U.S- SOUTH ASIA RELATIONS: A VISION FOR THE FUTURE
AUTHOR / SOURCE: GEOFFREY PYATT
India’s economic take-off has enabled greater influence and responsibility in the international system. As India has shifted its engagement outward, this has opened new possibilities for commerce and connectivity with its neighbours. Two of those neighbors are particularly important as the “gateways” to regional economic integration in South Asia. I’m talking, of course, about Bangladesh and Pakistan. Bangladesh: As a moderate Muslim-majority and secular democracy that has grown at 5-6 percent for most of the last 20 years and lifted millions of people out of poverty, Bangladesh is a model for other countries facing difficult challenges. With the country’s youthful 150 million-strong population, its strong grass roots democracy, and its enviable location bridging South and East Asia, Bangladesh is poised to play an expanding global role. Bangladesh’s accelerated economic success in the 21st century hinges on how fully it can leverage its position to tap into these two behemoth neighboring markets.
In recent years, Bangladesh and India have done much to dispel their past mistrust, and make the promise of trade engagement part of their vision.
Reciprocal state visits, most recently Prime Minister Manmohan Singh’s September 2011 trip to Dhaka furthered the process begun when Prime Minister Sheikh Hasina returned to power in 2009.
The two prime ministers signed important agreements to resolve disputed borders dating back to 1947, expand duty-free access for Bangladeshi goods into India and build the infrastructure for increased trade.
These followed earlier deals on mutual legal assistance, prisoner transfers and counterterrorism – a key pillar of the relationship. The appointment of Pankaj Saran as Indian High Commissioner to Bangladesh – an esteemed Indian diplomat who most recently served in the Indian Prime Minister’s Office – is seen by many as a signal of the importance that Delhi attaches to this relationship. While some issues such as water sharing and border issues are still potential irritants, the United States is hopeful that the potential growth dividend for both countries will help them to reach agreements on these issues.
Recent progress has South Asia-watchers optimistic. An enduring commitment to improving relations appears to be crystallizing on both sides. And most importantly, the Indian and Bangladeshi business communities are leading the charge.
• India in 2011 granted duty-free access to all but 25 items from Bangladesh, including all textile and readymade garment (RMG) products. Since that time, Bangladeshi RMG exports to India have doubled.
Efforts to improve infrastructure and streamline processes at the border will further facilitate India-Bangladesh trade. The construction of seven Integrated Check Posts (ICPs) along the India-Bangladesh border is one such initiative.
• And, consider India’s increased exports to Bangladesh: up 42 percent from $3.2 billion in FY 2010 to $4.56 billion in FY 2011, while Bangladesh exports to India rose more than 60 percent from $254 million to $410 million in the same period. The commercial opening between India and Bangladesh has ramifications for all of Asia. Bangladesh is a critical gateway to greater Indian engagement with the Association of South East Asian Nations’ (ASEAN) countries, a bloc with which India has increased trade by 37% percent over the past year, reaching $80 billion dollars.
encourage both sides to seek every opportunity to enhance and deepen cross-border engagement. As Secretary Clinton said during a 2011 visit to India, “India also has a great commitment to improving relations with Bangladesh, and that is important because regional solutions will be necessary on energy shortages, water-sharing, and the fight against terrorists.” Pakistan: Pivoting to India’s west, I don’t need to remind anyone how important the bilateral gains made by India and Pakistan over the past two years have been. Pakistan’s commitment to grant India Most Favorable Nation (MFN) status by the end of 2012, India’s pledge to reduce the number of items on its sensitive list by 30%, the formation of business councils, the establishment of daily air connectivity between the two capitals and the increased railway movement through Attari, are examples of this trend.
A particularly important aspect of this regional cooperative agenda involves energy sharing. In Islamabad recently, I was encouraged to hear of progress on the long discussed idea of interconnecting the Indian and Pakistani electricity grids to allow exports across the Wagha border. Even more compelling – and relatively easy to accomplish – is the possibility of fuel exports to Pakistan from the new Indian refinery at Bathinda. These kinds of projects make good commercial sense and can help to address Pakistan’s energy requirements in a way that shows people the benefits of commercial normalization.
Over the longer term, if the right commercial terms can be found, the United States remains strongly committed to the TAPI pipeline from Turkmenistan, which would realize the long-held goal of connecting the resource endowments of Central Asia to the rapidly growing markets of Pakistan and India. This project, if realized, would further diversify Turkmenistan’s energy market options, provide revenue and jobs for Afghanistan at a critical time in its economic development, and bring clean gas energy to the growing economies of Pakistan and India. The road ahead for this project is lengthy, but the benefits could be significant and are certainly worthy of the diligence demonstrated by these four countries so far. Although these are all steps in the right direction, there is still a long way to go on the road to normalize trade relations. According to a (2007) World Bank report, Indo-Pak trade flows could potentially reach 400% of current levels. Imports from Pakistan constitute less than 0.2% of gross Indian imports.
But look at the potential of both countries: Consider the 350 million people expected to join India’s burgeoning consumer class in the next 15 years alone! Likewise, according to a Wilson Center report, 2/3 of Pakistan’s 190 million population is under 30 years of age and the country ranks second in the percentage of the population under 24 years of age. Think of the potential consumer demand and labor supply these numbers represent!
How best can these two countries leverage these transformations? Trade liberalization will help fuel greater economic growth and a liberalized trade regime will attract more foreign direct investment (FDI), since an economy with greater access to regional markets is more attractive to foreign investors. Higher FDI, in turn, leads to increased technology transfer, improved total factor productivity and infrastructure development – key economic priorities of both India and Pakistan. Why are these priorities? But regional stability matters too. Economic interdependence through trade and increased cross-border flows could be influential as a conduit to peace.
Multiple studies show that mutually trade-dependent states are less likely to get involved in conflicts when significant trade-derived gains are potentially at risk. So clearly, not only will an improved trade relationship benefit India and Pakistan, but the entire region. Ambassador Gautam Mukhopadhaya noted in a 2010 Carnegie report that India’s ability to contribute even more to Afghanistan’s economic development is constrained by the lack of direct land access and transit arrangements between India and Pakistan. Both India and Pakistan would stand to gain from increased trilateral cooperation in Afghanistan. One priority for these three countries might be a discussion of how to advance trade connectivity.
Given that 29% of Afghanistan’s trade already occurs with India, there is a natural opportunity for finding more direct routes between these two markets, which would also give Pakistan’s economy a significant boost.
Viewed another way, the Afghanistan-Pakistan Transit Trade Agreement – paired with India and Pakistan’s successful trade rapprochement – might prove an enabling vehicle for boosting trade throughout the region, along well-trodden routes that date back to the Indus Valley Civilization. Another key element in moving the India-Pakistan relationship forward is broadening the vast people-to-people linkages that exist between the two nations. The State Department – with Secretary Clinton’s strong backing – supports innovative programs and efforts to link the people of South Asia. From soccer to space, our exchange programs have brought Indian and Pakistanis together.
Remember, Indian-Pakistan cultural exchanges are not one-dimensional in purpose. As Tauqeer Nasir, the director general for Pakistan National Council of the Arts (PNCA) noted: “Like we have been pushing bilateral trade, culture is also trade. We want to push it. India and Pakistan have so much in common. The two countries share a civilization link since [the] ancient Mohenjodaro and Harappa era.” The Future of Connectivity: The United States is clear-eyed about the challenges that exist in the region. But, we’re playing the long-game in South Asia. We’re here to support stability and prosperity in Afghanistan, we’re here to grow trade within the region and we’re here to augment regional connectivity. We’re here to further enhance our robust people-to-people ties.
You all know by now that we see Asia as central to 21st century geopolitics. If I can leave you with anything today, it’s that we see South Asia as an integral part of that strategy. For example, we have a Free Trade Agreement with Oman as a key friend to the United States. But Oman is also among a growing number of close neighbors with increasingly solid ties to South Asia. After all, by 2017, Oman expects to import more goods from India than anywhere else in the world!
Here in lies the lesson of a growing Asia, which is a tale of two complementary ideas: inclusiveness and growth. If embraced in tandem, these goals can drive security and prosperity for the entire continent. Bangladesh, India, and Pakistan are but three important pieces – each “gateway countries” – to a region whose rise can decisively and positively shape global affairs. But every country in this vast region – a space that the author and strategist Robert Kaplan calls “as iconic to the new century as Europe was to the last one” – stands to gain from this growth.
SUNDAY, 30 DECEMBER 2012
The writer is US Principal Deputy Assistant Secretary, Bureau of South and Central Asian Affairs. This article is based on his remarks at The 6th IISS-NESA South Asia Security Conference at Muscat, Oman