7 South Asian Nations Struggle for Unity : Summit: Alliance weighs creating a common market. But Indo-Pakistani conflict threatens to derail plan.

What can seven of the world’s poorest nations, whose bilateral ties run the gamut from friendship to enmity, do to better those relations and their citizens’ lives too?

In the Himalayas, 7,250 feet above sea level, ensconced comfortably in Simla, once the hot-weather capital of India’s former British rulers, leaders from the South Asian Assn. for Regional Cooperation pondered and discussed that question Wednesday.

The association turns 10 this year. The grouping of India and its neighbors, known as SAARC and born in high-blown rhetoric at a similar summit in Dhaka, Bangladesh, on Dec. 8, 1985, has turned out to be little more than a periodic discussion club because of the region’s numerous, stubborn bilateral disputes and deep suspicions of India’s intentions.

“The political climate continues to cast a dark shadow,” King Jigme Singye Wangchuck of Bhutan said Tuesday as the group’s eighth summit began in New Delhi before shifting to Simla.

As a consequence, said the Himalayan monarch whose kingdom is one of the forum’s smallest and poorest members, the organization has done nothing concrete so far to improve ordinary people’s lives.

At this summit, India is proposing that the group--whose countries’ populations total about 1.2 billion--fulfill its full promise by mutating into a regional common market along the lines of the European Union or ASEAN, the Assn. of South East Asian Nations.

“Collective self-interest has been the fundamental basis of regional cooperation all over the world. Those regional groupings that have succeeded have opened doors to the free flow of goods, services, capital and people. This is also the route we have to adopt,” Indian Prime Minister P. V. Narasimha Rao, this year’s summit host, said in inaugurating the meeting.

India’s economy--by far the area’s largest with a gross domestic product of $214 billion--would stand to gain the most from any economies of scale. But Sri Lanka and Bangladesh, with much smaller economies, also favor much freer trade, believing it would help them attract foreign investment.

Predictably, the loudest dissenting vote is coming from India’s chief opponent, Pakistan. At the summit, its head of state demanded in a veiled but obvious manner that the group first take up the Indo-Pakistani territorial dispute over the former principality of Jammu and Kashmir.

“The fact is, our association has not taken off,” Pakistani President Farooq Leghari told the other leaders Tuesday. “The reason is not far to seek. The suspicions and insecurity generated by the unsettled political issues in our region stand in the way of SAARC moving forward at the pace that it should be.”

Pakistan’s tack implies a revision of the organization’s charter, which explicitly bars it from discussing contentious issues between two of its members. India, which holds that Kashmir’s status is no business of third parties, would reject that approach.

So, as the organization begins its second decade, “political differences are still the single most important hurdle preventing SAARC from making headway,” said Navnita Chadha, a professor at the Center for Policy Research, a New Delhi-based think tank.

The dicey domestic situation faced by some leaders of the regional group, which also includes Maldives and Nepal, was highlighted by the absence of Sri Lankan President Chandrika Kumaratunga from the Wednesday retreat to the mountain coolness of Simla. She attended the opening session in New Delhi but flew home afterward to deal with a new rebel offensive in her country’s 12-year-old civil war.

The six other leaders were whisked by helicopter to the 150-year-old hill station ringed by thick forest where British viceroys and their ministers once sought summer refuge. The former resort, about 180 miles north of New Delhi, is now the capital of the state of Himachal Pradesh and boasts The Retreat, the holiday home of India’s president. Summit leaders lunched and conferred there Wednesday in privacy.

The most eagerly awaited face-off of this year’s session never materialized on Wednesday, because Pakistani Prime Minister Benazir Bhutto was not present. She instead sent Leghari, who met with Rao for 45 minutes on Tuesday. No date was set for future talks.