Originally Published 2016-11-02 10:04:07 Published on Nov 02, 2016
The need for regional integration is now BIMSTEC countries to make up for the deficit created by a crippled SAARC in South Asia
Regional integration: Future prospects
The era of regional integration began in earnest in the post-World War II phase, following the economic reconstruction of war-ravaged Europe. Growing economic linkages across the globe led to regional integration, encompassing almost all countries, as the ranks of independent nation states swelled in the aftermath of de-colonisation. The rapid economic growth witnessed globally since the 1950s, provided the fundamental impetus for nations to seek regional integration, to aim for higher economic growth for combating poverty, allied problems and pursuing prosperity. Regional cooperation has taken into its fold countries at a variety of levels of development. There are regional agreements among high-income countries (European Union) and linking countries at different stages of development (NAFTA-North American Free Trade Agreement and the proposed mega trade deal, the Trans-Pacific Partnership, Trans-Atlantic Trade and Investment Partnership – TTIP. Other regional agreements, each having its own features, allowing for countries to develop closer ties in a manner suitable for regional conditions, are ASEAN) in Southeast Asia, MERCOSUR) in South America, COMESA - the Economic Community of West African States (ECOWAS) and SADC in sub-Saharan Africa, SAARC and BIMSTEC in South Asia. Currently, there are hundreds of regional trade agreements (RTAs) and preferential trade agreements (PTAs) in force worldwide; such arrangements have doubled in number since 2000; almost every country in the world is a member of a RTA or PTA. It is clear that reducing trade costs, associated with border administration, transport and communication infrastructure, even halfway to global best practice, would lead to an additional $2.6 trillion in global GDP (4.7 percent). The rise of China as an economic behemoth brought in a new player on the global stage, changing the paradigm of regional integration. China’s new integration initiatives like the OBOR and MSR - Maritime Silk Route Initiative, are grand plans for regional integration. One aspect of this is the China-Pakistan Economic Corridor (CPEC). China put its strategic eggs in the Pakistan basket decades ago, with the CPEC being the culmination of deepening strategic ties. China has pledged to invest USD 46 billion in the CPEC which is expected to become an economic corridor, starting from the province of Xinjiang and terminating at the port of Gwader, on the Makran coast of Balochistan. China’s strategic ties with Pakistan began in the late 1960s and early seventies, when China opposed Bangladesh’s War of Liberation and supplied Pakistan with nuclear weapon and missile technologies. China’s and Pakistan’s objectives have converged and there are no prizes for guessing the target i.e. India. There is little doubt that China intends to convert Gwader port into a Naval base in the years to come, giving it access and a military base in the Arabian Sea, close to the Gulf of Hormuz, the maritime highway for the flow of vital energy supplies. At last count China has already invested USD 14 billion out of the total USD 46 billion China has promised to invest in the CPEC. China seeks a similar facility in the Bay of Bengal and the Kunming Initiative, now called the BCIM, coupled with China’s bid to build a deep sea port in Bangladesh has to be viewed through this strategic prism. The Chinese President’s recent visit to Bangladesh has strengthened these initiatives, as Bangladesh has agreed to a strategic embrace of the Chinese-sponsored regional integration initiatives, with promises of billions of dollars in investment. China’s economic heft has also resulted in the setting up of the New Development Bank – AIIB which is functioning alongside the BRICS Bank. Both Banks are headquartered in China, from which Bangladesh seeks funds for investment. India has opposed the OBOR project’s CPEC component, not only because it cuts through India’s territory in Pakistan Occupied Kashmir (POK), but also the ultimate goal of making Gwader a Naval base for China. China’s military ties to Bangladesh have expanded and the Bangladesh defence forces mostly operate Chinese manufactured military equipment, sold at cheap prices. Buying influence with an influential institution via selling military equipment has been a consistent feature of China’s policy. Chinese submarines operated by Pakistani and Bangladeshi Navies will add a sharper edge to Indian security threat perceptions. Bangladesh, therefore, has also become a factor in China’s policy, in indirectly pressuring India. The lap-dog Chinese media has tried to debunk these worries, asserting that looking at the OBOR initiative as a political tool to achieve Beijing’s strategic objectives is too simplistic a view and taking a dig at India, propagating the view that some in India mistakenly flatter themselves by assuming that it is aimed at balancing India. As the global flux in power equations have changed, a rising China has increasingly flexed its muscles to seek hegemony in Asia. It’s bullying of all littoral countries in the South China Sea (SCS) by making egregious claims over large stretches of the Sea, it’s rejection of the award rejecting China’s claims in the SCS, it’s unstinted support for Pakistan’s continuous sponsoring of terrorism against India and making that country a client state, have added to the growing misgivings about China’s intentions. No amount of sweet words emanating from Beijing, orchestrated by the Chinese media, has been able to assure countries in Asia about China’s “benign” rise. The current reality is that except for Pakistan and North Korea, China’s cheerleaders in Asia are few, despite China’s persistent attempts to directly bribe many Asian leaders to change their policy and align themselves with China’s strategic objectives which, in other words, means Chinese hegemony. The future of regional integration is a mixed bag. The recently concluded BRICS Summit in Goa, with outreach to BIMSTEC countries, Afghanistan and Maldives was high on rhetoric and marred by differences over Pakistan sponsored terrorism. Earlier, BREXIT dealt a body blow to European integration. The Trans-Atlantic TTIP remains an open question. The TTIP and the Trans Pacific Partnership (TPP), touted as the gold standard of Trade deal, with TRIPS plus IPR standards, beyond the border regulatory standards, extraordinary powers to multinationals are both in trouble. Both candidates in the American Presidential candidates have come out openly against TPP and TTIP. The declining interest in regional integration is a direct result of the global economic slowdown in Europe and the West in general. The reflexive reaction to seek refuge in protectionism, in times of economic distress is a common phenomenon in global economic relations. Adding to this distress is the long-drawn-out failure of the WTO’s Doha Round. There has been no multilateral liberalisation or rule-strengthening for over a decade. Second, the primary thrust of trade policy has shifted from non-discriminatory unilateral liberalisation, backed up by the Uruguay Round agreements (and WTO accessions for China and Vietnam), to discriminatory FTAs. The FTAs, unlike previous unilateral measures, have not been a motor of additional liberalisation, though it has helped to some extent in increase in trade. Barring OBOR and MSR, the era of regional integration appears to have peaked and now dormant and even declining. The WTO too has become dormant and new FTAs are on hold. In South Asia the most important regional organisation, SAARC, is now crippled. There are no prizes for guessing which country has ensured this outcome. The cancelled Islamabad SAARC Summit is a direct result of Pakistan’s unremitting commitment to state-sponsored terrorism, directed primarily against India. South Asia accounted for less than 2% of world trade and around 5% of Asia’s trade; South Asia remains the least integrated region in the world. It even lags behind sub-Saharan Africa, the Middle East and North Africa. High intra-regional trade and FDI barriers are very much part of the problem. Trade is heavily biased towards extra-regional markets. India’s trade with its neighbours, for example, is under 3% of its total trade. South Asia’s regional-integration initiatives are, perhaps the weakest globally - not surprising, given low level of intra-regional trade. South Asia’s strongest FTA is that between India and Sri Lanka. But this is actually weak, with carve-outs, tariff-rate quotas and stringent Rules of Origin (ROOs) effectively constricting up to half of bilateral trade. Pakistan has taken a strategic decision that cooperation under the SAARC banner is not in its national interest. The mindset that led to Partition is now firmly embedded in the DNA of the Pakistani establishment, particularly the Pakistan Army which feels its corporate interests are best served by perpetuating hostility towards India. This policy ensures abiding Chinese interest of using Pakistan as a proxy against India and nullifies any Pakistani move to normalise relations with India. Pakistan has therefore, directed its energies towards deepening its integration with China, her all weather ally, via the CPEC. By aligning with China and maintaining a hostile posture against India, it has ensured non-cooperation with SAARC whose goals are a South Asian Economic Union. Integration in South Asia necessarily leads to normal relations with India which diminishes Pakistan’s leverage with China. With SAARC in limbo and unlikely to play a robust role in the near future, policy alternatives veer towards BIMSTEC and sub-regional cooperation like BBIN. Prime Minister Sheikh Hasina’s proposal for BIMSTEC-BRICS linkages are relevant in terms of outreach and require nurturing. Meanwhile, SAARC will remain frozen till such time Pakistan changes its behaviour and becomes a more responsible stakeholder in South Asia. The onus is now BIMSTEC countries to make up for the deficit created by a crippled SAARC. This commentary originally appeared in Daily Sun.
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Author

Pinak Ranjan Chakravarty

Pinak Ranjan Chakravarty

Pinak Chakravarty is a Visiting Fellow with ORF's Regional Studies Initiative where he oversees the West Asia Initiative Bangladesh and selected ASEAN-related issues. He joined ...

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