12 January 2004	Monday	19 Ziqa'ad 1424

It appears a foregone conclusion that the regional economic integration in South Asia will lead to a bonanza for all, and is a sure-fire remedy for the economic ailments that has plagued the region. While this view will be explored in this piece, it is also important to ascertain whether the politics of the region will let us get near the economic boon that many in the security-alert, but festive Islamabad, appeared euphoric about.

The East African Community could not survive in 1970s due to political and ideological conflict among Kenya, Tanzania, and Uganda despite the economic logic of regional cooperation. The security in Islamabad at the time of Saarc summit alone speaks about the environment in which the revelers remained overly optimistic about the trade and peace prospects.

There was, however, a clear divide between the optimism of those who believed that this Saarc summit would usher in peace through the resolution of political disputes first, and others who believed that peace could piggy-back the flow of goods, people, and information some desire first and foremost.

The sidelining of Sheikh Rashid Ahmad, Pakistan's Minister for Information as minister-in-waiting for the Indian PM points towards the tension that still rumbles beneath the surface. There was, however, an appearance of conciliation, although only on surface. While, Vajpayee steered clear of the specific bilateral disputes in his formal speech, he did state immediately after landing in Islamabad that they viewed Jammu and Kashmir as their integral part, but were willing to talk on the subject because it was desired as such by many in the world.

The conciliatory posture could, therefore, be emanating partly from the world climate of opinion and partly from the domestic economic interests who would stand to gain immensely from economic integration. Vajpayee spoke about the great potential that the South Asian countries could exploit collectively. Indian business class is, too eager, to open up trade without further loss of time.

Pakistan's business class expresses mixed feelings about the same as the free trade benefits some and hurts others, which is why Nafta countries evaluate Nafta's impact not just on trade and economy but also on sectors and regions within a country and on jobs. This is why a key Democratic candidate for the US presidential elections, Dick Gephardt, remains critical of Nafta even though the beneficiaries may continue to sing praises.

The driving force behind Nafta were the big US businesses, as was also the case in the diffusion of Indo-Pak tensions following an attack on the Indian parliament in New Delhi in December 2001. As integration allows trade creation, manufacturing flows to low-cost countries in the region which is more likely to be the country that has a bigger market and that has, thereby, exploited economies of scale already to provide its low-cost quality goods to the region.

While some in smaller countries may also stand to gain from integration, a coalition of mutual interests emerges that drives the process of economic integration. Even in Britain, it is the big business and big unions that are for euro, while the smaller ones remain skeptical. This is not to say that integration should be resisted as it boosts trade. However, trade alone is not a panacea for deeper economic ailments.

It is important to determine who gains and who loses economically from the economic cooperation amongst countries in the region? As Saarc benchmarks Nafta, an overview of Nafta's impact would be in order, especially on the smaller partner Mexico. According to a well-researched paper, by 2001, Mexico had no doubt accumulated a trade surplus with the US in seven years since Nafta was launched in 1994.

However, Mexico also developed a large and growing overall trade deficit with the rest of the world during the same period with Mexico's net imports from the rest of the world exceeding its net exports to the US. While post-Nafta official unemployment rates fell in Mexico, the underemployment and low-paid low-productivity jobs increased. And, rural-urban migration in post-Nafta Mexico reversed primarily because of the deteriorating living and working conditions in the cities.

There was a steady erosion of wages of the employed with stagnation in the manufacturing share of employment. Inequality increased in Mexico as incomes and job quality deteriorated. The entire process of development either came to a halt or reversed. Questions that are being asked include whether Mexico can reignite the development process under Nafta since the benefits have accrued only to some industries and the very wealthy.

Researchers of Tufts University and the Mexican Free Trade Action Network have been researching how trade policies have affected the vulnerable communities and the environment and how affected communities are defending themselves with their homegrown alternatives.

How free trade impacts various segments of the society in all countries is a research area in the developed countries since trade indicators are not all there is to national economic development as the conservatives would like the world to believe. Prosperity from integration is not national prosperity in the true sense if it is selective and not collective.

A World Bank report of December 2003 on Nafta's impact confirms dualism in Mexico. According to this report, while Mexico's global exports, the FDI, and per capita income would have been lower without Nafta, Mexican development across the 1990s has been unequal with the northern and central states growing faster than the poorer southern states that also grew slower. It is further said that Mexico has not only been able to converge with its regional trading partners, it lags behind the typical country with Mexico's economic characteristics.

The Bank's officials conclude that free trade alone is not enough without significant policy and institutional reforms as "free trade agreement is not a substitute for a development strategy but is a single element in a broader development framework." Those who then view free trade as necessary and sufficient for development ought to rethink as development ought to benefit all and not some.

Four years into Nafta and the White House stood subdued about it's impact that had initially been hyped up by the Clinton administration. They reported a "modest positive effect" on the US economy by mid-1997. A decade into Nafta by 2003, the US vision stood even more tempered. Even Americans experienced loss of jobs. The US textiles had a setback, as did the software and high-tech where jobs moved to India. The director of the Inter-American Dialogue reports a loss of enthusiasm for free trade in the US these days.

South Asia's those-who-matter are gung-ho over Safta agreement this month. While it will boost the regional trade by bringing in informal trade into formal channel, the specific gains and losses will need to be known. And, while these will be selectively distributed, it is only the indicators of trade and investment that will look up. Trade and investment growth does not necessarily mean that it will lead to inclusive development for those who believe so, are again reposing faith in the tried-but-failed trickle-down model.

So, the supplements on agenda are the hackneyed micro-financing kind of measures for helping the poor fend for themselves as the owners of assets become wealthier and the elite consumers more consumptive through wide-ranging imports. At the end of the day, trade growth benefits those who already are within the market system and offers nothing to those outside the net.

Bringing poverty alleviation on the agenda of a regional association is almost akin to sharing responsibility for the same with others who have been equally unable to discharge it within their national context.

It sounds more like a soother attached to an elite-oriented agenda. In the case of Saarc, the biggest country is projecting benefits from trade which may not be equitably shared across the region as has been the case with Nafta.

So, as Indians promote the primacy of economics over politics, Pakistan President Musharraf minced no words when he said that Saarc's true potential cannot be realized unless tensions that draw us apart, were resolved.

He also said that there could be no peace without the resolution of political disputes and that their root cause must be addressed with justice and honour.

Whoever thought that the Islamabad summit would be a further climb-down from Kargil and Agra ought to reflect and read into the many lines written by skillful speech writers? Would Saarc gala, amidst tight security arrangement, establish the primacy of economics over politics is a question curious minds will keep exploring? Notwithstanding Safta, one major terror attack may again end up jamming travel, and thereby trade.

It is the interrelatedness between terror, travel, and trade that will in the future determine the direction of both economics and politics in Saarc region currently appearing conciliatory under the gaze of world powers.