Can SAARC crave a niche in geo-politics of trade

ASHOK B SHARMA

In absence of an effective integration in South Asia, the SAARC countries are likely to be placed at a serious disadvantage in today’s multipolar world where several key actors are engaged in defining their spheres of influences in the Asia-Pacific. The two main pillars in this evolving geo-politics are trade and security. While geo-politics is the driving force, geo-economics is being designed to be its base. Indian Ocean region is strategically important as vital Sea Lane of Communication (SLOCs) pass through this region from Hormuz Strait, 

Suez Canal, Red Sea, Persian Gulf to Malacca Strait to South China Sea. These most critical trade routes carry almost two-third of global energy trade, half of world’s containerized cargo and a third of global bulk cargo.

A number of mega regional trade arrangements (RTAs) are being attempted to be floated by main actors like US alongwith EU, China and Russia. Unlike ASEAN, the South Asian regional group, SAARC, is least integrated formation in the world. As a major country that shares borders (land or maritime) with all countries in the region with the exception of Afghanistan, India has the onus for developing adequate connectivity in South Asia and see that the centrality of SAARC is preserved in the best interests of itself and the region in terms of both security and trade.

The global slowdown that resulted from the collapse of Lehman Brothers in the latter half of 2008 in US caused much redrawing of trade engagements in the world. The European Union, which is struggling to deal with the hangover of its Sovereign Debt Crisis, is unable to come out of recession as the situation is further aggravated due to its involvement in the Ukraine crisis. Comparatively, President Obama has been successful in pulling out US from the recession and the country is growing at 3.1% per annum. The EU-15 countries are growing slowly at 1.2%.

The EU has become more protectionist in trade, particularly with the developing world and as the negotiations in the WTO is in a deadlock, it has chosen to align itself with US in Trans-Atlantic Trade and Investment Partnership (TTIP). The US floated the concept of Trans-Pacific Partnership (TPP) and considers TTIP a companion agreement to TPP. Washington’s interests in Asia-Pacific is not new. The Obama Administration’s “rebalancing in Asia-Pacific” and “pivot” to the region is a hangover of South-East Asia Treaty Organisation (SEATO). With the global economic pole gradually shifting to Asia-Pacific the western powers have become more interested in the region.

The TPP led by US has 12 participating countries like Canada, Mexico, Peru, Chile, Malaysia, Singapore, Brunei, Vietnam, Japan, Australia and New Zealand. TPP seems to be at the most advanced stage of development and is likely to erode existing preferences for South Asian products in these markets and will put a greater burden on compliance by South Asian industry and service sector. The TPP is likely have stringent environmental, labour intellectual property norms that may be impractical for compliance by South Asian countries.

The TPP is designed to scuttle the earlier proposed Regional Comprehensive Economic Partnership (RCEP) with the centrality of ASEAN. Apart from 10 ASEAN members the ASEAN FTA partner countries like China, India, Japan, South Korea, Australia and New Zealand are associated with it. The overlapping membership of TPP and RCEP shows that the move for TPP is an effort to scuttle RCEP. The ASEAN is slated to move towards a common economic community by January 1, 2016 and subsequently towards a political security community and socio-cultural community. The RCEP arrangement will be most conducive to India’s interests and it should push for its early conclusion and always continue 

to stress upon the centrality of ASEAN.

Among South Asian countries, India has developed Summit-level relations with ASEAN and therefore it has the responsibility of carrying the entire SAARC group and forge relationship with ASEAN and subsequently with RCEP. But before SAARC needs to develop relations with ASEAN, there should be an effective connectivity in the region. SAARC Free Trade Agreement (SAFTA) should be strengthened and made vibrant to raise the intra-regional trade beyond the present level of $22 billion. Bangladesh is India’s largest trading partner in 

SAARC followed by Sri Lanka, Nepal and Pakistan.

India’s plans for connectivity in the region like India-Myanmar-Thailand Trilateral Highway, Kaladan Multi-modal transit project, opening up more trading points at India-Myanmar border, setting up of more trading points at borders with Bangladesh, Nepal, Bhutan and Pakistan are moving at a very slow pace. A well-integrated SAARC can effectively connect not only with ASEAN but also with Central Asia and beyond.

Comparatively, China, which is an emerging power and having its own ambition in the region, has begun extending its “String of Pearls” in the Indian Ocean. It has formulated its concept of One Belt One Road, Maritime Silk Route, BCIM Corridor.  It is time for India to wake up from its deep slumber and engage with the countries in the South Asian region for collective security and trade and see that the centrality of SAARC is preserved.

 

Apprehending exclusion from the mega trade arrangements of US and EU, China floated another concept of Asia-Pacific Free Trade Area in the last APEC Summit. To add to its economic muscle, China has also launched Asia Infrastructure Investment Bank in which India is also a member. Beijing’s interests in the region is well known. It wants to dominate in South Asia and the Indian Ocean.

Also China’s aggressive postures in South China Sea like Nine Dash Lines, Air Defence Identification Zone, creation of artificial islands pose problems for Indian oil asset off the coast of Vietnam. 

Russia which has recently floated the Eurasian Economic Union has plans to play an effective role in the region. India’s plan to use Chabahar port in Iran for rail and road connectivity to Afghanistan and beyond to Central Asia and Russia is yet to reach its full potential. The alternate route called International North-South Transport Corridor (INSTC) from Nhava Sheva port in Mumbai to Bandar Abbas and Amirabad in Iran to Astrakhan in Russia for onward shipment to Moscow is yet to be operationalized.

Apart from addressing infrastructure problems, SAARC should step by efforts to be part of the global value chain in a big way. But as charity begins at home, first attempts should be made to set up regional value chains in South Asia in different sectors of comparative advantage like textiles, engineering goods, chemicals, pharmaceuticals, tourism, auto components, plastic and leather products. 

India’s direct import of rough diamonds from Russia for processing in the country for re-exports, import of crude oil and processing it in refineries for re-export of petro-products are successful examples of participation in global value chain. In bilateral and regional trade arrangements rules of origin should be eased and simplified to locate India effectively in global a regional value chains. Imports should be facilitated for specific raw materials, intermediates and capital goods for stimulating value added domestic manufacturing.

 

Apart from simplifying rules of origin in South Asia, there should be a uniform standards regime for the region. There should a seamless connectivity through road, rail and shipping in the region. A well-integrated SAARC can effectively meet the challenges of the mega regional trade agreements (RTAs) being proposed by major players like US alongwith EU, China and Russia. It is vital for SAARC to maintain its own centrality and gradually move towards a customs union, economic union and subsequently towards a monetary union. 

(Ashok B Sharma is a senior Columnist writing on strategic and policy issues in several Indian and international newspapers and magazines. He frequently writes in The Daily Observer of Bangladesh and in The Diplomatist magazine. He can be reached at ashokbsharma@gmail.com His mobile phone no 9810902204)