Before the growth of regional trading blocs, there were the cold-war alliances such as the NATO, the Warsaw Pact, SEATO and CENTO. If it was geopolitics that led to the earlier political blocs, at the core of the recent developments are the compulsions of an increasingly interdependent trade lattice in a globalising world. Although regional groupings had already been in force in South and Southeast Asia in the form of SAARC and ASEAN, an association aimed at fostering economic cooperation between parts of these regions was established in Bangkok in June 1997. BIMSTEC’s name originally stood for Bangladesh, India, Sri Lanka and Thailand Technical and Economic Cooperation. After Burma joined the group in December of that year, and Bhutan and Nepal in 2004, the acronym’s expanded form was changed to the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
Trade liberalisation alone is not a sufficient condition for countries to turn to either single or multiple ‘regional integration arrangements’ (RIA). The enormous pressures of globalisation are forcing countries to seek greater efficiency through larger markets, increased competition, access to superior technology, and greater investment outlets through RIAs. Within such arrangements, there is also a desire to assist neighbouring nations for mutually beneficial reasons, as well as to take preventive action against the spillover of unrest and mass economic migration. The compelling logic of regional groupings, coupled with the obvious failure of SAARC and the near-debilitating East Asian crisis of 1997, collectively contributed to the formation of BIMSTEC.
BIMSTEC had initially identified six areas of cooperation, for which the respective ‘lead’ countries were designated: trade and investment (Bangladesh), technology (Sri Lanka), transport and communication (India), energy (Burma), tourism (India), and fisheries (Thailand). Among its most significant goals, BIMSTEC proposes to implement a free trade agreement (FTA) for trade in goods starting in July 2006, and an FTA accord on services and investment in July 2007.
A comparison with established regional blocs reveals the daunting challenge BIMSTEC faces. In 2004, exports among the Association of Southeast Asian Nations (ASEAN) countries were at the level of USD 123.7 billion. As pioneers of regional economic cooperation, the countries that make up the European Economic Community (EEC) traded extensively among themselves, even in the absence of a preferential trading arrangement. Before any liberalisation, intra-EEC imports made up 25 per cent of total imports. Current intra-BIMSTEC trade, for its part, stands at just 4 percent of total trade.
The lingering question regarding BIMSTEC is whether it too has the potential to generate high volume of regional trade – as well as whether its members have the trade volume, infrastructure, efficiency and political will to convert the regional opportunities into concrete results. Indeed, the potential is huge in several areas – fisheries, for instance – where the existing complementarities between members could be profitably exploited. However, BIMSTEC faces several unique structural and member-specific problems, which, if not tackled properly, may effectively block the group’s overall success.
Bangladesh, for instance, has yet to pursue the vigorous pro-market reforms necessary to boost growth levels. While it has adopted an extremely liberal policy to attract foreign direct investment (FDI), this has, in effect, been limited to low-cost, labour-intensive industries. About a third of the country’s 136 million people continue to live below the poverty line with a per capita GDP of below USD 400. Moreover, recent reports of expanding militancy in the country may have an adverse impact on investor confidence.
In Burma, agriculture and natural resource extraction account for 50-60 percent of the GDP, while the manufacturing sector makes for only nine percent of GDP. Human resource development has been severely neglected, largely due to policies of the ruling junta that has kept universities closed for much of the past 15 years for fear of student unrest. Burmese policy-making is opaque, with a weak legal regime. Further, the junta has handed out economic privileges to a small elite of favoured companies and family members. Economic information is difficult to obtain and the government data is hardly reliable.
Nepal, meanwhile, suffers from limited market potential, its per capita income being among the world’s lowest. The country is landlocked, which presents a barrier to industrial development and undermines its foreign trade potential. The decade-long Maoist insurgency has further impeded socio-economic development, at times targeting foreign companies and effectively preventing investment. The prolonged conflict has also severely affected Nepal’s important tourism industry, further weakening the economy.
Comparatively, Thailand has a much better set of economic and fiscal indicators, but extensive infrastructure reforms were cut in the aftermath of the 1997 economic crisis. It also suffers from an alarmingly high rate of drug users and HIV/AIDS patients, with most of them belonging to the working population. If current projections are to be believed, the AIDS pandemic could have a disastrous effect on the Thai workforce.
India, meanwhile, requires a rapid introduction of additional economic reforms. A key area in need of foreign direct investment is infrastructure. However, FDI entry and free trade are sensitive and volatile domestic political issues. The survival of the current Congress-led coalition government is contingent on the support of the Left bloc, which has traditionally been opposed to a more liberal trade regime. Furthermore, for India to emerge as the key actor in BIMSTEC, its trade with Europe, ASEAN and the Americas must become even more robust, as the current quantum of its total trade will not allow it to fulfill the role of BIMSTEC’s ‘lynchpin’, as many hope.
Sri Lanka, although stable and growing as per most conventional standards, has to deal with the unfortunate and devastating effects of the tsunami that wreaked havoc in the subcontinent little over a year ago. Moreover, the political climate in Sri Lanka is extremely fragile at the moment with a new government that is yet to find its feet. The truce with the Tamil Tigers could end with the unleashing of a fresh spate of violence. This could lead to a slowdown of the economy reminiscent of the aftermath of the ethnic violence of the 1980s.
All these constraints — limited markets in some cases, barriers to investment in others, the unstable security environment, as well as lack of infrastructure — have a direct bearing on BIMSTEC’s goals of economic integration.
Some of the obstacles transcend borders of BIMSTEC. A large population base (barring Sri Lanka and Bhutan) and low GDP (excluding Thailand) are the two most obvious economic commonalities throughout the region. The result is that, despite attempts to manage these two issues, governments do not have the resources necessary to invest in infrastructure, education and so on.
The pattern of development in these countries, their evolving political systems, the nature of the post-colonial economy, ineffective welfare state policies, as well as the absence of speedy reforms have created certain structural problems that span the entire Bay of Bengal mainland. Weaknesses such as poor governance; lack of infrastructure development; corruption and ineffective legal systems; inadequate human resource management; unfavourable balance of payments due to agro-based economies; widespread poverty and unequal distribution of wealth — all of these tend to reinforce doubts about prospects for intra-BIMSTEC trade.
The catalyst to BIMSTEC’s success will be the FTA accords scheduled to come in force in 2006 and 2007 – although it remains to be seen whether the agreements will actually be finalised by the stipulated deadline. These agreements acquire even greater significance in the face of intra-BIMSTEC trade being so abysmal. Many analysts believe that BIMSTEC will tend to favour the smaller economies like Nepal and Burma. While India’s total exports to BIMSTEC countries is only six percent, the figure is 35 percent for Nepal and 37 percent for Burma. This dynamic, however, also increases the dependency of low trade index nations (such as Bangladesh, Nepal and Burma) on the more robust BIMSTEC members ( India and Thailand) for their imports. Such a situation will need to be handled with political sensitivity.
BIMSTEC’s own structure may also prove a hindrance to equitable trade between its members. Of the seven members, India, Thailand and Sri Lanka are developing countries, while Burma, Nepal, Bangladesh and Bhutan are considered less-developed countries. Thus, it would be more beneficial, for instance, for Thailand to trade with India or even Malaysia (also an ASEAN member), rather than with Bangladesh or Bhutan. Moreover, at a time when bilateral FTAs have become the order of the day, the political will of particular governments becomes suspect. Currently, India is clearly more eager to finalize an FTA with Thailand than push for the BIMSTEC agreements.
Political developments within or between member countries may also destabilise the group’s overall performance. Incidentally, SAARC suffers from similar structural problems; one must recall that hostility between India and Pakistan has been a primary factor in that organisation’s tardy evolution. A growing distance between India on the one hand, and Nepal and Bangladesh, on the other, may complicate trade in that triangle. It is imperative that member governments must express their firm commitment to the process of regional economic integration and ensure that bilateral occurrences are not allowed to derail the process of BIMSTEC.
It is not that BIMSTEC does not have the potential to become the next ASEAN. Before that will be possible, however, the members will need to commit themselves to eliminate the many bottlenecks and hurdles that exist. One critical sticking point is the transport infrastructure, for which India is the designated lead country. According to a report of the Bangladesh Institute of International and Strategic Studies (BIISS), “A stronger and desirable intra-regional trade is contingent upon an improved transport network.” This includes the harmonisation of national railway networks to either broad- or metre-gauge tracks; the construction of all-weather paved roads, to allow large trucks to move through and between all countries; and modern ports for the facilitation of sea trade, which has been the lifeblood of international and regional trade for centuries.
BIMSTEC’s success could be hastened by concerted action to reduce the bureaucratic delays and paperwork involved in traveling and trading between member countries; standardising trade rules and products; further developing national financial sectors; and establishing more efficient means of crossborder communication.
With the ending of the Cold War, the eclipse of strategic alliances, however, has been accompanied by the rise of regional trading blocs. The process of globalisation is not likely to end in a hurry, and the current dictum of ‘trade or perish’ seems to be only gaining strength and urgency. The sooner the BIMSTEC countries realise this and learn how to work successfully and actively together, the better for their peoples.
~ Ishan Bhaskar studies Economics at Hindu College, Delhi University.