ABSTRACT
By signing the Framework Agreement on SAFTA at the Islamabad SAARC Summit in January 2004, South Asian leaders took an important step to intensify their intraregional economic cooperation. Will SAFTA agreement drive South Asian countries toward deeper regional economic cooperation? This chapter presents a political economy framework to address this question by evaluating domestic factors in the design and evolution of regional economic cooperation arrangements in South Asia. In Chapter 2, employing the two-level game framework, I argued that regional cooperation is a two-level process in which domestic support and regional bargains and negotiations must overlap if cooperation is to proceed (Putnam 1988). While attempts to achieve regional cooperative agreements involve bargaining and negotiation among governmental actors in various issue areas, domestic support is essential for successful implementation of these negotiated agreements. In the issue area of trade, state actors’ preferences for regional arrangements are shaped to a large extent by pressure from business groups. Given this argument, the present chapter argues that willingness of political actors and support of domestic business groups are necessary for the success of deeper regional economic cooperation. As the experiences of EU and NAFTA illustrate, the demand for regional rules, regulations, and policies by market players is a critical driving force for deeper regional economic cooperation. Thus, the purpose of this chapter is to answer two questions. First, under what conditions will domestic business groups support regional trade agreements? Second, under what conditions will governmental actors show preferences for regional trade arrangements?
