BIMSTEC and Sri Lanka: A Potential Agenda for 2018-2020

April 4, 2018   Reading Time: 12 minutes

Reading Time: 12 min read

Image Credit – snehitdesign / depositphotos

This LKI Explainer explores key aspects of the ‘Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation’ (BIMSTEC), a regional organisation. Sri Lanka will assume chairmanship of BIMSTEC in 2018. This Explainer considers how Sri Lanka can advance economic growth and security cooperation through regional integration via BIMSTEC.

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Contents

1. What is BIMSTEC?
2. What has BIMSTEC Achieved?
3. Sri Lanka and BIMSTEC

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1. What is BIMSTEC?

1.1 Background

• The BIMSTEC is an organisation of countries around the Bay of Bengal: Bangladesh, India, Myanmar, Sri Lanka, Thailand and two landlocked states — Bhutan and Nepal.
• It was established in June 1997 through the Bangkok Declaration,¹ which outlines the broad objectives that member states aim to achieve through regional integration.
• The BIMSTEC is a regional sector-specific cooperative organisation, which has 14 priority areas, each led by a member state.
• Unlike the Association of Southeast Asian Nations (ASEAN) and the South Asian Association for Regional Cooperation (SAARC), BIMSTEC targets sectors to promote economic integration and implement sector-specific projects.
  The BIMSTEC reflects an amalgam of India’s ‘Look East’ policy (and more recently its ‘Neighbourhood First’ policy) and Thailand’s ‘Look West’ policy.
• The BIMSTEC connects South Asia, one of the least economically integrated regions, to Southeast Asia, one of the most integrated regions.
• It facilitates different forms of connectivity, including physical (transport and logistical infrastructure), technological and digital, and people-to-people connectivity.
• Currently, regional integration through BIMSTEC is government-driven, rather than market-driven² through mechanisms like a free trade agreement (FTA).

1.2 Institutional Mechanisms

• The BIMSTEC chairmanship rotates between countries on an alphabetical basis. Sri Lanka will assume chairmanship from 2018 for two years.
  • The chair of BIMSTEC is responsible for conducting meetings that include, but are not limited to, the BIMSTEC Summit and Ministerial Meetings.
• The highest policymaking body of BIMSTEC is the Summit for BIMSTEC leaders, which was initiated at the 6th BIMSTEC Ministerial Meeting in 2004.
• A permanent Secretariat was established in 2014 in Dhaka. The Secretariat acts as a coordinating body, to improve negotiation and implementation of BIMSTEC policies.

1.3 Significance of BIMSTEC to the region and India

• The combined population of BIMSTEC is over 1.6 billion people,³ and accounts for 22% of the world’s population.
• In 2016, the combined GDP of member states was USD 3 trillion. Of this figure, India accounted for 74%, Thailand 13%, Bangladesh 7.3%, Sri Lanka 2.7% and Myanmar 2%. Nepal and Bhutan each accounted for less than 1% of this combined GDP (see Figure 1).
• The southern end of the Bay of Bengal is also strategically important to a number of countries — around 25% of globally traded goods, 70% of China’s energy imports, and 90% of South Korea’s and Japan’s energy imports⁴ flow through the Bay.
• The BIMSTEC is also strategically important to India.
  • India is the largest economy in the Bay and requires a productive regional network⁵ to promote regional growth whilst sustaining national growth.
  • The significance of BIMSTEC as a regional platform has grown, as tensions with Pakistan have stalled SAARC and the South Asian Free Trade Area (SAFTA).

Figure 1: Percentage Share of the Combined GDP of BIMSTEC (2016)

2. What has BIMSTEC Achieved?

• The organisation has made some progress in the areas of trade and investment, connectivity, security, and energy and environment.

2.1 Trade and Investment

• Trade by BIMSTEC members as a share of world trade has doubled over time, although it is still relatively small. Member states accounted for around 3.5-4% of world exports and 3.5%-4% of world imports in 2016 (see Figure 2).

Figure 2: BIMSTEC Trade as a Share of World Trade

• As a trading bloc, BIMSTEC does not yet have a significant impact on world trade and has the potential to improve.
• India and Thailand are the largest economies within BIMSTEC, accounting for the majority of member states’ trade with the world.
  • According to the World Bank, in 2016, India accounted for 4.4% of BIMSTEC’s global trade and Thailand accounted for 2.4%. By contrast, Sri Lanka accounted for 0.2% and Nepal 0.1% of global trade.
• The value of BIMSTEC intra-regional trade in goods was USD 52.2 billion in 2016, which is a significant increase from USD 29.4 billion in 2012.
• However, BIMSTEC intra-regional trade in goods accounted for only 5% of member states’ total trade with the world.
• The BIMSTEC’s intra-regional trade is marginally better than SAARC, and notably less than ASEAN’s intra-regional trade which was worth USD 372 billion in 2016 and accounted for 23% of member states’ trade with the world (See Figure 3).

Figure 3: Intra-Regional Trade as a Percentage Share of World Trade (2016)

• The BIMSTEC has received an increasing share of world foreign direct investment (FDI) inflows, but FDI remained low at 3% in 2016 (see Figure 4). BIMSTEC has the potential to attract a greater share of global inward investment.
• The FDI outflows from BIMSTEC has increased over time but was under 1.5% in 2016 (see Figure 4).

Figure 4: BIMSTEC FDI as a Share of World FDIBIMSTEC FTA

• A BIMSTEC FTA has been a priority from the organisation’s inception.⁶ The proposed FTA aims to achieve greater economic cooperation between member states by enhancing trade in goods and services, as well as investment flows.
• In 2004, BIMSTEC member states signed a Framework Agreement⁷ establishing the Trade Negotiating Committee as the primary negotiating body.
• Member states took seven years to sign a framework agreement to establish the FTA and have spent 13 years negotiating the terms of the FTA.
• FTA negotiations have stalled because of differences between India and Thailand over market access.⁸ India requires rules on the ‘movement of professionals’ to be eased and Thailand requires relaxed foreign investment rules for its retailers.
• A BIMSTEC FTA would in effect give Sri Lanka an FTA with six countries, which would be beneficial given the country’s limited trade negotiation capacity and resources.
• At the 2016 Leaders’ Summit, countries agreed to (1) expedite negotiations on the services and investment components of the FTA, and (2) offer special and differential treatment for Least Developed Countries—Bangladesh, Bhutan, Myanmar and Nepal.
• Having a ‘goods-only FTA’ has been criticised as unnecessary in a region where tariffs are low and have been falling over the last five years. A more comprehensive regional agreement covering goods, services, investment and targeting non-tariff measures is desirable.
• According to United Nations Conference on Trade and Development (UNCTAD), the simple average tariff rate between BIMSTEC countries was 8.2% in 2016, which is a significant decrease from 53% in 1989.
  • However, ASEAN’s average tariff rate with the world is 4.6%, substantially lower than BIMSTEC’s tariff rate at 8.2% (see Figure 5).

Figure 5: BIMSTEC and ASEAN Simple Average Tariff Rate (%)

2.2 Connectivity: Technology, People-to-People and Transport and Logistics

• Sri Lanka is the lead country for the technology sector in BIMSTEC. In 2008, BIMSTEC decided to establish a Technology Transfer Facility (TTF) in Sri Lanka.
• In 2017, a BIMSTEC expert working group finalised the draft text of a Memorandum of Association for the BIMSTEC TTF.
• Connectivity has also been attempted through the BIMSTEC Network of Policy Think Tanks, through regular meetings with country focal points.
• In the third BIMSTEC Summit Declaration of 2014, members committed to enhancing people-to-people connectivity through a BIMSTEC Business Visa Scheme and a Visa Exemption Scheme. It is unclear what progress has been made on this.
• In 2008, the Asian Development Bank ‘BIMSTEC Transport Infrastructure and Logistics Study’ identified 167 projects to improve logistics and transport connectivity, at an estimated cost of USD 45-50 billion.
• BIMSTEC is currently negotiating a Coastal Shipping Agreement, drafted by India’s Ministry of Shipping, to reduce coastal shipping costs and increase the speed of the movement of cargo in a sustainable manner.

2.3 Security and Dispute Resolution

• BIMSTEC recognises terrorism as the most significant threat⁹ to peace and stability in the Bay of Bengal.
• In 2009, member states signed the BIMSTEC Convention on Cooperation in Combating International Terrorism, Transnational Organized Crime and Illicit Drug Trafficking.¹⁰
• India has called for the ratification of the BIMSTEC Convention on Mutual Assistance in Criminal Matters,¹¹ and BIMSTEC is negotiating a Convention on Human Trafficking¹² to enhance security cooperation.
• BIMSTEC states have aimed to peacefully resolve their disputes through international mechanisms.
  • In 2014, India and Bangladesh resolved a maritime border dispute¹³ through a United Nations tribunal. The tribunal ruled in favour of Bangladesh and India accepted the judgment.
  • Bangladesh and Myanmar engaged the International Tribunal for the Law of the Sea¹⁴ to resolve maritime border disputes.

2.4 Energy and the Environment

• BIMSTEC states have committed to combating environmental issues by pledging to implement the Paris Agreement.
• Member states have committed to reducing dependency¹⁵ on imported oil and noted that trading natural gas between member countries could improve energy security.
• A ‘Memorandum of Understanding on establishing a BIMSTEC Grid Interconnection’¹⁶ has been signed for energy cooperation.

2.5 The BIMSTEC Secretariat

• BIMSTEC established a permanent secretariat in Dhaka in 2014, to act as a coordinating body, to improve implementation and negotiation of BIMSTEC policies.
• Ensuring the effectiveness of the BIMSTEC Secretariat has proved challenging.
  • The success of the European Union (EU) and ASEAN could be partly attributed to the effectiveness of the European Commission and the ASEAN Secretariat.
  • By contrast, BIMSTEC’s Secretariat appears to be understaffed and underfunded.¹⁷

3. Sri Lanka and BIMSTEC

3.1 Trade and Investment

• Trade with BIMSTEC states accounted for 17.4% of Sri Lanka’s total trade in goods in 2016, which mostly reflects imports from India.
• In 2016, the value of Sri Lanka’s goods imports from BIMSTEC was equivalent to 23% of total imports, and Sri Lanka’s goods exports to BIMSTEC was only 7% of its total exports (see Figure 6).
  • In 2016, India accounted for 79% of Sri Lanka’s BIMSTEC goods exports and 87% of Sri Lanka’s BIMSTEC goods imports.

Figure 6: Sri Lanka’s Trade with BIMSTEC (% of Total)

• Sri Lanka should prioritise finalising the BIMSTEC FTA. Negotiations which began in 2004¹⁸ are still ongoing, with discussions on trade in services and investment provisions.
  • Sri Lanka should ensure the FTA does not duplicate or contradict other existing or proposed bilateral and multilateral trade agreements of BIMSTEC member states.
  • The FTA should ensure simplified rules of origin and the implementation of a single window system for greater trade facilitation.¹⁹
• Sri Lanka could strengthen links to ASEAN’s and India’s production networks via the FTA.
  • If India’s “Make in India” initiative is successful, Sri Lanka has an opportunity to connect to those value chains and expand trade with India.
  • Thailand is another important connecting point, because of its strong links to Japan and the automobile industry. In 2016, 11% of Sri Lanka’s total BIMSTEC trade in goods was with Thailand. Expanding trade links with Thailand will help to balance Sri Lanka’s reliance on India for trade.
• Sri Lanka could encourage BIMSTEC states to finalise the ‘Trade Facilitation Agreement’ and ‘Agreements on Cooperation and Mutual Assistance in Customs Matters and Dispute Settlement Procedures and Mechanisms.’

3.2 Connectivity: Technology, People-to-People and Transport and Logistics

• Sri Lanka, as lead of the technology sector, should study other regional technology transfer facilities, like the European Technology Transfer Offices Circle,²⁰ to ensure an efficient and effective TTF in Sri Lanka. ²¹
• Regional experts have noted that more shipping links,²² particularly between Sri Lanka, India, Bangladesh and Myanmar, will pave the way for faster trade. Sri Lanka should work to finalise and operationalise the BIMSTEC Coastal Shipping Agreement.
• Sri Lanka can aim to ensure that the BIMSTEC master plan²³ for transport connectivity includes a plan for a central body to manage the financing of transport and logistics initiatives.
• Sri Lanka could encourage BIMSTEC to introduce technology-driven “public goods” like free or low-cost internet connectivity, which would have positive spillover effects in other priority areas like trade.

3.3 Security and Dispute Resolution

• Sri Lanka could use BIMSTEC as an instrument for sub-regional maritime security governance and encourage BIMSTEC to recognise maritime security issues beyond terrorism, including the Rohingya refugee crisis and incidents of sea piracy.
  • This would underscore Sri Lanka’s preparedness to lead security initiatives of larger regional organisations like the Indian Ocean Rim Association (IORA) and pave the way for security synergies between IORA and BIMSTEC.
• Sri Lanka could prioritise the ratification of BIMSTEC security conventions and ensure other member states also ratify these conventions.
• India and Myanmar have signed a standard operating procedure for India-Myanmar Coordinated Patrols.²⁴ Sri Lanka could propose a similar initiative for the Bay of Bengal region via BIMSTEC.

3.4 Energy and the Environment

• Sri Lanka should encourage BIMSTEC to sign the ‘Memorandum of Understanding on the Establishment of the BIMSTEC Grid Interconnection’²⁵ to provide grid interconnections to trade electricity within BIMSTEC, for optimal power and electricity transmission.
• The BIMSTEC countries are responsible for over 30% of the world’s fishermen.²⁶ Sri Lanka could facilitate the implementation of regional policies to modernise the fishing industry, to enhance livelihood development and increase food security.

3.5 The BIMSTEC Secretariat

• To increase institutional effectiveness, Sri Lanka could propose a troika system²⁷ comprising of the current Chair, former Chair and future Chair of BIMSTEC. This would ensure policy consistency, institutional memory, and strong leadership.
  • Sri Lanka could recommend including provisions for Observers or Dialogue Partners. This could bridge resource gaps through financial contributions, knowledge sharing, and technical expertise.

4. Key Readings

Asirwatham, G. (2017). BIMSTEC at 20: Priorities for the Future. The Lakshman Kadirgamar Institute. Available at: https://lki.lk/publication/mrs-grace-asirwatham-state-secretary-ministry-of-foreign-affairs-on-bimstec-at-20-priorities-for-the-future/.

Carnegie India. (2016). Discussion Highlights: The Role of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation in Fostering Regional Cooperation in South Asia. Available at: http://carnegieindia.org/2016/11/04/bimstec-and-bay-of-bengal-event-5419.

De, P. (2017). Big Ideas to Shape BIMSTEC’s Future. East Asia Forum. Available at: http://www.eastasiaforum.org/2017/09/15/big-ideas-to-shape-bimstecs-future/.

Frost, E. (2017). It’s Time to Deepen Integration Around the Bay of Bengal. Carnegie India. Available at: http://carnegieindia.org/2017/05/31/it-s-time-to-deepen-integration-around-bay-of-bengal-pub-70128.

Kelegama, S. (2017). Regional Economic Integration in the Bay of Bengal. Talking Economics. Available at: http://www.ips.lk/talkingeconomics/2017/06/06/regional-economic-integration-in-the-bay-of-bengal/.

Notes

¹The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. (1997). Bangkok Declaration. Available at: http://bimstec.org/basicdocuments.

²Institute of Policy Studies of Sri Lanka – Talking Economics. (2018). Talking Economics – Regional Economic Integration in the Bay of Bengal. Available at: http://www.ips.lk/talkingeconomics/2017/06/06/regional-economic-integration-in-the-bay-of-bengal/.

³The World Bank. (2018). World Bank Open Data. Available at: https://data.worldbank.org/.

⁴Frost, E. (2017). It’s Time to Deepen Integration Around the Bay of Bengal. Carnegie India. Available at: http://carnegieindia.org/2017/05/31/it-s-time-to-deepen-integration-around-bay-of-bengal-pub-70128.

⁵Mohan, C. (2016). Raja Mandala: Bay of Bengal’s Glad Tidings. Carnegie India. Available at: http://carnegieindia.org/2016/10/11/raja-mandala-bay-of-bengal-s-glad-tidings-pub-64831.

⁶The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation – Digital Library: Summit Declarations. (2004). 1st BIMSTEC Summit Declaration.pdf. Available at: https://drive.google.com/file/d/0B8Fv9wDGJqx2SFVVS1FIVGEtdUE/view.

⁷Ministry of External Affairs – Government of India. (2018). Brief on BIMSTEC. Available at: https://www.mea.gov.in/Portal/ForeignRelation/BIMSTEC_Brief_February_2014.pdf.

⁸Bilaterals.org. (2017). India-Thailand difference delaying FTA under BIMSTEC. Available at: https://www.bilaterals.org/?india-thailand-difference-delaying.

⁹The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. (2018). BIMSTEC – Digital Library: Ministerial Declarations. Available at: http://bimstec.org/basicdocuments/ministerial-declarations/.

¹⁰Ministry of External Affairs – Government of India. (2009). BIMSTEC Convention on Cooperation in Combating International Terrorism, Transnational Organised Crime and Illicit Drug Trafficking. Available at: http://mea.gov.in/bilateral-documents.htm?dtl/5070/BIMSTEC+Convention+on+Cooperation+in+Combating+International+Terrorism+Transnational+Organised+Crime+And+Illicit+Drug+Trafficking.

¹¹The Hindu. (2014). BIMSTEC leaders vow to jointly combat terrorism. Available at: http://www.thehindu.com/news/international/south-asia/bimstec-leaders-vow-to-jointly-combat-terrorism/article5749734.ece.

¹²The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. (2018). BIMSTEC – Digital Library: Ministerial Declarations. Available at: http://bimstec.org/basicdocuments/ministerial-declarations/.

¹³Aljazeera. (2014). Bangladesh wins sea border dispute with India. Available at: http://www.aljazeera.com/news/asia/2014/07/bangladesh-wins-sea-border-dispute-with-india-20147881221238354.html.

¹⁴Watson, S. (2015). The Bangladesh/Myanmar Maritime Dispute: Lessons for Peaceful Resolution. Asia Maritime Transparency Initiative. Available at: https://amti.csis.org/the-bangladeshmyanmar-maritime-dispute-lessons-for-peaceful-resolution/.

¹⁵The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. (2018). BIMSTEC – Digital Library: Ministerial Declarations. Available at: http://bimstec.org/basicdocuments/ministerial-declarations/.

¹⁶The Himalayan Times. (2017). Signing and ratification of MoU for BIMSTEC grid interconnection approved. Available at: https://thehimalayantimes.com/business/signing-ratification-mou-bimstec-grid-interconnection-approved/.

¹⁷Raja Mohan, C. and Nakandala, S. (2018). BIMSTEC and the Bay of Bengal. Carnegie India. Available at: http://carnegieindia.org/2016/11/04/bimstec-and-bay-of-bengal-event-5419.

¹⁸Investment Policy Hub. (2004). Final Draft Framework Agreement. Available at: http://investmentpolicyhub.unctad.org/Download/TreatyFile/3099.

¹⁹Sengupta, J. (2017). BIMSTEC-FTA: A new hope for enhanced regional trade | ORF. Observer Research Foundation. Available at: http://www.orfonline.org/research/bimstec-fta-new-hope-enhanced-regional-trade/.

²⁰European Commission. (2018). Connecting the Technology Transfer Offices of major European public research organisations. Available at: https://ec.europa.eu/jrc/communities/community/629/about.

²¹Ge, P. (2016). Sri Lanka committed to set up BIMSTEC Technology Transfer Center. President’s Media Division. Government of Sri Lanka. Available at: http://www.pmdnews.lk/බිම්ස්ටෙක්-කලාපීය-තාක්ෂණ

²²De, P. (2017). Big ideas to shape BIMSTEC’s future. East Asia Forum. Available at: http://www.eastasiaforum.org/2017/09/15/big-ideas-to-shape-bimstecs-future/#more-86951.

²³Secretariat, B. (2017). The Second Meeting of the BIMSTEC Transport Connectivity Working Group. The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. Available at: http://bimstec.org/event/the-second-meeting-of-the-bimstec-transport-connectivity-working-group/.

²⁴The Hindu. (2016). India-Myanmar Sign SOP on Joint Patrol. Available at: http://www.thehindu.com/news/cities/Visakhapatnam/indiamyanmar-sign-sop-on-joint-patrol/article8256109.ece.

²⁵The Himalayan Times. (2017). Signing and ratification of MoU for BIMSTEC grid interconnection approved. Available at: https://thehimalayantimes.com/business/signing-ratification-mou-bimstec-grid-interconnection-approved/.

²⁶The Financial Express. (2016). India must work closely with BIMSTEC on trade push: Assocham. Available at: http://www.financialexpress.com/industry/india-must-work-closely-with-bimstec-on-trade-push-assocham/324935/.

²⁷The Lakshman Kadirgamar Institute of International Relations and Strategic Studies. (2017). Grace Asirwatham, State Secretary to the Ministry of Foreign Affairs, on “BIMSTEC at 20 – Priorities for the Future” – The Lakshman Kadirgamar Institute. Available at: https://lki.lk/publication/mrs-grace-asirwatham-state-secretary-ministry-of-foreign-affairs-on-bimstec-at-20-priorities-for-the-future/.

Abbreviations

ASEAN                      Association of Southeast Asian Nations
BIMSTEC                 Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation
EU                               European Union
FDI                              Foreign Direct Investment
FTA                             Free Trade Agreement
SAARC                       South Asian Association for Regional Cooperation
SAFTA                       South Asian Free Trade Area
TTF                             Technology Transfer Facility
UNCTAD                 United Nations Conference on Trade and Development

*Anishka De Zylva and Divya Hundlani are Research Associates at the Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI). The opinions expressed in this article are the authors’ own views. They are not the institutional views of LKI, and do not necessarily represent or reflect the position of any other institution or individual with which the authors are affiliated.