Neighbourhood economics 101

Neighbourhood economics 101

One of the features of the economic integration among nations is the manner in which some major countries have harnessed the “economics of neighbourhood". These countries have taken initiatives to develop synergies with their neighbours, which have translated into major gains for the region as a whole. Two of the most notable examples in this regard, the Association of Southeast Asian Nations (Asean) and the European Union (EU), have not only gone a considerable distance in developing their region into an integrated market, they are also in the midst of expanding the contours of their “neighbourhood".

Asean has become the hub for linking countries in East Asia. This reality was given effect in 2005 through the East Asia Summit (EAS), a grouping that brings India, China, Japan, Australia and New Zealand together with the 10 Asean members. The formation of EAS was based on the recognition that in the rapidly changing international environment, the economies and societies of East Asia have become increasingly interlinked and interdependent.

The EU has actively pursued the policy of extending its engagement with its neighbours, ever since its members had drawn up a road map to form a single market in 1992. In 2004, the European Commission unveiled the European Neighbourhood Policy (ENP), a framework for developing relations with its eastern and southern neighbours. The stated objective of the “new neighbourhood" was to increase production, economic growth and external trade, and to create an enlarged area of political stability and functioning rule of law, besides fostering the mutual exchange of human capital, ideas, knowledge and culture.

Alongside these groups of countries, large economies in different regions are also building partnerships with their neighbours. China has gone a long way towards cementing economic links with its neighbours, particularly Asean members. India, too, is seeking an increase in its level of integration with countries in the neighbourhood through both regional and sub-regional initiatives, initiated under the “Look East policy". These include a free trade agreement with Asean that could be enlarged by adding services and investment to the movement of goods in the near term, and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, or Bimstec. The latter is a sub-regional initiative that connects five countries in South Asia—India, Bangladesh, Sri Lanka, Nepal and Bhutan—with two members of Asean, Myanmar and Thailand.

Divided by history, India’s neighbourhood remains one of the less integrated regions. So say the official statistics. But the situation on the ground is very different.

The redrawing of political boundaries in the middle of the last century was not able to break down the economies of the border regions, particularly those existing on India’s borders with Bangladesh and Myanmar. Informal trade flourishes at the border; the available evidence suggests that across the Mizoram-Myanmar border, for instance, the movement of people is commonplace. In other words, an ideal world of free trade exists here.

But a combination of policy constraints and inadequate infrastructure has undermined the potential of India’s border trade with Bangladesh and Myanmar. Trade between India and Myanmar is conducted under the Border Trade Agreement of 1994. The agreement was aimed at formalizing border trade practices and creating congenial conditions for trade ties to develop. It initially provided for cross-border trade in 22 products, mostly primary commodities. Besides the restriction on the number of tradable products, border trade faced several other constraints. Firstly, border trade could take place through only one trade point: Moreh in Manipur. Secondly, the agreement required that imports from Myanmar to India should precede exports from India to Myanmar. Thirdly, restrictions were imposed on the conduct of barter trade which, according to the agreement, could take place only by using head load or non-motorized means of transport. These constraints, together with severely inadequate infrastructural facilities and the near non-existence of trade facilitation measures, were hardly conducive to realizing the potential of cross-border trade.

There are, however, indications that the situation is on the mend. In 2008, the third meeting of the India-Myanmar Joint Trade Committee took the decision to convert what is now “border trade" to “normal trade". While restrictions were maintained on barter trade, the list of the 22 products originally agreed upon was expanded to 40. More importantly, the Indian government’s ministry of development of north-eastern region has taken a number of initiatives to activate identified land customs stations, which include Zokhawthar in Mizoram and Avankhung in Nagaland.

Though India-Bangladesh border trade was not subjected to the restrictions that were imposed on the trade with Myanmar, infrastructural bottlenecks, particularly lack of transport connectivity, has affected trade volumes. The good news here is that under the current leadership in Bangladesh, the issue of transport connectivity is being addressed as never before. The two countries have also decided to improve the facilities available at a number of land customs stations and to upgrade the major ones into integrated checkpoints.

Given the trade potential that is waiting to be exploited, implementation of these projects may result in a situation where the “economics of neighbourhood" is able to steal a march over the politics of suspicion.

Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.

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