Regional Institutions Should Step Up to Integrate South Asia with Southeast Asia

Southeast and South Asia are two of the most dynamic and fastest growing regions in the world.  Despite their proximity and commercial relations that date back centuries, trade and investment growth between the two have remained mostly in the single digits in modern times. One reason for this is that while most Southeast Asian countries are active participants in global supply chains (GSCs), most South Asian countries are not. South Asia’s historically high trade costs and trade barriers, relative to Southeast Asia, are the main causes of both the lack of integration and the former’s low participation in GSCs.

This has started to change recently. Through reforms and investments in social and physical infrastructure that reduce trade costs and improve the investment climate, South Asia is catching up with Southeast Asia. Geopolitics associated with US-China tensions has increased the region’s involvement in GSCs, with India a beneficiary of manufacturing investments in strategic sectors such as microchip fabrication.

Although the reforms have mostly been nationally or bilaterally driven, developments have also occurred on the regional front. Several key regional inter-governmental organizations have emerged, with varying degrees of success in promoting regional cooperation, starting with the South Asian Association for Regional Cooperation (SAARC) in 1987, with a Secretariat in Kathmandu.  A decade later came the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), founded in 1997 and headquartered in Dhaka. Finally, the South Asia Subregional Economic Cooperation Program (SASEC) was established in 2001, with a Secretariat at the Asian Development Bank’s (ADB’s) Mission in New Delhi. SAARC’s membership consists of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.  BIMSTEC and SASEC include all of the SAARC members except for Afghanistan and Pakistan, although SASEC includes Myanmar, while BIMSTEC includes both Myanmar and Thailand (Table 1).

Table 1. Membership of SAARC, SASEC and BIMSTEC

SAARC’s efforts in promoting regional cooperation have been held back by difficult relations between certain members, particularly India and Pakistan. Despite the Myanmar issue, SASEC and BIMSTEC benefit from fairly amicable relationships among its members. As a means of promoting inter-regional integration of South Asia with Southeast Asia, SASEC and BIMSTEC may be more promising as they both have members from the two regions. Each has its strengths and weaknesses; they can also cooperate and complement each other in moving the integration agenda forward.

With ADB support, SASEC brings more resources and experience with project development and implementation, while BIMSTEC can provide political buy-in at the highest levels. Unlike SASEC, where the highest-level of decision-making goes only up to the Finance Ministers, BIMSTEC enjoys the support of the Heads of State or Government through the BIMSTEC Summit. This is a key difference between the two and suggests that BIMSTEC may be better placed to play the lead role in promoting integration within, and therefore between, the two regions.

As a means of promoting inter-regional integration of South Asia with Southeast Asia, SASEC and BIMSTEC may be more promising as they both have members from the two regions.

If BIMSTEC is to lead the drive to increase integration, it needs to overcome several shortcomings in its operations. First, it needs to improve its implementation record and to strategise priorities. For instance, the BIMSTEC Master Plan for Transport Connectivity, critical for reducing transport and trade costs, has yet to be implemented. The BIMSTEC Free Trade Agreement (FTA) remains under negotiation two decades after the Framework Agreement was signed. This could be a blessing, however, as another FTA is likely to add a further layer to the spaghetti bowl of FTAs in the region, most of which remain largely underutilized, such as SAARC’s FTA. But it does highlight the gap between plan and practice, or outputs (signed agreements) and outcomes (implementation).

In 2016, BIMSTEC formed an Eminent Persons’ Group (EPG) to advise the organisation on how to address its shortcomings. It took seven years to constitute the EPG. The BIMSTEC Secretary General described the delay as “symptomatic of the challenges that BIMSTEC has been facing in forging regional cooperation”. He highlighted other challenges including lengthy decision-making processes, the limited frequency of Summits and Ministerial Meetings, and prolonged gaps in sectoral discussions.

How can BIMSTEC overcome these challenges? This is where SASEC comes in. Increasing integration between the regions must also involve increasing cooperation between the regional institutions. BIMSTEC can enhance its implementation record and delivery of results by increasing cooperation with SASEC in areas where SASEC has a clear comparative advantage, such as in connectivity, economic corridor development, trade facilitation, tourism, and energy, especially the green transition. The ADB’s involvement in SASEC also allows for linkages with the ADB’s other initiatives, most notably the Greater Mekong Subregion Program (GMS) of which Myanmar and Thailand are common members.

A further obstacle towards bridging Southeast and South Asia is the current political situation in Myanmar, which has resulted in the US, EU and other countries imposing sanctions. These sanctions have also curtailed engagement with Myanmar by the ADB, World Bank and UN agencies. Until the situation in Myanmar is resolved and sanctions lifted, SASEC and BIMSTEC will remain impaired in their ability to link up South Asia with Southeast Asia.

By working together, regional institutions would be better placed to develop institutional mechanisms that curtail the delays and difficulties in decision-making resulting from divergent national interests. This would limit the proliferation of bilateral FTAs within and between the regions, which is contributing to the spaghetti bowl of overlapping agreements. If regional institutions can foster greater cooperation among their members, then they would have laid the foundation for greater integration between the two regions and with the rest of the world.

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