Sub-regional Cooperation in South Asia

India, Sri Lanka and Maldives

Venugopal B. Menon, Joshy M. Paul, Venugopal B. Menon, Joshy M. Paul

• Publisher: VIJ Books (India) Pty Ltd
• Year: 2017
• ISBN:
  9789385563959
• Edition: 1
• Topic: Politik & Internationale Beziehungen
• Subtopic: Politik

This book explains the emergence of sub-regional cooperation mechanism in the maritime domain in South Asia. It deals with the trilateral cooperation of India, Sri Lanka and Maldives as they share common maritime connectivity. This book also analyses political, economic, cultural and security relationship between the three countries and explains the role of China in the Indian Ocean region and its impact on South Asia.

Chapter 1

Introduction: Sub-regional Cooperation in
South Asia

Joshy M. Paul

Introduction

Sub-regional cooperation can be seen in many parts of the world which has been formed either to make a particular region’s emancipation from underdevelopment or utilizing the comparative economic advantage of a specific geographical area. The sub regional cooperation, both intra and extra-regional, has contributed national gross domestic product (GDP) as well as to the regional economic development, which in turn helped the regional integration process. It aims to exploit complementarities between geographically contiguous areas of different countries to gain a comparative edge in production for export, utilizing market and creation of political cohesiveness in the region. Thus, the sub-regional cooperation that straddles national boundaries is making a major contribution to growth and stability in the region.

Sovereign states seek to pursue regional integration process only when their national interests are compatible with the regional integration goal. In the regional integration process it is the interest of the individual states which tries to get maximum advantage while losing some of the benefits it currently enjoys. The regional integration process involves a series of bargains between the heads of governments of the state in a region. Nation-states ensure balance between national interest and regional interest while searching for regional integration goal. Indeed, domestic consideration plays a critical role in shaping the nature and scope of regional integration process.

Sub-regional cooperation can become a catalyst for larger regional integration process also. If the whole regional countries could not come together because of ideological or politico-security issues then sub regional cooperation of countries with commonalities will play significant role in the regional integration process. It can initially begin with economic cooperation at the sub regional level then can expand into a political one. The sub-regional economic cooperation concept has taken hold because it is a controlled experiment in regional cooperation whose adverse effects, if any, can be limited to the triangle, but whose beneficial results can subsequently be applied to the national economy as a whole. It offers the benefits of regional integration without great loss of economic sovereignty. The greatest benefits accrue to the most industrially mature partner. But even the poorest partner gains in practical terms as a result of job generation, skills development, technology transfer and the infusion of industrial discipline in the local work force. Once economic cooperation is fructified then it can convert into political cooperation.

Scope and structure of sub-regional cooperation are substantially influenced by a number of factors such as political and institutional components, economic factors and developments in trade relations¹. Since South Asia region has not emerged as a political and security institutions like European Union or Southeast Asia, economic factors still play a predominant role in the sub regional cooperation which will help in establishing better political cooperation. Main economic factors are: firstly, the level of sub-regional cooperation depends on the size of the available regional market. However, it is important that the market size depends on purchasing power as well as population. Market mechanism provides strong incentives to production and trade within the sub-regional area, while lesser demand becomes a constraint for companies operating in the region.

Secondly, level of economic development is another aspect on sub-regional cooperation. The higher this is, the more fields open for sub-regional cooperation. On the one hand, higher development leads to higher disposable income, and so to a larger market. On the other, intra industry specialization develops, creating a more sophisticated division of labour among group members. Geographical orientation and openness is the third factor which strongly affect the scope of sub-regional cooperation. Economic openness and world market orientation incline a group to a higher level of regional cooperation. The opposite applies to inward looking countries engaged in national or regional import substitution.

Fourthly, initial conditions may affect the propensity to sub-regional cooperation and the efficiency of it. If countries pursue ideology based economic policies to protect its domestic market, then it will not be easy for them to open up the economy for competition. It will be a gradual process of privatization, liberalisation and competition at the domestic front. And, finally, sub-regional cooperation correlates positively with similar economic policies in participating countries. This similarity may result from coordinated economic policies, or from global (and larger regional) impacts on open economies.

Sub-regional cooperation attaches great importance to the share of intra-regional trade in total trade of the regional countries. Trade is clearly one of the most manifested quantitative indicators, often used as a composite figure to cover, if indirectly, the impact on regional cooperation of economic policies, FDI, technological advancement and institutional relations. Newer integration trends, based on the concept and reality of the new regionalism, have ceased to take intra-regional trade as the sole, or even the main indicator of sub-regional cooperation.² Increasing attention is paid to other factors; political cooperation, social interpenetration, cultural links, and other economic aspects like coordination of competition, exchange rates, and monetary and other policies. It helps to institutionalize the sub-regional integration process more effectively.

Foreign Direct Investment (FDI) may have a substantial impact on sub-regional contacts as it brings new technology, management methods, products and mentality into the host country, creating a’ harmonization network’ in the sub-region.³ The investors may be from within the sub-region or from the region or even from outside the region. It enhances growth and increases market opportunities for the products produced within the sub-region. It generates production structures that promote intra-industry as well as intra-regional trade. Growing investment, foreign and domestic, is likely to create new development poles that may link regions in different countries. This tendency can be seen in Western Europe and Southeast Asia.

In fact, sub-regional integration is a stepping stone to membership of a larger framework. Since their markets are small, so they are depended on outside their immediate geographical area. Less developed countries need large markets (in population and purchasing power), access to technology, capital and managerial know how, so does it requires a moderation anchor in the form of a big regional country. For instance, Japan played an anchoring role for the Southeast Asian countries; Portugal and Spain have depended on EU, especially Germany. In the Asian case, the sub-regional mechanism has been evolved to utilise the locally available resources such as land, labour and natural resources and exported the semi or finished products to the outside market. It has contributed higher growth, higher income and more differentiated production based on a global division of labour that created conditions for sub-regional cooperation.

It can be seen in Eastern Europe and the Baltic Sea region, and also in other parts of Asia, sub-regional cooperation has brought not only economic development but increased political connectivity among the member countries. For instance, the “Southern Growth Triangle” (SIJORI), formed in 1989, comprising Singapore, Johor in Malaysia and the Indonesian island of Batam in the province of Riau has helped to mitigate the territorial dispute between the three countries and also emerged as the model of various growth triangles in the region. Similarly, six countries — Cambodia, Laos, Myanmar, Thailand, Vietnam and China (Yunnan province) — have formed Greater Mekong Sub region (GMS) which was initiated in the early 1990s, well after SAARC was born. Supported by the Asian Development Bank (ADB), GMS galvanised a natural economic community on the banks of the Mekong River. The establishment of a power grid GMS shares as well as an optical fibre network connecting the regional countries with Yunnan province helps the understanding of the regional engagement between the ‘Big Brother’ and small neighbours without any hiccups.

The eight countries grouping of the South Asian Association for Regional Cooperation (SAARC) is a combination of various political regimes, socio-economic realities, ethnic differentials, religious and linguistic diversity the world could possibly offer. As a result, a regional integration scheme with several states, their clashing ideologies, values and interests, and national/domestic policies, makes it difficult in its efforts to bring regional integration in South Asia. Also, it has been stymied by the political tension between India and Pakistan. The South Asian Free Trade Area (SAFTA) has now become a non-existent entity. In this regard, a sub-regional cooperation among the island nations of the northern Indian Ocean countries such as Sri Lanka and Maldives and India would provide the much needed fillip to the lack of regional integration in South Asia.

Regional cooperation in South Asia

Ever since SAARC was formed in 1985, it registered modest gains in the first few years due to the shadow of the cold war in the region. Liberalised tariff regime and market oriented trade activities are integral to the concept of regionalism. However, the domestic economic policy of most of the South Asian countries was not conducive to facilitate trade oriented activities. While regionalism in other parts of the world was a beneficiary of political proximity of generations of leadership, robust private sector companies transcending national borders and multinational stakeholders that facilitated regional cohesiveness. However, the template of political interaction in South Asia, and the contours of interface between the governments and non-governmental stakeholders, including the private sector and think-tanks, is far more complex. The functional cooperation in South Asia has largely been dependent on cordiality of relations among the political elites, so that focus of the interaction among the regional countries has by and large been political in nature.

The regional countries have initiated economic liberalization and deregulation in the 1990s which should have created a conducive atmosphere for increased interaction, as action in the economic field moved out of government control. India, Sri Lanka, Bangladesh and Pakistan registered impressive growth indices in the following decades. However, the spurt of globalization had shifted their priorities from looking into regional advantage to getting maximum benefit out of the globalised world. At the same time, lack of regional connectivity, issue of governance and bureaucratic inertia made hindrance to the evolutionary process of the regionalism in South Asia. In a way the regional elites did not give enough attention to steadying the regional integration both economically as well as politically.

One of the key structural impediments to strengthening of regional economic cooperation in South Asia is lack of physical and soft connectivity. Infrastructure constraints like power shortages, underdeveloped road and rail network, port congestion, etc. seriously hinder full realization of the regional trade potential. It is now acknowledged that reduction in transport and infrastructure-related costs has the same effect as tariff liberalization in providing stimulus to trade⁴. It is estimated that for every one per cent reduction in cost, trade stimulus is about 5 per cent. This benefit is passed along the entire supply chain, be they shippers, truckers, traders or end-users. Another illustration of deficiencies in soft connectivity is that only 7 per cent of international calls in South Asia are in the region, whereas in East Asia the corresponding figure is 71 per cent⁵. Studies on regional cooperation has showed that it accrue economic benefits for all, particularly to smaller countries, through better trade and economic cooperation.

In order to enhance regional trade and better connectivity, regional countries formed SAFTA (South Asian Free Trade Agreement) in 2004 which eventually came into force in 2006. It showed a way forward despite lingering bilateral issues between India and Pakistan. Since SAFTA Trade Liberalisation Programme was launched in 2006, total trade under SAFTA certificates of origin reached to $3 billion in 2013 (Sept) from $687 million in 2009. However, Intra SAARC trade continues to be very low (at about 5 per cent of the region’s total trade), and India’s imports from rest of South Asia is less than 1% of its total imports. In this context it is important that a sub regional cooperation between India, Sri Lanka and Maldives can become a role model for larger South Asian regional cooperation.

Importance of sub-regionalism in South Asia

Sub-regional cooperation can be seen in Eastern Europe, the Baltic Sea region, and in Asia, as it has brought not only economic development but increased political connectivity among the member countries also. For instance, the “Southern Growth Triangle” (SIJORI), formed in 1989, comprising Singapore, Johor in Malaysia and the Indonesian island of Batam in the province of Riau has helped to mitigate the territorial dispute between the three countries and also emerged as the model of various growth triangles in the region. Similarly, six countries — Cambodia, Laos, Myanmar, Thailand, Vietnam and China (Yunnan province) — have formed Greater Mekong Sub region (GMS) which was initiated in the early 1990s, well after SAARC was born. Supported by the Asian Development Bank (ADB), GMS galvanized a natural economic community on the banks of the Mekong River. The establishment of a power grid GMS shares as well as an optical fiber network connecting the regional countries with Yunnan province, helps the understanding of the regional engagement between the ‘Big Brother’ and small neighbours without any hiccups.

A South Asian Growth Quadrangle (SAGQ) was mooted in SAARC council of ministers held in New Delhi in May 1996, consisting of Bangladesh, Bhutan, Nepal, India’s north-eastern region (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim) and West Bengal, but was almost shelved in the next SAARC Summit held at Male in May 1997. After that another sub-regional grouping was initiated, known as South Asia Sub-Regional Cooperation (SA-SRC), focusing on Climate Adaptation and Agriculture in South Asia, and also joint capacity building program. However, the climate adaptation mechanism of the continental countries such as Pakistan, Nepal, Bhutan and continental India are different from the challenges facing the impact of climate change among island nations such as Maldives as well as the peninsular India. For them, increasing sea level due to the climate change is a challenging issue. At the same time, road or rail connectivity will enhance the trade between Himalayan countries whereas for oceanic trade it requires efficient ports and shipping mechanism.

There has been a growing perception that India has chosen to ignore the island nations in the context of an India-Pak stalemate. Similarly the closer linkage of economic and foreign policy has more focused towards the East Asian region in the post liberalization period. The newly ‘assertive’ foreign policy which include the ‘look-east’ policy, now the so called ‘act-east’ policy has brought India more closer to the Asia-pacific region which further caused to ignore the importance of regionalism in South Asia. However, China’s increasing influence in the Indian Ocean region and its various infrastructure facilities, known as ‘string of pearls’, necessitated New Delhi to focus on the island nations. It is imperative for New Delhi that Sri Lanka or Maldives should never come under the strategic influence of Beijing. Since the LTTE problems are resolved and Sri Lanka needs India’s support for its economic development, a sub-regional cooperation will enhance the bilateral relationship too.

Although India is the largest trading partner of Sri Lanka but the total trade between the two in 2015-16 is $ 6.05 billion which accounts just 0.0.94 per cent of India’s total trade. Maldives accounts 0.03 per cent of India’s total trade but India’s economic presence in Maldives is remarkable. The India-Sri Lanka Free Trade Agreement signed on March 2000 has provided a big boost in bilateral trade which multiplied nearly five-fold over the next decade. However, the economic interaction between South India and the island nations, as the region comes in contiguously advantageous area, is very minimal. Trade and investment between them need to be improved.

In many ways, India considered the regional mainland connectivity with the island nations as part of its larger diplomacy, and also the neighboring countries looking upon India for some of its essential materials. The post tsunami humanitarian relief operation and economic assistance by various Indian agencies to the island nations were able to build trust and confidence among the people. However, more functional cooperation in other areas which include science and technology, disaster management, human resource capacity development, and maritime security can play a vital role in bringing regional integration in South Asia.

The South Asian countries are members of the Indian Ocean Regional Association (IORA), and interact at various stages under the IORA, but a sub-regional cooperation will enhance the growth potential of entire region. Scholars like Kishore C Das argue ‘export oriented growth’ as a panacea to build successful institutional mechanism for integration and cooperation. Indeed, several other regions have started to engage in political or security cooperation at a fairly late stage in the life of their respective framework organizations, which were originally set up with aims of trade and development promotion. Starting with a localized step to construct a wider regional regime of confidence building, transparency and openness, would be a more favorable approach to keep regionalism prog...