By Ranil Wickremesinghe –
Starting with the Mohenjo-dara Harappa civilization over 4 millennia ago, trade and commerce have played a decisive role in the integration of the Indian sub-continent and South East Asia. The Mauryan Empire became a catalyst for promoting regional trade. Buddhism removed the restriction on sea travel. Though kingdoms rose and fell, trade remained consistent. Political alliances were made and broken on the basis of trade. In the Ninth Century, the Pallavas came to an agreement with the Anuradhapura Kingdom in Sri Lankan and the Sumatran Sri Vijaya empire to control trading in the Bay of Bengal. This was challenged by their commercial rivals the Chola who defeated the Pallavas, the Sri Lankans, and finally Sri Vijaya.
With the traders, travelled the missionaries, taking with them the cultures, languages and religions of the Indian sub-continent including Hinduism, Buddhism and Jainism. During the time of the Buddha, Tapassu and Bhallika the first trader-converts to Buddhism carried the message of the new faith to Sri Lanka. Kaundinya, a Brahman, commenced the Indianisation of the Funan kingdom formed around the Mekong River in Southeast Asia. The proliferation of culture alongside trade led to the creation of robust networks. A good example of that was the multinational network of the Nattukottai Chettiars which spanned Sri Lanka, Myanmar, Thailand, Malaysia, Singapore, and South Vietnam until the mid 20th Century. They had over 1500 businesses in Myanmar before World War II. The integrated financial network of the Nattukottai Chettiars has yet to be matched in the ASEAN and the BIMSTEC countries.
The total geographical extent of this region was never clearly defined. The South and the South East Asia are social constructs of recent origin – invented mainly by UK and USA. For instance, the World War II allies created the South East Asia Command (comprising Myanmar, Malaysia, Singapore, Indonesia and Thailand) to better conduct the war in Asia.
The term South Asia was first used by the US State Department in 1950, to refer to former British colonies, in the Indian sub-continent. Thus arose the political construction of two regional groups which now dominates, and perhaps divides, the Bay of Bengal region.
The request for regional groupings in the region have emerged from time to time. Sixty years ago, the leaders of India, Pakistan, Sri Lanka, Myanmar and Indonesia met in April 1954 for the Colombo Powers meeting, to discuss cooperation within their common region.
Within the Indian sub-continent, an initiative for a regional grouping was first taken up by President Ziaur Rahman of Bangladesh in December 1977. I remember questioning President Jayewardene as to whether the proposed association will be a success. “If we can get India and Pakistan to the table, keep them talking – and avoid a war, that will be sufficient.” He replied.
Finally, the Heads of the 7 Governments of the sub-continent countries met in Dhaka in 1985 and formed SAARC – South Asian Association for Regional Cooperation. From this arose the South Asia Preferential Trade Agreement in 1995, followed by the South Asia Free Trade Agreement in 2006. However, you will agree with me, that neither of these agreements has resulted in a meaningful degree of economic integration. With an intra-regional trade amounting to only 5% of the total trade, today both agreements have been unsuccessful in promoting trade.
In 1997, India and Thailand took the initiative to form BIMSTEC – the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
The first summit was held only in 2004 and subsequent summits held intermittently. BIMSTEC has neither a clear vision nor actionable goals. It took 10 years after the first summit to establish the BIMSTEC Secretariat, which is still underfunded. The BIMSTEC trade record on Economic Integration is also insignificant. An agreement in 2004 to conclude an FTA by 2006 is still pending.
On the other hand, South East Asia started a slow but successful march towards regional integration – starting with ASEAN – The Association of South East Asian Nations. The ASEAN Free Trade Area was established in 1992. The ultimate goal is an ASEAN Economic Community.
Thereafter, the broader constellation of the Asia Pacific Economic Community (APEC) was formed in 1989 consisting of 21-member economies including ASEAN, China, Japan, Republic of Korea, Australia, USA, Canada, Mexico and Chile to promote multilateralism and trade integration in the Asia Pacific.
The first Asia Pacific trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – one of the most transformational trade agreements with inter-locking commitments was signed by 11 of the Asia Pacific countries. Ratification by Singapore, Japan, Vietnam, Australia, New Zealand and Mexico has now activated the CPAPP.
The most recent agreement is the Regional Comprehensive Economic Partnership (RCEP) – an Asian-dominated trade agreement that brings together ASEAN, the 3 East Asian nations, as well as Australia and New Zealand. Though shallower than CPATPP, it enables China to join the non-American members of the CPATPP in a trade integration scheme. As a result of these successive agreements, tariffs have fallen substantially, and remain low; services in many sectors have been liberalized; and market access conditions substantially improved.
However, overarching all these groupings is the Belt and Road Initiative (BRI), which the HSBC has referred to as “Globalisations’ Next Chapter”. As you know, this China-centric multilateral globalisation framework promotes both physical and economic connectivity and thereby significantly increases the economic presence of the Chinese.
Current large-scale infrastructure projects funded under BRI in the South Asian region include 3 ports and the 3 Economic Corridors which connect China with Pakistan, with Nepal and with Myanmar. The BRI projects in our region will thus recast regional connectivity while giving China access to the Indian Ocean via Gwadar and Kyaukphyu ports. Parallel to the BRI are the Chinese Free Trade Agreements expanding Chinese economic partnerships beyond the RCEP.
Today the Asia-Pacific is the largest economically-integrated region in the world. A series of trade agreements covering four continents forms its integration architecture. These cover Australia, New Zealand, the whole of East Asia (other than North Korea), and the entirety of the America Pacific coast (excluding the USA). The BRI can be seen as dovetailing into the RCEP. What remains is for the USA to join the CPATPP – which is likely to happen within a decade.
These agreements also affect us, in the subcontinent. For example, the CPATT reduced tariff on apparel export between members. In particular, tariff reductions on items such as (1) Male trousers HS 620342 (2) Brassieres HS621210 may lead to exporters like Sri Lanka and Bangladesh losing their staple markets in Canada, Australia and Japan to Vietnam – a fellow member of CPATT.
Unfortunately for us, South Asia remains the least economically-assimilated region in Asia.
And it faces a dilemma: to be connected or to be left out of these new and expanding Asia Pacific configurations of productivity and trade.
Effective integration in trade and security within our region gives us, the members, the ability to determine our architecture for the next few decades. As an integrated regional grouping we will have the strength to negotiate agreements favourable to us with the RCEP and other trade groupings.
We were the first to gain independence during the first phase of British de-colonization. This, combined with our strategic location in the subcontinent enabled our nations to punch above our weight in the global fora.
Yet today, we are at the risk of being left out of this productivity network. No doubt, individual nations can bargain for admission to RCEP; but, becoming an appendage in that forum will mean the loss of voice and weight in this region. Moreover, our region will also lose its identity and the leading position amongst the Indian Ocean nations.
The consequences for India will be even greater – a loss of prestige and predominance – especially if BIMSTEC and SAARC loses its economic importance – and therefore its political relevance. If India loses its clout in this region, then it will be a critical setback to its aspirations for a global role. Therefore, all of us require an outcome which enables us to control our destiny.
Consequently, Regional Economic and Security Integration continues to be the best option.
As noted earlier, our two regional groupings have hitherto made no headway. The postponement of the Kathmandu SAARC Summit in 2017 due to heightened Indo-Pakistan tension has brought SAARC to a standstill. But SAARC’s stagnation is not entirely due to the Uri terrorist attack. There have been similar periods of acrimonious relations between members previously. And these were not confined to India and Pakistan.
I believe that the core issue holding us back from a regional grouping is the inertia towards regional integration. We wish for trade agreements based solely on reducing tariff rates – without the required economic restructuring. This is an outlook starting from the Bombay Plan prepared by 8 leading industrialists in pre-Independent India in 1944. The plan was based on the premise that indigenous industries could not compete in a free market and required government intervention. Hence the development of a supportive government economic bureaucracy. But nearly 80 years later, Indian companies themselves have proved this to be a false premise – by their ability to compete both in the domestic and export markets.
These inward-looking theories and political stances have led to South Asia has less than 1% of the net worth of the world’s total production of exports while South East Asia has 8%.
You will agree that 1% is a figure that is not sufficient to sustain South Asian economic growth.
The growth in our countries are driven by domestic demand. Therefore, our imports far outstrip our exports leading to increasing trade deficits. It is doubtful as to whether this scenario is sustainable in a highly competitive world.
More to the point, an energetic growth scenario is required if the 150 million young people entering the job market in the region by 2030 are to be found employment. Therefore, in the medium term, we need to transit into export-led growth to galvanise regional economic development and dynamism.
It is worthwhile noting that IMF reports estimate a productivity boost of 20% over 20 years for India if it accelerates structural reforms including the elimination of trade and investments barrier. In such a scenario, the spill-over effect in Bangladesh and Sri Lanka will possibly see GDP increases by 3%. Furthermore, the total region would contribute 35% to global growth by 2040.
At least three recent reports by multilateral agencies have dealt exhaustively with the subject of integrating regional economies and making them competitive. These are
(i) South Asia Ready for Take-Off – IMF
(ii) A Glass Half Full – The Promise of Regional Trade in South Asia – – World Bank and
(iii) Exports Wanted – World Bank
As noted earlier, SAARC is deadlocked. While BIMSTEC is not a substitute for SAARC, it is, nevertheless a starting point for integration.
Furthermore, it has immense untapped potential. By 2030, the entire BIMSTEC population will exceed 1.7 billion. At present, BIMSTEC has 3.7% of global trade. The current intra-regional trade is US$ 40 billion. According to the report ‘Reinvigorating BIMSTEC’ by The Federation of Indian Chambers of Commerce and Industry, it is estimated that the actual trade potential of regional integration by BIMSTEC countries could be US$ 250 billion.
BIMSTEC also has the added advantage of being a bridge to ASEAN.
Unlike ASEAN, the BIMSTEC countries of Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand are asymmetrical to one another. No doubt, this could be construed as a hurdle to integration. The population, the land area and the GDP of India exceeds the combined equivalent of the other countries many times over. Furthermore, economic unevenness between members prevent the uniform restructuring that is required for genuine economic reintegration.
Therefore, if regional integration is to succeed in BIMSTEC, the initial effort should be confined to a core group of nations which have complementary economies – India, Sri Lanka, Bangladesh and Thailand – which have a combined GDP of US$ 3.5 trillion. Having a deeper assimilation will not be disadvantageous to India. In 2018, India had a surplus of US$ 9 billion in the trading transactions with the other three partners. Therefore, a four-pronged Economic Integration Road Map (EIRM) is proposed below, to accelerate this integration.
First, it is imperative that the four countries come to grips with economic structural reforms. Traditionally, our countries have been averse to competition. In South Asia, the indexes for tariff and non-tariff barriers on imports are two to nine times higher than for imports from the rest of the world. Even the average of cost of trade within South Asia is much higher than the corresponding figure for ASEAN and NAFT/AMCTA. Therefore, any successful regional trade integration has to address the issues of para-tariffs and non-tariff barriers.
When our government came into power in 2015, Sri Lanka had over 6,000 tariffs line – effected by para-tariff. By 2018 we had eliminated over 2000 such tariff lines. Similarly, one third of the South Asian inter-regional trade is governed by a sensitive list which has to be reduced drastically.
Other pertinent issues to be addressed include those relating to Rules of Origin and the Norms of Value Addition, Anti-dumping Rules and countervailing measures for subsidies and common national regulations.
The removal of tariffs is a more complex process – needing the examination of adjustment costs vs. efficiency costs. In some sectors, domestic stakeholders will require time for adjustment. A series of Trade Adjustment Programmes must provide technical and financial assistance for any affected enterprises. These sectors can be held up until the end while trade-creating sectors and complementary sectors can be given priority to begin with.
Second, E-Commerce exceeds 10% of retail sales in many countries; yet it was below 2% in our region. Commercial Internet transactions have been identified as a fast growing sector in World Bank’s “Unleashing E-Commerce for South Asian Integration” a 3-stage regional strategy. It is a vital part of this initial Road Map so as to utilise its potential for regional integration.
Third, it may also be important to conceptualise an economic sub region consisting of the five Southern Indian states and Sri Lanka, which has a population of 300 million people and a combined GDP of over US$ 500 billion – more than Sweden.
An Economic sub region including a broad band corridor will optimise the complementarities accelerating regional economic integration. Kerala is building a new port near Trivandrum. An ADB funded feasibility study is proposing a further expansion of the Colombo Port with an extension to the North that can make it the largest trans-shipment port in the region. An Offshore Financial Centre is also planned for Colombo. Therefore, the proposed sub-region will be attractive for shipping, logistics, offshore finance, IT and for maximising on the opportunities of the global value chain. A similar sub region is currently being planned between India and Bangladesh. Coronavirus has highlighted the need for a second “workshops of the world”. These two Economic Sub Regions together with Thailand are ideally suited for this purpose. Bangalore as an IT Centre will also enable the transition to the 4th Industrial Revolution.
The fourth leg of the four-pronged EIRM is Tourism – a sector which can animate the integration process.
The Bay of Bengal is the largest bay in the world, dotted with famous cities and scenic beaches including the Andaman Islands and Phuket. Cruise tourism catering to millions of the emerging Asian middle classes, is a new commercial opening for the region. The Bay of Bengal has the potential to rival both the Caribbean and the Mediterranean. Of course, the implementation of the Bay of Bengal Cruise Tourism will require detailed planning, financing and efficient coordination. In addition to BIMSTEC members, Maldives, Malaysia and Singapore are other cruise destinations, that must be invited to join such an initiative.
This EIRM must be,
(i) market driven and
(ii) able to provide a deeper integration than the RCEP.
I would suggest that the negotiations for such an agreement be concluded in 2 years. If not, the talks should be abandoned – a signal in that we have failed.
If we are to succeed, a mechanism with the apex body meeting bi-annually, should be instituted with the mandate of preparing the EIRM. The apex body should consist of the Heads of Governments of the 4 participating countries, the Secretary General of BIMSTEC and the high-level Head of EIRM Task Force consisting of Special Representatives appointed by member governments.
This apex mechanism will need to have a sunset clause leading to the dismantling of the mechanism on a specified date. By then, provisions will be made for a new permanent mechanism in charge of the EIRM.
Once the EIRM agreements are signed, it should then allow for other members of BIMSTEC and SAARC to become signatories to the agreements.
Expanding regional connectivity is a pre-requisite for the success of the EIRM. Conversely, it is anticipated that the enactment of EIRM would accelerate and cement the networks of regional connectivity.
Clearly, the pressing need for regional cooperation and connectivity, cannot be met by one single country or one single institution. We must also take note of the other connectivity enterprises in the region.
In addition to the Chinese Belt and Road Initiative, India herself has undertaken two ambitious connectivity projects as you know – the Kaladan Multimodal Transport Project and the India – Myanmar – Thailand Trilateral Highway.
Japan’s Quality Infrastructure Investment (QII) Partnership has also funded a number of projects including:
- The East-West Economic Corridor
- The Thilawa and Dawei Special Economic Zone
- The Bay of Bengal Industrial Growth Belt
- The Delhi-Mumbai and Chennai-Bangalore Industrial Corridors
- The Mumbai-Ahmadabad High Speed Rail
- The Colombo Port Development
The Asian Development Bank has also taken the initiative with the 10-year South Asia Sub-Regional Economic Cooperation Programme for infrastructure, which is anticipated to
(a) strengthen multimodal cross border transport networks,
(b) improve trade facilitation and
(c) enhance electricity trading.
However, it must be recognised that the present BIMSTEC Secretariat is too bureaucratic, understaffed and not equipped for monitoring this type of undertakings. Therefore, the Secretariat will have to be restructured and upgraded with the Head of the Secretariat being equivalent to Ministerial level. The Secretariat could then be in a position to coordinate and fast-track the connectivity plans and projects within ‘BIMSTEC’.
There is no doubt that Asia’s huge appetite for connectivity and related infrastructure merges with the critical issue of Asian security. This has resulted in the polarization of two conceptualisations of security strategies for the Asian region.
One is centred on BRI, China’s Asia for Asians strategy and the PLA Far Sea Forces concept is based on a network of partnerships which is poised to tilt the balance of power in Asia.
The USA and its allies have responded to this with the Indo-Pacific and the Quad – in an attempt to safeguard the existing balance of power. Consequently, today, the Asia Pacific has to contend, somewhat paradoxically, with a security architecture linked to USA and an economic architecture involving China.
Unlike the Asia Pacific whose security structure has been based on military alliances, our region has avoided such alliances. Consequently, the security structure of the Asia Pacific cannot be duplicated in the Indian Ocean.
Moreover, there are difference of opinion as to the exact definition and demarcation of the Indo-Pacific. The US concept of the Indo-Pacific extend only up to the west coast of the Indian sub-continent. In contrast, our countries stand by the IORA definition of the Indian Ocean and envisage an Indo-Pacific starting from East Africa to the Pacific coast of the Americas.
When it comes to security, a major source of concern to the littoral states of the Indian Ocean is, the increasing presence of naval ships belonging to outside stakeholders.
The sea lines of communication in the Indian Ocean, the lifelines of global commerce, must be open for peaceful use. The Indian Prime Minister, Narendra Modi, is advocating an open and inclusive Indo-Pacific.
Sri Lanka has taken the initiative in promoting a Code of Conduct on the Freedom of Navigation in the Indian Ocean based on UNCLOS – the United Nations Convention on the Law of the Sea. We have also proposed the need to formulate an enforcement machinery. These proposals include the safeguarding of undersea cables – a lifeline as vital as the sea lanes. The first 1.5 Diplomatic Track Meeting was held in Colombo on 11 October 2018.
On the whole, there is a need to avoid security polarization within our region. Security cooperation need to be based on agreed threats within the region rather than political posturing. The mounting multi-dimensional regional trade arising from economic integration should not be thwarted by war or other security disruptions.
Consequently, terrorism, piracy, human smuggling, narcotics and the presence of non-state actors are recognised as regional threats and have become the basis for security cooperation in the region.
Progress has already been made on security coordination in the Bay of Bengal. BIMSTEC members have agreed to cooperate on the BIMSTEC Convention on Cooperation in Combating International Terrorism, Transnational Organised Crime and Illicit Drug Trafficking and have established a joint working group. However, to become effective, BIMSTEC members must overcome their indifferences and ratify the convention in addition to the Convention on Mutual Legal Assistance in Criminal Matters.
Maritime security has also been added to the agenda of the BIMSTEC National Security Chiefs annual meetings.
India has also hosted the first BIMSTEC Military Exercise on boosting inter operationality amongst intranational forces to contain terrorism.
Another security initiative – the Trilateral Maritime Security Cooperation between India, Sri Lanka and Maldives provide joint cooperation in patrolling the Exclusive Economic Zone and combating piracy. The Bay of Bengal littoral states have also participated in the MILAN Naval exercises hosted by the Indian Navy. The biennial Indian Ocean Naval symposium and the annual Galle Dialogue also provide opportunities for Navy chiefs of BIMSTEC and SAARC littoral states to discuss maritime security threats. At least, the building blocks for regional security in BIMSTEC are falling in to place.
Of course, successful regional integration – both economic and security, is dependent on SAARC becoming fully functional at the highest levels. Yet, irrespective of the SAARC summits, official and ministerial discussions take place. The people to people contacts are strong. Funding is received. Meetings of the SAARC non-governmental organizations are held regularly. The Secretariat carries on its work and a new Secretary General from Sri Lanka will assume office soon.
Nevertheless, SAARC is not fully functional and will not be so until the summit meetings are held. Moreover, the Indo-Pakistan tensions have led to our region being identified as a possible site for nuclear conflict. This itself indicates the urgent necessity to restore normalcy. Hence the Indo-Pakistan disputes affecting the SAARC though a bilateral issue need to be resolved by the two countries at a level which permits the Summits to take place. This also requires solutions to the underlying issues of terrorism including cross border terrorism.
Here, we must reflect on how economic integration in the Asia and Pacific has acted as a disincentive for conflict. The outstanding issues are still retained within the present architectures available. For example, our region should follow a similar approach.
Only regional integration both economic and security leading to a linkage with the existing Asia Pacific network will enable us to create rapid economic growth to escape the middle income trap and lead us to prosperity. This will also make us the first economically integrated region in the Indian Ocean. Hence we will be able to take leadership in promoting trade integration in the Indian Ocean and ensure security of the Sea Lines of Communications.
In conclusion then, let us be bold in conceptualising one vast global productivity and connectivity network – from East Africa to the shores of the Pacific region of the Americas.
We have the possibility of becoming the 4th global trading bloc and increasing our voice and weight in the global fora.
We must not miss it.
*Speech made by Ranil Wickremesinghe at the 4th edition of ‘The Huddle’ organised by the Hindu, on Sunday 23 February 2020 at ITC Gardenia Hotel, Bangalore, India