The process of globalisation has integrated production and supply chains as well as markets around the world. Trade and economic relations have a logic of their own, with geo-economics often transcending geopolitics. In a globalized world, strategic choices are often subject to economic considerations. Closer economic integration also provides stability among adversaries in a world in flux.

Regional economic integration in sub-geographies has generally led to an improved and stable strategic architecture.  Regional integration plays a crucial role in overcoming divisions that impede the flow of goods, services, capital, people, and ideas among countries. These divisions, often caused by geographical limitations, inadequate infrastructure, and inefficient policies, hinder economic growth, particularly in developing nations. By integrating markets for goods and services, regional integration enables countries to surmount these barriers, facilitating the flow of trade, capital, energy, people, and ideas. This process can be facilitated through the establishment of common physical and institutional infrastructure. Different regions across the world have adopted various institutional forms of cooperation, with different levels of policy commitments and shared sovereignty, prioritizing different aspects of regional integration.

Regional integration can yield substantial economic gains for participating countries. It improves market efficiency, enables cost-sharing for public goods and large infrastructure projects, fosters cooperative decision-making, acts as a catalyst for reforms, and serves as a building block for global integration. Additionally, regional integration offers non-economic benefits such as peace and security.

In different regions around the world, regional integration efforts have been shaped by unique circumstances, challenges, and motivations, which have influenced the outcomes and levels of success achieved by the respective organizations.

In North America, the United States played a leading role and contributed to the successful establishment of organizations like USMCA (earlier NAFTA), promoting economic cooperation among member countries.

On the other hand, South America witnessed the creation of MERCOSUR, also known as the Southern Common Market, initially comprising Argentina, Brazil, Paraguay, and Uruguay. In the 1990s, MERCOSURproved successful in enhancing trade within the group. However, Brazil’s currency devaluation in 1999 and Argentina’s financial crisis in 2001 impacted on regional integration. The bloc faced challenges in later years when trying to open up to other markets. Moreover, trade disputes and tensions arose between the two largest economies in the bloc. This also shows that intra-regional trade and economic frictions can thwart a region’s consensus and smooth interface with the rest of the world even after achieving a common market. An example is the UK, which eventually exited the EU through BREXIT.

In Southeast Asia, the establishment of ASEAN in 1967 by five nations was in response to curbing the spread of communism. Following the 1997 Asian financial crisis that originated in Thailand, ASEAN members took significant steps to further integrate their economies and foster cooperation among member states. It also resulted in economic integration in the wider region, with a rising economy such as China’s, through currency swap arrangements under the Chiang Mai Initiative. ASEAN has seen a steady rise in its own integration with the Chinese economy since then. 

Additionally, China’s strong ties with its diaspora in Southeast Asian countries also contributed to improved relationships, increased trade, and enhanced commerce. The establishment of ASEAN further facilitated China-ASEAN integration. While China may have intentions to exert influence in neighboring countries, its success largely depends on the acceptance and cooperation of these nations.

In some cases, regional integration can be triggered by a domino effect, exemplified by the enlargement of the European Union (EU) to include several East and Central European countries after the demise of the Soviet Union. These erstwhile communist economies anticipated economic benefits by joining the EU. The latter, through the expansion, created newer and more competitive centers of manufacturing for their union.

China has been successful in fostering integration with neighboring countries. Japan, ROK, Singapore, Hong Kong and even Taiwan have played a key role in fostering the economic rise of China, by integrating their manufacturing centers and supply chains with the Chinese economy. They have taken full advantage of the labour cost arbitrage in China and the latter’s hub and spokes connectivity with markets around the world. China has benefitted by absorbing technologies and capital.

In South Asia, the situation is different. Achieving regional integration has been particularly challenging compared to other regions due to unique historical and geopolitical circumstances. South Asia has a shared history, both civilizational and colonial, but does not necessarily have a shared identity. Religious and linguistic differences act as a drag on regional integration.

In the past, efforts to achieve economic integration in South Asia were made through SAPTA (South Asian Preferential Trade Agreement) and later through SAFTA (South Asian Free Trade Area). However, these initiatives resulted only in limited success in fostering regional economic integration.

Unlike some other regions, South Asia lacks a consensus on emerging threats and challenges. Unlike China, South Asia does not have some of the world’s most developed and dynamic economies on its periphery. The partition of the Indian subcontinent in 1947 after gaining independence from British rule left behind contested borders, further complicating integration efforts. Besides, the quest for national identity post-colonization has, at times, posed challenges to fostering a shared regional identity that facilitates integration. Moreover, the rise of China has acted as a magnet for many of the smaller South Asian economies whose trade with China has outpaced their traditional trade with India.

South Asia today has multiple choices. Apart from India and China as economic partners, the US has also stepped up its efforts to engage the region through the economic lens and not just through a security lens. Given the logic of geography and India’s rise as the world’s fifth largest economy and the fastest growing of all, regional economic integration in South Asia suggests India as the fulcrum.

Given the limitations of SAARC, South Asia has witnessed the emergence of new regional initiatives driven by India’s Act East Policy. These initiatives, which include the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), the Indian Ocean Rim Association (IORA), Bangladesh-China-India-Myanmar (BCIM) Economic Corridor and the BBIN (Bangladesh-Bhutan-India-Nepal transport agreement), are aimed at fostering cohesiveness among member states and achieving prosperity in the region.

In this context, the Manohar Parrikar Institute for Defence Studies & Analyses (MP-IDSA) intends to host the 15th South Asia Conference titled, “Prospects of Regional Economic Integration in South Asia” on 14-15 December 2023. A cross-section of experts, analysts, and policymakers will be invited to discuss these issues and recommend the way forward.

The Conference:

The conference seeks to discuss among others the following questions:

• What is the current state of regional economic integration?
• Role of connectivityin promoting regional economic integration and its current status
• Tariff, Non-tariff and Technical barriers to trade
• Economic Partnership Agreements in South Asia
• Banking and fiscal policies in the region
• Digital Public Infrastructure (DPI) in India and beyond
• Trade Settlement in Indian Rupee / Regional currencies / UPI/DPI
• Financial Crisis and Regional Response / Regional crisis management / Impact on Regional Integration
• Sub-regional integration – Including and excluding India
• Afghanistan and Myanmar as gateways to promote regional integration beyond South Asia

Participation in the conference is by invitation only. To participate, please contact the conference coordinator.