US-South Asia Relations: A Vision for the Future

It’s an enormous pleasure to be here in Oman at the 6^th IISS-NESA South Asia Security Conference. Although this is my first visit to Muscat, it feels very familiar, owing to the many friends I see in the audience and the longstanding connections between this port city and the South Asian region where I have spent the majority of my diplomatic career.

I’d like to begin by offering thanks to Adam Ward for his kind introduction and to The International Institute for Strategic Studies and Near East South Asia Center for the invitation to speak. From its flagship journal Survival, to its indispensible “Voices” blog, IISS provides serious, impartial analysis on the world’s most difficult challenges. And of course, in so many ways NESA represents the crown jewel of the U.S. government’s effort to strategically engage the Middle East and South Asia on issues common to both regions.

An Asia Agenda for the 21^st Century:

I’ve been asked to speak today on United States priorities in South Asia. As you might imagine, we’re in the midst of a transitional period in Washington, one where the specific policy contours of the President’s second-term agenda are still being worked out.

However, one thing that’s clear is that the Administration’s strategic rebalancing to Asia will continue, I expect, with renewed vigor.

Over the next four years, the United States seeks to complement the gains made on the security and strategic fronts, with economic engagement – from Afghanistan to the Pacific. This is evidenced by the robust trade and connectivity agenda President Obama outlined at the East Asia Summit in Cambodia two weeks ago and finds an echo in the Silk Road strategy that Secretary Clinton reaffirmed in her simultaneous visit to Singapore.

The United States’ strong geopolitical focus on Asia is a whole-of-government acknowledgement that over the next century events in Asia – from Delhi to Beijing – will drive global politics and economics. To put an international spin on American political phraseology: As goes Asia, so goes the rest of the world.

When I speak about Asia, I’m not merely talking about the traditional Orient with a Pacific coastline. U.S. engagement in South Asia is central to our reinvigorated outreach to the entire continent, and will be the subject of my remarks today.

There’s no doubt that our bilateral agenda with each country in South Asia is intended to strengthen our respective ties, address impediments, and increase security and prosperity for our peoples. But what’s the common strand, you might ask? Does the United States see the region as a whole? What commonalities exist between U.S policy towards, say, Pakistan and Bangladesh? And how does India fit into the regional context?

Connectivity and South Asia:

For the last four years we’ve vigorously supported regional economic integration in South Asia. We’ve sought to promote connectivity through the New Silk Road strategy, helping to bring South Asia closer to Central Asia in what one Foreign Minister has called the new “Great Gain”.

Likewise, we’ve been vocal proponents of an Indo-Pacific Economic Corridor, which aspires to link India and the rest of South Asia to Southeast Asia through emerging road, air and sea links.

Our Silk Road strategy takes its inspiration from Secretary Clinton’s May 2011 speech in Chennai, but to be successful this vision of regional connectivity must follow the priorities of local governments. It is worth remembering that integration within SAARC – or the South Asian Association for Regional Cooperation – isn’t new. In terms of culture, tradition and yes, history, the Subcontinent constitutes a single geographically coherent space and our approach rests on that foundation.

Academics and commentators readily acknowledge India as a dynamic link that “fuses” the Greater Middle East and East Asia. Northern India, for instance, is the home of linguistic and cultural traditions of the Middle East; likewise Hindu temples are found in Bali and Cambodia. Persian language still can be found as far eastward as Bangladesh and India’s Mughal dynasty had influences emanating from Central Asia.

There have of course been historical moments when the region didn’t live up to its connected potential. In some cases this reflected artificial trade barriers rooted in political conflict, in others, instances of bilateral country-to-country distrust, and in some market malaise – for instance, the period during India’s “planned economy” before the reforms of 1991.

But across the larger canvas of history, this periodic lack of connectivity is the exception, rather than the rule. By virtue of its geography, South and Central Asia historically served as a hub of interlinking trade routes at the crossroads of Europe, East Asia and the Middle East through which ideas, goods, and people passed from one continent to another. You only have to picture a dhow cutting through the waters of the Indian Ocean, headed back to Oman from Kerala, with its hold stuffed to the gills with fresh fruit, nuts, and spices.

As this audience knows well, fostering regional economic connectivity in South Asia can be slow work. But it’s never been more imperative:

- To help countries in South Asia enhance their energy security;

- To lock in promising gains over the last two years in India-Pakistan trade relations and people-to-people ties;

- To ensure India and Bangladesh realize their bilateral potential, and permanently address outstanding border, resource and trade impediments;

· To make sure that Afghanistan is able to attract the necessary private sector investment to grow prosperity and enhance stability;

· And, to make sure the region operates, grows, and thrives as a coherent whole.

The New Silk Road vision and the Indo-Pacific Economic Corridor are constructs intended to reinvigorate regional partnerships to promote economic integration. The idea is a simple one: by maximizing the use of transportation and energy infrastructure and actively promoting cross-border collaboration and trade, Central, South and Southeast Asia can once again become a bustling hub for global commerce.

We see this happening through two primary means (what I like to think of as software and hardware): First, through trade facilitation – which includes the reduction of non-tariff trade barriers, improved regulatory regimes, transparent and efficient border clearance procedures, and coordinated policies – to accelerate the flow of goods, services, and people throughout the region.

And second, through region-wide improvements in energy, water, transport, and infrastructure – which includes roads, bridges, electrical transmission grids, railways, air and ship service, and pipelines – to connect goods, services, and people and to provide a platform for the creation of new businesses and jobs.

Technology is playing an important role here. The physical geography that allowed India to facilitate physical trade and commerce between the Middle East and Asia in the past now shares the stage with the country’s advantageous virtual geography. India’s primacy in wireless connectivity and mobile innovation is illustrated by the nearly one billion cell phones used within its borders! But equally important is the role of India’s private sector, as illustrated by the Bharti Airtel advertisements one now sees all over Dhaka – another powerful illustration of the changing regional dynamic.

The economic potential of a more open and integrated South Asia is virtually unlimited. Just look at India: Standard Chartered has called India the “ key driver of the current global super-cycle” with an economy projected to reach $30 trillion in 2030, up from only $1.8 trillion two years ago. Per capita income is expected to rise to $20,000 in 2030, from $1,264 in 2010. Think of the enormous consumer market that will create for business across South Asia.

Also, consider the importance of infrastructure investment: an Indo-Pacific Economic Corridor would allow cars made in Chennai to reach Ho Chi Minh City, through multi-modal transport across the Bay of Bengal, Burma, Thailand, Cambodia and Vietnam. Likewise, Bangladesh is destined to become a global economic hub if it can link the markets of India to the rest of East Asia.

Given these trend-lines, it was no surprise Prime Minister Singh made connectivity a central theme of his appearance at November’s East Asia Summit, noting that “India’s economic prosperity and stability is linked to the Asia-Pacific region.”

Acknowledging Singh’s seriousness in this effort, IISS’s own Dr. Sanjaya Baru – who I think is in the crowd somewhere – opined not two weeks ago that the Prime Minister has “done more to cement India’s relations with Southeast Asia… than any other Prime Minister since Jawaharlal Nehru.”

And, as the New Silk Road vision becomes a reality, it’s easy to imagine textiles and tea made in Bangladesh making their way through Afghanistan to Central Asia, while Kazakh wheat and Turkmen energy move southward to feed families and light homes in Pakistan and India.

Now, this all might sound ambitious. And, I confess, it is in a part of the world where progress has been slowed by insecurity and mistrust. But as Secretary Clinton often says, it doesn't have to be that way.

My colleague David Pearce will reflect more about U.S.-Afghan relations later today, but let me say a few words on Afghanistan, in the context of economic connectivity:

· Afghanistan’s neighbors and near-neighbors once again include some of the fastest-growing economies in the world. This broader region is home to over one-fifth of the world’s population.

· This mega-market can fuel Afghanistan’s continued economic growth, and increased regional private sector investment for decades to come.

· In other words, the economic segregation that defines the region’s present, didn’t define the past and shouldn’t define the future.

The “Gateways” to Regional Transformation:

But what exactly has caused the winds of growth to shift favorably in South Asia of late? Is it a new beginning – or a re-imagination of a concept hundreds of years old?

In either case the United States has taken note. We’re looking to engage each country in the region, seeking to build mutually-beneficial trade and commercial activity. This is Secretary Clinton’s Economic Statecraft agenda at work; a policy that seeks to elevate economic issues to the highest rungs of U.S. foreign policy. Nowhere is this commercial agenda more visible than in our $100 billion trading relationship with India

I don’t need to convince this audience that U.S.-India economic ties are as promising as they have ever been. Deepening economic ties have been the driving force of our transformed bilateral relationship, and two-way annual investment in the billions across a range of sectors continues unabated. The United States has made a strategic bet on India’s future growth which in turn rests on the wise choices of Delhi’s leadership.

In particular, Prime Minister Manmohan Singh has championed India’s global engagement, from his time as Finance Minister to his current stint as leader of the world’s largest democracy.

· By dispelling the myth that India must choose between inclusive growth policies and being a robust global economic driver, he put his country on a path to indigenous technological advancement and historic private sector-lead growth, with 174 million Indians expected to enter the work force by 2030;

· By championing a new round of reforms in September, the current Indian Government has raised the prospect that strong economic growth will continue. For example, in allowing foreign direct investment in multi-brand retail, India’s Ministry of Commerce estimates 10 million new jobs will be created;

· And, by aiming to invest a trillion dollars – with a “T” for those keeping score – in sustainable infrastructure over the next five years, the Prime Minister will ensure that the growth story that bears his imprimatur will last well beyond his tenure.

India’s economic take-off has enabled greater influence and responsibility in the international system. As India has shifted its engagement outward, this has opened new possibilities for commerce and connectivity with its neighbors.

Two of those neighbors are particularly important as the “gateways” to regional economic integration in South Asia. I’m talking, of course, about Bangladesh and Pakistan.

Bangladesh:

As a moderate Muslim-majority and secular democracy that has grown at 5-6 percent for most of the last 20 years and lifted millions of people out of poverty, Bangladesh is a model for other countries facing difficult challenges. With the country’s youthful 150 million-strong population, its strong grass roots democracy, and its enviable location bridging South and East Asia, Bangladesh is poised to play an expanding global role.

Bangladesh’s accelerated economic success in the 21^st century hinges on how fully it can leverage its position to tap into these two behemoth neighboring markets. In recent years, Bangladesh and India have done much to dispel their past mistrust, and make the promise of trade engagement part of their vision. Reciprocal state visits, most recently Prime Minister Manmohan Singh’s September 2011 trip to Dhaka furthered the process begun when Prime Minister Sheikh Hasina returned to power in 2009.

The two prime ministers signed important agreements to resolve disputed borders dating back to 1947, expand duty-free access for Bangladeshi goods into India and build the infrastructure for increased trade. These followed earlier deals on mutual legal assistance, prisoner transfers and counterterrorism – a key pillar of the relationship.

The appointment of Pankaj Saran as Indian High Commissioner to Bangladesh – an esteemed Indian diplomat who most recently served in the Indian Prime Minister’s Office – is seen by many as a signal of the importance that Delhi attaches to this relationship.

While some issues such as water sharing and border issues are still potential irritants, the United States is hopeful that the potential growth dividend for both countries will help them to reach agreements on these issues.

Recent progress has South Asia-watchers optimistic. An enduring commitment to improving relations appears to be crystallizing on both sides. And most importantly, the Indian and Bangladeshi business communities are leading the charge.

· India in 2011 granted duty-free access to all but 25 items from Bangladesh, including all textile and readymade garment (RMG) products. Since that time, Bangladeshi RMG exports to India have doubled. Efforts to improve infrastructure and streamline processes at the border will further facilitate India-Bangladesh trade. The construction of seven Integrated Check Posts (ICPs) along the India-Bangladesh border is one such initiative.

· And, consider India’s increased exports to Bangladesh: up 42 percent from $3.2 billion in FY 2010 to $4.56 billion in FY 2011, while Bangladesh exports to India rose more than 60 percent from $254 million to $410 million in the same period.

The commercial opening between India and Bangladesh has ramifications for all of Asia. Bangladesh is a critical gateway to greater Indian engagement with the Association of South East Asian Nations’ (ASEAN) countries, a bloc with which India has increased trade by 37% percent over the past year, reaching $80 billion dollars.

We encourage both sides to seek every opportunity to enhance and deepen cross-border engagement. As Secretary Clinton said during a 2011 visit to India, “ India also has a great commitment to improving relations with Bangladesh, and that is important because regional solutions will be necessary on energy shortages, water-sharing, and the fight against terrorists .”

Pakistan:

Pivoting to India’s west, I don’t need to remind anyone in this room how important the bilateral gains made by India and Pakistan over the past two years have been. Many of you have been part of this process..

You know how vital Pakistan’s commitment to grant India Most Favorable Nation (MFN) status by the end of 2012 is. You appreciate the clear improvements in bilateral relations between India and Pakistan and the key role that trade and investment play in this process. You realize how important India’s pledge to reduce the number of items on its sensitive list by 30% is. You see the importance of the formation of business councils, the establishment of daily air connectivity between the two capitals and the increased railway movement through Attari.

A particularly important aspect of this regional cooperative agenda involves energy sharing. In Islamabad recently, I was encouraged to hear of progress on the long discussed idea of interconnecting the Indian and Pakistani electricity grids to allow exports across the Wagha border. Even more compelling – and relatively easy to accomplish – is the possibility of fuel exports to Pakistan from the new Indian refinery at Bathinda. These kinds of projects make good commercial sense and can help to address Pakistan’s energy requirements in a way the shows people the benefits of commercial normalization. Over the longer term, if the right commercial terms can be found, the United States remains strongly committed to the TAPI pipeline from Turkmenistan, which would realize the long-held goal of connecting the resource endowments of Central Asia to the rapidly growing markets of Pakistan and India. This project, if realized, would further diversify Turkmenistan’s energy market options, provide revenue and jobs for Afghanistan at a critical time in its economic development, and bring clean gas energy to the growing economies of Pakistan and India. The road ahead for this project is lengthy, but the benefits could be significant and are certainly worthy of the diligence demonstrated by these four countries so far.

Although these are all steps in the right direction, there is still a long way to go on the road to normalized trade relations. According to a (2007) World Bank report, Indo-Pak trade flows could potentially reach 400% of current levels. Imports from Pakistan constitute less than 0.2% of gross Indian imports.

But look at the potential of both countries: Consider the 350 million people expected to join India’s burgeoning consumer class in the next 15 years alone! Likewise, according to a Wilson Center report, 2/3 of Pakistan’s 190 million population is under 30 years of age and the country ranks second in the percentage of the population under 24 years of age. Think of the potential consumer demand and labor supply these numbers represent!

How best can these two countries leverage these transformations? Trade liberalization will help fuel greater economic growth and a liberalized trade regime will attract more foreign direct investment (FDI), since an economy with greater access to regional markets is more attractive to foreign investors.

Higher FDI, in turn, leads to increased technology transfer, improved total factor productivity and infrastructure development – key economic priorities of both India and Pakistan. Why are these priorities?

But regional stability matters too. Economic interdependence through trade and increased cross-border flows could be influential as a conduit to peace. Multiple studies show that mutually trade-dependent states are less likely to get involved in conflicts when significant trade-derived gains are potentially at risk. So clearly, not only will an improved trade relationship benefit India and Pakistan, but the entire region.

Ambassador Gautam Mukhopadhaya – who is slated to speak tomorrow – noted in a 2010 Carnegie report that India’s ability to contribute even more to Afghanistan’s economic development is constrained by the lack of direct land access and transit arrangements between India and Pakistan.

Both India and Pakistan would stand to gain from increased trilateral cooperation in Afghanistan. One priority for these three countries might be a discussion of how to advance trade connectivity.

Given that 29% of Afghanistan’s trade already occurs with India, there is a natural opportunity for finding more direct routes between these two markets, which would also give Pakistan’s economy a significant boost. Viewed another way, the Afghanistan-Pakistan Transit Trade Agreement – paired with India and Pakistan’s successful trade rapprochement – might prove an enabling vehicle for boosting trade throughout the region, along well-trodden routes that date back to the Indus Valley Civilization.

Another key element in moving the India-Pakistan relationship forward is broadening the vast people-to-people linkages that exist between the two nations.

The State Department – with Secretary Clinton’s strong backing – supports innovative programs and efforts to link the people of South Asia. From soccer to space, our exchange programs have brought Indian and Pakistanis together.

Remember, Indian-Pakistan cultural exchanges are not one-dimensional in purpose. As Tauqeer Nasir, the director general for Pakistan National Council of the Arts (PNCA) noted: " Like we have been pushing bilateral trade, culture is also trade. We want to push it. India and Pakistan have so much in common. The two countries share a civilization link since [the] ancient Mohenjodaro and Harappa era ."

The Future of Connectivity:

The United States is clear-eyed about the challenges that exist in the region. But, we’re playing the long-game in South Asia. We’re here to support stability and prosperity in Afghanistan, we’re here to grow trade within the region and we’re here to augment regional connectivity. We’re here to further enhance our robust people-to-people ties.

You all know by now that we see Asia as central to 21^st century geopolitics. If I can leave you with anything today, it’s that we see South Asia as an integral part of that strategy.

Here in Muscat, it’s easy to view Oman – with whom we have a Free Trade Agreement – as a key friend to the United States. But Oman is also among a growing number of close neighbors with increasingly solid ties to South Asia. After all, by 2017, Oman expects to import more goods from India than anywhere else in the world!

Here in lies the lesson of a growing Asia, which is a tale of two complementary ideas: inclusiveness and growth. If embraced in tandem, these goals can drive security and prosperity for the entire continent.

Bangladesh, India, and Pakistan are but three important pieces – each “gateway countries” – to a region whose rise can decisively and positively shape global affairs. But every country in this vast region – a space that the author and strategist Robert Kaplan calls “ as iconic to the new century as Europe was to the last one” – stands to gain from this growth, including the country whose soil we stand on today.

Thanks so much for your time today, and I’d be honored to take your questions and hear your comments