ISSN 1010-9536 - Bangladesh Institute of International and ...

I

FACING CLIMATE CHANGE CHALLENGES IN SOUTH ASIA

Volume 36Number 2

2015

ISSN 1010-9536

97 Does Export Diversication Promote Export Growth in Bangladesh?

Mahfuz Kabir S. M. Kalbin Salema

117 Impediments to Counter-Terrorism Cooperation in South Asia: A Theoretical Explanation

Zohra Akhter Mohammad Towheedul Islam Mohd Aminul Karim

133 Conceptualising Economic Diplomacy Mohammad Jasim Uddin 151 Facing Climate Change Challenges in South Asia: The

Role of SAARC Md. Jahan Shoieb 165 Motor Vehicle Agreement Between Bangladesh

Bhutan India and Nepal: Implications and Challenges Sajid Karim

Gazi Quamrul Hasan

taCon ctsDesignation

Chairman, Board of Governors 88-02-9347914 [email protected]

Director General 88-02-8312609 [email protected] Director-1 88-02-9331977 [email protected]

Research Director-2 88-02-8360198 [email protected]

Telephone (Oce) E-mail

VOLUME 36

Bangladesh Institute of International and Strategic Studies (BIISS)Dhaka

NUMBER 2 APRIL 2015

Disclaimer: This is a peer reviewed journal. The views and opinions expressed in this Journal are solely of the authors and do not reect the ocial policy or position of Bangladesh Institute of International and Strategic Studies (BIISS).

Chief EditorA K M Abdur Rahman

Editor Md Iftekhar Ahmed

Associate EditorShaheen Afroze

Assistant Editors Segufta Hossain

Abu Salah Md. YousufMahbubur Rashid Bhuiyan

GraphNet Limited95, Naya Paltan, 1st Floor, Dhaka-1000, BangladeshPhone : 9354142, 9354133, e-mail: [email protected]@gmail.com, website: www.graphnet.com

Tk. 200.00 US$ 20.00

US$ 80.00Tk. 800.00

TABLE OF CONTENTS

VOLUME 36 NUMBER 2 APRIL 2015

Mahfuz KabirS. M. Kalbin SalemaDoes Export Diversication Promote Export Growth in Bangladesh? 97

Zohra AkhterMohammad Towheedul Islam Mohd Aminul Karim Impediments to Counter-Terrorism Cooperation in South Asia: A Theoretical Explanation 117

Mohammad Jasim Uddin Conceptualising Economic Diplomacy 133 Md. Jahan ShoiebFacing Climate Change Challenges in South Asia: The Role of SAARC 151 Sajid KarimGazi Quamrul HasanMotor Vehicle Agreement Between Bangladesh Bhutan India and Nepal: Implications and Challenges 165

97

Mahfuz KabirS. M. Kalbin Salema

Does export Diversification promote export Growth in BanGlaDesh?

Abstract

Export diversification helps a country to increase export earnings and create employment opportunities, especially in labour-intensive export sectors. Product and geographical diversifications are believed to be associated with reduced volatility in export earnings and vulnerability to sharp declines in terms of trade in developing countries. Bangladesh has witnessed remarkable export growth over the last two decades. However, despite policy indicatives for diversification, exports are overly dependent on readymade garments and concentrated to European Union and North American markets. Given this backdrop, the present paper tries to derive empirical evidence on whether the level of export diversification has positive linkage with export growth in Bangladesh. In doing so, it adopts time series econometric techniques to estimate an export supply function. The empirical results reveal that even though export diversification has positive but statistically insignificant linkage with quantity of export supplied in the world market, Bangladesh should pursue the ongoing policy measures to realise statistically significant benefits of export diversification in the long run.

1. Introduction

Bangladesh has been experiencing spectacular growth in exports for over a decade, which has emerged as a fundamental pillar of positive external sector performance, macroeconomic stability, manufacturing growth and creating employment for significant portion of less skilled and semi-skilled labour force of the country. The growth has been led predominantly by Readymade Garments (RMG), which is primarily concentrated on few major geographical destinations like European Union (EU), the USA and Canada. However, it is widely argued that overly reliance on one or few items in export basket and high geographical concentration can be detrimental for export earning if the products are exposed to declining demand and the destination countries experience macroeconomic instability or financial crisis. In other words, diversified bundle of export is a protection towards unpredictable price fluctuations and sudden shocks in specific product market

BIISS JOURNAL, VOL. 36, NO. 2, APRIL 2015: 97-116

Mahfuz Kabir, PhD is Senior Research Fellow at Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka. His e-mail address is: [email protected]; S. M. Kalbin Salema is Research Associate at Unnayan Shamannay, Dhaka. Her e-mail address is: [email protected]. The authors would like to acknowledge the useful comments by an anonymous referee, which helped materially improve the paper.

© Bangladesh Institute of International and Strategic Studies (BIISS), 2015.

98

BIISS JOURNAL, VOL. 36, NO. 2, APRIL 2015

and can lessen income volatility. Product and country diversification are two main dimensions of export diversification. Product diversification can influence economic growth and structural changes of a country, whereas the contribution of country diversification to export performance can be derived from exploiting economies of scope. According to Kim et al.1, reduction of risks and increase in return of firms from product diversification can be enhanced by geographic diversification as additional market opportunities are opened for product diversified firms that facilitate geographic expansion. Thus, export diversification can help stabilise export earnings in the long run.2

According to structural models of economic development (viz., Chenery3 and Syrquin4), countries should diversify from primary exports to manufactured exports in order to achieve sustainable growth. Vertical export diversification could, according to the Prebisch-Singer thesis, reduce declining terms of trade for commodity-dependent countries.5 Endogenous growth models emphasise the importance of learning-by-doing in the manufacturing sector for sustained growth.6 Related to export diversification, Pineres and Ferrantino7 reveal that there could be knowledge spillovers from new techniques of production, new management or marketing practices, potentially benefiting other industries. Producing an expanding set of export products can be seen as a dynamic effect of export diversification on higher per capita income growth.

Bangladesh has been witnessing transition from “traditional” (raw jute, tea, etc.) to “non-traditional” (frozen food, leather item, pharmaceuticals, textiles, etc.) items and primary to manufactured products. The improvement in diversification of export of Bangladesh results from the expansion of new export markets or destination. However, Razzaque and Raihan8 reveals that the export base still remains narrow and undiversified even though there are some new items in the export basket of the country. The argument is subsequently

1 W. C. Kim, P. Hwang and W. P. Burgers, “Multinationals’ Diversification and the Risk-Return Trade-Off”, Strategic Management Journal, Vol. 14, No. 4, 1993, pp. 257–286.2 A. R. Ghosh and J. D. Ostry, “Export Instability and the External Balance in Developing Countries”, IMF Staff Papers, Vol. 41, 1994, pp. 214–235; M. Bleaney and D. Greenaway, “The Impact of Terms of Trade and Real Exchange Volatility on Investment and Growth in Sub-Saharan Africa”, Journal of Development Economics Vol. 65, No. 2, pp. 491–500.3 H. Chenery, Structural Change and Development Policy, New York: Oxford University Press, 1979.4 M. Syrquin, “Patterns of Structural Change”, in H. Chenery and T. N. Srinivasan (eds.), Handbook of Economic Development, Vol. 2, Amsterdam: Elsevier Science Publishers, 1989, pp.1691-1753.5 Bleaney and Greenaway, op. cit.6 K. Matsuyama, “Agricultural Productivity, Comparative Advantage, and Economic Growth”, Journal of Economic Theory, Vol. 58, No. 2, 1992, pp. 317-334.7 S. A. G. De Pineres and M.J. Ferrantino, Export Dynamics and Economic Growth in Latin America, Burlington, Vermont: Ashgate Publishing Ltd, 2000.8 A. Razzaque and S. Raihan, Trade and Industrial Policy Environment in Bangladesh, Dhaka: Unnayan Shamannay, 2006.

99

EXPORT GROWTH IN BANGLADESH

supported by Hossain and Chowdhury,9 and Kabir10 who demonstrate that the export basket of Bangladesh has continued to remain relatively undiversified and the comparative advantages of the country are yet to be translated into competitive advantage.

Bangladesh’s position in the international division of labour and global value chain and the demand and prospects in the world market are the main drivers so far to determine the export policy of the country. Again, rapid generation of employment opportunities as envisioned in the upcoming Seventh Five-Year Plan (2016-2020) can be prompted through increased export earnings and labour-intensive jobs. The government has given special emphasis on export growth which has become double digit over the past two decades. Nevertheless, a sudden shock can be avoided through creation of a diversified export basket and destinations, which rationalises undertaking a pragmatic and effective strategy for export diversification.

Given the backdrop, it is important to understand whether the export diversification has any significant impact on export growth in the long run. This paper would add significant value in formulating external sector policies since the Sixth Five-Year Plan (2011-2015) and the Seventh Five-Year Plan (2016-2020) of Bangladesh have considerably emphasised on export (mainly product) diversification for promoting export growth and avoiding shock on export performance. Thus, the contributions of this paper are as follows. First, this is the first paper that examines the relationship between export diversification and export growth of Bangladesh. Second, it adopts an export supply function which is popular in trade modelling, but has not yet been used in providing scientific evidence on the relationship between export diversification and export growth. Third, it has used time series econometric techniques for a reasonable time period, which provides useful insight for policymaking and undertaking future studies. Thus, the paper has been organised as follows. After this brief prelude, a comprehensive review of literature is presented in Section 2. The present scenario of Bangladesh’s export diversification is given in Section 3. Section 4 describes the methodology of conducting the empirical study. Section 5 describes the results and analysis of the empirical findings. Section 6 concludes the paper.

2. A Review of Literature

Currently, there is no literature on scientific assessment of the relationship between export diversification and export growth. However, there are few studies that have found contradictory relationships between geographic and product diversification, including: (i) a positive linear relationship indicating complementarity between the two strategies, (ii) a negative linear relationship indicating a substitution effect between these two growth strategies, and (iii) more complex curvilinear

9 M. M. Hossain and S. A. Chowdhury, “Pattern and Determinants of Export Diversification in Bangladesh: An Empirical Assessment”, D.U. Journal of Marketing, Vol. 15, 2012, pp. 109-126.10 Mahfuz Kabir, “Examining the Pattern of Bangladesh’s Exports: Application of a Panel Gravity Model”, Jahangirnagar University Journal of Business Research, Vol. 14, 2012, pp. 35-57.

100


relationships (e.g., Davies et al.;11 Kumar;12 Meyer;13 Wiersema and Bowen14). Farjoun reveals ‘‘under-diversification’’ in a given diversification path as insufficient utilisation of a given firm’s fixed bundle of resources for that growth strategy. In that case, continued expansion into new countries or businesses will provide good opportunities for growth or risk reduction.15 Conversely, Lu and Beamish imply ‘‘over-diversification’’ as an excessive use of the firm’s resource base coupled with high governance costs leading to diseconomies of scope.16

Kim et al.17 argue that increased geographic diversification enables firms to reduce the risk of and increase returns from product diversification, since additional market opportunities are opened for product diversified firms that pursue geographic expansion. Geringer et al. show that geographic and product diversification complement each other by permitting a firm to leverage its strategic rent-yielding resources from existing operations in order to increase its rents.18 On the other hand, Hitt et al.19 argue that the combination of high levels of geographic and product diversification creates synergies that enable firms to differentiate their products while incurring lower costs than non-diversified firms, which help them emerge as monopolistically competitive firms. Tallman and Li argue that geographic diversification improves the performance of low product-diversified firms by providing risk diversification and enhances the ability to exploit economies of scope.20

Do geographic and product diversifications help each other? Wiersema and Bowen21 argue that they are substitute strategies, but they are exposed to a given firm’s fixed bundle of resources coupled with increased coordination and control costs. Therefore, a substitution between the two is expected at least in the short run.

11 S. W. Davies, L. Rondi and A. Sembenelli, “Are Multi-Nationality and Diversification Complementary or Substitutive Strategies? An Empirical Analysis on European Leading Firms”, International Journal of Industrial Organization, Vol. 19, No. 8, 2001, pp. 1315–1346.12 M. V. S. Kumar, “The Relationship between Product and Geographic Diversification: The Effects of Short-Run Constraints and Endogeneity”, Strategic Management Journal, Vol. 30, No. 1, 2009, pp. 99–116.13 K. E. Meyer, “Global Focusing: From Domestic Conglomerates to Global Specialists”, Journal of Management Studies, Vol. 43, No. 5, 2006, pp. 1109–1144.14 M. F. Wiersema and H.P. Bowen, “Corporate Diversification: The Impact of Foreign Competition, Industry Globalization, and Product Diversification”, Strategic Management Journal, Vol. 29, No. 2, 2008, pp. 115–132.15 M. Farjoun, “Beyond Industry Boundaries: Human Expertise, Diversification and Resource-Related Industry Groups”, Organization Science, Vol. 5, No. 2, 1994, pp. 185–199.16 J. W. Lu and P.W. Beamish, “International Diversification and Firm Performance: The S-Curve Hypothesis”, Academy of Management Journal, Vol. 47, No. 4, 2004, pp. 598–609.17 Kim et al., op. cit.18 J. M. Geringer, S. Tallman and D.M. Olsen, “Product and International Diversification among Japanese Multinational Firms”, Strategic Management Journal, Vol. 21, No.1, 2000, pp. 51–80.19 M. A. Hitt, R. E. Hoskisson and H. Kim, “International Diversification, Effects on Innovation and Firm Performance in Product-Diversified Firms”, Academy of Management Journal, Vol. 40, No. 4, 1997, pp. 767–798.20 S. Tallman and J. T. Li, “The Effects of International Diversity and Product Diversity on the Performance of Multinational Firms”, Academy of Management Journal, Vol. 39, No. 1, 1996, pp. 179–196.21 Wiersema and Bowen, op. cit.

101


Conversely, Kumar22 has shown that geographic and product diversifications are negatively linked in the short run due to constraints in replicating and transferring techniques and causally ambiguous competencies between the two diversification strategies as identified by Martin and Salomon.23 Pearce24 reports an inverted U-shape between product and geographic diversification, which indicates that the direction of relationship between the two may alter at different levels of diversification. Hashai and Delios25 argue that these two are likely to complement each other at certain levels of resource utilisation, while at other levels they are likely to become substitutes. However, Lederman and Klinger26 find that “a country’s export basket becomes more diversified as income rises until a relatively high level, at which point the process reverses itself and specialisation occurs.” Naude and Rossouw27 confirm this U-shaped relationship for Brazil, China, India and South Africa. As a result, the effect of export diversification on growth depends on a country’s level of economic development.

There is a number of literature on the determinants of export diversification, especially of developing countries. Using the “new trade theory” Krugman28 and Grossman and Helpman29 explained the horizontal and vertical intra-industry trade, especially concerning the attempts to secure infant industries of developing countries, with an analysis of the determinants of human capital, and research and development (R&D) expenditures on export diversification. In this context, knowledge spillover to developing countries through openness are of utmost importance and are explained through the externalities of “learning by doing” and especially of “learning- by-exporting”.30

According to Dogruel and Tekce31, one of the proposed determinants of export diversification is the level of development, usually represented by the country’s per capita gross domestic product (GDP), which supports both “supply-

22 Kumar, op. cit.23 X. Martin and R. Salomon, “Tacitness, Learning, and International Expansion: A Study of Foreign Direct Investment in A Knowledge Intensive Industry”, Organization Science, Vol. 14, No. 3, 2003, pp. 297–311.24 R. D. Pearce, The Growth and Evolution of Multinational Enterprise: Patterns of Geographical and Industrial Diversification, Aldershot: Edward Elgar, 1993.25 N. Hashai and A. Delios, “Balancing Growth across Geographic Diversification and Product Diversification: A Contingency Approach”, International Business Review, Vol. 21, No. 6, 2012, pp. 1055-1064.26 D. Lederman and B. Klinger, Diversification, Innovation, and Imitation inside the Global Technology Frontier, World Bank Policy Research Paper No. 3872, Washington DC: World Bank, 2006. 27 W. Naude and R. Rossouw, “Export Diversification and Economic Performance: Evidence from Brazil, China, India and South Africa”, Economic Change and Restructuring, Vol. 44, Issue 1, 2011, pp. 99-134.28 P. Krugman, Increasing Returns, Imperfect Competition and the Positive Theory of International Trade”, in G. Grossman and K. Rogoff (eds.), Handbook of International Economics, Elsevier, Vol. 3, 1995, pp. 1243-1277.29 G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, MA: MIT Press, 1991.30 D. Herzer, Export Diversification, Externalities and Growth, University of Göttingen Discussion Paper no. 99, 2004. 31 A. S. Dogruel and M. Tekce, “Trade Liberalization and Export Diversification in Selected MENA Countries”, Topics in Middle Eastern and African Economies, Vol. 13, 2011, pp. 1-29.

102


side”32 and “demand-side”33 growth theories. Another potential determinant of export diversification is foreign direct investment (FDI). According to Gourdon,34 FDI can lead to export diversification directly by entering the non-traditional export sector, or indirectly by increasing exports of traditional exports with the lowest share. Ekholm et al.35 demonstrate that FDI would enter a country solely to produce for export markets in third countries, thus the growth in exports would be towards new markets or on new industries, resulting in export diversification.

According to Agosin,36 there are potentially two different effects of export diversification. The first is “portfolio effect”, which implies that the greater the degree of diversification the less volatile the export earnings. Second, there is the “dynamic effect” of export diversification. Long run growth is associated with learning to produce an expanding range of goods. This view sees growth as being the result of adding new products to the export and production basket. Agosin et al. suggest that producing a new product for export markets may reveal to domestic producers that there is demand in international markets for products that can be (or are being) produced domestically.37 Sannassee et al.38 state that not only the level of exports that leads to growth, but the degree of diversification of such exports or of the export base. For instance, Romer39 has identified diversification as a factor of production in the endogenous growth model.

Trade policy of a country is also considered as a determinant of export diversification. As explained in Melitz,40 trade liberalisation that leads to lower tariffs is expected to improve the access to foreign markets, which will eventually lead to export diversification as the country becomes capable of facing a more diverse demand from its partners. Shepherd41 shows that export costs, tariffs and international

32 P. Aghion and P. Howitt, “A Model of Growth through Creative Destruction,” Econometrica, Vol. 60, No. 2, 1992, pp. 323-351.33 F. Fiorillo, “Rate of Growth and Sector Specialization Coevolution in A Kaldorian Export-Led Growth Model”, Structural Change and Economic Dynamics, Vol. 12, No. 1, 2001, pp. 91-114.34 J. Gourdon, “FDI Flows and Export Diversification: Looking at Extensive and Intensive Margins”, in J R. López-Cálix, P. Walkenhorst and N. Diop (eds.), Trade Competitiveness of the Middle East and North Africa: Policies for Export Diversification, Washington, DC: World Bank, 2010, pp. 13-46.35 K. Ekholm, R. Forslid and J. Markusen, “Export-Platform Foreign Direct Investment,” Journal of the European Economic Association, Vol. 5, No. 4, 2007, pp. 776-795.36 M. R. Agosin, Export Diversification and Growth in Emerging Economies, Departmento De Economia, Universidad De Chile, 2007.37 M. R. Agosin, R. Alvarez and C. Bravo-Ortega, Determinants of Export Diversification around the World: 1962-2000, Departmento De Economia, Universidad De Chile, 2009.38 R. V. Sannassee, B. Seetanah and M. J. Lamport, “Export Diversification and Economic Growth: The Case of Mauritius”, 2014, available at https://www.wto.org/english/tratop_e/devel_e/train_e/Mauritius.pdf, accessed on 30 June 2015.39 P. M. Romer, “Endogenous Technological Change”, Journal of Political Economy, Vol. 98, No. 5, 1990, pp.71-102.40 M. Melitz, “The Impact of Trade in Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, Vol. 71, No. 6, 2003, pp. 1695-1725.41 B. Shepherd, “Geographical Diversification of Developing Country Exports”, World Development, Vol. 38, No. 9, 2010, pp. 1217–1228.

103


transport costs are all important determinants of geographical export diversification in a sample of 123 developing countries. A 10 percent reduction in any one of these factors produces a 5 to 6 percent increase in the number of foreign markets entered. Moreover, these impacts differ significantly across countries and sectors: geographical export diversification is more sensitive to export costs and transport costs in more differentiated sectors and to export costs in lower income countries. The study also states that developing countries' trade growth can take place in four dimensions: more trade in goods that existing trading partners already exchange (the intensive margin); introduction of new product varieties (the new products margin); an increase in the unit values of traded goods (the quality margin); and creation of trading relationships between new partners (the new markets margin).

Exporting to proximate markets is found to be a significant predictor of geographical diversification, which Evenett and Venables42 argue, could be “learning effects”. Shepherd43 found that 10 percent reductions in export costs and transport costs (distance) were associated with approximately 6 percent increases in the number of export markets served. Export costs have stronger effects on geographical export diversification in poorer countries and that export costs and transport costs have stronger effects in sectors that are relatively more differentiated.

Evenett and Venables44 demonstrate that around one-third of developing countries’ export growth over the period 1970-1997 was due to the export of old goods to new markets. Hesse45 argues that export diversification can lead to higher growth. Developing countries should diversify their exports since this can help them overcome export instability or the negative impact of terms of trade in primary products. Export diversification does play an important role in this process. The paper provides robust empirical evidence of a positive effect of export diversification on per capita income growth which is potentially nonlinear with developing countries benefiting from diversifying their exports in contrast to the most advanced countries that perform better with export specialisation.

According to Samen,46 diversification of export products and markets destination is viewed as means to meet the challenges of unemployment and lower growth in many developing countries. However, export diversification may seem to be in contradiction with the notion of comparative advantage. In line with the Presbisch-Singer hypothesis, specialisation in a narrow group of export products exposes a country to increased instability in export earnings which can be made worse when concerned products are subject to secular declining terms of trade. This volatility 42 S. J. Evenett and A.J. Venables, “Export Growth in Developing Countries: Market Entry and Bilateral Trade Flows”, 2002, University of Bern Working Paper, mimeographed.43 Shepherd, op. cit.44 Evenett and Venables, op. cit.45 H. Hesse, Export Diversification and Export Growth, Washington, DC: World Bank, 2008. 46 S. Samen, A Primer on Export Diversification: Key Concepts, Theoretical Underpinnings and Empirical Evidence, Washington, DC: World Bank Institute (Growth and Crisis Unit), 2010.

104


exposure can be mitigated, through diversification, by expanding production and trade of a variety of commodities with different price trends, which can potentially help to achieve some stability in economic performance.

3. Policy Perspective on Export Diversification in Bangladesh

Export growth is very crucial for Bangladesh since it is largely dependent on export earnings. The export of the country experienced its transformation from primary to manufactured products and traditional to non-traditional export items as a strategy of export diversification for export growth.47 By this time, the emergence of new products such as auto parts, electronics and light engineering is expected to contribute in gradual diversification of exports in a big way over the coming decade. The country’s export base still remains narrow and undiversified in spite of some additional new items in the export basket.

The Government of Bangladesh aims to focus on both product and market diversification to extract the benefit of maximum leverage out of manufacturing sector and its competitiveness in the global marketplace. The country experienced double digit export growth over the past two decades. Yet, it is on export concentration rather than diversification in terms of export basket. Presently RMG, emerged in the late-1970s, is the main contributor to the country’s export basket reaching a share of 81 percent in FY2013-1448 but jute and jute goods dominated the export sector prior to the emergence of RMG exports, making up 70 percent of exports until 1981.49 A fair degree of diversification is going on within RMG. Also, market diversification is taking place in RMG export — the Export Concentration Ratio (ECR) in top 15 destination countries has fallen from 88.6 percent in FY1999-00 to 82.4 in FY2013-14. ECR in RMG export to top five countries has been falling significantly, from 79.1 percent of 1999-00 it came down to 60.6 percent in FY2013-14, which indicates an increasing trend of destination diversification of RMG items, the most crucial export item. The number of countries in which export value was higher than US$1 million increased from 60 of FY1999-00 to 111 in FY2013-14. The number of destination countries of RMG of the same value has increased from 15 of 1990 to 75 in 2014. The share of RMG exports to the United States, single largest country, has decreased from 45.32 percent of FY2000-01 to 20.1 percent in FY2013-14. These indicate that Bangladesh is undergoing higher diversification in RMG exports and overall growth in geographical diversification.50

47 M Ismail Hossain and Mahfuz Kabir, “Export Promotion and External Issues: Present Status and Future Developments”, in Mustafa K. Mujeri and Shamsul Alam (eds.), Sixth Five Year Plan of Bangladesh 2011-2015: Background Papers, Volume 1 (Macroeconomic Issues), Dhaka: Bangladesh Institute of Development Studies and Planning Commission, 2011, pp. 189-257. 48 Bangladesh Bank, Major Economic Indicators: Monthly Update, Dhaka, July 2015.49 General Economics Division, Perspective Plan (2010-2021), Dhaka: Planning Commission, Government of Bangladesh, 2012.50 Z. Satter, Strategy for Export Diversification 2015-2020, prepared as a background paper for the Seventh Five-Year Plan, Dhaka: Planning Commission, Government of Bangladesh, 2015.

105


0.85

0.75

0.65

0.55

0.45

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

BangladeshPakistan

IndiaSri Lanka

Figure 1: Export Diversication Index of Bangladesh vs Its Competitors in South Asia

Source: Based on UNCTAD Statistics.

Export diversification is the lowest for Bangladesh in comparison with its competitors of South Asia (Figure 1). It is followed by Pakistan, Sri Lanka and India respectively. India possesses the most diversified export basket in South Asia. The export concentration in Bangladesh has increased from 1995 to 2002 and then reduced up to 2008. After that concentration, there is a trend of fluctuation of export diversification index. However, the general trend of the index value is declining since 1998 in the cases of India and Pakistan.

2004-05

Other14%

Knitwear33%

Woven40%

2013-14Other11%

Products3%

FrozenFood2%

Woven41%

Leather &Footwear

Jute 4%

Figure 2: Composition of Products in Bangladesh’s Export Basket

Knitwear40%

Leather &Footwear

Jute4%Products

3%FrozenFood5%

Source: Based on Bangladesh Economic Review (2006 and 2015), Ministry of Finance, Government of Bangladesh.

106


Data on export basket (Figure 2) reveal that Bangladesh is heavily dependent on RMG (woven and knitwear). Collectively these two contributed to the export basket by 75 and 81 percent in FY2004-05 and FY2013-14, respectively. Even though 5 percent contribution of frozen food is observed in FY2004-05, it has been lower significantly in FY2013-14 (2 percent only). Contribution of leather item and footwear has increased slightly in FY2013-14 compared to FY2004-05 (from 3 to 4 percent). This shows that still Bangladesh is experiencing very high product concentration rather than product diversification in country’s export basket.

As dependence on one or few certain items can cause a severe loss ranging from a sector to throughout the economy, the government intends to avoid the unforeseen shocks through creation of a diversified export basket.51 The government has adopted a strategy to promote export diversification according to the highest priority to several emerging potential exports.52 These are: agricultural and agro-processing products, light engineering products (including auto parts and bicycles), footwear and leather products, pharmaceutical products, software and ICT products, home textile, ocean-going ship building industries and toiletry products.

According to Perspective Plan (2010-2021) of the Government of Bangladesh, the strategy of export diversification is to embrace many different dimensions rather than mere product diversification. Moreover, success of RMG sector due to lower labour cost promotes to exploit the benefit of export competitiveness by expansion of new export products in export basket. Again, three aspects of the trade policy regime are meaningful for export diversification and cornerstone of the export strategy.53

First, ensuring export competitiveness in general by addressing beyond the border constraints (e.g., tariffs) at regional (through regional grouping) and global level (through World Trade Organisation) and behind the border constraints (e.g., trade infrastructure, energy and telecommunications, regulations, finance) existing in the country.

Second, reducing the celebrated “anti-export” bias of the trade regime. Given the extensive evidence of anti-export bias of the current import, tariff and subsidy regime has been found to favour import substituting production over exports whereas the duty-drawback scheme to provide world priced inputs for export production has proved inadequate. Thus, eradication of the built-in anti export bias would be key to switching the incentive regime in favour of exports.

Third, reducing “anti-diversification” bias. Trade policy and incentive regime have been found to have a clear focus on RMG sector, which provides a free trade channel

51 General Economics Division, 2012, op. cit.52 General Economics Division, Sixth Five-Year Plan (2011-15), Part 2, Dhaka: Planning Commission, Government of Bangladesh, 2011.53 General Economics Division, 2012, op. cit.

107


and logistic supports (duty free import of raw materials, bonded warehousing facilities, back-to-back letter of credit, rapid custom clearance) because of the spectacular success of RMG exports. This policy is appropriate for making RMG exports competitive on a global scale but attention needs to be focused on similar policy environment for emerging and potential exports without which considerable barriers are to be faced in the context of a high-tariff and restrictive import regime in Bangladesh. Thus, the existing regime of anti-diversification bias has been identified in the Sixth Five-Year Plan (2011-2015) for reduction through reforming export policy.

The background paper of the Seventh Five-Year Plan also emphasised on addressing the deficiency in hard and soft infrastructures to facilitate export diversification. It admits the fact that even though there are ongoing initiatives of diversification in RMG sector, Bangladesh still has a narrow range of exports with high concentration on a few products, which is always susceptible to adverse impact of sudden shock. Thus, the background paper suggests the country’s export policy to attach high priority on devising a sound strategy for multidimensional and comprehensive basket of exports through diversification. First, the policy should focus on tariff and non-tariff barriers of imports and exports, better customs facilitation and anti-export bias. Second, focus should be on products improvements or moving up along the value chain through investment in research and development (R&D) and addressing supply side and competitiveness constraints behind the borders. Third, expansion of exports to respond to increased demand in regional and global market, which requires increased production (supply) of goods and services in all sectors or addressing market access (beyond the border constraints) for promoting export growth.54

4. Methodology and Data

4.1 Export Supply Function

This paper argues that greater export diversification, i.e., lower score of export diversification index, is related to higher volume of exports which is expressed in higher score of export quantum index. This relationship can be examined by adopting an export supply function of Bangladesh economy. Ahmed argues that export supply function is derived from the principle of profit maximisation of the producers, whereby elasticity of supply demonstrates the responsiveness of export volume to changes in the relative price of exportable in the imperfect substitution model of trade.55 A country’s export supply depends on its production capacity, price of the exportable, export openness, domestic and world prices, exchange rate between trading partners and level of export diversification. Production capacity can increase over time, which 54 Satter, op. cit.55 N. Ahmed, “Export Response to Trade Liberalisation in Bangladesh: A Cointegration Analysis”, Applied Economics, Vol. 32, No. 8, 2000, pp. 1077-1084.

108


in turn increases the economy’s capacity to export. Joshi and Little56 argue that an increase in export price increases export supply. The real effective exchange rate plays an important role in explaining variation in net export, particularly if a country’s exchange rate is volatile, which reveals the change of a country’s competitive position compared to its trade partners.

The estimation of export supply function depends on the specification of its empirical model and availability of data on the appropriate variables. For the estimation purpose, the appropriate variables pertaining to quantity of export and its price are Export Quantity Index (EQI) and Export Value Index (EVI) respectively. The Quantum Index of Industrial Production (QIIP) is used for measuring the production capacity of the Bangladesh economy, a part of which is used for producing exportable. The ratio of exports to real GDP (XGDP) has been used as an overall measure of the dominance of exports on the economy. Finally, Export Diversification Index (EDI) has been used to understand the relationship between diversification and direction of change of exports. The following export supply function is adopted to estimate the aggregate price elasticity:

ttttttt eEDIXRERLQIIPLXGDPLEVILEQI ++++++= 543210 αααααα (1)

where L indicates natural log, XRER is export-weighted real effective exchange rate and e is the white noise error term. Here, XRER combines nominal exchange rate, effective financial incentives, and home and foreign prices. Ahmed reveals that XRER is an index of export competitiveness; depreciation in XRER is likely to increase export supply.57

The export-weighted real effective exchange rate is not readily available for Bangladesh in secondary data sources like IMF’s International Financial Statistics (IFS), World Development Indicators (WDI) and ADB Statistical Database and even in the existing literature. Therefore, it is calculated following Bahmani-Oskooee58 and Bahmani-Oskooee and Mirzai.59 At the first stage, the bilateral exchange between individual countries (i) and their major export countries (j), ERij, has been calculated. This is used to calculate real bilateral exchange rate in the following way:

( )ijijij CPICPIRRER =

where CPIj and CPIi are consumer price index of destination and local countries, respectively. In the second stage, an RER index has been calculated taking 1995 as base year as follows:

56 V. Joshi and I. M. D. Little, India: Macroeconomics and Political Economy 1964-1991, Washington, DC: World Bank, 1994.57 Ahmed, op. cit.58 M. Bahmani-Oskooee, “Real and Nominal Effective Exchange Rates for 22 LDCs: 1971:1-1990:4”, Applied Economics, Vol. 27, No. 7, 1995, pp. 591-604.59 M. Bahmani-Oskooee and A. Mirzai, “Real and Nominal Effective Exchange Rates for Developing Countries: 1973:1-1997:3”, Applied Economics, Vol. 32, No. 4, 2000, pp. 411-428.

109


1995ij

tijj RERRERRERI =

At the third stage, the weighted average of RERIij is used to construct an export-

weighted XRERij for home countries according to their export shares such that 11

=∑ =

n

i jw .

Data used in the variables of export supply function come from various sources over the period 1995 to 2013. The time series of annual average official exchange rate (local currency for one US dollar), GDP (in constant 2000 US dollars) and Consumer Price Index (year 2000 = 100) come from the WDI online version and Bangladesh Bank’s Economic Trend. The WDI provides data on EQI (year 2000 = 100) and EVI (year 2000 = 100). EDI data come from UNCTAD Statistics.

4.2 Estimating the Export Supply Function

Export supply functions can be estimated using multi-equation techniques, such as maximum likelihood estimator as suggested by Johansen and Juselius60 when these are system equations. Since the function has been specified as a single equation, adopting single equation estimation techniques would be appropriate.

This paper adopts two econometric techniques to estimate the long term relationship between changes in exports and export diversification: Fully Modified Phillips-Hansen ordinary least squares (FMPH-OLS) and the autoregressive distributed lag (ARDL). However, there might be short run relationship between the two which may or may not be observed in the long-term estimates. Therefore, an error correction model (ECM) of the ARDL can provide the short term relationship between the two. Among the previous studies, Ahmed61 applies an unrestricted version of ECM to estimate Bangladesh’s export supply function. Athukorala and Riedel,62 Sinha63 and Rao and Singh64 adopted the FMPH-OLS in trade modelling. The ARDL has been adopted by Bahmani-Oskooee and Kara65 and Chen66 in the similar context.

60 S. Johansen and K. Juselius, “Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money”, Oxford Bulletin of Economics and Statistics, Vol. 52, No. 2, 1990, pp. 169-210.61 Ahmed, op. cit.62 P. Athukorala and J. Riedel, “Demand and Supply Factors in the Determination of NIE Exports: A Simultaneous Error-Correction Model for Hong Kong: A Comment”, Economic Journal, Vol. 104, No. 427, 1994, pp. 1411-1414.63 D. Sinha, “A Note on Trade Elasticities in Asian Countries”, International Trade Journal, Vol. 15, No. 2, 2001, pp. 221-237.64 B. B. Rao and R. Singh, “Estimating Export Equations”, Applied Economics Letters, Vol. 14, No. 11, 2007, pp. 799-802.65 M. Bahmani-Oskooee and O. Kara, “Income and Price Elasticities of Trade: Some New Estimates”, International Trade Journal, Vol. 19, No. 2, 2005, pp.165-178.66 S-W. Chen, “Long Run Aggregate Import Demand Function in Taiwan: An ARDL Bounds Testing Approach”, Applied Economics Letters, Vol. 15, No. 9, 2008, pp.731-735.

110


4.3 FMPH-OLS Estimator

The FMPH-OLS is the optimal single equation approach to estimate and draw inference when there exists such a single cointegrating relationship between a set of I(1) variables. Based on Narayan and Narayan,67 consider a linear regression model as follows:

; t = 1, 2, …, 19

where, xt, a k×1 vector of I(1) regressors that are not themselves cointegrated, has the following first-difference stationary process:

tt vx +=∆ µ ; t = 2, 3, …, 19

where again μ is a k×1 vector of drift parameters and vt is a k×1 vector of I(0)

variables. Assume that ( )′′= ttt vu ,ξ is strictly stationary that has a zero mean and a finite positive definite variance covariance matrix, Σ.

The FMPH-OLS estimator of β is computed in two steps. In the first step yt is corrected for the long-term interdependence of ut and vt. Suppose that the consistence estimator of a long-term variance of ξt is

ΩΩ

ΩΩ=Ω

××

××

kkk

k

221

21

112

1111

where the superscript demonstrates the order of the elements in the matrix. In the second step, assume

( )′= **2

*1

* ...,,, nyyyy ; ttt vyy 1

2212* −ΩΩ−= ; W = (τn, X); τn = (1, 1, …, 1)';

=

×

××+

kk

kkk I

D 1)1(

0 ;

211

222221 ΩΩ∆−∆= −Z ; and

∆∆

∆∆=∆

2221

1211 .

Then, the FMPH-OLS estimator of β can be expressed by

( ) ( )ZnDyWWWOLSFM*1 −′′= −

−β

67 P. K. Narayan and S. Narayan, “Estimating Income and Price Elasticities of Imports for Fiji in a Cointegration Framework”, Economic Modelling, Vol. 22, No. 3, 2005, pp. 423-438.

111


4.4 ARDL Estimator

The present version of ARDL estimator follows the approach adopted by Pesaran et al.68 and Narayan and Narayan.69 The main advantage of this approach is that it avoids the uncertainty pertaining to unit root pretesting by allowing it irrespective of whether the variables are I(0) or I(1). Inder70 suggests that ARDL yields precise estimates of long-term coefficients and valid t-statistics in the presence of even endogenous variables. Simulations of Pesaran and Shin71 reveal that the estimates based on an ARDL model are super-consistent and valid inferences can be drawn using standard tests on long-term parameters by applying standard asymptotic theory.

Based on Pesaran and Pesaran,72 the general form of an augmented ARDL(p, q1,q2, …,qk) model can be written as

tttii

k

iit uwxqLypL +′+= ∑

=

δβφ ,1

),(),( ; t = 1, 2, …, 19 (2)

where, L is the lag operator such that Lyt = yt-1;wt is s×1 vector of deterministic variables including intercept; p = 0,1,2, …, m; qi = 0,1,2, …, m; ),( pLφ =1– −L1φ −−...2

2 Lφ

pp Lφ ; ),( ii qLβ =1– −Li1β −−...2

2 Liβ i

i

qiq Lβ . The long-term estimator for the response of yt

to a unit change in xi,t is given by

( ) ( )],1/],1[ pqiii φβθ =

and, the long-term estimator related to the exogenous or deterministic variables with fixed lags can be expressed as

( ) ( )],1/[],[ pqp i φδψ =

Finally, the error correction representation of the ARDL(p, q1,q2, …,qk) model can be written as

tjtiij

k

i

p

jjtj

k

i

p

jttiitt uxywxECpy +∆−∆−∆+∆+−=∆ −

=

−

=−

=

−

=− ∑ ∑∑ ∑ ,

*

1

1

1

*

1

1

1,01),1( βφδβφ (3)

where the error correction term (ECt) corresponding to the long-term estimators, is defined by

68 M. H. Pesaran, Y. Shin and R.J. Smith, “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, Vol. 16, No. 3, 2001, pp. 289-326.69 Pesaran et al., op. cit.70 B. Inder, “Estimating Long-Run Relationships in Economics: A Comparison of Different Approaches”, Journal of Econometrics, Vol. 57, No. 1-3, 1993, pp. 53-68.71 M. H. Pesaran and Y. Shin, “An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis”, DAE Working Paper 9514, Cambridge: University of Cambridge, 1995.72 M. H. Pesaran and B. Pesaran, Working with Microfit 4.0: Interactive Econometric Analysis, Oxford: Oxford University Press, 1997.

112


In Equation (3), ),1( pφ measures the significance of the error correction term.

The coefficients *jφ and *

ijβ transmit to the short-run dynamics of the convergence of the model to equilibrium.

5. Empirical Results and Analyses

Time series data are used to estimate the export supply function of Bangladesh. However, time series data tend to be non-stationary or non-random. Regression of non-stationary time series, such as I(1), would result in spurious regression. In addition, the variables may be cointegrated, i.e., there may be a long term or equilibrium relationship between them such that et = f(yt, xt), where, e, y and x are white noise error term, dependent and independent variables respectively. Cointegration can be examined by adopting popular Johansen’s73 method, and Johansen and Juselius’74 approaches. If two variables have an equilibrium relationship in the long run, there may be disequilibrium in the short run so that the error term can be treated as the equilibrium error. According to Granger’s representation theorem, an ECM exists corresponding to a pair of cointegrated variables as suggested by Engle and Granger.75

The ARDL model has stronger theoretical properties in modelling the long-run relationship among the economic variables than ECM or FMPH-OLS which are based on purely statistical properties.76 However, the fundamental assumption of this approach is that the series used in the estimation are either I(0) or I(1). To test the order of integration of the individual series, popular unit root tests can be performed.

For the unit root test, Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests have been applied. The results reported in Table 1 indicate that the variables used in this model are I(1) except EDI which is I(0). This means, ARDL would be appropriate to estimate the export supply function. The next step is to undertake the bounds test to determine the optimal lag length to be used in the single equation error-correction version of the ARDL model. The bounds test is a simple F-test to determine the joint significance of the lagged variables. If the calculated F-ratio turns out to be 73 S. Johansen, “Statistical Analysis of Cointegrating Vectors”, Journal of Economic Dynamics and Control, Vol. 12, No. 2 & 3, 1988, pp. 231-254; S. Johansen, “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models”, Econometrica, Vol. 59, No. 6, 1991, pp. 1551-1580.74 Johansen and Juselius, op. cit.75 R. F. Engle and C. W. J. Granger, “Cointegration and Error Correction: Representation, Estimation and Testing”, Econometrica, Vol. 55, No. 2, 1987, pp. 251-276.76 M. H. Pesaran, “The Role of Economic Theory in Modelling the Long Run”, Economic Journal Vol. 107, No. 440, 1999, pp. 178-191.

113


significant against its critical value as tabulated in Pesaran et al.77 and Pesaran and Pesaran,78 there is no need to test for cointegration separately. Before going on to ARDL model, a simple ECM and FMPH-OLS estimation are performed as alternatives to ARDL approach. Pretesting of cointegration among the variables used in the ECM and PHFM-OLS estimation is necessary.

Table 1: Results of the Unit Root Tests Level First Difference

RemarkADF PP ADF PP

LEQI 0.785 1.384 -5.818*** -5.794*** I(1)LEVI 0.389 0.610 -4.893*** -4.9*** I(1)LXGDP -0.639 -0.542 -4.003*** -4.035*** I(1)LQIIP 2.663 3.776 -3.218** -3.223** I(1)REER -0.050 -0.153 -3.592** -3.586** I(1)EDI -3.181** -3.139** -5.255*** -5.379*** I(0)/I(1)

*** and ** imply that the coefficient is significant at 1 and 5 percent levels, respectively.

To carry out cointegration analysis, the selection of the maximum order of vector autoregression (VAR) is important, because the result is sensitive to the choice of the order. Taking the order arbitrarily might thus provide the wrong conclusion about the number of the cointegrating vectors. Pesaran and Pesaran79 notice there is a risk of over-parameterisation in taking higher order from various competing criteria, such as Schwarz Bayesian criterion (SBC) and Akaike information criterion (AIC), for a short time series of the present paper. Thus, the order of VAR is 1 based on SBC in this case.

Table 2: Cointegration Tests for LEQI, LEVI, LXGDP, LQIIP, XRER and EDIMaximal Eigenvalue test Trace test

H0 H1 Statistic 95% Critical H0 H1 Statistic 95% Critical

r = 0 r = 1 49.60 29.95 r = 0 r ≥ 1 80.65 59.33

r ≤ 1 r = 2 14.34 23.92 r ≤ 1 r ≥ 2 31.04 39.81

The results of cointegration test for all the variables are presented in Table 2. The results demonstrate that only one cointegrating relationship exists among the variables. Therefore the estimates of the export supply function in FMPH-OLS are appropriate and consistent in providing the long-term coefficients of the export supply function.

Following Pesaran and Pesaran,80 Parzen weights are assigned in the FMPH-OLS estimation. The results, as presented in Table 3, demonstrate that the long-term coefficient of EDI is statistically insignificant, although its value is negative. It implies

77 Pesaran et al., op. cit.78 Pesaran and Pesaran, op. cit.79 Ibid.80 Ibid., p. 106.

114


that higher value of EDI has a negative impact on EDI. The sign of the EDI coefficient is according to the expectation that export diversification has a generally positive impact on enhancing volume of exports of Bangladesh in the long run, even though it is not significant.

Table 3: Fully Modified Phillips-Hansen EstimatesCoefficient Standard Error

LEVI 0.717*** 0.458LXGDP 0.872 0.104LQIIP 0.053 0.078REER -0.162*** 0.041EDI -0.377 0.288Constant 0.717 0.458

*** implies that the coefficient is significant at 1 percent level.

The long-term coefficients of the estimated ARDL model are presented in Table 4, where the lag orders of ARDL are based on the SBC. Since Table 2 confirms the existence of cointegrating relationship among the variables, there is no need for carrying out the bounds test of ARDL.81

The coefficient of LEVI, the price elasticity of export supply, is positive and statistically significant at 1 percent level, which is in conformity with the expectation. It implies that in the long run, the increase in value of exports promotes export growth of Bangladesh. However, the coefficient implies that a 10 percent increase in price increases about 7 percent of quantity supplied of exports. The coefficient of LQIIP is statistically significant at 1 percent level. It implies that the production capacity of industrial items promoted the export supply significantly. The coefficient of XRER is negative and significant at 1 percent level, which is opposite to the expectation. It implies that a real appreciation did not appear to be an incentive to export growth in Bangladesh. Finally, the coefficient of EDI has turned out to be negative, which is in line with the expectation but it is statistically insignificant. Like the FMPH-OLS estimate, the export diversification so far has positive but feeble impact on export growth in Bangladesh.

Table 4: Long Run Coefficients of the ARDL Model Coefficient(0,1,0,0,1,0) Standard Error

LEVI 0.699*** 0.068LXGDP 0.095 0.091LQIIP 0.254*** 0.104XRER -0.141*** 0.045EDI -0.133 0.299

Notes: Lagrange multiplier test is used for residual serial correlation, Ramsey’s RESET test is used for functional form using the square of the fitted values, normality is based on Jarque-Bera test, and heteroscedasticity test is based White’s general test. *** implies that the coefficient is significant at 1 percent level.

81 Chen, op. cit.

115


The ECM representation of the ARDL model shows the short-run dynamics of export supply function. The short-term export price elasticities are higher than that of the long-run ARDL estimates for Bangladesh. It implies that a price increase acts as considerable incentive for boosting export in the short run, while price of the previous period act as a disincentive for export supply. Short-run coefficient of XRER is positive and statistically insignificant, while its coefficient for a lagged period is negative but significant at 5 percent. It implies that the immediate impact of real appreciation is adverse on export growth.

Table 5: ECM Coefficients of the ARDL Model Coefficient(0,1,0,0,1,0) Standard Error

LEVI 0.869*** 0.068LEVI(-1) -0.170* 0.092LXGDP 0.095 0.091LQIIP 0.254** 0.104XRER 0.031 0.072XRER(-1) -0.154** 0.070EDI -0.133 0.299R2 0.998Adjusted R2 0.997F (6, 11) 1080.7***

Serial correlation χ2[1] 0.119Functional form χ2[1] 0.064Normality χ2[2] 0.578Heteroscedasticity χ2[1] 0.073

Notes: Lagrange multiplier test is used for residual serial correlation, Ramsey’s RESET test is used for functional form using the square of the fitted values, normality is based on Jarque-Bera test, and heteroscedasticity test is based White’s general test. ***, ** and * imply that the coefficients are statistically significant at 1, 5 and 10 percent level, respectively.

Finally, export diversification does not reveal statistically significant impact on export promotion in the short run. Thus, both FMPH-OLS and ARDL estimates imply that the linkage between the variability of export diversification and variability in export quantity over the last two decades show a co-movement, even though the linkage is not statistically significant. However, significant results can be brought in through greater efforts in product basket diversification in the days to come. It requires strong efforts from the policymakers towards implementation of the pledges made in the export policy and Five-Year Plan.

6. Concluding Remarks

This paper provides empirical evidence on the linkage between export diversification and movement of export volume in Bangladesh by adopting an export

116


supply function and estimating with popular time series estimators like Phillips-Hansen fully modified OLS and ARDL for long and short runs. However, all the econometric results reveal that even though the export diversification has a positive impact on export growth, it is statistically insignificant. In other words, diversification efforts have not yet been able to create strong impact on export promotion even though it is believed that recent diversification in RMG sector is seen to promote RMG export and made the sector more resilient to the shocks in the destination markets. The policy commitment towards a range of diversification measures for export promotion is commendable but its implementation would take time and positive response from the private exporters.

The success of high performing Asian economies that experienced substantial increases in exports, especially exports of manufactured goods and high growth rates of their GDP over many decades, has prompted many analysts to view export development and diversification as the new engine of growth. The patterns of trade have changed from primary exports to labour-intensive manufactured exports and subsequently to more resource intensive manufactures in almost all regions of the world.82 Diversification also increases the potential for generating spillover, whereas reliance on only a few exports generally has greater negative consequences for growth.83 At the extensive margin, geographic diversification is more important than product diversification, especially for developing countries like Bangladesh. As the country has recently achieved the lower middle-income status in the World Bank’s country income classification, the opportunities in the international market would be declining in the coming days. Therefore, strategy should be taken concentrating the enhancement of the demand both in existing and new markets for sustaining export growth. For that, there is no alternative to rigorous restructuring in export promotion and infrastructural development. Since the notion of export diversification strategy is not confined to product diversification in the export basket, the strategy should embrace many different facets addressing the vulnerability aspect of export concentration such as product diversification, geographical diversification, quality diversification, goods-to-services diversification, intermediate goods diversification, consumer goods in the export basket as emphasised in the Perspective Plan of Bangladesh.

82 V. Songwe and D. Winkler, Exports and Export Diversification in Sub-Saharan Africa: A Strategy for Post-Crisis Growth, Africa Growth Initiative Working Paper 3, Washington, DC: Brookings Institution, 2012. 83 D. Lederman and W.F. Maloney, “Trade Structure and Growth”, in D. Lederman and W. F. Maloney (eds.), Natural Resources: Neither Curse Nor Destiny, World Bank and Stanford University Press, Washington, DC, 2007, p. 15-39.

117

BIISS JOURNAL, VOL. 36, NO. 2, APRIL 2015: 117- 132

Zohra Akhter is Senior Lecturer at the Department of Social Relations, East West University, Dhaka. Her email address is: [email protected]; Mohammad Towheedul Islam is Assistant Professor at the Department of International Relations, University of Dhaka. His email address is: [email protected]; Mohd Aminul Karim, PhD is Senior Research Fellow at the Asia-Europe Institute, University of Malaya, Kuala Lumpur, Malaysia. His email address is: [email protected].

© Bangladesh Institute of International and Strategic Studies (BIISS), 2015.

Zohra AkhterMohammad Towheedul Islam Mohd Aminul Karim

impeDiments to counter-terrorism cooperation in south asia: a theoretical explanation

Abstract

South Asia as a region has been facing the challenges of transnational terrorism and extremism – be it religious fundamentalism, separatist or left-wing – for more than three decades. The irony, however, is that escalation of terrorism in South Asia along with its political division has made it easier-said-than-done to have meaningful regional collaboration on the issue. The purpose of this paper is to find out the factors, which hinder effective counter-terrorism cooperation in South Asia. Based on the “Regional Security Complex Theory (RSCT)”, this paper argues that the security structure in South Asia is uniquely characterised by historical mistrust among its members, specially its bipolar conflictual power structure. It further argues that the nature of conflict formation in South Asia has facilitated the rise and sustenance of transnational terrorism. Finally, it contends that extreme reliance on the zero-sum notion of security by South Asian states prevents the South Asian Association for Regional Cooperation (SAARC) to emerge as an effective counter-terrorism organisation on a regional basis.

1. Introduction

Terrorism has emerged as one of the greatest challenges to the security and socio-economic development of all South Asian nations. In South Asia, terrorism has a relatively long history that emerged on the security landscape of the region at a time when the focus of international security was on deterrence, nuclear disarmament and strategic weapons. The multi-ethnic social fabric with historical mistrust and violence along religious, communal and linguistic lines both within and between nations make South Asia a complex political region. The security issues, therefore, often have external and internal dynamics. As a corollary, terrorism, religious fundamentalism, leftists or insurgents have a transnational dimension. Geographical proximity and porous borders naturally facilitate cooperation among the terrorist groups. Moreover, the laxity in legal and financial regimes, the proliferation of small arms, drug trafficking, poor socioeconomic conditions and corruptions in South Asian

118


countries have created an advantageous context for these groups to burgeon and spread their extremist ideologies. South Asian countries, thus far, have addressed the issue of terrorism individually without much cooperation and coordination with other countries in the region. Due to the transnational character of terrorism in South Asia, it is not possible to combat terrorism effectively without meaningful regional counter-terrorism cooperation. The irony is that though terrorism has been identified as a common threat to all the South Asian countries, they have failed to formulate a common policy to tackle this transnational threat.

As such, the main purpose of the paper is to identify the factors that hinder effective counter-terrorism cooperation among South Asian nations. It is to be noted that an effective counter-terrorism policy is to be linked with a well-articulated strategic communication plan and a more sophisticated development policy that imply addressing ideological drivers of terrorism and should attempt to: a) mitigate existential anxiety, b) provide a compelling counter-narrative, c) address environmental factors conducive to radicalisation, d) prevent the formation of radicalised groups and e) de-radicalise existing ideologues.1 South Asia seems to be away from such initiatives. The paper attempts to analyse the impediments to counter-terrorism cooperation in South Asia under the theoretical underpinning of Regional Security Complex (RSC). The research questions of the paper are thus set as to why South Asian states have failed to forge an effective regional counter-terrorism initiative including regional cooperation/integration? Is the bipolar security structure of the region hindering such an initiative? Are terrorism and insurgency that thrive in the region linked up with the security structure of the region? Is the transnational character of terrorism and insurgency making the scenario complex?

Keeping such formulation in perspective, the paper is divided into six sections. Section 1 provides an introduction while Section 2 presents a brief description on terrorism/insurgency in South Asia. Section 3 offers a conceptual framework on the basis of Regional Security Complex and would explore preconditions for successful regional cooperation for counter-terrorism. On the basis of the conceptual framework, Section 4 explores the power and security structure in South Asia through the Regional Security Complex Theory (RSCT). Applying RSCT, the Section 5 analyses the context of the rise of terrorism/insurgency and reasons for lack of counter-terrorism cooperation. Section 6 finally concludes the paper.

2. An Overview of Transnational Terrorism in South Asia

South Asia, a region with eight nation-states,2 has a rich history of culture, civilisation and politics. The region is home to thirty percent of the world’s population 1 Megan K. McBride, “The Logic of Terrorism: Existential Anxiety, the Search for Meaning, and Terrorist Ideologies”, Terrorism and Political Violence, Vol. 23, No. 4, 2011, pp. 560-581. 2 Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka are members of the South Asian Association for Regional Cooperation (SAARC).

119

COUNTER-TERRORISM COOPERATION IN SOUTH ASIA

and is surrounded by Central Asia, East Asia and the Indian Ocean. At present, especially after the terrorist attacks of September 11, 2001, religious fundamentalism, in transnational mode, is presumably considered the gravest threat to the security and stability of South Asia. Four out of eight South Asian nations namely Pakistan, Afghanistan, India and Bangladesh experience menace of religious fundamentalism intermittently. This form of terrorism has become more complex over time because of the interplay of global, regional and local security dynamics in these countries.

These dynamics have been reinforced by multiple types of religion based terrorist groups - global, regional and local. Al-Qaeda, the most globalised and diffused terrorist network to date, has been heavily engaged in South Asia, mostly in Afghanistan and Pakistan, since one of the main goals of this network has been to fight the United States and its western allies (the far enemy) as well as to overthrow their friendly regimes in other parts of Muslim world (the near enemy) including South Asia.3 The areas including Federally Administered Tribal Areas (FATA) along the Af-Pak border have been considered as a stronghold of Al-Qaeda, which make it easier to carry out terrorist operations simultaneously in Afghanistan and Pakistan.4 Al-Qaeda also inspired many to establish quasi-global terrorist organisations5 with Tehrik-e-Taliban Pakistan (TTP) of Baitullah Mehsud being a glaring example.6 Founded in 2007, this terrorist organisation embraced Al-Qaeda’s global agenda of a global caliphate and establishing sharia in Pakistan even though it is primarily concerned with local tribal issues.7 Along with these international terrorist groups, a handful of regional terrorist groups have also been operating in this region with Lashkar-e-Taiba (LeT) and Harkat-ul-Jihad-al-Islami (HuJI) being the most active groups across Pakistan and India. These regional groups primarily aim at establishing an Independent Islamic state in Kashmir8 while their regional agenda also includes the enforcement of sharia law in Pakistan and some other parts of South Asia. Because of such reformulation, it actively supports and collaborates with other terrorist groups that are active in this region. Besides, some terrorist groups in this region emerged focusing purely on local agenda.

Among others, Afghan Taliban, Pakistan Taliban, Jamaat-ul-Mujahideen (JMB) and the Hizbut Tawhid are pursuing their local agenda of making their respective countries of operation into theocracies, which understandably relates to Al-Qaeda’s

3 C. Christine Fair and Seth G. Jones, “Securing Afghanistan: Getting on Track”, USIP Working Paper, Washington DC: United States Institute of Peace, 2009, p.4. 4 Ibid.5 R. D. Howard, “Understanding Al-Qaeda’s Application of the New Terrorism – The Key to Victory in the Current Campaign”, in R. D. Howard and R. L. Sawyer (eds.), Terrorism and Counter-Terrorism: Understanding New Security Environment, Boston: Mc Graw Hill, 2006, p. 95.6 Isaac Kafir, “Pakistan and the Challenge of Islamist Terror: Where to Next?”, Middle East Review on International Affairs, Vol. 12, No. 4, 2008, p. 3. 7 International Institute of Strategic Studies (IISS), Strategic Survey, London: Routledge, 2009, p. 47.8 R. Eric, N. C. Fink and J. Ipe, Countering Terrorism in South Asia: Strengthening Multilateral Engagement, New York: Centre for Global Counterterrorism Cooperation and International Peace Institute, 2009, p. 3.

120


goal of establishing caliphate in this region. It is widely believed that there is a clear convergence of the objectives of all the terrorist groups, be it global, regional or local, in the region. Here the dichotomy over whether Al-Qaeda is “leaderless” (Sageman)9 or “leader-led” (Hoffmann)10 may be contextualised. Perhaps both the assertions are relevant in such milieu. But Neumann, Evans and Pantucci’s thesis, that does not contradict either Sageman or Hoffmann (meaning a bit of both), that “a group of middle managers who provide the connective tissue that links the top of the organisation with its bottom and, thus, makes it possible for Al-Qaeda to function as a coherent and operationally effective entity”11 also deserves recognition here. As it is noticed that their preferred tactics of attacks are also the same. They draw inspirations from top and seem operating independently through some links like the middle managers. Middle managers are, nonetheless, “experienced and skilled”12.

Thus said, because of ideological and operational convergence, there is understandably a high degree of collaboration among these organisations that make counter-terrorism efforts more challenging. The Former US Secretary of Defence, Robert Gates once alleged that “Al-Qaeda, the Taliban, the Haqqani network, Hizb-e-Islami (Gulbuddin) and other affiliated groups are ‘all working together’ in safe havens on the Pakistan side of the Durand Line.”13 However, McCauly and Moskalenko argue little differently, somewhat similar to the earlier argument, “The original Al-Qaeda was an organisation of groups or cells, but today the groups are mostly on their own and disconnected from any larger organisation.”14

Over and above these organisations, the menace of left-wing terrorism often affects South Asian nations specially India, Bangladesh, Nepal and Sri Lanka. Maoist insurgency is more volatile in India and Nepal. In Nepal, Maoist insurgency which was launched against the monarchy for ensuring land rights of the Nepali people that ended with the formal integration of them into national politics in 2006.

Maoist extremists have been active in India since 1960s. They target the rural ruling class who have oppressed the common people over the years. Indian security personnel are directly targeted by these groups. They killed more than 200 security personnel during the first half of 2010.15 The then Indian Prime Minister Manmohan 9 M. Sageman, Leaderless Jihad: Terror Networks in the Twenty-First Century, Philadelphia: University of Pennsylvania Press, 2011. 10 B. Hoffman, “The Myth of Grass-Roots Terrorism: Why Osama Bin Laden Still Matters”, Foreign Affairs, Vol. 87, No. 3, 2008, pp. 133-138. 11 Peter Neumann, Ryan Evans and Raffaello Pantucci, “Locating Al Qaeda’s Center of Gravity: The Role of Middle Managers”, Studies in Conflict & Terrorism, Vol. 34, No. 11, 2011, pp. 825-842.12 Ibid., p. 829. 13 K. A. Kronstadt, “Pakistan-U.S. Relations”, CRS Report for Congress, Washington DC: Library of Congress, 2009, p.11. 14 Clark McCauly and Sophia Moskalenko, “Mechanisms of Political Radicalization: Pathways towards Terrorism”, Terrorism and Political Violence, Vol. 20, No. 3, 2008, p. 417. 15 M. Kugelman, “Looking In, Looking Out: Surveying India’s Internal and External Security Challenges”, in M. Kugelman (ed.), India’s Contemporary Security Challenges, Washington DC: Woodrow Wilson International Center for Scholars, 2011, p. 7.

121


Singh once identified left-wing Maoist extremism as “India’s gravest security threat”.16 Maoist insurgent groups of India namely the Communist Party of India (CPI), the Maoist Communist Centre of India (MCCI), the People’s War Group (PWG), the Jharkhand Mukti Morcha (JMM), the Jharkhand Disham Party (JDP) and others are more active in the red corridor, an area which is adjacent to Nepal in the North and Andhra Pradesh of India in the South.17

These groups often attack the patrolling paramilitary forces and apply other terror tactics. Indian Maoist insurgent groups still receive support from their Nepalese comrades. The Nepali Maoist leader Prachanda played a key role in the merger of the two principal groups, the CPI and the MCCI in 2004.18 The Nepalese Communist Party publicly admitted that they provide support to the CPI (Moaist) with arms and sanctuaries.19

Though not as strong as they are in India, left-wing communist extremist groups are active in rural areas of the southwestern and the Northwestern parts of Bangladesh.20 As Bangladesh and India share common borders in those regions, leftist extremists of both countries ostensibly often collaborate among themselves across the borders in terms of providing shelters and arms. The left-wing extremist groups in general have been strengthening their regional coordination. For example, in 2001, Nepalese Maoists, MCCI, People’s War Groups, Purbo Banglar Communist Party of Bangladesh, Communist Party of Ceylon (Sri Lanka) and many Indian leftist extremist groups formed the Coordination Committee of Maoist Parties and Organisations of South Asia (CCOMPOSA).21

Northeastern part of India has been the hotbed of different types of insurgency over the years. One of the widely known groups is the United Liberation Front of Assam (ULFA). The insurgents of ULFA have been using violent means to achieve ‘national self-determination’ for the Assamese people since 1979. They pose security threat to India along the vulnerable area called “Chicken’s Neck”, a narrow strategic route in the northeastern part of India. They mainly target Indian security personnel. Due to this insurgency 10,000 people lost their lives over the last two decades.22 Apart from the ULFA, there are other insurgent groups like the National Democratic Front for Bodoland (NDFB) that made security concerns for law enforcing agencies in the Northeastern part of India. Like the ULFA, these groups are also involved in insurgency to achieve

16 Shalendra Sharma, “India in 2010: Robust Economics amid Political Stasis”, Asian Survey, Vol. 51, No. 1, January/February 2011, p.112. 17 Alpa Shah and Judith Pettigrew, “Windows into a Revolution: Ethnographies of Maoism in South Asia”, Dialectical Anthropology, Vol. 33, No. 3-4, 2009, p. 225.18 J. Harriss, The Naxalite/Maoist Movement in India: A Review of Recent Literature, Institute of South Asian Studies (ISAS), Working Paper, No. 109, Singapore: ISAS, 2010, p. 8. 19 A. K. Kristian, “The Naxalite Insurgency in India”, Geopolitical Monitor, 17 May 2010, available at http://www.geopoliticalmonitor.com/the-naxalite-insurgency-in-india-3823, accessed on 3 April 2011. 20 Zohra Akhter, “Trends in Militancy in Bangladesh”, in Farooq Sobhan (ed.), Trends in Militancy in Bangladesh: Possible Responses, Dhaka: University Press Ltd., 2010, p.18.21 C. H. Singh, South Asia Defence and Strategic Year Book 2010, Pentagon Press, 2010, p. 63; J. K. Ray, Aspects of India’s International relations, 1700 to 2000: South Asia and the World, Pearson Education India, 2007, p. 236.22 “Five Killed in Assam Bomb Blast”, The Dawn, 02 February 2011.

122


their goals. Such groups are understandably, ideologically or logistically connected to each other. Moreover, the porous border of this region facilitates to establish regional connection among these groups.

As far as Bangladesh and Sri Lanka are concerned, separatist movements in these countries have lost their momentum. The separatist movement in the Chittagong Hill Tracks (CHT) in Bangladesh and the separatist movement by the Liberation Tigers of Tamil Eelam (LTTE) in Sri Lanka were defused after the Government of Bangladesh had signed the CHT Peace Accord with the insurgents in 1997 and following the defeat of the LTTE by the Sri Lankan government forces in 2009 respectively. Tamil insurgents were successful in establishing transnational connections across South Asia and beyond. Their strength was augmented partly due to “their ideological, economic, and technological ties to other insurgent groups”.23 The LTTE had close connections with Sikh insurgents, Kashmiri Mujahedeen and several Tamil Nadu separatist groups.24

Babbar Khalsa (BKI), Khalishtan Zindabad Force (KZF), Khalishtan Commando Force (KCF) or other Khalistan Sikh insurgent groups in India have been engaged in such movements to create an independent Sikh state. The root of this insurgent movement dates back to the 20th century which was inspired by religious nationalism. However, the movement got momentum in 1980s with the raid of the Sikh Golden Temple in Amritsar and the death of Sikh leader Jarnail Singh Bhindranwale.

3. Conceptual Framework

The world consists of sovereign nation-states that emerged through the Treaty of Westphalia in 1648. Because of this century-old Westphalian system, states jealously guard their sovereignty and territorial integrity in the anarchic international system. Security defined in terms of territorial integrity and national sovereignty has been the focus of states’ strategic thinking. Realist scholars argue that the possibility of security cooperation among the states is very slim in this anarchic structure where threats to states’ national sovereignty emerge from other states. Regional security experts, however, argue that as states within a region share more commonalities amongst themselves, the possibility of security cooperation at regional levels is greater.25

23 Cécile Van de Voorde, “Sri Lankan Terrorism: Assessing and Responding to the Threat of the Liberation Tigers of Tamil Eelam (LTTE)”, Police Practice and Research: An International Journal, Vol. 6, No. 2, May, 2005, p. 192. 24 Ibid.25 See B. Buzan, O. Waever and J. d. Wilde, Security: A New Framework for Analysis, Boulder, USA: Lynne Rienner Publishers, 1998; B. Buzan and O. Waever, Regions and Powers: The Structure of International Security, Cambridge, UK: Cambridge University Press, 2003, p. 44.; A. D. Lake and P. M. Morgan, “The New Regionalism in Security Affairs”, in David A. Lake and P. M. Morgan (eds.), Regional Orders: Building Security in a New World, Pennsylvania: The Pennsylvania State University Press, 1997.; A. D. Lake, “Regional Hierarchy: Authority and Local International Order”, in R. Fawn (ed.), Globalising the Regional, Regionalising the Global, Cambridge, UK: Cambridge University Press, 2009.; E. Adler, and M. Barnett, “Security Communities in Theoretical Perspective”, in E. Adler and M. Barnett (eds.), Security Communities, Cambridge, UK: Cambridge University Press, 1998.; E. Adler and P. Greve, “When Security Community Meets Balance of Power: Overlapping

123


As states value their national sovereignty and territorial integrity most, the first and prime prerequisite for regional cooperation is the assurance of national sovereignty. Deutsch’s idea of “pluralistic security community” which is dependent on real assurance that the members of the community will not fight each other physically, but settle their disputes in some other ways,26 therefore, has to be implemented at the regional level. This implies the importance of trust and the policy of non-interference for enhancing regional security cooperation. According to Acharya, the development of the Association of Southeast Asian Nations (ASEAN) exemplifies this principle when consensus building and mutual respects for state sovereignty to address disputes help to flourish ASEAN as a nascent security community.27 However, community-building is a great challenge and that may even take a long time.

Common threat perceptions and a shared identity, the two mutually dependent prerequisites, are also pertinent for regional security cooperation. Common threat perceptions play a pivotal role in uniting nations within the region are necessary for creating common interests that “are important in determining elementary goals”28 and a shared identity. The creation of a common identity, as seen through the lens of structuralism, depends on a binary: “self” and “other” where “self” is considered to be good and ‘other’ to be bad. Derrida29 often speaks of this relationship in terms of a structural parasitism because the existence of “self” depends on the existence of “other”.30 Therefore, identifying ‘other’ in security relations involves securitisation process while ‘we-ness’ of the actors of the region “links their securitisation together”.31 Thus, “shared interests and purposes among nations create and maintain demand for interdependence and cooperation”32 and facilitate the environment for common security policy against the “other” .

All these preconditions for regional security cooperation are dependent on the RSC of a particular region. As security is a “relational phenomenon,”33 the consideration of

Regional Mechanisms of Security Governance”, in R. Fawn (ed.), 2009, op. cit.; R. Fawn, “Regions and Their Study: Wherefrom, What for and Where to?” in R. Fawn (ed.), 2009, op. cit.26 W. K. Deutsch, S. A. Burrell, R. A. Kann, M. Lee, Jr., M. Lichteman, R. E. Lindgren, F. L. Loewenheim and R. W. Wagenen, Political Community and the North Atlantic Area: International Organization in the Light of Historical Experience, Princeton, USA: Princeton University Press, 1957, p. 5.27 Cited in Andrew Chau, “Security Community and Southeast Asia: Australia, the US, and ASEAN’s Counter-Terror Strategy”, Asian Survey, Vol. 48, No. 4, 2008, p. 627. 28 M. Alagappa, “Constructing Security Order in Asia: Concepts and Issues”, in M. Alagappa (ed.), Asian Security Order: Instrumental and Normative Features, California, USA: Stanford University Press, 2003, p. 35.29Jacques Derrida, Writing and Difference, Chicago: Chicago University Press, 1978. 30 Cited in R. Devetak, “Postmodernism”, in S. Burchill, A. Linklater, R. Devetak, J. Donnelly, T. Nardin, M. Paterson, C. Reus-Smit and J. True (eds.), Theories of International Relations, New York, USA: Palgrave, 2009, p. 169. 31Barry Buzan and Ole Waever, “Macrosecuritisation and Security Constellations: Reconsidering Scale in Securitisation Theory”, Review of International Studies, Vol. 35, No. 2, 2009.32 Rasul Bakhsh Rais, “Integration and Community Formation in South Asia: Need for Institutions, Norms and Values”, South Asian Survey, Vol. 8, No. 2, 2001. p.119. 33 B. Buzan, “A Framework for Security Analysis”, in B. Buzan and Gowher Rizvi (eds.), South Asian Insecurity and the Great Powers, New York: St. Martin’s Press, 1986, p. 4.

124


a significant common security challenge in a given region as an “other” by the countries concerned depends on the nature of the conflict formation and security structure of the region. In other words, the creation of “we-ness” depends on both historical and current relationships among and between nations of the region.

RSCT defines RSC as “a group of states whose primary security concerns link together sufficiently closely that their national securities cannot reasonably be considered apart from one another.”34 As RSCT focuses on the “amity and enmity” on the basis of historical analysis, its constructivist root tends to identify the security structure of the region35 and what happens in the region.36 As such, RSC is the result of the interplay between “the anarchic structure and its balance-of-power consequences” and “pressure of the geographical proximity” while the structure and character of the region are determined by the power relations and patterns of amity and enmity.37 This helps to identify the polarity – unipolar, bipolar, tripolar or multipolar structures of power and the pattern of relationship – enemy, rival or friend that dominates the regional system.38

Depending on the nature of polarity and the pattern of relationship, region and securitisation can be linked positively or negatively.39 In a positively developed relations, the possibility of creating “we-ness” in response to the threat of “other” is higher while in negatively developed relations security problem cannot emerge as “other” to create “we-ness” but rather states perceive each other as threats. Moreover, insecurity issues which are identified as common security problems can be used by state(s) as a means to counter the opponent state(s). Lake identifies that bipolar regional structure is more prone to conflict.40 Therefore, in such a security structure the possibility to develop positive relationship to tackle security threats within a region is limited. Applying this conceptual framework, the next section will explore the security structure of South Asian region; the context of the rise of terrorism within the structure; why states in this region fail to develop a shared identity of “we” to counter the “other” (terrorism) and the failure of SAARC to have emerged as a vibrant regional institution and its failure to enhance counter-terrorism cooperation within the region.

4. RSTC and Regional Security Structure of South Asia

Focusing primarily on historical developments, the RSCT identified that security structure of South Asia has been mainly characterised by conflictual relations

34 B. Buzan and O. Waever, 2003, op. cit., p. 44. 35 Ibid. 36 Peter Jones, “South Asia: Is a Regional Security Community Possible?”, South Asian Survey, Vol. 15, No. 2, 2008, p.184.37 B. Buzan and O. Waever, 2003, op. cit. pp. 45-49. 38 Ibid., pp. 49-50.39 Amer Rizwan, “South Asian Security Complex and Pakistan-United States Relations Post 9/11”, IPRI Journal, Vol. X, No. 2, Summer 2010, p. 41.40 A. D. Lake, 2009, op. cit., p. 36.

125


between India and Pakistan and India and other small neighbouring states. Moreover, as India and Pakistan are the two biggest powers in this region, conflictual relations between the two forms a bipolar regional power and security structure. According to Buzan and Waever, “India and Pakistan were born fighting each other in 1947 which had been a social security problem of religious conflict between the Muslim League and the Congress Party; it, however, transformed into an interstate, military-political one between an Islamic Pakistan and a secular, multicultural, but dominantly Hindu India. Political rivalry based on religion was long-running in South Asia and in that sense represented continuity.”41

India’s secular constitution was an ideological and practical challenge for Pakistan polity which was based on religion. In fact, there was heightened suspicion on the part of Pakistanis that India had an intention to reunite the subcontinent under its hegemonic cloak. On the other hand, Pakistan’s consolidation on the basis of religion was also, in turn, considered a challenge to Indian polity based on fragile multiethnic social fabric.42 Since the partition in 1947, the relations between the countries have been mainly deteriorating over the Kashmir issue because it was not merely a territorial dispute but was deeply intertwined in the domestic politics and ideologies of India and Pakistan.43 This Kashmir problem in particular provoked three wars between India and Pakistan in 1947-1948, 1965 and 1999 and created war-like situations in 1984, 1987 and 1990.44 Moreover, India’s support to the Liberation War of Bangladesh in 1971 against Pakistan further complicated their relations. All these “intensified Pakistan’s perception of India as its chief adversary.”45

South Asian RSC is mainly dominated by India. India’s geographical size, its resources, market structure and military strength create an asymmetric power structure vis-à-vis its neighbours. Moreover, when the British colonial power left the region, it did not consider ethnic homogeneity in demarcating national boundaries which created ethnic heterogeneity for each state of multiethnic South Asia.

India shares not only common borders but also ethnic, religious and cultural similarities with all its neighbours.46 Rather than affecting positively, such closeness and similarities create tensions and troubles in their relations. Among other things, territorial and maritime boundary disputes, tensions over water and resource-sharing, cross-border migration, terrorism and transnational crime affect their relations on a regular basis. For instance, with regard to Indo-Bangla relations, water sharing of common rivers have created bilateral tensions and led to “an atmosphere of suspicion and mistrust”.47 41 B. Buzan and O. Waever, 2003, op. cit., p.101. 42 Barry Buzan, “South Asia Moving Towards Transformation: Emergence of India as a Great power”, International Studies, Vol. 39, No. 1, 2002, pp. 2-3. 43 Gowher Rizvi, “The Rivalry Between India and Pakistan”, in B. Buzan and G. Rizvi (eds.), 1986, op. cit., p.101.44 Shekhar Gupta, “India Redefining its Role”, The Adelphi Papers, Vol. 35 I,ssue: 293, 1995, p. 52.45 Richard J. Kozicki, “The Changed World of South Asia: Afghanistan, Pakistan and India After September 11”, Asia-Pacific: Perspectives, Vol. 2, No. 2, May 2002, p. 1. 46 Gowher Rizvi, “The Role of the Smaller States in the South Asian Complex”, in B. Buzan and Gowher Rizvi, 1986, op. cit., p. 135.47 K. V. Vinayaraj, “India as Threat: Bangladeshi Perspective”, South Asian Survey, Vol. 16, 2009, p.103.

126


5. The Rise of Terrorism / Insurgency and Lack of Counter-Terrorism Cooperation in South Asia

South Asian states, in general, have been severely affected by the challenges posed by terrorism. Though its transnational character provides sufficient ground to create shared interests and an identity of “we-ness”, it has not emerged as the “other”and thus fails to bind all the South Asian nations together for a common counter-terrorism policy. Political leaders, regional security experts and the members of civil society have been repeatedly urging that terrorism cannot be effectively tackled without regional cooperation and common counter-terrorism policy. Therefore, the question remains why has not a practical breakthrough for effective counter-terrorism cooperation yet been possible? The answer is complex and largely rooted in the regional security and power structure of South Asia. Baral, for example, argues that cooperation on a regional scale in South Asia seems to be a daunting task due to the “past prejudices, inherited complexes and identity crisis”.48 The continued tensions among these nations provide “fertile ground for securitisation of national identities on both sides and governments found it convenient to cultivate threat perceptions of other for their domestic political purposes.”49 Thus, enduring threat perceptions and trust deficits create an anarchic security structure.

In the anarchic structure without any effective institution to manage conflicts, South Asian states rely heavily on “self-help” system. Their chauvinistic attitude is further fuelled by the perceived threats from other states.50 Hence, unmanaged security dilemma led to ever growing arms-race and nuclearisation that have characterised their security relations.51 Buzan rightly pointed out that religion while was the main basis of the conflict between them before the partition in 1947, territorial disputes specially on Kashmir, balance of power, mutual accusation of interference in each other’s domestic affairs have become the core of conflict formation in South Asia.52 Therefore, even though terrorism/insurgency has been identified as a common threat for each of these states in this region, it can be argued that due to the anarchic bipolar regional power and security structure this common challenge has failed to create an essential “we-ness” among themselve. Rather, they provide support to terrorist/insurgent groups operating in their rival states in order to have a strategic advantage. The following sub-sections discuss the context of the rise of religious fundamentalism and other insurgency movement as well as lack of regional cooperation in addressing these threats. The role of SAARC as a regional institution in addressing threats has also been critically examined.

48 Lok Raj Baral, “Reconstruction of South Asia: A Precondition for SAARC”, South Asian Survey, Vol. 10, No. 1, 2003, p.72.49 B. Buzan and O. Waever, 2003, op. cit., p. 24. 50 Eric Gonsalves, “Regional Cooperation in South Asia”, South Asian Survey, Vol. 13, No. 2, 2006, p. 205.51Gauvar Rajen and Michael G.Vannoni, “Battlefield Nuclear Weapons in South Asia: The Case for Restraint’, Contemporary South Asia, Vol. 12, No. 91, 2005, p.96. 52 B. Buzan, 2002, op. cit., p. 2.

127


5.1 Religious Fundamentalism

Religious fundamentalism, as one sees it in South Asia in contemporary times, got substantial momentum since the Afghan war of 1979.53 Following the war, this close cooperation between Pakistan’s quasi–autonomous ISI and Taliban militants resulted in greater cooperation in overthrowing President Najibullah’s regime in Afghanistan.54 Even after the fall of Najibullah’s regime in 1992, subsequent regimes in Pakistan continued to back Pashtun forces in the inter-ethnic Afghan civil war.55 The underlying reason for Pakistani regimes to support these militants was that by overthrowing Najibullah’s government, that was supported by India, it seemingly wanted to curtail India’s influence in Afghanistan for which both these states had been competing since 1947. Pashtun nationalists in the frontier provinces of Pakistan had very friendly relations with Najibullah’s government in Afghanistan. As Afghanistan presumably made a traditional claim over the Pashtun and Baloch-inhabited territory of Pakistan, this suited the strategic interest of India, while Pashtun nationalists had a strong relationship with India’s National Congress Party.56 For Pakistan, the defeat of Najibullah’s government by the Taliban militias was in their strategic interests. According to Khan, “Pakistan’s Afghan policy, at least since 1989, had aimed, at the minimum, to prevent the Afghan connection to India and ideally, to have control of Afghanistan to the extent that it could provide “strategic depth”.57 Ayoob went one step further when he opined that “Pakistan’s support for the Taliban was not merely a major pillar of Pakistan’s foreign policy, but an important element of its domestic policy as well. The Taliban was deliberately fashioned as a military and political force by the ISI for the purpose of ensuring a client government in Afghanistan that would provide Pakistan with strategic depth during the times of conflict with India.”58

After the 9/11 incidents, Pakistan as a strategic partner of the US led “Global War on Terror” was presumably compelled to help the US government and the international coalition to overthrow the Taliban government from Afghanistan. The uprooted members of Al-Qaeda and Taliban have moved to the border areas of Pakistan which were their sanctuaries during the Afghan civil war and started using the areas as their bases for operation.59 Moreover, these foreign terrorist groups have been developing tactical and strategic alliance with the domestic terrorist groups which were created by the Pakistani political elites especially during the tenure of President Zia-ul-Huq, who used religion as a means of legitimising his regime. As part of this strategy, militant religious groups mushroomed during his era.60

53 Brahma Chellaney, “Fighting Terrorism in Southern Asia: The Lessons of History”, International Security, Vol. 26, No. 3, Winter 2001/02, pp. 96-99.54 Kanti Bajpai, “Crisis and Conflict in South Asia after September 11, 2001”, South Asian Survey, Vol. 10, No. 2, 2003, p. 200. 55 Vanni Cappelli, “The Alienated Frontier: Why the United States Can’t Get Osama Bin Laden”, Orbis, Fall 2005, p. 722.56 Ijaz Khan, “Pakistan’s Post September 11 2001 Afghan Policy Shift: Impact on Pak India Afghan Geopolitics”, Journal of Asian and African Studies, Vol. 42, No. 5, 2007, p. 466. 57 Ibid. 58 Mohammed Ayoob, “South-west Asia after the Taliban”, Survival, Vol. 44, No. 1, Spring, 2002, p. 5.59 H. Haqqani, “Al-Qaeda’s New Enemy”, Financial Times, 8 July 2002, p. 19.60 Mohammed Ayoob, 2002, op. cit., p. 5.

128


Pakistan’s role in fighting terrorism in this region has often been questioned. After the death of Osama bin Laden, relations between the US and Pakistan have significantly changed as far as counter-terrorism efforts are concerned. In the changed scenario, “Pakistan apparently calculates that by fighting the Tehrik-e-Taliban but providing tacit support to other groups such as the Haqqani Network, Pakistan (1) stays close to a bloc that could emerge as a key power-broker in Afghanistan; (2) sustains asymmetric proxies harassing an Indian presence in Afghanistan and Kashmir; and (3) secures Pakistan’s northwestern border by restraining some Taliban groups from coalescing with others to oppose Pakistan’s secular authorities”.61

The dispute over Kashmir may be seen as the single most important factor that fuelled the growth of terrorism in South Asia. Kashmir has been the bone of contention between two rivals, India and Pakistan, since the partition of the subcontinent. India wants to incorporate Kashmir to fulfil its fundamental ideal of establishing a secular union while for Pakistan it would fulfil its vision of establishing a homeland for South Asian Muslims.62 It has been enunciated time and again by the international community that combating terrorism in South Asia would remain a real challenge without a solution to the Kashmir problem.

Initially, the opposition of the nationalist movement in Kashmir joining Indian state in 1947 was secular in nature. It, however, lost its secular character over time and took the form of Islamist insurgency.63 In explaining the transition, Victoria said that the allegedly rigged election of 1987 in Kashmir intensified protests among Kashmiri Muslim population which eventually transformed into an insurgency by 1989.64 Pakistan took the advantage of this insurgency and tried to take control of this movement by providing necessary support. Bruce noted that “the ISI, fresh from victory in Afghanistan, used the same tactics and strategy against India that it had used against the Soviet Union and provided training, and weapons for the Kashmiris.”65

For strategic manoeuvering, Pakistan also created its own Kashmiri groups. All together, three violent groups have been active in Kashmir: Hizb-ul Mujahideen, Lashkar-e-Taiba (LeT) and Jaish–e–Mohammad (JeM). While Hizb-ul Mujahideen is mainly composed of native people with an aim of achieving autonomy of Kashmir, the rest two groups chiefly composed of Pakistani recruits have a greater agenda of undermining Indian state.66 Through aiding the insurgency, Pakistan has linked the cause of Kashmiri’s

61 Michael Spangler, “Pakistan’s Changing Counterterrorism Strategy: A Window of Opportunity?”, Parameters, Vol. Spring, No. 4, 2014, p. 40.62 R. Eric, N. C. Fink and J. Ipe, 2009, op. cit., p. 3.63 Jugdep S. Chima, “Ethnic Subnationalist Movements in Contemporary South Asia: An Introduction”, Asian Survey, Vol. 49, No. 6, 2009, p.916.64 Schofield Victoria, Kashmir in Crossfire, New York: I.B. Tauris, 1996, pp. 231-34.65 Bruce Riedel, “Pakistan and Terror: The Eye of the Storm”, The Annals of the American Academy of Political and Social Science, Vol. 618, July, 2008, p. 34.66 R. Eric, N. C. Fink and J. Ipe, 2009, op. cit. p. 3.

129


self-determination with the global jihad propagated by global and regional terrorist groups.67 Following the 9/11 attacks, the Kashmir problem further aggravated due to the link between the Al-Qaeda, the Taliban and Pakistan-based terrorist groups.68

This is a clear depiction of mistrust among the nations of this region and such mistrust is rooted in the RSC of South Asia. As such, in this weak regional security structure, terrorism, may be impliedly, aggravates the conflictual relations between the states. For example, after the terrorist attack on Indian parliament in 2006, Indian government held Pakistan-based terrorist organisations responsible for the attack and this eventually led them to the brink of inter-state wars.69

5.2 Insurgencies

Intra-state separatist movements which are prevalent in South Asia have a regional dimension in the sense that such movements receive encouragement and material supports from another neighbouring country.70 There are allegations and counter-allegations from India against its neighbours and vice versa with regard to the support for such secessionist movements. For example, the left-wing extremism or other forms of insurgency has its roots in domestic socio-political structure. Though its rise did not have any direct link with South Asian RSC, its continuation sometimes is facilitated by rivalry between and among neighbouring states which use it as a strategic card against one another in a weak regional setting. India routinely alleges that Pakistan supports the Sikh Khalistan movement in Punjab, Indian Muslim movements in Kashmir, India.71 It also alleges that Nepal supports naxalite movements in the red corridor. On the other hand, Sri Lanka believed that India used to support the LTTE’s movement in Sri Lanka.72 Therefore, terrorism/insurgency is often employed by one state against another in this region to take strategic advantage vis-à-vis its perceived rival. Since the rise of these home-grown insurgencies has no direct link with the South Asian RSC, their subsidence may have little effect on RSC itself. However, it needs to be acknowledged that support of regional neighbours in managing such conflicts would facilitate the trust-building process in the region.

67 H. Haqqani, 2002, op. cit., p. 19.68 Waheguru Pal Singh Sidhu, “Terrible Tuesday and Terrorism in South Asia”, South Asian Survey, Vol. 10, No. 2, 2003, p.216. 69 Ibid. 70 Raju G.C. Thomas, “South Asian Security in the 1990s”, Adelphi Paper, 278, July 1993, p.20.71 V. Van Dyke, “The Khalistan Movement in Punjab, India, and the Post-Militancy Era: Structural Change and New Political Compulsions”, in J. S. Chima (ed.), Ethnic Subnationalist Insurgencies in South Asia: Identities, Interests and Challenges to State Authority, New York: Routledge, 2015; P. Swami, “Failed threats and flawed fences: India’s military responses to Pakistan’s proxy war”, India Review, Vol. 3. No. 2, 2004, pp. 147-170; S. P. Winchell, “Pakistan’s ISI: The invisible government”, International Journal of Intelligence and Counterintelligence, Vol.16, No. 3, 2003, pp. 374-388. 72 V. Suryanarayan “Indian- Sri Lanka Equation: Geography as Opportunity” in D. M. Malone, C. R. Mohan and S. Raghavan (eds.), The Oxford Handbook of Indian Foreign Policy, UK: Oxford University Press, 2015, p. 417.

130


5.3 Role of Regional Institution- SAARC

The formation of regional institutions as a mechanism for conflict prevention and management73 is significant precondition for regional security cooperation. According to Rais, “effective and orderly management of cooperation that requires regular mutual adjustment would depend on the creation of appropriate rules, norms, principles and acceptable standards of behaviour.”74 Simon and Martini noted that norms are not only moral guidelines, but also “very powerful ordering principles with very practical implications”75 while behaviours create the conditions for accountabilities among the state parties of the institutions. In this way, effective regional institutions in turn help to build trust among the states that leads to mitigate conflicts in the region. However, in the context of South Asia, the mistrust and differences among the South Asian states act as a barrier to SAARC to emerge as a viable and action-oriented regional institution. As a consequence, these states have failed to foster meaningful cooperation on countering terrorism/insurgency.

Following the first wave of regionalisation, South Asian nations established SAARC, the only regional forum in this part of the world, in 1985. Its charter included the “desirous of promoting peace, stability, amity and progress in the region through strict adherence to the principles of the United Nations Charter and Non-Alignment, particularly respect for the principles of sovereign equality, territorial integrity, national independence, non-use of force and non-interference in the internal affairs of the other states and peaceful settlement of all disputes.”76 This regional body has not yet worked effectively and its progress fails to go beyond signs and symbols.77

The idea of SAARC was first mooted by Bangladesh in order to seemingly create a level playing field for all the actors including India and Pakistan based on the principle of sovereign equality. Indian attitude towards this multilateralism, therefore, has been sceptical since the beginning. So has been Pakistan’s attitude about it thinking that SAARC might be helping India to gain more against Pakistan.78 The discussion of bilateral political disputes has been kept out of the purview of SAARC which, therefore, deals with peripheral issues only. As explained by the structure of the South Asian RSC, the bipolar conflictual power structure of South Asia has, thus, acted as a major impediment to the success of SAARC.

73 R. Fawn, 2009, op. cit., p.22. 74 Rasul Bakhsh Rais, 2001, op. cit., p. 219.75 S. Simon and J. Martini, “Terrorism: Denying Al-Qaeda Its Popular Support”, in R. D. Howard and R. L. Sawyer (eds.), 2006, op. cit.76 SAARC Charter 1985.77 K. K. Bhargava, EU–SAARC: Comparisons and Prospects of Cooperation, ZEI Discussion Paper, C 15, Bonn: Center for European Integration Studies, 1998, p. 7.78 Kishore C. Dash, “The Political Economy of Regional Cooperation in South Asia”, Pacific Affairs, Vol. 96, No. 2, Summer 1996. p.187.

131


Regional cooperation is a public good. As the hegemonic stability theory posits, the role of a hegemon is important to offer such pubic goods. With its given power endowment, India can assume an important leadership in making SAARC an effective organisation.79 Ironically, India does not “make any proposal for such institutional cooperation because it anticipated suspicion and/or resistance from its neighbours particularly Pakistan.”80 Thus, the extreme reliance on the zero-sum notion of state-centric paradigm which considers “state as the sole viable units and legitimate agents”81 by the SAARC states prevents SAARC to be developed as an effective regional cooperative institution in this region. Hence, this institution has not been successful in addressing mistrust and mutual suspicions among its member states.

The forgoing analysis of the inertia in SAARC does not mean to suggest that the organisation has not taken any concrete step to address terrorism. In fact, the recognition of terrorism as a threat to the stability of the region was documented by SAARC as early as late 1980s. When SAARC adopted its Convention on the Suppression of Terrorism in 1987, terrorism did not even prominently feature on the international security landscape. Soon after the adoption of the Convention, the SAARC Terrorist Offences Monitoring Desk (STOMD) was created to facilitate the implementation of the Convention by collecting, analysing and disseminating information about terrorist incidents, tactics, strategies and methods. To further enhance the implementation process, legal experts from SAARC countries met twice to sort out legal issues and urged the member states to adopt comprehensive domestic legislations. Keeping the issue of terror financing in perspective, SAARC countries adopted an additional protocol to the Convention in 2002. In 2008, a SAARC Convention on Mutual Legal Assistance was approved.

South Asian leaders time and again reiterated their commitments to the enhanced cooperation on the issue at various SAARC summits. Very importantly, SAARC countries decided to share intelligence for curbing terrorism and other transnational crimes.82 The irony is that as SAARC has not functioned as a successful institution and failed to build trust amongst its member states, none of these initiatives for countering terrorism under the SAARC framework has made any breakthrough in addressing the issue. Therefore, it can be argued that the ineffectiveness of the regional institution, SAARC, is a major impediment towards developing any effective common counter-terrorism cooperation in this region.

79 J. N. Dixit, “Prospects of South Asian Cooperation in the Transformed World – Post-11 September”, South Asian Survey, Vol. 10, No. 1, 2003, p.44.80 J. N. Dixit, “The Future of Security in South Asia”, South Asian Survey, Vol. 8, No. 1, 2001. p.126. 81 Bhupinder Brar, “SAARC: If Functionalism has Failed, Will Realism Work?”, South Asian Survey, Vol.10, No.1, 2003, p. 32.82 Alistair Millar, “Developing Regional Counter-terrorism Cooperation in South Asia”, CTC Sentinel, Vol. 2, No. 2, 2009, p.19.

132


6. Conclusion

In course of time, terrorism has posed a significant security challenge to South Asian nations. Terrorism in South Asia is multi-dimensional and transnational in character. Because of its transnational character, individual states’ counter-terrorism policies have thus far remained ineffective to tackle a regional problem. Hence, an effective counter-terrorism strategy in South Asia requires the political will of SAARC member states to adopt and implement a well-defined counter-terrorism cooperation/policy at the regional level.

An analysis on the basis of RSCT shows that a weak structure is deeply embedded in the South Asian region due to historical mistrust among countries. Moreover, the use of terrorism as a strategic tool against one another is one of the main causes of the rise and sustenance of transnational terrorism in the region. Though SAARC in its early days identified terrorism as a threat to its member states and accordingly adopted anti-terror conventions and many different types of policies, which was not functional. The role of an effective regional institution, however, cannot be exaggerated as it helps to create and strengthen norms, rules necessary to address the threat. In this respect, South Asian states have to transform their weak structure into a cooperative one that would facilitate the implementation of counter-terrorism measures. For enhanced regional cooperation to address terrorism (the “other”), the creation of a shared identity or promotion of a feeling of “we-ness” is essential among South Asian nations. To facilitate the creation of such “we-ness” what these nations fundamentally need is to strengthen trust-building among themselves.

133

Mohammad Jasim Uddin

conceptualisinG economic DiplomacY

Abstract

Conceptualisation of economic diplomacy is not a straightforward task as its boundaries involve actors, issues and contents, instruments and levels of, and states (with/by) practicing economic diplomacy. Economic diplomacy concerns how a state undertakes its national policy, how it negotiates and works with different states on the policy at multiple levels and how interaction between the two is administered. Although non-state actors now-a-days are influential, states are central to economic diplomacy that refers to interactions on trade and economy at multiple levels. Thus, economic diplomacy is more than an approach or a model that promotes a state’s economic security. This paper substantiates the argument that responsibilities of actors, countries with whom actors are to negotiate, issues at various levels and instruments employed by actors to facilitate the issues in their favour are vital for a country’s economic diplomacy. Hence, the paper aims at offering a comprehensive summary of issues relevant to conceptualise economic diplomacy.

1. Introduction

Until 1960s, commercial experts and their desks were mainly assigned to institute trade and economic affairs.1 Institutionalising the two thereafter has come to the core of diplomacy. Recently, politico-economic tasks are evenly accentuated by diplomatic services. A group of states exercises Canadian and Australian system of integrated agency dealing with international affairs and trade.2 Other countries (e.g. the UK) practice their own model to manage trade and investment affairs with specific guidance from their foreign ministries and embassies.3 Accordingly, economics (i.e. economic issues) has been a key element of modern diplomacy.

Traditionally, diplomacy is political.4 Globalisation has amalgamated political and economic diplomacy. In the 19th century, commercial, dollar or cheque-book

Mohammad Jasim Uddin, PhD is Senior Research Fellow at Bangladesh Institute of International and Strategic Studies (BIISS). His e-mail address is: [email protected]

© Bangladesh Institute of International and Strategic Studies (BIISS), 2015. 1 P.A.G. van Bergeijk, J. Melissen and M. Okano-Heijmans (eds.), Economic Diplomacy: Economic and Political Perspectives, Leiden: Martinus Nijhoff Publishers, 2011, pp. 63-82.2 Kishan S. Rana, “Economic Diplomacy: The Experience of Developing Countries”, in N. Bayne and S. Woolcock (eds.), The New Economic Diplomacy: Decision Making and Negotiation in International Economic Relations, 2nd edition, London: Ashgate Publishers Limited, 2007. 3 Kishan S. Rana, “Economic Diplomacy: What Might Best Serve A Developing Country”, International Journal of Diplomacy and Economy, Vol. 1, Nos. 3/4, 2013, pp. 232-247. 4 P. Baranay, “Modern Economic Diplomacy”, Diplomatic Economic Club, 23 March 2009, available at http://www.dec.lv/mi/Baranay_Pavol_engl.pdf, accessed on 10 March 2011.


134


diplomacy was separately termed as economic diplomacy.5 Since 1970s, economic diplomacy has been more focused on international relations and economics.6 Nowadays, it is broader in scope and encompasses new types of diplomacy.7 Even the concept of economic diplomacy is rather evolving.8

Economic diplomacy as a key constituent of modern diplomacy has recently evolved significantly. It intersects a wide variety of sectors or areas. Indistinctness of diverse external economic functions is an important aspect of economic diplomacy. In addition to external trade, economic diplomacy deals with outward and inward Foreign Direct Investment (FDI), outbound and inbound Official Development Assistance (ODA), fiduciary flows, economic negotiation at multiple levels, sharing of technical and technological know-how, branding a nation or building its image, etc. There are two viewpoints - ‘thin’ and ‘thick’ - of economic diplomacy. The former is entirely directed by public spokespersons and their manoeuvring capability while negotiating external economic affairs at multiple levels and it considers economic negotiation to be ‘positive sum game’. The latter appreciates engaging both public and private spokespersons and their skills, tact and adroitness throughout negotiation on international economic issues. Such literal discourses in broader sense help the paper argue two hypotheses: (a) economic diplomacy is a function of some units of analyses, where units are trade in goods and services, FDI and ODA (hypothesis generation) and (b) economic diplomacy is guided by the dynamism of its actors, levels, instruments and issues and importantly by indispensible countries with whom economic diplomacy is evolved (hypothesis confirmation). Undeniably, economic diplomacy, particularly of developing countries, would evolve with the two hypotheses and this is a key contribution to existing literature (see section two) on economic diplomacy.

This paper conceptualises actors, issues and contents, levels and instruments of economic diplomacy. Nexus between a country and its economic diplomacy is also conceptualised. This paper then illustrates analytical tools to categorise factors shaping economic diplomacy; different stages, phases, practical components and importance of economic diplomacy. It explains economic promotion and link of trade, FDI and ODA with economic diplomacy. This paper elucidates sources of tensions within economic diplomacy and identifies factors making economic diplomacy of a country successful. Summary of the paper ends with concluding remarks.

5 S. Dutta, “Economic Diplomacy: India’s Pertinent Need”, Merinews, 05 October 2007.6 C. L. Lim and M. Liang (eds.), Economic Diplomacy Essays and Reflections by Singapore’s Negotiators, Singapore: World Scientific Publishing Co. Pte. Ltd., 2011. 7 M. Yakop and P.A.G. van Bergeijk, “The Weight of Economic and Commercial Diplomacy”, ISS Working Paper No. 478, 2009. 8 M. Okano-Heijmans, “Conceptualising Economic Diplomacy: The Crossroads of International Relations, Economics, IPE and Diplomatic Studies”, The Hague Journal of Diplomacy, Vol. 6, No. 1-2, 2011, pp. 7-36.

135

CONCEPTUALISING ECONOMIC DIPLOMACY

2. Conceptualisation of Economic Diplomacy and Its Related Subjects

Interstate relations are facilitated by diplomacy and foreign policy. National economic issues are influenced by international economics. Economic diplomacy amalgamates the two. It helps to realise global market factors, international trade and investment regimes. It also gives a state some directions to take foreign policy initiatives in order to advance its international economic interests. Economic diplomacy values making contact with overseas trade and business institutions, regional and multilateral organisations to boost country’s international economic affairs. These, in turn, help a nation’s branding or building its image globally. International contact, cooperation and negotiation facilitate to harmonise external economic issues with foreign policy strategies. Thus, economic diplomacy has been a key aspect of economic globalisation and foreign policy. Again, economic diplomacy and economic security are interlinked and both are on top of global economic agenda. Without economic promotion, economic security is unlikely. The former institutes global and regional economic partnership, advocates ‘brand image’ of a country and integrates economic diplomacy with traditional diplomacy. Thus, diplomacy, economic diplomacy, economic security, economic promotion and foreign policy can be telescoped into one another. This is a central theme of economic diplomacy, whereas reconciling international economics and international politics is a basic idea of economic diplomacy. The two help argue that the concepts of economic diplomacy can be viewed from various economic aspects and are characterised by a range of varying politico-economic issues.

Saner and Yiu state that economic diplomacy materialises cost-effective choice either as sanction or reward in line with foreign policy goals.9 Association of Indian Diplomats (AID) links economic diplomacy with states’ economic security dealing with trade and investment negotiations.10 Khatibzadeh argues that economic diplomacy administers economic relationship between states.11 Bayne and Woolcock argue that economic diplomacy influences global economic policy and transaction.12 It directs policy-decision of global economic organisations to facilitate a country’s economic strategy.

Vickers and Ajulu argue that image building, branding, marketing and public diplomacy are important aspects of economic diplomacy. Economic diplomacy addresses a country’s international political economy e.g., accessing

9 R. Saner and L. Yiu, “International Economic Diplomacy: Mutations in Post-modern Times”, Netherlands Institute of International Relations ‘Clingendael’, 2001. 10 Association of Indian Diplomats (AID), “Economic Diplomacy Ten-point Plan for Making It More Effective”, October 2005, available at http://www.associationdiplomats.org/publications/ifaj/Vol1/ecodiplomacy.htm, accessed on 12 December 2011.11 S. Khatibzadeh, “Iran’s Economic Diplomacy: An Assessment of Iran Economic and Trade Cooperation with Japan, China and South Korea”, V.R.F. Series No. 417, 2006, available at http://www.ide.go.jp/English/Publish/Download/Vrf/pdf/417.pdf, accessed on 26 December 2011.12 N. Bayne and S. Woolcock, “What is Economic Diplomacy”, in N. Bayne and S. Woolcock (eds.), 2007, op. cit.

136


overseas market, negotiating bilaterally and multilaterally, etc.13 Dahal et al. summarise that economic diplomacy combines public and private initiatives and policies regarding international economic aspects of a country.14 It helps negotiation to be competitive at regional and international markets; employs instruments to materialise a country’s international economic goals e.g., boosting trade and commerce.

Rana argues that economic diplomacy is a ‘plural set of practices’ directed to improve external economic objectives of a country.15 Van Bergeijk et al. describe economic diplomacy as a dynamic and interrelated issue; separating its practical issues is unlikely.16 Woolcock concludes that economic diplomacy encompasses external trade, aid and FDI inflow; negotiation on economic issues at multiple levels and exchange of technology.17 All these brand a nation and contribute to build its image abroad.

Indeed, concepts of economic diplomacy are open to varied interpretations and can be structured within boundaries.

Actors

Levels

Instruments Issues andContents

States

EconomicDiplomacy

Figure 1: Boundaries of Economic Diplomacy (ED)

Source: S. Khatibzadeh, “Iran’s Economic Diplomacy: An Assessment of Iran Economic and Trade Cooperation with Japan, China and South Korea”, V.R.F. Series No. 417, 2006, available at http://www.ide.go.jp/English/Publish/Download/Vrf/pdf/417.pdf, accessed on 26 December 2011.

13 B. Vickers and C. Ajulu, “South Africa’s Economic Diplomacy: Trade and Investment promotion”, Institute for Global Dialogue, March 2008, available at http://dev.absol.co.za/Presidency/docs/reports/15year_review/irps/economic_diplomacy.pdf, accessed on 02 April 2011.14 M. K. Dahal, M. M. Sainju, M. P. Lohani, S. P. Sharma and U. Parajuli, “Nepal A Generic Guideline for Development through Economic Diplomacy”, Institute of Foreign Affairs (IFA), Nepal, 2008.15 Kishan S. Rana, 2013, op. cit. 16 P. A. G. van Bergeijk, M. Okano-Heijmans and J. Melissen, “Economic Diplomacy: the Issues”, The Hague Journal of Diplomacy, Vol. 6, No. 1-2, 2011, pp. 1-6. 17 S. Woolcock, “Theoretical Analysis of Economic Diplomacy”, in N. Bayne and S. Woolcock (eds.), 2007, op. cit.

137


2.1 Actors of Economic Diplomacy

Economic diplomacy is pursued by both state and non-state actors. No longer, the monopoly of state actors, the official agents - foreign and economic ministries, diplomatic and commercial services and their promotional agencies - now engages in dynamic partnerships with a group of non-state actors (NSAs). This cooperation is crucial for useful external outreach. In return, it addresses a wide field of overseas stakeholders.

Till now, state remains crucial for economic diplomacy. There are transnational and national actors. Political parties in power, ministers and heads of government, parliaments, foreign and economy-oriented ministries, independent public institutions and local agencies, sub-national bodies, central banks, business and lawmaking organisations are important state actors.18 Trade unions, business associations and Non-Government Organisations (NGOs) are classified as NSAs of economic diplomacy. Actors placed at the United Nations (UN), World Trade Organisation (WTO), International Monetary Fund (IMF) and the like are vital spokespersons at transnational level. International NGOs, environmental organisations, multinational companies and the like are NSAs at transnational level. While state actors work with a view to upholding states’ global economic and business agenda, NSAs as independent players work with the objectives of shaping government policies and at the same time seeking publicity to put pressure on governments. The latter also pays due attention to bring useful new thinking to economic diplomacy and makes the results more widely known. Besides, international organisations as a forum or platform play a key role in collective bargaining or multiple-level negotiations.

Overseas NSAs are highly crucial for economic diplomacy. They are business enterprises, schools, universities, public and private think-tanks, diaspora (e.g. non-resident Bangladeshis - NRBs) and their associations, media, eminent personalities and their groupings.19 Also important is similar spectrum of actors at home. Activities to engage them facilitate prospects of diplomatic missions to increase overseas economic networks. Cross-border networks among the actors produce and widen bilateral economic relations.

2.2 Levels of Economic Diplomacy

Liberalising trade and services or the alternative unilaterally has consequence on others.20 It either increases or decreases market access. Thus, economic diplomacy is related to unilateralism. Economic diplomacy at bilateral level is of both informal and formal working on economic agreements. At times, it becomes unfavourable to the weaker, though contributes to individual interests and 18 Kishan S. Rana, 2013, op. cit. 19 Ibid.20 B. P. Shrestha, “Enhancing Economic Diplomacy for Trade, Investment, and Employment”, Policy Paper 10, Economic Policy Network, Nepal, 2005.

138


reaching a consensus at global or regional level. Economic diplomacy at regional level intends to conclude regional trade and investment deals to liberalise regional market. Access to bigger regional market could be an alternative to wider markets and the first step to compete at global level. Regional economic diplomacy reduces disagreement at regional level and responds to global negotiation. It also offsets influence of international markets.

The Commonwealth, G8, G20 and the Organisation for Economic Co-operation and Development (OECD) are plurilateral bodies. There are two rationales for economic diplomacy at plurilateral level: (i) offering a forum for the heads of states to resolve international/national economic issues and (ii) enabling the concurring heads of states to reach a consensus that can later be advanced in multilateral framework.21 Economic diplomacy at multilateral level involves all concerned countries; functions of the World Bank (WB), IMF and WTO; financial activities of the United Nations Framework Convention on Climate Change (UNFCCC) and various specialist global institutions. Resolution of global trade, economic disagreements and rule-making for those are fundamental to multilateral economic diplomacy. Risks and rewards are high for economic diplomacy at multilateral level.

Economic diplomacy at multiple levels shows that countries “take advantage of interaction between levels in various ways and identify different levels as suitable for specific policy issues”.22

2.3 Issues and Contents of Economic Diplomacy

It is unlikely to order all issues and contents of economic diplomacy. Some are detailed below.

2.3.1 Factors Shaping Economic Diplomacy

Systemic, domestic and idea-based factors shape economic diplomacy. Systemic factors include relative economic power (realist theory), international organisation and regime (regime theory) and global markets.23 International economic negotiations and their cooperative solutions are derived from the three, but these “treat the states in the system as unitary actors”.24 Bargaining interests (rationalist theory) and institutions and two-level game – the two domestic factors – mirror composite formation of the states and shape their economic diplomacy.25 Negotiating internal economic and contradictory issues at national and international levels to 21 D. Lee, “Endgame at the Kennedy Round: A Case Study of Multilateral Economic Diplomacy”, Diplomacy and Statecraft, Vol. 12, No. 3, 2001, pp. 119-120.22 N. Bayne and S. Woolcock, 2011, op. cit., p. 9.23 G. R. Berridge, “Consulates”, in Diplomacy: Theory and Practice, 4th edition, London: Palgrave, 2010.24 N. Bayne and S. Woolcock, 2011, op. cit., p. 6.25 Ibid.

139


reach a consensus is facilitated by the two. Till now, domestic and systemic factors are not adequate to detail outcomes. Essential is to include ideational factor. Bayne and Woolcock articulate that “negotiations are not subject to systemic, societal and institutional pressures; they will have their own convictions, based on a range of different ideas and world views”.26 Thus, negotiation is a process that comprises bargaining and persuasion (constructivist theory) and shapes economic diplomacy.27

2.3.2 Stages of Economic Diplomacy

There are four stages of economic diplomacy. First, trade promotion plus FDI mobilisation; second, networking with multiple actors to assist the first stage and manage foreign technology; third, country promotion linked with promoting economy, branding and re-branding country image to facilitate foreign trade and investment and fourth, regulatory stage to deal with external economic activity.28 Different agenda and intricate negotiation process of the WTO take the regulatory issues forefront. These stages are passed through a cycle; one is interrelated to other, e.g., promotion of trade and FDI never dries up while regulation and networking are essential. Country image permeates all. At present, developing countries as well put themselves forth in improving their “nations’ branding”. Economic diplomacy is impractical without a clear direction. It must be well ordered and endowed with adequate resources and skills; should include private sectors and be always in line with external economic policy of a country.

2.3.3 Phases of Economic Diplomacy

There are three phases of economic diplomacy: economic salesmanship, economic networking and advocacy, and regulatory management and resource mobilisation. Ministry of Foreign Affairs (MoFA) and its foreign embassies, missions and consulates; Ministry of Finance (MoF); Prime Minister’s (PM) Office and the personnel of the three are important actors to economic salesmanship of a state.29 Functions to increase external economic resources are included in economic salesmanship. It appreciates improving political negotiations between target and home countries to get foreign projects.30 It concentrates to publicise home country’s skills and potentials abroad to facilitate its trade and business. Economic salesmanship values managing overseas economic supports.

26 Ibid.27 P. A. G. van Bergeijk, Economic Diplomacy and the Geography of International Trade, Cheltenham: Edward Elgar Publishing Limited, 2009.28 Kishan S. Rana, 2013, op. cit. 29 Kishan S. Rana, “Economic Diplomacy in India: A Practitioner’s Perspective”, International Studies Perspectives, Vol. 5, 2004, pp. 66-70.30 R. K. Bhatia, “Infrastructure, Energy, Connectivity: Agenda for India’s Economic Diplomacy”, RITES Journal, July, New Delhi, 2010.

140


Economic salesmanship is extended by economic networking and advocacy and these two are seen in sync. Crucial in this phase is to liberalise economy and involve both state and NSAs from home and abroad working on global economy. Initiatives to increase exports, FDI inflow, inbound aid and access to foreign technologies are facilitated by economic networking and advocacy.31 The third phase works on few things: accessing new economic blocs, agreements on resources, negotiating free trade agreements (FTAs) and country branding plus its image building. Regulatory management and resource mobilisation require functional coordination between public and private officials from home and abroad to harmonise country priorities with its global economic interests. MoFA is the core of such coordination and it is assigned to direct interstate discourses.

2.3.4 Practical Components of Economic Diplomacy

There are some practical components of economic diplomacy to facilitate international economic goals of a country.

Figure 2: Practical Components (PC) of Economic Diplomacy (ED)

Analysis

Basic GuideNotes

Teamwork

MultilateralIssues

Innovations

Delegations

Outreach

PC of ED

Source: Author’s Initiative

Analysis helps to realise target country’s economic aspects: imports from and exports to, overseas investments, technological advancement, potential and actual competitors. It is essential for diplomats to harmonise overseas assignments and home country’s economic needs. Economic structure, trade policy, banking system, business pattern, etc. are some key elements of basic guidance notes of a country. Writing a note, updating its material and posting it on embassy’s website are essential. Such note is on

31 P. A. G. van Bergeijk, Economic Diplomacy, Trade and Commercial Policy: Positive and Negative Sanctions in a New World Order, Vermont: Edward Elgar Publishing Limited, 1994.

141


different topics, e.g., details of a product, marketing policy, etc.32 Outreach entails local business associations, enterprises, media, political entities, pressure groups, academics, etc. engage in external economic affairs. Teamwork entails economic or commercial officials of the whole mission team in dealing with particular duties e.g. investment promotion. Besides, it is vital to involve business personalities and experts in economic projects working in target country with several outreach activities.

A typical technique of managing external economic affairs is dispatching delegations abroad and it is essential to evaluate outcomes and learn lessons for upcoming opportunities. Also important is to have lessons from multilateral issues, e.g., the UNFCCC process. Diplomats assigned to deal with multilateral issues exercise multilateral and bilateral diplomacy. Rationale is to negotiate similar viewpoints bilaterally and then raise these jointly at multilateral level. Finally, innovation or innovative ideas and initiatives are produced through teamwork. Economic and diplomatic activities call for proactive outlook and create possibilities of innovation.

Practical components and their interrelationship are essential to facilitate external economic affairs as well as persuade foreign policy goals.33 Thus, evident is importance of economic diplomacy.

2.3.5 Importance of Economic Diplomacy

Mutual relations between and among states are the key to economic growth and development. Each state takes initiatives to gain access to other with its trade and economic dynamism. Interstate economic relations are facilitated by economic diplomacy. National economic issues are guided by international economics and economic diplomacy integrates the two. Economic diplomacy helps to realise global market factors and trade regimes as well as assists states taking policy initiatives for advancing global economic interests.34 Economic diplomacy values making contacts with multi-level economic organisations, influences and consolidates political relations between/among states to boost their multiple trade and investment opportunities. It is an instrument to deal with market failures and to lessen costs for business deals between home and host country enterprises. Therefore, interstate economic relations and market functioning are facilitated by economic diplomacy.35

Economic diplomacy promotes national economic policy in line with increasing goods and services trade internationally, mobilising FDI, managing overseas

32 Kishan S. Rana, 2013, op. cit. 33 I. R. Movlonov, “Central Asia and South Asia: Potential of India’s Multilateral Economic Diplomacy in Inter-Regional Cooperation”, Strategic Analysis, Vol. 30, No. 2, April-June, 2006, p. 426.34 S. Woolcock, “Theoretical Analysis of Economic Diplomacy”, in N. Bayne and S. Woolcock (eds.), 2007, op. cit. 35 Ibid.

142


assistance and securing energy requirements.36 These aspects are also fundamental to economic security of a country. Thus, economic diplomacy and economic security are an interlinked concept and both are crucial global politico-economic agenda.37 Economic security, without economic promotion, is impractical. Economic promotion institutes economic partnerships at multiple levels, advocates states’ ‘brand image’ and integrates both traditional and economic diplomacy. Thus, economic diplomacy, economic security and economic promotion can be telescoped into one another.

2.3.6 Defining Economic Promotion

Van Bergeijk et al. argue that export promotion is a key aspect of economic diplomacy.38 Diversifying exportable products and markets, negotiating preferential trade agreements (PTAs) and FTAs and addressing issues like anti-dumping are fundamental to export promotion and economic diplomacy. Several issues are linked with exploiting new markets. Capacity to exploit, strategy to access, realising non- and para-tariff barriers, customer credibility and country familiarisation are related to export promotion. Potential markets and their economic strategies and trade policies are to be first assessed. Then, vital is to make contacts with potential importers. Also, it is essential to arrange buyer-seller shows, trade shows and the like to promote customer credibility. Foreign embassies and exporters can be tasked to arrange the shows. Besides, dispatching business delegations and strengthening bilateral relations are indispensable for export promotion.

Similarly, targeting potential investors and understanding their strategies, showcasing opportunities and success stories, arranging road shows and visits for business delegations, gaining investors’ credibility, participating in investment promotion events and the like are some initiatives to mobilise FDI – another aspect of economic promotion. Funds invested in capital market, e.g., stock market, portfolio investment, private equity contributions and technology acquisition are some modest areas of investment promotion. All forms of investments are to be negotiated as a key to economic promotion.

Declining Country Programme Aid (CPA), shifting priority from grants to loans and diverse preferences for funnelling foreign aid are radical developments of global aid diplomacy. It helps to realise how foreign aid is going to be a key subject matter for economic diplomacy. Managing aid is fundamental to economic promotion for recipients. Permanent aid specialists posted in overseas embassies are tasked to contact regularly with development partners (DPs). It keeps aid flow undisturbed. Aid in grants, loans or export credits is linked with DPs’ overseas business e.g., trade and investment. Thus, aid diplomacy overlaps commercial diplomacy and recipients have to realise such linkage.

36 C. Lancaster, Foreign Aid Diplomacy, Development, Domestic Politics, Chicago and London: The University of Chicago Press Ltd., 2007. 37 P. A. G. van Bergeijk and S. Moons, “Economic Diplomacy and Economic Security”, New Frontiers for Economic Diplomacy, 2009, pp. 37-54.38 P. A. G. van Bergeijk, J. Melissen and M. Okano-Heijmans (eds.), Economic Diplomacy: Economic and Political Perspectives, Leiden: Martinus Nijhoff Publishers, 2011, pp. 63-82.

143


Economic promotion also includes partnership and network building with host country, amalgamating diplomacy and economics and branding a nation abroad. Branding is productive while it gauges and reinforces a shifting realism. If a developing country wants to brand its image globally, it is necessary to showcase the country in a potent, distinguishable and lucrative manner. Developing states have to be acknowledged with public diplomacy to expose their unique qualities globally. Accordingly, combining public and economic diplomacy is decisive to economic promotion of a country.

2.3.7 Interlinking Economic Diplomacy with Trade, FDI and ODA

Several literatures show contribution of economic diplomacy to trade, FDI and ODA flows. Head and Ries argue that economic diplomacy is an instrument to influence interstate economic relations to increase global trade.39 They show that economic diplomacy reduces trade barriers. Within the periphery of services trade, manpower export has thus been a key subject matter of economic diplomacy. Rose, Moons and Moons and Van Bergeijk argue that there are positive outcomes between goods trade and economic diplomacy.40 They conclude that opening of each additional consulate increases a significant amount of exports. Indeed, trade and market liberalisation, trade-related negotiations, partnerships, treaties and agreements and resolving inter-state trade disputes are facilitated by economic diplomacy.

Some studies, however, have mixed arguments. Van Veenstra et al. show that export promotion agencies sometimes play insignificant role to trade promotion but there are positive outcomes between functions of embassies and traditional trade bodies.41 Van Bergeijk argues that outcomes vary based on a country’s economic development.42 Correlation between international trade and economic diplomacy is positive when trade flows to low or middle income economies from high-income economies, whereas correlation is insignificant between high-income economies. Van Bergeijk et al. substantiate that estimating correlation between trade and economic diplomacy is tricky.43 This is owing to a unifying model of economic diplomacy. In addition, economic diplomacy is practiced through various forums and networks that are complex and diversified.

Morriset shows relations between functions of investment promotion agencies and FDI inflows that are statistically significant.44 This study argues that bilateral economic 39 K. Head and J. Ries, “Do Trade Missions Increase Trade?”, Sauder School of Business Working Paper Series, University of British Columbia, 2006.40 A. K. Rose, “The Foreign Service and Foreign Trade: Embassies as Export Promotion”, The World Economy, Vol. 30, No. 1, January, 2007, pp. 22-38; S. Moons, “What are the Effects of Economic Diplomacy on the Margins of Trade?”, International Journal of Diplomacy and Economy, Vol. 1, No. 2, 2012, pp. 147-162; S. J. V. Moons and P.A.G. van Bergeijk, “Economic Diplomacy Works: A Meta-Analysis of Its Effect of International Economic Flows”, Paper presented in IDB Workshop on The Effects of Trade and Investment Promotion, October 2012.41 M. L. van Veenstra, M. Yakop and P.A.G. van Bergeijk, “The Geography of Trade and the Network Effects of Economic Diplomacy in the South”, in M. Murshed, P. Goulart and L. A. Serino (eds.), South-South Globalization: Challenges and Opportunities for Development, London: Routledge, 2011. 42 P. A. G. van Bergeijk, 1994, op. cit.43 P. A. G. van Bergeijk et al., 2011, op. cit. 44 J. Morriset, “Does a Country Need a Promotion Agency to Attract Foreign Direct Investment? A Small

144


relations have an impact on FDI inflows and the two are positively correlated. Morriset also articulates that initiatives, linked with economic security and economic diplomacy, promote FDI inflows.45 Again, Moons and Van Bergeijk show meta-analysis involving financial flows with economic diplomacy.46 They conclude that contributions of embassies and consulates to mobilise FDI are positive and significant. What the studies identify are: (i) instruments of economic diplomacy are essential to attract a destination to be invested and (ii) the instruments may generate varied outcomes.

Dahal et al. state that economic diplomacy deals with foreign aid that is usually disbursed for directing development programmes.47 One of the important findings of the study is: economic diplomacy plays a significant role to reach ‘Green Climate Fund (GCF)’, generated by the UNFCCC, in order to cope with climate change. Thus, climate diplomacy has recently been a key subject matter of aid diplomacy. Again, Rana argues that economic diplomacy eases tensions between DPs and recipients; it helps the latter to get maximum amount of overseas assistance committed by the former.48

There are literatures showing aid diplomacy on the side of donors. A study identifies that “economic diplomacy is the universal mechanism of involving the countries in direct dependence on donors”.49 It also quotes S. Rogov, “economic aid has political consequences”50. In effect, focus of economic diplomacy of developing countries is rapidly shifting from foreign aid to international trade and FDI. Even though, managing foreign assistance, export promotion and mobilisation of FDI inflow are still evolving as the key points of economic diplomacy.

Figure 3: Three Major Pillars of Economic Diplomacy

Major Pillars ofEconomic Diplomacy

Export (Goods And Services) Promotion

Securing Sucient FDI Inow

Managing Foreign Assistance

Source: Authror’s Initiative

2.3.8 Sources of Tensions within Economic Diplomacy

Tensions lie in economic diplomacy. Bayne and Woolcock identify three tensions between (i) economics and politics. (ii) domestic and international pressures and Analytical Model Applied to 58 Countries”, WB Policy Research Working Paper 3028, Washington D.C.:WB, 2003. 45 Ibid. 46 S. Moons and P. A. G. van Bergeijk, 2012, op. cit. 47 M. K. Dahal et al., 2008, op. cit. 48 Kishan S. Rana, 2011, op. cit. 49 P. Baranay, 2009, op. cit. 50 Ibid., p. 3.

145


(iii) governments and other forces.51

External economic affairs are instituted by international politics. Tensions lie in harmonising economic and political aspects, since the two are reinforced by one another. Rising powers, e.g., China, India and Brazil are trying to reduce tensions between politics and economics. Such tension now-a-days is evident between emerging developing and developed countries. The latter amalgamates global political and economic relations with the former. Consequently, tension between international and domestic pressures is intensified in undertaking cost-effective economic strategies. At present, this is the foremost tension for a developing country’s economic diplomacy. External pressures on internal economies are caused by interdependence in global economic affairs and lead to another tension, between governments and other forces. Local economies are penetrated by international dynamics and such penetration is caused by actors working in private sectors. Owing to ever-increasing globalisation, multi-stakeholders are going to be more engaged in economic diplomacy. Private actors and their multinational functions hence “go beyond seeking to influence national governments”52.

MoFA and its role in small states are sometimes confined, while other organisations are invariably tasked to make decisions on foreign policy.53 Often, overseas networks of the states to promote their international economic interests are not fully utilised. Sometimes, they pay more attention to bilateral and multilateral disputes rather than coordinating trade and external affairs. They as well fail to use their diplomatic services exclusively to take advantage of global financial flows. Blending of trade and external affairs has also been infrequent for some medium or large states. There may be two reasons for that: (i) habituated with existing arrangements that disregard new practices and (ii) ministry of commerce in the states manages a major part of international trade and it impedes setting up of integrated ministry.

Divergence of economic diplomacy among the states fairly produces variation to their external economic settings. States that do not pursue economic diplomacy well are confined as well to practice political diplomacy. MoFAs of the states remain poorly networked with state and NSAs and this creates tensions for their economic diplomacy.

2.3.9 Factors for Successful Economic Diplomacy

Economic diplomacy helps to realise market forces, envisaging and influencing upcoming economic policies at multiple levels. It relies on some factors to be successful.

51 N. Bayne and S. Woolcock, “What is Economic Diplomacy”, in N. Bayne and S. Woolcock (eds.), The New Economic Diplomacy Decision-Making and Negotiation in International Economic Relations, England: Ashgate Publishing Ltd., 2011, pp. 1-16.52 Ibid., p. 3. 53 Kishan S. Rana, 2011, op. cit.

146


Figure 4: Keys to Successful Economic Diplomacy

EngagingEconomyAbroad

Harmonisation

DistinguishBetween EDand the Field

Eciency inActions Taken

StrengtheningRegulatoryFramework

Factors forSuccessful

ED

Boosting Exp.and FDI

Mobilisation

Source: Author’s Initiative

Engaging economy abroad deals with some points: who, why and how to engage. Not only public agencies but private bodies also working on economic and financial issues are to be engaged. Joint trade and commerce associations, groups of eminent personalities, research institutions and researchers dealing with overseas business leaders are important to economic diplomacy.54 Rationales of engaging economy abroad are promoting international economic affairs, searching for new economic opportunities, mobilising FDI, negotiating free trade, etc. These activities are facilitated by economic partnerships between public and private agencies. Combining informal and formal mechanisms and deepening economic relations at multiple levels are also significant to engage economy abroad.

External affairs, overseas economic management and their structural harmonisation are vital to economic diplomacy. There are three mechanisms to harmonisation. First is to combine overseas affairs (e.g. investment promotion, managing overseas assistance, etc.) with foreign trade policies and trade promotional activities under the MoFA and its embassies abroad. Such mechanism is practised by the Scandinavian states.55 Second is to institute a unique harmonisation technique to deal with overseas economic activities, e.g., “‘joint-up’ oversight”56 exercised by the UK. Or, the Singaporean model that introduces a specific organisation to secure its investment

54 P. A. G. van Bergeijk, 1994, op. cit. 55 Kishan S. Rana, 2011, op. cit. 56 Ibid.

147


and trade promotion.57 Third is to initiate a multiparty overseas trade negotiation technique. Such mechanism is practiced by the Caribbean Community (Caricom). A single negotiator of the organisation is assigned at the European Union (EU) to deal with trade preferences and economic promotion.

Economic diplomacy is effective when export promotion is prioritised and inward FDI is mobilised. These two are interconnected and pursued by several means. Dispatching trade delegations and arranging overseas visits for them, organising meetings for the buyers and sellers, surveying markets continuously and participating in global trade fairs are essential to export promotion. These help exporters to publicise prospective products and reach new overseas markets. Foreign trade missions and embassies are important facilitators of export promotion. FDI mobilisation, on the contrary, deals with two aspects: identifying potential investors and showcasing a country’s opportunities to invest in prospective sectors and undertaking investment promotion activities. Economic salesmanship on FDI mobilisation is facilitated and harmonised by both state and NSAs, e.g., private enterprises, business groups, etc.

Regulatory framework to promote overseas trade and mobilise inward FDI has to be strengthened. Diplomatic set-up and economic agencies of a state are officially authorised to sort out the priority areas that are to be negotiated, mutually agreed and regulated.58 FTAs and PTAs, negotiations on non-tariff barriers (NTBs) and agreements on investment facilitation are some crucial instruments as well as areas of strengthening regulatory framework. Interstate and intra-regional economic cooperation, their mutual and functional trade-offs are also important areas, where regulatory framework has to be strengthened.59 All these help to promote economic diplomacy.

Distinguishing between economic diplomacy and the network through which it is operated is essential to successful economic diplomacy. There are some developing countries (e.g., China, India, Brazil, Russia, etc.) that engage their embassies and consulates to maximise their economic diplomacy.60 MoFA and its diplomatic networks in the states are encouraged to advocate “a ‘whole of government’ mindset”61 to promote their external economic affairs. On the contrary, some developing countries inefficiently consider MoFA and its role. Consequently, their economic diplomacy and its related issues are interrupted.

Economic diplomacy and its value addition vary based on a country’s initiatives undertaken and their effectiveness.62 Only a well-resourced and well-staffed diplomatic service can increase a country’s global influence. Diplomatic mechanisms and their effective harmonisation help a small state, e.g., Singapore, to better exercise its economic diplomacy. 57 C. L. Lim and M. Liang, 2011, op. cit. 58 P. A. G. van Bergeijk et al., 2011, op. cit. 59 P. A. G. van Bergeijk, 2009, op. cit.60 Kishan S. Rana, 2011, op. cit. 61 Ibid., p. 22.62 S. Woolcock, “Theoretical Analysis of Economic Diplomacy”, in N. Bayne and S. Woolcock (eds.), 2007, op. cit.

148


Besides, effective trade policy management, diplomatic services and their capacity building are essential. Managing trade policy involves several state and NSAs and their policy priorities. Synchronising the priorities helps opting required trade policy choices. Again, arranging training programmes, paying more attention to international economics and negotiations to the programmes are relevant to diplomatic services and their capacity building.

2.3.10 Models of Economic Diplomacy

There are six models of economic diplomacy: unified, part unification, third agency, competition, renunciation and others.63 Australia applies unified model and amalgamates its external affairs and international trade. Diplomatic and commercial services of Australia are unified by its heads of missions. The UK applies part unification model. It has two specific units in its foreign office, jointly with department of trade and industry, to handle trade and investments, manned by a unified diplomatic service.64 Singapore applies third agency model. The MoFA of Singapore does not pay a significant attention to economic affairs. Two specific boards on ‘trade’ and ‘economic development’ affiliated with ministry of trade and industry are assigned to promote external economic aspects. Representatives from the boards are placed in important foreign missions or embassies. Heads of embassies and other envoys work directly with the representatives in Team Singapore style.

Thailand and India apply competition model. The MoFA and public economic agencies in this model are confused with their tasks, e.g., promoting exports, mobilising FDI, dealing with WTO issues, other trade and economic associations. Therefore, diplomatic mechanisms and promotion of external economic affairs are poorly synchronised in competition model. Similarly, the MoFA in renunciation model pays insignificant attention to interstate economic affairs. It hands the task over to other relevant ministries. Germany and China apply renunciation model. There are other models, where foreign assistance is handled by the MoFA. Usually, donors, e.g., Japan and Denmark work on foreign aid through their MoFA. Recipients do not practice the model. However, exception is India. It handles outbound aid by its foreign ministry, but inbound assistance is dealt by its finance ministry.

2.4 Instruments of Economic Diplomacy

There are several instruments of economic diplomacy. These vary from practitioner-to-practitioner or country-to-country. Van Bergeijk argues that measures penalising an economy or creating an economic embargo are vital instruments.65 Informal and formal agreements, negotiations, regulations, cooperation and 63 Kishan S. Rana, 2011, op. cit. 64 Ibid.65 P. A. G. van Bergeijk, 1994, op. cit.

149


interactions are important instruments. Formal instruments include joint committees and their decision-making on international economic affairs.66 It is also fundamental to interact at multiple levels.

Influencing host country’s commercial and economic approaches in line with home country’s international economic interests is an important instrument. Interacting with regional and global regulatory agencies and economic actors as well as addressing likely conflicting issues on trade and economy are vital tools to shape decisions in favour of home country.67 Ensuring home country image and reputation as well as credibility and capability of home enterprises are important. Practitioners of economic diplomacy have to be attached with international media and multilateral forum.

Public diplomacy, in particular image-building is a very important instrument. Economic diplomacy and public diplomacy are interlinked with state branding given that trade and investment destinations are influenced by the image of the state that it globally enjoys.68 The MoFA and its informal and formal networks are interconnected with image-building. There are many forms of image building. But it goes well when it entails partnerships between public and private agencies.

2.5 Economic Diplomacy and States

Different countries with their resources and skills play different role in global economy. Therefore, economic diplomacy of developed and developing countries is different. An important query is: how the latter thinks about recent global economic setting. A set of developing countries is sceptic about economic diplomacy and its recent phenomena. This raises some issues. How far developing countries are capable of exercising economic diplomacy? Whether economic diplomacy could provide realistic policy options for developing countries? Whether developing countries would include these policy options in their economic diplomacy?


This paper aimed at offering a comprehensive summary of issues relevant for conceptualising economic diplomacy and it evolves with the concept that responsibilities of actors, countries with whom actors are to negotiate, issues at various levels and instruments employed by actors to facilitate the issues in their favour are vital for a country’s economic diplomacy. Unquestionably, this would remain a central theme of economic diplomacy literatures. This paper finds that both state and non-state actors are equally important for a country’s economic diplomacy. 66 S. Khatibzadeh, 2006, op. cit. 67 P. A. G. van Bergeijk et al., 2011, op. cit. 68 Kishan S. Rana, 2011, op. cit.

150


Economic diplomacy refers to interactions on trade and economy at multiple levels. What is unlikely is to order all issues and contents of economic diplomacy.

Although stages and phases of economic diplomacy may sometimes be generalised, they are ideally distinct. Promotion of trade, networking, country promotion and regulation are important four stages of economic diplomacy. By contrast, economic salesmanship, economic networking and advocacy and regulatory management and resource mobilisation are vital three phases of economic diplomacy. There are some practical components to facilitate the stages and phases of economic diplomacy. These are analysing economic dynamics of a target country, writing a commercial note or briefing guide, outreach, teamwork, dispatch of business missions or delegations, basic understanding on multilateral issues and scope of innovation.

Interlinking practical components of economic diplomacy is essential for home country’s economic promotion and security as well as achieving its foreign policy strategies. Economic security without economic promotion in trade, investment and aid management is almost unlikely. On the contrary, economic promotion in the fields requires integrating economic and mainstream diplomacy, building economic partnership regionally and globally and advocating brand image of home country. Now-a-days, economic diplomacy of a developing country is shifting its focus from foreign aid to international trade and FDI. Even though, managing foreign assistance, export (goods and services) promotion and increasing FDI inflow are still evolved as the three major pillars of economic diplomacy.

There are three major sources of tensions within economic diplomacy. These are between economics and politics, domestic and international pressures and government and other forces. There are some important factors to address the tensions. These are (i) engaging economy abroad; (ii) harmonising structures of foreign affairs and external economic management; (iii) prioritising export promotion and mobilising inward FDI; (iv) strengthening regulatory framework; (v) increasing effectiveness of economic diplomacy undertaken; (vi) managing trade policy; (vii) capacity building of diplomatic services and officials; etc.

Instruments of economic diplomacy include informal cooperation and negotiation as well as formal interactions, regulations and agreements. Influencing host country trade and economic policies, interacting with global decision-making agencies and estimating upcoming disagreements with global economic actors are essential. It is also vital to engage with global media and multi-level forum to uphold home country image and reputation as well as credibility and capability of home enterprises. Therefore, economic diplomacy is significant for both developed and developing countries. The latter should give more emphasis on available resources and skills to uphold their international economic interests.

151


Md. Jahan Shoieb

facinG climate chanGe challenGes in south asia: the role of saarc

Abstract

Global climate change in recent years has turned into a complex phenomenon. The issue has drawn widespread attention globally. South Asia is a region which occupies about 5 percent of the world’s total landmass and 20 percent of the world’s total population which is expected to rise about 25 percent by 2025. Over the years, South Asian countries are becoming affected with multitude of climate related hazards including cyclones, floods, droughts, extreme temperatures, glacial lake outburst floods (GLOFs) and storm surges. Climate does not maintain national boundary, therefore, combined efforts are essential to mitigate such calamities. Regional arrangements are considered essential to face climate change challenges. This paper examines initiatives of South Asian Association for Regional Cooperation (SAARC) on climate change issue and tries to recommend what further steps the organisation can adopt in this regard. Although SAARC has taken some initiatives, more concrete and coordinated actions are necessary to face the calamities of climate change.

1. Introduction

Climate change is neither an ancient phenomenon nor of the distant future. There is scientific consensus that the earth is warming up and climate change is happening everywhere.1 Climate change is one of the greatest threats the world is facing today. Although the issue is a global phenomenon, the impacts of it will not be felt in equal proportion across the world. It is irrefutable the impacts are likely to differ in both magnitude and rate of changes in different continents, countries and regions.2

South Asian countries are facing negative impacts of climate change on their lives and livelihoods. They are facing multiple climate induced hazards like floods, droughts, cyclones, extreme temperatures, glacial lake outburst floods (GLOF) and others. The fourth report of the Intergovernmental Panel on Climate Change (IPCC) and first assessment report of Indian Network of Climate Change Assessment (INCCA) confirm that climate change is likely to increase the frequency and intensity of climate related hazards and also the emergence of new catastrophes that could

Md. Jahan Shoieb is Research Officer at Bangladesh Institute of International and Strategic Studies (BIISS). His email address is: [email protected].

©Bangladesh Institute of International and Strategic Studies (BIISS), 2015. 1 Anup Shah, “Climate Change and Global Warming”, Global Issues, 19 January 2014, available at http://www.globalissues.org/issue/178/climate-change-and-global-warming, accessed on 24 August 2014.2 “Climate Change Impacts on Global Issues”, United States Environment Protection Agency (EPA), available at http://www.epa.gov/climatechange/impacts-adaptation/international.html, accessed on 14 September 2014.

152


manifest in the form of sea level rise and new vulnerabilities with various spatial and socio-economic impacts on communities.3 Such natural disasters may have profound impacts on coastal areas, hydrological cycle, glaciers or mountain areas, water areas, forest and ecosystem and it would be disastrous for the people of South Asia. Thus, climate change is not merely an environmental phenomenon rather one with severe socio-economic implications.4 As the countries face similar types of threats emanating from climate change, combined action is necessary to face such challenges. Being a regional entity, South Asian Association for Regional Cooperation (SAARC) is expected to play an important role in mitigating negative impacts of climate change in the region.

In this respect, the main objectives of the paper are to assess impacts of climate change in SAARC member states and to evaluate the contribution of SAARC to face climatic calamities.

To address the above mentioned issues, the paper is divided into five sections including introduction. Section two discusses impact of climate change in South Asia. Section three focuses the initiative taken by SAARC on the issue of climate change. Section four makes an appraisal. Section five ends with conclusion.

2. Climate Change and South Asia

Climate change has emerged as one of the most threatening issues for global society with serious implications for environment, food and human security to billions of people in developing and underdeveloped countries of the world. It is likely that climate change will impinge on sustainable development of most developing countries of Asia as it compounds the pressures on natural resources and the environment associated with rapid urbanisation, industrialisation and economic development.5 The IPCC Assessment Report 5 (AR5) reveals climate change related vulnerabilities in South Asia. Besides, seasonal mean rainfall shows inter-decadal variability, noticeably a declining trend with more frequent deficit monsoons under regional heterogeneities.6

In South Asia, glaciers of the Himalayas have the largest storage of ice outside the polar region. The reserve is the source of some of the world’s biggest rivers; in fact, the icebergs covering the Himalayan-Hindukush mountain ranges are the source of 3 Swati Chandra, “BHU Scholars to Study Climate Changes in SAARC Countries”, The Times of India, 6 June 2013.4 The World Bank, “South Asia & Climate Change a Development and Environmental Issue”, available at http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/0,contentMDK:21469804~menuPK:2246552~pagePK:2865106~piPK:2865128~theSitePK:223547,00.html, accessed on 3 September 2014.5 Intergovernmental Panel on Climate Change (IPCC), Fifth Assessment Report of the IPCC, Asia Chapter, Cambridge: Cambridge University Press, 31 March 2014. 6 Ibid.

153


nine largest rivers of Asia. In the rainy seasons, these glacial melts, coupled with heavy rain, may cause flood which might hamper the lives and livelihoods of the people of the region. About 600 million South Asians are subsisting on less than US$1.25 a day.7 Even a small climate related hazard can cause irreversible damage for a large number of people. The region also suffers from a large number of natural disasters. From 1990 to 2008, more than 750 million people were affected by natural disasters which caused death of about 60,000 people and about US$45 billion in damages.8

It is evident that the SAARC member states are facing severe consequences of global climate change. In May 2011, the then SAARC Secretary General mentioned that over the past forty years, South Asian countries faced as many as 1,333 disasters that killed 980,000 people, affected 2.4 billion lives and damaged assets worth US$105 billion.9 It is expected by member states that SAARC will work collaboratively on this issue as poor, hot and largely agrarian South Asian region will severely suffer mainly due to rise of cumulative temperatures.

The low-lying areas of South Asia or large deltas and coastal areas of the region could be inundated by sea level rise. Various projections refer that climate variations among the SAARC countries will be varied and heterogeneous with some countries experiencing more intense precipitation and increased flood risks while others encounter sparser amount of rainfalls and droughts.

Among the members of SAARC, Bangladesh ranks first to face the vulnerabilities of global climate change.10 The people of the country are facing impacts of climate change at a regular interval. Climate change has affected the agriculture of the country that forced people to migrate from rural to urban areas.11 Cyclone ‘Aila’ hit Bangladesh in 2009 which forced 200,000 people of Southwestern part to migrate from homes and the damage totaled US$269.28 million.12 In fact, almost every year, people of Bangladesh are affected by extreme events like floods, droughts and cyclones. Under the current trends of climate change, per capita water availability

7 Ejaz Ghani, “The Poor Half Billion: What is Holding Back Lagging Regions in South Asia?”, The Center for Economic and Policy Research’s Portal, 28 October 2010.8 The World Bank, “Kathmandu to Copenhagen: A Regional Climate Change Conference”, 31 August 2009.9 Cited in Suman Sharma, “Existential Threat to Human Security in South Asia and Regional Response: A Case Study of Climate Change and SAARC Initiatives”, World International Studies Committee, July 2011, available at http://www.wiscnetwork.org/porto2011/getpaper.php?id=573, accessed on 12 December 2014.10 David Braun, “Bangladesh, India Most Threatened by Climate Change, Risk Study Finds”, National Geographic, 20 October 2010.11 “Scoping Assessment on Climate Change Adaptation in Bangladesh”, Regional Adaptation Knowledge Platform for Asia, October 2010, Adaptation knowledge Platform, available at http://www.climateadapt.asia/upload/publications/files/4d81c35109ddfScoping_Assessment_on_Climate_Change_Adaptation_in_Bangladesh.pdf, accessed on 15 December 2014.12 “Cyclone Aila Losses in Bangladesh Estimated at 269 mln USD,” Relief Web, 22 June 2009, available at http://reliefweb.int/report/bangladesh/cyclone-aila-losses-bangladesh-estimated-269-mln-usd, accessed on 3 September, 2014.

154


in 2025 will become 7,670 cubic metres against 12,162 cubic metres in 1991.13 Such reduction will affect the huge population of Bangladesh during the dry season while the current availability is already very low in the country.14 The Southwestern part of the country is affected by salinity problem. The reduced flow of Ganges water during the dry season has exacerbated the process. Erosion in coastal areas of Bangladesh is another issue of concern.15 In addition, there is concern that reduction of melted water in the Brahmaputra Basin will further reduce river water for irrigation. In coastal areas, it is likely that sea level rise will increase the salinity of groundwater.16Such complex changes will have adverse impacts on the agricultural system and food production of the country.

India is also one of the major victims of climate change. By one estimate, climate change will cause a 30-40 percent drop in India’s agricultural output by 2080.17 It is projected that under the scenario of 2.5ºc to 4.9ºc temperature rise, rice yields will drop by 32-40 percent and wheat yields by 41-52 percent and this would cause Gross Domestic Product (GDP) to fall by 1.8-3.4 percent.18 A World Bank study reveals that about 700 million people of India will be forced to migrate from rural to urban areas due to the adverse impact of climate change on agriculture.19 Climate change may cause a rise of up to 4ºc in surface air temperature by 2100 and a rising number of extreme weather events, such as droughts, floods and cyclones in India.20 Furthermore, anomalies in global climate pattern pose serious threat to the urban water supply of India. According to IPCC, by the year 2030, Himalayan glaciers will shrink from 500,000 km² to 100,000 km² affecting north Indian rivers where 50 percent of water comes from snow melt.21

Pakistan has an area of over 88 million hectares which includes a variety of landscape ranging from high mountain ranges to stark deserts. The Indus River and its tributaries dissect the country, providing a source of the world’s largest contiguous irrigation network. However, in spite of this positive attribute, the country is also affected by climate change. It could make the country more vulnerable to natural 13 Ahsan Uddin Ahmed, “Bangladesh Climate Change Impacts and Vulnerability”, Climate Change Cell, Dhaka, Department of Environment, Government of Bangladesh, 2006, p. 13.14 Ibid.15 Anwar Ali, “Climate Change Impacts and Adaptation Assessment in Bangladesh”, Climate Research, Vol. 12, Dhaka, 1999.16 Peter Davis, “Exploring Local Perceptions of Climate Change Impact and Adaptation in Rural Bangladesh”, International Food Policy Research Institute, February 2014. 17 “SAARC Chasm South Asia Discusses Regional Friendship”, The Economist, 30 July 2008. 18 Anupam Khajuria and N.H. Ravindranath, “Climate Change in Context of the Indian Agricultural Sector”, Journal of Earth Science and Climatic Change, Vol. 3, Issue 1, 2012.19 “SAARC Summit Should Address Climate Change Issue”, Times of Assam, 9 November 2011.20 “Climate Change Adaptation in Rural Areas of India”, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), available at http://www.giz.de/en/worldwide/16603.html, accessed on 14 September 2014. 21 K. Shadananan Nair, “An Assessment Of The Impact Of Climate Change On The Megacities Of India And Of The Current Policies And Strategies To Meet Associated Challenges”, Fifth Urban Research Symposium, 2009, available at http://siteresources.worldbank.org/INTURBANDEVELOPMENT/Resources/336387-1256566800920/6505269-1268260567624/Nair.pdf, accessed on 15 September 2014.

155


disasters. This phenomenon in Pakistan is expected to increase glacial melt, sea level rise along its coast and increase periods without precipitation. Its diverse geography exposes it to a large number of hazards and the highly dense population that resides in disaster prone areas makes the country vulnerable to adverse effects of natural calamities. Due to various climate related disasters in past 40 years, the total death toll exceeds 90,000 and total recorded losses from disaster amounted to US$20 billion, including the US$10 billion losses caused by the 2010 flood.22 According to a study, by 2020, the temperature in Pakistan is expected to increase by 0.90c doubling to 1.80c by 2050. Scenarios for sea level rise include 20 cm by 2020 and 30 cm by 2050.23 In Pakistan, potentially huge and rapid reductions in Indus' flows, coupled with intensified droughts and sea level rise, will require major livelihood transitions and economic transformation with consequent risks of social upheaval.24

Sri Lanka is also vulnerable to the effects of global climate change as major parts of Jaffna and other northern areas of Sri Lanka will be submerged when the sea level will rise.25 Climate change will bring dire consequences for the country for water, agriculture, health and coastal regions. As there are early signs of impacts, there are strong possibilities to reach serious proportions by 2025. 26 Therefore, any adverse changes in already volatile weather patterns are likely to impact on the socio-economic activities of the country.27 In case of climate change, Sri Lanka might experience widespread effects, including climate variability and sea level rise, directly affecting the overall abundance and security of endemic species within the country.

Along with Bangladesh, Maldives is also at a high stake of global climatic change. The country consists of about 1,200 islands on the Indian Ocean. Asian Development Bank Economic Report for South Asia revealed that if the climate change would not be checked, Maldives would face losses of over 12 percent of its GDP by the end of this century and 1 metre sea level rise would inundate 66 percent of the archipelago’s land area which would affect tourism industry, the lifeline of the country’s economy.28 The natural beauty and tourism industry of Maldives is mainly centred on its beautiful sea beach which represents 5 percent of the country’s total land area. It is to be noted that more than 97 percent inhabitants of islands reported beach erosion in 2004, of which 64 percent reported severe erosion and more than 45

22 “Disaster Risk Management in South Asia: A Regional Overview”, op.cit.23 Karen O’ Brien, “Developing Strategies for Climate Change: The UNEP Country Studies on Climate Change Impacts and Adaptation Assessment”, Cicero Report, University of Oslo, July 2010. 24 “Kathmandu to Copenhagen: A Regional Climate Change Conference”, op.cit.25 Florita Gunasekara, “Climate Change and Ethnic Conflict in North East Sri Lanka”, ICE Case Studies, No.241, July 2011.26 “Comment: SAARC Summit Should Make a Bridge to Face Climate Change”, Relief Web, 10 November 2011.27 “Preamble of the National Climate Change Policy of Sri Lanka”, available at http://www.preventionweb.net/files/28587_climatechangepolicyenglish.pdf, accessed on 26 October 2014. 28 Asian Development Bank (ADB), “Maldives Most At-Risk Economy in South Asia from Climate Change–Report”, 19 August 2014, available at http://www.adb.org/news/maldives-most-risk-economy-south-asia-climate-change-report, accessed on 11 September 2014.

156


percent of the country’s 87 tourist resorts have also reported about severe erosion.29 In the long run, climate change will threaten the entire country’s existence. The highest point of the country is 8 feet above sea level.30 Therefore, the country will be severely affected by global sea level rise. Along with rising sea levels, increased beach erosion, more powerful storms, higher storm surges and threats to biodiversity are among the major threats to the Maldives due to climate change over the coming decades.31

Nepal is a country of diverse climatic conditions, ranging from tropical in the south to alpine in the north. The country is facing problems like drought and flooding and there are possibilities that these will be magnified by climate change in future. In 1999, Shrestha et.al., suggested that temperatures were increasing in Nepal and rainfall was becoming more variable. A decade later, in 2009, a modeling exercise conducted by a team of Nepali, American, British, Pakistani and Bangladeshi experts using the emissions scenarios in the IPCC’s special report (2007), found that the temperature would indeed increase in the mid-hills and the region was likely to grow more arid in non-monsoon seasons. It also suggested that precipitation was likely to be more uncertain and that storm intensity would increase.32

Another small country of South Asia, Bhutan straddles between two major biogeographic realms, the Indo-Malayan and Paleractic and is part of the Eastern Himalayan region which contains part of three global biodiversity hotspots, 60 ecoregions, 330 bird areas, 53 important plant areas, a large number of wetlands and 29 Ramsar sites. Bhutan is a country of diverse array of flora and fauna including 5,603 species of vascular plants, 400 lichens, 200 mammals and about 700 birds.33 In future, climate change is likely to affect Bhutan in various ways e.g., changes in hydrological cycles like lower winter in streams and intense monsoon rains may affect present level of drinking water of the country. As 80 percent of Bhutanese practice subsistence farming, climate change can cause changes in temperature which will increase the vulnerability of a large group of this population.34 In addition, climate change will affect forests, biodiversity as well as human health badly with increasing number of natural disasters. 29 “National Adaptation to Climate Changes,” Ministry of Housing, Transport and Environment of the Maldives, Background Paper, available at http://www.ifrc.org/docs/IDRL/Nationalpercent20Adaptationpercent20Programmepercent20(Climatepercent20change))/MALDIVES percent20Adaptationpercent20topercent20Climatepercent20Change.pdf, accessed on 11 September 2014.30 Justin Hoffmann, “The Maldives and Rising Sea Levels”, ICE Case Studies, No.206, May 2007.31 Intergovernmental Panel on Climate Change, Third Assessment Report: Climate Change 2001, Chapter 17: Small Island States, Executive Summary, Cambridge: Cambridge University Press 2001.32 S Solomon (ed.), “Climate Change 2007: the physical science basis”, Contribution of Working Group 1 to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge: Cambridge University Press, 2007, pp. 1-996.33 “National Action Plan Biodiversity Perspective and Climate Change Bhutan”, Climate Change for a Living Himalayas, Bhutan, 2011, available at http://www.nbc.gov.bt/40wp-content/uploads/2010/06/National-Paper-on-Biodiversity-and-Climate-Change-_Bhutan1.pdf, accessed on 24 December 2014.34 “Climate Change Impacts and Adaptation in Bhutan”, National Environment Commission/Hydro-met Services Division, Department of Energy, Ministry of Economic Affairs, Thimphu, Bhutan, available at http://www.editoria.u-tokyo.ac.jp/projects/awci/6th/GEOSS-AP_bali_100311/pdf/D2_WG-2_S3/D2_WG-2_S3-3_KARMA_Bali_Bhutan_Presentation.pdf, accessed on 24 December 2014.

157


Afghanistan is the last country to join SAARC in 2007. The country is mountainous and very dry which is located in the arid subtropics at 9-37º north of the equator. It has an arid and semi-arid continental climate with cold winters and hot summers. Due to climate change, Afghanistan is currently suffering from droughts. Available data and trends from neighbouring countries indicate that mean annual temperature has increased by 0.6 º c since 1960, at an average rate of around 0.13 º c per year.35

According to the IPCC report,36 people living in developing countries in low altitudes, particularly those along the coast of Asia will suffer the most. The scientists who prepared the draft report also mentioned that hundreds of millions of people would be affected by coastal flooding and land loss due to global temperature rise, ice caps melt and sea level rise. The majority of it would be in East, Southeast and South Asia. Some small island states are expected to face very high impacts. Hence, countries like Bangladesh and Maldives have possibilities to become worst sufferers. The consequences of climate change will be drastic for the region as about 70 percent of South Asians lives in rural areas and account for about 75 percent of the poor, who are the most impacted segments by climate change.37

Due to geographical contiguity, the countries of South Asia have to face common problems and the problems of one country have spillover impacts for other countries. The countries need an integrated effort to face the common calamity of climate change.

3. SAARC on Climate Change

The IPCC AR5 emphasised on regional effort to address climate change challenges.38 As a regional entity, SAARC needs to take necessary steps to address climate change calamities in South Asia. SAARC has given a platform for its member countries to work in a body on climate change issue. In this regard, motivating aspects of such cooperation would be common experiences of facing climate change and geographical proximity.

Since 1987, heads of states of SAARC member states at successive summits have been reiterating the need to strengthen regional cooperation to preserve, protect and manage the diverse and fragile ecosystems of the region including 35 Matthew Savage, Dr. Bill Dougherty, Dr. Mohammed Hamza, Dr. Ruth Butterfield, Dr. Sukaina Bharwani, "Socio-Economic Impacts of Climate Change in Afghanistan", available at http://www.nesci.edu/afghanistan/pdf_data_2007447_Afghancc_Exs_09Mar09.pdf, accessed on 20 February 2015.36 IPCC, “Climate Change 2014: Impacts, Adaptation, and Vulnerability-Summary for Policymakers”, 2014.37 “Climate Change Impacts-South Asia”, The Global Mechanism, available at http://www.ifad.org/events/apr09/impact/south.pdf, accessed on 27 October 2014.38 Y., E. Lin, J. J. Pereira, R.T. Corlett, X. Cui, G.E. Insarov, R.D. Lasco, E. Lindgren and A. Surjan, Climate Change 2014: Impacts, Adaptation and Vulnerability. Part B: Regional Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge: Cambridge University Press, 2014, p.1352.

158


the need to address the challenges posed by climate change and natural disasters.39 During the third summit of 1987, SAARC adopted “Regional Study on the Causes and Consequences of Natural Disasters” and the “Protection and Preservation of the Environment”. In the next summit (Islamabad 1988), participants decided to undertake a joint study on “greenhouse effects and its impact on the region”. The study was aimed to provide a basis for an action plan for meaningful cooperation among member states and that was completed in 1992.40 In the same year, a technical committee on environment was formed. Besides the high level meetings, SAARC environment ministers have met eight times since 1992 and they had another two meetings in the aftermath of Indian Ocean Tsunami in May 2005 and a SAARC Ministerial Meeting in Dhaka in 2008.

In addition, in recent years SAARC has taken into account the climate change issue in agenda. It can be mentioned that climate change was the theme of the 16th SAARC Summit and the heads of the states of SAARC members adopted the “Thimphu Statement on Climate Change”. The 15th SAARC Summit Declaration, held from 2-3 August 2008, Colombo, Sri Lanka, concluded with the adoption of the Colombo Declaration and the Colombo Statement on Climate Change and Food Security.41 In the declaration titled “Partnership for Growth for Our People”, the heads of the states of SAARC members reiterated the need for concerted efforts on combating climate change.

Table 1: The initiatives of the heads of the governments in the high level meetings SAARC Summit Time and Venue Action

3rd SAARC Summit 1987, Kathmandu Member states adopted “Regional Study on the Causes and Consequences of Natural Di-sasters and the Protection and Preservation of the Environment”.

4th SAARC Summit 1988, Islamabad Participants decided to undertake a joint study on the “Greenhouse Effects and its im-pact on the Region.”

14th SAARC Summit 2007, New Delhi Participants expressed ‘deep concern’ over the global climate change and called for pursuing a climate resilient development in South Asia.

15th SAARC Summit 2008, Colombo The organisation made “Colombo Declara-tion and the Colombo Statement on Climate Change and Food Security”.

39 “Areas of Cooperation”, SAARC, available at http://saarc-sec.org/areaofcooperation/cat-detail.php?cat_id=54, accessed on 27 August 2014.40 Ibid.41 “Fifteenth SAARC Summit Declaration Addresses Climate Change and Food Security”, Climate Change Policy and Practice, 3 August 2008, available at http://climate-l.iisd.org/news/fifteenth-saarc-summit-declaration-addresses-climate-change-and-food-security/, accessed on 5 February 2015.

159


16th SAARC Summit 2010, Thimphu Climate Change was the theme of the sum-mit and heads of the governments adopted the Thimphu Statement on Climate Change.The Inter-governmental Expert Group on Cli-mate Change (IGEG CC), established by the Thimpu Statement.SAARC Convention on Cooperation on En-vironment was also signed by the Ministers of Foreign/External Affairs of Member States during the Sixteenth SAARC Summit.

Apart from the above mentioned initiatives, the 1997 SAARC Environment Action Plan, the Dhaka Declaration and the Comprehensive Framework on Disaster Management (2006-2015) are important steps of SAARC in addressing climate change Issue.

The 16th SAARC Summit was the most important one in which SAARC expressed its commitment to work on climate change. In the Thimphu Statement on Climate Change, heads of states expressed deep concern about the adverse effects of climate change and its impact on the region, particularly on the lives and livelihoods of the 1.6 billion people of South Asia.42 The countries agreed to undertake 16 vital steps. Among those, some important agreements are - to establish an Inter-governmental Expert Group on Climate Change to develop clear policy direction and guidance for regional cooperation as envisaged in the SAARC Plan of Action on Climate Change; plant ten million trees over the next five years (2010-2015) as part of a regional afforestation and reforestation campaign, in accordance with national priorities and programmes of member states; evolve national plans and where appropriate regional projects, on protecting and safeguarding the archaeological and historical infrastructure of South Asia from adverse effects of climate change; commission a SAARC Inter-governmental Climate-related Disasters Initiative on the integration of Climate Change Adaptation (CCA) with Disaster Risk Reduction (DRR) to be supported by SAARC Disaster Management Center.43

Hence, some key instruments of SAARC on climate change and their implementation status44 are given below:

a. The SAARC Environment Action Plan was adopted by the Third Meeting of SAARC Environment Ministers.

b. A Comprehensive Framework on Disaster Management 2006-2015 was adopted in 2006 to address the specific needs of disaster risk reduction and management in South Asia. Till 2014, member states were in the process of preparing

42 Ibid.43 Ibid.44 “Areas of Cooperation”, op.cit.

160


their respective National Plans of Action for implementation of the Regional Framework and then an Expert Group Meeting would harmonise the national reports and articulate a Regional Plan of Action.

c. The Eighth Meeting of SAARC Environment Ministers adopted “the Delhi Statement on Cooperation in Environment (2009)” which identifies critical areas that need to be addressed and reaffirms the commitment of member states towards enhancing regional cooperation in the area of environment and climate change. However, any evidence about the implementation process is not mentionable.

d. The 16th SAARC Summit (Thimphu, 2010) adopted the “Thimphu Statement on Climate Change”, which outlines a number of initiatives45 at the national and regional levels to strengthen and intensify regional cooperation. IGEGCC was established according to the Thimphu Statement.

e. “The SAARC Convention on Cooperation on Environment” was signed during the 16th Summit and after ratifying that entered into force on 23 October 2013.

f. “The SAARC Agreement on Rapid Response” was signed at the 17th Summit (Maldives, 2011) and will come into force after completion of ratification process by all member states.

SAARC countries also took common position in some multilateral meetings. In the Conference of the Parties 15(COP15) in Copenhagen, SAARC’s common position was presented by Sri Lanka as the SAARC Chair. After an Intergovernmental meeting held in Bhutan in August 2010, SAARC’s position for COP 16 was finalised and the common position of SAARC was presented at COP 16 by Bhutan. SAARC in previous years became able to extend cooperation with some intergovernmental entities. Among those initiatives, some are SAARC’s signing of several Memoranda of Understanding (MoU) with South Asia Cooperative Environment Programme (SACEP) in 2004, United Nations Environment Programme (UNEP) in 2007 and the United Nations International Strategy on Disaster Reduction (UNISDR) in 2008.46 Over the years, SAARC has initiated disaster management training, food bank etc. These endeavours have created possibilities to reduce the disaster and climatic extreme events.

45 The initiatives of Thimphu Statement on Climate Change include review the Dhaka Declaration and SAARC Action Plan on climate change and ensure its timely implementation, agree to establish an Inter-governmental Expert Group on Climate Change, undertake advocacy and awareness programmes on climate change to promote the use of green technology and best practices to promote low-carbon sustainable and inclusive development of the region and establishing Institutional linkages among national institutions.46 Ibid.

161


4. An Appraisal

Over the years, SAARC regional efforts in responding to the challenges of climate change are neither short on rhetoric nor on inaction.47 However, there is a basic lack of political will both at global and regional levels.48 Being a common platform for South Asian countries, SAARC owes a unique opportunity for bringing noteworthy changes in the lives of the South Asian people. Although, climate change issue has been in focus right from the 3rd SAARC Summit of 1987, there is not much tangible outcome on this issue.49 There were different projects taken on climate change issue but implementation is very slow. For example, the recommendations of the regional study on greenhouse effect and its impact on the region, completed in 1993, have not yet been implemented. Moreover, no visible outputs are yet seen from the Coastal Zone Management Centre in Maldives (2005) and Forestry Centre in Bhutan (2008). Even the Dhaka Declaration and SAARC Plan of Action on Climate Change (2008) was not succeeded to portray SAARC as a single entity at Copenhagen.50 It is also observed that the 18th SAARC Summit held in Kathmandu, Nepal in November 2014 also failed to bring any substantial outcome on climate change issue.51

It is evident that SAARC members often lack political consensus on important issues. In South Asia, conflicting national interests produced complex relationships which have long been existing between and among states. Despite the belief that environmental issues might be less controversial, consensus has still been limited and this lack of consensus has extended into climate change issues as well.52 The lack of regional approach and its cost are generally paid by the lives of the general people of this region. The regional approach to disaster management and adaptation of a comprehensive road map to define resource allocation and policy guidelines are still not satisfactory for the South Asian people.

South Asia is a poverty infested region, where inhabitants are more vulnerable to climate change. Hence, any initiative related to climate change will have to support the poor people of this region and try to rapidly move them out of poverty. Enhancing their income will accelerate their purchasing power which in a larger regional context will work on poverty reduction and reducing climate vulnerabilities simultaneously. This will also work to reduce large scale internal migration from rural to urban areas.

It is seen that due to climate change, farmers become the worst sufferers. Therefore, SAARC should take special care on this issue. Although SAARC has initiated

47 Suman Sharma, op.cit.48 Ibid.49 “SAARC Must Get Serious on Climate Pact”, The Economic Times, 4 May 2010.50 Ibid.51 “SAARC Summit Debriefing”, The Diplomat, 2 December 2014.52 Michael H. Glantz, “The Role of Regional Organizations in the Context of Climate Change”, NATO ASI Series; Series 1 Global Environmental Change, Vol.14, Germany: Springer Science & Business Media, 2013, p. 28.

162


some steps like the formation of SAARC Regional Agricultural Information Centre, disaster management training and food bank, these need functioning. Simultaneously, pragmatic steps should be taken to educate farmers with adaptive farming practices like low tillage or crop rotation. SAARC also should pay more attention on climate change research funding to mitigate the losses from climate change. Besides, SAARC should form a monitoring committee on climate change issue which will monitor updates about implementation of different agenda set by previous SAARC summits. The Secretary General of SAARC should be the key person to take necessary steps according to the reports of the committee.

SAARC’s commitment to work on regional cooperation in some cases is not considered as successful. One of the examples may be the July-August 2010 devastating flood which hit Pakistan. The flood not only destroyed infrastructure in several areas but also affected a huge population of approximately 20 million people. Except for a pledge of a meagre US$32 million by SAARC countries, there was virtually no action to help the member state. The incident happened only few months after (2010) the Silver Jubilee Climate Theme oriented SAARC Summit held at Thimphu, Bhutan.53 In fact, SAARC over the years has become captive of bilateral contentious politics in South Asia. Member states have to play effective role in promoting the agenda of regional cooperation. 54

There is an obvious political difficulty of suspicion and lack of trust amongst some key countries which work as obstacle in achieving regional perspective.55 One common strategic constraint facing all South Asian countries in international collaboration on climate change is the collective action dilemma. All countries want to avoid a “sucker’s payoff”65 in the strategic game of climate change cooperation.57

South Asia is vulnerable to the impacts of climate change and this will significantly affect the human security in the region. Although SAARC has had the unique opportunity to handle the issue and over the years, it has initiated and made progresses, the governance structure of SAARC has restricted this regional entity from increasing potential regional cooperation in South Asia.58 It is worth quoting from an Indian scholar Dr Suman Sharma, who opined that,

53 Suman Sharma, op.cit.54 Ibid.55 “The SAARC: A Bloc Whose Time Has Come”, The Diplomat, 18 October 2014.56 Suckers payoff is a social dilemma which involve a conflict between a cooperative strategy, benefitting the group but potentially costly to the individual, and a defection strategy, detrimental to the group but benefiting the individual.57 “Asia’s Response to Climate Change and Natural Disasters Implications for an Evolving Regional Architecture”, A Report of the CSIS Asian Regionalism Initiative, Center for Strategic and International Studies, July 2010, available at http://csis.org/files/publication/100708_Freeman_AsiasResponse_WEB.pdf, accessed on 22 December 2014.58 Dr. A. Atiq Rahman, “Regional Cooperation to Combat Climate Change”, Bangladesh Centre for Advanced Studies, available at http://www.bcas.net/article-full-desc.php?article_id=11, accessed on 26 October 2014.

163


“The common position adopted by SAARC during global negotiations on climate change is no consolation for the poor record on responding to disasters and joint efforts at modifying policy and action to adapt to and mitigate the threat of climate change. India, in any case, has joined other groupings like Brazil, South Africa, India and China (BASIC) countries while indulging in bargaining on behalf of developing countries. The deliberations of Cancun conclave in 2010 have further eroded any significance of common regional positions at climate negotiations. The common SAARC posture in global climate sweepstakes, therefore, is more of an ornamental value aimed at deceiving regional population that SAARC is together in responding to the threats of climate change.”59

5. Conclusion

Climate change and its dire consequences e.g., increasing number of natural disasters and their threatening impacts can bring paradigm shifts on lives and livelihoods of South Asian people. As environmental causes go beyond national boundaries, regional collaborative approach is required to face such challenges. In the era of globalisation, collective efforts can accelerate the phase of national, regional and global development. Regional cooperation through regional organisations can become change makers for respective countries.

It is evident that SAARC nations are facing severe consequences of global climate change. Due to geographical contiguity, the South Asian countries face common problems and the problems of one country have spillover impact for other country. As the leading regional body, SAARC is expected to play an important role in mitigating negative impacts of climate change in South Asia. Although the issue has been in focus right from the 3rd SAARC summit of 1987, there is not much tangible outcome on this issue. There were different projects taken on climate change issue but implementation is very slow. Therefore, combined efforts are needed to mitigate the negative consequences of climate change emanated calamites.

In this regard, to address the climate change issue, SAARC should adopt a comprehensive road map to define resource allocation and policy guidelines based on integrated approach which will help decision makers, policymakers, scientists and academicians to act better in coming days. In the context of South Asia, all actors including central and local governments and their agencies, local and international NGOs, development partners, civil society and environment partners should move together in a coordinated way. As the countries have common experience of facing climate change, they should exchange more

59 Suman Sharma, op.cit.

164


information. Resource constraint is a big problem in South Asia; therefore, SAARC should put more emphasis on resource mobilisation to mitigate climate change impacts. As climate change related risks are high in this region, it is needed to respond proactively to build resilience through prevention and preparedness rather than through relief and responses.

The countries of South Asia need to view the problem through a regional lens to reduce the costs of climate change and work in a body coming out from narrow national interests. If they can work from a common platform and with a same tune, it is expected they can achieve desired goals.

165


Sajid KarimGazi Quamrul Hasan

motor vehicle aGreement Between BanGlaDesh Bhutan inDia anD nepal: implications anD challenGes

Abstract

This paper takes an attempt to analyse the Motor Vehicle Agreement (MVA) among four South Asian nations namely Bangladesh, Bhutan, India and Nepal (BBIN) signed on 15 June 2015 to ensure cross border movement of personal, passenger and cargo vehicles. The paper argues that in spite of having several implementation challenges, this MVA paves the way to much needed multimodal transport connectivity among South Asian countries to foster rapid and sustainable economic growth and development through inter-and-intra-regional cooperation.

1. Introduction

In the era of globalisation, connectivity is considered as one of the most crucial factors in any regional or sub-regional cooperation. Despite being habitat of more than 1.6 billion1 people, South Asia is still one of the most disconnected regions of the world with missed opportunities and high cost of doing business.2 Mutual distrust, political antagonism and lack of transport facilities have always hindered potential trade opportunities among South Asian countries; constraining regional connectivity confined to discussion tables and compelling the dream of integration to linger as an elusive agenda.

Several attempts were made in the past to broaden the scope of connectivity and trade within the region to foster regional integration, but none of them was successful due to sub-regional power tussle. To break the shackle and begin the process of regional integration, the Indian Prime Minister Narendra Modi at the 18th

South Asian Association for Regional Cooperation (SAARC) Summit at Kathmandu in November 2014 stated that regional integration in South Asia would go ahead“through SAARC or outside it, among all of us or some of us.”3

Sajid Karim is Research Officer at Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka. His e-mail address is: [email protected]; Gazi Quamrul Hasan is Senior lecturer at the Department of Economics, East West University. His email address is: [email protected]

© Bangladesh Institute of International and Strategic Studies (BIISS), 2015.1 “SAARC in Figures 2014”, SAARC Group on Statistics, available at http://www.saarcstat.org/content/saarc-figures, accessed on 1 April 2015.2 Paper presented by Mustafizur Rahman, on “Trade Facilitation in South Asia through Transport Connectivity: Operationalising the Motor Vehicle Agreements (MVAs)” in a Seminar organised by Center for Policy Dialogue (CPD) on 20 June 2015. 3 Sridhar Ramaswamy, “A Boost to Sub-Regionalism in South Asia”, The Diplomat, 21 June 2015.

166


A major push towards sub-regional cooperation was exerted when four out of the eight nations of SAARC signed an agreement on 15 June 2015 titled “Motor Vehicle Agreement for the Regulation of Passenger, Personal and Cargo Vehicular Traffic Between Bangladesh, Bhutan, India and Nepal (BBIN-MVA)”. The agreement is to facilitate seamless movement of passenger, personal and cargo vehicles within the territories of partner countries. Signing of the agreement is now considered as a major leap towards materialising the concept of sub-regional integration through greater connectivity in South Asia.

The main objective of this paper is to analyse the newly signed BBIN-MVA. This paper attempts to address the following research questions: What are the salient features of the BBIN-MVA? What may be the implications of the agreement? What will be the major challenges to implement this agreement? For the convenience of discussion, this paper is divided into six sections including introduction and conclusion. Followed by introduction, the second section highlights the necessity of BBIN-MVA. The third section presents key issues of the agreement. The fourth section analyses the implications. The fifth section discusses several challenges of the agreement. Finally, a conclusion has been drawn.

2. Growing Importance of Connectivity in South Asia: A Call for Sub-Regionalism

Approximately one fifth of the world’s total population is living in South Asia, making it one of the largest consumer bases of goods and services. Besides, all South Asian countries except Afghanistan are experiencing rapid economic growth and the region is considered as one of the fastest growing economic regions of the world.4 Despite this, SAARC, the regional forum of South Asian countries, is lagging far behind compared to other economic blocs in terms of intra-regional trade. For instance, in 2012, SAARC’s intra-regional trade was only 4.3 percent of the total South Asian trade, whereas its adjacent economic bloc, the Association of Southeast Asian Nations (ASEAN) had almost 26 percent intra-regional trade in the same year.5 The following pictorial presentation makes a comparison of intra-regional trade among different economic blocs around the world.

4 M. Rahmatullah, “Transport Issues and Integration in South Asia”, in Sadiq Ahmed, Saman Kelegama and Ejaz Ghamni (eds.), Promoting Economic Cooperation in South Asia: Beyond SAFTA, New Delhi: Sage Publication, p. 175. Growth rate of SAARC countries in 2014 are shown in Annex 1.5 Akanksha Arora, “Motor Vehicle Agreement: A Path-Breaking Endeavor for SAARC Nations?”, Model Governance Foundation, 02 March 2015, available at http://modelgovernance.com/motor-vehicle-agreement-a-path-breaking-endeavor-for-saarc-nations/, accessed on 2 April 2015.

167

MOTOR VEHICLE AGREEMENT

Figure 1: Intra-regional Trade as a Percentage of Total Trade

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%SAARC ASEAN East Asia European Union

Economic Blocs

4.30%

26%

42%

62%

Perc

enta

ge

Source: Compiled from Akanksha Arora, “Motor Vehicle Agreement: A Path-Breaking Endeavor for SAARC Nations?”, Model Governance Foundation, 2 March 2015; “Intra-EU Trade in Goods – Recent Trends”, Euro-stat: Statics Explained, May 2014, available at http://ec.europa.eu/eurostat/statistics-explained/index.php/Intra-EU_trade_in_goods_-_recent_trends, accessed on 30 April 2015.

The table clearly shows that intra-regional trade in other economic blocs are much higher compared to South Asian countries. Lack of connectivity, especially multimodal transport connectivity is one of the reasons behind this observed phenomenon. Fragmented surface networks among the member countries not only hinder intra-regional trade but also impede the idea of flourishing regionalism in South Asia.6

In this backdrop, with an ambition to initiate a new horizon of connectivity and to nurture the theme of regionalism, BBIN-MVA was signed. It expects to foster economic growth and development through trade and trust building among the signing countries.

3. BBIN-MVA: An Overview

3.1 Background of the agreement

Dream of greater regionalism through seamless connectivity was revived at the 12th SAARC Summit in 2004 when SAARC countries realised the importance of connectivity and emphasised on strengthening transport, transit and communication link across the region. For the last eleven years, different initiatives were taken at various levels to address the issue. But, lack of strong political commitment led to a stagnated situation where member countries were unable to finalise any such arrangement. In February 2015, India took the initiative to sign an agreement with the support of Bangladesh, Bhutan and Nepal which led towards BBIN-MVA.7

6 M. Rahmatullah, op. cit., p. 176.7 Roadmap to BBIN-MVA is detailed in Annex 2.

168


3.2 Salient Features of BBIN-MVA

The BBIN-MVA is drafted on the lines of SAARC-MVA with 17 articles and 63 sub-articles. This agreement has several directions, regulations, restrictions and limitations. This section takes an attempt to discuss the salient features of BBIN-MVA.

The MVA will allow movement of passenger, personal and cargo vehicles among four of the partner countries. It specifies that a permit will be required along with other valid documents like registration certificate, fitness certificate, insurance policy, permit, pollution under control certificate, driving license, passport, internationally recognised travel documents, passenger list etc to move among BBIN. To ensure effective communication, this agreement highlights that at least one member of the vehicle must have the ability to communicate in English or in a language understood in transit or in the destination country. Under this agreement, transportation of local passengers and goods within the territory of other partner country is strictly prohibited. There is a provision in the MVA that no major repair work is permitted in another partner country unless there is an accident or break down. In case of border, land port or dry port formalities, customs and quarantine formalities, taxation and fees, the provisions of internal law or agreement between partner countries will be applied. In case of overstay in any partner country due to any kind of unavoidable circumstances, a member of the driving crew has to notify the situation to the concerned authority for the required period. To ensure national security and restrict border smuggling, authority is given to the partner countries to inspect and search vehicles inside its territory operating under this agreement. Movement of prohibited and restricted goods is also not permitted. An important provision of this MVA is, it is an open ended agreement and any other country may enter into the agreement with prior consensus among the existing partner countries and any existing country may withdraw from this agreement at any time also. This agreement will come into force after completion of formalities including ratification by all partner countries.

3.3 Six Month Work Plan for BBIN-MVA

In the Joint Statement released on the occasion of signing, four ministers of BBIN decided to operationalise the MVA in a phased manner from July 2015 to December 2015. The following table highlights the work plan of finalising the protocols and formalising the agreement.

169


Table 2: Six Month Work Plan for BBIN-MVAJuly Preparation of multilateral agreements/protocols for the implementation

August Formalisation of BBIN-MVA

September Negotiation and approval of preparation of multilateral agreements/protocols

October Staged implementationBBIN Friendship Motor Rally

November Trial run continues

December Installation of the prerequisites for implementing the approved agreement

Source: Joint Statement on the meeting of the Ministers of Transport of Bangladesh, Bhutan, India, and Nepal on the Motor Vehicles Agreement, Ministry of External Affairs, Government of India, 15 June 2015.

According to the six month work plan, preparation of multilateral agreements or protocols for the implementation of the BBIN-MVA will start from July 2015. Formalisation of the agreement including the protocols in Annexures 1 and 2 will be done by August 2015. After that, multilateral agreeemnts and protocols of the preparation of the agreement will be approved by BBIN in September 2015. In October 2015, the signing countries are expecting to hold a Friendship Motor Rally to highlight the sub-regional connectivity and the scope and opportunities for greater people-to-people contact and trade under BBIN initiative. Trial run will continue throughout November and installation of the prerequisites for implementing the approved agreement (e.g. IT systems, infrastructure, tracking, regulatory systems) is expected to be finished by December 2015.

3.4 Possible Routes for BBIN-MVA

Partner countries have not yet decided which will be the official routes of BBIN-MVA. But in 2006, SAARC Secretariat had conducted SAARC Regional Multimodal Transport Study which identified 10 road corridors within SAARC countries. Among those road corridors, the following table illustrates some of the possible routes which can be utilised for cross border vehicle movement under this agreement.

Table 3: Possible Routes for BBIN-MVABangladesh- India Routes

Bangladesh-India-Bhutan Routes

Bangladesh-India-Nepal Routes

India-Nepal Routes

India-Bhutan Route

Kolkata-Petrapole/Benapole-Dhaka-Akhaura/Agartala

Sandrop Jongkhar-Guwahati-Shillong-Tamabil-Sylhet-Chittagong

Kathmandu-Kakarvitta/Phulbari-Banglabandha-Hatikamrul-Mongla

Kathmandu-Birgunj/Raxaul-Kolkata/Haldia

Thimpu-Phuentsholing-Jaigon-Kolkata/Haldia

170


Agartala-Akhaura-Chittagong

Thimpu-Phuent-shillong-Jaiga-on/Burimari-Ha-tikamrul-Mongla

K a t h m a n d u -K a k a r v i t t a /Phulbari-Ban-glabandha-Ha-tikamrul-Chit-tagong

K a t h m a n d u -Bhairahawa-Su-nauli-Lucknow

Silchar-Sutarkandi-Chittagong

Thimpu-Phuent-shilong-Jaigaon/Burimari-Hatika-mrul-Chittagong

Source: SAARC Regional Multimodal Transport Study, 2006, Table 4, cited in M. Rahmatullah, “Transport Issues and Integration in South Asia”, in Sadiq Ahmed, Saman Kelegama and Ejaz Ghamni (eds.), Promoting Economic Cooperation in South Asia: Beyond SAFTA, New Delhi: Sage Publication, p. 182. Maps are portrayed in Annex 3.

4. Implications of BBIN-MVA

Ministers of BBIN acknowledged that finalisation of the MVA would allow people to move within these countries in an accelerated fashion. Besides, this agreement would enable exchange of traffic rights and ease cross border movement of goods, vehicles and people which, in turn, may help to expand people to people contact, trade and economic exchange among signing countries. The Joint Statement dated 15 June 2015 also claims that transforming transport corridors into economic corridors would potentially boost intra-regional trade within South Asia by almost 60 percent and with the rest of the world by 30 percent.8

Implementation of BBIN-MVA would promote road transport arrangement among the collaborating countries, further helping them in creating an institutional mechanism for greater regional integration. Currently, land border entry and exit points in South Asia are overcrowded. High transportation cost, persistent border hassle, long traffic congestion and customs complexities have made cross border trade through land ports inefficient and complicated. Due to lack of integration of the transport system in South Asia, the logistic costs are very high and range between 13-14 percent of GDP.9 But, with the newly signed BBIN-MVA, four countries can facilitate uninterrupted movement of passenger, personal and cargo vehicles through land ports, which would reduce transportation cost and foster economic growth and development in this region.8 Joint Statement on the meeting of the Ministers of Transport of Bangladesh, Bhutan, India, and Nepal on the Motor Vehicles Agreement, Ministry of External Affairs, Government of India, 15 June 2015.9 M. Rahmatullah, op. cit., p. 174.

171


With the effective operationalisation of BBIN-MVA, this region could extract maximum benefit through promoting trade among partners. Apart from the volume of trade between Nepal and Bhutan; trade and commerce among these countries are on the rise at bilateral level, portrayed in the following table.

Table 4: Bilateral Trade between BBIN Countries (in million US$)Year 2009 2013 (%) IncreasedBangladesh-Bhutan 12.73 26.52 108.32 Bangladesh-Nepal 59.65 62.01 3.96Bangladesh-India 3157.45 5340.86 69.15India-Nepal 1743.70 3552.92 103.78India-Bhutan 249.36 298.73 19.80Nepal-Bhutan 7.06 3.46 -50.91

Source: Compiled from Trade Map website, available at http://www.trademap.org/Index.aspx, accessed on 28 April 2015.

The table clearly shows that trade volume among BBIN countries have increased by manifold from 2009 to 2013. Seamless movement under the MVA can broaden the horizon of bilateral trade by opening new windows of opportunity among BBIN.

The MVA might facilitate the creation of a new chain or network of production within partner countries. It would ensure unhindered movement of goods through land ports, enabling raw materials of one country to be imported by another country to produce goods by the latter one and exported to a third country.

BBIN-MVA would allow residents to move from one country to another with their personal vehicle. These uninterrupted movements would flourish tourism among the signatory nations. Furthermore, unhindered transport connectivity among BBIN countries might facilitate academic exchange programmes from different educational institutions. By reducing transport cost, it might also encourage students from partner countries to get involved in different student exchange programmes.

The MVA would not only ensure movement of vehicles among BBIN through land ports but also facilitate road transportation within home country. To meet the prerequisites of the agreement, several new roads and bridges have to be built and many existing roads are required to be upgraded. This enormous infrastructural development may ease domestic road transportation by reducing traffic congestion within the country.

Transport cost is always a significant determinant of competitiveness.10 The MVA would reduce costly and time-consuming loading and unloading of goods at border crossing points which would ultimately make cross border trade more efficient, less time-consuming and cost effective. This might also reduce damage risk of perishable goods trading. At present, loading and unloading at borders are done

10 Ibid.

172


under open sky with risk of heavy damage. In the rainy season, it is very difficult to continue the process and sometimes traders are forced to halt their activities due to bad weather. But, according to BBIN-MVA, direct land trade from host country to destination country would negate the problem.

The MVA might open up new opportunities for two of the land-locked counties of South Asia, namely Nepal and Bhutan to conduct their international trade through Bangladeshi sea ports, Mongla and Chittagong. This would not only help these two countries to enhance their foreign trade but also help Bangladesh to earn a good amount of foreign currency. Moreover, the shipment of Assam tea to Europe is required to travel 1,400 kilometres to reach Kolkata port along the “Chicken's Neck” corridor since there was no agreement for India to use the traditional route through Chittagong port. The MVA would allow Assam to use Chittagong port which would reduce the travel of shipment by 60 percent and help Bangladesh to earn foreign currency.

Finally, Bangladesh always considers India’s north-eastern (NE) states as its potential market for exporting goods and services. Unfortunately, inadequate connectivity with other states has made India’s NE region comparatively poor and underdeveloped. Per capita income and purchasing power of the people of these states are very low compared to other states of India. Proper implementation of MVA would help to connect these underdeveloped states with the rest of India which may augment trade and economic growth in NE region. When this agreement will come into full effect, the distance between Agartala to Kolkata would reduce to 400 kilometres from 1,645 kilometres as most of the new route will pass through Bangladesh. As for road cargo, the cost would reduce from US$ 150 per tonne to US$ 50 per tonne.11 This would immensely help India to develop its NE states which in turn would help Bangladesh’s economy also. More economic growth of these states would create better opportunity for Bangladesh to export goods and services there.

4.1 Future Scopes of BBIN-MVA

Article XV.II.1 of BBIN-MVA specifies that any other country may enter into the agreement if there is a consensus among existing partners. This article creates an opportunity to include other countries like China and Myanmar into the agreement. Though some critics may raise the question about feasibility of China’s inclusion or others may say the idea somewhat impractical, but, inclusion of China into the MVA would increase its significance manifold as this Asian economic powerhouse is not only the largest trade partner of Bangladesh, but also one of the most influential trade partners of all South Asian countries. In addition, this MVA enables direct trade with signing countries through land borders which would reduce import cost from China. Moreover, China is keen to build a deep sea port in Bangladesh and recently the government of Bangladesh has decided to ink a deal with China to construct Payra

11 “Success Hinges on Investment Strategy”, The Independent, 21 June 2015.

173


Deep Sea Port located at Kalapara in Patuakhali district.12 Direct road connectivity with China will enable Bangladesh to utilise the full benefit of this future deep sea port. Besides China, Myanmar, a country with abundant natural resources and huge hydropower potentiality, is another adjacent country to BBIN and inclusion of Myanmar will bear great significance to this MVA.

Economies of Bangladesh and India are growing rapidly and these countries have shortage of energy resources especially electricity which is difficult to meet solely with their domestic production. It forces both Bangladesh and India to search for alternative energy sources or trading power or electricity. Signing of BBIN-MVA is viewed as a beginning of a greater co-operation among these four countries which may also broaden the scope for power trade and inter-grid connectivity. In the second meeting of the Joint Working Group on Sub-regional Cooperation between BBIN held on 30-31 January 2015 in New Delhi, progress has been made to explore harnessing of water resources including hydropower and power from other sources. The BBIN-MVA may facilitate the process to sign an agreement on power trade among the four countries.

BBIN-MVA might be considered as the roadmap to successfully materialise the much waited SAARC-MVA. As four out of six members with land borders are on board, the inclusion of Pakistan and Afghanistan is only required to convert this sub-regional agreement into a regional agreement.

5. Challenges Ahead

Past experience among South Asian nations regarding execution of agreements is not satisfactory. Numerous bilateral, trilateral and multilateral agreements were signed with initial good will, apart from many physical and non-physical barriers, political rivalry and lack of trust among countries in this region have hindered successful operationalisation of these agreements. BBIN-MVA is not immune to such challenges and may face other implementation challenges like inadequate infrastructure, land acquisition, security concern, cabotage restriction, absence of concrete dispute settlement mechanism etc.

Poor physical infrastructure in South Asia is a major concern and can severely hinder the implementation of the MVA. Riding quality and road density in Bangladesh, Bhutan, Nepal and NE India is in dire situation. Even parts of the connecting highways in border crossing regions are in bad shape. Moreover, it is estimated that US$ 8 billion will be required to develop infrastructure13 and funding of this vast amount of money would be another major challenge. For instance, the cost per kilometre of upgrading roads to international standard in view of BBIN-MVA in Bangladesh context

12 Mizan Rahman, “China to Build Deep Sea Port for Bangladesh”, Gulf Times, 16 April 2015. 13 Joint Statement on the Meeting of the Ministers of Transport of Bangladesh, Bhutan, India, and Nepal on the Motor Vehicles Agreement, op. cit.

174


is estimated to be approximately US$ 3.7 million14 and there is no clear indication in the agreement that how the budget will be managed. Besides, road maintenance cost would also increase manifold because of increasing number of vehicle movement after the operationalisation of the MVA which may also raise the government’s expenses.

Building of hard infrastructure will not be the only challenge for BBIN but fixing of soft infrastructure like setting of different fees and finalisation of protocols may also make the implementation of BBIN-MVA more challenging. Policymakers of partner countries may find it very difficult to fix different fees and taxes like permit, visa, customs, port, highway etc. Moreover, there has not been any visa-on-arrival arrangement between Bangladesh and India.15 As a result, the claim of seamless movement would remain futile and take some time to become operationalise because of that lacuna.

Land acquisition would be a stumbling block to implement the agreement. A large number of people will be evicted to build roads and bridges to support vehicle movement which may hinder smooth functioning of many development projects. Besides, government has to pay large amount of money for the resettlement and compensation of those evicted people.

Security issue would be another major concern for the implementation of BBIN-MVA. India’s NE states are vulnerable to insurgency and direct road connectivity with those states may have adverse impact on Bangladeshi border crossing points. Currently, Bangladesh does not possess advanced technology to scan a whole cargo or passenger bus. As a result, the country may become vulnerable to narcotics and arms smuggling which will pose serious threat to its national security and stability. Moreover, movement of passengers and goods could be troubled by inter-state smuggling networks and can cause serious hindrance to trade and commerce.

Article XV.I.1 of the MVA points out that any dispute arising out of interpretation or implementation of the agreement shall be resolved amicably, but absence of a concrete dispute settlement mechanism could hinder the smooth functioning of the agreement, which in turn, could inflict distrust among partner countries. The word ‘amicable’ is also a vague word and can be interpreted in many different ways which can also make dispute settlement problematic. Therefore, without further clarification of the dispute settlement clause, any sort of dispute, ranged from minor misunderstanding to major mishap could impede the harmonious relationship among the countries.

Cabotage restriction will be another major challenge of BBIN-MVA. Cabotage generally means carriage of cargo between two points within a country by a vessel or vehicle registered in another country.16 BBIN-MVA has cabotage restriction, which

14 Kayes Sohel, “Bangladesh in Talks with WB for BBIN-MVA Project Funds”, Dhaka Tribune, 29 June 2015.15 Nihar R Nayek, “BBIN-MVA: Pushing Regional Integration through Sub-regional Cooperation”, Institute for Defence Studies and Analysis (IDSA) Comment, 19 June 2015, available at http://www.idsa.in/idsacomments/BBIN-MVAPushingRegionalIntegration_nnayak_190615.html, accessed on 25 June 2015.16 “Cabotage”, Business Dictionary, available at http://www.businessdictionary.com/definition/cabotage.

175


means, for instance, Bangladeshi trucks may move to Bhutan, India and Nepal with Bangladeshi goods but cannot pick up Indian, Bhutanese or Nepalese goods on their way back to Bangladesh, resulting in empty returns for Bangladeshi trucks. Cabotage restriction may hamper cost effective way of transportation of goods within signing countries and de-motivate businessmen to use direct transportation of goods instead of transhipment especially for non-perishable goods.

Setting of load restriction and deciding maximum axle load17 of roads and bridges would be a complex task ahead of BBIN-MVA. Riding capacity of roads of partner countries is not same which is 8.2 tonnes for Bangladesh and 10.2 tonnes for other three countries.18 Movement of overloaded cargoes or vehicles could severely damage physical infrastructures.

It is quite unlikely that the outlined six month period would be sufficient to complete the finalisation of all the protocols and prerequisites which include IT systems, infrastructures, tracking and regulatory systems. It also seems unrealistic to begin trial run from October 2015 and finalise the agreement by December 2015, considering the riding capacity and structural strength of the existing roads and highways of signing countries.

Finally, trade facilitation largely depends on efficient carriage of goods among partners. BBIN-MVA only allows movement of passenger, personal and cargo vehicles through land borders which is not always cost effective and in many cases inefficient. Moreover, collateral damage of road transportation compared with rail and water transportation is much higher which ultimately increases cost of trade. On the other hand, rail and water transportation are environment friendly, much safer and cheaper. Security can also be better ensured in rail and water transport where goods could easily be moved in containers.19 To make transportation of goods cost effective, a multimodal transport facility consisting road, rail, water and maritime transportation with trade partners is inevitable. Unfortunately, BBIN-MVA does not offer that multimodal transport facility. Therefore, to enjoy full benefit of connectivity and ensure sustainable economic growth, the scope of BBIN-MVA must be broaden by incorporating rail and water transport facility, making it a comprehensive multimodal transport agreement.


South Asian countries have exercised limited integrated opportunities to foster business and commerce among themselves. Therefore, whenever an opportunity

html, accessed on 16 June 2015.17 Axle load is an important design consideration in the engineering of roadways and railways, as both are designed to tolerate a maximum weight-per-axle (axle load); exceeding the maximum rated axle load will cause damage to the roadway or rail tracks.18 M. Rahmatullah, “Regional Connectivity: Opportunities for Bangladesh to be a Transport Hub”, Journal of Bangladesh Institute of Planners, Vol. 2, December 2009, p. 18.19 Ibid., p. 17.

176


arises, the countries should move forward and act efficiently to reap the full benefit out of it. BBIN-MVA may provide an opportunity to signing countries to enhance intra-regional trade through greater connectivity and facilitate much needed regional integration process. The countries can fully appreciate the advantages of the MVA if only it can be transformed into a multimodal transport connectivity arrangement.

However, The MVA has to go through a long list of challenges to become economically viable and advantageous for intra and inter-regional trade and economic development. Full gains from the agreement will be available when roads and other infrastructures will be ready. At present, the success of the agreement does not lie in its economic efficiency but in the trust that is built among the partner countries and its future scopes to expedite cohesive integration of South Asian region. Following steps might facilitate implementation of BBIN-MVA.

• Customs procedures need to be simplified by adopting different measures like installation of single window system, digital scanners, x-ray machines, IT connectivity etc at border crossing points.

• Initiatives should be taken to issue on-arrival-visa among partner countries to ease cross border movement.

• A harmonised fee structure including customs fee, visa fee, permit fee etc. should be initiated.

• Strict restrictions should be enforced on movement of overloaded vehicles by establishing automated weighbridges at border crossing points.

• Strong political commitment for regional integration to harness the benefits of cooperation is needed among South Asian leaders.

• BBIN need to collaborate with other economic blocs like Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), Bangladesh, China, India, Myanmar Economic Corridor (BCIM-EC), Association of Southeast Asian Nations (ASEAN) etc to maximise the effectiveness of the MVA.

• Restrictions should be imposed on informal monetary transactions at customs check points and appropriate measures i.e. CCTV camera, use of smart card etc should be installed to make inspection procedure simpler and transparent.

• Roadside amenities, banking, medical facilities, warehouses, security, fire fighting units, restaurants and rest rooms should be established.

• Internationally recognised arbitrators should be appointed to mitigate disputes regarding cross border movement.

177


annex 1

Table: Country Wise Real Gross Domestic Product (GDP) growth rate of SAARC in 2014Country Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri LankaGDP Growth Rate

2.0 6.1 6.3 7.4 7.6 5.5 5.4 7.4

Source: The World Bank, 2014, available at http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, accessed on 24 April 2015.

annex 2

Table : Road to BBIN-MVADate & Venue Decision or Outcome

4-6 January 2004Islamabad, Pakistan

12th SAARC Sum-mit

Called for strengthening transport, transit and communications links across South Asia.

2005-2006 SAARC Regional Multi-modal Trans-port Study (SRMTS)

SAARC Secretariat conducted SRMST which proposed 10 road corridors, 5 rail, 2 Inland Water Transport corridors, 10 maritime and 16 aviation gateways, for regional transport con-nectivity. Implementation of the SRMTS recom-mendations was slow due to lack of political commitment besides a host of physical and non-physical barriers.

31 August 2007New Delhi, India

1st SAARC Trans-port Ministers Meeting

Decision was taken to pursue sub-regional projects for greater connectivity proposed by member states.

25 July 2009Colombo, Sri Lanka

2nd SAARC Trans-port Ministers Meeting

Approved recommendation of SAARC of Inter-Governmental Group on Transport (IGGT) to set up Expert Group to negotiate and finalise draft text of Regional Agreement on Motor Vehicles for SAARC Member States.

7-8 September 2014Rajasthan, India

Expert Group finalised draft text of the Region-al Agreement on Motor Vehicles for Member States.

30 September 2014New Delhi, India

The draft text was endorsed by the SAARC IGGT.

178


26-27 November 2014 Kathmandu, Nepal

18th SAARC Sum-mit

The Regional Agreement on Motor Vehicles was supposed to be signed. But due to Paki-stan’s failure to finish “internal process”, the agreement was not signed and transport min-isters were advised to settle the issue and give a report within three months.

2-3 February 2015Kolkata, India

BBIN-MVA, a parallel to the SAARC-MVA was initiated.

19 April 2015Chennai, India

Transport Ministers of involved countries were to lead the delegation for signing BBIN-MVA with completed internal process.

15 June 2015Le Meridien HotelThimphu, Bhutan

Bangladesh’s Minister of Road Transport and Bridges Mr. Obaidul Quader, Bhutan’s Minister of Information and Communications Mr. Lyon-po DN Dhungyel, India’s Minister of Road Trans-port and Highways, and Shipping Mr. Nitin Jai-ram Gadkhari and Nepal’s Minister of Physical Infrastructure and Transport Mr. Bimalendra Nidhi signed BBIN-MVA on behalf of their sides.

INDIA

Kolkata

Dhaka Akhuara

• Kolkata - Petrapole/Benapole - Dhaka - Akhaura/Agartala

• Agartala-Akhaura - Chittagong

• Silchar - Sutarkandi -Chittagong

Agartala

Chitagong

Figure 1: Possible Bangladesh-India Routes

INDIA

SutarkandiSilchar

Source: Paper presented by Mustafizur Rahman, on “Trade Facilitation in South Asia through Transport Connectivity: Operationalising the Motor Vehicle Agreements (MVAs)” in a Seminar organised by Center for Policy Dialogue(CPD) on 20 June 2015.

179


• Kathmandu - Kakarvitta/Phulbari- Bangladesh-Hatikamrul- Mongla

• Kathmandu - Kakarvitta/Phulbari- Bangladesh-Hatikamrul- Chittagong

NEPAL

Kathmandu

KakarvitaBanglabandha

Phulbari

INDIA

Hatikamrul

Dhaka

MonglaChittagong

Figure 2: Possible Bangladesh-India-Nepal Routes

Source: Paper presented by Mustafizur Rahman, on “Trade Facilitation in South Asia through Transport Connectivity: Operationalising the Motor Vehicle Agreements (MVAs)” in a Seminar organised by Center for Policy Dialogue (CPD) on 20 June 2015.

Figure 3: Possible Bangladesh-India-Bhutan Routes

Thimpu

PhuentshilongJaigaon

BurimariSandrup Jonkhar

ShilongTamabil

Sylhet

Hatikamrul

Comilla

Mongla

Guwahati

BHUTAN

Chittagong

INDIA

NEPAL

• Sandrop Jongkhar-Guwahati-Shillong -Tamabil - Sylhet - Chittagong

• Thimpu-Phuentshilong- Jaigaon/Burimari-Hatikamrul- Mongla

• Thimpu-Phuentshilong- Jaigaon/Burimari-Hatikamrul- Chittagong

Source: Paper presented by Mustafizur Rahman, on “Trade Facilitation in South Asia through Transport Connectivity: Operationalising the Motor Vehicle Agreements (MVAs)” in a Seminar organised by Center for Policy Dialogue (CPD) on 20 June 2015.

182


The Bangladesh Institute of International and Strategic Studies (BIISS) is a statutory institution established in 1978 under the administrative control of the Ministry of Foreign Aairs, Government of Bangladesh, for undertaking and promoting research and deliberation on international aairs, security and developmental issues.

The priority areas of the Institute's research activities are: foreign policy, security and strategic issues with specic relevance for Bangladesh; regional, inter-regional and international cooperation, sustainable development with focus on resource management and environmental issues; conict studies, peace keeping, disarmament, non-proliferation and area studies.

Contemporary issues of South Asian politics, security and development are the focus of research activities of the Institute. Ethno-religious issues, regional and sub-regional cooperation, globalisation and environmental issues are of special research interests. Problems of institutionalisation of democracy, economic liberalisation, trade and investment links, challenges of governance and strengthening the civil society receive signicant scholarly attention.

The general guidance and superintendence of the Institute aairs are vested upon the Board of Governors, headed by a Chairman and consisting of representatives of ministries, armed forces, academics and professionals. The Director General is the Member-Secretary of the Board and Chief Executive of the Institute. The main activities of the Institute are carried out by the Research Faculty consisting of a team of full-time researchers with varied social sciences background.

Mailing Address

1/46, Old Elephant Road (West of Ramna Police Station), Dhaka-1000, Bangladesh.Fax: 88-02-8312625, [email protected], website: www.biiss.org

ISSN 1010-9536 - Bangladesh Institute of International and ...

Documents

Transcript of ISSN 1010-9536 - Bangladesh Institute of International and ...