High stake in a low-key area of economic cooperation

IF a stocktaking of the achievements of the South Asian Association for Regional Cooperation (SAARC) is done, it would be evident that while pleasantries have been exchanged between the South Asian leaders and noble pledges have been made by them, not much has followed in material terms. Conventions, Agreements, Declarations etc. have been signed; but tangible economic benefits directly attributable to SAARC initiatives are largely elusive. The SAARC Motor Vehicles Agreement and SAARC Regional Railways Agreement could have been among those few substantial agreements that could have given impetus to significant mutual economic benefits to member countries of the SAARC. While in the Official Summit Declaration as a sort of face-saving measure, member countries have agreed to hold a meeting of the Transport Ministers within three months of the Summit for finalising the Agreements for approval, it is difficult to surmise that what they have not been able to achieve despite expressing their determination for years would be achievable anytime so soon. Though the apparent lack of homework by a member state has been cited as the reason behind the last minute ditching of these two significant agreements, apprehension about domestic politics or security concerns could well be the real reasons for the failure to sign them. Nonetheless, the signing of the SAARC Framework Agreement for Energy Cooperation (Electricity) is a very welcome development and may prove to be a key achievement in the history of this regional institution.

The Electricity Agreement is just a framework agreement and it contains nothing more than a basic structure setting up the basis of cooperation on power generation, transmission, and power trade between member countries of the SAARC. Trade in energy has many characteristics that would distinguish it from trade in goods. The first and foremost is that it is immune to a constraint that intra-regional trade in South Asia often faces. A fundamental problem with trade in South Asia is that with a similar export basket (possibly with exceptions for India), their manufacturers are often competitors in the international market. For this reason, they find it difficult to trade with each other without hurting the mercantilist interest of domestic manufacturers and workers. For an example, when Bangladesh, India, and Pakistan are all major exporters of garment products, it is difficult for these countries to offer meaningful market access to the producers of garment products from other SAARC member countries.

Trade in energy, can, in several ways be a welcome exception to the general trend of trade between members of the SAARC. An overwhelming majority of economists, energy experts, and trade policy analysts have for quite some time almost unanimously argued for a regional approach to energy security in particular trade in energy. In their view, a nationalistic approach to the issue of energy security in a region where some countries have substantial lack of and others have substantial capacity for production of electricity makes little sense. Trade in electricity is also an area in which smaller economies that is Nepal and Bhutan have much to sell to the relatively bigger economies of the SAARC. Unlike trade in goods in South Asia, the very nature of trade in electricity should mean that it would not suffer from various non-tariff and para-tariff barriers. Once the necessary physical infrastructures for region-wide electricity supply are in place, it would also be quite difficult or economically too expensive for a government to put an end to the flow of the electricity trade.

While the context and underlying motivations are quite different, it may be pertinent to mention that the European Union, the most integrated regional grouping of countries had its genesis in an agreement on coal and steel. In Europe, the idea was that economies of France and Germany would have to be integrated in such a way that they must find a war between them would be next to unthinkable or severely damaging. Coal and steel – the most important ingredients of industrial production in that era were the natural choices for regional cooperation in Western Europe. While the SAARC's Electricity Agreement does not have any such grand design behind it; a mere willingness to enter into mutually beneficial cross-border trade in electricity is still economically important for member countries of the SAARC. After all, electricity is among the most important ingredients of large scale industrial production in the contemporary world. And if trade in electricity between member countries can materialise, it may be expected that this positive experience would pave way for greater cooperation in many other areas. Now as it would appear that the recipe for a very significant cooperation is present, it is for the South Asian policy makers to prove that they are really serious in engendering regional cooperation within the SAARC framework. After considerable expenditure of public money in diplomacy and pompous ceremonies, the South Asian public may legitimately expect real dividends from cooperation in this area.

The writer is an Assistant Professor, School of Law, BRAC University.