The Economic Cooperation Organization (ECO), originally established as the Regional Cooperation for Development (RCD) in 1964 by Iran, Pakistan, and Turkey, rebranded in 1985 to focus on regional trade and integration. Today, ECO includes ten member states, expanding from the original trio to include five Central Asian countries, Azerbaijan, and Afghanistan, with its headquarters based in Tehran.
Covering 8 million square kilometers, the ECO region connects north to South and Europe to the Arab world, leveraging shared cultural, religious, and historical ties among its members. Despite these advantages and the presence of key subsidiaries such as the ECO Trade & Development Bank and the ECO Chamber of Commerce & Industry, the region’s economic progress has lagged behind similar organizations like ASEAN and the EU.
The ECO’s combined population of over 500 million and a collective GDP of $2 trillion highlight its significant potential for intra-regional trade. However, this potential remains largely untapped. Intra-regional trade within ECO grew from $59 billion in 2018 to $83 billion in 2022, but it represents only 8% of the total trade with the outside world, which stands at $1037 billion.
Trade Volumes and Key Players
Turkey leads intra-regional trade within ECO, followed by Kazakhstan and Uzbekistan. Pakistan’s contribution was modest, at about $4 billion out of the total $83 billion in 2022, indicating a need for increased trade engagement.
Geopolitical factors, such as US sanctions on Iran and Afghanistan, further complicate trade integration efforts. Despite land connectivity with all ECO members, Pakistan’s trade with these countries remains minimal.
Structural Challenges and Comparisons
The ECO faces several structural challenges. Unlike ASEAN, which has established Free Trade Areas (FTA) and a cohesive institutional framework, ECO’s fragmented setup hampers efficient trade facilitation. ASEAN’s creation of the ASEAN Economic Community (AEC), which allows for the free flow of goods, investment, and skilled labor, offers a model for ECO. By establishing similar community hubs and diversifying from energy exports to manufacturing, ECO could enhance regional trade.
The diverse economic bases within both ASEAN and ECO regions suggest potential for increased intra-regional trade. ASEAN countries have varied economies that support extensive intra-regional trade. Similarly, ECO member states have significant natural resources and varying industrial strengths that could be better utilized within the region.
Path Forward for Enhanced Integration
To improve regional trade, ECO needs to address its weak monetary frameworks and lack of an integrated institutional framework. Initiatives like the ECOTA, signed in 2003, aim to reduce bureaucratic hurdles and trade tariffs. Implementing ECO Vision 2025 and institutionalizing the Transit Transport Framework Agreement (TTFA) could significantly enhance regional connectivity. The TTFA would streamline transit processes and facilitate trade operations.
Additionally, ECO’s participation in the Transports Internationaux Routiers Convention (TIR) offers a strategic advantage in reducing customs duties and enhancing coordination, a benefit not available to ASEAN.
In the current global geopolitical climate, regional cooperation is increasingly vital. For Pakistan, which emphasizes geoeconomics in its national security policy, ECO presents an opportunity for greater economic integration. The new Secretary General of ECO will play a crucial role in navigating these challenges, improving tariff regulations, and addressing geopolitical issues such as sanctions. Exploring trade in member nations’ currencies could also mitigate exchange rate costs and ease pressure on foreign reserves.
The potential for ECO to become a significant player in regional trade is substantial, provided that member states work collectively to address existing barriers and leverage their economic strengths effectively.
