative Patterns in Europe.”

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The slow progress in achieving regional cooperation has been due to

underdeveloped infrastructure, poor connectivity, bureaucratic hurdles in decision making,

preoccupation with security issues and political instability. 318

4.6.1 SAARC Share in Global FDIs - SAARC share in global Foreign Direct

Investments (FDIs) is just 3.28 percent.319The FDIs can register tremendous increase if

enabling environments are created by regional states.

Country FDIs in Million $ Percentage of SAARC FDIs

Bangladesh 674 1.8

Bhutan 18 0.0

India 34,577 90.5

Maldives 112 0.3

Nepal 38 0.1

Pakistan 2,387 6.2

Sri Lanka 404 1.1

Total 38,210 100

Global FDI $1,164 billion Global SAARC Share 3.28 percent Table 4.1: SAARC Share in Global FDIs Source: See footnote 213.

4.6.2 SAARC Imports and Exports –The table below shows the percentage of various

SAARC countries viz the percentage of global exports and imports. 320 See a fractional

comparison with the global percentage.

Country Exports Imports

US $ Billion Percentage of Total US $ Billion Percentage

of Total

India 163 80 250

Pakistan 18 9 32

Bangladesh 15 7 23

Sri Lanka 7 3 10

Nepal 1 1 4

Sub-Total 41 20 68

Bhutan - - - -

Maldives - - - -

Afghanistan - - - -

Total 204 100 318 100

Percentage 1.63 2.55

318 See footnote 199. 319 World Development Indicators 2012, PP.364-365, 400-401. 320 See footnote 210.

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of Global

Exports &

Imports of

SAARC

Table 4.2: SAARC Imports and Exports – Comparison Source: See footnote 213.

4.6.3The Standing Committee-The Standing Committee comprising Foreign

Secretaries, monitors and coordinates SAARC programs of cooperation, approves

projects including their financing and mobilizes regional and external resources. It meets

as often as necessary and reports to the Council of Ministers. These have now become

an integral part of the SAARC process. 321

4.6.4The Committee on Economic Cooperation (CEC)– It comprises Commerce,

Trade Secretaries of Member States‟ oversees cooperation in the economic field. The

SAPTA was signed on 11 April 1993 during Seventh SAARC Summit held in Dhaka,

Bangladesh and entered into force on 7 December 1995.Subsequently, with the

objective of moving towards a South Asian Economic Union/Association (SAEU/SAEA),

the Agreement on SAFTA was signed on 6 January 2004 during the Twelfth SAARC

Summit held at Islamabad, Pakistan. SAFTA entered into force on 1 January 2006. The

SAFTA Ministerial Council (SMC) is the highest decision-making body of SAFTA and is

responsible for the administration and implementation of Agreement and all decisions

and arrangements made within its legal framework. These will be discussed separately

in subsequent paragraphs. 322

4.6.5Inter-Governmental Expert Group (IGEG) - As directed by the SAARC Finance

Ministers, an IGEG on financial issues developed the roadmap for achieving the goal of

forming a SAEU/SAEA in a gradual and phased manner. The Governors of the Central

Banks of Member States under the auspices of SAARCFINANCE meet regularly to

pursue cooperation in financial matters. 323

4.6.6SAARC Development Fund (SDF)– It has come into operation with three Windows

(Social, Economic and infrastructure) and an initial paid up capital of US$ 300 million.

With its Permanent Secretariat to be established in Thimphu two Regional Projects under

Social Window are already under implementation. 324

4.6.7SAARC Preferential Trade Agreement (SAPTA) - With the collapse of Soviet

Union economic issues around the world gained greater prominence than the security

discourse. SAARC member states also realized that time is ripe for the organization to

take up economic cooperation with the framework of regional cooperation. This

Agreement provides for a phased tariff liberalization programme (TLP). According to

SAPTA the non-Least Developed Countries (LDCs) of SAARC (India, Bangladesh,

Pakistan, Maldives and Sri Lanka) were to bring down tariffs to 20 percent, while LDCs

321 Ibid. 322 Ibid. 323 Ibid. 324 Ibid.

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(Afghanistan, Bhutan, and Nepal) were to bring them down to 30 percent. Later the non-

LDCs were to bring down tariffs from 20 percent to 0-5 percent in 5 years (less Sri Lanka,

which due to war got concession of a year, hence in 6 years), while LDCs were to reduce

it from 30percent to 0-5percent in 8 years. The non LDCs were then to reduce their tariffs

for LDC products to 0-5 percent in 3 years. 325

4.6.8SAARC Free Trade Agreement (SAFTA) - SAPTA was primarily conceived as a

first step of transition towards SAFTA leading subsequently to Customs Union, Common

Market and Economic Union. The 10th SAARC Summit decided to set up a Committee of

Experts (COE) to draft a treaty of FTA taking into consideration the regional asymmetries

in development and to achieve realistic targets. SAFTA Ministerial Committee (SMC)

comprising commerce ministers of the member states was established. To assist SMC a

Committee of Expert was also set up after enforcement of SAFTA in 2004. A trade

liberalization programme was also launched to enhance exports through SAFTA.

Instrument of SAFTA are appended below:- 326

• Trade Liberalisation Programme (TLP).

• Rules of Origin (ROO).

• Institutional Arrangements.

• Consultations and Dispute Settlement Procedure.

• Safeguard Measures.

• Any other Instrument that may be agreed to.

4.7 Poverty Levels in SAARC Region/States

As per World Bank reports of 2008 and 2016, SAARC is home of poverty stricken

people as almost 27 and 21.2 percent population respectively was living below the

poverty line. It may be noted that International Poverty Line has a value of US$1.90 PPP

where the Lower Middle Income Class Poverty Line has a value of US$3.20 PPP and

Upper Middle Income Class Poverty Line has a value of US$5.50 PPP. The revised GINI

Index as per World Bank Report - 2012, is given below. This index measures the level of

inequality from 0 to 100 levels. The lower the GINI Index the lesser is the inequality and

consequently, the lesser the poverty. As is apparent almost all the SAARC countries are

poverty stricken. Even the rising star; India is at 33.6 and 35.2 GINI Index in 2012/2016

respectively.

Country Survey Year GINI Index GINI Index in 2016

Afghanistan 2008 27.8 MDPI:38.5

Bangladesh 2010 32.0 32.1

Bhutan 2012 38.7 38.8

India 2010 33.6 35.2

325 Ibid. 326 Ibid.

103

Maldives 2009 36.8 38.4

Nepal 2010 32.8 32.8

Pakistan 2010 29.6 30.7

Sri Lanka 2012 38.6 39.2

Table 4.3 GINI Index of SAARC Countries Source: World Bank Development Report – 2012& 2016

4.7.1 SAARC Multidimensional Poverty Index (SMPI) 2014 - Another measure of

Multidimensional Poverty Index (MPI) has been devised by the World Bank, which

assesses the nature and intensity of poverty at the individual level, by directly measuring

the overlapping deprivations and poor peoples‟ experience simultaneously. 327 According

to this report total of 1.6 billion people are living in multidimensional poverty, of these 52

percent live in South Asia, and 29 percent in Sub-Saharan Africa. In South Asia, 86.3

percent poor live in rural areas. The report mentions MPI of Afghanistan at 38.5 percent,

Nepal at 44 percent, India at around 28.5 percent, Pakistan at 22 percent, Bhutan at 29

percent and Sri Lanka and Maldives at 8 and 9 percent respectively. There are over 420

million people in South Asia living in destitute. These figures are very important for

evolving a regional strategy against poverty alleviation amongst SAARC countries.

If economic integration in SAARC countries is successfully completed, it is most

likely positive impact will be on poverty alleviation in South Asia. As is outlined above, one

of the major goals of SAARC‟s charter is poverty alleviation, hence, supporting data

about the impact of SAEU/SAEA on the state of poverty alleviation from South Asia can

be a good indicator. In this regards, the World Bank Report-2012 claims that increasing

bilateral trade between China and SAARC countries is commensurately reducing poverty

amongst SAARC states, which is a positive aspect of this research.

4.8 Achievements of SAARC

If we start comparing SAARC‟s achievements with EU or ASEAN, not a whole lot

has been achieved, however, given the regional constraints, some of SAARC‟s

agreements are appreciable. For example, Food Security Reserve, SAARC Regional

Convention on Suppression of Terrorism, SAARC Convention on Narcotic Drugs and

Psychotropic Substances, Agreements on SAARC SAPTA and SAFTA, SAARC

Convention on Regional Arrangements for the Promotion of Child Welfare in South Asia,

SAARC Convention on Preventing and Combating Trafficking in Women and Children for

Prostitution and SAARC Convention on Mutual Assistance in Criminal Matters. In addition

to various SAARC centres established in different member states, SAARC Social,

Economic and Infrastructure Network, SAARC Development Fund, SAARC University,

SAARC Disaster Management Centre and SAARC Energy Centre agreements have been

reached. 328

327 Sabina Alkire, Mihika Chatterjee, Adriana Conconi, Suman Seth and Ana Vaz, “Global Multidimensional Poverty Index 2014”, June

2014. Derived from: www.ophi.or.uk/wp-content/uploads/Global-MPI-2014-an-overview-pdf?0a8fd7.

328 Mahwish Hafeez, “2016 SAARC Summit: Future of Regional Cooperation in South Asia”, Contributed for Journal of Strategic Studies Islamabad by Research Fellow.

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Following landmark achievements of SAARC are noteworthy:- 329

Year MILESTONES

1977 Idea of regional cooperation in South Asia was hit out by Bangladesh.

1983 Foreign ministers met in New Delhi. Declaration on South Asian Association

for Regional Cooperation was released and Integrated Program of Action (IPA)

was formally launched.

1985 Charter of SAARC was adopted in Dhaka, Bangladesh.

1992 SAARC Chamber of Commerce & Industry was established in Islamabad,

Pakistan.

1995 Agreement on South Asian Preferential Trade Arrangement SAPTA) was

signed in Dhaka accordingly, gradual reduction and eventual elimination of

tariffs within SAARC was announced paving the way for creating South

Asian Free Trade Area (SAFTA) with a long-term dream of forming South

Asian Economic Union/Association.

2012 First Pakistan India Management Summit was held in Lahore, Pakistan.

2014 18th SAARC Summit

Main Declarations

• The Heads of State decided to deepen regional integration for peace, stability and prosperity in South Asia by intensifying cooperation, inter alia, in trade, investment, finance, energy, security, infrastructure, connectivity and culture; and implementing projects, programmes and activities in a prioritized, result-oriented and time-bound manner.

• Renewed commitment to achieve SAEU in a phased manner through SAFTA, a Customs Union, a Common Market, and a Common Economic and Monetary Union.

• Reaffirmed commitment to the principles and objectives for welfare and improving quality of life of peoples of South Asia

• Determined to deepen regional integration for peace and Prosperity by promoting mutual trust, amity, understanding, cooperation and partnership.

• Implement the existing preferential facilities under SAFTA and SATIS (SAARC agreement on Trade in Services).

• Directed SAFTA Ministerial Council and SAFTA Committee Directed SAFTA Ministerial Council and SAFTA Committee.

• Strengthen social window of SAARC Development Fund.

• Resolved to enhance regional connectivity through rail, road, air and water ways, infrastructure, energy grids, communications in a seamless manner to ensure flow of goods, services, capital, technology and people. Agreed to link SAARC with contiguous regions of West and Central Asia.

• Enhance cooperation in energy sector, poverty alleviation, adoption of 2015 UN Development Goals, agriculture, food security, environment protection, blue economy, health, education youth development, women and children, social protection, migration, science and technology, tourism, culture, media, combating terrorism and transnational crimes, governance and strengthening of SAARC processes.

• The Leaders welcomed the offer of Pakistan to host the Nineteenth

Summit of SAARC.

329 Extracted from Press Release of 18th SAARC Summit Declaration, (November 27, 2014) & Word Bank Report – 2016.

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2016 19th SAARC Summit

Expectations-Agendas

• After China became observer in 2005, 19th SAARC Summit was to take up issue of granting China a permanent membership.

• Incorporating OBOR and CPEC into SAARC development.

• Terrorism, trade, energy and investment agreements to be signed for proper implementation.

• Agricultural treaty on subsidies and mutual cooperation.

• Tariff and Non-tariff barriers implementation for trade.

• Progress in implementing SAARC agreements.

• Women protection and gross gender inequality.

• Remittance and utilisation of SDF.

4.9 China - A Prospective Member of SAEU/SAEA

China is the world's most populous country (1,367,485,388-July 2015) with a

continuous culture stretching back nearly 4,000 years. Many of the elements that make

up the foundation of the modern world originated in China, including paper, gunpowder,

credit banking, the compass and paper money. China stagnated for more than two

decades under the rigid Communist rule Mao Zedong. But now China has the world's

fastest-growing economy and is undergoing what has been described as the world‟s

second industrial revolution. It has also launched an ambitious space exploration

programme, involving plans to set up a space station by 2020. The People's Republic of

China (PRC) was founded in 1949 after the Communist Party defeated the previously

dominant nationalist Kuomintang in a civil war. The Kuomintang retreated to Taiwan,

creating two rival Chinese states - the PRC on the mainland and the Republic of China

based on Taiwan. 330

4.9.1 Why China Should Form Part of SAEU/SAEA: It is very important to understand

that even though since 1949, China holds a typical control over the Chinese National

Party (NCP) and its society, however, it has gradually developed a unique communist

model by transforming national economic and financial structures following the

international best practices and WTO trading rules. Secondly, as mentioned by Senator

Mushahid Hussain Syed during an exclusive Seminar on CPEC331 that China, together

with Myanmar, West Asia and Central Asia now form part of the Greater South Asia

whose boundaries have been expanded due to a transformational connectivity of ports,

highways, energy hubs, shipping lanes and airways, especially; after initiation of China‟s

projects like OBOR (BRI) and CPEC. China is already a vital economic and trade partner

of all the SAARC states including India, forging particularly strong economic ties through

trade, diplomacy, aid, and investment. It also provides a unique link with the two main

sub-regions of South East Asia and West Asia. Mao's death in 1976 ushered in a new

leadership and economic reforms period especially since 1978 by Deng Xiaoping. The

economic reform has completely replaced China‟s state socialism generating rapid

growth and, turning it into the world's second largest economy after USA. Presently,

China has an observer status in SAARC, however, its prospective inclusion as a member

is considered as a big catalyst especially towards the economic integration of South Asia.

330 Available at: http://www.bbc.com/news/world-asia-pacific-13017879. Uploaded on January 21, 2016, Accessed on January 11,

2017. 331 Mushahid Hussain Syed Speech in a Seminar on CPEC at Institute of Management, Karachi (November 16, 2017).

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Due to political clout and national power potential China, like Germany or France in the

EU, can become the principal link in forming a SAEU/SAEA. Since the main driving force

in integration of SAARC and its prospective transition to SAEU/SAEA is seen through

economic integration, therefore, China being the world‟s second largest economy can

provide the necessary infrastructure, capacity to mitigate SAARC‟s impasse. Politically,

China can also perform a balancing role in providing support to smaller SAARC nations at

the regional and international forums. To sustain and successfully function as a

SAEU/SAEA, economic integration led by China, India and Pakistan can also ensure

peace and security in South Asia despite possessing dangerous nuclear weapons.

4.9.2 Significance of Silk Route - In order for China to expand its politico-economic

influence, there is no option but to revive the historical Silk Road under the new vision of

OBOR and CPEC projects. The Silk Road would provide an extensive network of trade

routes, which was formally established during the Han‟s Dynasty. The road originated

from Chang'an (now Xian) in the east and ended in the Mediterranean in the west, linking

China with the Roman Empire. As China‟s silk was the major trade product, German

geographer Ferdinand Von Richthofen coined it the Silk Road in 1877. It was not just one

road but rather a series of major trade routes that helped build trade and cultural ties

between China, India, Persia, Arabia, Greece, Rome and Mediterranean. Figure 4.2

(below) clearly brings out the significance of the Silk Route for the prospective

SAEU/SAEA. 332

Figure 4.2:Asia‟s Classical Silk Route.

The Silk Route reached its height during the Tang Dynasty, but declined in the

Yuan dynasty, established by the Mongol Empire, as political powers along the route

became more fragmented. The Silk Road ceased to be a shipping route for silk around

1453 with the rise of the Ottoman Empire, whose rulers opposed the West. The Asian

Development Bank (ADB) estimates that Asia needs US$ 8 trillion to fund infrastructure

construction for the 10 years up to 2020. China well knows its future development is

332 Extracted from https://www.clsa.com/special/onebeltoneroad/ on 15 January 2017. CLSA is Asia‟s leading and longest-running

independent brokerage and investment group, providing equity and execution services, corporate finance and asset management services to global corporate and institutional clients.

107

linked to Asia and beyond and, in part, is banking its future building neighbours‟ huge

infrastructure needs via OBOR. 333

China‟s growing domestic market means the chance for the region and the world

to capitalise by providing goods and services. The initiative is not without its challenges;

cooperation and coordination with partner countries over the long term are paramount for

it to be a lasting legacy. The OBOR involves more than 60 countries, representing a third

of the world‟s total economy and linking more than half the global population. Using the

Silk Route, China‟s ultimate goal is to extend the initiative to Africa and Latin America.

The OBOR Initiative could have as much impact on China‟s internal economy as it will

have internationally. China‟s top priority is to stimulate the domestic economy via exports

from industries with major overcapacity such as steel, cement and Aluminium. Many will

be Build-Operate-Transfer (BOT) schemes in which large SOEs will lead the way, but

smaller companies will follow. The domestic plan divides China into five regions with

infrastructure plans to connect with neighbouring countries and increase connectivity.

Each zone will be led by a core province: Xinjiang in the Northwest, Inner Mongolia in the

Northeast, Guangxi in the Southwest and Fujian on the coast334.

„Connectivity‟ and „Cooperation‟ are the key strategies of China‟s economic

strategy, which based on the teachings of their erstwhile philosophers; Confucius and

Deng Xiaoping had in the past 30 years or so, concentrated on their North-East, Central

and East coastal regions, while ignoring the North and Western China at the cost of

underdevelopment leaving a yawning gap in the levels of prosperity. After lifting of more

than 700 million people out of the poverty chains, the Chinese leaders focus has shifted

to development and integration of their Central and Western regions. This is why it is

expanding the sphere of national development towards these regions. The new Belt and

Road (BRI) or One Belt One Road (OBOR) together with the flagship project of China

Pakistan Economic Corridor (CPEC). It the old Silk Road projects are completed, it will

not only connect China‟s Central and Western regions with Arabian Sea through Pakistan

or CEPEC these will also connect different continents an enormous market and energy

rich Central Asian States, Easter Europe and Africa. In the process, all the

underdeveloped areas, regions and countries of the entire Western and Northern Asia will

get connected to the more developed regions. The projects will thus become a magnets

for other nations to get connected and complete their national economic objectives

through Chinese President; Mr Xi Jinping‟s initiative of 2013. 335

Ningxia Hui Autonomous Region with its long and glorious history and Islamic

tradition will be able to help China forge win-win relationship with all the Muslim Countries

along the SREB, with special focus on the Arab countries. China has initiated efforts to

extend its strategic links by successfully holding China-Arab States Fairs or Expos since

2010.336 It is in this perspective that China has decided to link its Western Province of

Xinxiang to the Northern Areas of Pakistan and onwards to Gwadar Port – being

333 Ibid. 334 Ibid. 335 Muhammad Azizul Haque – Ambassador of Bangladesh in China, “One Belt, One Road Initiative of China”. 336 Ibid.

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developed along the main trade route of Indian Ocean in the Arabian Sea named „China-

Pakistan Economic Corridor (CPEC)‟. It is already underway as part of the overall

concept of OBOR project of China. If this project is connected to the Central Asian States‟

hub of energy from North to South, the Gwadar Port, which is already linked to Karachi

Port of Pakistan will provide multiple options to China to manifest her regional and

international trade and economic road map. If SAARC region‟s internal trade routes are

also linked to CPEC and ultimately to OBOR project, the whole of South Asia will open up

to the outside world offering the most economical trade and commerce activities in the

entire region. Such activities will serve as corner stone towards formation of a

SAEU/SAEA. However, on the geopolitical plan, both OBOR and CPEC projects have

attracted opposition by neo-realist school led by USA using India as a proxy in South Asia

for China‟s containment drive – a strategy, which the US Administration has already

launched in South Asia and Pacific region. How the Trump Administration of 2017 and

beyond would play out its strategy remains to be seen. However, CPEC can act as a

game changer and a unifier in realising the dream of a SAEU/SAEA provided, India-

Pakistan together with China can work constructively for regional economic integration.

4.10 Overview of the European Union (EU)

The journey of European Union or the EU started some 67 years ago after it got

drained of most of its resources in men and material following the two world wars. The

process of erstwhile Coal and Steel Community (ECSC) was initiated focusing to

preventing any more continental or intra-continental wars amongst the state who suffered

overtime at the cost of their major national resources. The ECSC targeted to develop and,

in some cases revitalise their heavy steel production by collecting expertise of the pioneer

6 member states; Belgium, France, West Germany, Luxemburg, Italy and Holland. Later,

the same member countries formed what today is called the European Economic

Community (EEC). They set up a system of charging customs, which became a union.

The treaty on European Atomic Energy Community was signed with the aim to cooperate

in matters related to energy generation to off-set their deficiency in supply of electric

power for production industries. In late 1958, the two treaties were expanded to include

areas such as; common currency, free trade agreement involving free movement of

factors of production; labour, capital and raw material.337Ultimately in the first half of 2002,

the creation of EU was announced by initially some 20 countries, which later became a

union of 28 countries. It is a unique organisation, which is poltical, economic and cultural

in nature, where the national sovereignties are not questioned with a trust to protect

common not individual interests. They kept working to promote peace, development,

defence, communication and foreign affairs through multiple treaties, which became

strong binding. The Briton‟s likely exit from the EU is the downside of engaging countries

in strong bindings of such treaties.„338

337 See footnote 192. 338 See footnote 93.

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4.10.1 Why and How EU Was Evolved?

The main reasons of EU‟s integration was economic being an industry rich region,

however, it gradually evolved into a politically unified bloc, which has acquired the

wherewithal as a trend setter. Brief examination of the causes of economic and political

integration are enumerated hereunder:- 339

• After experiencing narrow nationalism, there was an earnest desire for a new common

identity, a broader connotation as an alternative wars. The identity desire was innate

from the leaders who envisaged that of a larger, stronger Europe and the identity of

every citizen to be „European‟.

• Re-emergence of Germany in post-World War II was a common fear that all the

European countries shared, European integration was a move for „Containment of

Germany‟.

• Post World War II, Europe was economically devastated and politically, the leaders of

European countries decided to rebuild themselves and they sought the channel of

European integration to recover their devastated economies. The two major wars

developed deep-seated fears as a mindset for European nations of returning to wars

once again. Hence they wholeheartedly opted to cooperate on treaties like; free trade,

movement of the factors of production following a shared vision of a united Europe.

This fear was primarily generated from the worst recession that swept Europe and

North America making hundreds of thousands jobless and eliminating their livelihood,

which actually prompted them to go for an ideal form of unification.

• On the part of North America, these states particularly the US capitalised on Europe‟s

fear of being overwhelmed by the threat of Soviet Communist forces particularly so

once their domestic economies were badly affected. The transatlantic relationship got

stronger with a massive financial aid by way of Marshal Plan of around US 15 billion

for recovery of Europe‟s dwindling economies.

• Thus the integration was successful due to European leaders with the spirit to develop

a more stable and peaceful future for Europe and its citizens.

Like all the great histories the process of EU‟s unification was never a very smooth

and a cherishable experience. This process was very eventful and traversed some of the

most challenging times; especially after the disintegration of the Soviet Union, which was

the main mover for all states to get into some Kind of unification. There were numerous

negotiation episode all across the European states‟ political landscape resulting in the

defeat or winning of national elections. There were also the undercurrents to manage the

national economies on their own without delegating their sovereignties to a central

headquarter, which may prevent individual nations‟ ability to progress more rapidly than

its counterparts. Hence, much of the integration was actually achieved first during the

early years just after the World War Two, when the EEC got the massive help in the

shape of Marshal Plan. The intervening period from 1978 onwards saw many undulating

periods in the commonly shared vision to integrate Europe into a completely political unit.

339 See footnote 231.

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The period between 1989 and 2001 actually experience a very fast track or accelerated

process of becoming the present day EU. 340

As also explained in the previous chapters, EU stands as a uniqaue organisation,

which is bounded through a series of agreements both bilateral and multilateral, which

were later converted into properly binding treaties. The spirit to synergise their local laws,

customs, policies and threats became pervasive with a lot of deliberations of allowing to

move factors of production; labour, raw material and capital freely; resulting into a

common trade policy; and a common agricultural policy. Nineteen EU member states use

a common currency (the Euro), and 22 participate in the Schengen area of free

movement in which internal border controls have been totally eliminated. In addition, the

EU has been developing a Common Foreign and Security Policy (CFSP), which includes

a Common Security and Defence Policy (CSDP). EU is also pursuing cooperation in the

areas of Justice and Home Affairs (JHA) to forge a common internal security

mechanism. 341

4.10.2 EU‟s Functioning and Institutions

4.10.2.a EU‟s Functioning Mechanism - EU member states work together through

several institutions to set policy and to promote their collective interests. EU is not a

federation nor does it function like the United Nations (UN). 342The main difference is that

it‟s an integrated body, which not only extends cooperation but member countries share a

certain amount of national sovereignties. In practice, this means that member states

delegate a few of their decision-making powers to supranational authority of EU

Headquarters and its Institutions through multiple treaties. EU has evolved a mechanism

where decisions, on specific matters of joint interest, can be democratically made at a

European central platform. Let‟s now see how the EU Institutions work and decisions

made?

4.10.2.b EU‟s Institutions - The EU is governed by several institutions, which don‟t

correspond exactly to the traditional branches of government or division of power in

various nation states. Rather, they embody the EU‟s dual supranational and

intergovernmental character as explained below:- 343

• The highest forum of Council of Europe or the European Council sets the main

direction to the common policy of the EU. The Presidents and the Prime Ministers

of the European states are the part and parcel who select their President. It

gathers numerous times on the direction of the President, who arranges sets its

agenda and steer the council.

• The decision-making executive body of the EU is called the European

Commission, which ensures that the common interests of all the European states

are preserved without any discrimination or bias of the size, ethnicity, religious

affiliations or size of the nations‟ economic strength. It is also responsible to see

340 See footnote 230, p4. 341 Ibid, p4. 342 See footnote 231. 343 See footnote 232, p5.

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whether the agreements and treaties are being followed in letter and spirit or

otherwise. It is the only body, which is allowed to make legislation and see their

impartial implementation. The number of commissioners correspond the number of

28 European countries. The commissioners are selected from the member states

for a maximum period of 5 years, however, the appointments have to be got

ratified from the Parliament of Europe. One of the member countries‟

representative is elected as president, while the other members are given

portfolios according to their expertise in areas such as; economy, businesses,

energy sector, trade and commerce as well as agriculture. More importantly, the

European Commission is entitled to conduct foreign policy negotiation with the

outside world, blocs, regions, trade unions, business entrepreneurs.

• There is another entity by the name of Council of European Ministers, which again

correspond to the number of EU states of 28. One of the responsibilities of the

Council is to endorse all the agreements, business deals and MOUs through voting

process. Every time various member countries ministers meet from different areas

like agriculture, energy, economic subjects etc less sacrosanct areas covering

foreign and defence, new membership, revenues and taxes. The decisions are

made on the basis of majority voting so is the selection of the President, a post,

which is rotated biannually. The president also sets the agenda of the meeting.

• The most represented body of the EU is called Parliament, which comprise total of

751 members. It is the most represented because these 751 members are elected

by the representative colleges of the UE directly for 5 years corresponding to the

size of the population, which also determine their number of seats. The members

of the Parliament together with EU Council make most of the decisions or policies,

which also build a shared vision of both the Commission and Council of European

Ministers. The most important is the decision of EU‟s budget, which sets the tone

and texture of the future direction of policies on initiation and completion of various

projects. There are Parliamentarians caucuses with each political groups, which

provide the requisite input in formation of the EU policies.

4.10.2.b Other Institutions EU, which play key roles are; The European Court of Justice

interprets EU laws and its rulings are binding; a Court of Auditors monitors financial

management; the European Central Bank manages the euro and EU monetary policy;

and Advisory Committees represent economic, social, and regional interests.

4.11 Lisbon Treaty and Decision-making Mechanism in the EU

On December 1, 2009, the EU‟s latest institutional reform- The Lisbon Treaty, was

launched which came into force following its ratification by all of the EU‟s Twenty Eight

member states. The main spirit of Lisbon Treaty was to reform the EU‟s governing

institutions and decision-making processes as well as to improve its functioning. The

treaty afforded the EU a stronger and more coherent identity on the world stage, and

enhanced decision-making transparency within the EU. The treaty established two new

positions: the first position is called the President, who is elected for 2.5 years. This term

of the President can only be renewed once. The President of the Council also chairs EU‟s

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heads of states and acts as the President or Coordinator. He makes special effort to

develop any new policies after taking consensus of the EU‟s Spokesperson as the most

represented forum in the EU. Since there was no formal Foreign Minister in the EU‟s

positions, therefore, the treaty also elects the EU‟s Foreign Minister called Highest

Representative of the Union of States in the EU. He is the only Chief Diplomat and the

Security Negotiator on the panel of EU‟s Ministers. In case of the absence of the

President, the High Representative also assumes the role of the Vice President of the

EU‟s Commission. 344

Previously, the EU‟s decisions were to be made on the basis of unanimity,

however, the Lisbon Treaty injected an amendment to finish the rule of unanimity. Instead

the decisions are now taken based on the simple majority. This has made the process

transparent as also as simple and more efficient. Not only the functioning of EU has

improved but the decision-making has become more transparent and acceptable to all

states. The possibility of a vote by all has made member state governments more willing

to compromise and reach a common policy decision. 345

4.12 EU‟s Trade Policy and Processes

Unlike other regional organisations like; ASEAN or SAARC, the EU members

share their sovereignty and thus allow a unified foreign policy, trade and commerce

policy. It means no single EU state is allowed to undertake any major trade or foreign

policy negotiations directly with any of the non-EU member. However, the policies on

trade and commerce as well as foreign affairs are very well structured in which common

interests of all the member states irrespective of their size are taken care off. The free

movement of the factors of production; labour, raw material and capital is fully ensured by

all the member states. This free movement prevent any individual state to sell or import

the same product from outside the EU. However, the balance has now been shifted

towards China‟s cheaper goods. 346

The EU‟s policies, common tariffs, customs laws, import and export pre-requisites,

trade protection measures and rebuttles all are made and finalised with the joint efforts of

the Council of EU Ministers as well as the EU‟s Commission respectively. Mostly the

consensus is struck, however, the decisions can also be made based on the majority

vote. The Commission is the only entity to negotiate all kinds of economic or trade

agreements with the outside states, unions, organisations and entrepreneurs.It is also

empowered to restrict, negotiate or seal the complete import or export of an item or a

number there off. But its orders have to have the final approval of the EU‟s Parliament as

well as the EU‟s Council of Ministers.

4.13 Trade as an Instrument of Policy

The EU has carved out a common trade policy as a means to conduct intraregional

trade and strike extra regional trade deals with various other countries. Among the

measures requiring to follow the Common Commercial Policy, adopted under the EU‟s

344 Ibid, p6. 345 Ibid, p7. 346 See footnote 230, p14.

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ordinary legislative procedure, are the Common Customs Tariff and Common Import or

Export Rules. For example, quotas, imports or export bans, licencing issues, domestic or

export subsidies, agricultural levies, autonomous trade preferences for certain countries

as exceptions, as well as defensive and offensive trade policy instruments. The defensive

trade policy instruments aim to defend the interests of EU companies in foreign markets

in conformity with WTO rules. The offensive trade policy instruments aim to open foreign

markets and eliminate obstacles to trade. The EU has since the end of the Cold War

attempted to act as a normative power also in its Common Commercial Policy. It has,

introduced political conditionality in few trade instruments.347 Thus such measures are

very effectively used to promote EU‟s trade culture within and around the world especially

for the developing world.

The EUʼs Common Customs Tariff consists of uniform customs duties applied to

products imported from third countries, irrespective of the member state of destination.

Most common external tariff rates are those negotiated within the WTO. There are,

however, many derogations from the application of these rates, either through PTAs or

through autonomous trade preferences for certain special countries. For instance, through

the Generalized System of Preferences (GSP) the EU grants to developing countries non-

reciprocal, duty-free access or, for so-called Sensitive Products‟ tariff reductions. The

primary objective of the GSP is to help reduce poverty and promote sustainable

development in the beneficiary countries or regions. 348

4.14 Lessons from the Brexit

The most devastating and consequential Britain‟s Exit from the EU (commonly

called Brexit) as an historic event, occurred in June 2016 when following a Britain‟s

referendum, it opted out of the so called role model of integration i.e. EU.349 The

comparison of EU as a role model for integration once seen in the backdrop of

developments ever-since 2016 brings to the focus a need to analyse a critical aspect of

political and economic integration. Although not yet conclusive but Brexit has invoked an

intense discussion as to whether in a globalised world, a region should be economically

cooperating more like ASEAN or still the EU model fits in all solution may be successful.

As per the statements of EU‟s leaders,350 Britain will officially leave the EU in

March 2019, following which the markets are in crisis mode and probably some difficult

times in Europe are in the offing. Ever since UK‟s Referendum 2016, the global stocks

are plunging, the unstable, banks and company CEOs are doing their best tackle the

situation. Markets become vulnerable due to uncertainty, and while everywhere from the

Bank of England to publicly traded banks had contingency plans in case of a Brexit, it

seemed that most observers were expecting Brits to choose to remain. But it is not just

the immediate market fallout that Britain has to worry about but the future of Europe‟s

347 GstöhlSieglinde, Professor, College of Europe, Bruges , “The European Union‟s Trade Policy”, Ritsun International Affairs Journal,

Vol.11, pp.1-22 (2013). Available at: http://www.ritsumei.ac.jp/acd/re/k-rsc/ras/english/publications/ria_en/11_01.pdf. 348 Ibid, p17. 349 LiannaBrinded, “Britain is Broken beyond Repair” (June 24, 2016). 350 European Council (Article 50) on the UK Notification on “Brexit”, (March 29, 2017).

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socio-political landscape. Britain is divided, and the political contagion to follow not only

threatens to wreck the EU as a whole but it could spread across the globe.

Bank of England (BOE) Governor Mark Carney said the central bank was ready to

provide more than £250 billion, or $344 billion, of additional capital to its normal

operations. Essentially the BOE is ready to prop up the UK's financial system to protect it

from the direct impacts of the Brexit to calm the markets. Just look at the pound: At one

point it was hitting a 30year low and was trading worse than on Black Wednesday-the day

of Brexit. Though it slightly recovered, but it was down by 8percent. At the same time,

European stocks fell-off. Thus, it is no wonder, the central bank tried to calm everyone

down. The political chaos does not stop with Britain. The contagion the EU was to face

from the British was stopped with France‟s 2017 elections deciding to remain part of the

EU. In Germany‟s elections too, public is likely to yet again support remaining within the

Union. Therefore, it is already visible that Britain will be battling to keep itself together, let

alone remove itself from the EU. The wave of political fallout in the UK‟s referendum

could cause huge ramifications for the Britain to be a progressive part of the EU.

Policy-makers in the US consider the UK as their main mole but it is painted as a

main trans-Atlantic link available to the EU on important issue especially on Foreign

policy. Its stark examples of siding more with the US foreign policy was seen during a

decision of attacking Iraq in 2003. The fall-out is still spreading in the shape of US

destroying the other middle-eastern and north African states like; Iraq, Libya and Syria.

The UK‟s bent of policies towards the US present an additional challenge for the

remaining European countries. Add to it the overwhelming influx of the illegal immigrants,

weakening of economies like Greek etc. The Brexit is now the biggest sore, which is likely

to be prolong as indeed the other problems for the EU. The Brexit is also not the only

exiting issue from the EU. Norway and Switzerland and the likes are also bracing for

similar moves. All in all the issues in the EU are never ending because if today the issue

of labour is resolved, tomorrow the issue of illegal immigrants may come up. Most

industries in Europe are closing due to non-availability of requisite labour, hence free

movement of labour and other factors of production will need a dire necessity or

compulsion for the EU. The main point is that even if the Britain and other aspirant mange

to exit from the EU, their own labour wouldn‟t get access to the remaining European

markets. Thus on the basis of reciprocity, all these countries would end up losing their

own trade potential. The Banks and other entrepreneurs in the UK and other aspirants will

also not be allowed to access money transactions free of cost. All this will add up to cost

the general public of these aspirants. Conversely, the EU‟s leadership also would not like

to lose the biggest UK‟s market and a staunch trans-Atlantic link with the US. There is

also an issue of incentives to other EU states not to opt for exit from the EU. For that to

happen, they must see how the UK‟s economy is adjusting to what is going to be an exit

under any condition. 351 So then what‟s the answer to a captive situation of Brexit? What

are the lessons for this study from the ongoing EU‟s experiences like Brexit or Greece

financial crisis?

351 Charles Grant - Director of the Centre for European Reform. “The Impact of Brexit on the EU”, (24 June 2016).

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The initiation of EU‟s expected disintegration by Brexit brings out some stark

lessons for the other regional associations like SAARC, prospective SAEU/SAEA and

ASEAN. The question to be analysed is; whether in a globalised world of 21st Century,

loose and flexible integration like ASEAN is better than forging an ideal block like the EU.

Because in a union, states are tied by very complex and obligatory set of treaties and

rules impinging upon the political, economic and structural independence of member

countries of an integrated block. Secondly, is the liberal dynamics of ceding a limited

amount of sovereignty to protect national interests are a better option than denying

general masses their inviolable right to economically prosper? As the UK conducts Brexit

talks with EU, the readers can learn more to factor in hidden aspects of such historical

experiences. Nonetheless, these excerpts also highlight the significance of being part of

an integrated bloc as opposed to an isolated island within a seamless group of countries.

4.15 Brief Overview of ASEAN

The ASEAN was established on 8 August 1967 in Bangkok, Thailand, with the

signing of the ASEAN Declaration (Bangkok Declaration) by the founding fathers, namely

Indonesia, Malaysia, Philippines, Singapore and Thailand, Brunei Darussalam, Vietnam

and Cambodia on 30 April 1999, making up what is today the ten Member States of

ASEAN.352 It may be noted that EU, SAARC or ASEAN were formed in different set of

environment but still have overlapping aims and objectives.

4.15.1 Aims and Objectives of ASEAN

As set out in its declaration, the aims and objectives of ASEAN are:- 353

• To accelerate the economic growth, social progress and cultural development

through joint spirit of equality and partnership in order to strengthen the foundation

for a prosperous and peaceful community of Southeast Asian Nations.

• To promote regional peace and stability through abiding respect for justice and the

rule of law in the relationship among countries of the region and adherence to the

principles of the UN Charter.

• For enhancing the overall cooperation in the fields of social, cultural, scientific,

administrative and economic.

• For the access of facilities like; training on technical, administrative R&D as well as

the educational fields.

• For protection of car and agrarian industries as well as to protect international

commodity trade, the improvement of transportation and communications facilities

and the raising of the living standards of its peoples.

• To promote Southeast Asian studies.

352 ASEAN homepage, Available at: http://asean.org/asean/about-asean/overview/. 353 Ibid.

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• To maintain close and beneficial cooperation with existing international and

regional organisations with similar aims and purposes, and strive for closer

cooperation among themselves.

4.15.2 Fundamental Principles of ASEAN

In their relations with one another, the ASEAN Member States have adopted the

following fundamental principles, as contained in the Treaty of Amity and Cooperation in

Southeast Asia (TAC) of 1976:- 354

• 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.

• Renunciation of the threat or use of force.

• Effective cooperation among themselves.

4.16 AEAN Community

The ASEAN Vision 2020, adopted by the ASEAN leaders on the 30thAnniversary of

ASEAN, agreed on a shared vision of ASEAN as a concert of Southeast Asian nations,

outward looking, living in peace, stability and prosperity, bonded together in partnership in

dynamic development and in a community of caring societies. At the 9th ASEAN Summit

in 2003, the ASEAN leaders resolved to establish an ASEAN Community and at the 12th

ASEAN Summit in January 2007, the leaders affirmed their strong commitment and by

2015 signed Cebu Declaration on the Acceleration of the Establishment of an ASEAN

Community. The ASEAN Community is comprised of three pillars, namely the ASEAN

Political-Security Community, ASEAN Economic Community and ASEAN Socio-Cultural

Community. Each pillar has its own blueprint, and, together with the Initiative for ASEAN

Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-2015), they form

the Roadmap for an ASEAN Community 2009-2015. 355

4.16.1 ASEAN Economic Community (AEC)

The establishment of the ASEAN Economic Community (AEC) in 2015 is a major

milestone in the regional economic integration agenda in ASEAN, offering opportunities in

the form of a huge market of $2.6 trillion to over 622 million people. In 2014, AEC was

collectively the third largest economy in Asia and the seventh largest in the world. The

AEC Blueprint 2025, adopted by the ASEAN leaders at the 27thASEAN Summit on 22

November 2015 in Kuala Lumpur, Malaysia, provides broad directions through strategic

measures for the AEC from 2016 to 2025. Along with the ASEAN Community Vision

2025, and the ASEAN Political-Security Community (APSC) Blueprint 2025 and the

ASEAN Socio-Cultural Community (ASCC) Blueprint 2025, the AEC Blueprint 2025 forms

part of ASEAN 2025: Forging Ahead Together. It succeeded the AEC Blueprint (2008-

354 Ibid. 355 Ibid.

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2015), which was adopted in 2007.The AEC Blueprint 2025 is aimed towards achieving

the vision of having an AEC by 2025 that is highly integrated and cohesive; competitive,

innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a

more resilient, inclusive, and people-oriented, people-centred community, integrated with

the global economy. 356

The AEC Blueprint 2025 consists of five interrelated and mutually reinforcing

characteristics, namely:- 357

• A Highly Integrated and Cohesive Economy.

• A Competitive, Innovative, and Dynamic ASEAN.

• Enhanced Connectivity and Sectoral Cooperation.

• A Resilient, Inclusive, People-Oriented, and People-Centred ASEAN.

• A Global ASEAN.

These characteristics support the vision for the AEC as envisaged in the ASEAN

Community Vision 2025.The AEC Blueprint 2025 sets out strategic measures under each

of the five characteristics of AEC Blueprint 2025. To operationalise the Blueprint‟s

implementation, these strategic measures are further elaborated in and implemented

through the Sectoral Work Plans (SWP) of various Sectoral Bodies in ASEAN. The AEC

2025 Consolidated Strategic Action Plan (CSAP) comprises the key action lines to

operationalise the strategic measures in the AEC Blueprint 2025. It takes into account the

relevant SWP, and is reviewed periodically to account for developments in each sector.

The inaugural issue of the ASEAN Economic Integration Brief (AEIB) was released on 30

June 2017. The AEIB provides regular updates on ASEAN economic integration progress

and outcomes, and is a demonstration of ASEAN‟s commitment to strengthen

communication and outreach to raise stakeholder awareness of the AEC. The new

Blueprint will not only ensure that the Ten ASEAN Member States are economically

integrated, but are also sustainably and gainfully integrated in the global economy, thus

contributing to the goal of shared prosperity. 358

4.17 Dispute Resolution Mechanism in ASEAN

It is a well-known fact that resolution of dispute through peaceful means is covered

under UN Resolution and International Law. ASEAN countries have derived and forged

the same spirit to settle dispute among the regional countries. This provides a basic

framework within which all the bilateral, regiojal and global treaties are framed and then

should be followed in letter and spirit. The regional organisation create various forums

and bodies, which are referred to in case there is some financial, political, trade or any

other dispute among the state. It is a unique feature of ASEAN leadership that unlike the

EU or SAARC etc, there is no formalised body, mechanism or an institution to settle

various disputes. Their Summit is only the main yet an informal platform where all the

356 ASEAN Homepage, Accessed on 11 April 2017. 357 Ibid. 358 Ibid.

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disputes are presented in very cordial environment and wisely settled without any

bickering or fallout. There is one protocol, agreed to in 2010, which outlines a Standard

Operating Procedure (SOP) or the method that is adopted. This SOP is taken as a

binding by all the ASEAN countries or their leadership. 359 At the time of formation of

ASEAN in 1967 the member states were focused on reducing tension and

inconsistencies. The impetus was provided by the determination to ensure peace and

stability in the region to pave the way for smooth national socio economic development.

This desire was well supported by uniformity in threats and security perceptions from both

within and outside the region. But, the real stimulus to resolve disputes emanated from

the recognition of futility and lack of credibility, tension and confrontation. The ASEAN

believes that acknowledging the complexities does not mean giving in to the other party.

On the other hand, though problems are often highlighted by SAARC leaders, an

ambivalent attitude together with dithered thought and actions have become the norm in

the Association, which many scholars argue, indicates lack of political will or reconciliation

to resolve mutual disputes.

The ASEAN experience of „Dispute Resolution‟ has shown that due to lack of

synchronisation and divergence pervading the typical landscape, together with the

associated disputes, member states have displayed a remarkable degree of

comprehending each other's problems, aspirations and limitations. There has been a tacit

understanding on the mutual perceptions and the need of role playing. There have been

references to a so-called `low-profile' role on the part of Indonesia, repository of pivotal

power in region. 360 In the event of a failure to resolve contentious issuesthe member

states have consciously overlooked in favour of the greater cause of cooperation. It

appears that ASEAN was characterized by a consensus that disputes at bilateral level

have an undeniable existence in inter-state relations, and whilst there were attempts at

settlement of such disputes, failure to do so, was never allowed to obstruct the process of

cooperation under ASEAN mainly by the incumbent leadership.

As already indicated, SAARC forum is currently not geared up to deal with bilateral

and contentious matters. In line with the character of inter-state relations in the SAARC

region this approach is realistic. In the light of ASEAN experiences, two aspects are

noteworthy. Firstly, although such issues do not feature in the formal agenda of the

SAARC, member-states are not restrained from proposing and debating meet on the side

line of SAARC forum. The second aspect is associated with the asymmetry and

consequent to that, a dominant role of India. There is no denying that most of the

problems at bilateral level in South Asia are one way or the other linked with India.

Looking at EU and ASEAN system of dispute resolution, it is incumbent upon India-

Pakistan, the two bigger countries in SAARC to reconcile their antagonistic approach in

the interest of regional economic integration. There is a need to strike a balance between

bilateral and multilateral interests of SAARC member states for economic integration and

prosperity of the region.

359 Gus Van Harten, “Judicial Restraint in Investment Treaty Arbitration: Restraint Based on Relative Suitability”, Journal of

International Dispute Settlement, Volume 5, Issue No.1, (March 1st, 2014), Pages 5–39. Available at: https://doi.org/10.1093/jnlids/idt030. 360 See footnote 257.

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4.18 Comparison of ASEAN and SAARC

As can be realised in the discussion so far that the EU is an institutionalised bloc,

which is politically and economically more integrated than ASEAN. Thus, ASEAN is more

comparable to SAARC as it is still an evolving regional organisation.

Southeast East Asia has an extended history of regional experiments in

cooperation than South Asia. South East Asia has also had experience of greater variety

of experiments, from largely intra-regional to extra-regional on account of purely politico-

military to largely economic domain. On the other hand South Asian experience is more

recent, mostly of intra-regional and almost entirely non-political and unrelated to political

military issues. The shared perceptions of a common threat among the anti-communist

Southeast Asian states worked in favour of regional cooperation unlike South Asia where

we had Pakistan, part of SEATO and CENTO and the other South Asian states were

members of Non-Aligned Movement (NAM), like India. This gave ASEAN much closer

affinity with the US in the geopolitical power struggle. On the other hand most member

states of SAARC stuck closer affinity to the NAM. 361

Comparison of the stated aims and objectives of both ASEAN and SAARC

emphasis on active collaboration and mutual assistance on matters of common interest in

the economic, social, cultural, technical, scientific and administrative fields. Charter of

both declarations also encourage cooperation with other international and

regionalorganizations. However, there are also some variations, for example as per

ASEAN Bangkok and SAARC Delhi Declarations respectively; under the „General

Provisions‟it is specifically mentioned that decisions at all levels shall be taken on the

basis of unanimity, thus allaying fears in both India and other members about each other,

whereas there is no such rule as faras ASEAN is concerned. Another difference between

the two documents is that the New Delhi Declaration under „General Provisions‟

specifically restricts member states taking up bilateral issues in SAARC meetings

whereas there is no such provision in the Bangkok Declaration. These two points of

variations are the fundamental root causes of SAARC‟s impasse till date, while ASEAN

thrives on account of all regional economic, trade and social welfare issues. Some other

variations are given in the succeeding paragraphs.

The framework of both ASEAN and SAARC bare a lot of similarities, however,

there are some points which consider SAARC in a better position to forge as a regional

economic bloc than ASEAN. For example, SAARC represents the whole of SouthAsia,

where as ASEAN represents only a fragment of South-East Asia and Burma as well as

Indo-Chinese countries like Vietnam, Loas and Kampuchea are not part of ASEAN. 362

Secondly, SAARC is the spontaneous result of aspirations of the ruling elites of South

Asian Countries, whereas ASEAN was the culmination of US attempts to form a regional

organization of pro-western countries in the wake of the escalation of Vietnam War in the

late 1960s. Thirdly despite the wide differences in the foreign policies of South Asian

361 Chibber Bharti, “Regional Security and Regional Cooperation, A Comparative Study of ASEAN and SAARC”, New Century

Publications, New Delhi, 2004, p106. 362 Suryanarayan V, “SAARC and ASEAN: A comparative Perspective” in Regional Organizations. A Third World Perspective edited by

Rama S. Melkaote, Sterling Publishers Private Limited, New Delhi, 1990, p. 188.

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states, the IR of the region is not polarised as during the cold war era. Fourthly and more

importantly, South-East Asia is currently witnessing the politics of confrontation between

ASEAN and the Indo-Chinese States in which most states envy Chinese domination. 363In

South Asia, the political system, internal or external security threat, foreign policy

orientation, economic priorities or the role of the dominant power like; India, there exist

wide differences. 364 These polarisations are mainly due to US or West‟s meddling in the

internal dynamics.

4.19 SAARC, EU and ASEAN – A Comparative Analysis

As discussed in the preceding paragraphs, there are different set of environment

under which EU, ASEAN and SAARC were formed. For example, for the EU‟s threat

perception mechanism had always existed since the post-World War II, which played an

important role in the formation of the ECSC, EEC and then EU. After WW II, the only way

top reserve the Western European independence and strength was to form acommunity

to protect themselves mainly from USSR in which case US both politically and financially

(Marshall Plan) supported formation of the EU. 365The Second Type of regional group are

the like-minded regimes like; ASEAN, who decide to build a bloc to cope with the growing

internal threat to the region. For example ASEAN became a regional grouping due to the

threat of internal Communist Insurgencies and growing economic dominance of Japan,

where Indonesia, Malaysia, Thailand, the Philippines and Singapore formed the bloc in

1967. In the Third Type, a single super or a major power may take the initiative with other

small neighbours to form a grouping in a respective area. The Gulf Cooperation Council

(GCC) is an example where Saudi Arabia, a major power of the region, formed the GCC

in a Summit meeting in Abu Dhabi during the month of May 1981.366Incontrast, SAARC

was not formed under a threat spectrum, nor it was proposed by regional major power;

India. Its basis lay in solving the socio-economic problems of the peoples of this region.

Thus, the dynamics of South Asian regional cooperation are very unique in nature where

without any institutionalised thinking major decision are made by the politico-military

leaders without much involvement of the common masses. 367

Before we attempt to compare EU and SAARC one has to understand that the

European model of integration was a unique one where success was due to common

conditions shared by all the European countries in the post- World War-II period, which is

not the case with SAARC. Thus, SAARC cannot act and function like the EU. Secondly,

and more importantly, there is a lack of political will among the SAARC member states to

resolve their bilateral conflicts and channelize their energies to build mutual trust and

cooperation. The EU on the other hand is always in the pursuit of creating the larger

identity of „being European‟. It raises and also provides funds for infrastructural

development to facilitate free trade, free movement of goods, labour and services within

363 Ibid, p190. 364 MohaammadAyoob, “The Primacy of the Political: South Asian Regional Cooperation in Cooperative Perspective”, South Asian

Survey. Vol. XXV, No.4, (April 1985), pp443-57. 365 Altiero Spinelli, “The Growth of the European Movement since World War II” Edited by C.Grove Haines, European Integration,

Johns Hopkins University Press, Baltimore, 1957, p43. 366 James A. Bill, “Resurgent Islam in the Persian Gulf”, Foreign Affairs, Vol. 63, pp1084-1093. 367 Emajuddin Ahmed, “SAARC: Seeds of Harmony”, University Press Limited, „Dhaka, 1985, p.12.

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the union. Lack of political will to resolve bilateral issues is the fundamental difference

between the EU, ASEAN and SAARC.

In the case of Europe, various constitutional provisions have been formulated in

the member states to give EU law supremacy over the national law. European

Communities Act 1972 is one such facilitating statute in United Kingdom. Although some

member states like the United Kingdom (UK) and Germany have reserved the final

decision with their respective states to decide which law to follow when the EU law is in

conflict their basic features of the Constitution, it is amazing to note that the union and the

member states have always worked on the lines of conflict resolution and cooperation till

date, without giving rise to many issues of conflict between the two laws. The European

Court of Justice is the final interpreter of EU law and any court in the member state can

directly write to the European Court of Justice to interpret the EU law. 368Unlike the EEC

(EU), which has a clearly articulated objective of creating a regional integrated

community, ASEAN approach is one of regional economic cooperation in terms of

coordination, synchronization and sharing of resources among sovereign nations with no

supra-national authority to inflict any federal loyalty. In many ways, absence of an

entrenched system of treaties and agreements has worked to the benefit of ASEAN.

According to Miss Saba Javed, 369 EU states are much more developed with higher

level of education and similar ideologies where people understand the value of integration

and complementarities. Interestingly, she also debates, whether China, presently as

observer since 2005, should be given membership of SAARC to act as a balancing

factor? Another comparative analysis by Kant K Bharagava370 indicates major variations

in working mechanisms, decision-making processes, transparency and harmony of

domestic and international policies as well as accommodation to embrace changes. For

example, EU‟s Monetary Union provides flexibility to further deepen the union‟s

dependency on each other. Similarly the EU Commission encourages integration

between members. The Indian approach to initiate sub-regional cooperation leaves the

other SAARC members with a sense of disintegration and disorientation as part of the

regional grouping. The EU‟s objectives of citizens‟ rights, freedom of movement (of

capital, goods and services), solid common front; strong institutions and expanding the

union are in stark contrast to SAARC‟s objectives of poverty alleviation, economic

development and regional security. It has a common security, foreign and defence policy

whereas SAARC states; especially India-Pakistan have diametrically opposite views on

security.

In case of EU, a well-structured mechanism of conducting discussions with the

interest groups is done by it Commission. However, in case of SAARC even though the

Commerce and Industry and law forum frequently meets but its Secretariat serves only as

a post office to deal with peripheral activities without any substantive outcome towards

regional interdependence or integration. There are numerous tarns-EU networks

comprising transport, telecommunications, energy cooperation, environmental agencies.

368 See footnote 256. 369 Miss Saba Javed, “Making SAARC an Effective Regional Grouping”, Exclusive from Civil Services Forum, Pakistan, (February 4, 2012). 370 Mr Kant Bharghva, “EU - SAARC: Comparisons and Prospects of Cooperation” (1998).

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The lack of regional connectivity can be met through CPEC, which can be a win-win

situation if SAARC nations including India opt to join China in a regional economic

integration drive. Also the EU‟s environmental organisation do exists and is training the

SAARC programme in Sri Lanka, but the office has not been operationalised. The EU has

also few important programmes like; poverty alleviation, counter terrorism, food security,

cultural exchanges and social emancipation. SAARC also has an agreed poverty

alleviation programme since1993 but with no significant jointness. SAARC states have

still to agree on a unified policy on commerce but for EU there is a sustained

implementation of this policy. No substantial cooperation like the EU exists on efforts to

integrate South Asia or South East Asia with SAARC except in peripheral areas.

Moreover, EU‟s main focus is on bio-ethics policies like human cloning, however, SAARC

has not taken any start towards such normative issues. Moreover, there is very intense

debate in EU over a common agricultural policy and joint solutions are found after

negotiations. SAARC does have an agricultural centre located at Dhaka but it has no

common agricultural policy. EU has an expanded network to keep different regions aware

of all kinds of activities but SAARC has not devised any mechanism or a system so that

their publications or relevant documents are available at places other than its

Headquarter even though a proper centre exists in New Delhi. However, it doesn‟t

undertakes any awareness drive. Lastly, using a subsidiarity formula, EU has delegated

some functional powers amongst its member states, but in SAARC, other than

Independent Expert Group or IPG, which recommended formation of a SAEU/SAEA, no

such initiative is undertaken.

4.20 SAARC, China and Prospective SAEU/SAEA

There are generally three main issues attributed to less-functional and an

ineffective SAARC: Firstly, lack of comparative advantage and economies of scale;

Secondly, unequal size and capacity, allowing India to dominate the decision loop and

proceedings within SAARC and Thirdly, lack of common threat perception in a diverse

culture with no South Asian identity.

Two main studies, based on qualitative and quantitative analyses have proved that

both the comparative advantage as well as economies of scale does exist within SAARC

states but with the addition of China an enormous potential in Greater Asia with regards

to comparative advantage and economies of scale is observed. 371 For example

competitiveness of a firm is no longer predominantly attained by cost-reduction, through

labour wages, but by risk-taking through innovations in the production processes, by

employing creative marketing techniques as well as use of new technologies and

organisational skills to link up with global value chains.

Similarly, on economies of scale, goods within a region can be differentiated

vertically and horizontally. Horizontal differentiation involves exchange of varieties, for

example, automobiles of similar class and price range as perfect substitute for one

another. Hence, it will benefit countries with similar factor endowments by enabling them

to utilise economies of scale in production. Horizontal differentiation thus deals with goods

371 See footnote 69.

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having different characteristics but with similar class and price range. On the other hand,

vertical differentiation deals with similar kinds of goods having different levels of quality,

class and price range for example, Suzuki and BMW cars. Thus, vertically differentiated

goods are not perfect substitutes for one another. Specialisation in vertically differentiated

products may reflect the countries‟ comparative advantage, due to variations in factor

endowments like; skilled labour, high or low cost of R&D, use of innovative technologies

and marketing ability to link up with global value chain better than other countries. Thus,

more developed countries like Japan or China may export high quality capital

intensivecars to less developed countries of South Asia to import low quality labour-

intensive products from them. According to international trade theory, intra-industry trade

will be the dominant trade pattern between countries at similar level of economic

development. It has been established that gains from trade will be large when economies

of scale are strong and traded goods are highly differentiated product. Differentiation and

economies of scale thus form the basis of intra-industry trade.

As is well known, SAARC countries‟ economic makeup satisfy the international

theory of intra-industry trade. Almost all of them, less India, are at the same level of

economic development. They are labour abundant and import capital-intensive goods;

their services sector makes up 50-60 percent of their GDP and their agriculture sector

captivates more than 60 percent of their labour. Hence, if SAEU/SAEA is formed, China-

India as an entity versus the remaining SAARC states can achieve comparative

advantage and economies of scale within their own individual spheres. More-over,

Chinese investment in CPEC projects will accelerate economic growth due to increased

capital inflows facilitate macroeconomic management and improve the balance of

payment. It will transfer investment and infrastructure development technology to increase

demand for the key products and enhance FDIs. Finally due to proximity afforded by BRI

and CPEC, heightened cross-border trade flows and enterprise supply chains will deepen

the regional economic integration in South Asia.

With regards to the identity, once South Asian region starts to thrive in higher

intraregional flows as a result of free movement of people, entrepreneurs, civil society

members and factors of production, the cultural diversity and differing threat perceptions

will fade away. Thus, member states of SAEU/SAEA can carve-out their own distinct

economic identity and the traditional dominant behaviour of India is most likely to be

balanced out by China within Greater South Asia (GSA).

4.21 Deductions Drawn from Comparison of SAARC, EU and ASEAN

The primary motives of integrating both the EU and ASEAN through cooperation

and enhanced interdependence were to ward-off Soviet threat and ensure regional peace

and security. This coincided with US support of Marshal Plan, aided by the EU‟s intrinsic

industrial and economic capacity as well as East Asian financial crisis resulting in forging

the ASEAN. In the contemporary times, the same spirit may establish the prospective

SAEU/SAEA in the face of a common threat of terrorism, extremism, nuclear weapons,

human in security together with the current protectionist western tendencies. China‟s

OBOR (BRI) and CPEC can be equated to a South Asian Marshal Plan, which can force-

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multiply the industrial, financial and technological capacity of the whole of Greater South

Asia.

The successful experience of forming ECSC, EEC and Euro-Zone proved as a

precursor to creation of the EU. Similarly, SAARC may provide an ideal platform to realise

the formation of SAEU/SAEA as was declared during the 18th SAARC Summit in 2016.In

the process of ASEAN formation, the subregional economic corridors were incorporated

into an overall plan of regional economic integration. Similarly, South Asian sub regional

economic and technical initiatives like; Bay of Bengal Initiative for Multi-Sectoral Technical

and Economic Cooperation (BIMSTEC)and Myanmar-India-Bangladesh-Bhutan Corridor

(MIBBC) can be integrated into China‟s OBOR(BRI)and CPEC to ultimately turn South

Asia into an economic union within Greater South Asia.

As per SAARC‟s Charter, „Article X‟, political or bilateral disputes cannot be

discussed. Both EU and ASEAN have streamlined to develop a successful conflict

resolution mechanism. SAARC or the prospective SAEU‟s Charter may have to be made

compatible to the contemporary imperatives of dispute resolution. For example; decisions

regarding foreign, defence and security, taxation, tariff rates inter-state trade barriers etc

may be approved unanimously by SAEU/SAEA. With regards to transportation,

telecommunications, terrorism, energy, environment and dispute resolution or accepting a

new Member into SAEU/SAEA like China, decisions can be made on the basis of majority

vote.

In SAARC or prospective SAEU/SAEA strong institutions like the SAEU

Commission, Independent Bank, Reps of High Commission, a Central Bank and

SAEU/SAEA Courts of Justice (SCOJ) may have to be established with overarching

powers of these institutions without impinging upon national sovereignty. The institutional

mechanism maybe based on the principle of SAEU/SAEA Way; means spirit to coexist for

regional cooperation to achieve economic prosperity. Hence, a CRO like that of the EU

can be created thus providing a perfect setting to form a SAEU/SAEA.

An ASEAN Plus Three (APT) model, with Malaysia and Indonesia in the lead,

offered a workable scheme in East Asia. In South Asian regional economic order the

same model could be emulated through SAEU/SAEA Plus One (SPO) mechanism with

China in the beginning. If, however, Iran and Turkey join in the prospective SAEU/SAEA,

it could be structured as SAEU Plus Three (SPT).

After having experienced 2016referendum on Brexit, various stakeholders are now

realising that EU states were tangled in a very complex and obligatory web of treaties

impinging upon their political, economic, fiscal, and structural independence of individual

countries. Thus, for long-term success of the SAEU/SAEA, emphasis should be on

regional economic cooperation like that of ASEAN and not on political integration as in the

case of EU.

To address the issue of lack of complementarities in SAEU/SAEA, if China is

added asthe member of prospective SEAU, it can enhance manufacturing and services

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sectors with huge surplus capital. India‟s IT and software service industries, China‟s

manufacturing capacity and financial strength, while agricultural production of the

remaining member states can bring in the required diversity and complementarity. Hence,

like ECSC, SAEU/SAEA may form a Common Agriculture Production, Manufacturing and

Services Community (CAPMSC) with higher volumes of intra-regional trade thus

contributing towards expeditious economic integration in South Asia.

Unlike SAARC, a glaring difference in ASEAN is that it actively involves the NSAs

or Private Enterprises in the process of regional economic cooperation. These NSAs and

Enterprises have international networks in crosscutting fields due to which, multiple

channels of cooperation open up both horizontally as well as vertically. Such channels of

networking and cooperation can only reinforce and expedite the process of regional

economic cooperation and integration.

It is deduced that ASEAN FTA (AFTA) is very successful mainly due to the

increasing involvement of NSAs and Private Entrepreneurs with horizontal and vertical

fertilisation of intergovernmental and intraregional policies, which substantively

complement the domestic liberalisation and privatisation policies promoting the FDIs and

ultimately the intraregional trade. Like ASEAN, SAARC is in a much better position to

provide Regional Trading Areas (RTA) supplementing the cultural and geographical

linkages to both East and West Asia. These RTAs could be negotiated by the prospective

SAEU/SAEA Secretariat.

4.22 Summary of Chapter Four

The comparison of EU and ASEAN with SAARC has drawn some cogent and

relevant conclusions, which can form the basis of developing SAEU/SAEA. The summary

of the comparison is given in the succeeding paragraphs.

Comparing the level of commitment, functional efficiency, maturity and depth of

economic integration, there is no real comparison between SAARC and EU, however, the

ongoing Brexit process has brought out some useful lessons for the prospective

SAEU/SAEA. Despite the looming threat of Brexit for EU‟s integrity, the leading

economies like; France and Germany have elected to remain united. Ironically though,

most scholars believe that Brexit may pose more multiple challenges to the UK‟s

economy than the Eurozone. Nonetheless, the Brexit episode has demonstrated that

while economy, trade and commerce are critical, it is the socio-political factor that will

determine whether formation of SAEU/SAEA with China on board may materialise or

otherwise. Contrary to this, the ASEAN model suggests to adopt a strategy of economic

cooperation without engaging in a deeply entrenched state of political integration through

institutional treaties and agreements as is the case in the EU.

It is true that currently, there is hesitation amongst SAARC states in particular India

to support OBOR (BRI) and joining the epic project of CPEC, which is likely to transform

SAARC into SAEU/SAEA, however, strategic convergence between China and India is

most likely not only due to economic development, but also on account of garnering

China‟s support for permanent member of the Nuclear Supplier Group (NSG) as well as

UNSC.

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Most lucrative incentives of regional integration like; common security threat,

industrial and economic capacity, commonality of culture, typical regional identity, socio-

economic vulnerability and democratic culture in formation of prospective SAEU/SAEA

may appear to be weak. However, ASEAN presents a good model for adopting a

cooperative not an integrative strategy in the beginning, and devising an informal

mechanism for peaceful settlement of disputes. Thus within Greater South Asia, China

factor together with CPEC is already evolving into a distinct regional Economic Identity,

led by both India and China.

To achieve economies of scale, efficiency of trade, comparative advantage like the

EU, the prospective SAEU/SAEA will have to demonstrate spirit of accommodation not

competition. A common threat from multifarious terrorist organisations, persistent poverty,

domination of MNCs, pressure from Bretton Wood institutions and other NSAs can only

be tackled through a joint regional economic front.

As managed in both the EU and ASEAN, the sub-regional economic integration

launched by China, India can be incorporated in the larger Master Plan of a prospective

SAEU/SAEA. However, regional market structures, cross-border linkages and custom

procedures will have to be harmonised, which can be achieved by establishing a South

Asian Custom Union, a number of common Trade Zones based on geographical location

and sorting out the critical issue of tariff and non-tariff barriers.

Unlike SAARC Secretariat the new combined Secretariat of the prospective

SAEU/SAEA will have to be given executive power and not act merely as a post office.

The standing, technical and action committees may also have executive, financial and

administrative powers to implement what is agreed during various SAEU/SAEA Summits.

Also SAEU/SAEA tentacles located in various capitals will have to be made fully

functional. It therefore, calls for a comprehensive plan to chart-outa proper role of

SAEU/SAEA Secretariat and various committees for implementing regional economic

integration.

To improve the decision-making in the prospective SAEU/SAEA, the prohibited or

objectionable subjects of taxes, security, and foreign policy, tariff rates inter-state trade or

accepting any new members may be unanimously taken, however, for subjects like

immigration, transport, terrorism, telecommunications, energy, environment, dispute

resolution should be resolved with two-third majority vote.

In case of SAARC, the offices of Law and Chamber of Commerce and Industry

hold regular dialogue with all the interest groups, NGOs and MNCs but not with the

SAARC Secretariat, In case of EU, European Commission on behalf of European

Community conducts discussions with all the stake-holders and NGOs for better

integration. If similar procedure is followed in the prospective SAEU/SAEA, the individual

SAARC countries, always looking outside the region will then start coordinating their

international trade through SAEU/SAEA Secretariat.

There is no SAARC Commission as in EU but it does have Council of Ministers to

set the common customs tariff, guide export policy, and decide on trade protection or

retaliation measures adopted with a qualified majority voting. However, like the European

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Commission the institutions like the Council or Commission may have to be established.

SAARC states must also have a common import/export policy, a customs union, common

tariff structure and trade reforms agenda for non-members with qualified majority voting.

In SAARC more powerful states like India-Pakistan generally decide whether a

Summit should take place or not. India being the most dominant member together with

some small states can scuttle the planned SAARC activities. No EU or ASEAN state can

singlehandedly or with other member states can impact the scheduled activities. Changes

in the relevant statutes of SAEU/SAEA Charter may have to be incorporated for making

the system free of individual states‟ domination.

While EU has a stronger dispute resolution mechanism, ASEAN Way and spirit of

settlement of disputes is more akin to the dynamics and culture of Greater South Asia. A

spirit of reconciliation, accommodation, cooperation and interdependence would be truly

wanting in the prospective SAEU/SAEA like ASEAN. An assertive leadership role with

inclusive regional political and economic vision would be required through close

interactions. France and Germany in EU, while Malaysia and Indonesia in ASEAN played

this crucial role in promoting the regional economic integration. Can China and India play

such a leading role for a SAEU/SAEA in 21st century is the main subject of discussion.

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CHAPTER - FIVE

PROSPECTS AND CHALLENGES OFSAEU/SAEA

A comprehensive presentation of research proposal and preliminary analysis in the

introductory chapter, led to formation of thesis Hypothesis i.e. „Growing economic and

trade interdependence of SAARC states on China can lead to formation of a

SAEU/SAEA, subject to successful completion of CPEC. Chapter Two, „Conceptual

Framework and Theoretical Perspective‟ has thoroughly dilated on the vision of forming a

SAEU/SAEA. In this chapter, elements of Hypothesis;„ growing economic and trade

interdependence of SAARC states on China– an independent variable; „formation of a

SAEU/SAEA‟ – the dependent variable; and, „materialisation of CPEC‟– an intervening

variable will be corroborated. The succeeding analysis and answers to research

questions would now be sought in the light of conclusions, drawn from the preceding

chapters.

While the dependent and independent variables can be validated as we move

along, the intervening variable; „materialisation of the CPEC- a flagship project of OBOR

(BRI)‟ - as the main catalyst for an expeditious growth of economic development and

trade interdependence between SAARC states and China and the effect;i.e.„ formation of

SAEU/SAEA‟. However, there is also a general misperception about the inadequacy of

South Asian integration even in the intellectual circles. Consequently, social media

together with some journalists and few scholars generally spread despair and futility of

regional integration. Still some scholars have gone overboard to recommend elimination

of the idea of South Asian Integration or even refuse to accept the notion of South Asia as

a cohesive geographical entity. Nonetheless, any keen reader of the European history of

continental wars culminating into the present day EU and East Asia‟s tumultuous history

yielding formation of ASEAN would know that change of international, regional and

domestic political environment is the only constant in world‟s affairs. Just because India-

Pakistan or for that matter the entire group of SAARC states have been refuting the

fleeing opportunities to collectively move towards a common and a prosperous future

doesn‟t mean that the potential for economic integration is non-existent in South Asia.

The empirical evidence together with a quantitative data will prove these points in the

remaining part of this chapter.

Chapter Two has crystallised a conceptual framework and theoretical perspective

for laying down parameters, orchestrating regional economic integration strategies to set-

out a general direction of this thesis. The basis of this framework is provided by the

existing infrastructure, institutional mechanism and objectives of economic integration as

well as SAARC Summit‟s decisions on the formation of a SAEU/SAEA during the 18th

Summit in November 2016. However, this study explores possibility of forming a

SAEU/SAEA mainly due to China‟s OBOR (BRI) and CPEC initiatives.

For almost over 70 years, India and Pakistan have relied on realist or neo-realist

policies and didn‟t capitaliseon the 1990‟s „Globalisation‟ phenomena. 372 Consequently,

SAARC has not progressed since the last 30 years even though the same region served

372 Globalisation describes the way that the cultural, political, technological and economic domains of countries are rapidly expanding outside of their own nations and on to an international level.

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as the golden basket for entire Asia during the 17th century. 373 To revive its dynamism

like an erstwhile pre-partition period in which intra-regional trade thrived, China‟s OBOR

and CPEC projects can be great catalysts. A qualitative and a quantitative analysis can

be presented to prove the efficacy of an erstwhile pre-partition golden period in which

South Asia was informally integrated with enormous economic and trade activities taking

place in the region. Thus South Asia, once again, needs to be forged into an integrated

community, in whom the Spill-over374 effect can permeate all sectors of the economy and

domestic political life.

With China‟s OBOR or BRI and CPEC being developed in Pakistan, it could cause

a snowballing effect to ignite South Asian regional economies. With time these economies

are likely to become deeply interdependent such that the integration process turns

irreversible thus leading to formation of a SAEU/SAEA. According to another

comprehensive study, 375 an enhanced economic interdependence and trade reduces

chances of Militarised Interstate Disputes (MID). While exploring this subject further, it

was revealed that between the post WW-II and the end of the cold war period, the

economic exchanges and interdependencies in both the blocs still continued. This

observation is also noted in some of the other conflict ridden regions. Hence, when

increased economic interdependence causes Spill-over effect among Greater South

Asian nations, a neo-functionalist phenomenon of Spill-over enhances Complex

Interdependence without substantial negative impact of sensitivities and vulnerabilities on

policy domain, thus disregarding the regional historical legacies. It is here when economic

and trade opportunities seamlessly Spill-over to socio-political interests thus creating

conducive domestic environment for regional integration. The positive Spill-over is most

likely to overshadow the domestic sensitivities of political leaders, bureaucrats,

governmental elite, interest groups, NGOs and other state and NSAs in policy choices on

formation of a SAEU/SAEA.

It is observed by many scholars that the process of European Economic

Community (EEC) in the EU was based on neo-functionalism and „Inter-governmentalism

‟encompassing only the regional and national levels, while excluding the international

system within which it could freely operate. In the 21st century though geo-economics is

driving the geopolitics, which was quite visible in the US President Trump‟s first Asian

tour of six countries in November 2017. The ominous signs could also be seen in the

radically altered value system and national behaviour being displayed in the other regions

of the world. In the garb of „Making America Great Again‟ the US Administration annulled

the Trans-Pacific Trade Partnership (TPP) and asked the European counter parts to pay

a full share of NATO contributions in terms of finances, troops and military equipment. Mr

Trump also offered lucrative bilateral trade deals to the Trans-Pacific partner nations

provided they worked to reduce US trade deficit. Similarly, US President Trump‟s

unembellished diplomatic warning to China and other Pacific nations for narrowing the

373 See footnote 148. The writer quotes that inhabitants of subcontinent produced agricultural as well as manufactured goods and

developed high volumes of trade with neighbouring regions. Thus the pre-partition period was full of multifaceted trade activities in manufactured goods, agricultural products. Therefore, being an economically vibrant region, the subcontinent became a huge attraction for the British East India Company. 374 See footnotes 127& 129. Jean Monnet believed that in achieving integration in one sector of common policy would eventually lead to

a „Spill-over‟ into other policy areas. Schuman also theorised that „Spill-over‟ would cause snowballing effect to the point where national political systems and economies would become so entangled that integration process becomes irreversible. „Spill-over‟ generates new political goals thus harmonising the regional policies in a region.

375 EmielAwad, “Economic Interdependence, Trade, and War: A Theoretical and Empirical Analysis”, University of Erasmun,

Rotterdam, (October 29, 2013).

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bilateral trade deficit is another stark reminder of American self-centred preferences and

protectionist policies in 2017. His address to the World Economic Forum on January the

26th, 2018 at Davos, Switzerland was no different than making America Great Again

mantra, although he declared it doesn‟t mean America alone. 376

In view of the similar financial and job reduction shocks, leading to infringement of

sovereign independence, Brexit process in the UK, sent tremors across the entire Europe

but didn‟t breakdown the EU‟s trade and commerce activities. Likewise, with China-India

bilateral trade growing close to $100 billion in 2017. 377Both countries, not only backed off

from the brewing Doklam China-Tibet border stand-off but, in a joint BRICS statement in

November 2017, lashed out at Pakistan‟s failure to reign in terrorist outfits. At the same

time Indian Prime Minister, „Narendra Modi‟ twice visited to meet Chinese President, „Mr

Xi‟ to avoid deterioration in their bilateral trade just before the SCO meeting in 2018. It is

significant to note that China has $14 billion bilateral trade with Pakistan compared to

$100 billion with India. 378 Also, India has positive trade surplus with a total volume close

to $140 billion with US, who is trying to use India as proxy against China‟s phenomenal

economic rise as well as in Afghanistan to assist west backed government. Such

compelling indicators are just tip of the ice berg for a more ferocious and a competitive

international economic order, still to follow.

A brief comparison of EU and ASEAN with SAARC in Chapter Four has pointed

out that even the prolonged periods of wars in the European continent ultimately resulted

in Germany making peace with an erstwhile bitter enemy; France and didn‟t viciously

claim Alsace and Lorraine. Similarly, in the ASEAN region Indonesia and Malaysia; once

arch rivals kept undermining each-others‟ sovereignties to the hilt but finally, have

managed to get pass their core disputes. Germany-France in the EU and Indonesia-

Malaysia in ASEAN have now become the magnet of regional economic cooperation in

Europe and South East Asia respectively and, they continue to lead these regions

towards economic integration even in 21st century. The latest manifestations of

compelling international economic order was witnessed in the last week of April 2018

when North and South Korea agreed to cooperate for their national economic integration

and development programme, terminating over 70 years of hostility as also by a surprise

meeting between Chinese President, Mr Xi Jinping and Indian Prime Minister, Mr

Narendra Modi reiterating their commitment to continue trade and economic relations

without the border dispute coming in their way to progress. However, the Britain‟s future

in the EU has become unpredictable as its role, being a second fiddle to the currently

protectionist US Administration‟s policies, appears to have been diluted, at least for the

duration that Mr Trump is the US President. In many ways US protectionist approach has

dragged the Britain into an isolated position within the EU community. Contrary to his

latest peace overtures of April 2018, the Indian Prime Minister, Mr Modi in an effort to

befriend Mr Trump is also putatively trying to play a second fiddle in Asia especially in the

containment drive against China. The result is that like the Britain within the EU, India

among SAARC states, is losing attraction to Chinese President, Xi Jinping who offers

more assured, sustainable and a sound financial capital capacity than does India‟s Modi.

Moreover, India is missing a God sent opportunity of joining the key regional development

376 Available at: https://www.weforum.org/agenda/2018/01/president-donald-trumps-davos-address-in-full-8e14ebc1-79bb-4134-8203-

95efca182e94/. 377 See footnote 6. 378 Ibid.

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projects i.e. OBOR (BRI) as well as CPEC, which can act as drivers to ignite regional and

world economies. Indian scholar’s including Latha Jishnu379 corroborate these

observations in her January 29th, 2018 article.

5.1 SAARC‟s Transformation into SAEU/SAEA

While two of the three variables of study Hypothesis i.e. „growing bilateral trade

and economic interdependence between China and SAARC states including India – as

independent variable, resulting in „Formation of SAEU/SAEA‟ – as dependent variable,

will be tested both quantitatively and qualitatively in the later part, the third (intervening)

variable, „materialisation of CPEC ‟has been quantitatively assessed through a structured

dataset, using IBM-SPSS software regression analysis, which affirmed its value as a

catalyst for SAARC‟s transformation into a prospective SAEU/SAEA. Another study

without the intervention of China‟s CPEC was carried out380 to assess SAFTA‟s ability of

being robustness and increase trade potential and, volume to benefit the member

countries in SAARC region. There were 28 states under focus, which in all the projects

and considered in the South Asian region. These countries are members of either

NAFTA, ASEAN, SAARC or even the EU. The areas of study and comparison were; how

much regional economic integration exists viz-a-viz intra-regional trade, commerce and

other activities. By and large, the Gravity Modelling included all states and regions of

NAFTA, ASEAN, EU and SAARC were evaluated in their respective forums of regional

organisation. The outcome of this modelling indicated amuch enhanced bilateral trade

flows based on cross-sectional data from 2003 to 2008. 381 The study also conducted a

second analysis utilising the pooled data to measure the overall trade effects and trade

flows both for members as well as non-member SAARC countries. The results from the

two approaches show that estimated coefficients are consistent with the model

assumptions of enhanced economic and trade potential. Both analyses proved that the

regional trade agreements by SAARC countries, using SAFTA platform, could enhance

intraregional as well as interregional trade.

In the opening chapter of this study, the overall assessment has yielded that the

future international economic order in terms of trade and commerce activities is most

likely to become fiercely competitive, which together with domestic socio-political

demands in South Asia would germinate regional economic integration trend. The

conclusions were built into the conceptual framework, which considered both the

neorealist as well as neoliberal paradigms to conclude that South Asian economic

integration and later, a union can become functional looking through the lens of Complex

Interdependence. To operationalise such a concept, let us use Game Theoretical model,

to reach at an appropriate framework within which formation of a SAEU/SAEA would

prove to be beneficial particularly for the common masses of the people of South Asia.

5.2 Game Theoretical Modelling for SAARC Only Vs SAEU/SAEA

Let us first apply Game Theory technique382 to evaluate how India‟s decision of

admitting China and CPEC in formation of a SAEU/SAEA turns out to politically reconcile

or otherwise? In a Game Theory, there are generally two main players whose decision is

379 LathaJishnu, “Losing Friends and Making Foes”, Daily Dawn Opinion, p6, January 29, 2018. 380 See footnote 87.

381 Blanchard, O. J., Comment, Journal of Business and Economic Statistics, Vol. 5, 1967, pp. 449–451& pp. 112 of Akhter and Ghani Study. 382 See footnotes 85&86

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critical for the final outcome; secondly, there are rules of application; thirdly, there are

dividends and finally, there are consequences of preferring a particular policy or strategy.

In order for applying the Game Theory to this thesis, let us consider an outcome i.e.

SAEU/SAEA. There are two main players; China and India, while the other members (of

SAARC or prospective SAEU/SAEA) can also influence but have no decisive role in the

final outcome, affecting the decision made by either of the two main players. Nonetheless,

political reconciliation, reflected through people‟s choice of leaders can influence the final

outcome together with powerful states and NSAs like US, Russia, EU, SCO, International

Enterprises and MNCs etc. Conceptually, the rules in application of a Theory are

governed by either by neorealist or neoliberal paradigm or combination of the two. The

pay-offs, depending upon joining the CPEC and acceptance to form a SAEU/SAEA by

India are; economic prosperity, poverty alleviation among the member states, regional as

well as international peace and development whereas the consequences are the repeat

of more than 70 years‟ of subcontinent history since the partition of 1947, which is not

very bright.

At the core of India‟s political reconciliation and China‟s desire to opt for regional

economic integration is the cost, which political leaders of both the main states are

prepared to pay. The cost–benefit for sponsoring a regional integration framework (based

on neorealist or neoliberal paradigm) varies depending on the extent and depth of the

regional integration. Purely on the basis of National Power Potential (NPP), let us

consider China being Number One and India Number Two player, while remaining

members of the prospective SAEU/SAEA are categorised as Small Players. Basically, the

cost–benefit structure of India and China reflect their NPP or National Capacities, which

can then be translated in terms of their foreign and domestic policy preferences. When

there is no Framework, there are no associated costs and benefits that India or China

may incur or relish. Thus with zero framework the prospects of cost-benefits are also zero

for India and China. Therefore, both the cost and the benefit for India and China canvary

based upon their policy choices. For example the second Scenario could be the existing

SAARC Framework and the Third could be SAEU/SAEA Framework. Since, cost-benefit

for India and China will remain dynamic, subject to external factors too, therefore, in order

to set the base line for a wholesome analysis No Framework (neither SAARC nor

SAEU/SAEA) is taken as incurring no cost or adding benefits for both India and China.

Let us first consider the SAARC-Only scenario in which case India already holds a

dominant position, but it has not brought any large benefit to India but it continues to

pursue the same framework because she considers it a matter of prestige and national

importance. Contrarily, the benefit of being a member of SAEU/SAEA Framework, with

China holding the key position is also significant for India because it would gravitate all

South Asian states towards China, which is not desirable for Indian national interest.

Nonetheless, in actual fact almost all the SAARC states have already gravitated to

depend more on China than India. 383 However, being a dominant South Asian leader, a

SAARC-only Frame work has certainly incurred large costs on account of socio-economic

development for India, which will continue if it wants to keep China out of the SAEU

Framework. Thus, India is able to only offset SAEU/SAEA Frame work by paying a huge

financial, security, diplomatic and domestic socio-political cost, which would become

extremely large in a fiercely competitive international economic order. For example, India

383 See footnote 272.

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acting as US or West‟s proxy against China, would keep approximately $100 billion384

bilateral trade on the peril as also it will reinforce China‟s perception to use veto power for

keeping India out of the potential NSG and permanent membership of the UNSC. The

cost that India incurs in China‟s sponsored SAEU/SAEA Frame work also depends on the

active participation of India to extend financial, diplomatic and security support to

SAEU/SAEA Framework CPEC projects as a junior partner of China, then the benefits

are huge compared to a negligible cost that India has to pay. However, the cost becomes

higher if inactive participation or No Framework (neither SAARC nor SAEU/SAEA) is

invoked.

From China‟s viewpoint, establishing a SAARC-only Regional Framework without

her being a member is undesirable as China‟s leverage on South Asian countries would

diminish, and the cost would be high. Contrary to this scenario, participating in a regional

economic interdependence mode such as SAEU/SAEA framework is a much better

choice for China. Although establishing a SAEU/SAEA or SAARC only Framework

apparently does not incur any cost for China. Accordingly, China incurs negligible cost in

a SAEU/SAEA Frame work but only if India accepts China‟s major role. China will have to

pay a higher price, if India doesn‟t accepts China‟s major role in SAEU/SAEA. Let us now

concentrate on the Game Theory dividends for both India and China. Again, a Game

Theory dividend matrix for India and China will be based on the cost-benefit calculus

done by these two countries. The available choices for both India and Chinacorrespond to

four regional economic integration possibilities. First, when neither India nor China

participates in a regional economic integration mechanism, which is equivalent to there

being no regional framework. This means a virtual dysfunctional regional framework for

both India and China. Second, the SAARC Only scenario means that India participates

but China does not. Third, if China and India wholeheartedly participate then it is

SAEU/SAEA Framework means remaining members automatically participate in the

regional economic integration. Finally, when China enthusiastically participates and India

does not actively participate, the situation is described as SAEU/SAEA Negative

Framework, means a Framework with inactive Indian participation. Such a situation may

also occur even after SAEU/SAEA Framework has been established. Judging from the

dividends viewpoint, the ideal or win-win situation would be the third scenario when both

India and China substantively participate to form a SAEU/SAEA.

In order to draw a single matrix for both India and China, depicting the dividends

within a paradigm we assign variables as X-Axis and Y-Axis respectively. A neorealist

paradigm occurs with a simple dividend matrix, indicating the cost–benefit analysis, when

neither India nor China participates (i.e. no framework), both India and China gain Zero.

Thus with both China and India gaining or losing the opportunity, the scenario is

represented either with + 2 or - 2. However, the same scenario once played between

India-Pakistan, it represents +1 or -1 because of the weight or the importance to the

overall matrix. Therefore, if both India and China develop their relations to the level of

Complex Interdependence at least on account of bilateral trade, which is currently close

to $100 billion, 385 then both of them will gain two (2). Thus depending upon the type of

paradigm, the cost-benefit matrix and the outcome of a framework will change. Based on

this discussion, dividends matrix can be drawn to see the net effect and consequent

384 See footnote 6. 385 See footnote 6.

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decision by India to politically reconcile to joining China‟s CPEC and form SAEU/SAEA

thus achieving a Win-Win position.

China Participation Non- Complex Net

Participation Interdepen Effect

denceOutc

India ome

Participation (-2, 2) (2, -2) (2, 2) Win-Win

Non- (-1, -1) (0, 0) (-2, 2) Loss-Win

Participation

Note: (X, Y), X: India‟s dividends; Y: China‟s dividends. Table 5.1: Game Theoretical Dividend Model for India Vs China.

Source: Author's own.

Notice that even if China within a neo-realists paradigm doesn‟t participate, it still

gains on account of net effect because the bilateral trade with all SAARC states including

India is exponentially growing.386 Secondly, even if India doesn‟t participate in

SAEU/SAEA, China can still gain due to her ability to finance integration plan together

with Pakistan, Iran, Afghanistan and Turkey thus opening the economic and logistic

corridors towards CAS in addition to jointly using Gwadar and Chabahar Ports in the

Indian Ocean. There are two more points, which need to be understood. One; the

outcome with the increased Complex Interdependence is most likely to add large gains

provided both India and China wholeheartedly participate in the process of regional

economic integration resulting in formation of SAEU. Whether a perfect union such as the

EU is formed or a cooperative mechanism like that of ASEAN is adopted, stopping short

of practicing a unified fiscal and macroeconomic policy, is a matter, which will be

discussed in the later part of the thesis. Second; in case where both India and China

wholeheartedly participate in an ideal way, it doesn‟t mean both will have a perfect

completion resulting in equal gains. The gains will still be dynamic and shared to make

the remaining prospective SAEU members interdependent on both India and China.

Ironically though, even after SAEU is established, any member let alone India or China

relegating her share of participation may affect the overall outcome. Therefore an

institutional arrangement would be necessary in formation of a SAEU.

Since India-Pakistan are the main protagonists like China-India in Greater South

Asia, similar, matrix can be drawn for cost-benefit analysis of India-Pakistan as under:-

386 See footnote 52.

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India Participation Non- Complex Net

Participation Interdepen Effect

dence Outc

Pakistan ome

Participation (-2, 2) (2, -2) (2, 2) Win-Win

Non- (-1, -1) (0, 0) (-2, 2) Loss-Win

Participation

Note: (X, Y), X: Pakistan‟s dividends; Y: India‟s dividends. Table 5.2:Game Theoretical Dividend Model for Pakistan Vs China.

Source: Author's own.

5.3 Role of China and India in South Asia‟s Economic Integration

In the case of South Asia, it has been pointed out that enhanced regional

cooperation, including regional integration, is an imperative if the countries in the region

are to strengthen their competitive position, both individually as well as an organisation, it

is most likely to fetch them huge revenues not only from within but outside their region. 387

There are historical legacies, high tariff rates, high trade barriers and mutual mistrust,

therefore the SAARC FTA or SAFTA is not being implemented. If all these issues are

addressed keeping the teething millions, struggling to meet both ends, it would

phenomenally increase the intraregional trade. It would also broaden the base of

Industrialisation and inject diversification into the South Asian production house. The

SAARC states with coastal areas will benefit the most and towards that end, Gwadar,

together with Indian, Sri Lankan and Bangladesh‟s GDPs will exponentially flourish. 388

India's lesser gains in GDP growth can be compensated by benefits obtained in other

aspects, as, for instance, "India appears to enjoy a positive contribution from terms of

trade movements towards increase welfare gains in comparison to the other FTA

members".389 It has been proved through numerous studies that if South Asia achieves

regional integration even through organising a Customs Union, the benefits would be

strikingly much more significant what we have now. 390

Let us take an example of China and India‟s innate desire to strike bilateral FTAs

within RTAs located in their backyard. The pursuit of their bilateralism, if reaches its peak,

can lead to a hub-and-spoke situation. As the World Bank observes, in the hub-and-spoke

pattern, "the largest markets sign individual agreements with a wide range of peripheral

countries among, which market access remains restricted".391 However, such system can

marginalise the spokes, where market access conditions are usually less advantageous

than in the hub, which enjoys improved access to all of the spokes. In a region which

387 Research and Information System (RIS)for the Non-Aligned and Other Developing Countries, South Asia Development and Cooperation Report 2004 (New Delhi, India: RIS, 2004), pp 48. 388 Mahinda Siriwardana, "Trade Liberalisation in South Asia: Free Trade Area or Customs Union?" (2003)26(3) Journal of South Asian Studies 309, pp 318. 389 Ibid. 390 Ibid. 391 World Bank, supra note 24 at 40.

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accommodates several large economies like; China, India, Pakistan, Bangladesh, Sri

Lanka etc, overlapping hub-and-spoke configurations tend to emerge. In the worst

scenario, hubs have multiple FTAs with smaller spokes, but the spokes do not liberalise

between themselves. 392 This will not only create multiple layers of discrimination through

exclusive trade preference and complex rules of origin, but also place the spokes at a

disadvantage as foreign investment tends to move to the hubs in order to gain more

market access. To address such an imbalance, it is necessary to bring all the spokes in a

network of economic integration. It would not only raise the political stature of both hub

and spoke but will also bring up all the spokes to the level of hubs thereby further

enhancing the overall status of an organisation, which can better deal with the external

pressures.

However, in pursuing trade bilateralism, the hub economies, which are China and

ASEAN, in the ADB model, gain larger benefits. No doubt that China will become the

biggest hub of South Asian regional economies as compared to the remaining SAARC

states economies. Nonetheless, China's is already better off even in the case of South

East Asia, Fareast and in the Pan-Asian regions. The spin-off however, is that the

technology, labour skills, innovative ideas and more importantly a higher flow of capital

from China as a hub economy will trickle down to the rest of the SAARC economies. India

is though in competition with China but as the report confirms, the size of its economy and

its potential to act as a hub will always be lesser than ASEAN and China. But the report

also concludes that India can still benefit in terms of the factors explained above from the

main hubs; China and ASEAN in a cooperative than confrontational mode. 393

Indian leadership during a summit in ASEAN expressed the need to create a South

Asian Economic Community on the lines of ASEAN. The Prime Minister Manmohan Singh

in 2004 said, "We envision an Asian Economic Community, and India. This community of

nations would constitute an 'arc of advantage', across which there would be large-scale

movement of people, capital, ideals and creativity." 394 The basic idea is to bring the major

blocs in East and South Asia, including Japan, ASEAN, China, India and Korea, which

are collectively called the JACIK economies, to create an FTA or Asian Economic

Community (AEC). 395 This community, with a combined population of 3 billion, Gross

National Income (GNI) of US$16 trillion, total exports of US$1.66 trillion, and foreign

exchange reserves of US$1.6 trillion (as per data in 2003), will be the largest trade bloc in

the world. This FTA based community will eventually force other Asian economies to join,

thus eliminating the "noodle-bowl" problems. 396 This vision of 2004 needs to be reviewed

in the light of some more contemporary developments like; China surpassing Japan as

number two world economy, Indian new Prime Minister „Mr Modi‟s‟ change of hearts,

witnessed through his reiteration and frequent visits for rapprochement during meetings

with Chinese President „Mr Xi Jinping‟, ignoring the Doklam military stand-off in 2017.

The new vision should also include the West Asian economies of Pakistan, Afghanistan,

and Eurasia through multiple FTAs based on regional and sub-regional communities. It

will ignite all the regional economies to a level, which will fetch phenomenal benefits for

392 Supra note 50 at 281. 393 Ibid. 394 Indian Prime Minister Manmohan Singh, speech at the Third India-ASEAN Business Summit (21 October 2004). 395 Sachin Chaturvedi, Jothn Humphrey, Nagesh Kumar & Hubert Schmitz, "Asian Economic Integration: Dynamics and Impacts" (Paper presented at the Seventh Annual Global Development workshop on Asian andOther Drivers of Global Change, St. Petersburg, 18-19 January 2006). 396 Ibid.

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the common peoples from the West Asia right up to the APEC community. Also

superimpose on this grand vision, the complementarities like CPEC and BRI, which may

force-multiply the process of economic integration within and beyond Greater South Asia

(GSA).

5.4 India‟s Domestic Political Outlook towards SAEU/SAEA

Are BRI and CPEC God sent opportunities and drivers to bring positive change in

South Asia, probably yes? Theregional countries should capitalise on these drivers to

forge economic collaboration with multilateral institutions such as ASEAN and Asia Pacific

Economic Cooperation (APEC). 397By joining BRI and CPEC, India can easily materialise

its „Look East‟ policy to achieve economic integration with East Asia while keeping South

and Central Asia in the loop. The springboard is all set by rising bilateral trade between

China and SAARC states with individual countries‟ economic interdependence,

exceeding many times the total intraregional trade. 398 Clearly, the main conundrum

between India-Pakistan is Kashmir issue. To ameliorate India‟s political will towards

joining the CPEC and forming a SAEU/SAEA, an out of the box solution is needed. What

can really cajole Indian political elite to break away from their traditional slumber? The

result of such an out of box solution can be determined by political preferences of

indigenous people, scholars, think tanks, bureaucrats, civil society activists and policy-

makers in both India-Pakistan. However, the big question is how Political Will or Political

Sentiments favouring CPEC or prospective SAEU/SAEA can be measured?

Sara Affler back and Melissa Howlett, in 2016399 used a consultative firm „ORS‟ to

develop a theory of change in the regional framework of policy-making. The method is a

combination of politicians‟ opinion about e.g. India joining in for CPEC and formation of a

SAEU and the passion with which it is pursued plus the degree of importance considered

by general masses and the civil society as a whole. Nonetheless, it is very difficult to

assess the intention of Indian political elite on whether or not the required support for

CPEC would be forthcoming, hence, majority „Yes Vote‟ is assessed through discourse

analysis of the statements by political leaders, bureaucrats, scholars, civil society activists

and think tanks about an issue.

To carry out a general discourse analysis, few statements of important people are

being quoted here. For example, in a seminar held by “Kashmir Institute in Srinagar”400 an

overwhelming support was extended to avail CPEC opportunity for the State of Jammu &

Kashmir. The CPEC was considered a key initiative for developing an integrated regional

economy. In the same Seminar, Kashmir Chamber of Commerce Former President; Mr

Mubeen Shah suggested that both the Indian and Pakistani governments should declare

divided Kashmir as one combined Free Economic Zone (FEZ). The state can focus on

horticulture, textiles, Small and Medium Industries (SMI) where the distance, resources,

time and cost to travel between Kashmir and Central Asia will be much reduced by

connecting EWC (from Myanmar-Bhutan-Nepal-Kashmir to CPEC and on towards CAS

through Afghanistan) with the NSC (CPEC). In two separate interviews, both Chief

„Mehbooba Mufti‟ and Chairman of Hurriyat Conference, „Mirwaiz Umar Farooq‟ also

supported this venture. The declaration of Kashmir as a gateway to CAScan greatly help

397 Zahid Latif Mirza, “Chinese Vision of OBOR and Strategic Dimensions of CPEC”, Margalla Papers, Vol XX, 2016. 398 See footnote 52. 399 See footnote 117. 400 Pankaja Balaji, “The CPEC Catch”, Export Promotion Council Magazine, (April 2017), p40-43, Also see footnote 94.

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regional integration depending upon the policy position by both India-Pakistan. 401 Surely,

it would provide Kashmiris a political voice in the decision-making loop on trade and

commerce issues. The proposal is very significant and practical from both geo-economics

and geopolitics points of view. 402 Declaring both sides of Kashmir may actually lead to

permanent Kashmir solution with win-win situation for China-India and Pakistan. If India

opts to join BRI and CPEC projects, it can jointly work with China and Pakistan to bring

expeditious peace in Afghanistan. Thus, India will get the shortest access to Afghan

Transit Trade routes up to CAS through Pakistan and Afghanistan, enhancing the

regional economic growth. Mehbooba Mufti, 403 in the Kashmir Institute Seminarat in the

Indian Occupied Kashmir also expressed her full backing to revitalise the old Silk Route to

pass through Srinagar, which will act as one of the main logistic/economic corridor

leading up to Central Asian States (CAS). In her opinion, Kashmir region can definitely

emerge as an economic hub subject to cooperation in trade, commerce, tourism, and

adventure. More-overthe proposal will supplement the CPEC through Indian held Kashmir

and also called for opening up of Kargil area to the outside world. She claimed, Opening

of LOC border areas or strategic route of Kargil-Skardu- and Tutuk-Khaplu will initiate a

process of trade in J&K and peace process in South Asia. In another Seminar during

March 2017at Srinagar, Professor Siddique Wahid, a historian and former vice-chancellor

of the IUST, a University in Kashmir, said “We need to put CPEC beyond India and

Pakistan, this would place Kashmir in a larger South Asian and Central Asian

paradigm.”404 Hurriyat Conference leader, Mirwaiz Umar Farooq declared CPEC that it

can change the nature of antagonistic relationship between India-Pakistan for the benefit

of common masses. 405

At the level of country, a number of Indian State Governments are reaching out for

investment opportunities being created by China‟s CPEC and BRI. There are some very

positive signs. For example India and China tension over becoming member of the NSG

of June 2016, both countries‟ leaders exchanged visits primarily for attracting

investments. Looking specifically at CPEC, China gave strong overtures to attract India to

join CPEC. In February 2015 and, again in November 2017 the Chinese Ambassador

talked about the potential of extending CPEC to Indian side of Kashmir. 406

These statements may appear too idealistic, but since 2004, Indian Punjab State

has already taken several steps to strengthen economic ties with Pakistan and China.

Business communities of India-Pakistan have been enhancing their economic linkages

despite the fact that political elite has always proved to be an impediment. Sindh and

Rajasthan have also been keen to enhance people to people economic linkages and

resume cross border trade. Even businesses outside Punjab, which have interests in

Afghanistan and Central Asia (CA) have been seeking land access through Pakistan. For

instance, the Steel Authority of India Limited-led consortium has been unable to convince

the Pakistan government to allow transportation of the Hajigak iron ore deposits by land

to Karachi. 407 If Pakistan can meet the Indian demand, the iron ore can be shipped to the

401 Ibid, p42. 402 Ibid. Also see footnote 87. 403 Ibid. 404 Ibid. 405 Mr Fahad Shah, “CPEC and Kashmir Issue”, Daily Dawn, (March 15, 2017).

406 Tridivesh Singh Maini, “India, China and Pakistan: The Need for a Nuanced Approach to CPEC”, (September 8, 2016). 407 Ibid.

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Western and Southern ports of India for use by Indian steel mills including JSW Steel – a

part of the consortium. Even aside from the business community in Indian Punjab,

pragmatists of the Strategic Community think tank also realise that obstructionism to

CPEC is not the answer. If CPRC is going ahead regardless of Indian objections, it is

worth taking benefits that might be derived from integrating with elements of the

project. 408

On the issue of regional economic integration, a number of analysts have argued

in favour of finding a common ground between India-Pakistan. For example, a paper

published in 2016, Alok Ranjan of the Institute of China Studies, proposed to develop

economic corridors on both sides of Punjab as well as Rajasthan-Sind and Gujarat-Sindh

to connect these corridors with CPEC as well as with the Bangladesh, China, India, and

Myanmar Economic Corridor (BCIMEC).India has shown an intense willingness to receive

Afghan trucks through Pakistan at Wahga-Attari, and create the necessary cross-border

facilities for transit of Afghan products. The Indian government official statement quoted in

the media mentioned, “We have formally indicated our willingness to join the Afghanistan-

Pakistan Trade and Transit Agreement to Pakistani government on numerous

occasions.409 It is important to underscore that similar views are being quoted by

Muhammad Adil Sivia, an Indian writer who genuinely considered it as a grand

opportunity created out of nowhere by China‟s OBOR and CPEC.

Mr A.G. Noorani, 410 another very famous and a credible Indian author, lawyer and

a scholar, based in Mumbai supported Mr Mubeen Shah and Chief Minister IHK „Miss

Mehbooba Mifti‟s proposals to declare the divided part of Kashmir on both sides as FTZ

to open Kashmir to the CAS, China, Pakistan and, also allow SAARC countries like;

Bhutan and Nepal to be connected to this corridor. Mr Noorani also quoted Jawaharlal

Nehru‟s address to Indian Lok Sabha in 1952, „We have to be men of vision and

broadminded acceptance of fact that integration comes of the mind and heart, and not of

some clause which you may impose on other people. That Kashmir was indeed the

subcontinent’s bridge to Central Asia (CA). For long, Kashmir‟s traders and artisans had

close and continuous relations with CA. ‟A famous Kashmiri scholar, „K. Warikoop‟ in his

book meticulously recorded the rich history of„ Central Asia and Kashmir‟ affirming

Jawaharlal Nehru‟s views. Mr Noorani recorded that on 15 January 1949 Commanders-

in-Chiefs of both India-Pakistan met under the auspices of the UN to restore the roads

between Srinagar and Rawalpindi. They also agreed to rebuild the broken bridges and re-

establish the telephonic link. After 60 years in October 2008, both sides (President

Musharraf and Indian Prime Minister Mr Vajpayee) agreed to open trade across Line of

Control (LOC) as a CBM. Mr Haseeb Drabu of IHK, in 2008, as head of the People‟s

Democratic Party (PDP) programme „Aspirational Agenda-2014‟ quoted that the accord

on across-LOC is incomplete without banking, customs and telecommunications facilities.

Thus Kashmir can reclaim once lost status of a gateway to CA.

The public mood is well represented by a respected journalist „Iftikhar Gilani‟411 in

an article of „DNA India‟ on 18 August 2017. Mr Iftekhar claimed that until the early 20th

408 Ibid. 409 Ibid. 410 Mr A. G. Noorani, “Kashmir Suffocated”, Daily Dawn, Islamabad, (August, 26th2017). 411 Headquartered in Mumbai, where it is the second most read English broadsheet daily with 15.06 lakh readers, the newspaper has publication in Mumbai, Bangalore, Pune, Ahmedabad, Indore and Jaipur with a cumulative daily circulation of more than one million copies.

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century, the Kashmir valley was an economic hub, liking South and CA. He argued that

public mood is starkly in favour of CPEC linking with both sides of Kashmir. In August

2017, Concerned Citizens Group (CCG), which was led by Mr Yashwant Sinha visited

Kashmir to assess an overall situation. It had already issued its two previous reports up to

November 2016. In order to compile their third report, the CCG physically visited some of

the main members of the Kashmir civil society, political leaders, educational institutions

student organisations, religious saints and importantly the common masses suffering at

the hands of Indian security forces.412 In its findings, the CCG has revealed that the

alleged attempt to undo Article 35A of the Indian Constitution features among the key

concerns of the Kashmiri people. The findings also revealed that during interactions with

students and residents, the sense of dismay and despondency in the people had grown

manifolds and, the perception distance between rest of India and the Kashmiri youth has

increased, who are now using the language of the militants and separatists i.e. Azadi from

India.It is also expected that the alliance between the Peoples‟ Democratic Party (PDP)

and the Bharatiya Janata Party (BJP) will, in all likelihood, breakdown if Article 35A is

struck down by the Supreme Court. We ought to remember that the political leaders of the

Valley mirror image similar views and thus want to connect to the outside world for which

they find CPEC as a golden opportunity.

Another comprehensive study was conducted by Dr Waqas Ali who started his

doctoral thesis on the youth of Jammu and Kashmir. His research looked at ways in which

the youth wanted to and could be empowered to make their own decisions and articulate

their own vision. After nearly a decade of extensive work he and his colleagues compiled

their findings in a report titled; „Vision 2020.‟413 The vision describes aspirations of

Kashmiri youth and takes into account all the previous such reports including a paper on

„Gilgit-Baltistan and Deep Dilemma‟ by Mr Fayaz on „Ladakh and Jammu‟, which

interviewed about 5000 people over a long period to time. A total of 41 scholars and

supporters were involved from both sides of LOC in Kashmir who towards the end agreed

on Seven Core Values, which must be focused by both the side. These are mutual trust,

respect for human dignity, equality, fair play, delivery of justice at the doorsteps, politics of

inclusion, community well-being and collaboration instead of confrontation and conflict.

The vision is to be built around these values focusing on education, politics, government

and, freedom to think and act. These two comprehensive reports amply justify as to why

India should agree to join CPEC for achieving the larger peoples‟ centric goal of

economic sustainability, which can come through joining the CPEC and forming a

SAEU/SAEA together with China.

The Game Theoretical modelling, discussed and analysed so far, has yielded two

main conclusions. One, in a globalised world where future is most likely to abound a

fierce international economic order, the individual South Asian nations would profit more

as an integrated regional economic bloc with China on board. Such a scenario is most

likely once seen through the theoretical lens of Complex Interdependence within

neoliberal paradigm. Two, the mathematical modelling proved that the best available

opportunity to Indian and Pakistani leadership is to capitalise on the drivers of economic

change offered by China‟s BRI and CPEC projects and, the most productive framework

using the platform of SAARC is the prospective SAEU/SAEA. Besides numerous Case

412 “Report of third visit by Yashwant Sinha-led Concerned Citizens Group to Kashmir”, Indian Express (September 04, 2017). 413 Daily Dawn, Islamabad – Editorial (23 November 2017).

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Studies involving qualitative regression exercises, such conclusions have also been

substantiated through political sentiments, reflected in the statements of Indian and

Pakistani leaders, bureaucrats, government functionaries, scholars, think tanks, civil

society activists and various entrepreneurs. The reluctance to commit India for joining the

CPEC leading to formation of SAEU/SAEA mainly comes from the faithful BJP activists

and political leaders in New Delhi.

Visible sentiments of the discourse analysis in abovementioned statements414 it

can be fairly deduced that there exists an earnest desire specifically among the IOK

public and political leaders to embrace China‟s CPEC by declaring both sides of Kashmir

as FTZ and link it with NSC (CPEC) and onwards to CAS. Generally positive support for

joining the BRI and CPEC in the remaining segments of Indian society do exists,

however, with conditions to strike a fair deal with Chinese. While different States in the

Indian Union are mostly inclined for China‟s plans of South Asian economic integration,

the BJP centre Government is however, left to translate „fair deal‟ with Chinese. Indian

political will was also visible in Mr Modi‟s personal request to privately meet Chinese

President Xi in April 2018 and Indian Ambassador in Pakistan asserting a $30 billion trade

potential. After all, at the strategic level, Indian membership of NSG and a permanent

position on the UNSC are the real movers for a possible exchange to join CPEC and

reconcile to China‟s admission as a member of SAEU/SAEA.

5.5 Application of Complex Interdependence on SAEU/SAEA

In Chapter One, it was concluded, that neo-realist theory fails to explain the

process of interdependence, cooperation and globalisation due to its inherent flaws of

amassing power to pursue national interests where rent-seeking political elite of the

subcontinent, in particular India-Pakistan, manipulates policies to preserve self- interests.

This attitude is amply reflected in the last 70 years of subcontinent history and SAARC‟s

impasse during the last 30 years of its birth. Within a liberal paradigm, one of the most

famous theory “Economic Opportunity - Cost Hypothesis” assumes that economic

interdependence and trade increase stakes amongst economically integrated nations and

thereby, reduce chances of erupting conflicts. 415 Similarly, less economically integrated

countries have no cost attached with trade, therefore, their chances to adopt warfare or

conflicts against one another are quiet high. 416

It may be recalled that the vision of SAEU has been conceived based on New-

liberalist school of thought related to Joseph S Nye and Keohane‟s concept of Complex

Interdependent in which Sill-over417 is considered the main phenomena, which help

speed-up regional integration process. The Spill-over concept is also covered under Neo-

functionalism of the 1950‟s, which explains the process of EU‟s integration and the role of

supranational authority like European Commission or European Parliament418 in the

development of integration. The Complex Interdependence theory caters for both

paradigms of Neo-realists and Neo-Liberals to argue that cooperation in one area of

414 See footnote 278. 415 Jack S. Levy and William R. Thompson, Causes of War (Malden: Wiley-Blackwell, 2010), 72-73. 416 Erik Gartzke, Quan Li and Charles Boehmer, “Investing in Peace: Economic Interdependence and International Conflict,” International Organization, Vol 55, no. 2 (2001): 394. 417 See footnotes 128& 129. 418 Jack S. Levy and William R. Thompson, Causes of War (Malden: Wiley-Blackwell, 2010), 72-73.

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economy or trade produces incentives to engage in cooperation of other sectors of

national life, which is also called “Spill-over Effect”. 419

With reference to this thesis, both economic opportunity cost hypothesis and neo-

functionalism theory are applicable in the case of CPEC contributing to formation of

SAEU/SAEA due to the huge potential for regional economic interdependence by

affecting SAARC‟s integration. South Asian states in particular India-Pakistan are the

main impediment to enhancing intra-regional trade, which currently hovers around 5-6%

of their total trade volumes. 420 Hence the Complex Interdependence Theory stipulates

that with increased intra-regional trade, which can be exponentially enhanced due to

CPEC, the Spill-over Effect will bring-together South Asian states; particularly India-

Pakistan, in all other sectors of their national life affecting regional economic integration.

Economic interdependence and integration also have greater promise towards resolving

seemingly intractable disputes like; Kashmir within the conception of Complex

Interdependence. Transformation of SAARC into a SAEU/SAEA, primarily due to catalytic

factors such as China and CPEC, cannot be implemented by strategies of Cooperative

Economic Interdependence (CEI) within the union and Cooperative Hegemonic

Interdependence (CHI) to deal with the outside world. 421

5.6 CPEC –A Catalyst in Formation of SAEU/SAEA

Chinese President Xi Jinping, (as General Secretary the NCP) in 2013, announced

OBOR (BRI) project to supplement China‟s domestic growth and rebalance it with xternal

investment opportunities in Asian, Mediterranean, African, Middle Eastern, Central Asian

and South East Asian regions. He also announced CPEC as a flagship project for OBOR

(BRI). In May 2017 Belt and Road Forum China hosted 29 heads of states, chiefs of the

UN, the International Monetary Fund (IMF) and the World Bank including 1500 delegates

and governments, reinforcing her claim to provide leadership in a changing geopolitical

and geo-economic world order in which more than 40 countries and multilateral financial

agencies participated.422 In November 2017, President; Xi Jinping, during the 19thChinese

Congressional gathering gave thought-provoking future goals i.e. China shall progress to

a highly advance economy by 2035 and a global leader to acquire all-round national

power, influencing the international multipolar order by 2050.This vision though appears

humble gives glimpses of China‟s likely assertive role in South Asia and beyond.

Obviously, Mr Xi‟s vision will be very critical for projects like OBOR (BRI) and CPEC. 423

The four main pillars of CPEC are Gwadar port, Communication Infrastructure,

Energy Generation Infrastructure and Development of Industrial Zones. CPEC is a 3,218

Km or approximately 2500 miles long route, consisting of highways, railways and oil

pipelines. The actual estimated cost of the CPEC project is expected to be $75 billion, out

of which $46 billion plus will be expended to make it operational by 2020. 424 Since out of

SAARC countries, Iran and Afghanistan have agreed on joining the CPEC, if India

cooperates with China, it would transform South Asia into a hub of communications,

419 Finn Laursen, “Theory and Practice of Regional Integration,” Jean Monnet/Robert Schuman Paper Series, Vol 8, no. 3 (2008): 4-5. 420 See footnote 52. 421 For details, see footnotes 10. 422 Zahid Hussain, “China‟s New World Order”, Daily Dawn Islamabad, 17 May 2017. 423 Munir Akram, “China-US: Shaping the Future”, Daily Dawn, 12 November 2017. 424 Vice Minister of the Ministry of Commerce, Gao Yan Statement on 4th China-South Asia Expo and the 24th China Kunming Import

and Export Fair, 05 May 2016.

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trade, energy corridors, Information Technology (IT) and Industrial Parks to boost

economies and GDPs of the whole of Asia. (Refer to Figure 5.1below):-

Figure 5.1:One Belt One Road with Silk Road Initiative Source: Google maps

China‟s grand plan to link world‟s continents, OBOR (BRI) has now been under

development for four years, spanning 68 countries and accounting for up to 40 percent of

global GDP. 425 President Xi pledged $124 billion funding boost to the Silk Road, including

an extra 100 billion Yuan ($4.50 billion) into the existing fund, 380 billion Yuan in loans

and 60 billion Yuan in aid to developing countries and nations along the new trade routes.

Commerce Minister, Zhong declared that China plans to import products worth $2 trillion

from participating countries over the next five years. China Development Bank has

already earmarked $890 billion for some 900 projects. Chinese investments in India,

Pakistan and other South Asian countries have already crossed $111 billion.

WuGuoquan, of China‟s Asian Affairs, Ministry of Commerce quoted that trade volume

with Pakistan grew from $5.7bn to $100.11 billion from 2000 to 2015, while total value of

contracts between the two countries grew from $1.8 to $50.8 billion. Despite a global

economic slowdown, trade volume between Pakistan and China increased by 18.2

percent in fiscal year 2015.426This huge financial and infrastructural development capacity

of China to connect entire South, Central and West Asia into a web of intense economic

activities will drive the whole of Asia to create multiple jobs and business opportunities

especially, for prospective SAEU/SAEA intraregional trade.

CPEC includes roads and railways, passing through the entire length of Pakistan,

Azad Kashmir and Baluchistan which has crucial economic and administrative positive

impact for the prospective SAEU/SAEA. It has regional and global trade implications for

example, if North-Western Chinese and Indian regions were to use Gwadar Port, it would

be cheaper and quicker to do business through CPEC. Importantly, the precedence exists

for the use of Fazilka-Amruka-Bahawalpur route known as „The Golden Route‟ before

1947.At the global level, trade by OBOR and CPEC can bypass the Strait of Malacca in

Southeast Asia by 32000 Km and vice-a-versa. If the Chinese goods were to be unloaded

at New York or Norfolk and Baltimore rather than California, the goods would travel less

distance by 32000 Km though the Suez Canal route. There existed a salivating

anticipation for widening of Panama Canal in early 2016, by the major US ports on the

east coast, eager to trade with China, but when the CPEC will be completed, a reduction

425 Zahid Hussain, “China‟s New World Order”, Daily Dawn Islamabad, May 17, 2017. 426 “CPEC Must Not be Politicised”, Daily Dawn, (December 18, 2015).

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of 32000 Km in shipping of goods from the western hemisphere might as well become an

equidistant route competing with the Panama Canal route. 427

Figure 5.2:Impact of CPEC on Formation of SAEU Source: Author‟s Own with Google Maps

One of the most crucial role of CPEC‟s success could be to have a secure and an

assured connectivity from China through to Indian Occupied Kashmir (IOK) to Pakistan

(AJ&K) to Afghanistan and on-wards to CAS (refer to Map above). 428 If North-South

Corridor (NSC) i.e. CPEC is connected to the East-West Corridor (EWC) then China-

Bhutan-Nepal-India-Pakistan and Afghanistan could be linked to BRI. Goods trains and

trucks from the landlocked countries can easily access Central, Eastern, European and

African markets saving travel distance by about 23 to 30 days. The Island nations of

Maldives and Sri Lanka can reach China, CAS and Afghanistan through Gwadar Port. All

the savings on distance and consequently, time taken sums up to billions of dollars

besides achieving economy of effort thus boosting national revenues. 429 But the real

opportunity of CPEC project is that it shifts the scope of China‟s relationship with the

region from geopolitics to geo-economics. This approach can settle the most critical

issues like Kashmir, poverty alleviation, extremism and cross-border terrorism, which

strike the very underbelly of the whole of Asia peace.

According to a report released by the Stockholm International Peace Research

Institute (SIPRI) - India's opposition to CPEC reflects a concern over the

internationalisation of the Kashmir dispute and the growing influence of China in the

Indian Ocean. 430The question is how long India can resist a great economic leap and a

golden opportunity to extend her sphere of economic influence from China to the deep

sea ports of Gwadar and Chahbahar into the Indian Ocean on one side and a direct land

access up to CAS. The political economy of South Asia, as acknowledged by many

writers also indicates that CPEC can force-multiply economic development in South Asia

leading to peace and stability in the region. Thus CPEC can not only resolve the Kashmir

427 Dr. Khalid Manzoor Butt and Anam Abid Butt, “Impact of CPEC on Regional and Extraregional Actors”, Journal of Political Science

XXXIII, GC University, Lahore, 2015. 428 See footnote 87. 429 Source: Author‟s own assessment. 430 “India‟s objections to CPEC”, Daily Dawn, June 3, 2017.

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conundrum but also the other minor border disputes with Pakistan like; Sir Creek as well

as with remaining countries.

Let‟s now weigh how Afghanistan can provide opportunities for economic

integration in South Asia. To connect CPEC with Afghanistan, Pakistan has already

constructed 75 Km Torkham-Jalalabad road, while the Peshawar-Torkham road is

underway. More-over, Government of Pakistan with the help of Frontier Works

Organisation or FWO is building road network from Pakistani side to link Afghanistan‟s

province of Paktika and Khost. 431This road network will be most beneficial for business,

trade between both the countries as well for the common peoples of both side. It would

provide the much need access to tap an enormous minerals and other natural resources

for exploring and delivering these to the biggest consumer of SAEU/SAEA. As per a UN

study, seventy percent of the trade from Afghanistan is meant for Pakistani markets. If

Pakistan allows Afghan Transit Trade, it would ignite the entire regional economies

because the OBOR/BRI together with CPEC would link huge markets of Central and

Western Asia, Europe and Africa. 432 Look at the plight of Afghan refugees, which at the

moment are dependent upon the neighbouring countries. If Afghanistan‟s iron ore,

copper, zinc and gold is exported the refugees would immediate go back to their country

to avail all such opportunities. Mega projects of CASA-1000 hydroelectricity grid and the

TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline will also benefit

whole of South Asian economic vibrancy by providing attraction to all. 433

Another opportunity at the intra-regional level opens up due to Chahbahar Port,

which India has jointly built with Iran. The port can become a central economic hub

together with Gwadar of Pakistan, where India, Pakistan, Afghanistan as well as Iran all

will benefit. It would also remove the present delay which adds to cost for shifting of cargo

from land routes to ship and then again back to trucks and vice- a-versa enroot to either

destinations. Thus the Chabahar port, can actually complement Gwadar Port.In view of

the 21st Century Maritime Silk Road, China can also deepen ocean cooperation by

fostering closer ties with countries along the CPEC, complemented by the coastal

economic belt of BRI. Ocean cooperation will focus on building the China-Indian Ocean-

Africa-Mediterranean Economic Passage by linking China-Indochina Peninsula Economic

Corridor, running westward from the South China Sea to the Indian Ocean, and

connecting it with BRI and CPEC. 434

The discussion so far provides comprehensive appraisal of the CPEC, which is

considered an economic magnet for all the adjacent corridors. Based upon the historical

data and quantitative assessment, it is firmly believed that the CPEC is most likely to

ignite regional economies such that these become inextricably interdependent, not only to

revitalise SAARC leading to a prospective SAEU/SAEA but also may transcend into a

politically synergised bloc. Thus the CPEC project is considered as a game-changer, not

just for the peoples of China and Pakistan but also for the whole of Asia. It will also

connect regional countries to conduct profitable commerce, trade and industrial

431 Saad Shabbir and Dr Vaqar Ahmed, “Afghanistan-Pakistan: Trade & Investment Roadmap”, Saad Shabbir is a Senior Researcher

at Sustainable Development Policy Institute and aspires to work towards an integrated South and Central Asian region. Dr.Vaqar Ahmed is Deputy Executive Director at Sustainable Development Policy Institute. He also heads the Economic Growth Unit responsible for macroeconomic analysis, international trade and public finance. 432 Comtrade International Trade Statistics Database. 433 See footnote 291. 434 Zhao Lei, “Three Sea Routes Planned for BRI”, China Daily, May 21st, 2017.

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development there by leading to collective socio-economic growth and uplift of the

subcontinent. Whereas for China, CPEC provides the shortest possible trade route to

Arabian Sea, Middle East and Europe, it is also a bypass for Strait of Malacca. For land

locked regional states like Uzbekistan, Afghanistan, Tajikistan and Turkmenistan, and

regions of Central Asia, Middle East and South Asia, CPEC could provide a central

Economic Corridor. As will be seen later in this thesis, all the geographical economic

corridors directly or indirectly connect with BRI and CPEC. While Ocean cooperation will

build the China-Indian Ocean-Africa-Mediterranean Sea Blue Economic Passage, by

linking the China-Indochina Peninsula Economic Corridor, running westward from the

South China Sea to the Indian Ocean, and connecting CPEC and the Bangladesh-China-

India-Myanmar Economic Corridor (BCIM-EC). 435 It means China intends to merge all

sub-regional economic corridors planned by India with BRI and CPEC. Thus by default,

South Asia is most likely to get economically integrated provided India reconciles with

China‟s inclusion in SAEU/SAEA.

5.6.1 CPEC – The Main Driver for SAEU/SAEA

As discussed in the beginning of this chapter, there is nothing to be worry in

considering SAARC‟s impasse for about 30 years because even the EU‟s integration

followed a puzzling stop-and-go pattern that can never be explained using the traditional

IR theories. 436 China‟s grand conception of OBOR or BRI has provided an unparalleled

impetus to infuse a new spirit of regionalism in South Asia of which CPEC is a flagship

project. Hence, there are both drivers and opportunities that may expedite SAARC‟s

progression to a prospective formation of SAEU/SAEA.

As per UNCTAD-2015 forecast, North America and Europe will spend less and

grow slower than South and East Asia, where China will be the main driver of global

economic growth. Consequently, potential of South Asian intra-regional trade will increase

by $50 billion up to 2020 with well integrated policies. This is encouraging for SAARC‟s

progression to SAEU/SAEA especially after the announcement of BRI and CPEC costing

around $ 1 trillion. The ADB report 2014 provides a strong foundation to institutionalise

the prospective SAEU/SAEA through SAFTA‟s actionable framework consisting of tariff

and non-tariff regime. 437 Moreover, South Asia and China is home to over 40 percent of

the World‟s poor, with around 30-40 percent of its population living on less than $1.25 a

day. If SAARC can remove multiple barriers and create safe investment conditions, it

would stimulate competition, boost productivity and ignite regional and global economic

growth to commensurately reduce poverty. This fact has been vindicated through the

World Bank‟s data since 2005 till date.

With China and India as members of the prospective SAEU/SAEA, it will have

greater political and economic weight at the international fora like EU. Critical subjects of

terrorism, environment, climate change, food and energy security, intra-regional

migration, infrastructure development as well as regional security can be addressed

through an extensive road, rail, air, telecommunication and cross-border trade networks,

off-set by China‟s BRI and CPEC projects. The UNCTAD-2015 Report once read in the

light of China‟s BRI and CPEC projects, the intraregional trade in South Asia is likely to

435 SutirthoPatranobis, “Beijing China says it Will Link Pakistan Corridor with Project Involving India”, Hindustan Times, June 20, 2017. 436 Gerald Schneider and Lars-Erik Cederman, “The Change of Tide in Limited Cooperation: A Limited Integration Model of

European Integration”. 437 Reforming International Investment Governance, World Investment Report (UNCTAD), 2015, p46.

147

be enhanced from the existing 5-6 percent to about 7.6 percent due to the likely influx of

FDIs. 438

India, Bangladesh, Nepal, Bhutan and Sri Lanka are the members of the Bay of

Bengal Initiative for Multi-sectorial Technical and Economic Cooperation (BIMSTEC) 439

and the South Asian Sub-Regional Economic Cooperation (SASEC). Pakistan and

Maldives are not members of both sub-regional organizations. 440 If China is part of the

prospective SAEU/SAEA, sub-regional projects can form part of CPEC to act as drivers

for economic integration of SAARC or prospective SAEU/SAEA. The ADB-assisted

Greater Mekong Sub-region, Brunei-Indonesia-Malaysia-Philippines growth area and the

Indonesia-Malaysia-Thailand growth triangle exemplify this pragmatic approach. These

sub-regional programs supported ASEAN‟s move toward an ASEAN Economic

Community (AEC), which is expected to be replicated in South Asia with assistance from

AIIB, ADB and the World Bank. 441

India comprises more than three quarters of the regional GDP and two-thirds of the

region‟s global exports. One of the main factors is that India connects most SAARC

member states to provide the crucial trade link. However, with China on board, almost all

SAARC states can have geographical proximity to each other through BRI and CPEC,

hence the regional GDP and SAEU/SAEA global exports will get direct access to other

continents thus providing an exponential boost to raise the level of South Asian regional

economic integration.

5.7 Role of CPEC in Comparative Advantage and Economies of Scale

From the above analysis, it can be discerned that China and its flagship project

„CPEC‟ holds the key as a core critical catalyst and, together with India, it can act as the

main driver for SAARC‟s transformation into a SAEU/SAEA. China is already working to

institutionalise the China–South Asia Business network by establishing a cooperative

mechanism comprising; industrial and infrastructure development, energy sectors,

disaster relief and HRD through public-private enterprises. 442 Let us now evaluate, how

CPEC can guarantee comparative advantage and economies of scale to SAEU/SAEA

thus corroborating the cause and effect correlation to validate positive impact of

independent variable on the dependent variable.

To achieve the above purpose, let us briefly discuss some case studies on „how

CPEC can lead to economic integration‟. A case study conducted by Vice Chancellor of

Air University, Islamabad443 examined a number of economic corridors in Africa, Europe

and South East Asia to assess their impact on the increased economic activity along the

highways-railroad networks, resulting in Regional Economic Integration (REI) and,

ultimately bringing peace and stability in the troubled regions. These corridors included

438 Takehiko Nakao, “Towards South Asian Economic Union” Opening Remarks by ADB President Takehiko Nakao at SAARC

Finance Ministers Conference on 3 May 2015 in Baku, Azerbaijan 439 BIMSTEC and South Asian Sub-Regional Economic Cooperation (SASEC) will likely bring South Asian countries closer leaving

Pakistan and Maldives out of an economic cooperative mechanism. 440 Muhammad Ali, “A Critical Study of Regionalism in South Asia: Challenges and Perspectives” - A Case Study of SAARC - The

Dialogue, Volume IX, Number 3. 441 See footnote 306. 442 China's Engagement with Regionalization in South and Southeast Asia: A Comparative Perspective.South Asian Studies A

Research Journal of South Asian Studies Vol. 29, No. 1, January – July 2014, pp. 281-290. 443 Air Vice Marshal (Retired) Faaiz Amir, “CPEC and Regional Integration”, A Study Presented in 32nd Annual General Meeting and

Conference of the PSDE on China-Pakistan Economic Corridor and Regional Integration, December 13-15, 2016, Islamabad by Vice Chancellor, Air University, Islamabad, Pakistan.

148

NSC, MDC, GMS and TEN-T multimodal Core Network in Europe. The case study

concluded that corridors accelerate infrastructure development in all member states to

boost economic growth. 444 It draws that careful alignment of Economic or Logistic

corridors may contribute to trust and capacity building between countries in support of

incremental and functional regional integration. 445 However, EU‟s Ambassador to South

Africa, Roeland van de Geer‟s cautions: “the road to a union is a bumpy one – integration

does not take place in isolation, and internal as well as external factors will place

obstacles along the path. 446 The study conducted by the Vice Chancellor Air University,

Islamabad has also incorporated the varied lessons from geographically distant corridor

projects to assess prospects of CPEC‟s connected regional states into a broader

economic collaboration. Now let us relate this case study‟s conclusions to theoretical

construct of BRI and CPEC to evaluate their practical impact on formation of a

SAEU/SAEA.

It was learnt that the most expeditious route in formation of SAEU/SAEA can be

through economic cooperation enabled by early completion of BRI and CPEC. The

formation of SAEU/SAEA will undoubtedly have a huge impact on the social uplift of local

populace, infrastructure development and energy generation as well as communication

networking within and around the main trade hubs. These linkages of logistic and

economic corridors like CPEC can achieve comparative advantage resulting in an

increased trade flows and integration. The phenomena is well explained in the figure 5.3

below.

Figure 5.3: Link between Infrastructure and Regional Cooperation Source: Brooks, D.H. J. Menon, Infrastructure & Trade and Cheltenham: Edward Elgar-2008.

444 Ibid, p6. 445 Ibid, p7. 446 Ibid, P8.

149

The positive link between infrastructure and regional cooperation is aptly captured

in the above figure. Obviously, the economic corridor together with revitalised network of

roads and energy based industrial zones will reduce trade costs, generating higher trade

flows through changes for achieving economies of scale and comparative advantage. An

invisible factor of production, according to Robert Gilpin, is the learning from knowledge

based economies and trade practices by those regional countries, which have weaker

institutional and structural base. 447 Due to a differential in capabilities, higher trade flows

will facilitates regional integration. However, to sustain economic integration logistic

corridors are most essential. Thus, various Asian countries and regions with high

incomes, strong institutions, good governance, and more open economies will always

have higher levels and concentration of regional physical and economic infrastructures.

Another impact is; with higher regional growth, there is always a commensurate

reduction in poverty levels. This conclusion is very important for SAARC or prospective

SAEU/SAEA. For example; a comprehensive case study on “Transit and Trade

Facilitation Connecting Bangladesh-Bhutan and India” 448 concludes that higher volumes

of trade actually resulted in a lowered poverty levels due to economic growth and

distribution of resources using proximity of geographical corridors.

An ADB study edited by Prabir De and KavitaIyengara quotes that the existing

supporting infrastructure is critical for enhancing economic and social integration. 449 As

discussed before, on the one hand, economic corridors in South Asia are meant to bridge

regional infrastructure gaps, while, on the other, they promote pro-poor socioeconomic

development thus creating employment and commensurately reducing poverty levels.

Thus, a better communication nfrastructure provided by BRI and CPEC projects would

mushroom into production networks across South Asia and help accelerate regional

economic integration. However, it is important to establish and harmonise the requisite

customs, communication, transport and related allied infrastructure as well as procedures

across the regional borders for an expeditious formation of SAEU/SAEA.

The figure 5.3 (shown above, not to scale) highlights the importance of connecting

major economic centres within SAARC (prospective SAEU/SAEA) especially for

landlocked countries of Bhutan and Nepal as well as Bangladesh or even Myanmar. If a

SAEU/SAEA is established, all these Eastern countries can be connected to the energy

hub of CAS through, Pakistan and Afghanistan and vice-a-versa. To establish such an

economic corridor, IOK and Pakistan‟s AJ&K are uniquely placed in South Asia. Such a

corridor will not only connect most of the SAARC countries that do not have contiguous

borders, but it also includes the giant Western territory of China. The geographical

proximity of South Asia can serve as one of the most vital ground links between East and

West Asia. Finally, an example of economic corridor strengthening regional integration

can be seen in Bangladesh, China, India and Myanmar-Economic Corridor (BCIM-EC). 450

If completed, it will connect South Asia with East Asia by establishing multi-nodal

connectivity, harnessing economic complementarities, promoting trade and investment

thus providing comparative advantage and economies of scale.

447 See footnote 158, p98. 448 Pushpa Raj Rajkarnikar, Case Study on Transit Trade and Effects, Chapter-5, UNDP Report-2016. 449 Prabir De and Kavita Lyengar, “Developing Economic Corridors in South Asia”, ADB Study-2014. 450 Dr Rupak Bhatta charjee Issue, “Bangladesh, China, India and Myanmar-Economic Corridor: Ushering a New Era of

Interconnectedness”, 18 September 2016.

150

CPEC is most likely to enhance Comparative Advantage and Economies of Scale

for South Asian integration, ultimately resulting in formation of SAEU/SAEA is very

essential. Naseem Akhter and Ejaz Ghani present Case Study using Gravity Modelling,

(Tinbergen in 1962) for South Asian Studies. 451 Another important study; „Shaping the

World Economy: Suggestions for an International Economic Policy‟, concluded that

bilateral trade volume between countries will be directly proportional to their Gross

Domestic Products (GDP) and inversely proportional to the distance between them. The

standard Gravity Model452 does not provide theoretical foundations, however the studies

of Linnemann (1966), Anderson (1979), Bergstrand (1985), Frankle (1995) and Anderson

and Wincoop (2003) justified the Gravity Equation and developed microeconomic basis to

statistically prove this maxim. Factors such as GDP, exchange rate, per capita income,

tariff barriers, remittances volume and transportation cost are vital to determine the level

of trade flows. However, for a detailed qualitative analytical study, separate research

would be needed. 453

Geographically, Pakistan is located near the most suitable economic corridors for

trade and transit activities providing a gateway networking to Central Asia, South Asia,

East Asia and West Asia. Despite this the existing bilateral trade volume amongst

SAARC states and with China is very low which is mostly in favour of China. As stated

by Uzair M Younus, the issue of „Transit Trade‟454 showcases the trade impasse

between Afghanistan-Pakistan due to lack of access to the Indian market through land

route. While Pakistan allows Afghanistan the land access to India, it doesn‟t allow Indian

goods to reach Afghanistan using the same transit route. According to data, made

available by Afghanistan web page, its exports to India have increased by 227 percent

from $70 million in 2011 to $230 million in 2016. However, Afghanistan‟s exports to India

have grown from $103 million in 2011 to $152 million in 2016. During the same period,

Afghanistan‟s exports to Pakistan grew from 47 percent from $180 million to $283

million, while imports from Pakistan have increased by 37 percent from $877 million in

2011 to $1.2 billion in 2016. The curbs on Afghanistan‟s imports from India mean that

trucks crossing Wagah with Afghan exports to India must return empty, thereby

increasing the transportation cost. Secondly, the restrictions make it more expensive for

Afghanistan to purchase Indian goods. This also bolster anti-Pakistan sentiments in

Afghanistan consequently, Afghan government banned Pakistani trucks from entering

Afghanistan in 2017. Ironically the over-all impact has been positive for Iran, as its

exports to Afghanistan increased by 118 percent from $581 million to $1.3 billion in

2016. All this discussion is summed up in the table455:-

451 Naseem Akhter and Ejaz Ghani, “Regional Integration in South Asia: An Analysis of Trade Flows Using the Gravity

Model”, The Pakistan Development Review 49:2 pp 105–118, (Summer 2010). & Tinbergen, J. (1962). Shaping the World Economy;

Suggestions for an International Economic Policy. Books (Jan Tinbergen). Twentieth Century Fund, New York. Also see Table-5.1. 452 Gravity model is used to estimate the trade creation and trade diversion effects of various RTAs on trade flows within and across

member groups of a regional trading block. 453 E. M Ekanayake, Amit MukherJee and BalaVeeramacheneni, “Trade Blocks and the Gravity Model: A Study of Economic

Integration Among Asian Developing Countries”, Journal of Economic Integration No 627-643, (December 25, 2010). 454 Uzair M Younus, “Transit Trade”, Daily Dawn, November 14, 2017. 455 Ibid.

151

Country Export To Percentage 2011 (Mn) 2016 (Mn)

Increase

Afghanistan India 227 70 230

Afghanistan Pakistan 57 180 283

India Afghanistan 47 103 152

Pakistan Afghanistan 37 877 1200

Iran Afghanistan 118 581 1300

Table 5.3: Increase in Transit Trade of Afghanistan, India, Pakistan, Iran 2011 to 2016 Source: Uzair M Younus, “Transit Trade”, Daily Dawn, November 14, 2017.

As can be seen, through above table, an exponential impact on trade growth is

visualised especially; with the completion of CPEC, which India would happily join if her

goods are allowed to transit through Pakistan. The CPEC passes through both China

and Pakistan, which have borders with many other Asian, East Asian and South Asian

regions. The landlocked and resource rich countries of Afghanistan and Central Asia

always wanted to access regional markets of Pakistan, China, India and the countries of

West Asia. Both Afghanistan and Tajikistan have transit agreements for which CPEC will

provide them the opportunity to transport goods and market to the whole regional and

global markets; fostering regional economic and trade activities. Similarly, China, India

and Pakistan have always desired to access the resource rich region of CAS via

Afghanistan to meet their energy needs and to trade in goods and services with CAS. All

the SAARC members have already forged closer trade ties with China. Nepal has signed

10 MOUs to boost economic cooperation including trade and transit agreements with

China on account of loan for constructing Pokhara Regional Airport. Bangladesh is also

receiving a huge loan of $21 billion from China making India‟s loan of $2 billion look

undersized. So far 27 MOUs in building roads, bridges, capacity building, skill

development, BCIM-Eastern Corridor Initiative and industrial production have been

concluded. China is now number one trade partner of Bangladesh to import $9.8 billion

worth of goods in 2015-16. In Pakistan and on BRI, China is spending $46-75 billion in

infrastructure and energy sectors in addition to a soft loan of $1 billion to be spent on

road projects of CPEC. 456

Off-course, comparative advantage and economies of scale not only depend on

availability of economic or logistic corridors like CPEC but a number of other factors like;

Intra Industry Trade (IIT). 457 TheIITis always positive among regional states possessing

similar features of endowments especially if the technology and skill levels are also

comparable. According to the above quoted study, it has been established that gains

from trade will be larger when economies of scale are strong and the traded goods are

high both on product differentiation and economies of scale. We shall see whether or not

SAARC countries ‟factors of endowments actually fulfil the basic tenants of theory of IIT.

In Greater South Asia (GSA - SAAC plus China), almost all countries less China and

India have the similar factors of endowments where the services sectors contribute

approximately 60 percent of their total volume of GDP. Moreover, the share of their

manufacturing sector compared to overall GDP size is gradually rising less a few

456 See footnote 108. 457 See footnote 70.

152

members. Even between China and India, both countries have different skill levels and

product differentiation. For example; infrastructure development and manufacturing

sectors are strong in China, while IT industry and software houses are dominated by

India as a hub of global outsourcing. Following the dictates of Robert Gilpin, the flow of

trade volume will keep increasing between the high-end production industries (e.g.

China-India) and low level producing countries (e.g. remaining SAEU members).

Consider this proven trade maxim with the international logic of IIT, backed-up by

proximity of economic or logistic corridor458 like; CPEC. If all SAEU/SAEA member

countries choose a specialised range of products like US-Germany and Japan where

similar product with varying factors of endowments give all three the comparative

advantage, then it would generate economies of scale in the regional production

processes and still provide huge comparative advantage both within and outside the

Greater South Asia (DSA).

458 Ibid.

153

CHAPTER SIX

VERIFCATION OFSTUDY HYPOTHESIS ANDSUMMARY

OF SURVEYS, INTERVIEWS AND STATISTICAL ANALYSIS

Verification of one of the main variables i.e. formation of SAEU/SAEA largely

depends upon new vistas of comparative advantage and economies of scale, offered

mainly by China‟s CPEC pilot project within the overall vision of OBOR (BRI).

Nonetheless, India‟s political reconciliation, together with intrinsic capacity of SAAR

to transform itself into a SAEU/SAEA is also significant. A comprehensive evaluation

of CPEC‟s impact and India‟s political reconciliation has been confirmed to form a

SAEU/SAEA. In addition to the availability of OBOR (BRI) and CPEC, both China

and India can provide the requisite capital, security and momentum in transforming

SAARC into a SAEU/SAEA. Both are emerging world economies, have geographical

contiguity with SAARC countries, trained human resource and have proximity to the

old silk trade route. Thus both countries can play a pivotal role as drivers and movers

in formation of SAEU/SAEA. China‟s excessive capital and capacity to develop

CPEC will also boost the South Asian regional countries to implement cost effective

and an efficient intraregional trade and energy cooperation plans. Thus, CPEC is a

force multiplier for the regional economic development.

South Asian Group‟s study presents the main elements of China's

engagement with SAARC and ASEAN. 459 The study claims that China's involvement

in ASEAN regionalisation is a main axis of its foreign policy and a part of China's

multilateral strategy, while its intense engagement by way of CPEC in South Asia is

obviously a flagship project. Thus China‟s engagement with regional institutions

such as; SAARC, ASEAN and SCO is not only an effective tool to positively

influence political but also a major driver for regional economic integration. China‟s

BRI and Indian look east projects like; BMIEC, can act as economic and trade

bridges for South and East Asian regions to dominate the global trade by almost 50

percentage points, as also concluded by the UNCTAD Report-2015.

An article published in Daily Dawn-2017, and reviewed by Umair Khan Quotes

“Joseph E Stiglitz‟s Indictment of Modern Day Capitalism” 460: „with China‟s inclusion

in SAARC, the cruel role of capital economies manipulation by great powers like the

UK and USA can be neutralised by China to add balance in determining the

economic integration and future of South Asia in 21st century.‟ Another article in

Daily Dawn, Pakistan, “The CPEC Trick” claims; “by integrating Chinese economy

with ASEAN and SAARC both East and South Asia can be well integrated with

OBOR (BRI) and CPEC acting as drivers for change.” 461

459 Papatheologou, Vasiliki; Naseer, Rizwan; Amin, Musarat, “China's Engagement with Regionalization in South and

Southeast Asia: A Comparative Perspective”,South Asian Studies (1026-678X); Vol. 29 Issue 1, p.281, (January 2014). 460 Josepth E Stiglitz, “Lessons in Trickle-up Economics”, reviewed by Umair Khan, Daily Dawn, Pakistan, June 12, 2016. 461 Muhammad Amir Rana, “The CPEC Trick”, Daily Dawn, Pakistan, Sunday April 24, 2016.

154

6.1 China as Prospective Member of SAEU/SAEA

One of the main assumptions of study Hypothesis is that if China is admitted

as a member of Greater South Asia (GSA – China plus SAARC region), it would act

as a force multiplier towards formation of prospective SAEU/SAEA. Let us apply New

Economic Theory of Robert Gilpin462 to assess viability of this assumption. As

discussed in IIT conception, South Asian economies are at very different levels of

income per se, which, indicates that China together with India can steer South Asian

region out of the economic quagmire due to big differential in their capacities and

economies. For example, the annual output in China is around $10 trillion a year,

compared to $17 trillion in the US. However, over the past 30 years, US has grown

at an annual average rate, after allowing for inflation, at 2.4 percent, and China by

9.3 percent. If we project these rates forward, the Chinese economy will be as big as

the American by 2024. By 2037, it will be more than twice the size. 463 Therefore, it is

concluded that China‟s capacity to support South Asian economic integration will be

a force multiplier especially if it is able to work together with India. The profile and

performance of emerging markets and economies in South Asian Region (SAR) also

corroborate this conclusion. Thus if SAEU/SAEA is to be formed and sustained, both

China and India will need to work together. In this background analysis, Table 6.2

and Figure 6.2corroborate the above claims validated by studies (quoted above),

that both China and India have the capacity and wherewithal to serve as real drivers

of change in South Asia. The tables below also confirm these conclusions.

Table 6.1: World Bank bilateral remittance Estimates from India & China

462 See footnote 158, p109. 463 See footnote 343.

155

Figure 6.1: China & India FDI in South Asia

Figure6.2: Comparison of Emerging Markets & Developing Economies in South Asia. Source: Haver Analytics, World Bank Report 2016-17

156

All the papers, books, articles and case studies quoted thus far have exhibited that

inclusion of China will bring in huge amount of FDIs, add political and economic weight to

SAEU ; especially at the international and global levels. Additionally; balance of economic

power in SAEU/SAEA, shorter trade routes and increased internal politico-economic

compulsions of India to secure trade links towards CAS and energy rich regions in the

Gulf, complementing Science and Technology (S&T) potential, rapid structural and

infrastructural development together with desire to become member of NSG as well as

secure a permanent seat on UNSC are incentives, to which only China not US alone can

help India. Its latest manifestation could be witnessed in Indian Prime Minister‟s request

to privately meet Chinese President, Mr Xi in April 2018 to affirm continuation of peace in

border regions and enhance mutual economic and trade relations.

6.1.1SAARC States‟ Trade/Economic Interdependence with China

In this section we will affirm that through continuously growing economic and trade

interdependence between SAARC states and China, measured by substantive volumes

can Spill-over into the other sectors of national life. Thus it would promote level of

Complex Interdependence to finally ameliorate domestic political constituencies in favour

of forming a SAEU/SAEA. To vindicate these conclusions, comparative study of EU and

ASEAN models has revealed that route to an ideal integration passes through economic

interdependence, reflected mainly by bilateral or intraregional trade between states and

regions respectively. It is therefore, very important to analyse bilateral SAARC trade with

China. The catalytic impact of CPEC on the forming a SAEU/SAEA has already been

vindicated.

In the Game Theoretical analysis discussed in Chapter Five, we figured out that

India‟s commitment to support China‟s membership of the prospective SAEU/SAEA and

join CPEC will be an indicator of the union‟s long term success. However, even if India,

due to political considerations, fails to support CPEC and join SAEU/SAEA, it can still play

a positive role through complementary joint economic ventures within the overall BRI and

CPEC initiatives. This stance has been reiterated through Indian Ministry of External

Affairs (MEA) officials on more than one occasions. Nonetheless, an overwhelming

political desire by peoples‟ representative in Indian Occupied Kashmir (IOK)has been

validated through discourse analysis in the previous section. Now the independent

variable of „growing SAARC trade and economic interdependence with China needs to be

confirmed.

The succeeding dataset comprising graphs and analysis will indicate, the growing

level of economic and trade interdependence between SAARC states and China.

Ironically, while the individual SAARC countries‟ trade relations are improving with China,

India despite enjoying a rising trade with China in 2013464 is fielding a differentiated

international vis-à-vis regional strategies. Scholars discerning India‟s differentiated

strategies conclude that through appeasement of US and Israel, India is trying to bridge

her yawning gap in technology and PPP for achieving a Great Power status, while playing

proxy to contain China.However, India knows that not only it needs to continue growing

464 Potential for Enhancing Intra-SAARC Trade: A Brief Analysis, Indian Exim Bank Working Paper 31, (June, 2014). Also see Akram, Munir. “China-US: Shaping the Future”, Daily Dawn (12 November 2017).

157

trade with China, but her entry to secure membership of NSG and a permanent seat in

UNSG is subject to China‟s political support.

As per Indian Axim Bank, IMF and the World Bank Reports – 2014, contrary to the

existing intra-regional SAARC trade of around 5-6 percent, the bilateral trade of all

SAARC states with China has actually been growing (see Figures6.3, 6.4, 6.5 below). We

observe that China‟s bilateral trade even with India has exponentially grown ever since

2003till 2017 amounting to $71Billion,465 which now stands at around $100 Billion.

According to the New Economic Theory (NET) of Robert Gilpin466 a high growth in South

Asia is most likely to be sustained due to the economic capacity differential among

SAARC countries and the main catalyst, China. Thus the intraregional flow of trade in

South Asia can be much higher compared to other regions of the world due to China‟s

CPEC. This factor is also completed by another comprehensive study467 concluding that

high trade flows can enhance economic integration within Greater South Asia (GSA),

even without China.

465 Ibid. 466 See footnote 344. 467 See footnote 87.

158

CHINA TRADE WITH INDIA

Import (Billion USD) Export (Billion USD)

46

0.

35

5.

252.

51

54

3.

127.

127.

331.

92.4

65.1

7.

86

.91

0.

38

. 5

17

.

810.

810.

39.

21

4.

118.

51

3.

814.

911.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Figure 6.3:China trade with India.

Source: Exim Bank-204.

CHINA TRADE WITH PAKISTAN

16

14.

61

30

.

2007

Import (Billion USD)

Export (Billion USD)

1314

.

71 6.

059.

0910

.

73

84

.

72

60

.

77

93

.

9970

.

24

75

.

43

51

.

47

6.

6781

.

68

76

.

6192

.

6266

.

65

22

.

52.

921.

51. 7

31

1.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 6.4: China trade with Pakistan Source: Exim Bank Report-2014. Also see footnote 6.

159

CHINA TRADE WITH BANGLADESH, BHUTAN,

MALDIVES, NEPAL &

SRI LANKA

Imports (Billion USD)

Exports (Billion USD)

12

21

2.

89 .

87

.

3 6 . 2 6 .

73. 34. 5 73. 4 4.

3

2

11.

82.

81.

32.

82.

2003 2004 2005 2006 2007 2008 2009 2010 2011

Figure 5.5: China trade with Bangladesh, Bhutan, Nepal, Maldives, and Sri Lanka Source: Exim BankReport-2014.

The Hypothesis:„ SAARC states trade and economic interdependence with China

is growing‟ has been vindicated through graphically represented data, shown in the above

figures. CPEC‟s ability to provide comparative advantage and economies of scale to the

prospective members of SAEU/SAEA was affirmed through empirical analysis and

conclusion drawn in the previous section. Table 5.2 presents a comparison of both the

negative as well as the positive impact on transit trade amongst Afghanistan, Pakistan,

India and Iran. The requisite potential is being realised either due to the lack of economic

or logistic corridors or because of the non-implementation of Transit Trade Agreement

(TTA). These conclusions can be used to reinforce empirical analysis in the succeeding

paragraphs.

6.1.2Intraregional Trade and Economic Potential of SAARC Region

As is observed in Table 6.2 below, the level of intraregional trade in eight of the

world‟s regions, SAARC and GCC are the lowest and hence these two regions mostly

suffer on account of internal and regional stability. The linkage of intraregional trade to

economic growth leading to peace and human security is also affirmed by the ADB

Report-2014. The report concludes that the intraregional trade and commerce activities

provide an essential precursor to an enhanced level of economic interdependence to

ameliorate political will (e.g. of the main protagonists in South Asia; India-Pakistan).

Another factor is the share of individual countries even if the volume of intraregional trade

is high as seen in the case of EU or NAFTA. Similar conclusion was reached by a

UNCTAD Report-2015. The evolution of European Coal and Steel Community in 1951 led

to the present day EU and development of ASEAN in the late sixties and early seventies

also showed that percentage of intra-regional trade is a precursor, which forms the basis

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of an entrenched economic cooperative mechanism, culminating into an economic union.

Obviously SAARC‟s intra-regional trade volume, indicated in the Table below, is not

higher than the EU or NAFTA due mainly to India-Pakistan‟s rivalry. Hence, unless the

level of intraregional trade in South Asia is enhanced, the intensity of economic

dependence will not increase and, thus region on the whole will remain far below the

required levels of growth. The irony is that a hugely great potential within Greater South

Asia (GSA) can be missed, while the other regional organisations namely; EU and

ASEAN are progressing in regional development and economic integration.

PERCENTAGE OF INTRA-REGIONAL TRADE

Regions

1995

2000

2005

2010

APEC 71.07 73.05 70.80 67.36

ASEAN 29.93 23.10 25.27 24.99

CARICOM 14.51 15.34 13.63 14.04

EU 65.91 67.53 67.62 64.79

Euro Area 51.74 51.64 51.48 48.70

GCC 6.8 4.75 4.91 5.13

LAIA 17.38 13.57 14.03 15.94

MERCOSUR

20.50

20.94

12.90

15.82

SAARC 5.10 4.55 6.82 6.09

Table 6.2: Percentage of Intra Regional Trade

Source: UNCTAD Report-2012.

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In this part of the dissertation, it will be confirmed through the existing empirical

evidence that although there is a huge potential within South Asia to exponentially

enhance its current intraregional trade of 5-6 percent to surpass the other regional

average of around 58 percent. One of the most glaring observations indicating both the

potential for intraregional trade in South Asia and neglect of regional countries to import

similar raw as well as finished goods has been recorded from the undermentioned data,

extracted from Indian Exim Bank Report-2014. 468

SAARC Products/

Exporting

Export to

Intra-

SAARC’s Import

regional

Raw Material

Country

the World

from the World

Imports

US $ Mn US $ Mn US $ Mn

Vehicles Bangladesh 70 0.9 8987

Leather Bangladesh 305 5 667

Foot Ware Bangladesh 396 2 642

All Products Bangladesh 27040 655 594893

Printed Papers Sri Lanka 43 3 921

Sports & Toys Sri Lanka 56 3 565

Vegetable, Textile & Fabric Sri Lanka 117 2 443

All Products Sri Lanka 9370 909 594893

Metals and Pearls Pakistan 1634 0.8 82497

Sugars Pakistan 2006 6.7 1094

Metal tools & Cutlery Pakistan 1694 1.8 778

All Products Pakistan 24614 1554 594893

Animals, Vegetable fats

India

956

6.2

6748

and oils

Sea food India 85 0.1 79

All Products India 289565 12932 594893

Carpets & Textile Nepal 96 0.1 112

Work of Art & Antiques Nepal 11 0.2 25

468 Potential for Enhancing Intra-SAARC Trade: A Brief Analysis, Indian Exim Bank Working Paper 31, (June, 2014). Also see Akram, Munir. “China-US: Shaping the Future”, Daily Dawn (12 November 2017).

162

All Products Nepal 622 309 594893

Meat & Seafood Maldives 14 0.01 62

All Products Maldives 162 14 594893

Oil seed, Fruits, Grains, Afghanistan 21 1 1182

Coffee, tea & spices Afghanistan 54 1.3 1137

All Products Afghanistan 429 314.8 594893

Table 6.3: State of SAARC Intraregional Trade (Challenges, Opportunities)

Source: Working Paper No 31, Exim Bank of India (2014).

If we carefully study Table 6.3 above, it comes to light that the same raw material

is being imported by SAARC states from outside the region. The result is that, while huge

potential of bilateral trade exists within the region in terms of paying less transportation

cost, man-hour effort and time-period for the same raw material, yet it is being imported

from extra-regional countries. For example; Bangladesh, Sri Lanka, Pakistan, India, Nepal

and Afghanistan are importing products worth $594.893 billion from around the world by

paying more cost, while these states are exporting the same types of products worth

$489.304 billion outside the SAARC region. Paradoxically intra-SAARC trade of the same

items is only $16.6878 billion. It means that while SAARC countries have potential to

trade for $489.304 billion yet their intra SAARC trade hardly adds up to $16.6878 billion.

This state is bound to improve if China forms part of a prospective SAEU/SAEA with

definitive treaties. Whereas the quantitative analysis is a reflection of the self-created

challenges that South Asia faces due to multifarious factors, amply discussed in Chapter

Three, it also confirms study conclusions about the enormous opportunities and potential

for achieving a higher growth rate through setting up a SAEU/SAEA.

The data contained in Table 6.3 also negates the generally held view that SAARC

countries lack potential to trade amongst themselves due to lack of complementarities

and economies of scale. In fact, if the above data is interpreted in the backdrop of

conclusions of economic or logistic corridors, transportation cost, geographical proximity,

efficient customs mechanism, minimum tariff leading to comparative trade advantage and

economies of scale, it become only too obvious to claim that formation of SAEU/SAEA

with China‟s membership and CPEC success can be most profitable for all members of

Greater South Asia.

6.2 Empirical Results of SAEU/SAEA Interdependence with China

The above bar charts in Figures6.3, 6.4, 6.5showing SAARC-China bilateral trade

and Table6.3 confirm that exponential rise in intraregional as well as bilateral trade

between China and SAARC countries can be achieved within a SAEU/SAEA even without

China – also indicated as per IIT Vision, discussed in previous section. However, if China

with its huge investment capital and infrastructure development capacity joins SAARC, it

is most likely to further enhance regional trade and economic interdependence thus

securing an even higher growth rate, commensurately reducing poverty among the

member states of prospective SAEU/SAEA. For example despite the fact that India‟s

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trade deficit with China increased to $52.69 billion in 2015-16 compared to $48.48 billion

in 2014-15, its bilateral trade with China alone, grew from $2.94 billion in 2003 to $ 71

billion according to Exim Bank Report-2014 and close to $100 billion in 2017-18 as per Mr

Munir Akram.469 Moreover, according to a comprehensive study by Price Waterhouse

Coopers Forecasting – Investors Guide 2018, China will import $10 trillion worth of goods

and invest $500 billion overseas in coming years. Clearly, it indicates that potential to

trade through an economic union in South Asia is huge but SAARC states particularly;

India-Pakistan‟s perpetual acrimony and mutual mistrust has resulted into an impasse.

With China, now declared as the second most powerful world economy; poised to

surpass US by 2030, 470 it evident that if it joins SAARC, together with India, formation of

SAEU/SAEA can become one of the most successful and sustainable model of regional

economic integration. Thus, the current growth rates of China, India and, indeed all the

SAARC states can be substantially enhanced. Importantly, this conclusion has also been

affirmed as per World Bank‟s Report-2014. The report proves that with rising trade and

GDP led growth, poverty in all SAARC states commensurately declined in the past and

will further reduce with visible improvements in Purchasing Power Parity (PPP). 471

One of the main manifestations of economic interdependence and least likelihood

of conflict between China and India was seen in the reluctance shown by both countries

to escalate tensions during the Sikkim-Doklam border stand-off in October 2017, which

was quickly put off without further political and economic ramifications. The second

episode was witnessed in April 2018 when Indian Prime Minister, Mr Modi personally

requested Chinese President, Mr Xi Jinping to meet one on one only to declare that all

border issues would be peacefully settled to continue trade and commerce relations.

Such is the value of growing bilateral trade among the increasingly interdependent South

Asian states on China. It may be recalled that bilateral trade between India and remaining

SAARC states is equally sensitive as India has a trade surplus with almost all other

countries in the region. However, the rise in bilateral trade and growth of economic

development is not without the concerns shown by US and India. Indian leaders and

governmental officials have claimed that SAARC states‟ dependence is strengthening

China‟s political influence into the sublevel systems of South Asian countries at the cost

of ignoring or lessening their reliance on India. This fact was also affirmed by an Indian

writer Lath Jishnu. 472 Can these politico-economic opportunities be capitalised by China

for shoring up Indian political reconciliation to join CPEC and form a SAEU/SAEA; sure

yes, provided Indian leadership relegates their self-centred interests, egoism and rent-

seeking mind-set over the larger benefit for their general masses! Hence, India‟s policy

choices to either prefer regional reconciliation approach for securing the interest of its

teetering millions or chose to play US proxy against China‟s inevitable rise will decide the

future of SAEU/SAEA.

469 Potential for Enhancing Intra-SAARC Trade: A Brief Analysis, Indian Exim Bank Working Paper 31, (June, 2014). Also see Akram,

Munir. “China-US: Shaping the Future”, Daily Dawn (12 November 2017). 470 See footnote 7. 471 This analysis is primarily contingent upon the living standards, an indication of economic prosperity in various countries during a specific period of time. The prosperity is measured by Purchasing Power Parity, which according to an economic theory corresponds to currencies in various countries that can purchase a basket of items used in daily life. 472 See footnote 276.

164

Whether China joining SAARC can reinvigorate and transform it into a more

productive and a vibrant bloc (like; SAEU/SAEA), has been evaluated quantitively by a

credible study of Global Business Review-2015.473 The study explored factors for

economic viability of China‟s inclusion and its commensurate impact on poverty and

inequality. For a faster econonomic integration of SAARC, value of China as a catalyst

was examined by testing the Convergence of Gross Domestic Product (GDP) per capita

using Sigma and unconditional Beta Convergence for 41 years, between 1970–2011. The

empirical results show the convergence of GDP Per Capita. With China on board the

SAARC, probability of economic cooperation accelerates with the higher rate of

convergence of GDP Per Capita. The possibility of a greater economic cooperation has

also been measured only for SAARC countries. For testing convergence in SAARC-only

scenario, social scientists conducted analysis using Sigma, absolute Beta and conditional

Beta Convergence.

Shabari Paul Dey quoted that Kolluru and Rao in 2012 examined the growth

experience of the four East Asian economies; Hong Kong, Korea, Singapore and Taiwan,

and three members of the ASEAN; Indonesia, Malaysia and Thailand. The study found

that with rising intraregional trade many economies experienced reduction in the levels of

poverty and inequalities. Monfort during 2008 conducted a study on the convergence of

EU regions by using the method of Sigma and Beta Convergence. Monfort and his team

observed a stronger convergence using the same variables in EU regions, which became

more interdependent. In another significant study conducted by Khorshed Chowdhury, he

examined per capita GDP growth in most but 7 South Asian countries, Sigma

Convergence, absolute and conditional Beta Convergence. 474 This study also found that

economic integration can play a very significant role in the development and integration

within the SAARC region.

With reference to the findings of Robert Gilpin and David Ricardo‟s475 on „New

Economic Theories (NET), economic integration plays an important role in economic

growth and development of South Asian regional countries. The above studies also affirm

that the creation of a newly enlarged market (like for example SAEU/SAEA with China as

a member) will allow better use of Economies of Scale with a lasting positive effect on

economic growth in terms of GDP Per Capita. The feasibility of better economic

cooperation can also be ascertained from the convergence characteristics of GDP Per

Capita across various other states. The UNCTAD on July 1st 2012 conducted an exercise

to conclude that among all the Asian countries, India and China have dominated

international and regional trade. The graph indicates that the bilateral trade in 2002–

03rose from $2.94 billion to approximately $100 billion in 2017476 and is still growing. In

case China joins SAARC as a member of SAEU/SAEA, it will lead to further consolidation

473 Shabari Paul Dey and Shabari Paul Dey, “Testing Sigma and Unconditional Beta Convergence of GDP for SAARC Countries: Can

Inclusion of China Further Consolidate the Convergence”, Doctoral Research Scholar Department of Humanities and Social Sciences,

National Institute of Technology Agartala, Tripura, India (September 21, 2015).

474 Khorshed Chowdhury, “Convergence of Per Capita GDP in South Asia” University of Wollongong, Australia. International Journal of

Applied Business and Economic Research, 3 (2), pp133-150, (2005). For detailed study of analysing the Beta Convergence to monitor Convergence in Per Capita GDP, refer to these links:http://journals.sagepub.com/doi/abs/10.1177/0972150915591643. http://ro.uow.edu.au/commpapers/2914/. 475 See footnote 346. 476 See footnote 6.

165

of the economic cooperation and development in South Asia. Not only it will

commensurately alleviate poverty and reduce inequality among the member states but

will also enhance SAEU/SAEA‟s strategic status at the international and global levels.

6.2.1 Regression Analysis and Qualitative Results (Beta (b) Convergence) –

The most simplified concept of convergence prevailing in the theory of economic

growth across the countries (Barro & Sala-I-Martin, 1991, 1997) is absolute or

unconditional Beta (b) Convergence. The existence of absolute b convergence is tested

by estimating cross-sectional regression of annual average growth rate of GDP Per

Capita at the initial level of GDP Per Capita. The test for absolute beta convergence

needs estimation of the following regression equation:

Gi,t,t T =a+b ln (Yi,t T)+*i,t - - (1) - Where, Gi, t, t–T is the ith regions annual

average growth rate of GDP per capita between the period t and t − T. T is the total length

of the period.

Using the above method, the quantitative analysis of Global Business Review in

2015 tested the Sigma and unconditional Beta Convergence of GDP for SAARC countries

with and without the inclusion of China. It was found that the absolute Beta Convergence

exists if the poorer regions tend to grow faster than the richer ones to catch up in GDP

Per Capita. Sigma convergence occurs if the dispersion declines over time. Generally,

convergence of Beta countries (poor countries tending to grow faster than richer

countries) cause convergence of Sigma countries (reduced dispersion of per capita

income or GDP). This dispersion is measured by Coefficient of Variation (CV) using Gini

Coefficient, which determines inequality among a group of regional countries. The result

of the study indicates that the rate of convergence in South Asia is quite high in the post-

cooperation periods than in the pre-cooperation periods. The study also concluded that

SAARC countries can converge economically to affect positive integration leading to

formation of SAEU/SAEA if China is considered part of GSA:-

Table 6.4: Coefficient of Variations of GDP per capita Including China (1970-2011)

Source: Computed from the data collected from: file://G:/EconStats%20%20GDP%20per%20capita.%current%prices20%20

%20IMF%20World%20Economic%20Outlook.

htm.

166

Table 6.5: GINI Values of GDP per Capita (Including China) During 1970-2011. Source: Computed from the data collected from:

file:/EconStats%20%20GDP%20per%20capita.%current%prices20%20%20IMF%20World%20Economic%20Outlook.htm.

As can be seen in the graphs below, the convergence probability with China on board

a prospective SAEU becomes high (shown in blue curve) compared to a scenario without

China (shown in red curve) being part of SAARC or prospective SAEU .

Figure 6.5 Coefficient of Variation of GDP Per Capita with and without China

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Figure 6.6GINI Value of GDP Per Capita with and without China

6.3 Validation of Hypothesis of the Study

The main conclusion of the study i.e. when China is taken as member of the SAARC

together with CPEC, the overall economic growth is multiplied and, commensurately the

poverty levels go down, has been corroborated through multiple studies and their results,

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discussed above. As can be seen in tables and graphs; both Coefficient of Variations (CV) of

GDP Per Capita as well as the GNI values of GDP Per Capita are reducing since the 1970‟s

right up to 2011 commensurate to the rising growth of trade in the region especially; once,

China is taken as part of the SAARC region! It means if China becomes member of SAARC

(or prospective SAEU/SAEA) then the overall growth of the region will substantially increase

because of the higher differential rate in the level of individual countries‟ growth. If we apply

conclusions yielded by analysis of economic and logistic corridors in South Asia, discussed

above, the critical significance of China‟s CPEC becomes evident. Thus if China is part of

SAARC and the flagship project of CPEC is successfully completed then regional economic

growth can be a force-multiplier in formation of SAEU/SAEA. Thus inclusion of China will

bring in synergy in economies of scale, regional trade complementarities leading to

comparative advantage with EU or ASEAN. For example, an ideal state of

complementarities and economies of scale can be achieved among the LDCs; Bangladesh-

Nepal-Bhutan to mid-level growth countries, Pakistan-Sri Lanka-Maldives and top level

growth countries of China and India respectively. It also confirms the earlier assumptions of

the study that poorer regions with integrated communities tend to grow faster than the richer

ones to catch up in GDP Per Capita. If China join SAARC, then poorer countries can grow

faster than the richer countries with expanded dispersion of per capita income, which is

measured by CV using Gini coefficient. Secondly, the study conclusions also point-out that

SAARC countries, with China as its integral part, will converge faster towards economic

integration leading to formation of a SAEU/SAEA.

History has proved that international resolution of disputes among states are

anchored on developing their economic interdependence while simultaneously reducing

economic vulnerabilities and sensitivities producing positive Spill-over effects. Secondly,

another lesson from Chapter Three of the thesis is that irrespective of their past, states have

ultimately come to embrace mutual interdependence resulting in their economic

development. For example, we found that despite the fact Germany and France twice went

to war over mutually contested territory of Alsace-Loraine during the first half of 20th century,

they became the main driers of regional economic and political integration in Europe and,

continue to sustain it even today. Thus wars in Europe continued until political leaders and

people in both these states realised that territory grabbing approach using military means

can never bring peace, economic development and prosperity.

In the post WW-II period, US helped create enabling environment through Marshall

Plan that changed the perspective of European leaders and people who ultimately preferred

economic integration rather than confrontation. Confidence Building Measures (CBMs),

resource sharing and joint administration of disputed territories coupled with the initiation of

economic interdependence eventually gave confidence to political leaders for making

concessions without being termed as traitors. Perhaps similar approach should be adopted

by leaders of South Asia in particular India-Pakistan. Can such a model be replicated with

Chinese OBOR (BRI) and CPEC acting as South Asian Marshall Plan? Can both sides of

Kashmir region (as FTZ) be linked to CAS in accordance with the political will of the peoples

of South Asia, as also expressed by Pundit Jawaharlal Nehru in 1952? Presently, a deep

desire within Indian Occupied Kashmir (IOK) and, a popular support on both sides to join

CPEC and open links with China and Central Asian regions exists. Even the puppet

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government of IOK has given go ahead to becoming part of CPEC. 477 Thus CPEC, besides

offering a chance for permanent solution of Kashmir also provides face-saving to India-

Pakistan in addition to ameliorating the domestic political Spill-over in all SAARC states.

Having dealt with some of the hard-core issues about formation of prospective

SAEU/SAEA, let us now delve on a few important and connected issues like; myths and

realities about SAARC‟s impasse, interplay of strategic goals and objectives of the key

regional states and the institutional arrangement for successful functioning of the

prospective economic union in South Asia with China as its member. These issues are

equally important for readers to supplement the previously concluded hard-core issues of

SAEU/SAEA.

6.4 Myths and Realities of SAARC‟s Prolonged Impasse

In the intellectual circles, there is a common cliché that South Asia or SAARC suffers

from identity crisis, which is considered the primary reason for not being able to integrate

into a cohesive regional economic bloc like the EU or ASEAN. For example; Harris Khalique,

in one of his diatribes argues that apart from geographical proximity South Asian nations

share little in common. He goes on to claim that there is hardly a commonality of cultural

values and civilizational links to transform the South Asians‟ ethnic, linguistic, cultural and

religious diversities witnessed in their individual nationalism into a regional bond of economic

and political cooperation. 478 Contrary to Mr Rana‟s perception, Asad Ali Khan in his article

“A Temporal View of Socio-political Changes in Punjab” 479 in 2009 sums up that before the

partition, South Asian peoples, regions and communities even-though comprised multiple

religions, myths, faiths, languages, traditions yet they were linked by a common civilizational

unity lasting for over two millennia.

Another myth about South Asia or SAARC is that it suffers from the lack of economies

of scale and economic as well as trade complementarities. Chapter Two has also revealed

that before the British occupation of the sub-continent, South Asia was already a major

player in world commerce and possessed a well-developed trading and financial system

when Europeans discovered it. That the subcontinent was also thriving in intraregional and

extra-regional trade especially in agricultural products and manufactured goods comprising

two-third of the World‟s GDP. 480Thus the pre-partition inhabitants thrived in intraregional

trade, facilitated by uninterrupted movement of raw materials, goods, labour and capital.

Being an economically vibrant part, the subcontinent became a big attraction for the Dutch

and the British. During the 19th century, South Asia from Gwadar to Afghanistan and on

towards Bangladesh had the most suitable road-rail and shipping infrastructure. It indicates

that the level of intraregional trade and economic interdependence in South Asia was very

high when integration of the EU was not even conceptualised. The Chapter Two also

brought out that South Asia was the most harmonised and a prosperous regions up until the

end of World War-I following which the process of dividing nations, cultures and religions

was started by the imperialist powers. While the West, Far East and South East Asia moved

477 See footnote 291. 478 Harris Khalique, “Shunning the Idea of South Asia”, The News International, February 1st, 2017. 479 See footnote 81. 480 See footnote 148&158.

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towards economic integration, South Asian states‟ and leaders opted to compete with the

false notion of developing at the cost of weaker neighbours. The current BJP Government in

India still holds strong anti-Pakistan grudges and deals with its smaller neighbours like

Thucydides than being equal partners with common destiny and shared values.

The third and more common cliché is that SAARC can never move forward therefore,

it should be disbanded. Mr Harris Khalique and all such intellectuals should understand that

the idea and construct of South Asia is not an outcome of SAARC organisational success or

failure; rather, it is the other way around. Secondly, the commerce and trade are a part of

human civilisation, evolved by national leaders on behalf of general masses; these activities

do not solely define it. South Asian culture, faith, tradition, lifestyle, emotions and shared

history can actually create commonality of interests to affect economic integration provided

the leadership is willing to embrace the change of redundant mind set. The OBOR (BRI) and

CPEC with China as part of SAARC and its prospective transition to SAEU/SAEA are God

sent opportunities, which if not capitalised then the common peoples of the region, not

leaders will suffer. The sufferings of the common people of South Asia like; poverty, disease,

malnutrition and underdevelopment will continue to haunt next generations. Thus SAARC is

not ineffective because the political set-up of subcontinent are different. It is ineffective

because the South Asian leaders have not changed their mind-set and approaches to make

people centric decisions like economic integration for social development through projects

such as OBOR (BRI) and CPEC.

The fourth commonly accepted argument is about the incorrigible scope of political

reconciliation between India-Pakistan due to what is perceived by both sides as unjust

partition, of which, Kashmir has become a conundrum. Again, the historical analysis in

Chapter Three has proved that the most contentious issues in the EU and ASEAN have

either been amicably resolved or are relegated to lower precedence. For example, Mr Asad

Ali Khan reveals stark realities and break the entrenched myths about the chronic impasse

between India-Pakistan. He claims that South Asia‟s peek time was at 3000 BC when

splendid ancient cities of Harappa and Mohenjo-Daro were swanked whose inhabitants

produced agricultural as well as manufactured goods and developed trade with neighbouring

regions.481However, South Asian inhabitants and political leaders were cultivated by imperial

powers to be self-serving to develop rent-seeking relationship for shallow political and

financial gains. Consequently, India-Pakistan‟s political leaders have in stilled deep rooted

prejudice and hatred in their societies, resulting in mutually exclusive policies towards

regional economic integration. Since, poverty and illiteracy generate social insecurity,

therefore, the subcontinent leaders kept the common masses subservient by manipulation

for status-quo to realise the irrent-seeking and egocentric aims and objectives. Hence, it is

not the SAAAR but its leadership, particularly in India-Pakistan, which is the main reason of

its impasse since the last 70 years or so.

To substantiate Mr Asad Ali Khan‟s findings, Gowher Rizvi traced the seeds of India-

Pakistan discord to the unimaginative division of an erstwhile synergised political and

economic hubs of Punjab and Bengal in the subcontinent. 482 According to him the rivalry

481 See footnote 52. 482 See footnote 180.

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between India-Pakistan has been built into the political structures of the two countries.

Hence, the aristocratic rent-seeking elite manages to protect own interests through selfish

and myopic policies to sustain simmering India-Pakistan acrimony. According to Gowher

Rizvi, South Asian region had all the ingredients to be integrated into a very productive

economic block483 like the EU or ASEAN. Even the regions outside subcontinent were

indirectly integrated with the whole of sub-continent namely; Sri Lanka, parts of NWFP,

Federally Administered Tribal Areas (FATA) of Pakistan on to Afghanistan right up to CAS

connecting Eastern regions like; Nepal, Bhutan and Maldives.

By now, it may have been realised that there are more myths than realities about a

generally perceived and actually held potential in SAARC region. Secondly, it is the lack of

political will to harmonise policies for an integrated economic development approach in

South Asia in particular; by India-Pakistan.

Let us now turn towards another dichotomy in the stated national goals and objective

vis-a-vis the policy preferences vis-à-vis the displayed behaviour in mutual relations among

SAARC nations especially; India-Pakistan. China case is specially being included in the

analysis to contrast variations in their actions and objectives being pursued by the key

regional states.

6.5 Interplay of Strategic Goals of the Key Regional States

The challenges of SAARC not only stem from the regions‟ chequered history as

explained in the last discussion but these are also the creation of individual nations‟ strategic

aims and objectives; in particular, India-Pakistan. For example, Indian national objective is to

become a major world power for which it is forging international alliances with the West

particularly, USA and Europe. India is also aggressively pursuing to join international forums

like the Permanent Member of UN Security Council and Nuclear Suppliers Group, which is

contested by both China and Pakistan along with other countries. Moreover, for India to

concede her regional sovereign political and economic authority at the cost of gaining

international ascendency is contingent upon China‟s stance. More-over unless India is

physically connected with the main silk route under OBOR (BRI) to which CPEC is a part, it

will not be able to meet its growing infrastructural, energy and socio-economic needs to fulfil

her national aims and objectives.

Contrary to above, India plays China card to gain US and Europe‟s diplomatic

support in return for a proxy role to contain China. The current Modi Government is leaping

forward to assume such a role, a strategy which is antithesis to the basic tenants of all-

inclusive regional development. Pakistan‟s primary national objective is to maintain its

integrity and independence in political, security and economic decision making in line with its

own national interest. This comes into direct clash with her big brother India since amongst

all the SAARC nations, Pakistan is considered as a main obstacle, always challenging

Indian hegemony within and outside the sphere of SAARC. Pakistan‟s status of a nuclear

capable nation has given it the required space to claim honourable treatment. A chequered

India-Pakistan history spanning three main wars with bitter memories of Indian sponsored

East Pakistan separation presents a very complex picture at the regional level. Add to this

483 Ibid.

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the South Asian typical culture and structural inadequacies with varied state of national

development amongst SAARC, which makes the picture murkier and adds uncertainty to its

prospective future as a SAEU/SAEA.

One of the main national strategic goals of Chinais to acquire comprehensive national

power. Her grand strategy is to associate and transcend the US and Asian rivals for regional

primacy by maintaining internal order, sustain high economic growth, pacify the periphery

and cement international status. 484 Chinese President Mr Xi Jinping on 24-25 October 2013,

as General Secretary at Beijing affirmed that China must maintain a stable external

environment, conducive to domestic economic reform and growth. To achieve this goal, Xi

said, „China must strive to make its neighbours friendlier in politics, economically more

closely tied, and have deeper security cooperation and closer people to people ties. The

neighbouring countries should feel safe and seek help from China to further develop them.‟

According to Chinese think tank, its three core security objectives in Asia are; exerting

control over its near Seas, defending and advancing Chinese sovereignty claims and

Regional Economic Integration. Chinese foreign policy goals for Pakistan are geared to see

a prospering, peaceful, secure Pakistan, which should politically and economically

complement China‟s objectives and be its mole among the rich Islamic world. 485

India wishes to build and strengthen its global image, commensurate with its size,

population and the strength of its economy. It espouses the ideals of democracy, secularism

and peaceful co-existence. But these aspirations are challenged by a large population;

ethnic, religious and federal-state differences; food, water and energy security concerns.

Nonetheless, India wants to sustain the current economic growth and achieve great power

status. Strategically, it wants to be the pre-eminent power in South Asia, obtain a permanent

seat on the UNSC commensurate with its great power ambitions and emerge as the

dominant Indian Ocean power. India also aims that China doesn‟t have a strategic foothold

in the region to gain control over Indian Ocean choke points. With regards to Pakistan, India

wants to constrain its ability to challenge her national interests, maintain current policy

towards Kashmir and manage potential water security challenges. For remaining SAARC

states India aims to restrict China‟s growing influence in the region and prevent internal

stability from regional interferences. 486

Pakistan‟s policy objectives are mainly focused to safeguarding its own security and

eliminating the growing culture of extremism, intolerance and violence from the society

through a policy of non-interference into the affairs of other countries. The centre piece of

her foreign policy is to economically survive for sustained national development. 487

For countries to merely state their strategic goals and objectives is not enough. It is

very important to harmonise the state policies with the given goals and objectives, create

requisite structures, provide needed funds and laydown commensurate guidelines as well as

rules of business. The officially proclaimed goals and objectives of China, India and Pakistan

484 See footnote 92. 485 “China‟s Grand Strategy in Asia”- A Statement by: Bonnie S. Glaser, Senior Adviser for Asia, Freeman Chair in China Studies Centre

for Strategic and International Studies (CSIS). 486 See footnote 130. 487 Mr Sartaj Aziz, Advisor on National Security & Foreign Affairs “Strategic Vision of Pakistan‟s Foreign Policy” (2014).

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have been discussed. Let us now analyse the national goals, objectives and policies of

these key states to highlight incoherent and unintended fallout a prospective SAEU/SAEA.

6.5.1: China – The Chinese civilisation has more than 5000 years of glorious history. It has

worked hard to achieve the current international ranking as the second most developing and

biggest economy. China‟s core concern is to regain its lost civilizational pre-eminence, not at

the cost of others but by maintaining her territorial integrity, economic progress. It has

developed a reasonably stronger national defence, ensuring non-interference by western

powers and non-state actors. Starting with the philosophy of Ding Xiao Ping in 1979, i.e.

developing economic complementarities by enhancing regional and extra-regional

connectivity to secure China‟s future trade, demand for raw material and energy security.

China‟s CPEC project is crucial to reduce her vulnerability of interdiction in Malacca Strait

and South China Sea. The success of BRI also depends on successful completion of CPEC.

Her second grand objective is to invest surplus capital outside China and extend economic

sphere of influence in the neighbouring countries as well as throughout Indian Ocean. The

project is aimed to achieve a stable and an economically interdependent South Asia. It is

interesting to observe that bilateral trade of all SAARC states with China, including India, is

exponentially growing even though it enjoys trade surplus with all its neighbours.

6.5.2: India - Contrary to China‟s massive plans to integrate different continents through BRI

and South Asia by CPEC, India is following neo-realist policies and wants to achieve great

power status at the cost of smaller neighbouring states and concurrently compete with

China. Indian policies are primarily focused to dominate Indian Ocean and South Asia in

particular; Pakistan, to embrace great power status. Teachings of Chanakya488 e.g. desire

for others prosperity is the root of destruction, nothing is attainable by the truth, even a

favour done by enemy can be harmful, have greatly influenced Indian strategic thinkers and

policy makers. Thus, India doesn‟t hesitate to interfere in the affairs of neighbours‟ e.g.

military interference in Bhutan and Sri Lanka and creation of East Pakistan in 1971, 489 which

is in stark contrast to Chinese philosophy of „Peace Zones‟ and „Cooperative Economic

Prosperity‟ clearly visible in her national and strategic goals. India is falsely pursuing a

strategy of good cop bad cop on behalf of the US as proxy to the containment of China‟s

economic rise and to acquire a lead role in South Asia.

6.3: Pakistan - Pakistan‟s foreign policy vision espouses its basic need of survival without

causing any harm to neighbours or the world at large. On strategic matters related to

national security and nuclear deterrence it suffers from security-insecurity paradox. It is a

vicious cycle where Pakistan, in a bid to balance asymmetry with India, enhances its nuclear

deterrence capability to achieve parity at the strategic level but also finds space to initiate

Low Intensity Conflict (LIC) yet managing nuclear escalation in South Asia. Thus “Kargil War

is considered the epitome of this stability-instability paradox.” 490 Moreover, her stability is

threatened by the power asymmetry where India uses China‟s looming threat as casus-belli

488 Chanakya was an Indian teacher, philosopher, economist, jurist and royal advisor. He is traditionally identified as Kauṭilya or

Vishnugupta, who authored the ancient Indian political treatise, the Arthashastra. 489 Sultan M Hali, “Indian Interventions in Sri Lanka”, (March 19th, 2017) and Manoj Joshi, “Operation Cactus: India‟s Mission Impossible in the Maldives, (13 June 2016). 490 Anuj Panday, Emory University, “The Stability-Instability Paradox: The Case of the Kargil War”, Penn State Journal of

International Affairs, Fall 2011.

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to build its conventional and nuclear defence capability, which automatically translates as

insecurity for Pakistan. This cycle serves as a basis for rising defence expenditures

especially by China, India and Pakistan. In response to Indian Cold Start Doctrine (CSD);

Pakistan has been forced to develop Tactical Nuclear Weapons (TNW) and also has had to

build Second Strike capability, making it a very costly proposition. The result is that both

India and Pakistan are equipped with more nuclear arms yet feel that much more insecure.

Commensurately, China in order to secure its Sea Lanes of Communication (SLOC) had to

develop Aircraft Carriers (ACs) to counter US and Indian domination in South China Sea and

Indian Ocean respectively.

By now, it has been clearly brought out that the present political, institutional, security,

structural and socio-economic challenges facing South Asian integration challenges are the

making of rent-seeking political elite, which continue to exploit the inability of the common

people to challenge their amassed power through corruption and nepotism. Accordingly, the

rent seeking elite of South Asia adopts self-centred and elusive nationalistic policies,

disregarding the SAARC‟s collective spirit for economic development. Secondly, each

SAARC statehas a different perception of comprehensive security. Consequently, SAARC

nations particularly India-Pakistan have developed their economic and security structures

and largely depend on the extra-regional power centres like USA, EU, NSAs, MNCs and IOs

more than working for the regional integration.

The third main area pertains to the future of SAEU/SAEA and an institutional

arrangement necessary to s sustain such an economic unity. Here an earlier conclusion is

elicited, which suggested to establish a SAEU/SAEA within a regional economic cooperative

framework at least to start with. Later, as South Asian states further develop deeper intra-

regional economic relations with China as main anchor, it can then graduate towards a

comprehensive economic and political union. The succeeding paragraphs present an outline

of institutional framework for an efficient functioning of a SAEU/SAEA with China as its part.

6.6 Institutional Framework for Functioning of SAEU/SAEA

Although in the glorified pre-partition period of 17th and 18th centuries the region was

thriving in economic and trade activities, however, no institutional mechanism existed to

govern the bilateral or intraregional trade, hence no specific example can be quoted.

However, for any future integration of South Asia, two frameworks can be taken as a guide.

The ideal framework of EU based on a shared concept of sovereignty and centralised fiscal

and monetary policies or a Cooperative Institutional Mechanism adopted in „The ASEAN

Way - the Spirit to Co-exist and achieve Economic Prosperity. ASEAN Plus Three (APT) 491

offers a workable model of regional economic and political cooperation with Malaysia and

Indonesia in the lead, which in South Asia could be equated to SAARC (prospective

SAEU/SAEA) Plus One (SPO) mechanism with China as a main anchor. China has already

set in motion a multitrillion-dollar BRI to rebalance geo-economics international order for

which CPEC is a flagship project. To provide financial and an institutional support the New

Development Bank (NDB), the Silk Road Fund (SRF)and Asian Infrastructure Investment

Bank (AIIB), have been created, which might foot some pedestals of the Bretton Wood

491 ASEAN Plus Three (APT) is a forum that functions as a coordinator of co-operation between the Association of Southeast

Asian Nations and the three East Asia nations of China, Japan, and South Korea.

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institutions. 492 If China is also taken as part of South Asia, then SAARC Development Fund

(SDF) can be modified into a South Asian multilateral institution and infrastructure banking

mechanism focusing on the regional economic integration.

Donald Puchalain 1972 characterized the European system as a „Concordance

System‟493, where actors consistently harmonise their interests, compromise on differences

and reap mutual rewards from regional interactions. 494 Readers may recall the Katzenstein

“analytic eclecticism” 495 for instituting a Consociational Regional Order (CRO) framework;

marked by cultural diversity, an uneven and multipolar configuration of authority. With China

on board, SAEU/SAEA may not have a natural collective identity like the EU, but surely, it

has the capacity and will power to create a contrived and constructed sense of togetherness

like ASEAN, based on distinctive South Asian Economic Identity. Hence, a South Asian

consociation, with China as an integral part, can forge a uniquely contrived collective

economic identity and togetherness, which would be no less important in an evolving

multipolar international economic order.

Dr Selim Raihan of Bangladesh used a Gravity Modelling technique presented on the

bilateral trade and cost data of South Asian countries from 2005 to 2011 to present his

quantitative findings. 496 For instituting a SAEU mechanism, his proposals include; signing a

Mutual Recognition Agreement (MRA), allocating human and financial resources for

SAEU/SAEA Standard Organisation (SSO), improving the customs management by setting

up National Accreditation Centres (NACs) and devising a Greater South Asian Tariff

Implementation Strategy (SATIS). Dr Selim also proposed to develop a set of regulatory

principles for service sector to remove trade barriers, follow an incremental, phased and

prioritised approach for Sectoral and country coverages as well as signing of a short

movement agreement for professionals and specialised skilled manpower under a common

SAEU framework. He anticipated a revised set of treaties in Regional Investment and

Double Taxation for a common investment and FTZ with institutional regulatory frameworks

and effective regional financial networking through AIIB. The report also recommended other

institutional measures for SAEU/SAEA such as; creation of a regional supply chain, financial

integration, formalising informal border trade, energy cooperation and institutional

strengthening. Finally, Dr Selim enumerated the main elements of a SAEU like; free flow of

goods (through SAFTA), free flow of services, labour, and capital (in a common market),

efficient cross-border infrastructure (especially for energy cooperation), integration of a

regional production network, state of the art regional institutions, arranging financial

resources for regional organisations, deciding on a common external tariffs (through

customs union), harmonising economic (fiscal and monitory policies, and finally a common

currency (necessary for an economic union). Non-tariff barriers generally range from visas to

492 Dr Pervez Tahir, “CPEC and the Region” Published in The Express Tribune, September 23rd, 2016. 493 Dimitris N. Chryssochoou, “Theory and Reform in the EU”- Manchester University Press, P-34. Concordance System captures aspects

of structural, attitudinal and procedural conditions of international integration. It is free from normative, hypothetical and ideologically defined interpretations and talks of consensus formation, pragmatic politics, institutionalized compromises and cooperative behavior. Indeed this spirit is needed by nations of prospective South Asian Economic Union (SAEU/SAEA). 494 Ibid, P 387-389. 495 See footnote 140. 496 Dr Selim Raihan, “South Asian Economic Union: Challenges and Tasks Ahead”, Presented at the 7th SAARC Summit, New Delhi, (5-7

November 2014).

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transport bottlenecks, communications, banking, information exchange data and other trade

facilitation measures.

The proposals put forward by Dr Selim provided a comprehensive framework for

instituting a mechanism to manage economic integration and expansion of SAEU/SAEA.

Together with this Phase One of the ADB-2015 study, sponsored by SAARC Secretariat,

four main functions for SAEU/SAEA Secretariat could be: Market Integration (overseeing the

implementing of GSAFTA, GSATIS for trade in goods and services); meaning that it should

act as a conduce for an efficient process of economic integration to allow free movement of

factors of production(for policy coordination, promoting integration into global and regional

value chains) and Cross-border Connectivity (focusing on transport and energy, facilitating

hydro-power development as well as sharing of natural gas and other energy resources).

More importantly, SAEU/SAEA Secretariat will have to assume a more proactive role. It may

have to review the existing Charter e.g. on account of raising additional working bodies,

drafting a conflict management and resolution document as well as decision making rules.

Finally, China‟s inclusion in any future economic integration of South Asia will need a

comprehensive institutional mechanism. According to the SAARC Secretariat‟s Report-

2014, compiled by ADB, SAFTA provides an excellent structure to institute such a

mechanism as the basis for SAEU/SAEA.

6.7 Summary of Chapter Four

Chapter Four is the most important part of the thesis. Not only that it sums up all the

previous chapters, it also provides quantified judgement to verify Hypothesis‟ variables and

establish a direct link between the Research Questions and the study findings. Before

discussing the prospects and challenges of SAEU/SAEA in 21st century, the chapter builds

its case for readers to completely understand the conceptual framework and theoretical

perspective within which the study has been structured. The main theoretical lens of

Complex Interdependence. Mr Puchala‟s vision of Consociational Regional Order (CRO) 497

was considered to be most applicable paradigm towards formation of a SAEU/SAEA. For

readers who quickly want to grasp the background and develop their understanding of the

final result of the thesis hypothesis, Chapter Four offers an all but one reading opportunity.

However, for serious readers and research scholars it is recommended that the complete

thesis may be scanned to develop comprehensive understanding.

This dissertation presents a fine blend of qualitative and quantitative analysis to

discern some definite conclusions, also corroborated by various case studies. The empirical

analysis also performs regression on data to support the study hypothesis for testing its

variables. For example, independent variable of „Growing economic and trade

interdependence of SAARC states on China has been proved both quantitatively and

qualitatively. Similarly, China‟s CPEC as an intervening variable, leading to formation of a

SAEU/SAEA – a dependent variable was validated using the quantifiable and an authentic

data obtained from Exim Bank Report-2014 as well as SAARC Secretariat‟s sponsored

study of the ADB. Chapter Five also removes generally held misperceptions or myths about

SAARC‟s impasse and its potential to transform into a SAEU/SAEA. Such perceptions are

497 See footnote 133.

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spread by novice scholars who put the onus of success on South Asian nations‟ multicultural

identity, geography or the SAARC itself and not on the political and rent-seeking elite of the

subcontinent. More importantly, Chapter Three reveals that the sub-continent before the

partition was thriving on account of intra-regional trade in both agricultural and non-

agricultural products with the overall proportion of 7:34. 498This data provides a basis and

hope for the prospective formation of SAEU/SAEA particularly once seen in the backdrop of

SAEU/SAEA.

The vision and subject of SAEU/SAEA is relatively new, however, inclusion of China

in this prospective organization as its member and role of CPEC is an altogether a new topic

of research. In such a vision, China‟s CPEC is considered as a real game-changer towards

formation of a SAEU/SAEA. Chapter Five has also presented a unique solution to the

Kashmir conundrum by proposing to declare both sides (under India-Pakistan control) as

FTZ. This Kashmir solution will provide an opening to its people with the outside world and

link the EWC with CPEC and CAS through Afghanistan.

India‟s „Political Reconciliation ‟has been comprehensively validated through

discourse analysis of the statements by IHK political leadership, civil society and Indian

mainland states‟ leaders, heads of business communities, foreign office officials and

academia. The measure of Indian political will is judged from perception of their leaders

about the regional economic cooperation and interdependence. It is reflected by Indian

policy makers ‟issue based support, the salience of an issue in the eyes of policy-makers as

well as those responsible to feed the decision makers, print as well as electronic media.

6.8 Specific Areas for Future Study

In the introductory part of this dissertation, the scope was clearly laid-out to establish

the parameters and limits within which this study was to be completed. However, during the

course of there search, some new dimensions have been brought out, which were either

briefly covered or required deeper inquiry. It may be recalled that this study provides a broad

basis in the form of a comparative workout. However, the subsequent scholars may be

required to build on it and undertake detailed study on following areas:-

6.8.1 Forming a West Asian Economic Union/Association WAEU/WAEA without

India: Comprising China-Pakistan-Afghanistan-Iran-Turkey and Central Asian

States (CAS)?

6.8.2 Quantitative Analysis of Economies of Scale and Comparative Advantage of

CPEC in formation of SAEU/SAEA within Greater South Asia (GSA)?

6.8.3 Role of China‟s OBOR (BRI) and CPEC in resolving Kashmir Conundrum

through Formation of SAEU/SAEA?

498 See footnote 3 & 52.

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6.9: Summary of Previous Chapters

Chapter Six has so far vindicated, validated and confirmed the dissertation

Hypothesis‟ Variables. Before giving conclusions of this study, the succeeding paragraphs

summarise each the previous chapters.

6.9.1 Chapter One: Regionalism, Interdependence and Integration

The terms like; regionalism, interdependence and integration in the literature are

being used profusely due to non-agreement and variation of understanding among various

scholars. Coincidently, the focus of this dissertation also revolves around these loosely held

concepts and processes. It is therefore, necessary to provide comprehensive yet a standard

conception of these concepts for better comprehension of the results owards the end of this

dissertation.

The discussion in this chapter discerns that the generic term of regionalism mean

something in common within a particular region. 499Such an understanding can be reached

by referring to the concept of region-hood: which distinguishes a region from a non-region.

500 However, a classical definition of a macro-region by Joseph S. Nye describe it as „a

limited number of states linked together by a geographical relationship and by a degree of

mutual interdependence‟.501Therefore, he distinguishes between political integration (the

formation of a transnational political system), economic integration (the formation of a

transnational economy) and social integration (the formation of a Transnational society). 502

The chapter also explains that the Regional exterior physiognomies can be compared to

internal characteristics. 503 Additionally, a region may have a Geographical, Cultural or

Economic and Developmental identity. For uniformity, we might understand Greater South

Asia (GSA) as China plus SAARC region developing a typical Economic and Developmental

identity.

It was brought out that as per Lamb rate, the essential characteristic of a region refer

mainly to the existence of most of the common characteristics of demography and

geography.504 Hence, alternatively a region may have minimum possible level of

interdependence, 505 a complex of security community506 regional integration course, 507

regional clusters approach508 an optimum area. 509 It is important to note that none of these

definitions refer to sovereignty and do not essentially rely on any of the pre-conditions at the

regional level. This aspect can be used as a broader framework for conducting any kind of

comparative analysis among the EU, Greater South Asia and ASEAN.

499 See footnote 25. 500 See footnote 26. 501 Joseph S. Nye, Peace in Parts. Integration and Conflict in Regional Organization (Boston: Little, Brown and Company, 502 Ibid, pp. 26–7. 503 Ibid. 504 See footnote 26. 505 Karl W. Deutsch, “Political Community and the North Atlantic Area: International Organization in the Light of Historical Experience” (1957). 506 Barry Buzan, “People, States and Fear: An Agenda for International Security Studies in the Post-Cold War Era”, (Cambridge University Press, 2003). 507 David A. Lake and Patrick M. Morgan, “Regional Orders. Building Security in a New World” (1997). 508 Rodrigo Tavares, “Understanding Regional Peace and Security. A Framework for Analysis” (2008), pp. 107–27. 509 Robert A. Mundell, “A Theory of Optimum Currency Areas”, American Economic Review, 51:4(1961), pp. 509–17.

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The chapter highlights that regional economic integration mainly depend on the

theme, which is in this case is Greater South Asia - GSA and secondly, on the research

question (for example; formation of SAEU or SAEA with interdependence on China‟s

CPEC). 510 Bjorn Hettne and Fredrik Soderbaum illustrate the importance of geography and

geographic contiguity over social processes by making reference to the Free Trade Area of

the Americas (FTAA), the enlargement of the European Union (EU) as well as the African

Union (AU) and the continent-wide economic and political framework proposed in the New

Partnership for Africa's Development (NEPAD) as the modus operandi of the new

regionalism. 511 However, in 21st century, the nature of regionalism has shifted from counting

the hard factors of common endowment to a soft or an informal format accounting for a wide

variety of actors and International Organisations who began to operate within as well as

beyond state-led institutional frameworks.

6.9.2 Chapter Two: Conceptual Framework and Theoretical Perspective

In this chapter, foundational structure of the research by way of research proposal

has been laid-out to raise the core research questions. The conceptual framework for

SAARC‟s prospective transition to SAEU/SAEA and theoretical perspectives is envisioned

through catalytic role of China as well as its epic flagship project; CPEC, within the

framework of neoliberal paradigm of Complex Interdependence. This framework has been

set to argue as to why the role of Complex Interdependence culminating in regional

economic integration is so critical for transition of SAARC into SAEU/SAEA especially; with

China on board. Within this conceptual framework, South Asian states‟ socio-economic

imperative is ultimately seen as a contributing factor. Formation of a SAEU/SAEA has been

associated to comprehensive security rather than focussing on traditional narrow concept,

based on a stereotype threat matrix within Greater South Asia (GSA). The framework has

also identified the need to capitalise the opportunity created by a fiercely competitive global

economic environment of protectionism. This explains the manifestation for China-India to

play the same role as did France and Germany in the EU and Indonesia-Malaysia in

ASEAN. Robert Keohane, Joseph S Nye and Richard N. Cooper fulfil this vision through

„Theory of Regional Interdependence‟ as a result of Complex Interdependence.

6.9.3 Chapter Three: Impact of Historical Legacies on South Asia

Besides discerning the impact of historical legacies on South Asia, this chapter mainly

explores the state of South Asian Regional Economic Integration (REI) prior, during and in

the post partition periods. A contrast of these eras have brought-out a positive state of an

informal socio-economic integration even when there existed no formalised concept of

regional integration in the 17th century. It was revealed that due to a near perfect state of REI

prior to the British Rule, the ratio of agro-based production versus the manufactured goods

and services in the Subcontinent was 7:34. The analysis has also discovered that the

existing conundrum of SAARC states‟ typical mind-set is negatively playing upon their

decision-making processes, leading to protectionist policies. The data from survey of

SAARC States‟ political economy has clearly concluded that there exists a huge potential for

510 Ibid. 511 Zoleka V. Ndayi, “Theorising the Rise of Regionness”, Volume 33, Issue No.1 (August 20, 2006).

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REI in the SAARC region, which may be substantiated with the inclusion of China and the

epic flagship project of CPEC.

6.9.4 Chapter Four: SAARC, EU and ASEAN – A Comparison

In this chapter, SAARC‟s transition to prospective SAEU/SAEA is seen in the light of

EU‟s and ASEAN‟s historical and contemporary experiences, structures, decision-making

processes, regional identity and spirit of cooperation leading to REI. Some stark lessons

from this comparative study are that even after European deadliest continental wars, peace

through Westphalia did prevail. Even World Wars I and II couldn‟t prevent the ultimate

integration of Europe into what is today called the EU. Similar conclusions were reached

after experiencing a brutal string of insurgencies in the East Asian REI, culminating into

ASEAN. In both cases irrespective of the background, the spirit of economic cooperation

and integration brought about political harmony to achieve regional peace. The second most

glaring lesson of Chapter Three is to follow a strategy of Variable Geometrical

Interdependence (VGI) or a differentiated yet a gradual method of transforming SAARC into

a SAEU/SAEA. Linked with this is the fact that SAEU/SAEA shouldn‟t be conceived as a

political but only an economic union/association, at least to start with. ASEAN‟s guiding

principles of differentiated integration, spirit to co-exist together with an institutional way,

which has to be emulated in forming SAEU/SAEA. The role of China and India has also

been evaluated in the backdrop of the REI role, played by Germany-France in the EU and

Indonesia-Malaysia in ASEAN. A unifying role of Germany and France in EU and, the big

brothers character of Indonesia-Malaysiain ASEAN as well as the remarkable political

reconciliation between North and South Korea (during 2018) are the key features for aspiring

formation of SAEU/SAEA. The chapter concludes that such a role can be emulated jointly by

China-India in building the much needed trust by developing economic and logistic

infrastructures, leading to formation of a SAEU/SAEA. Some early signs of such a spirit were

seen in Indian Prime Minister, „Mr Modi‟s‟ personal initiative to meet China‟s President Xi

Jinping in late April 2018, ahead of Shanghai Cooperation Organisation (SCO) Summit.

6.9.5 Chapter Five: Prospects and Challenges of SAEU/SAEA

This chapter culminates the entire study and validates Hypothesis variables based on

the quantitative and qualitative analysis. The chapter, systematically and logically proves

that unique opportunities and drivers for South Asian REI are now available by way of

China‟s OBOR-BRI and CPEC as a function of interdependence with China. It highlights that

Indian policies based on neorealist and zero sum mind-set have kept the region from

economic prosperity, integration and development for more than 70 years. It also proves that

the growing SAARC states‟ trade and economic interdependence with China can

commensurately decrease the state of poverty in the region. China‟s initiative to spend more

than $75 billion for CPEC and allied projects and interlink various continents with Greater

South Asia‟s 2.64 billion people will energise the drivers like; geographical proximity, hugely

talented labour force, specialised IT and strong manufacturing skills as well as infrastructure

development programmes resulting in higher per capita income of regional economies. As

the process of REI takes roots, political solution to the Kashmir conundrum, offered by

Indian Held Kashmiri leadership to declare both sides of Kashmir as a Joint Economic Free

Zone (JEFZ) may bring the earnest peace and socio-economic development in Greater

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South Asia (GSA). It may also provide India a strategic opportunity to achieve great power

status and Afghanistan, a lasting peace and prosperity, connecting North-South Corridor

(NSC) of CPEC with the East-West Corridor (EWC) from Myanmar – Bangladesh – India –

Bhutan – China-Kashmir-Afghanistan right up to Central Asian States (CAS). The OBOR

(BRI) and CPEC projects could also ameliorate Indian stance on China‟s inclusion in the

prospective SAEU/SAEA whereby, both countries can play a leading role, as did Germany

and France in creation of EU and Indonesia-Malaysia in forming ASEAN. The Hypothesis

variables are validated by presenting regression analysis of the Case Studies, performed by

the World Business Forum in 2014, to prove that China‟s inclusion in SAARC together with

CPEC can use comparative advantage to achieve economies of scale by enhancing regional

economic interdependence. The rising interdependence of SAARC States with China and

CPEC will engage regional economies in a complex web of cooperation, leading to formation

of SAEU/SAEA. These findings were complemented and affirmed through both a

comprehensive survey and structured interviews with some of the key figures who have

been directly or indirectly engaged with the process of SAARC and SAFTA, CPEC as well

as formation of SAEU/SAEA.

In addition to above exercise, Game Theoretical modelling was performed, taking

China-India and India-Pakistan as the main protagonists to ascertain comparative advantage

of SAEU/SAEA over SAARC Only scenario. The comparison matrix showed relatively higher

returns if SAEU/SAEA is established with China on board. Significant returns were noticed if

both China-India and India-Pakistan willingly participate in transforming SAARC into a

prospective SAEU/SAEA.

6.10: Summary of Surveys, Interviews and Statistical Analysis

The surveys for this research have been conducted using IBM Specialised Statistical

Software, which stands for IBM-Special Package for Social Sciences acronym IBM-SPSS.

The results were fed into the prescribed data sheets as well as the main sheet for automatic

regression analysis performed by the SPSS for establishing a correlation and finding a

frequency table. The entire process has been depicted through important tables and pie

charts, attached towards the end of this study.

The sample size from the given population of subject specialists was determined by

choosing the number of observations or replicas, which were then fed in a statistical

formula.512 The population from which the sampling data was collected comprised

incumbents from SAARC Secretariat, SAARC Government officials, Foreign office

practitioners, Ambassadors, IR scholars, Think Tanks, Area Study Centres and South Asia‟s

specialists as well as representatives of Trade Unions and9members Federation of

Chamber of Commerce and Industry. The margin of error was taken as 5%, confidence level

as 95% and, the size of the population as 1000.

The expected response was approximately 85% and the recommended sample size

as 195 respondents. However, to add more authenticity to primary data, the actual sample

size was 212 of which 202 responded. Feedback proformae were dished out to diplomats,

government officials and concerned bureaucrats, senior faculty members, heads of various

512 See footnote 112.

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think tanks and research associates, scholars, university alumnae, representatives of public

and private enterprises, SAARC Secretariat officials including HE Mr Amjad Sial– the

incumbent Secretary General at the SAARC Secretariat, Kathmandu, Nepal. As per SPSS,

the outcome is in terms of an Adjusted Root Square Value, which should be around 0.1,

while for a positive relationship in correlation, the Anova Value comes to 1. In the regression

analytical table, the values without factoring in CPEC are substantially lower than when it is

accounted for. The analysis about the catalytic impact of CPEC and confirmation of the

thesis hypothesis is given in succeeding paragraphs.

The data on the subject was collected from the senior faculty members, research

scholars and students studying in various public and private sector universities. All the

questioners were self-administered and participant‟s assured the anonymity and

confidentiality of their responses. Total 202 questioners were completed and processed. The

data collected is based on Hypothesis of Dependent, Independent and Intervening variables

as given below:-

Independent Variable: The phenomenon of growing SAARC states‟ trade and economic

interdependence with China.

Dependent Variable: Formation of SAEU/SAEA is a dependent variable.

Intervening Variable: China Pakistan Economic Corridor (CPEC).

Regression analysis of the survey feedback from 202 out of the 212 respondents

using IBM Special Package for Social Sciences acronym; IBM-SPSS, yields a Mean Value

of 1.30, which corroborates that SAARC‟s transformation into a South Asian Economic

Union/Association (SAEU/SAEA) like the EU or ASEAN is socio-economically viable.

Importantly, the regression analysis of the feedback confirms that CPEC will have a catalytic

impact in formation of SAEU/SAEA particularly, if economic interdependence between China

and SAARC states continues to rise in the future. It not only confirms the cause and effect

relationship of variables but also vindicates the effectiveness of economic integration, which

was ascertained through Gravity Modelling of SAARC regional states.

All the mean values, associated with the dependent and independent variables also

indicate that formation of SAEU/SAEA will enhance political and economic leverages of

SAARC at the international forums. The available data-set also shows that almost half of the

sampling population i.e.(0.486) believes that SAEU/SAEA can play a very effective and

promising role towards overall economic uplift of South Asian region particularly in alleviation

or reduction of poverty. Similarly, analysis of respondents‟ feedback suggests that formation

of SAEU with China as a permanent member may have only 0.153 (15%) negative impact

on the existing SAARC members‟ trade but will have more benefits; asalso brought-out in

the qualitative assessment of the political economy in Chapter Two.

There were three main thrust lines of data analysis exercise; First, finding positive

or negative correlation between the Cause – growing SAARC trade and interdependence

with China; Second, the Effect – formation of SAEU/SAEA and Third, the impact of

intervening variable i.e. China‟s CPEC. The indicated Root Square and Frequency

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Values of the Regression Analysis, shown in succeeding table substantiates and supports

the study Hypothesis as well as its Conclusions:-

Variables Root Frequency

Square Value

Relationship of growing SAARC trade & economic 0.030 6.183

Interdependence with China and Transformation of

SAARC into SAEU

Relationship of growing SAARC trade & economic 0.098 10.762

Interdependence with China and Transformation of

SAARC into SAEU , with intervention of CPEC

With the intervention of CPEC, it can be seen that the Root Square value „R‟

changes from 0.030 to 0.098 i.e. by a margin of 0.068. Again, once CPEC is factored in

the given Hypothesis, the value of Frequency „F‟ jumps from 6.183 to 10.762 i.e by a

margin of 4.579B. This result confirms the catalytic impact of CPEC on the probability of

SAARC‟s transformation into a SAEU/SAEA. Similarly all the values and results point at

the significant enhancement in the state of economic development in Greater South Asia,

with the inclusion of China.

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CONCLUSIONS AND IMPLICATIONS

In the beginning of this dissertation, it was assumed that due to an economically

fierce, politically challenging and socially untenable future international and global order,

the South Asian nations will have to reconcile and adopt policy of regional cooperation as

a function of mutual interdependence. As being witnessed, the contemporary geo-political

and a fiercely competitive international economic order is slowly but surely pushing

Greater South Asia (SAARC plus China)to enter into a typical institutional arrangement of

interdependence and cooperation Spilling-over to a regional economic integration. The US

is compelling its reluctant Western European allies to reduce its budget deficit even

though, it is against the spirit of cooperation and interdependence, which is but

unavoidable. Thus, Indo-pacific nations, after the US unilateral withdrawal from the Trans-

Pacific Partnership (TPP), vowed to continue economic cooperation even without the US.

Consequently, Europe, Far East, Indo-Pacific and Greater South Asian nations (of China

plus SAARC) are now realising the importance of regionalism, interdependence,

cooperation and integration. Like the EU, North and South Korea, having realised the

inevitability of mutual cooperation are reconciling their differences after approximately 70

years‟ of artificial division. In Greater South Asia (GSA) too, Indian Prime Minister‟s one

on one meetings with Chinese President, resulted in India “unilateral declaration to

continue economic cooperation and resolve border disputes. Hence, despite US drive to

re-energise an economic cold war era, the earnest desire of states to continue economic

cooperation is a testimony of the value of interdependence even in 21st century.

The main dissertation‟s „Conceptual Framework and Theoretical Perspective‟

provides a comprehensive basis for the formation a SAEU/SAEA by evaluating the two

basic theoretical paradigms and their subsets; the neorealist and the neoliberal. It

concludes that creation of economically integrated communities due to snowballing effect

of positive Spill-over is likely to enhance Complex Interdependence among South Asian

states particularly; with the inclusion of China and the CPEC flagship project. Thus, a

conceptual framework and theoretical perspective was developed within the construct of

economicInterdependence and, intergovernmentalism experienced by the EU and ASEAN

respectively. Hence, Complex Interdependence and positive Spill-over; like an erstwhile

European concordance system, is the most suitable framework within which formation of

SAEU/SAEA within Greater South Asia (GSA - SAARC plus China) is most likely. If the

state of Complex Interdependence is built into an institutional arrangement within

SAEU/SAEA then the low politics of economic cooperation will take precedence over high

politics of using conflicts as part of state policy. The issue areas priority therefore, is

contingent on complexity of interstate, trans-governmental and transnational relations in a

globalised world. Thus within the concept of neoliberal institutionalism, the most profitable

option is„ cooperation‟ among member countries of SAEU/SAEA as a result of „Complex

Interdependence‟, Spilling-over to positively influence their domestic, regional and

international policies.

185

It is important to highlight that the basis of undertaking this dissertation was

provided initially, by a Group of Eminent Personalities (GEP) of South Asia in 1991 and,

subsequently; through a primary source of SAARC Secretariat, „The Next Steps to SAEU‟,

a preliminary study conducted by the Asian Development Bank (ADB) in 2014, which

envisions transforming the existing SAARC into an economic union like the EU. The main

contours of this vision were to be presented during the 18th SAARC Summit, which

couldn‟t be held due to SAARC‟s perennial impasse.

The dissertation Hypothesised that „Growing SAARC States‟ Trade and Economic

Interdependence with China and CPEC may result into formation of a SAEU/and, or a

SAEA‟. Importantly, the catalytic impact of CPEC within the vision of OBOR (BRI) together

with China is the key factor, which was analysed by collecting and processing requisite

data of the three variables. These were: growing trade and economic interdependence of

SAAR states with China – „independent variable‟; formation of SAEU/SAEA – „a

dependent variable‟ and; China‟s CPEC as a function of economic interdependence – „as

an intervening variable‟. For testing these variables, the main research questions were;

ascertaining the future characteristics of regionalism, interdependence, cooperation and

integration in Greater South Asia - GSA (China plus South Asia); establishing a theoretical

and conceptual framework for SAARC‟s transition into a SAEU/SAEA; comparing SAARC

with EU and ASEAN determine suitability of forming a SAEU/and, or a SAEA; evaluating

the catalytic role of CPEC as a function of complex interdependence in formation of

SAEU/SAEA and, finally; outlining the broader implications of a SAEU/SAEA, for South

Asia in general with focus on Pakistan.

The study of regions, regionalism, interdependence and integration (Chapter One)

revealed that Greater South Asia (GSA) per se, offers the most essential ingredients of

forming a viable and a sustainable economic union/association. It was concluded that the

nature and character of regionalism can be Economic, Developmental, Political and

Cultural or a mix of these. In addition to Chapter One, which set the main direction and

parameters of Conceptual as well as Theoretical Framework, the historical analysis and

conclusion about the state of socio-economic integration within subcontinent was brought

out(in Chapter Three). It claims that, although the subcontinent was an informally

integrated yet, one of the most productive regions of the world. Interestingly, South Asian

peoples, region and community, before the arrival of the British, were woven by threads

drawn from multiple religions, myths, faiths, languages, traditions linked to a common

civilisational unity lasting for over two millennia. A vital historical fact, revealed by literature

review is, that before the arrival of the British, the subcontinent constituted two third of the

world‟s GDP where the regional growth ratio of agriculture to non-agriculture (finished as

well as raw material) products was 7:34 respectively. 513 Thus, economically, an informal

integration in South Asia was existent when EU or ASEAN were not even conceptualised.

This fact, once analysed in the backdrop of China‟s CPEC and its catalytic role within

Greater South Asia (GSA) provides a sound basis on which a much stronger SAEU/SAEA

can be built.

513 See footnote 3 & 52.

186

The most glaring revelation of Chapter Three is, that not only South Asia but the

regions outside sub-continent were indirectly integrated with sub-continent namely; Sri

Lanka, parts of NWFP, Federally Administered Tribal Areas (FATA) of Pakistan right up to

Afghanistan, Nepal, Bhutan and Maldives. The discussion and analysis in Chapter Two

also pointed out a huge South Asian economic potential, also affirmed by the ADB

Working Paper-2009. 514The intra-regional trade in the South Asian region, from Kabul to

Chittagong, was as high as 19 Percent in 1948 but this figure declined to a mere 2 Percent

by 1967. Thus in South Asia, the percentage became far below the intra-regional trade in

other regions of the world such as East Asia and the Pacific; about 52 Percent, Latin

America and Caribbean; about 17 Percent and even Sub-Saharan Africaat nearly 11

Percent. 515 Regional political and economic organisations like; the EU and ASEAN also

have a high share of intraregional trade, at nearly 65 Percent and 24 Percent respectively.

Chapter Four presents a Comparative Study of SAARC (prospective SAEU/SAEA)

with EU and ASEAN. The comparison indicates that SAARC and ASEAN are no way near

equals to EU especially, with regards to regional policies, treaties, structures, economic

and political interdependence or even the spirit of regional cooperation and integration.

Since no comparable structures or executive bodies and decision-making institutions exist

in SAARC like the EU, therefore, only processes of integration and operational

experiences in EU (Brexit etc) and ASEAN (financial crisis of 1997) yield useful lessons for

the prospective SAEU . The EU‟s future, especially after the Brexit Referendum of 2016

although appears uncertain but with new US Administration looking inward to make

„America Great Again‟ and election results of France and Germany opting to stay within

the EU, Europe now has a unique window of opportunity for claiming its rightful place in

the world affairs. Nonetheless, the Brexit also brings-out a lesson for the prospective

SAEU/SAEA to prefer a flexible regional cooperative mechanism, evolving more as

„ASEAN Way‟ for regional economic integration in Greater South Asia (GSA). It was

concluded that economic hegemony of China, and rising power India were needed

towards completion of CPEC thus securing a tenable socio-economic position within

Greater South Asia and beyond.

Based on the conclusions drawn from previous chapters, Chapter Five mainly uses

qualitative analysis as well as the Game Theoretical Modelling technique to sum up the

futility of India-Pakistan and also China-India political and military rivalry in tow main

frameworks; SAEU/SAEA and SAARC Only. Consequent to the injection of OBOR (BRI)

and CPEC as a function of complex interdependence, SAARC Only framework transforms

it into a more productive and win-win outcome. This outcome is also supported by

qualitative analysis to recommend formation of SAEU/SAEA by following a strategy of

Variable Consociational Order (VCO) in which the troika of China-India-Pakistan lead the

remaining states within Greater South Asia (GSA) and beyond.

The data collected from the previous analysis and conclusions drawn from the

study are then applied to test Hypothesis variables, adopting multiple approaches (in

514 Rajiv Kumar and Manjeeta Singh, “India‟s Role in South Asia Trade and Investment Integration”- ADB Working Paper Series on

Regional Economic Integration, No 32, (July 2009). 515 World Bank Report Number (May 24, 2016).

187

Chapter Six). First, the quantitative regression analysis (performed by Gravity Modelling)

of SAARC and ASEAN regions in two different Case Studies (covering periods from 1960

to 2008 and then 1970 to 211) generated data. This data-set is used to test economic

interdependence in terms of intraregional trade flows in Greater South Asia (GSA). The

findings of this regression analysis are then pitched against the current data-set in both the

regions through a comparative study specially; by incorporating the impact of

agglomeration as a factor of CPEC as well as through Game Theoretical Model thus

corroborating the claimed Hypothesis. A discrete qualitative and quantitative analysis and

conclusions by answering Research Questions, also proved that the much bragged

SAARC‟s impasse can be liquidated by China‟s OBOR (BRI) and CPEC projects as force-

multipliers to achieve regional economic integration; thus forming a SAEU/SAEA.

Secondly, the primary data, collected through structured surveys from over 210

participants was processed by a quantitative analytical software „IBM-Special Package for

Social Sciences (SPSS)‟, which again validated the study Hypothesis. Thirdly, another

data-set, collected by interviewing some key subject specialists of SAARC (SAFTA),

China‟s CPEC and future of regional economic integration in Greater South Asia, has

been used to corroborate Hypothesis of the dissertation.

The conceptual framework concluded to use theoretical lens of „Complex

Interdependence‟ to evaluate formation of SAEU/SAEA due mainly to China‟s OBOR

(BRI) and CPEC. The positive Spill-over of both; China as a member and CPEC as

catalyst is most likely to permeate all sectors of the regional economic and domestic

political life within Greater South Asia. Thus the existing cultural diversity in this region can

be synergised through a collective „Economic Identity by way of SAEU/SAEA‟ and a

„Constructed Sense of Togetherness‟.

The historical analysis proved that from 1900 to 1947 the ratio of agriculture vs non-

agriculture manufactured and traded products in subcontinent was 7:34516, which indicates

a very high level of trade flows and production activity in South Asia. Hence, why a

prospective SAEU/SAEA wouldn‟t be more productive, especially when such studies,

employing Gravity Modelling as well as Game Theoretical Modelling, have quantitatively

and qualitatively proved the positive impact of catalysts such as China‟s CPEC and OBOR

(BRI). Consequently, positive impact of agglomeration within Greater South Asia (GSA)

can achieve a much better comparative advantage and economies of scale. Both China

and India can spear-head such a process of regional economic integration and

development as was done by France-Germany in the EU and Indonesia-Malaysia in

ASEAN.

The interplay of strategic objectives of the key Greater South Asian states; China,

India and Pakistan together with Game Theoretical Modelling analysis indicates that Indian

strategy is least likely to secure her grand design of becoming a Great Power without

being the main part of regional as well as global supply chain. Moreover, India will have to

join CPEC and BRI to be part of the prospective SAEU/SAEA for gaining permanent

membership of the coveted Nuclear Suppliers Group (NSG) and UNSC, which is vital to

516 See footnotes 3 & 52.

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become a Great Power. Comparative study of EU and ASEAN confirmed an important

lesson that even if states fight wars for as many number of years, but ultimately, their

national survival depends on mutual cooperation and interdependence within neighbours.

China‟s OBOR (BRI) and CPEC can be compared to US Marshall Plan for

reconstruction of Europe. Hence, it may be considered asan Asian Marshall Plan, which

must be joined by India, if it wants to achieve a Great Power status. Alternatively, ASEAN

Plus One, equated to SAARC (SAEU/SAEA) Plus One (SPO) mechanism can be adopted

for Greater South Asia. However, such an arrangement may not be very proficient.

Because to address the intricacies like; sovereignty in decision-making, trade surplus or

deficit and achieving economies of scale as well as comparative advantage, a mutually

obligatory and a sustainable institutional mechanism, between China and SAEU/SAEA

states is mandatory. It provides an excellent Institutional Framework for functioning of

SAEU/SAEA (SAFTA).

There exists higher probability of economic convergence amongst SAARC states

especially with the inclusion of China as also concluded by Global Business Review-2016,

which is the key finding in formation of SAEU/SAEA. 517This study together with a number

of other Case Studies518 have produced cogent analysis to substantiate the value of

economic corridors like; CPEC and, consequently critical impact of agglomeration on

higher trade flows. The report also concluded that creation of newly enlarged market (like

SAEU/SAEA) can achieve economies of scale and a higher GDP Per Capita income. This

conclusion was further substantiated by another Case Study done by Mr Khorshed

Chowdhury in 2004, „examining the GDP Per Capita income across seven South Asian

countries‟.519 Using the World Bank data, the Gravity Modelling regression analysis

affirmed that with China‟s addition in SAARC, economic integration in the prospective

SAEU/SAEA can be expeditiously achieved and sustained for a longer time-period.

In this dissertation, the vision of SAEU as conceived in SAARC‟s Secretariat study,

sponsored by ADB in 2014 has been modified by factoring in China and the epic project of

CPEC. The charter of prospective SAEU/SAEA will have to be reviewed to accommodate

China as member besides raising additional decision-making and working bodies. The

prospective Secretariat will also have to draft a comprehensive conflict management and

dispute resolution strategy. The decision-making procedure would can be revised to adopt

a majority voting system, especially on critical subjects like; macro-economics and intra-

regional trade policies, defence and security, foreign affairs, international trade and

admitting a new member into the prospective SAEU/SAEA.

Mr Mushahid Hussain Syed in one of Pakistan‟s Geo TV interviews with Mr Hamid

Mir affirmed that China‟s entry into SAARC should be viewed from the standpoint of its big

geography or periphery, which would be a force multiplier for regional economic

cooperation. India, and South Asia as a whole, is only one part of larger regional economic

focus. Much of this is also reflected in China‟s participation in a range of institutional, non-

517 See footnotes 357& 358. 518 See footnote 338. 519 See footnote 358.

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institutional and quasi-institutional international and regional organizations like SCO and

ASEAN to which prospective SAEU/SAEA shouldn‟t be an exception. Following the OBOR

(BRI) and CPEC‟s announcement by President Xi Jinping in 2013, Chinese policy has

obviously changed from looking at South Asia as an arena of balance of power politics to

embracing South Asia as hub of new strategic as well as economic opportunities. The two

countries; China as well India are now deeply concerned by a host of new challenges that

need regional not individual solutions. Challenges like; poverty, economic stability,

terrorism, border disputes, illegal trafficking, human security as well as environment are

serious enough to create a proper institutional mechanism for Greater South Asia.

The enabling conditions like BRI and CPEC, macroeconomic activities, physical

and digital connectivity, trade facilitation, economic restructuring, Science and Technology

(S&T) as well as infrastructure development by both China and India are the drivers of

change in South Asia. Thus, economic integration in South Asia could be achieved

through rapid growth convergence led by China, India and the remaining SAARC states

using the physical, cultural and digital connectivity likely to be available next door by way

of OBOR (BRI) and CPEC.

As covered in the scope of this study, it was not intended to suggest the complete

and detailed organisational structure, treaties, charter or statutes and detailed institutional

mechanism of the prospective SAEU/SAEA for which new areas for future research have

been outlined in Chapter Five. This thesis was aimed to test the feasibility of transforming

SAARC by including China and evaluate CPEC‟s catalytic impact on the formation of

SAEU/SAEA. The SAARC Secretariat study, sponsored by ADB in 2014 does not factor-in

China or CPEC nonetheless, it does provide a broader road-map of forming a

SAEU/SAEA along with a way forward. Therefore, some related facets of the SAARC

Secretariat study, taken from ADB-Report 2014, “The Next Step for SAEU” have been

modified in the succeeding paragraphs.

Main Phases of the Proposed SAEU

The SAARC Secretariat study was spread over two main phases. Phase One of the

study proposes to achieve Regional Economic Integration (REI) through four pillars;

Market integration, Cross-border connectivity, Energy cooperation and Private sector

liberalisation. Phase Two of the study on REI recommends to benefit from the lessons

learnt by EU, ASEAN and other prominent regional organizations. Drawing on this

international experience, the ADB-Report 2014gave following road-map in forming a

SAEU, albeit without China‟s CPEC:- 520

• The method is based on SAFTA agreements.

• Avoluntary principles, followed in open regionalism like; SAARC and ASEAN.

• A bottom-up market-driven approach, based on global value chains and cross‑ border

production and distribution according to the most cost and time effective locations.

520 See footnote 5.

190

• Geographically-focused programs and projects to secure cross-border connectivity

(e.g. transport corridors) and to resolve impediments to trans-boundary integration.

To implement broader steps towards formation of SAEU/SAEA, SAARC FTA Plus

model can be emulated with China as a prospective member of the union since almost all

SAARC states, including India, have growing trade and economic interdependence on

China. Special Memorandum of Understanding (MOUs) in fiscal support, transfer of

technology, infrastructure development, raw material and finished products may have to

be concluded. The success of SAEU/SAEA would primarily depend upon how SAFTA is

restructured and implemented keeping in view the inclusion of China as a member. The

rules of business including the tariff reduction by individual countries should form part of a

set of common treaties. A special mechanism for Less Developed Countries (LDCs) would

need to be worked-out. A proper action plan for harmonising custom schedules for

member countries and identification of specific priority areas for each stage of regional

economic integration would have to be quantified.

CPEC would provide a force multiplier effect to establish cross-border business and

trade activities, warranting free an unobstructed movement of factors of production. Once

the Greater South Asian region is connected through CPEC to ultimately link with OBOR

(BRI), it would bring all member states into a regional and global supply chain loop.

Similarly, if cross border trade and commerce activities in South Asia are extended to

Central and West Asian markets, then SAEU/SAEA can chalk out a road map for energy

cooperation by tapping on the national resource endowment of the hydropower and other

power generation systems of the whole region.

A special regional economic integration programme can be inbuilt into the SAFTA

(SAEU-FTA) Rules of Business. To meet the ultimate goal of regional economic

integration, (SAEU-FTA) implementation can be supported by China‟s Industrial and

Investment Bank (CIIB), BRICS, ADB and managed through SAEU/SAEA Secretariat.

Hence,(SAEU-FTA) can act as a launching pad for regional trade and commerce related

issues of higher tariff rates or barriers, mutually sensitive and sanctioned list, mechanism

to resolve trade conflicts, method of reclaiming the losses in which SAEU/SAEA

Secretariat can also play an active part to ultimately lead to the materialisation of

SAEU/SAEA.

One of the major consideration for SAARC‟s transformation into a SAEU/SAEA is

that countries of Greater South Asia have economies of scale, comparative advantage and

the cheapest raw material for manufacturing of cotton garments namely Bangladesh,

Pakistan and China. India has a strong base of ICT and Information Technology and the

whole of Greater South Asia is blessed with factors needing the best of tourism. All of

them have multiple very attractive mountainous ranges, snow-bound tops, best beaches,

multicultural demographies and historical sites. Therefore, we need to classify the

industries based on respective competitive advantages and then allocate specialized

sectors for respective SAEU/SAEA countries. This is how specialised industries can be

191

developed as complementary fields amongst SAARC or prospective SAEU/SAEA member

countries. 521

China has a huge market in steel, energy production, manufacturing goods,

strategic development projects like economic corridors, bridges, and transport as well as

communication equipment. Indian IT potential and raw material supplements and

complements Chinese capacity to force multiply the regional trade and commerce

activities.

The comparative advantage and economies of scale can be multiplied by creating

an efficient network of Regional and Global Value Chain, which is a fundamental building

block for competitiveness in the fiercely evolving contemporary international economic

order.

Besides above measures, integration of capital markets and custom rules of

business is also important. Energy development and regional economic cooperation would

be the key areas for integration for which energy resources of the member states as well

as neighbouring regions of Centre and West Asia would become very handy.

Regional integration in Greater South Asia should not be limited to trade and

investment issues alone. Other areas should also be covered e.g. investment liberalization

and finance. A second group of cooperation can be achieved through technical

cooperation and working together in provision of other areas of common interest.

The regional states should jointly work to enhance trade and economic

interdependence with other countries of Greater South Asia (GSA). Cooperation in

technology transfer, transport, infrastructure development and ICT can directly enhance

growth. Financial cooperation also contributes to growth and reduces the impact of volatile

financial markets, providing macroeconomic stability. Cooperation in research, training and

academic exchange will also help in regional development of human resources.

Implementing SAFTA in SAEU/SAEA

The prospective SAEU/SAEA member states should agree that a common agenda

to transform the region into an attractive and a highly integrated market and production

base should have clear targets and specific timelines. Full implementation of SAFTA can

be accelerated, through tariff liberalisation and by adjusting bilateral FTAs into a

comprehensive SAFTA (SAEU -FTA) mechanism. More effective progress can be made in

reducing the number of tariff lines in Sensitive Lists as well as reduction in the number of

sectors protected under the Sensitive Lists. Measures for implementation are given in

succeeding paragraphs.

Tariff Discount for Priority Sectors–Whereas reduction based on priority sectors were

previously identified along-with tariff lines, which are protected under the Sensitive Lists

521 Ibid.

192

relating to textiles, electronic equipment, iron and steel, plastic and rubber products, the

actual improvement will be registered if member countries agree on annual reduction of

tariff lines in the finalised priority sectors by Non-Least Developed Countries (NLDCs) and

LDCs.

Modifying the Tariff Structure – In the existing SAFTA mechanism, tariffs for the priority

sectors range from 5 to 50percent. The requirement is that member countries should

adopt Tariff Liberalization Programs for Sensitive Lists whereby highest tariff should be

reduced to 30 percent and for highly sensitive products, it may be reduced to 20percent.

With the addition of China in SAEU , a High Level Task Force should review the legal,

technical, institutional and administrative features of SAFTA(SAEU-FTA), identifying

changes needed to accelerate efficient implementation. The scope and jurisdiction of the

Dispute Resolution Mechanism should be strengthened by establishing a juridical authority

in SAEU/SAEA Charter, thereby providing a greater confidence that SAFTA (SAEU -FTA)

rules can be applied impartially.

Reducing or Eliminating Non-Tariff Barriers (NTBs) –Elimination of the NTBs is the

basic requirement both for improving the intra and inter-regional trade. SAARC didn‟t have

the adequate capacity to deal with core NTBs (e.g., sanitary and highest standards,

technical barriers to trade, port entry restrictions and para-tariffs), which would need to be

strengthened. The SAEU/SAEA supranational must formalise an informal mechanism like,

The ASEAN Way, to resolve regional conflicts received by their justice and law committee.

The tariff and non-tariff high barriers must be finished to increase production and export of

high end and specialised products. These NTBs harmonization measures may include;

acceptance by importing countries and spontaneous resolution of disputes. The

SAEU/SAEA Regional Standards Organisation (SRSO) can be more effective by

improving the process of accreditation and certification, expeditious acceptance of

certificates issued by competent laboratories according the international business

practices by following the laws of countries to which the finish products are being

exported. This can be achieved by adoption of automation and promoting E-commerce in

the member countries.

Amalgamation of SAFTA and Bilateral Trade Treaties – A great amount of effort would

be needed to amalgamate SAFTA (SAEU-FTA) with the bilateral trade accords within the

prospective SAEU in particular China-SAARC states‟ BITs as well as India-Sri Lanka and

Pakistan-Sri Lanka FTAs. This can be done by harmonizing the gradual reduction and

eventually eliminating any irritants for the overall implementation of SAFTA. The rules of

origin provisions can be introduced in accordance with the recommendation of SAFTA

(SAEU -FTA) rules, which would need to be aligned with bilateral FTAs tariff handling.

Such measures will reduce trade diversion by minimising the external tariffs of

SAEU/SAEA member states and narrowing the inter-country variances in their external

tariff rates.

Integrating Formal and Informal Trade – Presently, there is around 30 percent informal

trade among SAARC member countries due mainly to sensitive items listed in the

sanctioned products. Some of the artificial limitations imposed by the main GSA countries

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on especially the food items, papers and spices etc must be formalised. The trade being

done by using black money needs to be formalised to raise the regional share of intra-

regional trade volumes. With the induction of China in the prospective SAEU/SAEA

together with competition of CPEC, impediments of transportation cost, poor trade

infrastructure and transaction cost (including time) phenomenal improvements are likely to

be effective. However, simplified customs procedures, paperwork visa processes, cellular

services and courier facilities can boost formal trade to reduce informal trade by a factor of

seventy percent. A few of the additional measure can fillip the situation for better e.g.

upgrading the trade information, improved communication among exporters and importers,

amenable business environment, establishing SAEU/SAEA trade on-line networks, holding

of trade fairs and exhibitions and streamlining border security are steps towards better and

expeditious integration of SAEU/SAEA. Furthermore, the payment procedure for formal

trade transactions need to be streamlined and made very simple. Establishing cross-

border banking services for small and medium traders and businessmen can substantially

grow volume.

Facilitating Trade in Services - The SAARC (prospective SAEU/SAEA) Agreement on

Trade in Services (SATIS) can be streamlined by an agreement on investment regulations.

The regulation may include; investors‟ protection act, dispute settlement, contract

enforcement and double taxation treaties etc. Luckily China‟s CPEC can ensure

improvements in the business environment. A phased approach to liberalization of trade in

services. Bilateral and multilateral agreements (e.g. BIMSTEC) can also serve to advance

trade in services. SATIS discussions can act as trade facilitation and implementation

involving four crucial steps: first, improving information on the service sector; second,

focus regional discussions on regulatory and institutional issues critical to trade in services;

third, development of Greater South Asian economic corridors, physical infrastructure and

energy hubs with EFZs should be given priority.

Free Flow of Factors of Production – Ideally, factor of production together with use of hi-

tech IT in trade, labour and business practices will substantially boost the intraregional

trade. More importantly, SAEU/SAEA member countries should compete in the level of

skills carried by their labourers. Special measures must be taken to include areas of

travels, phasing out tariff and NTBs, training by universities, professional bodies and

research institutes as well as reducing the cost of remittances, will encourage FDIs and

enhancement in intraregional trade.

Enhancing FDIs – In order to encourage FDIs, SAEU/SAEA Secretariat should follow an

open regionalism policy. It must establish a common market, harmonise regulatory

measures and build regional supply chains as in the case of ASEAN‟s model of

investment cooperation. Accordingly, the member countries should strengthen institutional

capacity for regulating FDIs. A better policy coordination can enhance regional

cooperation to boost FDIs. SMEs should be accorded special supports. SAEU/SAEA

should also reduce the high levels of tax regimes to increase FDIs within GSA to avoid

counterproductive regional competition.

194

Value of Economic Corridors – SAEU/SAEA now has opportunity to use economic

corridors provided by OBOR (BRI) and CPEC to cooperate with ASEAN in the East and

Afghanistan-Iran-Turkey on the West. A master plan of CPEC already exists to build

economic corridors in accordance with a time-line for its completion by 2020. All in all

efficient cooperation with regional states and other global institutions is required.

Implications of China‟s CPEC on the Study Findings

China‟s growing cooperation with SAARC countries together with CPEC as a

function of interdependence is likely to bear critical national, regional and global economic

as well as security implications. These implications (positive or negative) are discussed in

the succeeding paragraphs.

For Pakistan and South Asia

The implications of China‟s OBOR (BRI) consisting of 900 infrastructure projects,

valued at about $1.3 trillion as well as CPEC flagship project estimated to spend $70

billion522 are assessed differently depending on which side of the isle you belong to. For

example; Chinese and Pakistani scholars pin highly positive hopes, Indian writers and

politicians present a mix bag, while in other capitals of SAARC countries optimistic

expectations are generally combined with caution especially; about the capital cost of

various projects and the interest rate being levied by China‟s AIIB. What-ever the views, it

is but inevitable that the overall impact of CPEC, involving Special Economic Zones (SEZ),

Industrial Parks, Energy Centres, Commercial Hubs linked with Gwadar Port, is most likely

to ignite political economy of the whole region.

One of the most significant implications of CPEC and the growing China‟s

cooperation with all the SAARC countriesis that it can be used as a means to resolve

Kashmir Conundrum. This dream can be realised by providing a secure and connectivity

from Indian Occupied Kashmir (IOK) to Pakistan (AJ&K) up to Afghanistan and onwards to

Western and Central Asian states. If North-South Corridor (NSC) i.e. CPEC is connected

to the East-West Corridor (EWC) through the IOK then China-Bhutan-Nepal-India-

Pakistan and Afghanistan would be linked to OBOR (BRI). The Island nations of Maldives

and Sri Lanka can also reach China and Central Asian States (CAS) through Gwadar Port

thus achieving comparative advantage of trade flows in terms of cost and time of

transportation. If India opts to join China‟s CPEC, then the most relishing advantage would

be the formation of SAEU/SAEA. Thus a force multiplier effect of CPEC will boost

intraregional trade only to enhance regional interdependence. Ultimately, the rising

economic interdependence due to SAEAU/SAEA can remove political obstacles to

ameliorate India‟s policy. If both sides of Kashmir are declared as Free trade Zone

(connected to CPEC), the entire Kashmir will become a trade hub changing its economic

and political outlook. Ultimately, SAEU/SAEA forum can be used to resolve Kashmir and

other contentious issues especially; between India-Pakistan.

522 S RanaKishan, “China‟s Belt and Road Initiative (BRI): Implications, Prospects & Consequences: Impact on India & its China Diplomacy”,(September 2017).

195

Within the larger vision of OBOR (BRI) mix, Afghanistan and Iran are both keen on

join CPEC thus they are unlikely to compete with China through Chabahar port. All in all,

China, India, Pakistan, and in particular; Afghanistan as well as Iran stand to benefit from

economic and security cooperation primarily afforded by CPEC.A Case Study on „Transit

and Trade Facilitation, Connecting Bangladesh-Bhutan and India‟ concluded that higher

volumes of trade alleviate poverty. Gravity Modelling, presented by Tinbergen in his South

Asian Studies has also proved several key points, 523 which were complemented by

another study; „Shaping the World Economy: Suggestions for an International Economic

Policy‟.524These studies resolve that bilateral trade between countries is directly

proportional to their Gross Domestic Products (GDP), raising the income levels and, is

inversely proportional to poverty levels. The Oxford Group Study Forum also concluded

that a 10 percent increase in a country‟s average income reduces the poverty levels

between 20 to 30 percent, which is one of the major implication for South Asia.

This study quotes, an Axim Bank Report-2014, concluding that there exists a huge

intra-regional trade potential among the South Asian countries yet they prefer to import the

same raw material on exorbitant rates incurring higher freight charges from outside the

region. It concludes that while SAARC countries have the potential to trade for $489.304

billion yet their intraregional trade hardly adds up to $16.6878 billion. Moreover, the

landlocked regions in Greater South Asia like Afghanistan, China‟s Western province, both

sides of Kashmir, Bhutan and Nepal can have direct access to the outside world. How

leadership of Greater South Asia play their part to capitalise on all these opportunities and

drivers would determine either the positive or negative impact on the future in 21st century.

As discussed earlier, the OBOR (BRI) and CPEC projects are not only about a rosy

picture for regional as well as extra-regional countries. Consider the benefits and the likely

future responses of the current and future partner nations. South Asian states are heavily

dependent upon exports to most of the developed world for which their national economic

and political infrastructure, export mechanism and protocols are accordingly geared up.

Secondly, within Greater South Asia (GSA), all the SAARC nations, including India, have

trade deficit with China. Similarly, all South Asian countries within SAARC have trade

deficit with India. Hence, if China and India are to cooperate on CPEC, both countries will

have to forego their trade surplus in favour of the remaining countries of Greater South

Asia (GSA).

Another implication for Greater South Asian region is that Chinese consumer

goods, machinery and infrastructure projects are most likely to dominate comparatively

small populations of the whole region. The export potential of the region would also be

impacted by the potential disruption wrought by Chinese products in their fragile and

traditionally low-tech economies. For example; Chinese imports will negatively impact

employment opportunities to accommodate their own growing population. The excessive

right-of-way demands by China‟s rail and road authorities can also disturb the balance of

long-term advantage and cost for the South Asian countries especially; India-Pakistan.

523 See footnote 338. 524 Rajive Kumar and Manjeeta Sing, “India’s Role in South Asia Trade and Investment Integration” – ADB Working Paper Series on

Regional Economic Integration, NO-32, (July 2009).

196

However, in case of Afghanistan, the new transport links connecting the CAS would

translate two-way proximity; which might enhance the potential economic gains for all the

regional countries. However, China together with India can also create phenomenal

capacity for much deeper trade and economic engagement for the entire region. The

transit trade through Pakistan (linking both sides of Kashmir with CPEC) and Afghanistan,

reaching up to CAS will provide a huge boost to all the regional economies.

To complete the epic project of CPEC, the bulk of the investment is in power plants

and other industrial infrastructure, besides the Gwadar port to Karakoram road and rail link

set, originally to cost about $11 billion. Most of the aid is in loans, so economic returns are

crucial. Pakistan has raised a special protection force of over 12,000 to protect over

10,000 Chinese technicians who are deployed, in strife-torn Balochistan, and other

relatively remote regions. 525 China is now by far the largest investor in the single country;

Pakistan. Hence, Beijing is totally enmeshed in Pakistan„s politics, national and regional,

on a scale that its government machinery has never experienced in the past. On a cultural

level, such intrusion in local levels may turn Pakistan into a client state. As a positive

reminder, while the Chinese CPEC projects can expeditiously fulfil the power shortages

that crippled industry and daily life across Pakistan to implement its export led policies.

Although China has experience of political paroxysms in various investment

destinations, however, circum navigating Pakistan‟s complex political landscape for

execution of CPEC projects may prove to be trickier. China has little qualm about

rapacious dealings in institutionally weak, morally compromising and democratically least

transparent countries. Nonetheless, Pakistan now has a vigilant media, an active civil

society and an astute political leadership in the shape of Prime Minister, „Imran Khan‟,

who is cognisant of deep corruption, which has permeated its society. Pakistan‟s business

and entrepreneurial elite is another challenge, who demand the balance of trade in CPEC

projects to be in their favour. Already, the local businessmen across Pakistan complain

that their markets are flooded with cheap Chinese house-hold, leather, fruits, vegetable

and even cotton yarn, in which Pakistan used to be very competitive. They also claim that

in CPEC projects‟ allocation, more generous concessions are extended to Chinese

businessmen compared to domestic or international investors. Such an impression might

keep the other international investors away to greatly impact FDIs, which are so direly

needed for Pakistan‟s nascent economy.

It is true that CPEC could help revive Pakistan‟s ailing economy, however, CPEC‟s

Long-Term Plan 2017-2030 was formulated by the previous Government of Nawaz Sharif

with little input from the provinces, local leaders, business or civil society actors.

Therefore, if it implemented without a thorough debate in the national parliament and

provincial legislatures and without consultation with locals, it may deepen friction between

the federal and provinces. The roil provinces already long neglected can actually widen

social divides and potentially create new sources of internal political conflict. IMF

assessments of March 2018 shows that Pakistan‟s repayment obligations, including the

525 S.RanaKishan, “China‟s Belt and Road Initiative (BRI): Implications, Prospects & Consequences: Impact on India & its China

Diplomacy”(September 2017).

197

payment of debts and guaranteed rates of return on equity for investors (i.e. 17 Percent for

power projects), will likely offset a significant share of FDIs and other external funding

inflows, such that the current account deficit would widen. Therefore, it warned,

„Pakistan‟s capacity to repay could deteriorate at a faster pace, with faster depletion of

foreign exchange reserves and significant implications for economic growth‟. However,

once Chinese industrial units were set up in Pakistan, instead of merely exporting raw

materials, the country could export high-value products to China to address issues such as

balance of payment and fiscal deficit etc.

An imminent implication of CPEC for South Asia in general and, Pakistan in

particular is the impact of Chinese culture to overshadow and cross-fertilise with typical

Pakistani faith-based life-style and characteristics of the common businessmen to observe

certain code of doing business. Secondly, the subcontinent has had an earlier experience

of being a British colony, which besides providing an opening to the outside world in

exporting South Asian raw material and finished goods, didn‟t augur well to benefit the

local people and industry. Similarly, the Chinese foreign investors may also start neo-

colonial exploitation of SAARC nations in particular; Pakistan, being a major ally. For

Chinese business and entrepreneurs, such a possibility is quite high owing to its ruthless

appetite to export Chinese workforce on all foreign projects. Western media, particularly

US and India is already propagating Chinese relative insularity on account of providing

loans for CPEC project implementation with high-interest rates.

Another related aspect relates to economic and financial structures of most of the

South Asian economies including Pakistan, which have tagged their currencies with US

Dollar and not with Chinese Yuan. Secondly, the South Asian countries are geared to

follow policies contingent upon a capitalist model and, not the Chinese unique system of

economic and financial capital markets. Both these factors may have political, diplomatic,

financial and entrepreneurial ramifications, particularly from the US or Western countries,

which will have to be dealt-with by all South Asian nations. Therefore, a collective macro-

economic policy for SAEU/SAEA would be needed at the level of Greater South Asia.

Related with aspects of economic development and CPEC implementation is the

subject of terrorism, which has crucial implications if not handled collectively by

SAEU/SAEA nations. The ground situation is that Pakistan, India, Afghanistan, Sri Lanka,

Bangladesh, Iran and some of the countries of Central Asia are entangled in terrorism,

which further complicates CPEC projects implementation for China, who is facing its own

ethnic and religious divisions in Xinjiang. Although SAEU/SAEA provides an excellent

platform to Greater South Asian nations to tackle the menace of terrorism, however, if the

regional countries‟ concerns are not addressed, it might complicate environment between

Greater South Asian nations especially; between China-Pakistan.

With CPEC having been already launched, there is a new trend of interregional

cooperation leading to regionalisation in South, East and Central Asia. This trend will not

only capitalise on China‟s financial capacity and the CPEC as a conduit to enhance trade

flows within South Asia and East Asia but it can also link hydrocarbon and hydel power

generation capacity of the Central Asian States (CAS). Thus, China‟s CPEC project can

198

provide a cost effective transit trade route to the CAS‟ landlocked countries, while their

huge reservoirs of hydro carbon and hydel power can be tapped to fulfil energy demands

of the SAEU/SAEA nations. A significant implication of the CPEC is that it can also meet

the transit trade and the increasing energy demands of the second biggest regional

economy like; India for whom establishing SAEU/SAEA may become an inevitable choice.

Geopolitical and Geo-economic Implications of CPEC

It is expected that China-Pakistan joint venture of CPEC will fundamentally alter the

overall geo-political and geostrategic landscape of Greater South Asia. China has the

capacity and will to capitalise enormous trade and economic potentials and remake the

regional and global opinions of states. Through infrastructural and energy projects CPEC

will employ millions of people in Greater South Asia and beyond. All the regional and

extra-regional states can benefit by advancing economic activities, increasing trade

linkages, enhancing technical cooperation, generating new financial opportunities, and

consolidating socio-cultural connectivity. However, CPEC is also likely to create

challenges from some regional and extra regional actors, who may consider it as a threat

to their own strategic interests. Nonetheless, completion of CPEC as a flagship project

may instil confidence in major regional and extra-regional powers to join China‟s grand

trans-regional connectivity vision of OBOR (BRI).

It may be realised that economic vulnerability of Pakistan is not the only implication

of CPEC leading to formation of SAEU/SAEA. New trans-Asia connectivity by way of

OBOR (BRI) and CPEC together, give China a host of Geoeconomic, Geopolitical as well

as Geostrategic alternatives to the quasi-landlocked limitation in Xinjiang Western

province, a security and psychological ascendency that cannot easily be realised in

discrete cost-benefit figures. The Indian Oceanic connectivity together with CPEC also

offers Chinese trade and supply ships, the relief from any kind of blockade of the Strait of

Malacca. Thus the epic corridor of CPEC signifies an outstanding strategic man oeuvre by

China to prevent the US and India from expanding their spheres of influence in Southeast

Asia and Indian Ocean respectively. More-over, the CPEC bears huge implications for

Sino-US strategic rivalry in Southeast Asia and Indian Ocean.

For India too, CPEC and Gwadar Port, in tandem, offer a huge opportunity to open

up its western transit trade and use Iranian Chahbahar Port as a complementary part of

Gwadar. As discussed before, if both sides of Kashmir in India-Pakistan are declared Free

Trade Zone (FTZ), it would attract regional and international investors as well as big MNCs

to use both Gwadar and Chahbahar Port, right up to Kashmir FTZ, which extend her

economic and trade outreach up to Central Asian States (CAS). It is seriously believed

that such a combined strategy can resolve the most contentious and highly sensitive

conundrum of Kashmir once and for all. An amicable resolution of Kashmir by providing

geo-economics incentives will lead to geopolitical cooperation among the regional and

extra-regional states. All these development activities can be formalised and streamlined

through an institutional framework and intergovernmental platform provided by

SAEU/SAEA within Greater South Asia (GSA) and beyond.

199

Pakistan is facing daunting economic, political and security challenges. The CPEC

offers an enormous opportunity and a force multiplier to stabilise internally, while continue

to revitalise herties with all its neighbours. As jointly envisioned by China-Pakistan, they

should make Gwadar, a regional and an international trade and an economic hub of

strategic activities. The positive implications of CPEC include the construction of roads,

railway tracks, energy pipelines, and Gwadar„s international airport, thus promising

Pakistan to become an innovative centre of excellence in science and technology, trade,

businesses and also an entertainment destination. As already eluded to; economic

development through CPEC can enhance security cooperation between China and

Pakistan to overcome challenges of terrorism, extremism, and separatism. Through

CPEC, Pakistan and China can augment their naval cooperation in the form of joint

exercises, training, and counter piracy measures at the high Seas. Such a cooperation

would also contribute towards the balance of power in Greater South Asia (GSA).

However, it might also imply that a sufficient incentive is presented to anti-Pakistan and

anti-China forces to unite against the epic join venture of CPEC.

Contingent on the successful completion of OBOR (BRI), realisation of Greater

South Asian and Asia-Europe connectivity will have positive implications. CPEC‟s putative

rail and road network is not all about China. Once operational, it will provide multiple

choices to all the countries of SAEU/SASEA that lie along these routes to trade with one

another, swap tourists and secure new business opportunities. With the establishment of

OBOR (BRI) as well as CPEC, Kazakhstan can exchange goods and visitors from

Armenia; Turkish, Polish or Hungarian companies can send container-loads of consumer

goods, machinery, and artefacts to Mongolia, without the container traversing a single

port. Thus the new economic geography can produce innovative ways of thinking and use

extended business opportunities. It may be realised that connectivity and consequential

agglomeration of multinational businesses would be a game-changer for all, even the

LDCs of Greater South Asia.

Be the CPEC only bring positive outcome, however, it may be realised that three

out of the eleven members of the prospective states of SAEU/SAEA, are nuclear powers.

Hence, there are grave regional and global security implications if the extra-regional

powers like the US, UK or Russia, in a bid to sabotage CPEC, may use regional proxies to

undermine integrating GSA region. It is most likely that Pakistan due to CPEC project can

gain high economic growth to further consolidate its nuclear capability to achieve balance

of power vis-à-vis India in South Asia. The conclusion drawn from this dissertation is that

most South Asian countries, including India, are inclined to China for economic

development and poverty reduction. Towards this end, India is most likely to join the

CPEC project for sake of reaching an understanding with China especially to garner

political and diplomatic support for her membership of NSG and UNSC. If, China, India

and Pakistan resolve their political disputes, then Greater South Asia can economically

flourish and achieve regional economic integration.However, India-US strategic

partnership may hamper India-China-Pakistan relations since the US new strategy for

Greater South Asia is to disrupt CPEC with a view to drag china‟s economic progress and

maintain her economic epitome. The US new South Asia policy is also geared up to use

200

India as proxy for strategic gains in Afghanistan, Pakistan as well as Indian Ocean. This

new orientation and strategic shift in the US objectives may have negative repercussions

for the CPEC and, consequently the prospective SAEU/SAEA in Greater South Asia

(GSA).

201

Appendix-I

SURVEYS AND REGRESSION ANALYSIS RESULTS

The surveys for this research have been conducted using IBM Specialised

Statistical Software, which stands for IBM-Special Package for Social Sciences acronym

IBM-SPSS. The results were fed into the prescribed data sheets as well as the main sheet

for automatic regression analysis performed by the SPSS for establishing a correlation

and finding a frequency table. The entire process has been depicted through important

tables and pie charts, attached towards the end of this study.

The sample size from the given population of subject specialists was determined by

choosing the number of observations or replicas, which were then fed in a statistical

formula.526 The population from which the sampling data was collected comprised

incumbents from SAARC Secretariat, SAARC Government officials, Foreign office

practitioners, Ambassadors, IR scholars, Think Tanks, Area Study Centres and South

Asia’s specialists as well as representatives of Trade Unions and members Federation of

Chamber of Commerce and Industry. The margin of error was taken as 5%, confidence

level as 95% and, population size as 1000.

The expected response was approximately 85% and the recommended sample

size as 195 respondents. However, to add more authenticity to primary data, the actual

sample size was 212 of which 202 responded. Feedback proformae were dished out to

diplomats, government officials and concerned bureaucrats, senior faculty members,

heads of various think tanks and research associates, scholars, university alumnae,

representatives of public and private enterprises, SAARC Secretariat officials including HE

Mr Amjad Sial – the incumbent Secretary General at the SAARC Secretariat, Kathmandu,

Nepal. As per SPSS, the outcome is in terms of an Adjusted Root Square Value, which

should be around 0.1, while for a positive relationship in correlation, the Anova Value

comes to 1. In the regression analytical table, the values without factoring in CPEC are

substantially lower than when it is accounted for. The analysis about the catalytic impact of

CPEC and confirmation of the thesis hypothesis is given in succeeding paragraphs.

The data on the subject was collected from the senior faculty members, research

scholars and students studying in various public and private sector universities. All the

questioners were self-administered and participant’s assured the anonymity and

confidentiality of their responses. Total 202 questioners were completed and processed.

526 See footnote 111.

202

The data collected is based on Hypothesis of Dependent, Independent and Intervening

variables as given below:-

Independent Variable: The phenomenon of growing SAARC states’ trade with China India.

Dependent Variable: Formation of SAEU is a dependent variable.

Intervening Variable: China Pakistan Economic Corridor (CPEC).

Feedback of 202 out of 212 respondents and their data analysis yields a Mean

Value of 1.30, which corroborates the argument that SAARC should be transformed into a

South Asian Economic Union/Association (SAEU/SAEA) like the EU or ASEAN in the

overall interest of the common masses of South Asia. Importantly, the regression analysis

results confirm that CPEC will have a catalytic impact to transform SAARC into a

SAEU/SAEA particularly, if economic interdependence between China and SAARC states

continues to rise.

All the mean values, associated with the dependent and independent variables also

indicate that formation of SAEU/SAEA will enhance political and economic leverages of

SAARC at the international forums. The available data-set also shows that almost half of

the sampling population i.e (0.486) believes that SAEU/SAEA can play a very effective

and promising role towards overall economic uplift of South Asian region particularly in

alleviation or reduction of poverty. Similarly, analysis of respondents’ feedback suggests

that formation of SAEU/SAEA with China as a permanent member may have only 0.153

(15%) negative impact on the existing SAARC members’ trade but will have more benefits;

as also brought-out in the qualitative assessment of the political economy of Greater South

Asia (GSA).

There were three main thrust lines of data analysis exercise; First, finding positive

or negative correlation between the Cause – rising SAARC trade with China; Second, the

Effect – formation of SAEU and Third, the impact of intervening variable i.e. the CPEC.

The indicated Root Square and Frequency Values of the Regression Analysis, shown in

succeeding table, cogently substantiate and support the study Hypothesis as well as its

Conclusions:-

203

Variables Root Square

Frequency Value

Relationship of growing trade between SAARC states and

China with Transformation of SAARC into SAEU

0.030 6.183

Relationship of growing trade between SAARC states and

China with Transformation of SAARC into SAEU , with

intervention of CPEC

0.098 10.762

With the intervention of CPEC, it can be seen that the Root Square value ‘R’

changes from 0.030 to 0.098 i.e. by a margin of 0.068. Again, once CPEC is factored in

the given Hypothesis, the value of Frequency ‘F’ jumps from 6.183 to 10.762 i.e by a

margin of 4.579B. This result confirms the catalytic impact of CPEC on the probability of

SAARC’s transformation into a SAEU/SAEA. Similarly all the values and results point at

the significant enhancement in the state of economic development in Greater South Asia,

with the inclusion of China.

Thus, based on the outcome of results, the study Hypothesis is fully supported,

stands tested and confirmed.

204

Appendix-II

INTERVIEWS AND SUMMARY OF RESPONSES

The survey of this study was conducted from the cross-section of subject

specialists, foreign office officials, foreign dignitaries, Ambassadors, heads of think tanks,

DEAN, faculty and scholars of IR Department, government officials and some civil society

representatives. For conducting interviews, therefore, the data sampling was limited to

those foreign office officials, academics, civil servants and politicians who were involved in

the formulation process of SAARC or SAFTA. The questionnaire and response of various

people are given in the succeeding paragraphs.

The questionnaire was framed to cover those aspects of the thesis, which were

either not available in any authentic source (primary or secondary) or were considered to

be significantly explored through personal interaction with policy planners and

practitioners. Hence the response options were discerned from the direct response of

various government officials, bureaucrats, Ambassadors, academic circles, businessmen

and representatives of the civil society of Pakistan. Following people were (directly or

indirectly) interviewed: -

• Ambassador Riaz Khan.

• Ambassador Najamud Din A Sheikh.

• Senator Mushahid Hussain Syed.

• Mr Ahmed Chinoy, Arch Group.

• Dr Ashfaq Hussain Khan, Ex Secretary Finance, now in NUST, Islamabad.

• Dr Hussan Jawad, NUST, Islamabad.

• Dr Ishrat Hussain, Ex-Governor State Bank and member Planning

Commission, Pakistan.

• Dr Noel Israel, Senior DEAN, F.C College, Lahore.

• Dr Salman Shah, Ex Finance Secretary and Minister of State.

• Mr Waseem Sajjad, Ex Speaker NA & Chairman Senate, Pakistan.

• Mr Sartaj Aziz, Advisor to the PM on Foreign Affairs, MOFA Pakistan.

• Dr Muhammad Faisal, DG SAARC, MOFA, Pakistan.

• Ambassador Amjad Sial, Secretary General SAARC Secretariat,

Kathmandu, Nepal.

205

The questionnaire for interviews is given hereunder: -

For over 30 years, South Asia in particular India-Pakistan’s acrimony has stalled

SAARC progress. Consequently, regional economic integration and overall development

has not been comparable to EU or ASEAN. Consequently, the whole of South Asia

together 25 percent of the world’s population is still lacking in economic development,

prosperity and progress.

For over 70 years, ever-since the partition of Sub-continent, SAARC region has not

synergised into one cohesive economic bloc. The contemporary international and regional

developments, led by the US, are shaping up a fiercely competitive economic and security

order. In such an environment, a ray of hope has been provided by China’s BRI and CPEC

projects. Ironically, despite the intractable attitude, bilateral trade and economic

interdependence of SAARC states with China is exponentially rising with each passing

year, of which India-China accounts for approximately $ 100 billion.

Based on the above preamble, please share your valuable views on following issues with particular reference to transformation of SAARC into a SAEU/SAEA:-

• How SAARC, taking advantage of the available opportunities and drivers

like; BRI and CPEC can transform itself into SAEU/SAEA?

• With China on board, what institutional arrangement can best serve as a

springboard for the prospective SEAU/SAEA?

• Can India achieve a major world power status without being part of Greater

South Asian economic cooperation and regional integration opportunity,

offered by China?

• Can Kashmir, as a joint Free Economic Zone (FEZ), fulfil the economic and

political imperatives of India-Pakistan in South Asia?

Summary of Responses:-

• After launching of BRI and CPEC, China by and large now forms part of

Greater South Asia and, hence SAARC’s transformation into a prospective

SAEU/SAEA is now more viable than ever.

• There is an intense desire both in China as well as among all the South

Asian nations to achieve the much needed regional economic integration for

future development and progress. However, this desire is not openly

expressed at international forums either due to domestic political point

scoring or to please the rent seeking elite.

206

• If India fails to capitalise on God sent opportunity of CPEC and BRI, China

can be part of SAARC (or SEAU) Plus One arrangement as it exists in

ASEAN, which presents a realistic model for economic integration in South

Asia.

• Business community in both China and SAARC regions is eagerly awaiting a

nod from their political decision makers to invest in multifarious regional

projects to carve out an Economic Identity.

• SAFTA along with the existing infrastructure of SAARC, provides an

excellent launching pad to initiate a comprehensive process of regional

economic integration leading into formation of a SAEU/SAEA. However, it is

most likely to grow as an ASEAN model not as a politically integrated bloc

like the EU.

• Undoubtable, there are enormous advantages in declaring both sides of

Kashmir as one joint FEZ. It will manifest the long standing desire of not only

Kashmiris but also other states like; China, Myanmar, Bangladesh, India,

Afghanistan and Pakistan to link East-West Corridor with an east while Silk

Route (via CPEC). The same route can be developed for trade from China to

Myanmar, Bangladesh, Bhutan, Nepal, Kashmir, Pakistan Afghanistan, right

up to Central Asia. Economic development is most likely to lead in peace

and security and avoid nuclear flashpoint of Kashmir.

207

Appendix-III

REGRESSION ANALYSIS OF SURVEYS - SPSS

208

Frequencies

Statistics

Statistics

Should

SAARC be

transformed

into a South

Asian

Union like

EU in the

interest of

common

mases?

Can South

Asian Union

complement

international

peace and

developmen

t?

The

historical

pitfalls

between

India and

Pakistan

can be

diluted thru

formation of

South Asian

Union like

EU?

Main

reasons for

lack of

intrest in

South Asian

Union in

particular

India - Pak

is?

Main

cause

preventing

SAARCs

transition

into a

prospectiv

e South

Asian

Union is?

N Valid 202 202 202 202 202

Missing 0 0 0 0 0

Mean 1.30 1.38 1.46 2.35 2.35

Median 1.00 1.00 1.00 2.00 2.00

Mode 1 1 1 1a 2

Std. Deviation

.458 .486 .499 1.078 .864

Variance .210 .236 .249 1.163 .746

Sum 262 278 294 474 475

209

Main Significant

Economic Factor in

forming a South

Asian Union is?

Most critical factor to

reduce extra

regional trade

interference in South

Asian Union is?

Most significant

factor in formation of

South Asian Union

is?

Can the

infrastructure and

functionality of

SAARC be tailored

to form an effective

South Asian Union

like EU?

South Asian Union

would be more

viable with the

inclusion of China's

CPEC project?

N Valid 202 202 202 202 202

Missing 0 0 0 0 0

Mean 2.42 2.53 2.64 1.32 1.37

Median 3.00 3.00 2.00 1.00 1.00

Mode 3 4 1 1 1

Std. Deviation 1.025 1.214 1.507 .466 .484

Variance 1.050 1.474 2.272 .218 .235

Sum 488 512 533 266 277

210

Statistics

Formation of South Asian Economic Union will

enhance political and economic leverage of SAARC

at international forums?

N Valid 202

Missing 0

Mean 1.29

Median 1.00

Mode 1

Std. Deviation .454

Variance .206

Sum 260

a. Multiple modes exist. The smallest value is shown

Frequency Table

Should SAARC be transformed into a South Asian Economic Union like EU

in the interest of common mases?

Frequency Percent Valid Percent

Cumulative

Percent

Valid yes 142 70.3 70.3 70.3

no 60 29.7 29.7 100.0

Total 202 100.0 100.0

Can South Asian Union complement international peace and development?

Frequency Percent Valid Percent

Cumulative

Percent

Valid yes 126 62.4 62.4 62.4

no 76 37.6 37.6 100.0

Total 202 100.0 100.0

The historical pitfalls between India and Pakistan can be diluted thru

formation of South Asian Economic Union like EU?

Frequency Percent Valid Percent

Cumulative

Percent

Valid yes 110 54.5 54.5 54.5

no 92 45.5 45.5 100.0

Total 202 100.0 100.0

211

Main reasons for lack of interest in South Asian Economic Union in particular India - Pak is?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Divergence of national and

strategic objective

59 29.2 29.2 29.2

concern of losing political

and economic influence 49 24.3 24.3 53.5

Hidden agenda of major

states 59 29.2 29.2 82.7

Concerns about shared

national sovereignties 35 17.3 17.3 100.0

Total 202 100.0 100.0

Main cause preventing SAARCs transition into a prospective South Asian Economic Union is?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Absence of common threat

and complementarities 23 11.4 11.4 11.4

Lack of trust and political will

amongst member countries 114 56.4 56.4 67.8

Unequal economic growth

and infrastructure 36 17.8 17.8 85.6

Diversity of Cultures 29 14.4 14.4 100.0

Total 202 100.0 100.0

Main Significant Economic Factor in forming a South Asian Economic Union is?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Free movement of people,

goods and capital 53 26.2 26.2 26.2

Easing up of tariff and non

tariff regime 40 19.8 19.8 46.0

Developing full range of

regional inter-connectivity 81 40.1 40.1 86.1

Eliminating informal trade 28 13.9 13.9 100.0

Total 202 100.0 100.0

212

Most critical factor to reduce extra regional trade interference in South Asian Economic Union

is?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Coordination and

harmonization of regional

and national policies by

SAARC states

60 29.7 29.7 29.7

Harmonization of foreign and

defence policies 37 18.3 18.3 48.0

Sending joint delegations to

major political powers and

centres of the world like EU

42 20.8 20.8 68.8

Taking concrete Confidence

Building Measures (CBMs) 63 31.2 31.2 100.0

Total 202 100.0 100.0

Most significant factor in formation of South Asian Economic Union is?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Political will of India -

Pakistan 64 31.7 31.7 31.7

Enhancing connectivity

amongst people, government

and non government

organizations

46 22.8 22.8 54.5

Constructive role of media

and governments 31 15.3 15.3 69.8

Building physical

infrastructure with all

encompassing

interconnectivity

21 10.4 10.4 80.2

Enhancing joint cultural and

sports events 40 19.8 19.8 100.0

Total 202 100.0 100.0

213

Can the infrastructure and functionality of SAARC be tailored to form an

effective South Asian Economic Union like EU?

Frequency Percent Valid Percent

Cumulative

Percent

Valid Yes 138 68.3 68.3 68.3

No 64 31.7 31.7 100.0

Total 202 100.0 100.0

South Asian Economic Union would be more viable with the inclusion of China's CPEC project?

Frequency Percent Valid Percent Cumulative Percent

Valid Yes 127 62.9 62.9 62.9

No 75 37.1 37.1 100.0

Total 202 100.0 100.0

Formation of South Asian Economic Union will enhance political and economic leverage of SAARC at

international forums?

Frequency Percent Valid Percent Cumulative Percent

Valid yes 144 71.3 71.3 71.3

No 58 28.7 28.7 100.0

Total 202 100.0 100.0

214

Pie Charts

215

REGRESSION

Notes

Output Created 28-MAR-2017 00:10:24

Comments

Input Data C:\Users\Home\Desktop\SPSS record- IR - FINAAL\main data sheets.sav

Active Dataset DataSet1

Filter <none>

Weight <none>

Split File <none>

N of Rows in

Working Data

File

202

Missing Value Handling Definition of

Missing User-defined missing values are treated as missing.

Cases Used Statistics are based on cases with no missing values for any variable used.

Syntax REGRESSION

/MISSING LISTWISE

/STATISTICS COEFF OUTS R ANOVA

/CRITERIA=PIN(.05) POUT(.10)

/NOORIGIN

/DEPENDENT Q8

/METHOD=ENTER Q5.

Resources Processor Time 00:00:00.03

Elapsed Time 00:00:00.08

Memory

Required 1540 bytes

Additional

Memory

Required for

Residual Plots

0 bytes

216

Variables Entered/Removed

Model Variables Entered Variables Removed

1

Main cause preventing SAARCs transition into a

prospective South Asian Economic Union is ?b .

a. Dependent Variable: Most significant factor in formation

of South Asian Economic Union is?

b. All requested variables entered.

Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .323a .105 .100 1.430

a. Predictors: (Constant), Main cause preventing SAARCs transition into

a prospective South Asian Economic Union is?

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 47.766 1 47.766 23.366 .000b

Residual 408.853 200 2.044

Total 456.619 201

a. Dependent Variable: Most significant factor in formation of South Asian Economic Union is?

217

b. Predictors: (Constant), Main cause preventing SAARCs transition into a prospective South Asian

Economic Union is?

Coefficients

Model

Unstandardized Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 1.312 .292 4.488 .000

Main cause preventing

SAARCs transition into a

prospective South Asian

Union is?

.564 .117 .323 4.834 .000

a. Dependent Variable: Most significant factor in formation of South Asian Union is?

218

CORRELATIONS

Notes

Output Created 28-MAR-2017 00:02:35

Comments

Input Data C:\Users\Home\Desktop\SPSS record- IR - FINAAL\main data sheets.sav

Active Dataset DataSet1

Filter <none>

Weight <none>

Split File <none>

N of Rows in Working Data

File 202

Missing Value

Handling

Definition of Missing User-defined missing values are treated as missing.

Cases Used Statistics for each pair of variables are based on all the cases with valid data

for that pair.

Syntax CORRELATIONS

/VARIABLES=Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11

/PRINT=TWOTAIL NOSIG

/MISSING=PAIRWISE.

Resources Processor Time 00:00:00.05

Elapsed Time 00:00:00.39

Correlations

Should

SAARC be

transforme

d into a

South

Asian

Union like

EU in the

interest of

common

mases?

Can South

Asian

Union

compleme

nt

internation

al peace

and

developme

nt?

The

historical

pitfalls

between

India and

Pakistan

can be

diluted thru

formation

of South

Asian

Union like

EU?

Main

reasons for

lack of

interest in

South

Asian

Union in

particular

India - Pak

is?

Main

cause

preventing

SAARCs

transition

into a

prospectiv

e South

Asian

Union is?

Main

Significant

Economic

Factor in

forming a

South

Asian

Union is?

Should SAARC be

transformed into a

South Asian Union

Pearson

Correlation 1 .300** .276** .153* .175* .107

Sig. (2-tailed) .000 .000 .030 .013 .131

219

like EU in the

interest of common

mases?

N

202 202 202 202 202 202

Can South Asian

Union complement

international peace

and development?

Pearson

Correlation .300** 1 .213** .196** .193** .034

Sig. (2-tailed) .000 .002 .005 .006 .631

N 202 202 202 202 202 202

The historical

pitfalls between

India and Pakistan

can be diluted thru

formation of South

Asian Union like

EU?

Pearson

Correlation .276** .213** 1 .130 .054 .056

Sig. (2-tailed) .000 .002 .064 .447 .430

N

202 202 202 202 202 202

Main reasons for

lack of intrest in

South Asian Union

in particular India -

Pak is?

Pearson

Correlation .153* .196** .130 1 .435** .288**

Sig. (2-tailed) .030 .005 .064 .000 .000

N 202 202 202 202 202 202

Main cause

preventing SAARCs

transition into a

prospective South

Asian Union is?

Pearson

Correlation .175* .193** .054 .435** 1 .402**

Sig. (2-tailed) .013 .006 .447 .000 .000

N 202 202 202 202 202 202

Main Significant

Economic Factor in

forming a South

Asian Union is?

Pearson

Correlation .107 .034 .056 .288** .402** 1

Sig. (2-tailed) .131 .631 .430 .000 .000

N 202 202 202 202 202 202

Most critical factor

to reduce extra

regional trade

interference in

South Asian Union

is?

Pearson

Correlation .086 .127 -.005 .207** .260** .260**

Sig. (2-tailed) .221 .072 .940 .003 .000 .000

N

202 202 202 202 202 202

Most significant

factor in formation

of South Asian

Union is?

Pearson

Correlation .171* .275** .055 .267** .323** .172*

Sig. (2-tailed) .015 .000 .441 .000 .000 .014

N 202 202 202 202 202 202

Can the

infrastructure and

functionality of

Pearson

Correlation .279** .152* .146* -.002 .130 .056

Sig. (2-tailed) .000 .031 .038 .980 .066 .428

220

SAARC be tailored

to form an effective

South Asian Union

like EU?

N

202 202 202 202 202 202

South Asian Union

would be more

viable with the

inclusion of China's

CPEC project?

Pearson

Correlation .173* .249** .100 .048 .031 -.012

Sig. (2-tailed) .014 .000 .158 .500 .658 .866

N 202 202 202 202 202 202

Formation of South

Asian Union will

enhance political

and economic

leverage of SAARC

at international

forums?

Pearson

Correlation .306** .298** .123 -.011 .135 .106

Sig. (2-tailed) .000 .000 .082 .875 .056 .134

N

202 202 202 202 202 202

Correlations

Most critical factor to

reduce extra

regional trade

interference in South

Asian Union is?

Most significant

factor in formation of

South Asian Union

is?

Can the

infrastructure and

functionality of

SAARC be tailored

to form an effective

South Asian Union

like EU?

Should SAARC be transformed into

a South Asian Union like EU in the

interest of common mases?

Pearson Correlation .086 .171* .279**

Sig. (2-tailed) .221 .015 .000

N 202 202 202

Can South Asian Union complement

international peace and

development?

Pearson Correlation .127 .275** .152*

Sig. (2-tailed) .072 .000 .031

N 202 202 202

The historical pitfalls between India

and Pakistan can be diluted thru

formation of South Asian Union like

EU?

Pearson Correlation -.005 .055 .146*

Sig. (2-tailed) .940 .441 .038

N 202 202 202

Main reasons for lack of interest in

South Asian Union in particular India

- Pak is?

Pearson Correlation .207** .267** -.002

Sig. (2-tailed) .003 .000 .980

N 202 202 202

Main cause preventing SAARCs

transition into a prospective South

Asian Union is?

Pearson Correlation .260** .323** .130

Sig. (2-tailed) .000 .000 .066

N 202 202 202

221

Main Significant Economic Factor in

forming a South Asian Union is?

Pearson Correlation .260** .172* .056

Sig. (2-tailed) .000 .014 .428

N 202 202 202

Most critical factor to reduce extra

regional trade interference in South

Asian Union is?

Pearson Correlation 1 .358** .057

Sig. (2-tailed) .000 .420

N 202 202 202

Most significant factor in formation

of South Asian Union is?

Pearson Correlation .358** 1 .050

Sig. (2-tailed) .000 .476

N 202 202 202

Can the infrastructure and

functionality of SAARC be tailored to

form an effective South Asian Union

like EU?

Pearson Correlation .057 .050 1

Sig. (2-tailed) .420 .476

N 202 202 202

South Asian Union would be more

viable with the inclusion of China's

CPEC project?

Pearson Correlation .166* .192** .292**

Sig. (2-tailed) .018 .006 .000

N 202 202 202

Formation of South Asian Union will

enhance political and economic

leverage of SAARC at international

forums?

Pearson Correlation .151* .167* .344**

Sig. (2-tailed) .031 .017 .000

N 202 202 202

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

222

Appendix-IV

SAARC CHARTER

We, the Heads of State or Government of BANGLADESH, BHUTAN, INDIA, MALDIVES, NEPAL, PAKISTAN and SRI LANKA;

1. 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;

2. 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;

3. 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;

4. 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;

5. Convinced further that economic, social and technical cooperation among the countries

of SOUTH ASIA would contribute significantly to national and collective self-reliance;

6. 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;

7. Recalling the DECLARATION signed by their Foreign Ministers in NEW DELHI on

August 2, 1983 and noting the progress achieved in regional cooperation;

8. 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

223

ASSOCIATION, with the following objectives, principles, institutional and financial

arrangements:

OBJECTIVES

The objectives of the ASSOCIATION shall be:

Article I

a) to promote the welfare of the peoples of SOUTH ASIA and to improve their quality of

life;

b) to accelerate economic growth, social progress and cultural development in the region

and to provide all individuals the opportunity to live in dignity and to realise their full

potentials;

c) to promote and strengthen collective self-reliance among the countries of SOUTH

ASIA; d) to contribute to mutual trust, understanding and appreciation of one another's

problems;

e) to promote active collaboration and mutual assistance in the economic, social, cultural,

technical and scientific fields;

f) to strengthen cooperation with other developing countries;

g) to strengthen cooperation among themselves in international forums on matters of

common interests; and

h) to cooperate with international and regional organisations with similar aims and

purposes.

Article II -PRINCIPLES

1. 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.

2. Such cooperation shall not be a substitute for bilateral and multilateral cooperation but

shall complement them.

3. Such cooperation shall not be inconsistent with bilateral and multilateral obligations.

224

Article III - MEETINGS OF THE HEADS OF STATE OR GOVERNMENT

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

1. A Council of Ministers consisting of the Foreign Ministers of the Member States shall

be established with the following functions:

a) formulation of the policies of the ASSOCIATION; b) review of the progress of

cooperation under the ASSOCIATION; c) decision on new areas of cooperation; d)

establishment of additional mechanism under the ASSOCIATION as deemed necessary;

e) decision on other matters of general interest to the ASSOCIATION.

2. The Council of Ministers shall meet twice a year. Extraordinary session of the Council

may be held by agreement among the Member States.

Article V - STANDING COMMITTEE

1. The Standing Committee comprising the Foreign Secretaries shall have the following

functions:

a) overall monitoring and coordination of programme of cooperation; b) approval of

projects and programmes, and the modalities of their financing; c) determination of inter-

sectoral priorities; d) mobilisation of regional and external resources; e) identification of

new areas of cooperation based on appropriate studies.

2. The Standing Committee shall meet as often as deemed necessary.

3. 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

1. 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.

2. They shall have the following terms of reference:

225

a) determination of the potential and the scope of regional cooperation in agreed areas; b)

formulation of programmes and preparation of projects; c) determination of financial

implications of sectoral programmes; d) formulation of recommendations regarding

apportionment of costs;

e) Implementation and coordination of sectoral programmes; f) monitoring of progress in

implementation.

3. The Technical Committees shall submit periodic reports to the Standing Committee.

4. The Chairmanship of the Technical Committees shall normally rotate among Member

States in alphabetical order every two years.

5. The Technical Committees may, inter-alia, use the following mechanisms and

modalities, if and when considered necessary:

a) meetings of heads of national technical agencies; b) meetings of experts in specific

fields; c) contact amongst recognised centres of excellence in the region.

Article VII - ACTION COMMITTEES

The Standing Committee may set up Action Committees comprising Member States

concerned with 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

1. The contribution of each Member State towards financing of the activities of the

ASSOCIATION shall be voluntary. 2. Each Technical Committee shall make

recommendations for the apportionment of costs of implementing the programmes

proposed by it. 3. 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

1. Decisions at all levels shall be taken on the basis of unanimity.

226

2. 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 - PRIME MINISTER OF THE REPUBLIC OF INDIA

Maumoon Abdul Gayoom

PRESIDENT OF THE REBUPLIC OF MALDIVES

Birendra Bir Bikram Shah Dev

KING OF NEPAL

Muhammad Zia-ul-Haq

PRESIDENT OF THE ISLAMIC REPUBLIC OF PAKISTAN

Junius Richard Jayewardene

PRESIDENT OF DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

227

Appendix-V

228

Appendix-VI THE EUROPEAN UNION AND ASPIRANT MEMBER COUNTRIES

229

Appendix-VII

NATIONAL POWER POTENTIAL – CHINA

Extracted from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html The World’s Fact Book – The Website of CIA, USA on 17 January 2017.

Introduction

For centuries China stood as a leading civilization, outpacing the rest of the world

in the arts and sciences, but in the 19th and early 20th centuries, the country was beset

by civil unrest, major famines, military defeats, and foreign occupation. After World War II,

the communists under MAO Zedong established an autocratic socialist system that, while

ensuring China's sovereignty, imposed strict controls over everyday life and cost the lives

of tens of millions of people. After 1978, MAO's successor DENG Xiaoping and other

leaders focused on market-oriented economic development and by 2000 output had

quadrupled. For much of the population, living standards have improved dramatically and

the room for personal choice has expanded, yet political controls remain tight. Since the

early 1990s, China has increased its global outreach and participation in international

organizations.

Geography

Location: Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and

South China Sea, between North Korea and Vietnam

Geographic coordinates: 35 00 N, 105 00 E

Area: 9,596,960 sq km, land: 9,326,410 sq km, water: 270,550 sq km, comparison to the world:4

Border countries (14): Afghanistan 91 km, Bhutan 477 km, Burma 2,129 km, India 2,659 km, Kazakhstan 1,765 km, North Korea 1,352 km, Kyrgyzstan 1,063 km, Laos 475 km, Mongolia 4,630 km, Nepal 1,389 km, Pakistan 438 km, Russia (northeast) 4,133 km, Russia (northwest) 46 km, Tajikistan 477 km, Vietnam 1,297 km

Regional borders: Hong Kong 33 km, Macau 3 km

Coastline:14,500 km

Continental shelf: 200 nm or to the edge of the continental margin

Climate: extremely diverse; tropical in south to subarctic in north

Terrain: mostly mountains, high plateaus, deserts in west; plains, deltas, and hills in east

Highest point: Mount Everest 8,850 m (highest peak in Asia and highest point on earth

above sea level)

230

Natural resources: coal, iron ore, petroleum, natural gas, mercury, tin, tungsten,

antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, rare

earth elements, uranium, hydropower potential (world's largest) arable land

Land use: agricultural land: 54.7percent. Arable land 11.3percent; permanent crops

1.6percent; permanent pasture 41.8percent, forest: 22.3percent, other: 23percent (2011

est), irrigated land: 690,070 sq km (2012)

Natural hazards: frequent typhoons (about five per year along southern and eastern

coasts); damaging floods; tsunamis; earthquakes; droughts; land subsidence

Environment - current issues: air pollution (greenhouse gases, sulphur dioxide

particulates) from reliance on coal produces acid rain; China is the world's largest single

emitter of carbon dioxide from the burning of fossil fuels; water shortages, particularly in

the north; water pollution from untreated wastes; deforestation; estimated loss of one-fifth

of agricultural land since 1949 to soil erosion and economic development; desertification;

trade in endangered species

Environment - international agreements: Party to: Antarctic-Environmental Protocol,

Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol,

Desertification, Endangered Species, Environmental Modification, Hazardous Wastes,

Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical

Timber 83, Tropical Timber 94, Wetlands, Whaling

People and Society

Population:1,373,541,278 (July 2016 est), country comparison to the world: 1

Ethnic groups: Han Chinese 91.6percent, Zhuang 1.3percent, other (includes Hui,

Manchu, Uighur, Miao, Yi, Tujia, Tibetan, Mongol, Dong, Buyei, Yao, Bai, Korean, Hani,

Li, Kazakh, Dai and other nationalities) 7.1percent

Note: the Chinese Government officially recognizes 56 ethnic groups (2010 est.)

Languages: Standard Chinese or Mandarin (official; Putonghua, based on the Beijing

dialect), Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-

Taiwanese), Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry)

Note: Zhuang is official in Guangxi Zhuang, Yue is official in Guangdong, Mongolian is

official in Nei Mongol, Uighur is official in Xinjiang Uygur, Kyrgyz is official in Xinjiang

Uygur, and Tibetan is official in Xizang (Tibet)

Religions: Buddhist 18.2percent, Christian 5.1percent, Muslim 1.8percent, folk religion

21.9percent, Hindu < 0.1percent, Jewish < 0.1percent, other 0.7percent (includes Daoist

(Taoist)), unaffiliated 52.2percent, officially atheist (2010 est)

231

Age structure: 0-14 years: 17.1percent (male 126,732,020/female 108,172,771), 15-24

years: 13.27percent (male 97,126,460/female 85,135,228), 25-54 years: 48.42percent

(male 339,183,101/female 325,836,319), 55-64 years: 10.87percent (male

75,376,730/female 73,859,424), 65 years and over: 10.35percent (male

67,914,015/female 74,205,210) (2016 est.)

Population Pyramid:

Population Pyramid

A population pyramid illustrates the age and sex structure of a country's population and

may provide insights about political and social stability, as well as economic development.

The population is distributed along the horizontal axis, with males shown on the left and

females on the right. The male and female populations are broken down into 5-year age

groups represented as horizontal bars along the vertical axis, with the youngest age

groups at the bottom and the oldest at the top. The shape of the population pyramid

gradually evolves over time based on fertility, mortality, and international migration trends.

For additional information, please see the entry for Population pyramid on the Definitions

and Notes page under the References tab.

Dependency ratios: total dependency ratio: 36.6percent, youth dependency ratio:

23.5percent, elderly dependency ratio: 13percent, potential support ratio: 7.7percent

(2015 est.)

232

Population growth rate: 0.43percent (2016 est), country comparison to the world: 164,

Birth rate: 12.4 births/1,000 population (2016 est), country comparison to the world: 160,

Death rate: 7.7 deaths/1,000 population (2016 est), country comparison to the world: 106

Urbanization: urban population: 55.6percent of total population (2015), rate of

urbanization: 3.05percent annual rate of change (2010-15 est)

Major urban areas - population: Shanghai 23.741 million; BEIJING (capital) 20.384

million; Chongqing 13.332 million; Guangdong 12.458 million; Tianjin 11.21 million;

Shenzhen 10.749 million (2015)

Sex ratio: at birth: 1.15 male(s)/female, 0-14 years: 1.17 male(s)/female, 15-24 years:

1.14 male(s)/female, 25-54 years: 1.04 male(s)/female, 55-64 years: 1.02 male(s)/female,

65 years and over: 0.92 male(s)/female

People - in October 2015, the Chinese Government announced that it would change its

rules to allow all couples to have two children instead of just one, as mandated in 1979;

the new policy was implemented on 1 January 2016 to address China’s rapidly aging

population and economic needs

Government

Country name: People's Republic of China, short form: China, abbreviation: PRC

Etymology: English name derives from the Qin (Chin) rulers of the 3rd century B.C., who

comprised the first imperial dynasty of ancient China; the Chinese name Zhongguo

translates as "Central Nation"

Government type: communist state

Capital: Beijing.

Administrative divisions: 23 provinces (sheng, singular and plural), 5 autonomous

regions (zizhiqu, singular and plural), and 4 municipalities (shi, singular and plural)

Provinces: Anhui, Fujian, Gansu, Guangdong, Guizhou, Hainan, Hebei, Heilongjiang,

Henan, Hubei, Hunan, Jiangsu, Jiangxi, Jilin, Liaoning, Qinghai, ShaAPPENDIXi,

Shandong, ShaAPPENDIXi, Sichuan, Yunnan, Zhejiang; (see note on Taiwan)

Autonomous regions: Guangxi, Nei Mongol (Inner Mongolia), Ningxia, Xinjiang Uygur,

Xizang (Tibet)

Municipalities: Beijing, Chongqing, Shanghai, Tianjin

Note: China considers Taiwan its 23rd province; see separate entries for the special

administrative regions of Hong Kong and Macau

233

Independence:1 October 1949 (People's Republic of China established); notable earlier

dates: 221 B.C. (unification under the Qin Dynasty); 1 January 1912 (Qing Dynasty

replaced by the Republic of China)

National holiday: National Day, the anniversary of the founding of the People's Republic

of China, 1 October (1949)

Constitution: several previous; latest promulgated 4 December 1982; amended several

times, last in 2004 (2016)

Legal system: civil law influenced by Soviet and continental European civil law systems;

legislature retains power to interpret statutes; note - criminal procedure law revised in

early 2012

International law organization participation: has not submitted an ICJ jurisdiction

declaration; non-party state to the ICC

Citizenship: citizenship by birth: no, citizenship by descent only: least one parent must

be a citizen of China, dual citizenship recognized: no, residency requirement for

naturalization: while naturalization is theoretically possible, in practical terms it is

extremely difficult; residency is required but not specified

Executive branch: chief of state: President XI Jinping (since 14 March 2013); Vice

President LI Yuanchao (since 14 March 2013)

Head of government: Premier LI Keqiang (since 16 March 2013); Executive Vice

Premiers ZHANG Gaoli (since 16 March 2013), LIU Yandong (since 16 March 2013), MA

Kai (since 16 March 2013), WANG Yang (since 16 March 2013)

Cabinet: State Council appointed by National People's Congress

Elections/appointments: president and vice president indirectly elected by National

People's Congress for a 5-year term (eligible for a second term); election last held on 5-

17 March 2013 (next to be held in March 2018); premier nominated by president,

confirmed by National People's Congress

Legislative branch: description: unicameral National People's Congress or Quanguo

Renmin Daibiao Dahui (2,987 seats; members indirectly elected by municipal, regional,

and provincial people's congresses, and the People's Liberation Army; members serve 5-

year terms); note - in practice, only members of the Chinese Communist Party (CCP), its

8 allied parties, and CCP-approved independent candidates are elected

Judicial branch: highest court(s): Supreme People's Court (consists of over 340 judges

including the chief justice, 13 grand justices organized into a civil committee and tribunals

for civil, economic, administrative, complaint and appeal, and communication and

transportation cases)

234

Judge selection and term of office: chief justice appointed by the People's National

Congress (PNC); term limited to 2 consecutive 5-year terms; other justices and judges

nominated by the chief justice and appointed by the Standing Committee of the PNC;

term of other justices and judges determined by the PNC

Subordinate courts: Higher People's Courts; Intermediate People's Courts; District and

County People's Courts; Autonomous Region People's Courts; Special People's Courts

for military, maritime, transportation, and forestry issues, note: in late 2014, China

unveiled planned judicial reforms

Political parties and leaders: Chinese Communist Party or CCP (XI Jinping), note:

China has eight nominally independent small parties ultimately controlled by the CCP

Political pressure groups and leaders: no substantial political opposition groups exist

International organization participation: ADB, AFDB (Non-regional member), APEC,

Arctic Council (observer), ARF, ASEAN (dialogue partner), BIS, BRICS, CDB, CICA,

EAS, FAO, FATF, G-20, G-24 (observer), G-5, G-77, IADB, IAEA, IBRD, ICAO, ICC

(national committees), ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO,

Interpol, IOC, IOM (observer), IPU, ISO, ITSO, ITU, LAIA (observer), MIGA, MINURSO,

MINUSMA, MONUSCO, NAM (observer), NSG, OAS (observer), OPCW, Pacific Alliance

(observer), PCA, PIF (partner), SAARC (observer), SCO, SICA (observer), UN, UNAMID,

UNCTAD, UNESCO, UNFICYP, UNHCR, UNIDO, UNIFIL, UNMIL, UNMISS, UNOCI,

UNSC (permanent), UNTSO, UNWTO, UPU, WCO, WHO, WIPO, WMO, WTO, ZC

Flag description: red with a large yellow five-pointed star and four smaller yellow five-

pointed stars (arranged in a vertical arc toward the middle of the flag) in the upper hoist-

side corner; the colour red represents revolution, while the stars symbolize the four social

classes - the working class, the peasantry, the urban petty bourgeoisie, and the national

bourgeoisie (capitalists) - united under the Communist Party of China

National symbol(s): dragon; national colours: red, yellow

National anthem: name: "Yiyongjun Jinxingqu" (The March of the Volunteers),

lyrics/music: TIAN Han/NIE Er, note: adopted 1949; the anthem, though banned during

the Cultural Revolution, is more commonly known as "Zhongguo Guoge" (Chinese

National Song); it was originally the theme song to the 1935 Chinese movie, "Sons and

Daughters in a Time of Storm"

Economy

Economy - overview: Since the late 1970s, China has moved from a closed, centrally

planned system to a more market-oriented one that plays a major global role. China has

implemented reforms in a gradualist fashion, resulting in efficiency gains that have

contributed to a more efficient structure. After keeping its currency tightly linked to the US

dollar for years, China in July 2005 moved to an exchange rate system that references a

basket of currencies. From mid-2005 to late 2008, the Renminbi (RMB) appreciated more

235

than 20percent against the US dollar, but China’s economic growth has slowed since

2011. The Chinese Government faces numerous economic challenges including: (a)

reducing its high domestic savings rate and correspondingly low domestic consumption;

(b) servicing its high debt burdens to maintain foreign exchange reserves. The

government's 13th Five-Year Plan, unveiled in March 2016, emphasizes the need to

increase innovation and boost domestic consumption to make the economy less

dependent on government investment, exports, and heavy industry.

GDP (purchasing power parity): $21.27 trillion (2016 est), $19.95 trillion (2015 est),

$18.67 trillion (2014 est), note: data are in 2016 dollars, country comparison to the world:

1, GDP (official exchange rate): $11.39 trillion (2015 est), note: because China's

exchange rate is determined by fiat rather than by market forces, the official exchange

rate measure of GDP is not an accurate measure of China's output; GDP at the official

exchange rate substantially understates the actual level of China, GDP - real growth rate:

6.6percent (2016 est), 6.9percent (2015 est.), 7.3percent (2014 est.), country comparison

to the world: 13, GDP - per capita (PPP): $15,400 (2016 est.), $14,500 (2015 est.),

$13,600 (2014 est.), note: data are in 2016 dollars

Agriculture - products: world leader in gross value of agricultural output; rice, wheat,

potatoes, corn, peanuts, tea, millet, barley, apples, cotton, oilseed; pork; fish

Industries: world leader in gross value of industrial output; mining and ore processing,

iron, steel, aluminium, and other metals, coal; machine building; armaments; textiles and

apparel; petroleum; cement; chemicals; fertilizers; consumer products (including

footwear)

Industrial production growth rate: 6.1percent (2016 est.), country comparison to the

world: 26, Labour force: 805.9 million, note: by the end of 2012, China's population at

working age (15-64 years) was 1.004 billion (2016 est.), country comparison to the world:

1, Labour force - by occupation: agriculture: 33.6percent, industry: 30.3percent, services:

36.1percent, (2012 est.)

Unemployment rate: 4.2percent (2016 est.), 4percent (2015 est.), note: data are for

registered urban unemployment, which excludes private enterprises and migrants,

country comparison to the world: 39

Population below poverty line: 6.1percent, note: in 2011, China set a new poverty line

at RMB 2300 (approximately US $400), (2013 est.)

Household income or consumption by percentage share: lowest 10percent:

1.7percent, highest 10percent: 30percent, note: data are for urban households only

(2009)

Distribution of family income - Gini Index: 46.9 (2014 est.), 47.3 (2013 est.), country

comparison to the world: 28

Budget: revenues: $2.465 trillion, expenditures: $2.897 trillion (2016 est.),

236

Taxes and other revenues: 21.6percent of GDP (2016 est.), country comparison to the

world: 136

Budget surplus (+) or deficit (-): -3.8percent of GDP (2016 est.), country comparison to

the world: 131

Public debt: 20.1percent of GDP (2016 est.), 15.3percent of GDP (2015 est.), note:

official data; data cover both central government debt and local government debt; data

exclude policy bank bonds, Ministry of Railway debt, China Asset Management Company

debt, and non-performing loans country comparison to the world: 163

Exports - commodities: electrical and other machinery, including data processing

equipment, apparel, furniture, textiles, integrated circuits

Exports - partners: US 18percent, Hong Kong 14.6percent, Japan 6percent, South

Korea 4.5percent (2015)

Imports: $1.437 trillion (2016 est.), $1.576 trillion (2015 est., ) country comparison to the

world: 3

Imports - commodities: electrical and other machinery, oil and mineral fuels; nuclear

reactor, boiler, and machinery components; optical and medical equipment, metal ores,

motor vehicles; soybeans

Imports - partners: South Korea 10.9percent, US 9percent, Japan 8.9percent, Germany

5.5percent, Australia 4.1percent (2015)

Reserves of foreign exchange and gold: $3.092 trillion (31 December 2016 est.),

$3.406 trillion (31 December 2015 est.) country comparison to the world: 1

Debt - external: $983.5 billion (31 December 2016 est.) $958.3 billion (31 December

2015 est.) country comparison to the world: 16

Stock of direct foreign investment - at home: $1.458 trillion (31 December 2016 est.),

$1.221 trillion (31 December 2015 est.), And country comparison to the world: 5

Stock of direct foreign investment - abroad: $1.285 trillion (31 December 2016 est.),

$1.01 trillion (31 December 2015 est.), country comparison to the world: 11

Energy

Electricity - production: 5.388 trillion kWh (2014 est.), country comparison to the world:

1

Electricity - consumption: 5.523 trillion kWh (2014), country comparison to the world: 1

237

Electricity - installed generating capacity: 1.505 billion kW (2014 est.), country

comparison to the world: 1, Electricity - from fossil fuels: 67.3percent of total installed

capacity (2014 est.), country comparison to the world: 117, Electricity - from nuclear fuels:

1.5percent of total installed capacity (2014 est.), country comparison to the world: 31,

Electricity - from hydroelectric plants: 22.2percent of total installed capacity (2014 est.),

country comparison to the world: 89, Electricity - from other renewable sources: 9percent

of total installed capacity (2014 est.), country comparison to the world: 41, Crude oil -

production: 4.278 million bbl/day (2015 est.), country comparison to the world: 4, Crude

oil - exports:12,000 bbl/day (2014 est.), country comparison to the world: 64

Crude oil - imports: 6.167 million bbl/day (2014 est.), country comparison to the world:

2, Crude oil - proved reserves: 25 billion bbl (1 January 2016 es), country comparison to

the world: 14

Refined petroleum products - production: 10.35 million bbl/day (2013 est.), country

comparison to the world: 3, Refined petroleum products - consumption: 11.12 million

bbl/day (2014 est.), country comparison to the world: 3, Refined petroleum products -

exports: 593,400 bbl/day (2014 est.), country comparison to the world: 10

Refined petroleum products - imports: 600,000 bbl/day (2014 est.), country

comparison to the world: 13, Natural gas - production: 123.5 billion cu m (2014 est.),

country comparison to world: 7

Natural gas - consumption: 181.1 billion cu m (2014 est.), country comparison to the

world: 4, Natural gas - exports: 2.613 billion cu m (2014 est.), country comparison to the

world: 35, Natural gas - imports: 60.3 billion cu m (2014 est.), country comparison to the

world: 5, Natural gas - proved reserves: 4.945 trillion cu m (1 January 2016 es), country

comparison to the world: 10, Carbon dioxide emissions from consumption of energy:

8.687 billion Mt (2013 est.), country comparison to the world: 1

Transportation

National air transport system: number of registered air carriers: 56, inventory of registered

aircraft operated by air carriers: 2,890, annual passenger traffic on registered air carriers:

436,183,969, annual freight traffic on registered air carriers: 19.806 billion mt-km (2015),

prefix (2016).

Airports: 507 (2013), country comparison to the world: 14, Airports - with paved runways:

total: 463, over 3,047 m: 71, 2,438 to 3,047 m: 158, 1,524 to 2,437 m: 123, 914 to 1,523

m: 25, under 914 m: 86 (2013), Airports - with unpaved runways: total: 44, over 3,047 m:

4, 2,438 to 3,047 m: 7, 1,524 to 2,437 m: 6, 914 to 1,523 m: 9, under 914 m: 18 (2013)

Pipelines: condensate 9 km; gas 48,502 km; oil 23,072 km; oil/gas/water 31 km; refined

products 15,298 km; water 9 km (2013),

Railways: total: 191,270 km, broad gauge: 100 km 1.520-m gauge, standard gauge:

190,000 km 1.435-m gauge (92,000 km electrified), narrow gauge: 670 km 1.000-m

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gauge; 500 km 0.762-m gauge (2014), country comparison to the world: 2, Roadways:

total: 4,106,387 km, paved: 3,453,890 km (includes 84,946 km of expressways),

unpaved: 652,497 km (2011), country comparison to the world: 3

Waterways: 110,000 km (navigable waterways) (2011), country comparison to the world:

1

Merchant marine: total: 2,030, by type: barge carrier 7, bulk carrier 621, cargo 566,

carrier 10, chemical tanker 140, container 206, liquefied gas 60, passenger 9,

passenger/cargo 81, petroleum tanker 264, refrigerated cargo 33, roll on/roll off 8,

specialized tanker 2, vehicle carrier 23, foreign-owned: 22 (Hong Kong 18, Indonesia 2,

Japan 2), registered in other countries: 1,559 (Bangladesh 1, Belize 61, Cambodia 177,

Comoros 1, Cyprus 6, Georgia 10, Honduras 2, Hong Kong 500, India 1, Indonesia 1,

Kiribati 26, Liberia 4, Malta 6, Marshall Islands 14, North Korea 3, Panama 534,

Philippines 4, Saint Kitts and Nevis 1, Saint Vincen (2010), country comparison to the

world: 3

Ports and terminals: major seaport(s): Dalian, Ningbo, Qingdao, Qinhuangdao,

Shanghai, Shenzhen, Tianjin, river port(s): Guangzhou (Pearl), container port(s) (TEUs):

Dalian (6,400,300), Guangzhou (14,260,400), Ningbo (14,719,200), Qingdao

(13,020,100), Shanghai (31,739,000), Shenzhen (22,570,800), Tianjin

(11,587,600)(2011), LNG terminal(s) (import): Fujian, Guangdong, Jiangsu, Shandong,

Shanghai, Tangshan, Zhejiang

Military branches: People's Liberation Army (PLA): Army, Navy (PLAN; includes

marines and naval aviation), Air Force (Zhongguo Renmin Jiefangjun Kongjun, PLAAF;

includes airborne forces), Rocket Force (strategic missile force), and Strategic Support

Force (space and cyber forces); People's Armed Police (Renmin Wuzhuang Jingcha

Budui, PAP); PLA Reserve Force (2016)

Military service age and obligation:18-24 years of age for selective compulsory military

service, with a 2-year service obligation; no minimum age for voluntary service (all officers

are volunteers); 18-19 years of age for women high school graduates who meet

requirements for specific military jobs; a recent military decision allows women in combat

roles; the first class of women warship commanders was in 2011 (2012)

Military expenditures: 2percent of GDP (2015), 2percent of GDP (2014), 2percent of GDP

(2013), 1.99percent of GDP (2012), 2percent of GDP (2011), Country comparison to the

world: 40

Transnational Issues

Disputes - international: Continuing talks and confidence-building measures work

toward reducing tensions over Kashmir that nonetheless remains militarized with portions

under the de facto administration of China (Aksai Chin), India (Jammu and Kashmir), and

239

Pakistan (Azad Kashmir and Northern Areas); India does not recognize Pakistan's ceding

historic Kashmir lands to China in 1964; China and India continue their security and

foreign policy dialogue started in 2005 related to the dispute over most of their rugged,

militarized boundary, regional nuclear proliferation, and other matters; China claims most

of India's Arunachal Pradesh to the base of the Himalayas; lacking any treaty describing

the boundary, Bhutan and China continue negotiations to establish a common boundary

alignment to resolve territorial disputes arising from substantial cartographic

discrepancies, the largest of which lie in Bhutan's northwest and along the Chumbi

salient; Burmese forces attempting to dig in to the largely autonomous Shan State to rout

local militias tied to the drug trade, prompts local residents to periodically flee into

neighbouring Yunnan Province in China; Chinese maps show an international boundary

symbol off the coasts of the littoral states of the South China Seas, where China has

interrupted Vietnamese hydrocarbon exploration; China asserts sovereignty over

Scarborough Reef along with the Philippines and Taiwan, and over the Spratly Islands

together with Malaysia, the Philippines, Taiwan, Vietnam, and Brunei; the 2002

Declaration on the Conduct of Parties in the South China Sea eased tensions in the

Spratlys but is not the legally binding code of conduct sought by some parties; Vietnam

and China continue to expand construction of facilities in the Spratlys and in March 2005,

the national oil companies of China, the Philippines, and Vietnam signed a joint accord on

marine seismic activities in the Spratly Islands; China occupies some of the Paracel

Islands also claimed by Vietnam and Taiwan; the Japanese-administered Senkaku

Islands are also claimed by China and Taiwan; certain islands in the Yalu and Tumen

Rivers are in dispute with North Korea; North Korea and China seek to stem illegal

migration to China by North Koreans, fleeing privations and oppression, by building a

fence along portions of the border and imprisoning North Koreans deported by China;

China and Russia have demarcated the once disputed islands at the Amur and Ussuri

confluence and in the Argun River in accordance with their 2004 Agreement; China and

Tajikistan have begun demarcating the revised boundary agreed to in the delimitation of

2002; the decade-long demarcation of the China-Vietnam land boundary was completed

in 2009; citing environmental, cultural, and social concerns, China has reconsidered

construction of 13 dams on the Salween River, but energy-starved Burma, with backing

from Thailand, remains intent on building five hydro-electric dams downstream despite

regional and international protests. Chinese and Hong Kong authorities met in March

2008 to resolve ownership and use of lands recovered in Shenzhen River channelization,

including 96-hectare Lok Ma Chau Loop.

Refugees and internally displaced persons: refugees (country of origin): 300,896

(Vietnam); undetermined (North Korea) (2015), IDPs: undetermined (2014)

Trafficking in persons: current situation: China is a source, transit, and destination

country for men, women, and children subjected to sex trafficking and forced labor;

Chinese adults and children are forced into prostitution and various forms of forced labor,

including begging and working in brick kilns, coal mines, and factories; women and

children are recruited from rural areas and taken to urban centers for sexual exploitation,

often lured by criminal syndicates or gangs with fraudulent job offers; state-sponsored

forced labor, where detainees work for up to four years often with no remuneration,

240

continues to be a serious concern; Chinese men, women, and children also may be

subjected to conditions of sex trafficking and forced labor worldwide, particularly in

overseas Chinese communities; women and children are trafficked to China from

neighbouring countries, as well as Africa and the Americas, for forced labour and

prostitution

Tier rating: Tier 2 Watch List - China does not fully comply with the minimum standards

for the elimination of trafficking; however, it is making significant efforts to do so; official

data for 2014 states that 194 alleged traffickers were arrested and at least 35 were

convicted, but the government’s conflation of human trafficking with other crimes makes it

difficult to assess law enforcement efforts to investigate and to prosecute trafficking

offenses according to international law; despite reports of complicity, no government

officials were investigated, prosecuted, or convicted for their roles in trafficking offenses;

authorities did not adequately protect victims and did not provide the data needed to

ascertain the number of victims identified or assisted or the services provided; the

National People’s Congress ratified a decision to abolish “reform through labour” in 2013,

but some continued to operate as state-sponsored drug detention or “custody and

education” centres that force inmates to perform manual labour; some North Korean

refugees continued to be forcibly repatriated as illegal economic migrants, despite reports

that some were trafficking victims (2015)

Illicit drugs: major trans-shipment point for heroin produced in the Golden Triangle

region of Southeast Asia; growing domestic consumption of synthetic drugs, and heroin

from Southeast and Southwest Asia; source country for methamphetamine and heroin

chemical precursors, despite new regulations on its large chemical industry; more people

believed to be convicted and executed for drug offences than anywhere else in the world,

according to NGOs (2008).

241

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