Geo-Economics and Politics

The economic case for South Asian regionalism

Image: Unsplash/Julian Yu

Viraj Mehta
Head, Regional Agenda, India and South Asia; Member of the Executive Committee, World Economic Forum
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This article is part of: World Economic Forum Annual Meeting

South Asia is one of the world's most dynamic and diverse regions. A shared regional leitmotif along with cultural, linguistic, topographical and economic diversity lends the region a distinct identity. Its economies have demonstrated remarkable strength and resilience amid global slowdowns, establishing their significance for global economic growth.

Yet aside from a collective experience of economic progress, the region also shares developmental challenges. Continuing to close the poverty gap, improving infrastructure, strengthening institutions, harnessing the potential of its large youth population and ensuring equitable growth are some of the most critical overarching priorities facing regional economies.

South Asia is among the world's least economically integrated regions, despite the advantages of proximity, structural and cultural familiarities, and shared developmental priorities. Constrained by disagreements stemming from past history, national pride, territorial disputes, ethnic and religious disturbances, mutual mistrust and cross-border migration issues, the region has been unable to leverage the benefits of regional cooperation to bolster its common future interest. Deeper regional integration could, however, turn the subregion into an important land bridge and trade hub between Europe, Central Asia and South-East Asia.

The inception of multiple institutional frameworks for advancing regional cooperation, such as the South Asian Association for Regional Cooperation (SAARC), the Bangladesh-Bhutan-India-Nepal (BBIN) initiative and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) indicates consensus on the importance of enhanced South Asian cooperation, but these organiations have only had limited success in overcoming hurdles to regional collaboration.

With a vision to gradually transition towards a South Asian Economic Union characterised by a Common Market and Customs and an Economic and Monetary Union, SAARC facilitated the inception of a South Asian Free Trade Area (SAFTA), which was operationalized in 2006. But after more than a decade since its initiation and despite multiple bilateral Free Trade Agreements (FTAs), intraregional trade accounts for barely 5 per cent of South Asia's total trade compared to approximately 25 per cent for the Association of Southeast Asian Nations (ASEAN).

One of the biggest factors undermining intraregional trade is the long sensitive list of products exempted by South Asian countries from the tariff liberalization programme in the region. The average trade costs within South Asia are 20 per cent higher than the corresponding costs within ASEAN. Persisting high trade costs, the proliferation of multiple non-tariff and para-tariff barriers, poor trade facilitation at borders, lengthy sensitive lists and high connectivity costs continue to offset the positive impact of geography and proximity.

SAARC hasn't been able to significantly advance regional cooperation and continues to be treated with suspicion and mistrust by its member states. Regional disagreements related to security, perception of threat and cross-border terrorism periodically hinder the diplomatic process, the suspension of the 19th SAARC Summit in 2016 offering a case in point. In addition, given its economic, geographical and demographic proportions, India enjoys significant advantages over SAARC's smaller nations, fostering fears of Indian hegemony in the region and prompting apprehension about implementing collaborative agreements.

The challenges related to diversity and integration are complex, but not unique to the region. Although European integration has its genesis in the Second World War, cooperation in South-East Asia emerged from the polarized atmosphere of the Cold War. With a very different geopolitical context, the European Union managed to overcome regional disputes, particularly between France and Germany.

The creation of ASEAN was a milestone in the promotion of regional integration in South-East Asia, which it has done through multiple instruments such as the ASEAN FTA, ASEAN+3 and ASEAN+6, as well as bilateral FTAs between ASEAN and neighbouring countries, among others.

In these cases, the most important contribution of regional cooperation has been the facilitation of efficiency seeking industry restructuring throughout the region to promote economies of scale, specialization and competitiveness. The key success factor for ASEAN and the EU in driving regional integration has been the ability of their nation states to prioritize economic prosperity over their political differences and focus on a shared long-term growth agenda.

Whether market-driven as in Asia or rooted in a strong institutional framework like in Europe, strengthening regional integration will be a strong lever for sharpening South Asia's collective and individual competitive edge, attracting investors and addressing shared regional vulnerabilities such as food and energy security, poverty alleviation and employment generation. South Asian nations have been able to attain significant economic progress through increased global integration, and South Asian regionalism will undoubtedly boost sustained economic development for these economies.

Resuscitating organisations and agreements promoting regional cooperation, such as SAARC's recommendations for accelerating progress towards a South Asian Economic Union, strengthening regional trade through full and complete implementation of the SAFTA and BIMSTEC FTA and initiation of agreements for trade in services, promotion of investments, regional connectivity and energy cooperation, will go a long way to promote deeper economic collaboration in the region. Equally, stronger commitment for consistency in diplomatic dialogue through regional and interregional organizations as well as strict and timely adherence to the resulting agreements and resolutions are critical for them to deliver on their intended objectives.

The subregion's shared colonial past and popular cultural preferences, including prolific culinary nuances, vibrant entertainment industries and common sports, reinforce a South Asian identity and offer compelling transborder drivers for enhanced connectivity. Leveraging these by promoting intraregional tourism and direct people-to-people interaction can help to counter trust deficits and negative stereotypes as well as create a bulwark for lasting regional peace, reconciliation and collaboration.

Above all, shared political will and incremental but tangible measures to anchor deeper integration have the potential to significantly bolster cooperation in South Asia. As the region leaps forward with an altered and more outward economic orientation, greater economic integration and collaboration, driven by increased intraregional trade and investment, holds much promise for South Asia to attain its true growth potential.

In light of global events surrounding Brexit, the Trans-Pacific Partnership and NAFTA reflecting the erosion of trust in existing multilateral collaborative frameworks, South Asia can provide the world with a new context of regional collaboration and revive the hope for cohesive and sustainable world order. As the region's largest economy, India has the opportunity to lead the way towards regional multilateralism through mutual interest.

This article originally appeared in India Today.

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