April 10, 2019 Reading Time: 7 minutes
Ganeshan Wignaraja and Adam Collins*
The recent escalation in tensions between India and Pakistan has dashed any hopes that the South Asian Association for Regional Cooperation (SAARC) can be revived in the next year or so. Sri Lanka should instead focus its regional efforts on maximising its current chairmanship of the alternative Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). This should be complemented by efforts to enter global value chains (GVCs), a cautious free trade agreement (FTA) strategy, and domestic reforms to ensure the benefits of closer regional integration flow beyond Colombo.
SAARC has long been constrained by the tense relationship between India and Pakistan. Persistent mistrust has meant that regional initiatives have only been partially implemented. For example, a SAARC visa exemption scheme launched in 1992 remains limited to government officials and a small number of journalists, and business and sports people.1 And despite the South Asian Free Trade Area being in force since 2006, intraregional trade remained low at around only 5% of the region’s total trade.2 What’s more, even this limited progress towards regional integration has stalled in recent years. The most recent leaders’ summit in 2016 was eventually cancelled due to Indo-Pak tensions over Kashmir3 and lower-level meetings since then have not led to any major initiatives.
While there were some hopes that the election of Imran Khan as Pakistan’s Prime Minister in 2018 could lead to a diplomatic thaw with India, and the potential revival of SAARC, recent tensions have taken this firmly off the table.4 In election mode, India has said that it will diplomatically isolate Pakistan, and the rest of SAARC remains divided on this issue.5 Meanwhile, Pakistan’s airspace remains partially closed, forcing some 800 flights a day to make costly and time-consuming detours.6 The SAARC Secretariat in Kathmandu will continue to function but without high-level political dialogue, there is unlikely to be significant progress on tackling the challenges to limited South Asian integration.
One silver lining to this situation is that it creates an opportunity to develop BIMSTEC which includes the littoral states of the Bay of Bengal – Bangladesh, India, Myanmar, Sri Lanka, and Thailand – as well as Bhutan and Nepal.7 It does not face the challenge of India and Pakistan tensions, and it presents a potentially lucrative connection between South and South-East Asia. A recent study showed that an USD 73 billion investment in fostering South Asia-South East Asia integration could lead to economic gains of USD 568 billion.8
Admittedly, BIMSTEC is a more nascent organisation than SAARC. Despite being formally established in 1997, a permanent Secretariat was only established in Dhaka in 2014.9 It has also been much less active than SAARC in producing agreements and conventions.10 But India has shown increased interest in the organisation in recent years. Prime Minister Modi hosted a meeting of BIMSTEC leaders on the sidelines of the 2016 BRICS summit in Goa,11 and the first meeting of BIMSTEC national security advisors was held in New Delhi in 2017.12 There is also US interest in maritime connectivity through its Indo-Pacific Strategy.13 This augurs well for regional integration through BIMSTEC.
Sri Lanka should use its two-year Chairmanship of BIMSTEC, which began in August 2018, to exploit this opportunity.14 It is in the enviable position to both emphasise its own interests in the Bay of Bengal region and significantly raise the status of BIMSTEC as a regional mechanism.
To this end, Sri Lanka should prioritise three key areas. The first is digital connectivity. As the country designated to lead BIMSTEC’s work on technology and home to BIMSTEC’s only dedicated Technology Transfer Facility (TTF),15 Sri Lanka has a particular interest in this area. It should focus on ensuring that the TTF is effective and efficient, while also encouraging member states to introduce technology-driven ‘public goods’ like free internet connectivity.16 This would not only be beneficial for the economies of BIMSTEC members but could also help raise the public profile of the organisation.
The second is regional security, which is a crucial precondition for economic integration. The Indian Ocean is increasingly becoming an ungoverned space – narcotics and people smuggling is on the rise, environmental degradation is proceeding unchecked, and there is a growing risk of naval skirmishes.17 Sri Lanka should urge other member states to ratify BIMSTEC’s existing security conventions18 and propose establishing coordinated maritime patrols to secure the Bay of Bengal against maritime crime. This would help build trust between member states and support Sri Lanka’s wider efforts to support a rules-based order in the Indian Ocean.
Finally, Sri Lanka should support regional trade liberalisation. BIMSTEC remains in the early stages of becoming a trading bloc, and a potential free trade agreement (FTA) has been under discussion since 2004.19 Progress on this FTA would signal that BIMSTEC members are serious about enhancing regional integration, alongside global integration. Sri Lanka could energise the BIMSTEC trade ministers’ process by partnering with India to persuade members of the merits of a BIMSTEC FTA, which incorporates provisions in goods, investment and trade facilitation. Such an agreement would help South Asia participate in labour-intensive segments of GVCs, which are relocating out of China in the wake of rising wages and US-China trade tensions.20 Participating in GVC production was a game-changer for rapid economic development in East Asia and has the same potential for the Bay of Bengal region.
Recognising that BIMSTEC may take time to achieve results, Sri Lanka should also continue to cautiously pursue FTAs with key partners in Asia to reduce the most pressing barriers to GVC-led integration. Continuing negotiations with Thailand should be prioritised as it could form the precursor to a BIMSTEC-wide agreement. Trade talks with China and India are also crucial. Discussions with China will lead to market access for Sri Lankan exporters and help cement links currently being fostered by Belt and Road Initiative infrastructure projects. Similarly, close proximity to India’s southern states makes it an attractive market for Sri Lanka’s exports and a source of finance for start-ups.
A cautionary note is provided by the Sri Lanka-Singapore FTA (SLSFTA) signed on 23 January 2018.21 SLSFTA is a modern and comprehensive trade deal with liberalisation governing goods, services, investment and government procurement. That said, domestic-oriented businesses and some professions in Sri Lanka were worried about the disruptive effects of SLSFTA opening up import-competing goods sectors and non-tradable services. Intense political lobbying means that the text of the SLSFTA is likely to be amended through some renegotiation. This has cost Sri Lanka dearly in terms of foregone inward investment and trade with Singapore. The lesson for future Sri Lankan FTAs is to do adequate homework before starting negotiations, particularly undertaking impact assessments and conducting wide-ranging stakeholder consultations.
To ensure that this refocused regional strategy is successful, it must be complemented with domestic policies to ensure that the economic benefits of regional integration flow to all parts of Sri Lanka. These should attempt to put all members of society in a position to take advantage of the opportunities that will come, while protecting the most vulnerable from unnecessary hardship.
Investing in a national highway system, improving the quality and delivery of nationwide education and health services, and providing greater financial access for small and medium-sized enterprises are important practical measures. These should be complemented by efforts to improve the productivity of agriculture (which still employs almost a third of the country’s workforce22 and has suffered from severe weather conditions) and the development of the informal tourism sector. Elimination of corruption and waste in national projects and programmes, reform of inefficient state-owned enterprises, and improved tax and customs administration will also help to finance economic development across Sri Lanka.
SAARC could be revived again in the future if the political conditions are right, perhaps after India’s elections. But for the foreseeable future, focusing on BIMSTEC is likely to be a beneficial regional strategy for Sri Lanka. Combining this with a strategic pursuit of GVCs, selected bilateral FTAs, and key domestic reforms present the best chance of delivering greater prosperity for Sri Lanka.
1SAARC Chamber of Commerce and Industry. List of Categories of Entitled Persons Under the SAARC Visa Exemptions Scheme. [Online] Available at: https://www.saarcchamber.org/images/stories/pdf/List_of_categories_of_entitled_persons_under_the_saarc_visa_exemption_scheme.pdf [Accessed 07 March 2019].
2Asian Development Bank (ADB). (2017). Integration Indicators. [Online] Available at: https://aric.adb.org/integrationindicators/result?sort=country&filter=all&r_indicators%5B0%5D=TCINTSHR_DOT&r_reporters%5B0%5D=263&r_partners%5B0%5D=263&r_partners%5B1%5D=163&r_years%5B0%5D=2000&r_years%5B1%5D=2001&r_years%5B2%5D=2002&r_years%5B3%5D=2003&r_years%5B4%5D=2004&r_years%5B5%5D=2005&r_years%5B6%5D=2006&r_years%5B7%5D=2007&r_years%5B8%5D=2008&r_years%5B9%5D=2009&r_years%5B10%5D=2010&r_years%5B11%5D=2011&r_years%5B12%5D=2012&r_years%5B13%5D=2013&r_years%5B14%5D=2014&r_years%5B15%5D=2015&r_years%5B16%5D=2016&r_years%5B17%5D=2017 [Accessed 07 March 2019].
3Bhattacherjee, K. (2016). SAARC summit to be cancelled. [Online] The Hindu. Available at: https://www.thehindu.com/news/international/SAARC-summit-to-be-cancelled/article15004093.ece [Accessed 08 March 2019].
4Siddiqi, S. (2018). The Time is Right to Revive Saarc. [Online] The Diplomat. Available at: https://thediplomat.com/2018/09/the-time-is-right-to-revive-saarc/ [Accessed 11 March 2019].
5Reuters. (2019). India warns of ‘befitting reply’ to Pakistan over Kashmir attack, which left 44 troops dead. [Online] South China Morning Post. Available at: https://www.scmp.com/news/asia/south-asia/article/2186287/india-vows-complete-isolation-pakistan-over-kashmir-blast-which [Accessed 11 March 2019].
6Bokhari, F. and Findlay, S. (2018). Pakistan keeps airspace closed over fears of India attack. [Online] Financial Times. Available at: https://www.ft.com/content/c69150ca-494e-11e9-bbc9-6917dce3dc62 [Accessed 19 March 2019]
7De Zylva, A. and Hundlani, D. (2018). BIMSTEC and Sri Lanka: A Potential Agenda for 2018-2020. [Online] Lakshman Kadirgamar Institute Explainer Series. Available at: https://www.lki.lk/publication/bimstec-and-sri-lanka-a-potential-agenda-for-2018-2020/ [Accessed 12 March 2019].
8Wignaraja, G., Morgan, P., and Plummer, M. (2015). How $73 billion can make South, Southeast Asia prosper. [Online] Nikkei Asian Review. Available at: https://asia.nikkei.com/Economy/Wignaraja-Morgan-and-Plummer-How-73-billion-can-make-South-Southeast-Asia-prosper [Accessed 11 March 2019].
9BIMSTEC. (2019). Secretariat. [Online] Available at: https://bimstec.org/?page_id=743 [Accessed 08 March 2019].
10Bhattacharjee, J. (2018). SAARC vs BIMSTEC: The search for the ideal platform for regional cooperation. [Online] Observer Research Foundation. Available at: https://www.orfonline.org/research/saarc-vs-bimstec-the-search-for-the-ideal-platform-for-regional-cooperation/ [Accessed 14 March 2019].
11Ministry of Foreign Affairs of Sri Lanka. (2016). Brics – Bimstec Outreach Summit, 16 October 2016, Goa. [Online] Available at:https://www.mfa.gov.lk/brics-bimstec-outreach-summit-16-october-2016-goa/ [Accessed 11 March 2019].
12Ministry of External Affairs of India. (2017). First meeting of the BIMSTEC National Security Chiefs (March 21, 2017). [Online] Available at: https://mea.gov.in/press-releases.htm?dtl/28193/First_meeting_of_the_BIMSTEC_National_Security_Chiefs_March_21_2017 [Accessed 13 March 2019].
13Frost, E. (2019). How to restore maritime connectivity in the Bay of Bengal region – And how the US can help. [Online] DailyFT. Available at: http://www.ft.lk/opinion/How-to-restore-maritime-connectivity-in-the-Bay-of-Bengal-region-%E2%80%93-And-how-the-US-can-help/14-673099 [Accessed 13 March 2019].
14DailyFT. (2018). President Sirisena appointed new BIMSTEC Chairman. [Online] Available at: http://www.ft.lk/front-page/President-Sirisena-appointed-new-BIMSTEC-Chairman/44-662004 [Accessed 13 March 2019].
15Ge, P. (2016). Sri Lanka committed to set up BIMSTEC Technology Transfer Center. [Online] President’s Media Division. Government of Sri Lanka. Available at: http://www.pmdnews.lk/බිම්ස්ටෙක්-කලාපීය-තාක්ෂණ. [Accessed 13 March 2019].
16De Zylva, A. and Hundlani, D. (2018). Sri Lanka and the Bay of Bengal Initiative: Opportunities to Grow a Vital Region. [Online] Lakshman Kadirgamar Institute.Available at: https://www.lki.lk/blog/sri-lanka-and-the-bay-of-bengal-initiative-opportunities-to-grow-a-vital-region/ [Accessed 14 March 2019].
17Wignaraja, G. and Panditaratne, D. (2019). The Post-2015 Foreign Policy Framework: Sri Lanka as a Centre of the Indian Ocean. [Online] Lakshman Kadirgamar Institute. Available at: https://www.lki.lk/blog/the-post-2015-foreign-policy-framework-sri-lanka-as-a-centre-of-the-indian-ocean/ [Accessed 14 March 2019].
18BIMSTEC. (2018). Counter-Terrorism and Transnational Crime. [Online] Available at: https://bimstec.org/?page_id=288 [Accessed 11 March 2019].
19Keerthisinghe, L. (2014). BIMSTEC and its broad brush gains for Sri Lanka. [Online] Ministry of Foreign Affairs of Sri Lanka. Available at: https://www.mfa.gov.lk/tam/bimstec-and-its-broad-brush-gains-for-sri-lanka/ [Accessed 15 March 2019].
20Bland, B. (2018). US-China trade war prompts rethink on supply chains. [Online] Financial Times. Available at: https://www.ft.com/content/03e4f016-aa9a-11e8-94bd-cba20d67390c [Accessed 15 March 2019].
21The Ceylon Chamber of Commerce. (2018). Insights and Findings on the Sri Lanka – Singapore Free Trade Agreement. [Online] Available at: https://www.chamber.lk/index.php/news/179-insights-and-findings-on-the-sri-lanka-singapore-free-trade-agreement [Accessed 15 March 2019].
22The World Bank. (2018). Employment in agriculture (% of total employment) (modelled ILO estimate).[Online] Available at: https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS [Accessed 15 March 2019].
*Dr. Ganeshan Wignaraja is the Executive Director of the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI). Adam Collins is a Research Fellow at LKI. The opinions expressed in this piece are the authors’ own and not the institutional views of LKI, and do not necessarily reflect the position of any other institution or individual with which the authors are affiliated. This article was originally published in the Daily FT.