THE Bay of Bengal is one of the most strategically placed waterbodies in the world. Lying between two important regional economic blocs, namely SAARC (South Asian Association for Regional Cooperation) and ASEAN (Association of South East Asian Countries), the Bay of Bengal is a major connecting chord between South and South East Asia. It is also the major building block of BIMSTEC (Bay of Bengal Initiative for Multi Sectoral and Economic Cooperation) regarding mutual connectivity and maritime trade. The importance of the concerned water body in terms of trade and economic integration stretches far beyond its littoral countries. Therefore, the Bay of Bengal region with regard to its trade and economy is not strictly restricted to a geographical map drawing contours along its shores.

Apart from countries that touch its shore – Bangladesh, India, Indonesia, Myanmar, Sri Lanka and Thailand – landlocked countries like Bhutan and Nepal are also a vibrant part of the Bay of Bengal region when it comes to trade and economic integration. It is worth mentioning that one of the biggest economies of the world, China, also uses the bay for trade and economic transactions through the Myanmar coastline along the Bay of Bengal. The Tibet Autonomous region too, just like Bhutan and Nepal, is part of the landlocked hinterland of the Bay of Bengal.

 

Beyond these directly dependent countries, the second busiest port of the world, Singapore, depends greatly on the container traffic from the coastal countries of the Bay of Bengal that comes there for transhipment. Close to 85% of the container traffic entering Singapore port comes for transhipment and the littoral countries of the Bay of Bengal account for a substantial part of the traffic. Singapore earns considerable foreign exchange and the coastal countries of the Bay of Bengal gain access to 600 ports around the world in the process.

Moving to the granular level, the fishing industry of Maldives and along with it the international trade sector of Malaysia, are both highly dependent on the Bay of Bengal. The fishing industry is a prime employment generating sector for Maldives, and Malaysia is a major trade hub; interestingly neither country is a direct part of the Bay of Bengal region. Given this background, it is apparent that the trade and economic integration of the Bay of Bengal region is a critical and complex aspect that offers huge untapped potential. Thus any discussion on the issue must be holistic and inclusive in nature. It should be flexible at the periphery and rigid at the core.

Trade and economic integration around the world follows the simple logic of synergy; the Bay of Bengal region is no exception. Geographically, the region consists of three major global players from two different regional economic blocs, namely India from SAARC and Thailand along with Indonesia from ASEAN.

Already, India and Thailand are part of the proposed BIMSTEC. The remaining SAARC nations, and Myanmar the nearest ASEAN neighbour of SAARC member countries, are also part of BIMSTEC and this amplifies the possible trade and economic integration benefits for the region manifold. If the mentioned SAARC countries form close trade and economic ties with Myanmar and Thailand, then reaching the rest of the ASEAN nations and forming a close knit regional value chain between the SAARC countries and ASEAN member nations might not be a distant future.

 

However, so far this only remains a possibility and considering the historical bottlenecks faced by South Asian countries to emerge as a region rather than self-seeking individual countries, the road ahead looks tough if not impossible. Indeed, it is paradoxical that despite geographical proximity, regional economic cooperation, ASEAN in South East Asia has continued to flourish while SAARC never really lived up to expectations. The European hegemony, indirectly, affected both the regions in a negative way. Seven decades of animosity between India and Pakistan, enhancing mutual suspicion and discontent, have hindered the meaningful functioning of SAARC.

Notably both Myanmar and Thailand have fought many battles during the 18th century, as indeed have Thailand and Vietnam in the 19th century. Nevertheless, irrespective of their differences, the nations of South East Asia have successfully discovered a common chord in this era of globalization and identified their complementarity through trade and economic integration. This eventually helped a cluster of much smaller nations to come together and emerge as a global force under ASEAN. On the other hand, this common chord has eluded the South Asian nations and the phantom of insecurity resulting from mutual distrust has pushed them into their cocoon of individualistic existence bereft of mutual trade and economic exchange.

 

Apart from the above mentioned issues, the predominance of cross-border informal trade among SAARC countries also acts as an inhibitor to spontaneous regional economic cooperation. As estimated by the Bangladesh High Commissioner to India, for 2009 the formal and informal exports from India to Bangladesh were around USD 4 billion.¹ A recent study by Government of Nepal indicated that informally imported Indian seeds to Nepal may account for 30% to 45% of the total vegetable seeds consumed there.² Another study by Sawteeit points out that the price difference between formally and informally imported seeds and DAP (diammonium phosphate) from India to Nepal is around Rs 3 and Rs 10 per kilogram respectively. The same report also mentions that indigenous chemical fertilizer demand in Nepal stands at 700,000 tons but the government imports only 300,000 tons. The entire excess demand of 400,000 tons is met through informal imports.³

Globally informal trade thrives either owing to economic premium or due to trade restrictions. It is obvious that economic agents of SAARC countries, by courting trade restrictions and enjoying economic premium through informal trade, are ignoring the possible economic gains of regional economic cooperation. Such instances are harder to find among ASEAN member nations. The infamous informal trade between Thailand and Laos along their land borders declined significantly after Laos became a member of the ASEAN. The same thing might happen for SAARC countries specially in the background of BIMSTEC. The proposed regional economic bloc also holds the potential to check India-Myanmar and Bangladesh-Myanmar informal trade.

 

A comparative look at SAARC and ASEAN countries regarding intra-regional trade volumes might help explain the differences between these two regions. A rough estimate using World Bank data regarding goods trade indicates that the total trade volume in South Asia contributes only 2.26% to the total global trade volume.⁴ Worse, the intra-regional trade is in an even sorrier state – the intra-regional trade volume as a percentage of the region’s trade with the rest of the world stands at a low 1.46%.⁵ In sharp contrast, the ASEAN contributes 6.5% of the total global goods trade volume, which is much higher than the contribution to global trade volume by the SAARC nations.⁶ Moreover, the intra-regional trade volume of the ASEAN constitutes 12.33% of its trade volume with the rest of the world.⁷

Note that the ASEAN countries have a much smaller area and population than the SAARC countries and any per capita or per unit area comparison on the same variables would show a much wider gap. These dire statistics, however, also act as a silver lining in terms of the prospects of trade and economic integration in the larger Bay of Bengal region, particularly in the wake of BIMSTEC. A close consideration of the overseas investment behaviour of the biggest nation of BIMSTEC, India, reveals the urge of the concerned country to spread out and interact with the ASEAN nations. Whereas Indian overseas investment in BIMSTEC nations for the month of October 2017 was only 1.29%, the same for ASEAN nations was almost ten times higher.⁸

 

It is apparent from the above discussion that when it comes to trade and economic integration in the Bay of Bengal region, it is integration among the selected countries of two regional blocs SAARC and ASEAN, with BIMSTEC serving as the initial common chord, which is crucial. ASEAN nations are way ahead than the SAARC countries regarding global trade presence and intra-regional trade relations. On the other hand, India, which is also the prime representative from SAARC to BIMSTEC, is willing to promote strong economic ties with ASEAN as seen in its outward foreign direct investment behaviour towards the ASEAN countries.

The interest seems mutual as the most technologically advanced nation of ASEAN, Singapore, is the second largest investor in India.⁹ Usually, capital coming from a technologically advanced country brings improved technology into the recipient nation that eventually augments its technological capacity and thereby enhances the productivity of invested capital and labour (an outward shift of the production possibility frontier) leading to higher output with the same level of inputs. Furthermore, owing to its sheer size advantage in terms of trade volume, economy and market among the SAARC and BIMSTEC nations, the future course of the economic transaction involving SAARC and BIMSTEC countries would largely follow the Indian discourse (pro-ASEAN as explained above), which in course of time might lead to better trade and economic integration inclusive of ASEAN in the Bay of Bengal region.

 

The trade and economic relations among the countries of the larger Bay of Bengal region were energizing in historical times. Maritime connectivity, particularly regarding trade and economic transactions, was booming but the colonial aggression and influence over the region created an ambience of fragmentation that even after the end of colonialism could not really be restored to its initial state, given the overhang of the Cold War immediately after WW II. A pro-Soviet India stayed away from possible inclusion in ASEAN back in the 1960s, considering it a pro-West grouping. Even after the end of the Cold War, it kept a critical distance from the dictatorial military government of Myanmar, India’s recently found gateway to ASEAN. The repeated Indo-Pak wars and frequent exchanges of fire along the long-stretched border of these two nations further eroded the possibilities of SAARC emerging as a South Asian trade and economic entity.

Similarly, political instability in Bangladesh in the 1990s and during much of the first decade of the current millennium, along with illegal infiltration, Maoist problem in Nepal, LTTEs bloody battles in Sri Lanka, India’s ideological differences with any dictatorial government such as the Junta in Myanmar and occasional insurgency problems with the same country, slowed down the progress of BIMSTEC as a meaningful trade and economic regional community.

 

India’s cross-border military operations during the final days of the Junta government against the insurgents in Myanmar further added to these problems. Things started changing only after political stability in Bangladesh was achieved under the current pro-Indian Bangladesh government and restoration of democracy in Myanmar. Over the past couple of years, following a series of high level diplomatic exchanges among the mentioned countries of the Bay of Bengal region, the possibility of trade and economic integration in the region is once again looking bright.

It is clear that policy level changes regarding intra-trading among the member nations is one significant facet that needs to be addressed and spontaneously embraced by all the stakeholder nations. A less restrictive trade regime, particularly for Bangladesh and India among SAARC nations and Myanmar along with Brunei among ASEAN nations, would help. Careful identification and spontaneous removal of sanitary, phytosanitary and procedural NTBs, infrastructural and technical barriers to trade by all the member countries of the larger Bay of Bengal region would lead to a less restrictive but more effective trade regime.

All the stakeholder countries in the region should understand that per unit cost is the lowest for maritime trade; hence, the need to focus on improving the standard of riverine or marine ports. Among the SAARC nations, Colombo is the busiest port in terms of cargo, but Chittagong is the only standard port belonging to Bay of Bengal. Its capacity has, however, not been augmented in years and thus it might not be able to handle the pressure of increased cargo volume following any tentative trade and economic integration of the region. Furthermore, both the Colombo and Chittagong ports are no match to Singapore port and thus should try and follow a ‘hub and spoke’ model like Singapore port. Multi-modal connectivity also lowers environmental impacts and given global concern regarding the environment as well as the fragile biodiversity of the region, improved inter- and intra-country connectivity will both improve access and help realize the actual potential of trade for the region.

 

The proposed Sethusamudram Shipping Canal project, though not directly linked to the region, might also add some flexibility to international trade for stakeholder countries of the region considering its partial stretch through the Bay of Bengal. Apart from the waterways, some interesting developments are also taking place regarding roadways. With the IMT highway (India-Myanmar-Thailand trilateral highway) in progress, India (Moreh) might soon be connected by road to Thailand (Mae Sot) through Myanmar. The possibility that this road might be extended to Cambodia, Laos and Vietnam is high. The other BBIN (Bangladesh, Bhutan, India and Nepal) countries might also access this highway to reach Thailand and from there other ASEAN nations, specially if multi-modal connectivity is accentuated and the BBIN motor vehicle agreement is realized at the earliest. Positive political will and farsightedness of the Indian and the Thailand governments may also result in extending the same road to ease India (Moreh)-Malaysia (Kuala Lumpur) road connectivity in the not too distant future.

 

Barring the business of arms, trade and economy have best flourished amidst peace. Though the region is nowadays politically stable, sporadic incidents of insurgency, particularly along the Manipur (India)-Myanmar border and at times along the India-Bangladesh border adjacent to West Bengal, continue. Intra-regional peace is an important aspect of regional trade and economic integration, and that can only be ensured by handling insurgency and infiltration through diplomatic visits, exchange of ideas, mass awareness generation, improving human and social capital, not through bloodshed.

Foreign direct inflow and economic growth are directly proportional. Moreover, FDI also strengthens inter-country bonds. However, the SAARC region is poor in terms of infrastructure. Even the strongest economy in this region, India, needs USD 4.5 trillion for infrastructure by the year 2040.¹⁰ This huge volume cannot be funded indigenously and foreign financial assistance would be needed. Note that for over a decade, a substantial part of infrastructural investment in China was funded by foreign direct investment. Thus investor’s interest must be secured to embrace intra- and inter-regional foreign direct inflow. However, even domestic investment will fly away if investors are not guaranteed the safety of their investment.

We now look at certain indicators related to ease of doing business index to identify the country-wise point of emphasis to secure investor interest in the region. The concerned countries need to make a concerted effort to improve their rank regarding specific inhibiting factors – ease of getting electricity (Bangladesh, Nepal, Myanmar, Cambodia, Indonesia and Philippines); ease of registering property (Bangladesh, Sri Lanka, India, Myanmar and Brunei) and ease of enforcing contracts (Bangladesh, Sri Lanka, India, Nepal, Myanmar, Cambodia, Indonesia, Philippines). It is important that India’s Act East Policy and Thailand’s Act West Policy show commonality and commit to the principles of holistic growth and development for increased trade and economic integration of the Bay of Bengal region.

Unrealized potential contributes to frustration in the long run and is often a major hurdle to the initiation and sustainability of the next innovative economic action. For centuries, the European countries were engaged in bloody battles among themselves. Even in the not so distant past they fought two of the most devastating global wars. However, on realizing the detrimental effects of war, they have found solace amidst cooperation, collaboration and integration in the form of the European Union.

The history of South Asian and South East Asian countries is arguably far less conflictual. They can no longer blame colonial domination and the phantom of European hegemony after almost 70 years of independence. Regional trade and economic integration of the Bay of Bengal is the need of the time that may eventually help the region to come at par with global standards. It may also help balance economic, political and military power throughout Asia.

 

Footnotes:

1. https://qz.com/226458/the-smuggling-business-between-india-and-bangladesh-is-worth-as-much-as-their-official-trade/

2. http://www.hvap.gov.np/downloadfile/Vegetable%20Seeds%20VCA%20Report%20 Final[1]_1321857904.docx

3. http://kathmandupost.ekantipur.com/printedition/news/2017-05-03/women-highly-active-in-informal-trade-with-india-sawtee-report.html

4. https://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/EXPIMP/Partner/WLD/Product/all-groups

5. https://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/EXPIMP/Partner/WLD/Product/all-groups

6. https://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/EXPIMP/Partner/WLD/Product/all-groups

7. https://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/EXPIMP/Partner/WLD/Product/all-groups

8. http://rbidocs.rbi.org.in/rdocs/content/docs/PR1313OFDI13112017.xls

9. http://dipp.nic.in/sites/default/files/FDI_ FactSheet_September2017_0.pdf

10. https://economictimes.indiatimes.com/news/economy/infrastructure/india-will-need-4-5-trillion-by-2040-for-infrastructure-report/articleshow/59759648.cms