Interestingly, the 70th anniversary of Pakistan’s independence has coincided with the 70th anniversary of the United Nations Economic and Social Commission for Asia and the Pacific, ESCAP. This is an opportunity to reflect on how Pakistan and ESCAP can foster the regional cooperation and integration so critical for the country’s repositioning to achieve long-term economic sustainability.
As an integral part of Asia, Pakistan must strive to achieve higher and robust growth by adopting inclusive and sustainable development to underpin an equitable society, while reducing the multidimensional poverty gripping 40 per cent of our population. Barring a few good years, Pakistan’s development has been impacted by structural fiscal and external imbalances, low investment levels, lack of economic diversification, risk averse bankers and investors, and a weak implementation track record that complicates the cost of delivery. Industrial capacities created largely service growing domestic demand, leaving limited scope for exports, the demand prospects of which have not been fully exploited. Achieving a turnaround in Pakistan’s export performance is critical, as boosting foreign exchange reserves through borrowings is not sustainable.
In this context, a first order priority ought to be a coordinated public and private action to adopt and effectively implement a dynamic and higher value export oriented industrial strategy. This requires building new, competitive and diversified industrial capacities drawing on technological and digital knowhow with supportive investment in human capital, innovation and productivity. Broader integration of the country into the global and regional economy will be critical for Pakistan. This calls for enhancement and recalibration of its regional cooperation strategy backed by increased commercial exchanges with neighbouring countries.
Pakistan has always been open to regional cooperation. Its geographical location is an asset – close to China, Iran and Turkey, and the Central Asian Republics on the one hand, but also South Asia on the other. The country has been a founding member of both the Economic Cooperation Organisation, and SAARC. Yet despite the geographic proximity of their members, the sub-regional arrangements have not serviced well the interests of Pakistan. SAARC’s dysfunctionality has restrained growth in bilateral trade between Pakistan and India which could be 12 times higher than at its current level. Intra-regional trade could grow to over $170 billion by 2020 if peace and stability were restored, trade liberalized and nontariff barriers removed.1
Drawing on lessons from successful sub-regional blocs will be instrumental to further deepening of cooperation. ASEAN, now celebrating its 50th anniversary, owes its origin to the membership’s agreement to promote ASEAN political integration to nurture peace and stability in the region, while protecting the country’s sovereign rights. The peace and stability pillar is the backbone of ASEAN’s economic, social and cultural integration and is now expected to be fostered by adoption of the 2025 Vision and Action Plan. This will promote a single market for goods and services. Ownership of the sub regional bloc by ASEAN membership is high even though intergovernmental negotiation processes are lengthy. More recently, an ESCAP coordinated Programme of Action with UN wide engagement has been put in place to speed up and offer coherent support for the implementation of ASEAN’s Action Plan. ESCAP is now working with ASEAN to enhance the complementarity of its Action Plan with the 2030 Agenda, while promoting ASEAN connectivity including strengthening the ASEAN Power Grid.
A critical element of ASEAN’s success has also been its membership’s drive to pursue their domestic political and economic transformation backed by joint macroeconomic and financial surveillance of member states. The private sector has been at the forefront of leading the growth in intraregional trade that has reached 24 per cent of the sub-region’s total trade2 supported by regional production and value chains benefiting from not only sub-regional preferential agreements but also ASEAN’s free trade agreements with the US, China, South Korea and India. Investment in regional cooperation has seen ASEAN emerge as the world’s sixth largest economy.3 Its collective GDP is expected to rise to $5.2 trillion by 2025, becoming the 4th largest economy in the world.4
At the first Ministerial Conference on Regional Economic Cooperation and Integration (RECI), ESCAP’s membership adopted the Bangkok Declaration that revolves around a four-pillar agenda. It calls for (i) regional market integration, (ii) seamless regional connectivity, (iii) enhancing regional financial cooperation; and (iv) addressing shared trans-boundary vulnerabilities, risks and challenges. There is optimism that the region should benefit from some changing political dynamics. The opening-up of Myanmar, lifting of sanctions in Iran and the integration of post-conflict states all provide new opportunities. However, in pursuing this agenda, several key elements have emerged.
First, the need for a fundamental rethink of traditional RECI models and policy frameworks to promote a transition from a “growth-centric” approach to one driven by sustainable development, incorporating social and environmental considerations. The RECI framework must be guided by the 2030 Agenda. In this context, RECI has been well-integrated in the Asia Pacific Regional Roadmap for Implementing the 2030 Agenda by the ESCAP member states in May 2017. This would help member States to focus on addressing regional trans-boundary vulnerabilities and risks from climate change, dealing with regional pollution by adopting cleaner technology, adopting more environmentally-friendly modes of transport and promoting energy access and energy security by interconnecting regional energy networks to integrate renewable energy.
Second, market integration must be recognised as the core driver of RECI. The recent rise in global protectionism and disruption in labour mobility prompted by growing nationalistic sentiments have cast a shadow over efforts to pursue the gains of market integration. There are other considerable challenges which need to be overcome. For instance, trade costs in Asia and Pacific remain high. In tariff- equivalent terms, trade costs between the SAARC bloc and North and Central Asia have been stubbornly high, standing at 285 per cent. The bulk of this results from a range of nontariff barriers owing to custom clearance issues, regulatory impediments, port congestions and shipping delays cost time and money. Equally critical will be the realignment of global and regional value chains. Consolidating and rationalizing the 170 regional preferential trade agreements, based on multilateral principles, will enhance the efficiency, quality and transparency of the trade regime. Reform of the regional investment agreements – including in the service sector – are required to replace opaque privileges and tax incentives, which result in revenue losses, with more transparent and open foreign direct investment regimes supported by an effective state dispute resolution mechanism.
Third, RECI is now being reinforced by a range of regional mega-initiatives, such as the BRI and Eurasian integration projects, for the mutual benefits of all members. The Chinese Ministry of Foreign Affairs and ESCAP have signed a Memorandum of Understanding under which ESCAP undertook an initial assessment of the six BRI corridors and underscored the need to extend the BRI to foster market integration; reinforce holistic, seamless and sustainable regional connectivity across corridors with due regard for social and environmental safeguards; and adopting and benefiting from ESCAP’s normative model agreements, standards and regulations for trade, transport, investment facilitation and liberalization, and facilitating negotiations of transport agreements across newer transit routes.
The China Pakistan Economic Corridor stands out as a flagship of the BRI that will be instrumental in adding energy capacities including renewables, and constructing alternate and competitive routes, opening up access for China and other landlocked countries access to Gwadar port, while also promoting industrial development. It entails the construction of road, fiber optic projects, rail links and many hydropower and coal plants. Efforts which could be particularly beneficial if there could be more information sharing on processes, projects and terms and condition of financing transactions to further public confidence. And if the regulatory infrastructure could strengthened to support trade, investment and global value chains and pricing mechanisms, while fostering market integration through broader transport and trade facilitation reforms.
In Pakistan, as many as 700,000 jobs could be created through the China-Pakistan Economic Corridor between 2015 and 2030. It holds great promise for closer trade, investment and energy cooperation between the two countries and beyond. Indeed, this corridor could support trade and economic integration in the broader region, particularly between China, Pakistan, Iran, India, Afghanistan and the Central Asian States. To conclude, there is need for Asia to broaden and deepen RECI and in the process consider pragmatic approaches to restrategizing RECI to be supportive of sustainable development agenda and use the opportunity to accelerate implementation of trans-boundary goals which would play a critical role in seamless climate friendly infrastructure.
ESCAP is driving a reinvigorated region-wide approach to co-operative arrangements and supporting its member States to maximize the benefits, delivery and impact of mega initiatives including the BRI and ensure its delivers outcomes that support SDG achievement. To realize the full potential of regional cooperation initiatives, Pakistan needs to fast track domestic structural reforms so critical for regional trade and investment flows. Sustainable development pathways, supportive legal, regulatory and policy frameworks, strengthened public finance, deeper capital markets and a favourable business environment are all prerequisites for maximizing the benefits of RECI. ESCAP will continue to work steadfastly with Pakistan and other member States of the Asia-Pacific to realise the vision of a more interconnected region – one that is prosperous, sustainable and peaceful.
1. ESCAP “Unlocking the Potential of Regional Economic Cooperation and Integration in South Asia: Potential, Challenges and the Way forward”
2. ASEAN Trade Statistics http://asean.org/?static post=external-trade-statistics-3
3. http://asean.org/storage/2015/11/AECat-a-glance-2016 web version2.pdf
4. Frost and Sullivan 2017, Future of ASEAN: Forecast to 2025, https://www.reportlinker.com/p04833516/Future-of-ASEAN-Forecast-to.html