Indo-Pacific Economic Corridor: Opportunity for U.S., Indian, & ASEAN Statesmanship

by  • September 2, 2015

By James Wallar

The Gokteik Viaduct in western Shan State, Myanmar, built in 1900 by the Pennsylvania and Maryland Bridge Construction company. Plans for greater connectivity between India and Southeast Asia will require upgrading infrastructure in east India, Myanmar, and neighboring Bangladesh. Source: Lacest20's flickr photostream, used under a creative commons license.
The Gokteik Viaduct in western Shan State, Myanmar, built in 1900 by Pennsylvania and Maryland Bridge Construction. Plans for greater connectivity between India and Southeast Asia will require upgrading infrastructure in east India, Myanmar, and neighboring Bangladesh. Source: Lacest20’s flickr photostream, used under a creative commons license.

CogitASIA – The U.S. administration’s rebalance toward Asia is fundamental to U.S. economic, commercial, and security interests and the Trans-Pacific Partnership (TPP) is the fulcrum for the economic pivot. Although facing headwinds typical in the end game of trade negotiations, the smart money is on the TPP delivering the most advanced trade agreement ever.

Other economic initiatives are vying for the hearts and minds of regional political and industry leaders. China’s Asia Infrastructure Investment Bank (AIIB) signed in June complements its vision of “One Belt One Road” of land and sea routes from Asia to Europe. Japan’s new infrastructure financing mechanism announced in May appears to match the AIIB’s ambitions.

The Association of Southeast Nation (ASEAN) will christen its ASEAN Economic Community at the end of the year and launch a new Vision 2025. And the Asia Pacific Economic Cooperation (APEC) forum has initiated work on the Beijing Roadmap for a Free Trade Area of the Asia Pacific. Of these initiatives, the U.S. government is a significant player in only one, APEC, and does not have the resources to compete on infrastructure initiatives.

The good news is that the United States has begun to lay the foundation for a much-needed comprehensive economic engagement in the region. At the 2013 U.S.-India Strategic Dialogue, Secretary John Kerry declared that the United States is “cooperating to realize the potential of the Indo-Pacific Economic Corridor, which can spur development and investment as well as trade and transit between the dynamic economies of South and Southeast Asia.” This corridor stretches from India to Korea and Australia to the United States. The vision of an Indo-Pacific corridor is rooted in history. Recently revived by leaders in India, Indonesia, Japan and Australia, the U.S. government’s voice lends the vision credibility.

The challenge is that the vision lacks an agenda and a forum. Moreover, it confronts U.S. and Indian policies that have impeded broad-reaching regional economic cooperation and requires ASEAN to engage more broadly in the region. Nonetheless, the pieces are in play that could give life to the Indo-Pacific Economic Corridor and, in doing so, advance the interests of the United States, India and ASEAN.

Agenda: State Department officials have sketched a theme of “connections” in the Indo-Pacific region. These connections would be “physical infrastructure, regulatory trade architecture, and human and digital connectivity.” Perhaps not coincidentally, these three concepts of connectivity are embedded in ASEAN Master Plan for Connectivity and APEC’s new Connectivity Blueprint.

An Indo-Pacific connectivity agenda could draw on the excellent work of ASEAN and APEC on matters such as infrastructure and public private partnerships; supply chain connectivity and trade facilitation and regional transport initiatives; and educational exchanges, tourism, the mobility of professionals, and skilled labor. The United States, making the most from a restrained budget, could supply infrastructure “software” to China’s and Japan’s infrastructure “hardware” by championing “smart logistics” to make formalities of port entry and border crossing seamless while tracking and ensuring cargo security.

Forum: There is no absence of trade venues in the region that could support the initiative. ASEAN, APEC, the South Asia Association for Regional Cooperation (SAARC), the Bay of Bengal Initiative for Multisector Technical and Economic Cooperation (BIMSTEC), to name a few. Bringing them all together risks hindering the process with bureaucracy. Better to have a forum that is inclusive and efficient with experience in bringing together the region’s major powers.

The East Asia Summit (EAS) would be a natural fit. All major players of the region are members – India, the United States, China, Japan, Korea, Australia, New Zealand, Russia and the ASEAN 10 member states. ASEAN, known for its convening power, chairs the EAS and has established itself as an important regional focal point. Indeed, Secretary Kerry in early August observed, “ASEAN is really at the very center at the Asia Pacific’s multilateral architecture. And that is where the United States of America wants it to remain.”

The United States would need to overcome its reluctance to engage in economic issues in the EAS. The U.S. government has preferred to pursue its economic – trade and investment – agenda in APEC and the TPP. Although the EAS Development Initiative that runs through 2017 has a connectivity agenda, the United States could propose expanding and accelerating the work, drawing on activities in ASEAN and APEC.

There is precedent for such an approach. In 2013 the United States launched the U.S.-Asia Pacific Comprehensive Energy Partnership at the EAS together with the chairs of APEC and ASEAN. A similar “Indo-Pacific Economic Partnership” could be the umbrella forum to draw on the work of these and other organizations. ASEAN would need to be on board and convince other EAS members to expand its regional reach by inviting members of SAARC and BIMSETC to attend working group meetings. Eventually ASEAN could convene a leaders meeting to endorse a robust work plan, an EAS “Plus.”

India: Trade and foreign investment have not figured prominently in India’s development plans. Rather it has placed more reliance on domestic production to meet the needs of its large economy. With a sizable trade deficit, it has tended to protect local businesses from foreign competition. India was the last of ASEAN’s strategic dialogue partners to sign a free trade agreement (FTA), one that by all accounts, is well below the modest standard of most of other ASEAN FTAs. India’s resistance to joining the World Trade Organization’s trade facilitation agreement did not endear the country to trade officials and did little to advance its interest in joining the member economies of APEC.

An Indo-Pacific connectivity agenda would not be a new tariff-reducing trade agreement to open the Indian market, at least initially. Rather it would focus on better connectivity that would benefit Indian exporters and importers. By the Indian government’s own account, the failure to implement its own agencies’ recommendations on trade facilitation costs the economy $6-7 billion a year. Better connectivity means becoming more active in the regional supply chains via the anticipated Mekong-India Economic Corridor and North-South corridors linking Myanmar and the rest of ASEAN to China. Development of these corridors could spur economic growth for India and other South Asian nations. An Indo-Pacific Economic Partnership under the EAS could provide India an opportunity to demonstrate a new leadership in trade that benefits India in an increasingly integrated region.

The pieces are in play for the U.S. government, effectively using its limited resources, to set the stage for years to come in giving shape and definition to a practical agenda for the Indo-Pacific Economic Corridor. The question will be whether the United States and India can turn the page on current policies and ASEAN can bring other regional leaders together to move the Indo-Pacific Economic Corridor from vision to reality.

Mr. James Wallar is Senior Adviser for International Development at Nathan Associates Inc.

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