Ministry of External Affairs Government of India

Forthcoming Lecture - Regional Cooperation in South Asia

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  By: Amb (Retd) V.P. Haran
  Venue: Alagappa University, Tamil Nadu.
  Date: July 30, 2018
  

Regional cooperation in South Asia

Prof Rajendran, Vice Chancellor, Alagappa University, Distinguished members of the and faculty and students of the University, Ladies and Gentlemen, Friends, a very good morning to all of you. I would like to thank the University for giving me the opportunity to visit Chettinad and for making excellent arrangements for my stay here. I would like to express my appreciation to the University for this interaction with the younger generation in whose hands lie the future of India. I would also like to thank External Publicity and Public Diplomacy Division of the Ministry of External Affairs for facilitating this. I will be speaking on the subject of Regional Cooperation in South Asia.

Regional cooperation refers to mechanisms established, generally in a geographical region, to strengthen the common interests of members of the organization and to promote their national interests through mutual cooperation. Such organizations are catalysts for accelerating economic growth of the region, with its attendant benefits like increased employment opportunities for people of the region, reduction in poverty levels, improvement in the welfare of the people, etc. Such cooperation usually expands the markets available for a country’s products and make available raw material and other inputs which are not available locally. In this era of globalization, regional cooperation can help members to withstand competition and make their products globally competitive.

At the inaugural session of the Kathmandu Summit in November 2014, PM Modi said, ‘Because, in the life of an individual or a nation, a good neighborhood is a universal aspiration.Where does South Asia wish to stand in this world?Nowhere in the world are collective efforts more urgent than in South Asia; and, nowhere else is it so modest.Big and small, we face the same challenges - a long climb to the summit of development.Yet, when we speak of SAARC, we usually hear two reactions – cynicism and scepticism. This, sadly, is in a region throbbing with the optimism of our youth.’

These words bring out the need for regional cooperation, particularly in South Asia and also highlights the current state of cooperation in this region. Regional cooperation generally leads to peace, prosperity and stability which are essential for focusing on development related issues. There are several organizations in this region, with overlapping responsibilities and membership. I will be covering in my presentation, four of them: SAARC, BIMSTEC, BBIN & SASEC.

SAARC

South Asia was one of the most integrated regions just about 70 years back. The political boundaries drawn in 1947 divided the people and made most interlinkages inoperative making the region one of the least economically integrated regions. In many cases we are now endeavoring to reestablish the earlier linkages. Such efforts were at bilateral levels till 1985 when India, Bangladesh, Bhutan, Nepal, Maldives, Sri Lanka and Pakistan decided in Dhaka to establish SAARC [South Asian Association for Regional Cooperation]. Afghanistan joined SAARC later in 2005. SAARC has 9 observers including EU, the US, China and Japan.

When SAARC was launched, the leaders drew inspiration from successful regional cooperation organizations like ASEAN, EEC [later EU] and NAFTA. The objective of the Leaders, as stated in the preamble to the SAARC Charter is to promote peace, stability, amity and progress in the region. SAARC was tasked to promote the welfare of the people of the region, improve the quality of their life and promote and strengthen collective self-reliance among Members. Problems that Members were battling were similar: widespread poverty, inequality, underdevelopment, social and political tensions, extremism, etc. It is a grouping of countries that are large and small, that had different political systems and had different approaches to economic development. It was the hope of leaders that through cooperation at regional level, they would be able to promote peace and stability in the region by focusing on mutual understanding, accelerated development and addressing the serious problems of malnutrition and poverty. Keeping in view the serious political issues dividing them, Members decided that all decisions in SAARC will be by unanimity and bilateral and contentious issues would be excluded from SAARC fora. South Asian States are linked through history, geography and a shared cultural heritage, but are divided by politics which is seriously inhibiting realization of the objectives that Member States set for themselves in the Charter.

A major development in SAARC was the conclusion of a preferential trading agreement, SAPTA in 1995, to promote trade, cross border investments and economic integration. The Agreement had only a marginal impact in promoting trade, as Members were reluctant to open up their markets. Further, India already had Free Trade arrangements with Nepal and Bhutan and later concluded a FTA with Sri Lanka in December 1998.A bolder step was taken in 2006, when the Member States concluded the South Asian Free Trade Agreement [SAFTA]. It was a carefully crafted agreement that factored in the differing levels of development of Members. India, Pakistan and Sri Lanka committed to bring down their tariffs to less than 5% by 2013, while the others that were LDCs were given an extra three years to reduce their tariff to similar levels.

The Agreement has, however, not resulted in any dramatic increase in intra SAARC trade, with trade among SAARC countries being just about 5% of their total external trade. It compares poorly with other regions that have concluded FTAs. Intra-regional trade is about 26% in ASEAN, 65% in EU and 51% in NAFTA. India granted duty free access to its market for five LDC Members of SAARC in 2008 and this became fully operational in 2012, but has not led to any significant increase in their exports to India. Low levels of integration of the markets is an important reason for low levels of cross border investment in the region. Thus the main cooperative effort that has the potential to increase economic activity in the region and contribute to poverty alleviation and peoples welfare has largely not delivered the hoped for outcome.

Reasons for this are many. First and foremost is, none of the Members were keen to open up their markets to even regional competition. Goods of interest to them were placed in the negative list on which duty concessions were not available. Secondly, SAARC economies, being from the same agro economic and climate zone are parallel economies, growing/producing and exporting same or similar products. For example, Garments, Tea, Rice are produced and exported by many Members. To that extent, scope for trade among the Members is somewhat constrained. Further, poor infrastructure at the border points and TBT [Technical Barriers to Trade] measures are not conducive to promoting trade. National priorities and not cross border connectivity, have been the prime determinants for development of infrastructure. Politics has prevented Pakistan from extending Most Favored Nation treatment to India, despite their legally being required to do so under WTO rules and regulations.

At the 18th Summit in Kathmandu in November 2014, SAARC Leaders, inter alia, took the following decisions:

- Renewed commitment to achieve South Asian Economic Union in a phased and planned manner through a FTA, a Customs Union, a common market and a common Economic and Monetary Union;

- Committed to enhance support for LDC and landlocked Member States in their development efforts;

- Renewed commitment to substantially enhance regional connectivity in a seamless manner and emphasized need for linking South Asia with contiguous regions;

- Directed relevant SAARC bodies and mechanisms to identify regional and sub-regional projects in the area of power generation, transmission and power trade and implement them with high priority;

- Unequivocally condemned terrorism and violent extremism and directed respective authorities to ensure full and effective implementation of the SAARC Regional Convention on Suppression of Terrorism.

Progress, if any, on the above decisions has been minimal and very slow, prompting many informed observers to question the effectiveness of SAARC as a forum to address the common problems of the Members. The 19th Summit was to be held in Islamabad in 2016, but has not been held so far due to Pakistan’s continuing support and direct involvement in cross border terrorist attacks. India has said that talks and terrorism can’t go together. Pakistan is also obstructing progress on economic issues like trade, transit, infrastructure development etc., and is stalling progress in SAARC programs. Meetings do take place between officials, Parliamentarians etc., but Summit level meetings are essential to lend momentum to the activities.

Some of the more recent successes of SAARC are:

South Asian Agreement in Services [SATIS], that entered into force in December 2012; even this limited ambitions agreement has not been implemented properly, with leaders calling for early operationalization of SATIS at their Kathmandu Summit in 2014.

SAARC Framework Convention on Energy Cooperation to facilitate cross border trade in electricity was signed in Kathmandu in November 2014. The convention is yet to contribute to regional efforts towards trade in electricity. Some Members have bilateral arrangements for trading in electricity.

Some SAARC institutions have taken off, but have not reached their full potential as yet. These include SAARC Development Fund in Thimphu, South Asian University in New Delhi, SAARC Regional Standards Organization in Dhaka and SAARC Arbitration Council in Islamabad.

SAARC Motor Vehicles Agreement and Railways Agreement had been finalized well in time for their signature in Kathmandu. This could have been a significant achievement, but Pakistan’s reservations stood in the way of their signature. [Officially Pakistan said they haven’t completed their internal procedures]. The Agreement was later signed by 4 Members to which I will come later.

Given its size, population, market, GDP and location at the center of SAARC, India has a critical role in the success of SAARC and regional development. Conscious of this it has taken several initiatives, beyond the agreed joint programs of SAARC. Its focus has been on trade, connectivity, trade facilitation, and people to people contacts. Apart from its assessed contribution of $89.9 million to SAARC Development Fund for its economic, social and infrastructure programs it has made a voluntary contribution of $100 million to SDF. India has contributed $530 million to various SAARC institutions. Most importantly, India has extended duty free access for 99.7% products of five LDC Members of SAARC. It has provided nearly $8 billion assistance in South Asia over a decade. It also provides short term foreign exchange liquidity requirements of other Members through the currency swap Agreement.

At the Kathmandu Summit, PM Modi noted that less than 5% of the region's global trade takes place between SAARC Members. Of this, less than 10% of the region's internal trade takes place under SAFTA. Less than 1% of investments by Indian companies flow into the region. He observed, ‘as SAARC we have failed to move with the speed that our people expect and want. Some argue that it is because of the region's development gap. But, that should actually spur us to do more.’ He asked if Members are stuck behind the walls of differences and hesitant to move out of the shadows of the past. This, he said, won't resolve our differences, but will certainly deprive us of opportunities. He added that for India, vision for the region rests on five pillars – trade, investment, assistance, cooperation in every area, contacts between our people – and, all through seamless connectivity. While clearly identifying what ails SAARC, PM indicated India’s readiness to address many of the problems; but this requires cooperation from other Members as well.

At Kathmandu, India offered to provide vaccines, build a SAARC satellite, liberalize visa regime for business travelers and those needing medical care, share its knowledge and expertise on disaster management, and to increase cross border physical and digital connectivity. It further suggested a regional Air Services Agreement.

Often it is said that India being the largest country in the region, should go the extra mile and offer unilateral concessions to our neighbors. What is not recognized is that we have been doing this for many decades. Some of these I had mentioned earlier. There are several others as well. The Trade and economic arrangements we have with Nepal and Bhutan are the most liberal anywhere in the world. The FTA with Sri Lanka provided for a much longer phase in period for Sri Lanka. We have given duty free access to 99.7% of the products of the five LDCs in SAARC. Large number of people from the neighboring countries seek jobs in India, which has not taken action against people who have entered India through irregular means. We also provide essentials to countries like Bhutan and Maldives even when there is blanket ban on export of these items because of shortage of these items in India. We have extended MFN status to Pakistan despite Pakistan not extending MFN status to us, as required under WTO rules.

Why has regional cooperation under SAARC framework not taken off in South Asia?

The main reason for lack of progress in SAARC is the political tension between India and Pakistan, because of which Pakistan is standing in the way of greater economic cooperation, even when such cooperation would be in the interest of the people of the region. The unanimity rule for decision making, while intended to reassure our smaller neighbors, also comes in the way of faster decision making. Pakistan has made full use of this. Example is the Motor Vehicles Agreement, which it blocked in the last minute in Kathmandu. Greater economic integration and intraregional trade would be facilitated if there is cross border investment and cross border value chains. To some extent we have succeeded in this at bilateral level, but the potential for this at regional level is enormous. Our neighbors have much to gain from India’s growth and many in those countries acknowledge this. There is, however, continuing reluctance on the part of our partners to move in this direction due to trust deficit. Neighbors have a tendency to play the China card, which they see as an insurance against domination of the region by India. Lack of progress in SAARC is one of the main reasons for the other regional cooperation initiatives like BBIN, BIMSTEC and SASEC. I will now proceed to examine how these other organizations have fared.

BBIN

SAARC Summits in Male [1997], and Colombo [1998] endorsed sub regional cooperation, i.e., cooperation among three or more members on issues of interest to them. Lack of meaningful progress in SAARC, compelled some Members to come together and form other fora for regional cooperation. One such initiative is BBIN which is an informal grouping of Bangladesh, Bhutan, India and Nepal. They have identified trade, transit, water and energy as the areas on which they will focus. The failure to sign the SAARC Motor Vehicles Agreement [MVA] during the Kathmandu Summit in November 2014, due to Pakistan throwing up a surprise in the last minute, prompted BBIN Members to explore a sub-regional agreement to facilitate seamless and faster movement of persons and goods. The MVA that was to have been signed in Kathmandu was signed in Thimphu, Bhutan, by BBIN transport ministers in June 2015. Ratification of the Agreement, however, ran into problems in Bhutan, though Bhutan stood to benefit the most from the Agreement. The remaining three countries are moving towards implementing the Agreement. Earlier this year, they have agreed on operating procedures for passenger vehicle movement and are expected to sign the passenger protocol soon. It is surprising that this has taken so long as both Nepal and Bangladesh already have agreements with India on movement of passenger vehicles. The full implementation of the MVA will facilitate trade and strengthen people to people contacts.

The failure of Bhutan to ratify the MVA led to questions being raised on whether BBIN can succeed where SAARC has not delivered expected results. BBIN is a more compact grouping and Members had come together to cooperate on specific areas where they assessed that regional cooperation would be in their interest. Political atmosphere in BBIN is conducive to regional cooperation. Contrast this with SAARC where one member stands in the way of greater regional efforts for common benefit. Domestic political compulsions may occasionally pose challenges, but are unlikely to hamper cooperation. Each Member stands to benefit from cooperation in the four identified areas. It is important to ensure that BBIN remains a flexible forum that would permit willing Members to move forward even if one Member has reservations.

Trade is among the four subjects that BBIN is focusing on. But, all the Member States are also members of South Asian Free Trade Agreement. On tariff, I doubt if they can do anything more. Incremental benefit can come through addressing Technical Barriers to Trade. Transit across the region will facilitate exports to other Members as well as outside the region. Some projects are already underway under the aegis of SASEC. There is immense potential for mutually beneficial cooperation in the related subjects of water and hydropower. More than half a billion people of this region are dependent on the waters of the Ganga-Brahmaputra-Meghna basin. With growth in population and improving standard of life, demand for water is bound to go up in this region in the years ahead. Planning at regional level will help in addressing the problems of water shortage and uneven flow of water. It will help in more optimum use of available water and contribute to water and energy security of the region. This would require storage of water upstream to even out the flow of water and thus improve water availability in dry season. This will be possible if the countries on whose land, reservoirs need to be built are adequately compensated for making land available for dams and for contributing to flood control measures. They would also benefit from hydropower to be generated from the waters of the reservoir. Immediate benefit can be derived from cooperating in such areas as flood forecasting and control, improving the quality of ground water by addressing the problem of arsenic contamination and inland navigation.

Energy sector offers enormous prospects for cooperation among BBIN countries. There is potential for joint exploration for natural gas and crude in the Bay of Bengal. India meets the entire requirements of Nepal and Bhutan for POL products. Further, it imports 1000MW of power from Bhutan during wet season. It exports 750MW to Bangladesh and 380MW to Nepal. Differences in peak demand hours and weekly and seasonal holidays among BBIN countries offers possibilities for balancing the load across the region. Nepal and Bhutan can monetize their running water resources by going in for hydropower projects. They can export surplus power to India and Bangladesh, where there is shortage of power. Despite the churn in the power market in recent times due to availability of highly subsidized solar and wind power, there will be demand for clean hydropower for grid balancing and stability. What is needed urgently is clear rules at regional level for cross border trade in electricity.

Cooperation in BBIN framework offers several advantages: Members can participate in regional value chains, which will help in increasing their exports and attracting foreign investment. Improved connectivity to the ASEAN market would be facilitated through North East India. It will be possible to get funding for improving border infrastructure and connectivity as multilateral institutions like ADB prefer to fund infrastructure projects promoting connectivity between countries. ADB has extended assistance for various steps taken so far to implement the BBIN MVA. Several bilateral agreements exist among BBIN Members, to facilitate multi modal transport which could promote exports from the region. These could be consolidated and a regional agreement worked out. The smaller members would find this reassuring.

It is, however, to be noted that BBIN is an informal grouping, which meets mostly at senior officials level. Unlike SAARC, it doesn’t have a charter and their leaders don’t meet periodically to decide on the program. But it offers great potential for mutually beneficial cooperation in areas which would benefit the people. Success of BBIN will have a positive effect on SAARC programs as well. Keeping this in view, Members should consider moving towards a formalized structure and meetings at Summit level, which would give BBIN a higher profile and facilitate speedier implementation of its programs.

BIMSTEC

Bay of Bengal Initiative for Multi-sectoral technical and economic cooperation or BIMSTEC, established in 1997, comprises 5 countries from South Asia viz., India, Bangladesh, Bhutan, Nepal and Sri Lanka and two countries from South East Asia viz., Myanmar and Thailand. All Member States are in the littoral or adjacent areas of Bay of Bengal and are contiguous. The objective behind setting up of BIMSTEC was ‘to harness shared and accelerated growth through mutual cooperation in different areas of common interests by mitigating the onslaught of globalization and by utilizing regional resources and geographical advantages’. BIMSTEC was envisaged as an addition to and not a substitute for bilateral, regional or multilateral cooperation involving member states.

BIMSTEC has a sector-driven approach. In 1997, six sectors, were identified; these were trade, technology, energy, transport, tourism and fisheries. In 2008, 9 more sectors including agriculture, poverty alleviation and counter-terrorism were added to its agenda. In a paper on BIMSTEC brought out by FICCI, it had suggested that trade and investment should be the focus of the organization. The paper suggested conclusion of a Free Trade Agreement, Trade Facilitation measures, strengthening of connectivity and energy linkages.

India is the lead country for transport and communications in BIMSTEC. In this sector, FICCI had suggested conclusion of a Motor Vehicles Agreement to facilitate free movement of vehicles, improving air connectivity and concluding a regional Agreement on Coastal Shipping. Focus could be on physical connectivity projects under implementation for some years; these include the trilateral highway project connecting India with Thailand through Myanmar and Kaladan multimodal project that will connect India’s North East with Myanmar and provide a new and more convenient avenue for exports of products of the North East. These projects will act as a bridge between South Asia and South East Asia. An ADB funded study conducted over a decade back on BIMSTEC transport, infrastructure and logistics identified 160 projects to significantly upgrade connectivity; of these 65 were prioritized.

An area that offers immense potential for cooperation is Energy. Hydropower, Renewable energy, cross border trade in energy including of Gas from Bangladesh and Petroleum from Myanmar are areas that should be the focus of attention.

The third BIMSTEC Summit was held in Myanmar in 2014, when the leaders agreed to move forward towards finalization of draft agreement on Trade in Goods and of the Agreement on cooperation and mutual assistance in customs matters, under the framework Agreement on BIMSTEC FTA. The leaders directed the Trade Negotiations Committee to conclude the Agreement on Trade in Goods by end 2014 and to continue efforts for early finalization of Agreement on services and investment. They agreed to enhance cooperation in expanding skill and technology base of Member States and underlined the need for expanding regional cooperation in the energy sector. They also agreed to implement BIMSTEC Poverty Plan of Action. Progress on all these issues has been painfully slow. The Fourth Summit was to be held in 2017 in Nepal, but because of national elections, Nepal could not hold it on time.

BIMSTEC achieved a high profile when India took the initiative to invite its leaders for a meeting with BRICS leaders in Goa in October 2016. Among the important BIMSTEC meetings in the past 2 years are the meeting of NSAs’, Ministerial meeting in Kathmandu, where a purposeful action plan was finalized and the first annual Disaster Management exercise.

The success of BIMSTEC would depend on whether it can go beyond economic issues. The expanding influence of China and the long term impact of Chinese BRI projects are matters of concern to many Members. Can BIMSTEC Members come up with a combined response that will protect their interests? Can BIMSTEC address serious bilateral issues like that of Rohingya refugees?

There is a tendency to describe BIMSTEC as a competitor to SAARC which has not moved forward as it should have, despite the guiding principles of BIMSTEC laying down that it is not a substitute for any regional organization. It should be recognized that both the organizations have their role and importance. But, BIMSTEC can be a more active institution because it is not inhibited by any political consideration. What is needed urgently is to impart greater momentum to projects already agreed upon and conclude FTA covering both goods and services.

SASEC

South Asian Growth Quadrangle was formed in 1996 by Bangladesh, Bhutan India and Nepal for increased cooperation in environment, energy, power, transport, trade, investment and tourism. ADB [Asian Development Bank] was requested for assistance in promoting economic cooperation in the region. This led to the creation of SASEC [South Asian Subregional Economic cooperation] in 2001. Maldives and Sri Lanka joined SASEC in 2014 and Myanmar in 2017. SASEC is a forum of senior officials and ADB, empowered to approve projects that are eligible for ADB assistance in the form of grants, loans and technical assistance. Unlike SAARC, SASEC’s areas of focus are limited and clearly defined.

Transport, energy and trade facilitation were the priority areas identified by members in 2005. In 2016, a 10 year operational plan was approved by Members and in this, development of economic corridor was identified as the fourth priority sector. Compared to other regional cooperation efforts in South Asia, SASEC has been more successful. Part of the reason is that there is no constraining political factor. Also it is a lot more focused in its efforts. Since 2001, members have either implemented or are implementing 40 regional projects worth over $10.7 billion in the identified priority sectors and ICT, with the transport sector attracting maximum investment.

CONCLUSION:

Despite the evident advantages in regional economic cooperation, and the urgent need for it in South Asia, politics and emotions have stood as barriers. One had thought that over a period of time, the wounds of partition would heal and that countries of the region would move towards normal relations. Sadly this has not happened in our region. Progress in SAARC has undoubtedly been slow. But let us not forget that it took more than 40 years for the European Coal and Steel Community to transform into European Union, adding members along the way and expanding the range of subjects to be dealt with at regional level. Brexit had come as a surprise, but it doesn’t mean unravelling of the Union built up patiently, accommodating interests of Members.

Should India take the lead in these regional organizations? Beyond a point it would be counterproductive because there is so much suspicion among some members about India’s intentions. Some Members find our size intimidating. Trust needs to be built up patiently and over a period of time. In the meantime we should do whatever is possible from our side. I am not suggesting abandoning of our responsibility and leaving the pace of progress to be determined by Pakistan’s whims. There are other options available.

We can strengthen cooperation through other regional organizations that have responsibilities in the same areas as SAARC. For e.g., the subject of Trade is dealt with by 3 of the 4 regional organizations about which I have spoken today. The subjects of Energy and Connectivity, including transport and border infrastructure are dealt with by all the 4 organizations. Wherever possible we should move forward with our partners in these organizations, where the Pakistan factor is absent. SASEC has been doing commendable work. BBIN offers great potential in energy and water sectors and can deliver concrete results in the medium term. BIMSTEC can be a useful forum for furthering connectivity, in collaboration with SASEC and also focus on trade and investment. Progress in these areas would win the support of the people for regional cooperation and perhaps act as a catalyst for progress in SAARC as well.

Let me conclude by saying that I am optimistic about progress of regional cooperation efforts in South Asia. We need to be realistic in our ambitions, keeping in view the political environment. I thank you for your attention. I will be happy to answer your questions.

Thank You.