Regional Integration and Liberal Economic order in SAARC: A Case Study of Trade Relations between Pakistan and India under SAFTA Regime (1997-2015) Sarfraz Batool Ph.D. (Political Science) Roll No. 04 Session: 2013-2018 Supervisor Prof. Dr. UMBREEN JAVAID Department of Political Science University of the Punjab Lahore. i Regional Integration and Liberal Economic order in SAARC: A Case Study of Trade Relations between Pakistan and India under SAFTA Regime (1997-2015) This thesis is submitted in Partial fulfilment of Ph.D. in Political Science, University of the Punjab, Lahore. Session 2013 – 2018 Supervisor Prof. Dr. Umbreen Javaid Chairperson Department of Political Science Submitted by Sarfraz Batool Ph.D. (Political Science) Roll No. 04 Session: 2013-2018 ii DEDICATION I dedicate my thesis to my loving mother and caring husband, without their support and encouragement I could not have completed this thesis. I also dedicate this work to the golden memories of my late father. May his soul rest in peace forever. Ameen iii DECLARATION I hereby declare that this thesis is the result of my individual research and I have not submitted this thesis concurrently to any other University or Institute for any other degree whatsoever Sarfraz Batool iv Certificate of Approval It is certified that this Ph.D. Thesis submitted by Sarfraz Batool on the topic of ―Regional Integration and Liberal Economic order in SAARC: A Case Study of Trade Relations between Pakistan and India under SAFTA Regime (1997-2015)” is an original work and result of her own efforts. In assessment of the ‗Examining Committee‘, this thesis is of sufficient standard to warrant the acceptance by the Department of Political Science, University of the Punjab, Lahore for the award of Ph.D. Degree in Political Science. Thesis Viva-voice Examiners: Internal Examiner: _____________________________________________ External Examiner: _____________________________________________ Chairperson of Political Science: _____________________________________________ v ACKNOWLEDGMENTS First of all, I offer my gratitude to Almighty Allah for His mercy and guidance which have enabled me to do this rigorous work. Then I would like to pay best regards with full respect to my research supervisor Prof. Dr. Umbreen Javid, chairperson of the Department of Political Science for her continuous support during my Ph.D study and related research. Her insightful guidance has helped me in all the time of research and writing this thesis. I could not have imagined having a better advisor and mentor for my Ph.D. study. I am also thankful to all my Ph.D teachers for their guidance and support during course work. I have learned a lot from them, from their way of teaching, their acumen and their command over their subjects. I have benefited enormously from the assistance, encouragement, and insightful comments of many individuals, institutions and libraries at Lahore, Islamabad and Rawalpindi during this research work. I would like to pay my sincere gratitude to all of them named and unnamed. I will remain indebted to their intellectual generosity. Mere the word of ―thanks‖ is not enough for my spiritual fellow Maryam Kamal. Her belief in me was the sole motivational force for me to meet the challenges of my Ph.D study. I would like to thank my family: my beloved mother, my siblings, my nieces and nephews and my in-laws for supporting me in every sense throughout writing this thesis. Last but not the least, my spouse and especially my kids, Awais Rumi, Najam-ul-Saqib and Abdul Hadi deserve a profound acknowledgement as they all have borne the real brunt of my labour and toil and preoccupation with my studies for Ph.D. Sarfraz Batool vi Abstract The South Asian Association for Regional Cooperation (SAARC) was established in 1985 with the aim to accelerate economic growth and social progress in the region. It was assumed by the proponents of SAARC that wealthier South Asia would be peaceful and powerful politico- economic entity, because increase in wealth and economic cooperation among states would improve human development index and decrease intra state political conflicts in South Asia. SAARC initiated trade liberalization policies since 1994 when SAARC preferential trade agreement was signed. Though the scope of trade liberalization was limited in the purview of SAPTA due to its positive list approach to intraregional trade, yet it paved the way for SAARC Free Trade Area (SAFTA). The establishment of SAFTA in 2004, boosted up the morale of SAARC and it started to visualize complete economic integration in South Asia in near future. However, SAFTA have not meet to its expected results and volume of intra- regional trade is still low and the goal of wealthier South Asia is still far away. In this context, this study is outlined to analyze the liberal economic dimension of SAARC. It highlights the evolutionary process of trade liberalization in the region of South Asia and analytically evaluates the contribution of SAARC towards economic integration of South Asia. In addition it highlights the international economic scenario in which the establishment of Free Trade Area had become desirable for SAARC member countries. For this purpose, the study emphasizes on three major research questions; why the liberal economic practices are desirable in SAARC? Why SAFTA has not been fully implemented yet? And what are the major hindrances in the establishment of Free Trade regime in SAARC? To evaluate the effectiveness of SAFTA, study emphasizes on the Pakistan – India trade relations under SAFTA regime for in-depth analysis. This part of the study uses comparative approach. It includes a comparison between overall economic structure of Pakistan and India and comparison of bilateral trade trend between India and Pakistan before and after SAFTA vii through using statistical data. Further it covers all economic and non- economic hindrances to bilateral trade between Pakistan and India. During the study, primary data is collected through structured survey and open ended interviews from stakeholders. For static analysis, data is gathered from internationally recognized databases of World Bank, UNTACD, WTO and World Economic Forum. The study finds out that regional integration without trade liberalization is impossible. SAARC is working on the agenda of economic integration in South Asia through its apex body, SAARC Chamber of Commerce and Industry; though the process of integration is slow but it is steady. In the age of globally integrated trading system, protectionism will no more a good choice to protect domestic industries. South Asian countries will have to reform their domestic macro-economic policies for implementing trade competitiveness measures in their respective states. Regional connectivity and trade facilitation measures under SAFTA has boosted up the foreign direct investment to South Asia. Further, this study finds out that power asymmetries in SAARC have make the process of trade liberalization slow, India will has to reconsider its role in SAARC as through showing its hard and soft power, it has disrupt the trade negotiation process on the platform of SAARC on many occasions. However, the study contributes to understand the relation between regional integration and liberal economic order in the purview of SAARC. viii List of Abbreviations and Acronyms United Nations Conference on Trade and UNCTAD Development UNICEF United Nations Children‘s Fund APT Asia-Pacific Telecommunity Economic and Social Commission for Asia and the ESCAP Pacific UNDP United Nations Development Programme United Nations Development Programme for UNDPC Combating Drug Trafficking EC European Commission ITU International Telecommunication Union CIDA Canadian International Development Agency WIPO The World Intellectual Property Organization WTO World Trade Organization GATT General Agreement in Tariff and Trade GATS General Agreement in Trade in Services RTA Regional Trade Agreement FTA Free Trade Area SAPTA South Asian Preferential Trading Agreement SAFTA South Asian Free Trade Area SAARC South Asian Association for Regional Cooperation ASEAN Association of South East Asian Nations EU European Union NAFTA North American Free Trade Agreement/Area MOC Ministers of Commerce MOFA Ministers of Foreign Affairs LIEO Liberal International Economic Order IMF International Monetary Fund ix WB World Bank South Asian Agreement in the Promotion of SAIT Investment and Trade SDPI Sustainable Development Policy Institution IPRI Islamabad Policy Research Institution ISSI Institute of Strategic Studies Islamabad SCCI SAARC Chamber of Commerce and Industry SADF South Asian Development Fund MFN Most Favored Nation NT National Treatment ITO International Trade Organization GSP General System of Preferences TNCs Transnational Corporations MNCs Multi-National Corporations FDI Foreign Direct Investment COMESA Common Market for Eastern and Southern Africa EFTA European Free Trade Area IGG Intergovernmental Group MERCOSUR Mercado del Cono Sur (Southern Common Market) NTM Non-Tariff Measures NTBs Non-Tariff Barriers SPS Sanitary and Phytosanitary PSR Product Specific Rules WDI World Development Indicators ITC International Trade Centre WITS World Bank Indicator for Trade Statistics x CONTENTS Page No. Title Page i Dedication iii Declaration iv Certificate of Approval v Acknowledgments vi Abstract vii List of Abbreviations ix Table of Contents xi Page No Introduction xxvi Literature Review xxviii Statement of Problems xxxvii Significance of the Study xxxviii