SACEPS1

SACEPS PAPERS
Paper No. 1
AGENDA FOR SOUTH ASIAN COOPERATION
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SOUTH ASIA CENTRE FOR POLICY STUDIES (SACEPS)

Secretariat: Centre for Policy Dialogue (CPD)
House 40C, Road 11, Dhanmondi R/A, GPO Box 2129,Dhaka 1209, Bangladesh
Tel: 8124770; Fax: 8130951; E-mail: cpd@bdonline.com ; rehman@citecho.net
Website: www.cpd-bangladesh.org
January, 2002
The South Asia Centre for Policy Studies (SACEPS) emerged out of a recognised
need to build an institution that would give a distinct shape to the realization of a
shared future for South Asia. The centre was originally set up at Centre for Policy
Research (CPR) in Delhi in 1999, but later in July 2000 it was moved to Centre for
Policy Dialogue (CPD), Dhaka which is now hosting the SACEPS. The overall
objective of SACEPS is to promote regional cooperation amongst the member
countries of South Asian Association for Regional Cooperation (SAARC) in the field
of development research, policy studies and policy advocacy.
Major activities and programmes of SACEPS will include undertaking research

programme, arranging policy dialogues and consultative meetings, publishing
reports, creating a network on South Asian studies and cooperation etc. Such
dialogues and meetings would provide opportunities for representatives from various
walks of civil society drawn from the South Asia region to periodically assemble and
discuss issues for promotion of South Asian cooperation and the socio-economic
transformation of the region.
In order to sustain the commitment of policymakers towards South Asian Cooperation

a series of Task Forces, bringing together eminent South Asians as members, were set
up by SACEPS. These Task Forces are expected to deal with issues of immediate
importance for cooperation such as SAFTA, the WTO, Investment Cooperation,
Cooperation in the Energy Sector, South Asian Macro Economic Policies and a
South Asia Social Charter. SACEPS is also exploring the possibility of establishing
a South Asian Economic Forum to bring together national, business and civil
society leaders to meet informally to collectively discuss the future of the region and
explore avenues of cooperation.
The first meeting of the Board of Trustees was held in Dhaka on January 13, 2001
where the members reviewed the future role of SACEPS. On the following day a
public dialogue was organised by CPD in collaboration with SACEPS with a view to
draw in a wider group of people to support the concept of building such an
institution. The present paper contains the highlights of the dialogue held on January
14, 2001 at the BRAC Centre, Dhaka.
Report prepared by: Mr. Ekramul Kabir, The Daily Star

Series Editor: Professor Rehman Sobhan, Executive Director, SACEPS and
Chairman, Centre for Policy Dialogue
SACEPS Papers 1
AGENDA FOR SOUTH ASIAN COOPERATION
Introduction
On the occasion of the launching ceremony of the South Asia Centre for Policy
Studies (SACEPS), the Centre for Policy Dialogue (CPD) in collaboration with
SACEPS, organised a dialogue on the Agenda for South Asian Cooperation on
January 14, 2001 at BRAC Centre, Dhaka. The dialogue was moderated by Professor
Rehman Sobhan, Executive Director, SACEPS and Chairman of CPD. List of
participants is annexed at A.
Inaugural Session
The Inaugural Session was chaired by Professor Arjun Sengupta, Chairman,
SACEPS. Mr. S. A. M. S. Kibria, Honourable Finance Minister, Government of
Bangladesh, attended the session as Chief Guest.
Introductory Address
Professor Rehman Sobhan pointed to the importance of institutionalising the forces
working for cooperation and the development of a South Asian community. Such an
initiative could expect to draw upon the rich intellectual resources of the region and
could also help in both healing the divisions between the countries of the region and
in giving a distinct shape to the realisation of a shared future for South Asia. Sobhan
pointed out a number of past initiatives taken in recent years to promote South Asian
cooperation but felt that they have been insufficient to synergise the process of
cooperation and to give it an institutional base. However, the time was now mature to
draw upon this rich intellectual base in South Asia and to invest in promoting the
process of cooperation to build such an institutional facility.
He informed the meeting that the South Asia Centre for Policy Studies (SACEPS)
emerged out of this background of ongoing activity to promote South Asian
cooperation. SACEPS originated in a meeting of a small consultation group of
eminent South Asians who met in January 1997, in Bangladesh at CPD to discuss the
scope for building such institutions. At this meeting a decision was taken to examine
the feasibility of setting up the South Asian Centre. This same group of eminent
South Asians met in New Delhi at the Centre for Policy Research (CPR) in March
1999 to review the feasibility report for setting up such a centre and accordingly took
the decision to set up SACEPS. From that period the preparatory process of setting up
SACEPS was put in motion. The secretariat was located initially at CPR in Delhi.
Subsequently, the Executive Committee of SACEPS took the decision to move the
Agenda for South Asian Cooperation 1

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Centre from New Delhi to Dhaka from July 2000 where CPD took over from CPR the
responsibility of hosting SACEPS.
Arjun Sengupta had initially assumed the responsibility of the Executive Director of
the Centre, while it was located at CPR, while Rehman Sobhan was elected Chairman
of the Board. When SACEPS was moved to Dhaka the roles were reversed. The first
Board meeting and strategic planning meeting for reviewing the future role of
SACEPS was held at CPD on January 13, 2001. The present public dialogue on South
Asian cooperation is designed to take SACEPS into the public domain and to draw in
a much wider group of people to support the concept of institution building for South
Asian cooperation.
Sobhan pointed out that there has been a deceleration at the official level due to the
changing dynamics of inter-state relations between the two major players in the
region. In such a process, rather than leave South Asian cooperation hostage to the
vicissitudes of bilateral disputes between particular members of SAARC, the civil
society in South Asia needs to take the initiatives in contributing to sustaining the
momentum of South Asian cooperation. As and when intergovernmental relationships
improve sufficiently to move the process forward within the SAARC context, civil
society initiatives can help to feed the process from work undertaken in this period of
South Asian relationships. To this end, in order to keep a number of South Asian
programmes for cooperation moving forward, the decision was taken by SACEPS to
set up a series of Task Forces drawn from eminent South Asians with long exposure
to issues related to South Asian cooperation. The Task Forces will take up issues of
immediate importance for cooperation and put together serviceable policy agendas
which would be made available to the heads of states, policy makers and to the
leaders of civil society organisations when official discussion on cooperation are
resumed.
The SACEPS Task Forces

Professor Rehman Sobhan next identified the scope of the Task Forces being
instituted under SACEPS.
SAFTA
In designing the South Asian Free Trade Area (SAFTA) it was important to protect
the interests of the smaller and weaker economies of the SAARC community so that
they can constructively engage themselves in benefiting from access to a free trade
area. The SACEPS Task Forces would highlight some of these issues which would
serve as guidelines, in the drafting of a Treaty. As in the case of the Treaty of Rome
creating the European Union, various safeguard measures and commitment of

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resources to build up the economies of the weaker members of SAARC would have
to be built into a SAFTA Treaty. The SACEPS Task Force will be engaged in the task
of identifying the issues which would need to be taken into account in preparing the
SAFTA Treaty.
WTO
A Task Force needs to be set up to figure out how all South Asian countries can
collectively participate in the next of round of negotiations of the World Trade
Organisation (WTO), which will have far-reaching implications for all the countries
of the region. South Asia is the only regional entity which has not undertaken joint
consultations prior to participating in global negotiations on how they can actually
benefit from WTO rather than remain passive victims of WTO decisions.
Investment Cooperation
The Task Force has been set up to address the issue of investment cooperation within
the region. It will explore opportunities for ensuring how investment can flow more
freely within the region, the scope for joint venture initiatives and how the SAARC
members can jointly enhance external capital transfers coming into the region, etc.
Cooperation in the Energy Sector
A Task Force on Energy Cooperation will address the issue of building up
opportunities of cooperation in the energy sector in the way of an interactive energy
grid throughout South Asia and will explore how the region can make fuller use of its
collective potential based on planning of supply and demand for energy on a regional
basis.
Task Force on the Macro-Economy
This Task Force will prepare a South Asian Macro-Economic Survey which will be
the regional equivalent of the World Development Report. This will focus specifically
on the macro-economic situation in general and will explore particular initiatives to
harmonise macro-economic policies within the region.
South Asian Economic Forum
Under the leadership of Mr. Ibrahim H. Zaki, Planning Minister of Maldives,
SACEPS is exploring the prospects of setting up a South Asian Economic Forum on
the lines of the Davos initiative. If this idea proves feasible, a forum can be provided
for the South Asia region where the heads of states, political, civil society and
business leaders can meet regularly in an informal environment to discuss the future
of the region and explore avenues for cooperation. The Forum will provide an
important infrastructure to facilitate this process and encourage a more constructive
approach to inter-regional relationships.

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Professor Rehman Sobhan pointed out that a unique feature of SACEPS lay in its
structure which was built around a number of already well established institutions
including the Centre for Policy Research in New Delhi, the Lahore University of
Management Science, the Institute of Integrated Development Studies in Kathmandu,
the Institute of Policy Studies and the Marga Institute of Colombo and CPD - which
is currently hosting the SACEPS secretariat. It is expected that in the near future the
SACEPS institutional support base will be broadened to draw in a variety of other
institutions as well as the support of prominent individuals and civil society
organisations.
Observations on the Role of SACEPS
Ibrahim H. Zaki, Minister from Maldives, while welcoming the idea of SACEPS,
remarked that national institutions within South Asia are coming together to pool
their institutional capacity to support SACEPS. In the context of an emerging need to
build a South Asian identity, SACEPS can play a vital role in promoting regional
cooperation and in assisting the official process of SAARC. Being a member of the
SACEPS Board, Zaki's expectation was that SACEPS should never compromise on
its independence. No one country should influence SACEPS and it should retain
freedom of thought and expression. Its greatest challenge would be to treat all
countries equally. Regarding the role of SACEPS, he emphasised that the immediate
issues that confront South Asia and which are common to all its peoples, should be
prioritised. Such issues should include trade and economic issues as well as some
environmental and social concerns. There was no better time to set up such a regional
organisation, at a time when South Asian cooperation seems to be slowing down and
the whole world was facing a major transformation in the economic and technological
fields as a result of the globalisation process.
Taking the cue from Ibrahim H. Zaki, Khawar Mumtaz of Shirkat-Gah, a leading
Human Rights oriented NGO in Pakistan, observed that SACEPS was an excellent
and timely initiative. If we have peace in the region, we will also need to have peace
within our countries. This very reason prompts such initiatives as SACEPS which
today provides the platform or institutional base that is needed, to promote not only
dialogues with policy makers, but also to initiate discourses within civil society for
developing a consensus behind collective positions and objectives. SACEPS will face
many challenges but the biggest challenge of SACEPS would be to build confidence
among civil society members and also among governments.
Inaugural Remarks by the Chief Guest
Finance Minister of the Government of Bangladesh, S.A.M.S. Kibria observed that
SACEPS could perform a very important Track-II service. He was hopeful that
SACEPS would provide strength and vitality to SAARC and will boost the

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organisation that has been created by the countries of this region in the form of
SAARC, which unfortunately, was bogged down in observing formalities and not in
addressing issues of substance which could accelerate cooperation. He also hoped that
SACEPS would successfully address the issue of mutual distrust because there is a
need to recognise that there is nothing to be gained by distrusting each other, and
everything is to be gained by cooperating with each other. This building of trust
should be the priority concern of the Centre.
Talking about the history of South Asian cooperation, Finance Minister S.A.M.S.
Kibria admitted that much effort had been invested in ceremonial activities; but other
than that there has been a sense of disappointment, as the SAARC concept has not
come up to the expectations of the people of this region. In the late '70s and early
'80s, the world was going through a very interesting phase. On the one hand, the Cold
War was at its height and concurrently the process of globalization was taking place.
The process of regional cooperation was also initiated simultaneously. The world saw
the birth and growth of the EU and of ASEAN. Although not all the regional
groupings were successful, SAARC was part of a global trend. Unfortunately,
SAARC has not been able to achieve the breakthrough needed to give it credibility
and establish the sense of achievement needed to persuade the people of the region to
think that the initiative had been worthwhile.
Giving the example of ESCAP where he (Mr. Kibria) had been Executive Secretary
for close to a decade, an organisation that promotes regional cooperation in Asia and
the Pacific, the UN body had been superceded by APEC, initiated by Australia
because APEC commanded strong political support from the US. As a result of this
political backing APEC is very active and regional cooperation is taking shape on
account of strong support given by one major power or the other. According to
Kibria, South Asia has a natural advantage to cooperate but has not done so for
various reasons.
Investment cooperation in South Asia was one area which frustrated Kibria. While
the region is campaigning for foreign investments, we only look for it from USA,
Japan, Korea, he said. But we don’t think about investment from within our region. If
we are to really achieve rapid growth and promote investment, we have to draw upon
resources from within the region.
As regards the South Asian free trade area, Kibria observed that he had been in the
heart of the ASEAN region for many years and could observe how trade cooperation
worked in the area where, in fact, most of the ASEAN countries were competitors
with each other. They produce the same goods such as rubber and tin, which are in
competition with each other. Yet they have built strong economic and political bonds

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with each other. In fact, the ASEAN countries have territorial disputes similar to the
Kashmir problem. But, somehow, they have buried the hatchet and are living
peacefully. In looking at NAFTA, he stated that cooperation between Canada and US
was very natural but who could have thought there could be a bond with Mexico,
which lags far behind both countries. Yet the impossible has been achieved, where
Mexico’s interests are being safeguarded under the provisions of the Treaty.
Safeguards have also been built for Canada which has created their own set of
safeguards to protect their domestic industries. As a result of the generosity and far
sightedness of USA, NAFTA is a reality today and they are now able to jointly deal
with the EU. NAFTA should be a lesson for us in South Asia. Regarding cooperation
in South Asia and the social charter, Kibria thought that there was scope for active
cooperation, and hoped the dialogue initiated would lead to fruitful results.
Concluding Remarks
The Chairman of SACEPS, Professor Arjun Sengupta, observed that Indian Prime
Minister A. B. Vajpayee has been and continues to be the champion of South Asian
cooperation. In fact, when the whole SACEPS venture was initiated, Mr. Vajpayee
wished it to be situated in India. He promised all his support to the SACEPS idea as
he believed that besides intergovernmental cooperation, there had to be strong civil
society cooperation to sustain the process of South Asian cooperation. However,
initial positive support to the SACEPS idea in India had decelerated as the overall
official approach to South Asian cooperation in India had, in recent times, become
more cautious. In such circumstances it was upto SACEPS and other such civil
society initiatives to keep the process of South Asian cooperation alive. He believed
that the deceleration in the process of cooperation was absolutely temporary. In the
interim period it was agreed that it would be a better idea to move SACEPS to a place
like Bangladesh where the commitment at all levels to the idea of South Asian
cooperation remains strong and unequivocal. He pointed out that the Executive
Committee of SACEPS had decided that the SACEPS process should be kept alive
and would thrive from Dhaka. This perspective had been validated by the
distinguished people assembled here on this day as part of the grand inaugural of
SACEPS to provide all support, since even though SACEPS was a civil society
organisation it should not operate at cross-purposes with the governments of the
region. Track-II must supplement Track-I if it is to be effective and it was hoped that
the Bangladesh Government will provide all the assistance required to make SACEPS
effective. With the initial gathering of such a body of eminent persons at this
inaugural as well as the eminence of the membership of the SACEPS Board, along
with its ambitious programmes, SACEPS should have a promising future.

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Session I
Investment Cooperation in South Asia
Professor Syed Babar Ali, Pro-Chancellor, Lahore University of Management
Sciences, and Convenor of SACEPS Task Force on Investment Cooperation,
presented the keynote paper titled “Commentary: Presentation on Common
Investment Strategy”. After briefly outlining the background of the Task Force
initiative, the paper defined the agenda for a common investment strategy, spelt out
the objectives of the research, described the methodology and lastly, elaborated on the
current status of the work of the Task Force.
The Discussion
Rationale for Regional Cooperation in Investment
In the discussions that followed, Professor Shridhar Khatri pointed out that the ideas
including the Task Forces was very ambitious and impressive. It is ambitious in the
sense that it plans to examine the status of agendas of cooperation already under
discussion in the official SAARC forum but which are not making much headway.
SACEPS hopes to explore how this impasse can be resolved and to recommend
policy measures for the future to accelerate cooperation. He considered the essence of
SACEPS mission should be to come out with concrete recommendations for
cooperation, which can be implemented by the governments of SAARC.
M. Mukammel Huq, Executive Chairman of Bangladesh Board of Investment,

considered the SACEPS initiative to be particularly timely because, we are no longer
talking about industries, but about investment, which means both industries in the
traditional sense as well as in new areas such as e-commerce and information
technology, which cannot be defined in a conventional sense as industry, as it does
not occupy much space or involve employing many people.
Arzu Rana Deuba, Head of SAMATA in Kathmandu, suggested that the first thing
that SACEPS should focus on is to provide a forum for the women, children and
youth of the region so that they could come together and have their say in influencing
the agenda for cooperation. The model that has been proposed in the charter of
SACEPS, is going to give them a chance to play such a role and this should be
emphasized since SACEPS is the only entity to make sure that this type of
consultation goes on. She also pointed out that SACEPS should take account of how
free trade and integration of the transportation system within South Asia were going
to affect the lives of women and children.
Tofail Ahmed, Industries Minister, Government of Bangladesh observed that South
Asian cooperation depends on the politicians to generate the political will to

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accelerate cooperation. Whilst some national bureaucracies are very careful in

continuing to protect local industries, opening up access to the national and
particularly the large Indian market among SAARC members is essential. Globally,
all SAARC members are fighting for greater market access so let the process start
from within SAARC. We are delighted that SACEPS is being relocated in
Bangladesh in Dhaka, since we expect SACEPS to address the unique concerns of the
smaller members of SAARC. He gave assurances of every possible assistance from
the Government of Bangladesh for SACEPS.
Abdus Samad Azad, the Minister for Foreign Affairs in Bangladesh, emphasised the
importance of peace, security and development in the region. The Bangladesh
government was aware of the many difficulties, which have slowed down the process
of cooperation within SAARC. The SAARC process remained sensitive to the
regional and political climate as well as relations among the member countries.
However, Bangladesh along with other countries, has always tried to sustain the
SAARC momentum because Bangladesh’s and indeed South Asia’s future is linked
with the prospect of cooperation. The future of SAFTA, people-to-people contact
through facilitating transport and communications, encouraging intra-regional
tourism, easing visa regimes, increasing cultural exchanges, and intensifying
cooperation in all fields, including science and technology, need to be addressed
within SAARC. Important questions of economic and financial harmonization and
liberalization, greater mobility of factors of production within the region, greater
market access with special consideration to LDCs has assumed increasing urgency.
The collective weight of SAARC needs to be drawn upon now more than ever for
linking up the region’s economy to the dynamic Southeast Asian economies as well
as for greater integration with the global economy to maximize the benefits from the
WTO regime and the process of globalization for the members. He felt confident that
the deliberation of ideas and insightful exchanges at this dialogue will greatly benefit
all governments in the region.
Samad Azad said, he was happy to see that SACEPS has been located in Bangladesh
in one of the most prestigious think tanks of the country. The Government of
Bangladesh looked to the major civil society institutions of the region, to provide
policy guidance and advocacy for the process of cooperation in South Asia. He
offered the full support of the Government of Bangladesh to SACEPS and expected
that it will turn Dhaka into a meeting place of South Asian professionals and activists
of civil society committed to the process of cooperation.
Factors which Inhibit Regional Cooperation
Professor Shridhar Khatri thought the SAARC initiative, from the beginning, has
been insular in approach in terms of bringing funds from outside. Upto 1992 there

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were no funds coming into SAARC because of reservations that these might
contribute to exercise of influence from external powers or agencies. This approach
has changed but the idea of creating a South Asian Fund hasn’t been operationalised
as yet. Much work still needs to be done, particularly in terms of attracting
investments into and within the region.
M. M. Rezaul Karim shared Khatri’s concerns about the interests of the small
countries. He argued that where poverty is pervasive, the benefits of cooperation need
to be shared. Conditions have to be created to enhance the productivity of investment
in LDCs but without exposing these countries to the negative aspects of foreign
investment. Any policy to promote investment cooperation within SAARC should,
therefore, emphasise the need for mutual benefits, and mutual respect for the
countries and the peoples of the countries based on the principle of sovereign
equality. The trust and confidence that need to be built up to sustain cooperation
should be carried forward in an environment of peace and development.
Organisations such as SACEPS have to make every effort to do whatever is necessary
to create awareness in the civil society to build an atmosphere where this harmonious
environment can be created in the region.
Waliur Rahman, Former Secretary, Ministry of Foreign Affairs, added that smuggling
was one problem, mutual suspicion was another. To develop a common strategy for
investment for the South Asian countries, it is essential that every country respects the
sovereignty of every other country. After 20 years of operation, SAARC hasn’t been
able to realise the dreams of its founding fathers. One of the reasons is the lack of
education in this area. This is the one single area in the world where the largest
sections of the people are illiterate. Now this is one area where SACEPS can come up
with suggestions as to how SAARC countries could come up with a solution to
educate all people in the region.
In Bangladesh, at a recent international conference on Investment Cooperation held in
Dhaka in November 2000, countries such as Japan, China and Australia took part.
South Asia has to take note of such events. Furthermore, within the framework of
regional cooperation, there may be scope for sub-regional cooperation, for example,
among southern India and Sri Lanka – geographical proximity allows them to
cooperate more closely. In the same way, Bangladesh, Nepal, West Bengal, and the
seven northeastern states of India can cooperate. Bangladesh has a unique
geographical position. It links South and South East Asia. Myanmar is also a
prospective partner of South Asia, with enormous unexploited potential. Some day
the best way to get into Myanmar from South Asia will be through Bangladesh.
Bangladesh has a port, which can be used as a regional hub port to serve to Eastern

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South Asia as well as land-locked South West China looking to reach the Bay of
Bengal.
Farooq Sobhan, who is also a former foreign secretary of Bangladesh argued that the
most critical issue of all regarding FDI flows within the region is quite distinct from
issues and problems relating to the flow of investment coming into the region from
abroad. Attracting FDI in the region raises three fundamental questions that need to
be addressed. One has to be seen from the perspective of foreign investors, who need
free movement of goods within the region. This certainly raises the issue of a free
trade area in South Asia. He further observed that within the framework of SAARC,
the issue of common investment strategy was an important concern. Indeed one area
where progress had been made is in the formulation of a draft investment treaty for
SAARC, which seeks to harmonise investment incentives offered by the SAARC
countries to foreign investors.
S.M. Akram, MP, Chairman of the Public Accounts Committee of the Parliament in
Bangladesh, said that every country is providing a plethora of incentives but no one is
encouraging their own investors to go to other countries. There are many restrictions
in South Asia on people in taking out foreign exchange that would enable them to
invest in other countries. Potential investors from South Asia should be provided with
the incentive to invest within South Asia. He suggested a common investment
strategy for all seven countries to link the investment strategies of all South Asian
countries.
Syed Manzur Elahi, a former President of MCCI and a leading industrialist of
Bangladesh, observed in this respect that South Asian economies are competitive, not
complementary. There was a similar problem in EU between Spain and Portugal
whose economies were also competitive. This was once the case of UK and Germany.
This region has lessons to learn from them as to how they tackled the problems.
Suppose an Indian company, wants to set up a tire manufacturing plant in
Bangladesh. Now why should the company invest here when there is a ready market
in India, where such companies enjoy economies of scale? The biggest problem faced
by smaller countries in South Asia is the absence of a sizeable market; even though
some countries such as Bangladesh have large populations, the purchasing power is
not there. Within a free trade area, however, a tire industry can be set up in
Bangladesh to serve the entire South Asian market. So integrated markets would
promote the easy flow of investment. There are restrictions on the free flow of
investment between India and Pakistan. Similarly, Bangladesh has foreign exchange
regulatories which inhibit the flow of capital. Bureaucratic problems are yet another
major constraint.

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Professor Shridhar Khatri, observed that South Asia still has a lot to learn, not only in
sharing information internally within the region, but also from the experience of other
regional organisations. He cited the case of ASEAN and regional organisations of
Latin America, which has the benefit of having a large neighbour in the United States,
which remains a rich source of capital for the region.
This sense of unfulfilled promise continued to characterise the regional groupings
until the end of the `80s. From the end of `80s and early `90s, however, a new phase
of regionalism began to make its impact on the global economy. The first phase
basically was a phase of taking advantage of larger markets, through freeing up trade
between groups of countries where the so-called trade creating effects proved more
positive than the trade diverting effect. But in the second phase a variety of new
considerations came into place where the new regional grouping were driven by
competition with other such groupings which was symptomatic of the era of
globalization.
Dubey cited two developments in the world from these competition-driven initiatives.
One was the prominent role of multinational companies. At the micro-level the idea
was to make use of the resources and technology of the multinationals, to obtain
competitive advantage, and access larger markets so as to have an edge over other
competitors. At the macro level, there was a merger of markets, with the EU
emerging as the most conspicuous example. In 1989 the EU decided on the
integration of their markets and completed this process within two to three years.
While the earlier regional groupings were groupings among the contiguous
geographical countries, the groupings of the 1990s were designed as mega-groupings,
to enable its members to complete in a globalised economy.
Learning from Others
Muchkund Dubey, former Foreign Secretary of India, addressed the issue of regional
cooperation within a broader framework. Looking at such regional groupings in
perspective, from preferential arrangements to a free trade area or customs union, one
goes back to the early '60s when the Treaty of Rome triggered off a whole set of
preferential arrangements all over the world. Latin America, the Caribbean, Africa -
all prepared Treaty proposals to move toward a regional free trade area. Some even
proposed cooperation in the monetary field, whilst others set up special funds for the
development of the less developed members to ensure that they can share in the
benefits from the regional groupings. However, by the beginning of the `70s, apart
from the EU, most of the first wave regional groupings had failed to realise their
promise.

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Even though initial groupings such as the EU, were confined to only six European
countries with broadly similar economic structures, in the second wave of regionalism
the new groupings brought together countries from across regions and oceans,
developed as well as developing countries, in groupings such as NAFTA and APEC.
Each of these mega groupings was constantly seeking to expand its sphere of
influence. Thus, the EU made agreements with a whole range of countries and groups
outside, as for example through the GSP facility provided by the EU to many
developing countries. These linkages of the EU with different countries outside
Europe has transformed the EU into a mega grouping.
Speaking about the reaction of the rest of the world to this development, particularly
in South Asia, Dubey went on to say that there were two reactions to the concept of
mega-groupings. One was a desire to get into the mega grouping because it was
realized that until a country got into the grouping it would be discriminated against.
The other was that, in case of negotiating alone, a country may be at the wrong end of
the bargain or others may simply be unwilling to admit it. India has been trying to get
into APEC for quite some time but without any success. One therefore has to
strengthen ones own position through becoming part of a local grouping whose
collective strength puts it in a better bargaining position vis-a-vis other mega
groupings.
Modalities to Stimulate Cooperation
Mokammel Huq expressed his belief that industries and investment help each other.
He welcomed the Task Force study. He noted that in order to promote intra-regional
investment, quite a few things, such as bureaucracy, need to be addressed. He
strongly felt that one of the greatest inhibitors of both trade and investment in this
region was the South Asian bureaucracy. If we look at South-East Asia, intra ASEAN
trade exceeds ASEANs international trade. This points to the importance of mutually
sharing trade and investment, and other issues in the region, which is far from the
case in South Asia where there is relatively little cross-border investment. Huq
attributed this lack of investment cooperation onto the politicians who have made
political capital out of keeping intra-regional conflicts alive. As long as such
politically motivated animosities are perpetuated it will be impossible to build the
environment of mutual confidence needed to promote investment, in the same way
which ASEAN has done, in spite of a host of conflicts in the region.
Professor Shridhar Khatri noted that the proposal in the Task Force paper on
investment indicated that there was a link in South Asia, in any form of regional
cooperation, between investment and trade. Because when a free trade area in South
Asia is talked about, some form of compensatory mechanism has to be created within

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the regional framework so that there is no feeling of unequal sharing of benefits

within the region.
Ambit of Cooperation
Dr. Debapriya Bhattacharya observed that one cannot have investment cooperation
without full financial integration. This needs to ensure that the banking systems are
interconnected and exchange rates are harmonised. Trade cooperation can be taken
forward if macro-economic policies are harmonized through interaction among the
Central Banks and related agencies. The issue of investment cooperation should
therefore include competition policy, financial integration issues and macro-economic
harmonization. The other important aspects of the preparatory phase is the issue of
standards which remain very important for NTBs. The harmonization of standards is
better done at the international level rather than at the regional level.
Professor Shridhar Khatri observed that for smaller countries, the incentives for
promoting investment in tourism and infrastructure should be emphasised in the
work of the Investment Task Force. The idea of cooperation includes what
economists term the backwash effect, meaning that when there is free play of market
forces the beneficial scope for opportunities for the smaller, weaker members or
groups, might be compromised. The future of regional cooperation depends on how
effectively the benefits of a regional groping will be shared equally, in terms of
investment, when the chances for the small countries to attract investment remain
weak because of their poor communication and transport structure. Some studies are
needed on how foreign investment can be channeled to the SAARC LDCs, which
should be addressed by the Investment Task Force.
Farooq Sobhan, while explaining the importance of investment cooperation in the
area of infrastructure, pointed out that people tend to overlook the fact that when they
speak about foreign investment in India or China. They overlook the fact that most of
the benefits of these have gone to some selected provinces or states. The reason for
this is the superior infrastructure facilities which are available in those states,
especially port facilities. For Bangladesh, perhaps its single biggest asset is
Chittagong port. What it can offer not only to Bangladesh but also to neighbouring
landlocked regions is really remarkable. However, the current operation of the
Chittagong port is far below its current potential. We need to develop this asset.
Infrastructure includes not only ports and roads but also air route facilities. It is hard
to believe that air links still remain such a big problem within the region.
Telecommunications are also very important from the point of view of foreign
investors.

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The third area, he emphasised, is the legal framework and the fact that the
governments in all the SAARC countries tend to be regulators and operators at the
same time. This creates serious problems for foreign investors. Legal remedies are
available but tend to be slow and complex. A SAARC Arbitration Council to address
these issues efficiently needs to be developed. There is also the need to design a legal
framework offering quick remedies.
Another factor that had been touched upon, which needs to be addressed with a 21st
Century approach, was the whole problem of bureaucratic bottlenecks, in particular,
the problems posed by customs officials. There is a curious mix of corruption and
delays. This needs to be addressed through designing a system, which provides the
maximum possible transparency through information technology.
Khawar Mumtaz in this regard cautioned that when foreign investments are invited
into a country, everyone should be careful so that it does not take place at the cost of
the environment and the people. Regarding transfer of technology, everyone should
be careful so that we are not dumped with technology that is considered obsolete
elsewhere.
Responding to the remarks, Syed Babar Ali stated that he felt there was a shortage of
skilled people everywhere. While suggesting the importance of investment in
improving infrastructure, he pointed to the special needs of landlocked countries. It is
the duty of other countries in SAARC to facilitate the access of their landlocked
neighbours to the sea. Fortunately with globalisation and IT, he said that it has
become easier to transfer goods to and from the more remote areas.
Session II
Building a South Asian Free Trade Area
The session was chaired by Mr. Yadav Kant Silwal, former Secretary-General,
SAARC, and former Foreign Secretary of Nepal. Mr. Tofail Ahmed, Minister for
Industries, Government of Bangladesh was Chief Guest at this session. Dr. Saman
Kalegama, Executive Director, Institute of Policy Studies, Colombo, made a
presentation on the implications of moving towards a South Asian Free Trade Area
(SAFTA).
The Discussion
Rationale for a Free Trade Area in South Asia
Discussion was initiated on the presentation by Muchkund Dubey who argued that
freeing of trade is not enough. One has to have investment flows to enable countries

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to benefit from wider market access. In ASEAN, which until recently depended on
preferential arrangements on the lines of SAFTA, they have committed themselves to
graduate to a free trade area, AFTA (ASEAN Free Trade Association), and have set a
deadline of 2003 for AFTA. They are moving towards this goal despite a few
setbacks. The ASEAN Secretary-General, suggesting that AFTA was a move to
attract investment, declared that it was a signal to the world that ASEAN is ready to
serve as an investment destination for the global economy. Those regional groupings
that have not evolved towards mega formations either for attracting capital or to
protect themselves from discriminatory treatment by mega groupings, are becoming
marginalized. This applies to the whole of Africa and South Asia. This remains the
strongest rationale for these countries for moving towards building a free trade area.
Dubey thought that in the above context SAFTA is not an adequate response to
globalisation. Dr Kelegama had already observed that the proposed tariff cuts under
SAPTA are not deep enough to make an impression on trade and that non-tariff
barriers still constrain trade. The SAPTA approach of commodity by commodity
concessions is highly time-consuming; it depends on which commodity and which
countries are offering the concession. Such an approach will do little to facilitate trade
within South Asia nor will it help the region move towards a free trade area along the
path of SAPTA. All the successful initiatives in other regions, for setting up a free
trade area, originated in a treaty which set a time limit, with a built-in a schedule to be
implemented in the set time-limit.
Increasingly, preferential trade arrangements among developing countries, are going
to be considered within the legal provisions of the WTO. SAPTA has been negotiated
on the basis of the clause for the developing countries set within the WTO. This
clause has two severe limitations. One is that it doesn’t allow the member countries to
negotiate on removing their non-tariff barriers (NTB). For removal of NTBs they
have to take the permission of GATT. So if SAARC wants to move towards a Free
Trade Area it should do so under Article 24 of the GATT treaty and proceed towards
a free trade area accordingly. This is the rationale for a SAFTA treaty, as
recommended by the Group of Eminent Persons.
Making Regional Groupings Effective

Dubey went on to argue that there were two reasons why the first phase of regional
groupings failed. The first is that the economies in the groupings failed to show
dynamism. When most of the economies of the region are not dynamic or are
stagnant, then all the problems created through free trade are aggravated because the
member countries don’t have the latitude to cope with these problems. Only the
dynamic economies can benefit from free trade and can even support the weaker

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economies to cope with their problems. This did not happen in the case of most of the
regional groupings of the early ‘70s because few had members with really dynamic
economies except for ASEAN.
The second problem owes to the fact that each grouping had a few LDC members but
the provisions made for the LDCs under Article 24 of GATT were rarely
implemented by the grouping. As a result, the lesson to be learned by SAARC from
the other regional groupings is that if any treaty is made for moving towards a free
trade area, two things are essential. One, is that the major economies must pay the
price commensurate with the size of their economies. If there is a fund created for
building up the export capacity of the SAARC LDCs, then a country such as India has
to pay 75 per cent of the costs of the fund, just as people with higher incomes pay a
higher rate of income tax. The second thing is that there has to be a guiding vision for
inspiring the support of the LDCs. The Eminent Persons Report has already argued
that apart from moving toward a free trade area, there eventually should be a move
towards a customs union and from there to an economic union. For moving towards
an economic union, there should be greater harmonization of the SAARC economies,
which call for deeper integration, which goes beyond freeing trade and needs to
address the issue of strengthening and integrating the infrastructure and building
common standards for linking trade and communications.
Gravity Model
Referring to Kalegama’s paper, Professor Sobhan observed that the paper is based on
a gravity model, which shows that if there is a preferential trade arrangement there
would be an increase in trade and an increase in welfare. However, if one looks at
trade from a dynamic perspective, the results can be different. The gravity model
makes it difficult to capture the dynamic implications of free trade, because it takes
production structures in each country as given. For example, the results of the gravity
model show that if India provided unilateral free trade access to all the countries of
the world, India would have done much better. But if it just provided a preferential
opening to SAARC members, India’s benefit would be much smaller than that of the
other SAARC countries.
Small and Big Partners in Regional Groupings

Sobhan went on to argue that although there are many problems with preferential
trading arrangements, he thought that if there is a comprehensive free trade
arrangement, the smaller countries could suffer, particularly in the short run. The
smaller countries of South Asia therefore would have to be helped to prepare
themselves for SAFTA. They will have to substantially develop and diversify their
economies. Until that takes place the bigger SAARC countries will have to take

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account of the industrial structure of the smaller countries and will have to adjust their
own economies to create market space for the products of the weaker economies
within the SAPTA framework. It is possible to build up a proposition that, so far as a
big country such as India is concerned, it does not lose anything by unilaterally
opening up its markets to the countries of the region.
It was pointed out that there were already some precedents for assymetrical moves
towards free trade. For example, the EU had accepted one-way free trade
arrangements with some partner countries, which was accepted by GATT, but with
Israel it negotiated a comprehensive free trade agreement. They called it an
asymmetric free trade arrangement, where first the EU opened up its market to Israel,
but Israel only opened up its market to the EU after 14 years. By that time, Israel had
built up the capacity to compete with the EU. Now if we are going to propose a
similar arrangement within SAARC, with India cast in the role of the EU and at least
the LDCs in the role of Israel, we have to show that there is a positive benefit that
will accrue to India. We will have to sell this notion to Indian policymakers,
particularly if the benefits to India from the arrangement would be limited. If there
are export barriers from these countries, relaxing these barriers would be beneficial to
both these countries and India. If there are already few trade barriers on Bangladesh’s
exports to India, this means that it would allow gas, and other materials, to be freely
exported to India. Market access to India could lead to investment cooperation
whereby Indian capital would come into the LDCs of South Asia in the same way as
EU capital came to Israel or US capital to Mexico, so that products from these
investments can be exported back to EU or the USA. Foreign investment from outside
South Asia could also come in to the LDCs of SAARC to take the advantage of trade
access to the Indian market. Thus there is a tremendous possibility of investment
cooperation, based on complete free access from Bangladesh to the Indian market. In
such an environment Bangladesh businessmen can aspire to capture the Indian
market, even if it would be only a very small fraction of the market, which should not
be resisted from the Indian side. The ultimate aim is not just free trade, or just a
common market, but an economic union on the lines of the EU, based on integration
of markets in the area of trade, finance and investment.
Professor Taslim of the Department of Economics, Dhaka University argued that in

order to encourage the smaller partners in SAARC to support SAFTA, the bigger
partners have to show some goodwill. The smaller countries of the region remain
suspicious of the bigger partner about the potential for dominance within a free trade
area which is not unusual in the case of any region. So the larger country has to take
some responsibility in assuaging the concerns of weaker neighbours, which has been

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an essential element in successful regime groupings. Unfortunately, since its

independence, India has favoured a most insular economic policy which has made it
less sensitive to the concerns of its neighbours. Now that India has chosen to open its
economy, it is expected that India would take actions to encourage its neighbours to
benefit from this liberalisation of the Indian economy.
Impediments to Effective Regional Groupings in South Asia
Dr. Debapriya Bhattacharya of CPD observed at this point that in all South Asian
countries, the standard enforcing organizations tended to be the weakest and played a
very small role in trade. Thus harmonisation of standards in South Asia would first
require an enhancement in the capacities of the regulatory bodies without
accentuating their rent-seeking tendencies. In some cases new institutions may have
to be set up. Such institutions were set up in the EU as in the case of dispute
settlement mechanisms. Today in South Asia, even in the event of a dispute, the
traders do not know where to file their cases or where to go for arbitration or even as
to how the money will be repatriated, etc. Without a dispute settlement mechanism
free trade cannot take place. As regards the fund issue, the compensatory fund
worked very well in the EU where Greece and Turkey benefited enormously from
access to the fund. However, in case of SAARC the concept of such a compensatory
and enabling fund is yet to make its appearance.
Some time ago Bangladesh's trade minister proposed that 25 export items be accorded
unrestricted entry into the Indian market. Such a concession by India is not exactly
free trade, but it is important as a confidence building exercise since the bigger
partner has the responsibility to demonstrate its good intentions.
M. M. Rezaul Karim, Former Ambassador and Secretary to the Government of
Bangladesh, was in favour of free trade as he thought it promotes the interests of the
people in general. He was very impressed by the report of the Institute of Policy
Studies, Colombo, and thought that it will provide a basis for further discussion and
will guide the work of the Task Force on SAFTA. Elaborating on what Muchkund
Dubey has said about mutual suspicion, Karim emphasized the need to foster a sense
of trust, sincerity and confidence among SAARC member countries to underwrite the
process of cooperation.
Farooq Sobhan said that many Bangladeshi exporters to India have complained about
implementing the official trade concessions on offer at the Customs Offices in
Benapol and other places. To overcome these bureaucratic barriers he suggested that
the customs officials at the border could be drawn from a third SAARC country such
as Sri Lanka or any other third country, since such officials have proven to be a major
NTB. In the specific case of Bangladesh, because of our porous borders with India,

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we are, for all practical purposes, already a free trade area for Indian exports. Thus, it
is the smaller countries that are getting the worst part of this bargain of trade
liberalisation since they have liberalised their economies much faster than India. The
case for moving to a free trade area on a graduated basis is overwhelming particularly
for the small countries, but this approach may have been overtaken by events on the
ground.
Tofail Ahmed observed that a free trade area depends, firstly, on bilateral relations,
then on regionalism and finally on globalisation. These three developments depend on
politicians and bureaucrats. But unfortunately in the First Ministerial Meeting on the
WTO in 1996, the SAARC ministers could not take a united stance. Greater market
access was opposed by some of the SAARC countries. However, in the Second
Ministerial meeting in Geneva, taking lessons from the First meet, a common stand
was adopted by the SAARC countries. But, unfortunately, at the Third Ministerial,
again the Ministers from SAARC countries failed to sit together to work out a
common strategy. To this end, the proposed SACEPS Task Force on developing a
common SAARC strategy for the WTO is to be commended.
SAFTA is also not moving ahead as rapidly as had been envisaged in the Malé
Summit. In the beginning of the 1990s Bangladesh rapidly liberalised its tariff
structure which has proved advantageous to exporters from neighbouring countries.
In the case of SAFTA, the framers did not give enough attention to issue of rules of
origin. The rules of origin stated that the domestic value added content had to be 50
per cent. However, as an LDC, Bangladesh's value added content cannot immediately
attain this level to enable us to avail of tariff concessions on offer by our neighbours.
As a result, there were very few items in Bangladesh which could benefit from the
SAPTA value added concessions. If Bangladesh is, therefore to benefit from the
SAPTA concessions, the rules of origin provision, at least in the near future, needs to
be substantially relaxed.
In conclusion, Tofail Ahmed pointed to Bangladesh’s huge trade imbalance with
India, adding that this did not bother him. Bangladesh has trade imbalance with China
and a big trade surplus with the USA. Such bilateral trade imbalances are a normal
part of a liberalised pattern of trade relations. In ASEAN there are big trade
imbalances amongst its members but they are sitting together and deciding how these
imbalance can be compensated so that the process of economic cooperation is built
upon reciprocity. Such an approach is less evident within SAARC.
Another big question was that the trade barriers have been withdrawn under SAPTA
and India has given Bangladesh on average a 50 percent tariff concession on its
exports to India, but in reality, when Bangladeshi entrepreneurs move to export to

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India under the SAPTA concessions they face tremendous problems since surcharges
are imposed on their exports or they have to pay local taxes, state taxes, excess duty,
countervailing duty and many others such non tariff taxes, which undermine the
preferential benefits provided under SAPTA. To cope with such NTBs in the initial
stage, the bigger economies must convince the smaller ones in SAARC that they are
genuinely interested in providing market access and will not take away with one hand
what is offered by the other.
Stakeholder’s Role in Stimulating South Asian Cooperation
In WTO negotiations, SAARC members must be united. While we are asking for
further market access, the developed countries are trying to protect their domestic
industries by imposing more restraints on market access. Bangladesh proposed that
movement of human resources be liberalised under WTO but the barricades remained
high in this area, in the developed world. To address such issues of common concern,
SAARC needs to develop a common strategy.
Professor Taslim, Department of Economics, Dhaka University said that a broad mass
of people have to be convinced about the benefits of policies for South Asia
cooperation which will eventually affect all sectors of people. Therefore, they have to
be convinced that they have much to gain from free trade for example. The civil
society in South Asia has so far failed to build support for cooperation. In Bangladesh
there is not much support where even civil society is not convinced about the merits
of free trade. One of the important stakeholders here is the business community,
which may not be very keen about free trade since they see this as one-way free trade,
which is potentially harmful to their specific interests.
Unless the business people and the civil society are convinced, there can hardly be
any chance for cooperation. Obviously the politicians would be moved by whatever
they deem popular with voters. If they think that a particular policy of South Asia
cooperation would be electorally unpopular a government may not move forward or
an opposition party may oppose a particular initiative for electoral reasons. So it is the
job of the civil society to convince the common people and the stakeholders that there
is something to gain from free trade or some other aspect of South Asian cooperation.
Following up on what Tasleem had said, Bhattacharya observed that the civil society
has a dual identity. With one face it behaves like a responsible citizen and talks
against the flood of foreign goods which is undermining local industry. With another
face it behaves as a greedy consumer of foreign goods available at cheaper prices. So
much depends on the particular face of civil society which it is encouraged to project.

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Session III
Energy Cooperation in South Asia
Dr. Mohan Man Sainju, President, IIDS and Chairman of the SACEPS Task Force on
Energy Cooperation in South Asia made a presentation on Energy Cooperation in
South Asia.
The Discussion
Opportunities for Energy Cooperation in South Asia
Discussion was initiated on the presentation by Farooq Sobhan who pointed out that
Dr. Sainju’s presentation brought out very clearly the pivotal importance of the
energy sector for South Asia. South Asia has the lowest per capita consumption of
energy in Asia. Indeed if we are to look at the reasons behind poverty in South Asia,
it would be weak energy education and insufficient access to energy. If we fail to do
anything in the next 10 years to radically alter the energy situation, it will seriously
and adversely affect our capacity for economic growth. There is a strong need to
work together in South Asia on the energy sector.
The opportunities for cooperation in this sector are perhaps second to none. Some of
the critical issues need to focus on how to realize this potential. There is evidence of
enormous hydroelectric potential available in Nepal, Bhutan, and North-East India;
the development and utilization of gas resources available in Bangladesh presents
significant opportunities, whilst surplus energy is available in Pakistan. Energy can be
traded across the region through integrating the existing grids. At the end of the day,
an ideal scenario can be created where one need not be bothered by the sources from
where this energy is being generated since this will now be freely traded across the
region within an integrated distributional network. However, this positive-sum game
to be derived from energy cooperation in South Asia remains frustrated due to
political factors as have so many issues relating to cooperation been bedeviled by
politics. The latest reports are that the Pakistan government now has not only given
its approval for a gas pipeline from Iran to India but has also offered to give India the
necessary assurances to ensure uninterrupted supply of gas from Iran. If this pipeline
does materialize, it will not only have an impact on the region but will also have
implications, in terms of feasibility for gas export from Bangladesh to India, since the
Iranians have on offer to India, 300 TCF of gas, which they will supply at rates of 50
cents or below as against the price of $2.50 or $3.50 that is likely to be charged for
gas exports from Bangladesh to India.
Farooq Sobhan addressed three issues: the need and importance of know-how and the
capability to conduct and transact the complex negotiations that will be required for
promoting energy cooperation. If, for example, a gas pipeline or any energy grid is to

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materialize, how do we implement it? One of the reasons why implementation is so

difficult is the absence of persons capable of conducting negotiations. The whole of
South Asia lacks capable expertise within the governments to carry out such
negotiations. One complicating factor in this area is the legal regime to underwrite
such cooperation. These are some of the issues that need to be tackled in energy
cooperation.
Estimates on Gas Reserves
Referring to conflicting figures on Bangladesh's gas reserves indicated as 13 TCF in
Dr. Sainju’s paper, Farooq Sobhan pointed out that according to a number of foreign
companies prospecting in Bangladesh our reserve could be at least 50 TCF. But these
estimates can only be firmed up on the basis of extensive exploration activities. Such
exploration will take place only if there is a perceived market for gas. Currently
Bangladesh's domestic consumption is around a billion cubic feet of gas per day.
However, the gas produced by the foreign companies is in excess of 1 billion CF, so
they are already facing the problem of marketing the gas they have at their disposal in
the wells already developed by them. These market problems are compounded by our
own domestic politics. But, hopefully, times are changing and we will seize these
opportunities. But it is also very important to look towards a vision for the future, a
vision where Bangladesh sees South Asia as a community serving the larger interests
of all our people.
Policy Issues in the Energy Sector

Saman Kelegama pointed out that Dr Sainju's paper - which discusses the energy grid
- did not indicate the geographical area to be covered by the energy grid. Kelegama
questioned whether this had been excluded from the terms of reference? He also
asked about the existing policy framework governing the development of energy in
various South Asian countries, where Sainju has questioned whether internal
restructuring will suffice for facilitating investment. Kelegama thought attention
should be given to policy issues, especially to the deregulatory framework and the
various prices of energy, in different parts of the region. Sri Lanka has subsidized the
cost of electricity whilst the manufacturing sector pays a higher price for electricity
than the households.
Rehman Sobhan pointed at some important issues, which the Task Force would need
to address. The fact is that for a long time in Europe, the concept of bilateral
exchange of energy has been made a largely redundant issue. Technology is
integrating the energy system across the world and energy is being traded regionally
as well as globally. So this means that both the design as well as the institutional
architecture and the broad political economy of the relationship have to be put in

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place. If one is to cope with energy cooperation in the 21st century, then everyone will
have to recognize that the distribution systems for energy in any one country will
basically be fed from multiple sources of supply from different varieties of energy
resources. This will then involve shared patterns of production, consumption and
distribution, which will extend all the way from Central Asia and possibly link up
with the surplus energy area of Yunnan province in South West China, as well as the
enormous untapped energy reserves of Central Asia. This would, basically, be the
reference point for defining areas of supply, demand and trade in the energy sector in
South Asia.
Major Stakeholders in the Energy Discourse
Now the tragedy of South Asia is that the only people who have looked at the energy
sector of South Asia within this perspective are the energy multinationals and
particularly the American multinationals. Some of these corporations are
underwriting a series of studies and seminars around the globe to situate the changed
perspective in the global energy system and to see how this can be applied in the
South Asian context. Thus, the only parties who are thinking and planning for the
eventuality of South Asia’s energy integration happen to be outsiders, who are largely
motivated by commercial interest, since they are not public charities. It is, therefore,
more appropriate for South Asian governments to develop their own strategy for
integrating the energy sector, to equip us with a basis to deal with the energy
multinationals from a position of strength.
S. M. Al-Husainy, a former Secretary, Ministry of Energy, argued that the discussions
on energy will remain confined to the academic level unless the politicians were
serious about doing something. Economics and politics of energy are intertwined but
politics always has the precedence. The domestic front has to be set right. The
problem in Bangladesh is that we have not been able to set up a power grid company.
In India, also, the control of the energy sector is both a central and state government
subject. He said the North-Eastern part of India is short of electricity whilst
Bangladesh has gas in its eastern region. Bangladesh should convert its gas into
electricity and export it to the North East India and similarly, import electricity from
West Bengal, at least temporarily.
During the early years after liberation there was considerable discussion on energy
sharing but the politics has since changed and somehow this issue has been buried.
There has to be trade in energy across South Asia but it has to be ensured that it
benefits all sides. There are technical complexities involved which need to be solved.
However, there are also misgivings about the whole issue of energy cooperation
which need to be recognized. Instead of waiting for the more ambitious project of a

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South Asia energy grid one should proceed step by step, through bilateral
cooperation, whenever the scopes arise. Once bilateral cooperation produces results
and people start to share in it’s fruits, there will be sensible governments who will go
forward to promote regional cooperation.
Session IV
The SAARC Social Charter
Report of SACEPS Task Force
Godfrey Gunatillike, President of the Marga Institute, Sri Lanka, who has prepared a
working paper for the SAARC Secretariat on the Social Charter, made a presentation
on the work of the SACEPS Task Force on the Social Charter. He observed that at the
last SAARC summit of December 1998 in Colombo it was decided to develop a
Social Charter for the region. The Sri Lankan government spearheaded the initiative.
The Summit in its declaration, said that the Social Charter would focus on drawing up
targets within a broad range, to be achieved in the region, in the areas of poverty
reduction, population stabilization, empowerment of women, youth mobilization etc.
The declaration was full of rhetoric. The SAARC Ministerial Conference
subsequently identified targets, derived from various international conferences. In a
sense the SAARC Charter was responding to global initiatives on all these issues.
The group that sat to prepare a working paper decided to treat the Charter as a
culmination of those efforts. But it was a part of an ongoing process.
The Charter was expected to define certain targets for the members of SAARC. One
of the first tasks of the SACEPS Task Force should be to see how the targets set in the
Charter should be worked out, given the vast disparities in social development
indicators in the region. First, there has to be some kind of a diagnostic statement of
where we stand in regard to meeting the target commitments. We are subscribers to a
number of international covenants. There are only three or four covenants that deal
with social issues such as women and racial discrimination. Even the Social and
Economic Rights Charter and Political Rights Charter have not been subscribed to by
all countries. None of us really have subscribed to the more meaningful protocols,
which translate the charter into specific actions and impose binding obligations on
countries through legislations.
The next step needs to address what should be the nature of the Charter for South
Asia. The structure of the charter will naturally follow the models that have emerged
out of the international or regional goals. For example, the European Charter is
designed on the basis of their own economic structure and may not be entirely
relevant to South Asia. In framing a Social Charter for South Asia we will need to

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move from directive principles to a strategy, then set the targets and move on to a set
of actions to implement our targets.
We also need to discuss the specific South Asian character of the Charter. There is an
ongoing debate about the universality of human rights. So it is no longer fair to say
that certain countries may need to approach the matter in a different way. What we
think is that such universal principles can only be substituted by a separate set of
human values harnessed from our own society. South Asia is unique in this sense
because we do have our own sets of values. These can provide the bedrock of the
social charter. We don’t have to make our charter a simple replica of a Western
charter. This would require a systematic conceptual effort to try to define the South
Asian-ness of the Charter. We cannot expect to involve a broad spectrum of civil
society unless we incorporate their values.
He then pointed to the regional element of the Charter which already involves a
number of institutional elements. Thus, we need to put in place monitoring
mechanisms to ensure that those obligations undertaken by the state under the Social
Charter are fulfilled. When and what kind of transparency would have to be put in
place to scrutinise the performance of the Social Charter?
The most important issue is the process of developing a Social Charter. The group
that develops a charter should not follow the normal conventional process, where the
Social Charter is discussed in an intergovernmental group, a draft is prepared,
discussed and presented to the Summit. The Social Charter needs to derive from a
much more broad-based consultative process with the people of the region. It was
suggested that the Social Charter should be built from the bottom up so that the civil
societies, NGOs, and the media can be brought into the charter.
The Discussion
The Importance of a Social Charter for South Asia
Rehman Sobhan pointed out that given the process by which the formal decisions
developed in the SAARC process are taken, the involvement of Gunatillike was
expected to initiate a process of civil society consultation and advocacy for the Social
Charter process itself. The various mechanisms that had been identified by
Gunatillike in his paper should, in fact, be areas in which we would be able to initiate
a broad mobilization in the civil society, supportive of the agendas put in place by the
Social Charter.
In this task, he hoped to invite the active support of one of the international advisors
of the SACEPS, Professor Amartya Sen, who is perhaps the most visible advocate of
the agendas largely incorporated in the Charter. Sobhan suggested that we should aim
to actively involve him in South Asia, where he will be joined by a broad

SACEPS Papers 1
constituency of people to try to influence the realisation of the agendas of the Social
Charter. The Social Charter sould emerge as one of the more enduring initiatives of
SACEPS, where we will draw upon the participation of a much broader constituency
of people because this sort of initiative is really beyond any one organization.
Aneesa Ahmed, Deputy Minister of Wome’s Affairs in the Maldives, felt happy that
trade and investment did not monopolise the SACEPS agenda. She reiterated the
points that Gunatillike had made. The charter must be drawn from both social
development and social security perspectives, she said. The fundamental rights of the
people have to be taken into account. In the countries of the region there are wide
disparities. But there are also commonalities among the peoples. In drawing up the
SAARC social charter, we must have very wide civil society consultations. She
suggested that we go to the people and ask them what they need.
Issues to be Addressed by the Social Charter
Arzu Rana Deuba, Executive Director of SAMATA in Kathmandu, spoke of human
rights and stressed that there has to be a deliberate, reinforced and reiterated
commitment to protect these rights by national governments. Proclamation of social
and economic rights are new ideas, especially for women. There was a suggestion
that after every two years there should be a report about the progress registered in
meeting the goals. Such a mechanism would help to keep our governments on their
toes. In this way, the governments would face considerable pressure from civil
society groups, especially women’s rights groups, to meet their obligation under the
Social Charter.
The Social Charter must give emphasis to the process of strengthening people-to-
people contacts. It must be noted that previously, SAARC exempted certain
categories of people from obtaining visas for their travel to SAARC countries. But
this should be extended to cover all groups of people.
S. M. Al-Husainy observed that since the Charter aspires to spell out a long-term
vision for the region and as each member country of the region has to subscribe to
this vision, they have to make it implementable. But all these will remain merely a lip
service unless the charter is backed up by national plans of action. SACEPS may
think seriously of taking up the exercise of helping the institutions of the SAARC
countries in drawing up plans of action in each area. It should not be all that difficult.
Unless initiatives are taken the Charter will simply remain yet another academic
exercise.
Professor Muhammad Masum, Department of Economics, Jahangirnagar University
thought that the idea of a charter was feasible but queried the goals of poverty

SACEPS Papers 1
reduction, or empowering women. He argued that the primary goal of the Charter
should be to ensure employment for all.
Design of the Social Charter
On the other hand, Dr. Imtiaz Ahmed, Professor of International Relation, Dhaka
University expressed his concern about the two concepts that are being used: one is
the SAARC Social Charter and the other, its South Asian character. He said that the
difference between designing it as a SAARC Social Charter and designing it as a
South Asian Charter is very fundamental. The context, he said, is important because
some speakers pointed out that we need to have a national planning body to prepare a
South Asian charter. That would be problematic. The way the Europeans did it was
totally different. They did not have national bodies or planners prepare their Charter
but had Europeans coming together as citizens from different parts of Europe. Such
an approach also needs to guide the South Asia initiative. Thus, for example, in case
of education, a national planning body of all education institutions, structurally
contributes towards reproducing a nation state. But when you have a reproduction of
the nation state you automatically have an anti-Pakistani, anti-Indian or anti-
Bangladeshi bias in the national curriculum. The heroes and heroines of Bangladesh
will certainly not be the heroes and heroines of India or Pakistan. That would remain
problematic. So one needs to bring people who will rise above the national histories
of South Asia and can project a South Asian consciousness to guide the preparation of
a South Asian Charter.
Relative Responsibility :The Role of Civil Society and Governments
Gunatillike wanted two things to be clarified. First, since South Asia itself was going
through change, transformation and globalization where civil society was becoming
active and posing greater social challenges, how would the Social Charter take these
factors into account. The second one relates to the issues assigning civic and
governmental responsibility for implementing the Charter. He felt that considerable
thought has to be given to these two issues. The Social Charter should define the
responsibility of the state in new terms. With regard to the point about the SAARC
charter and the South Asian charter, he accepted that a South Asian identity would
eventually need to efface a national identity by transcending national identities, but
such an identity would need to assume a new configuration.
While talking about the civil society, Khawar Mumtaz thought there were internal
challenges which had to be faced in each country. We should not try to impose the
values of any one country on the region but should build policies in partnership with
civil society, which would develop a common view and perspective, to serve a
common good. It is also very important not only to look at the preparation of the
Social Charter as a challenge but to build a community within, which builds respect

SACEPS Papers 1
and tolerance for diversity, rights of political participation, and the social right to
development. Unless all these issues are looked at in terms of rights, everybody will
lose.
There are many people in civil society who come with the experience of grassroots;
they can come together to meet these challenges. These people have to convince the
governments about their sincerity in meeting the goals of the Charter. The movement
for a Social Charter needs to be guided by dual objectives; one of mobilizing civil
society towards a vision of collective good, and the other is the responsibility of
advocating policies, which will take us towards peace and prosperity in the region.

SACEPS Papers 1
Annex- A
List of Participants
(In alphabetic order)
Ms. Aneesa Ahmed Hon’ble Minister for Women’s Affairs and

Social Security, Government of Maldives
Mr. Munshi Faiz Ahmed Ministry of Foreign Affairs

Government of Bangladesh
Dr. Imtiaz Ahmed Professor, Dept. of International

Relations,University of Dhaka
Mr. Dewan Sultan Ahmed EC Member, SAARC Chamber
Mr. Jamal Uddin Ahmed Former Deputy Prime Minister
Ms. Selima Ahmed Director, Nitol Group
Mr. Shamsuddin Ahmed Asian Development Bank
Mr. Tofail Ahmed Hon’ble Minister for Industry

Mr. Abul Ahsan Former Foreign Secretary

Mr. S. M. Akram (MP) Chairman, Public Accounts Committee
Bangladesh National Parliament
Mr. Mohammad Shah Alam Chief, WTO Cell, Ministry of
Commerce , Government of Bangladesh
Prof. Syed Babar Ali Pro-Chancellor, Lahore University

of Management Sciences, Pakistan
Mr. Abdus Samad Azad, Hon’ble Minister for Foreign Affairs

Dr Debapriya Bhattacharya Executive Director, CPD
Professor Ayubur Rahman Bhuiyan Department of Economics

University of Dhaka
Mr. Swadesh Bose Bangladesh Institute of Development,
Studies and The World Bank
Ms. Pinak R. Chakravarty DMC , Indian High Commission

SACEPS Papers 1
Mr. Al-Ameen Chaudhury Secretary,Ministry of Industry

Ms. Riffat Zaman Choudhury Assistant Professor, Department
of Economics, Dhaka University
Mr.Zaglul A. Chowdhury Senior Special Correspondent

BSS News Agency
Mr. Arju Rana Deuba Executive Chairperson

Samata, Nepal
Mr. Muchkund Dubey Council for Social Development
India
Mr. Syed Manzur Elahi Managing Director, Apex Group

of Companies, Bangladesh
Dr. Naushad Faiz Programme Director, SACEPS
Dr. Godfrey Gunatilleke President, Marga Institute,

SriLanka
Mr. M. Mokammel Haque Executive Chairman

Board of Investment, Bangladesh
Mr. Ronald P. Hicks Resident Representative

International Monetary Fund
Dr. Ijaz Hossain Associate Professor, BUET

Mr. S.M. Al-Husainy Former Secretary, Government
of Bangladesh
Professor Rounaq Jahan Columbia University, U.S.A
Ms. Laila Rahman Kabir Managing Director
Tea Co. Ltd. Bangladesh
Mr. Nuruddin M Kamal Former Chairman, Bangladesh
Power Development Board
Professor Shridhar Khatri Department of Political Science

Tribhuban Unversity, Nepal
Mr. M. M. Rezaul Karim Former Ambassador


SACEPS Papers 1
Dr. Saman Kelegama ED, Institute of Policy Studies,

Colombo, Sri Lanka
Mr. Md. Khalequzzaman Member, Board of Investment
Mr. Iqbal Khan High Commissioner, High

Commission of Pakistan
Mr. S. A. M. S. Kibria Hon’ble Minister for Finance

Dr. Mohammed Latheef Hon’ble Minister for Education

Government of Maldives
Dr. Muhammad Masum Department of Economics

Jahangirnagar University
H.E. Antonio de Souza Menezes Ambassador , Commission of the
European Communities,
Bangladesh
Mr. Rashed Khan Menon General Secretary, Workers Party
Ms Khawar Mumtaz Executive Director, Shirkat Gha,

Pakistan
Professor A. K. M. A. Quader Department of Chemical

Engineering , BUET
Ms. Rokia A. Rahman President, Women Entrepreneurs

Association
Mr. Waliur Rahman Bangladesh Institute of Law and
International Affairs
Dr. M. Rahmatullah Programme Director, CPD
Mr. A.N.M Rizwan MD, Power Grid Company of

Bangladesh Ltd.
Dr Mohan Man Sainju Executive Chairperson,
Institute for International
Development Studies
Mr. C. M. Safi Sami Foreign Secretary,
Dr. Arjun Sengupta Chairman, SACEPS

SACEPS Papers 1
Dr. Tasneem Siddique Dept. of Political Science

University of Dhaka
Yadav Kant Silwal Former Secretary General ,

SAARC, Former Foreign
Secretary, Nepal
Professor Rehman Sobhan Chairman, CPD and

Executive Director, SACEPS
Mr. M. Syeduzzaman Trustee, CPD

Former Finace Minister , GOB
Mr. Farooq Sobhan Former Foreign Secretary

Professor Mohammed Ali Taslim Department of Economics

University of Dhaka
Mr.. Ibrahim H. Zaki Hon'ble Minister for Planning
Government of Maldives
Mr. Iftekahar Zaman Bangladesh Freedom

Foundation, Dhaka

SACEPS Papers 1
List of Journalists
Sadrul Hassan The Financial Express
K. Main Uddin Bangladesh Observer
Eraj Ahmed Daily Prothom Alo
Zulfikar Ali Muktha Kantha
A T M Ishaq Ajker Kagoj
M. Jamaluddin Jana Khantha
A. Rahim Haramachhi Mathrebhumi
Fazle Azim Daily Inqilab
Siddique Islam Banglar Bani
Syed Shamsuzzaman Daily Arthonity
Subir kumar Daily Arthonity
Rafiq Hasan Daily Star
Aminul Islam Prothom Alo

SACEPS Papers 1

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SACEPS PAPERS

AGENDA FOR SOUTH ASIAN COOPERATION

SOUTH ASIA CENTRE FOR POLICY STUDIES (SACEPS)

Major activities and programmes of SACEPS will include undertaking research

In order to sustain the commitment of policymakers towards South Asian Cooperation

Report prepared by: Mr. Ekramul Kabir, The Daily Star

AGENDA FOR SOUTH ASIAN COOPERATION

Agenda for South Asian Cooperation 1

The SACEPS Task Forces

Agenda for South Asian Cooperation 2

Agenda for South Asian Cooperation 3

Agenda for South Asian Cooperation 4

Agenda for South Asian Cooperation 5

Agenda for South Asian Cooperation 6

M. Mukammel Huq, Executive Chairman of Bangladesh Board of Investment,

Agenda for South Asian Cooperation 7

accelerate cooperation. Whilst some national bureaucracies are very careful in

Agenda for South Asian Cooperation 8

Agenda for South Asian Cooperation 9

Agenda for South Asian Cooperation 10

Agenda for South Asian Cooperation 11

Agenda for South Asian Cooperation 12

the regional framework so that there is no feeling of unequal sharing of benefits

Agenda for South Asian Cooperation 13

Agenda for South Asian Cooperation 14

Making Regional Groupings Effective

Agenda for South Asian Cooperation 15

Small and Big Partners in Regional Groupings

Agenda for South Asian Cooperation 16

Professor Taslim of the Department of Economics, Dhaka University argued that in

Agenda for South Asian Cooperation 17

an essential element in successful regime groupings. Unfortunately, since its

Agenda for South Asian Cooperation 18

Agenda for South Asian Cooperation 19

Agenda for South Asian Cooperation 20

Agenda for South Asian Cooperation 21

materialize, how do we implement it? One of the reasons why implementation is so

Policy Issues in the Energy Sector

Agenda for South Asian Cooperation 22

Agenda for South Asian Cooperation 23

Agenda for South Asian Cooperation 24

Agenda for South Asian Cooperation 25

Agenda for South Asian Cooperation 26

Agenda for South Asian Cooperation 27

Agenda for South Asian Cooperation 28

Ms. Aneesa Ahmed Hon’ble Minister for Women’s Affairs and

Mr. Munshi Faiz Ahmed Ministry of Foreign Affairs

Dr. Imtiaz Ahmed Professor, Dept. of International

Ms. Selima Ahmed Director, Nitol Group

Mr. Shamsuddin Ahmed Asian Development Bank

Mr. Tofail Ahmed Hon’ble Minister for Industry

Mr. Abul Ahsan Former Foreign Secretary

Prof. Syed Babar Ali Pro-Chancellor, Lahore University

Mr. Abdus Samad Azad, Hon’ble Minister for Foreign Affairs

Dr Debapriya Bhattacharya Executive Director, CPD

Professor Ayubur Rahman Bhuiyan Department of Economics

Ms. Pinak R. Chakravarty DMC , Indian High Commission

Agenda for South Asian Cooperation 29

Mr. Al-Ameen Chaudhury Secretary,Ministry of Industry

Mr.Zaglul A. Chowdhury Senior Special Correspondent

Mr. Arju Rana Deuba Executive Chairperson

Mr. Syed Manzur Elahi Managing Director, Apex Group

Dr. Naushad Faiz Programme Director, SACEPS