Regional cooperation between South and South West Asia

The newly-established ESCAP office in Delhi organised a forum last week in Delhi on ‘Regional Cooperation between South and South West Asia’. Noting that the region remained one of the most rapidly growing sub regions in the world despite its economic growth having slowed down in 2012, the report launched at this event noted that the region’s external economic environment is deteriorating as the global financial crisis of 2008-9 enters a second and more difficult phase.

Although the sub-region is moving towards becoming the global economic centre with India expected to be the world’s second largest economy by 2050, the challenges faced by the region are many as they move towards a more inclusive and sustainable development path. They include poverty and hunger, rising inequality, wide infrastructure gaps, lack of a diversified base for high value added products and exports, food and energy insecurity, and risks of natural disasters.

The report notes that regional cooperation is the way to solve many of the challenges faced by the sub region as it can generate more inclusive growth by increasing intra regional trade, and promote efficiency seeking investments in the sub-region’s supply chain and production networks, creating more employment opportunities.

ESCAP’s analysis shows that the sub-region’s relatively young population could grow into the world’s largest middle class in a generation comprising two thirds of the population with an annual consumption of $ 30 trillion in purchasing power parity and with proper employment-oriented education, could potentially fill the world’s skills deficit.

Noting that South and South West Asian countries have emerged as dynamic players in international trade, ESCAP projections show that total trade of South and South West Asia could triple from $ 1.5 trillion in 2011 to $ 4.5 trillion by 2017.

Although much of the earlier growth came from growing global demand, market diversification towards emerging and developing countries is evident. However, it is noted that the South and South West countries have not fully exploited the opportunities for export expansion by strengthening their competitiveness and diversification across products and markets with the export structure still dominated by high concentration in relatively low value added and traditional products and commodities and raw materials.

Regional cooperation could result in innovative new products and processes that use natural resources efficiently. Product diversification to upgrade the export structure in favour of fast growing high value added and technologically intensive goods, which generate new output, export, and jobs are possible with regional cooperation.

Although the attraction of South and South-West countries for FDI inflows have increased in recent years, ESCAP notes that they are far from exploiting their full potential. Surveys indicate that India is the second most attractive destination after China while Turkey has also become an attractive FDI destination.

Within the region too, new opportunities have been created, particularly with increasing role of the services sector. Giving a specific example, the report comments on India’s emergence as a global IT and BPO services hub which could be leveraged to diffuse that success to other countries and thereby help the sub-region become a global IT and BPO service hub.

Regional cooperation could also help consolidate the market position of the sub region and move them up the value chain in specific sectors such as textiles and clothing, and commodities such as tea, coffee, etc.

Equally important are the suggestions that cooperating could effectively address the emerging sanitary and phytosanitary measures and technical barriers to trade, which could lead to the launch of a regional eco-label and protection of common interests in the World Trade Organization negotiations.

Noting that with the changing external context in the aftermath of the global financial and economic crisis, the developed countries would not be able to sustain the growth of the developing world, the report emphasises the need for the South and South West Asian economies to look increasingly towards regional economic integration. ESCAP analysis shows that more than half the potential intra-regional trade in this region remains untapped and could generate an additional $ 52 billion in annual exports.

Although a number of overlapping and sub-regional cooperation arrangements such as SAARC and BIMSTEC with regional trading arrangements and bilateral free trade agreements are operational, that their full potential is yet untapped is well-known. In order to harness the full potential of such agreements, ESCAP suggests strengthening of banking and financial links, creation of cross border capital raising, transforming the SAARC Development Fund into a SAARC infrastructure development bank, and mutual consultations among ECO, SAARC and BIMSTEC so as to learn from each other and coordinate in view of their overlapping membership as well as to keep pace with the emerging trends in broader regional cooperation.

Also recommended are strengthening transport, transit, and trade facilitation through a regional transport and transit agreement, single window approach to Customs procedures, and moving towards international standards and harmonised conformity assessment procedures.

Regional cooperation in agricultural research in view of geographic and climatic similarities in the sub-region would help ensure food security in the sub region.

Benefits of regional cooperation are many, particularly for island countries with comparatively small markets. As previous opportunities for exports, jobs for educated youth dwindle in the developed countries and opportunities created in the sub-region must be tapped if the young generation is to be kept contented.

This column has dealt with this subject many a time because of the urgent need to be an active participant in this new economic regionalism sweeping across Asia. This is the century of Asia. This is not only in the future, but is the present. Depending mainly on yesterday’s economic leaders for job opportunities and trade is not the way for a country to move forward economically.



(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)