The inability of the World Trade Organisation (WTO) to broker a multilateral trading system acceptable to all its members sparked a rising interest in regionalism. The first wave of regionalism in the 1960s was divided along North-North and South-South trading arrangements. In the 1980s, the second regionalism wave evolved into a North-South trading arrangement. (1) However, in a post-Cold War setting, regional groupings have responded to the volatility of the multilateral trading system by increasing regional cooperation and trade and various trade-driven groupings emerged such as the North American Free Trade Area (NAFTA), Asia-Pacific Economic Cooperation (APEC) and the European Union (EU).
While South Asia has lagged behind other regions in creating a regional trade grouping, the formation of the South Asian Association for Regional Cooperation (SAARC) in 1985 was a step towards this direction. However, for economic and political reasons, SAARC has made relatively slow progress on expanding intraregional trade. The South Asian region contains a range of ethnic groups, religions and languages but governance has often centralized political power among a small elite, creating tensions by discounting the interests of the majority. (2) Various economic explanations have been presented to account for the inability of South Asian countries to trade more with one another. These range from South Asian economies producing similar types of goods, to government interference in economic development through the implementation of import substitution industrialization (ISI) policies and highly regulated economic policies. (3) The diversity of economies in terms of their size and complexities of using preferential trading policies has also contributed to slow intraregional South Asian trade. (4)
Although cooperation among SAARC countries was supposed to be based on areas of mutual cooperation, with the exclusion of bilateral and contentious