Bilateral and Multilateral Cooperation in South Asia

Adluri Subramanyam Raju

• Publisher: Routledge India
• Year: 2021
• Print ISBN: 9781032234298
• eBook ISBN: 9781000452877
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Diplomatie et traités

This book examines how bilateralism and multilateralism serve as cornerstones in bringing countries together to enhance regional cooperation. It explores the unfolding dynamics of bilateral and multilateral relationships in South Asia and looks at how factors like the absence of shared identities or common threats from external sources, a lack of trust, and suspicion are manifesting as obstacles for regional cooperation.

With case studies from various constituent countries, the volume studies themes such as economic cooperation in South Asia, connections through sub-regional initiatives, migration and refugee problems in the region, SAARC and terrorism, the Pashtun factor in Afghanistan–Pakistan relations, India's interests in ASEAN and BIMSTEC, the nuclear dynamics of India–Pakistan relations, India–Bangladesh connectivity issues, Sri Lanka as a troubled island nation, and Afghanistan's relations with the Kashmir Valley. It discusses the implications of these long-standing issues that have stood as impediments to regional cooperation and bringing new perspectives to enable greater understanding and probable solutions.

A comprehensive and accessible volume, it will be useful for scholars and researchers of international relations, international trade, South Asian studies, SAARC, regional development, international and multilateral trade, political studies, geo-politics, strategic and defence studies, and peace and conflict resolution.

Part 1

Regionalism and multilateralism in South Asia

Background

1 Options in economic cooperation

Background

I. P. Khosla

DOI: 10.4324/9781003145271-1

Introduction

There have been three broad phases in the evolution of the world trading system since 1947, when the General Agreement on Tariffs and Trade was signed: multilateralism, globalisation and decline. The chapter outlines these three phases, including the latest, during which the decades-long expansion of international trade and the global movement of international finance appear to have stalled, in part giving way to the expansion of regionalism. It then goes on to discuss a new initiative by China, the Belt and Road Initiative (BRI), and whether this might have a positive impact on international trade and finance.

First phase: Multilateralism

The first phase inaugurated the world trading system (also known as the international financial system) which was agreed soon after the Second World War. It was a derivative of three aspects of realpolitik that emerged after that war: the unparalleled dominance of the US over the Western world in both politics and economics, the continuing hold of the colonial and ex-colonial powers over trade and financial relations with their colonies or ex-colonies, and the emergence of the Soviet Union as a power great enough to challenge the US.

The US, through its economic policy, was to use its dominance to contain the Soviet Union and to breach the hold of the colonial powers over their colonies so as to get access to those markets. These aims were in part served by the creation of a world trading system, General Agreement on Trade and Tariffs (GATT), and of course the parallel international financial architecture emerging out of Bretton Woods: the World Bank to keep exchange rates stable, and the International Monetary Fund to ensure that those countries that faced balance-of-trade or balance-of-payment problems could be bailed out, at least in the short term. These trading and financial systems (which excluded the Soviet Union and its allies) thus led to stable exchange rates and tariff policies, the two essential prerequisites for promoting rapid expansion of world trade; and, world trade did indeed expand between all those who participated in the system. In the following decades, this was at an average annual rate of 7 per cent from 1948 to 1990 and this also led to the rapid economic growth of all. It also led to the rapidly growing access of US goods, the products of its burgeoning manufacturing industries, into former colonies, Asia and Africa.

Note that the system was, for the first time in history, truly multilateral on a global scale. This was as a result of US pressure in order to gain access to the hitherto exclusive markets of the former colonial powers. Non-discrimination was built into the system, as were safeguards for the weak economies that were expected to, and did, participate all the more readily. By opening up the markets of the former colonial powers for its own goods the US also benefited from the developing countries. Thus, the most favoured nation (MFN) principle was an important part of the rules framed for international trade. This meant that if a trade concession was given to one country, the same would have to be given to all participants. In other words, everyone gained, even if they did not take an active part in the negotiations (though did not sign on to GATT, of course). To mention another example, agriculture was left out of the system so that developing countries that wanted to give subsidies to their technologically-primitive agriculture could do so without running afoul of the rules. A number of rounds of tariff reductions were held (eight in all from 1947 to 1995), each of which negotiated reciprocal concessions by the developed and developing countries, at ministerial conferences such as the Kennedy Round (1964), the Tokyo Round (1973) and the Uruguay Round (1986). The growth in trade, which was a consequence of these tariff reductions, also led to the rapid growth of the world economy.

Second phase: Globalisation

The second phase of this outline begins in 1990, with the collapse of the Soviet Union leaving the US as the sole superpower. Globalisation was the outcome of this phase. It may be mentioned here that globalisation is generally taken as characteristic of the entire period after 1947; indeed the World Bank suggested that there were three waves of globalisation: the first from 1870 to 1914, which was followed by over 30 years during which economic protectionism reigned; the second from 1950 to 1980; and a third from 1980 to 2000 and beyond, a wave that is still with us today. This chapter, however, suggests that true globalisation lasted only about a decade or a decade and a half from 1990. Before that, international economic relations can better be described as being characterised by real multilateralism, a period in which there was far more of a real role for both large and small participants in the negotiations, in which they seem to have real concern for their interests.

In 1995, GATT was replaced by the World Trade Organisation (WTO) and with this change came a number of other changes. In particular, agriculture, intellectual property rights, rules of origin and services were brought into the negotiating arena. These were all areas in which developing countries had hoped to make major gains as they had opposed the proposal to being part of the international negotiating arena; however, the heavy hand of globalisation did force them in. For instance, the General Agreement on Trade in Services (GATS) brought in a large and rapidly growing area of economic activity from which several developing countries, including notably India, had hoped to benefit as they were advantageously placed for large exports. Then there was the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). All this made it possible for developed countries to impose restrictions in areas in which developing countries had especially hoped to gain in terms of expanded exports. An important part of the WTO agreement was that relating to the “single undertaking,” meaning all that was agreed has to be accepted in order to take advantage of any single item. Under GATT, individual countries had the option to accept or reject many of the discrete agreements that had emerged during various rounds. There were, for instance, codes on anti-dumping and customs valuation, an agreement on government procurement, which were worked out at different rounds. These could be opted out by some countries if they so wished. But the developed countries felt this was unfair; it amounted to the developing countries getting a “free ride” at their expense. The “single undertaking” proviso of the WTO changed this and everything had to be accepted by all; another sign that globalisation had made a qualitative difference to the international economic negotiating arena. These changes were part and parcel of the new phase of globalisation in other words.

In brief, the WTO was based on what has been called hyper-globalisation, that every participating country should follow the required economic path: low corporate tax rates, tight fiscal policy, deregulation and the reduction of labour power. Note that in this phase, globalisation was held to be an ultimate utopia in which the nation-state had become redundant if not dysfunctional and the world had become one. One hyper-globalist argued that the “nation-state has become an unnatural, even dysfunctional, unit for organising human activity and managing economic endeavour in a borderless world. It represents no genuine, shared community of economic interest; it defines no meaningful flows of economic activity.”¹

Furthermore globalisation was claimed to be unstoppable.

Amartya Sen is one of the authoritative commentators about its unstoppability. Talking about the threat to indigenous cultures, he says that “the one solution that is not available is that of stopping globalisation of trade and economies, since the forces of economic exchange and division of labour are hard to resist in a competitive world fuelled by massive technological evolution.”² A former US Treasury Secretary had this to say, “I didn’t start globalisation. I can’t stop it and neither can you…”³ In this way, it becomes a phenomenon outside the control of man, a platonic essence.

And here is West Bengal Chief Minister and Marxist Buddhadeb Bhattacharya who declared on the conclusion of a five-day tour of Singapore and Indonesia at the end of August 2002 that “globalisation is a must” and “nobody can halt this process.” He added, “communists must change, mindsets must change, the workers must change,” (this with reference to new labour laws) and told his colleagues to look at China.⁴ This has official backing at other levels. As the Indian Minister of External Affairs said at a seminar in November 2004, “Globalisation is a fact of life. In the evolving interdependent linkages, the Asian nations are placed at a vantage point…”⁵ Then there was the President of Pakistan General Musharraf who spoke in March 2004, “Ladies and Gentlemen, the 21st century is a century of globalisation. The outlines of a global village are visible in all fields. It is a century of geo-economics and of inter-dependence.”⁶

The real recipe for organising human activity, and which lay at the root of globalisation was capitalism; it was the solution to all of mankind’s problems, the ultimate solution so far that there was nowhere further to look and this was accordingly, “the end of history,” the end of everything that is not part of the neo-liberal agenda.

The best known and, at the time, most influential liberal exponent of such ideas was Francis Fukuyama. In a much-cited article titled “The End of History,”⁷ Fukuyama argued that the triumph of the West in the Cold War, the worldwide and ineluctable spread of consumerist Western culture and the exhaustion of viable systematic alternatives to Western liberalism mark the end of history, “the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government.”⁸ This is because an autonomous “prior state of consciousness” makes possible both liberal politics and liberal economics, and this state of consciousness is “underwritten by the abundance of a modern free market economy,” all of which makes for a “universal homogenous state,” in other words, the capitalist state prescribed by the Washington Consensus. This is a set of economic policy prescriptions which first emerged in 1989 just as the Cold War was ending and the era of hyper-globalisation was beginning. Their broad thrust of the prescriptions was towards a market-based approach to all economic problems, cutting back on or eliminating subsidies on all goods, including those produced by agriculture, and where subsidies were most needed, macro-economic stabilisation and opening up the economy to foreign trade as well as foreign investment. This set of prescriptions was worked out by international agencies like the International Monetary Fund, the World Bank and of course the US Department of the Treasury, and was applied across the board mainly to developing countries that faced any kind of economic problem and therefore had to ask for loans or other kinds of bail-outs.

Finally, globalisation is American made, American guided and bound to be a force for good in the world. As a force for good, it promotes the kind of good that is typically American. Thomas L. Friedman writes that “no two countries that both had McDonalds had fought a war against each other.”⁹ The oxymoron that globalisation is American is found to be repeated often. “We are not the tiger. Globalization is the tiger. But we are the people most adept at riding the tiger … globalization has a distinctly American face.”¹⁰ Or this: “The rise and dominance of America – a country whose politics and culture are deeply democratic – has made democratization seem inevitable.”¹¹ Democratisation, needless to say, is an integral part of globalisation. It was held to be only one of a set of American values that, if adopted by the rest of the world, would ensure peace and progress.

Third phase: The decline

But – and this brings us to the third phase of this outline – by the first decade of the 21st century, and certainly by the end of that decade, the realpolitik had changed. The US was in decline, no longer able to impose its will on others; the third world was asserting itself with greater vigour; while China had emerged as a major political and military power, with a rapidly growing economy which had become a trading threat, accentuated by its inclusion in the WTO in 2001, as also its barely-concealed violations of the principles of world trade. Global economics had also changed with the relative decline in the trade in agriculture, then in manufacturing, and the rapid growth of services in world exchanges. Above all, regional trading arrangements increased in numbers; this came in waves, first in the 1960s, then in the 1990s and then the third, caused by the Asian economic crisis of 1997, which came in the new century. These, of course, further undermined the world trading system. In any case, by then, as the mass demonstrations at the Seattle Ministerial Conference of 1999 had shown, this system was heading for collapse. Though efforts were made to revive it by holding the next round in Doha in 2001 (so that there could be no demonstrations), that round did not lead to any agreement.

An early sign that all was not well with the system was the Asian financial crisis in July 1997 with the collapse of the Thai currency as a result of overborrowing, which sent the debt-to-GDP ratio soaring to unsustainable levels. Such borrowing had once been seen as the trigger for the Asian Economic Miracle, characterised by unprecedentedly high growth rates which were also described as a component of globalisation. But when the Thai baht collapsed in value, immediately thereafter there was a run on other Asian currencies. The contagion even spread outside Asia. Most Asian currencies had to be devalued, though Thailand, Indonesia and South Korea were the worst affected. In Indonesia, the resulting inflation led to riots in the streets, which in turn, in May 1998, forced the resignation of President Suharto, ending his more than 30-year rule. In the event, the crisis was brought under control before its worldwide effects spread, though even the US stock market took a downturn. In Asia, in any case, it did lead to a general slowdown or recession in almost all economies (China being the notable exception). It certainly made a major contribution to the anti-globalisation movement that took off from 1999.

The global economic event that more or less sealed the fate of globalisation came 10 years later. It was also triggered by the highly integrated global financial system, the counterpart of highly integrated trading markets which have to prosper or collapse together. Rapidly increasing lending levels for the housing market in the US led to loans being made to people who could not easily repay them, and by 2006–2007 mortgages were being increasingly dishonoured. House prices fell, and the fall was rapid enough to affect the entire economy, which went into recession from 2007 onwards. Nine million jobs were lost, the...

Table of contents

• Cover
• Half-Title
• Title
• Copyright
• Dedication
• Contents
• Contributors
• Acknowledgements
• Introduction
• PART 1 Regionalism and multilateralism in South Asia: Background
• PART 2 Regional cooperation in South Asia and beyond
• PART 3 Bilateralism in South Asia
• Index