REGIONALISM AND CONTEMPORARY

Journal of Indian Ocean Studies, Vol. 15 No.1 April 2007


REGIONALISM AND CONTEMPORARY
INDIAN OCEAN REGION

Mahmood Mukhtar AIam*


Abstract

The world economy has been drifting into inward-looking trade blocs with multilateral free trade principles based on geographical proximity. Article 24 of the General Agreement on Tariff and Trade, (now World Trade Organization) explicitly permits regional arrangements. At present there are more than 85 regional trade arrangements in existence, 28 of which have been set up since 199ZzIhe form of regionalism that is emerging in the Indian Ocean Region~(/OR-ARC) is quite different from the European Union (EU) and North American Free Trade Association (NAFTA) model because economic or political union is not the ultimate goal. Regional cooperation framework in the lOR are neither planned nor policy oriented, though the economies of this region have merely agreed to increase pressure among them to keep their economies open to free flows of investments and trade in the lOR economies. Such open cooperation provides new instruments for promoting consensus building, information flow and consultations between businesses and governments. It may provide another mechanism to achieve trade liberalisation by encouraging freer regional trade.

The rapid spread of regionalism is the most important development in the global trading system. Post-war international trade relations are built on multilateral free trade principles that regard regional trade coalitions as suboptimal arrangements. A rising share of international trade is occurring within regions. It raised the fear that the world economy is disintegrating into inward-looking trade blocs.


The process is strongly influenced by geographical proximity. The regions have become more geographically oriented, with the majority of members associated with the regional cores of Japan and USA with APEC; Germany and UK with EU; USA with NAFTA; and Singapore and Malaysia with ASEAN. Regionalism takes shape through governmental promotion of trade linkages between countries by removal of barriers to mutual trade in the form of free trade areas, customs unions and other preferential trading agreements. It has gained momentum with the formation of EU and NAFTA. The trend towards regionalisation is an intermediary stage in the relationship between the states on the one hand and the globalising economy on the other.

The recent years have witnessed the growth of 'New Regionalism', interfacing the global trading arrangements. Unlike the regional trading arrangement of the sixties, newly formed blocs! agreements have given importance to preferential free trading arrangements among themselves.

Even the Article 24 of the GATT (now WTO) explicitly permits regional arrangements, thus, acknowledging their compatibility with the multilateral trading system. Since the 1990s, 'open regionalism' is prevalent in various parts of the world, and represents an effort to resolve one of the central problems of the contemporary trade policy, Le., how to achieve compatibility between the explosion of regional trading arrangements around the world and the global trading system as embodied in the WTO. The concept seeks to assure that regional agreements will in practice be building blocks for further global liberalization rather than stumbling blocks that deter such progress.

By now, no. fewer than 85 regional trade arrangements are in existence, 28 of which have been set up since 1992. Yet, the world has only two significant trade blocs, defined as zones of preferential trade. One is the Western Europe and the other is North America. The Asia-Pacific Economic Cooperation (APE C) forum covers a quarter of world trade, but is not a preferential arrangement.

The strategic environment under which trade operates is a potentially competitive market, and the location of a supplier is largely irrelevant. This means that the patterns of contemporary international trade increasingly reflect organizational strategies, which affect trade decisions. Moreover, regionalism is thought to be increasingly a natural phenomenon, because informal economic agents as businesses who become more internationalized, drive it. Trade is said to be greater in 'natural' trade regions because the formation of such trade regions is influenced by geographical proximities, which reduces transaction costs and increases information flows.

The form of regionalism that is emerging in the Indian Ocean Region (lOR-ARC) contrasts sharply with the EU and NAFTA model because economic or political union is not the ultimate goal. Neither planned nor policy-oriented, regional cooperation frameworks in the lOR are loose arrangements with low levels of institutionalization. lOR-ARC, for instance, is neither a free trade area nor an institution. Its members have merely agreed to increase pressure among them to keep their economies open to free flows of investments and trade in the lOR economies. Such open cooperation provides new instruments for promoting consensus building, information flow, and consultations between businesses and governments. Additionally, it shall provide another mechanism to achieve trade liberalization by encouraging freer regional trade.

The lOR is a very fast growing region in the world economy, and is rapidly becoming a major centre of the world trade and economic activity. Apparently, two ideas have strongly influenced the lOR-ARC. One is the realization that the Indian Ocean is the only ocean not to have any economic grouping like NAFTA, ASEAN and APEC at a time when international relations are increasingly becoming ocean ¬centric. In this regard, the then Vice-President of India, Mr. K. R.
Narayanan said in 1994 at Port Louis:

"If the littoral states of the Pacific can draw together in a mutually satisfying convergence of economic and political interests, why not the states on the other side of the developmental divide?

In that sense, the lOR-ARC may become a bridgehead between Africa, Asia and Australia.

Raison d'etre
In the past several years, there has been considerable discussion of the proposal aiming at bringing about closer economic integration among the nations of the lOR community. This discussion has been generated by the strong rate of economic growth in the countries around the Indian Ocean basin; by their rapidly expanding trade, investment and other commercial relations; and changes in the international political environment', par1icularly the flux in the relationship among the great powers in the area since the 1991 Gulf crisis. As the Prime Minister of Mauritius Dr. Navinchandra Ramgoolam described: "The lOR grouping is a delayed, but timely initiative to enable the Indian Ocean countries to face the challenges of globalization and also utilize the opportunities that it posed. He wamed that unless the developing countries responded suitably and in a spirit of cooperation, they could be marginalised with the emergence of the mega trade bloc.


It is to be kept in mind that there have already been many regional and sub-regional organisations within the lOR region existing with some specific agenda. There are broadly five sub-regional organisations, covering the littoral states of the Indian Ocean Rim: Gulf Cooperation Council (GCC); Southern African Development Community (SADC); Association of South-East Asian Nations (ASEAN); the Organisation of African Unity (OAU), now African Union (AU); and the South Asian Association for Regional Cooperation (SAARC).


There are a few ground realities that can support the formation of lOR-ARC. In the recent years, there has been a sea-change in the industrial capacities and profiles of some of the industrialising countries in the region, namely India, Pakistan, Bangladesh, Singapore, Malaysia, Indonesia, Thailand, Kenya, South Africa and Australia. They are in a position to otter their manufactures and intermediate types of capital goods and machinery that are suited to the requirements of many developing countries in the region.

Many countries in this region are burdened with crippling debt burdens in the wake of the two oil shocks of 1973 and 1979, and also the falling commodity prices. Repayments posed serious burdens on their balance of payments. Many of the non-oil, less developed countries face an unprecedented energy crisis along with problems of balancing their national budgets and international balance-of¬payments accounts. One can imagine a single item, Le. mineral fuel, constitutes around 30 percent of total import.

Much of the technology that is available to these countries from the western industrialised economics is highly capital intensive. These technologies are not suited to their growing employment needs and aspirations. Many of the countries have small international markets and they want to develop domestic industrial capacities and raise their tariff walls to protect the same. The kind of technology that is not available in a country could promote greater intra-regional trade investment and economic cooperation.

The challenges of the eighties and even of the nineties, perhaps, leave no alternative for the developing countries of the Indian Ocean Rim but to forge closer links among themselves. The 15 countries of Western Europe have already formed the European Union, and have permitted free flow of goods, people and capital. The North American Free Trade Area has been constituted by the US, Canada and Mexico; and the APEC group has been formed to cover the Pacific Rim. Only the Indian Ocean had remained without the regional groupings and trade blocs and is now filling the vacuum. The Foreign Minister of Indonesia, Mr. Ali Alatas said in 1997.

"The general feeling was that the Atlantic was the Ocean of the past", the Pacific of the present and the Indian Ocean, that of the future. It would be the challenge of the lOR countries to make their Ocean also one of the present"?

The lOR economies constitute a major part of the world economy but are left behind in the decision making of the world trade and commerce. The focus on the Indian Ocean as "the regional basis" of some future forum for economic interaction among the countries, which lie within this region, visualises the Indian Ocean as a unifying factor (A glance at the map shows that while the Atlantic and the Pacific Ocean divide continents, the Indian Ocean unites a vast arc of land). Primarily, the strongest factor for the emergence of IOR¬ARC is the geographical consideration. As mentioned earlier, the Indian Ocean Rim region has a number of sub-regional formations already existing, which have been catering to the concerns of the groupings. These would have direct and indirect bearing upon the developments of lOR-ARC.

Origin
The Indian Ocean Rim Association for Regional Cooperation is the product of several events. It was only in the second half of the twentieth century that people began to think of the Indian Ocean as a unifying factor. In the 1950s, late Prime Minister, Jawaharlal Nehru referred to the 'commonality' of the peoples of the region; and in the 1970s and 1980s, Sri Lanka and Seychelles, started to propagate a 'zone of peace' and a 'nuclear-free zone' in the area. Neither of these concepts, however, involved regional economic co-operation. It was not until the early 1990s that the idea of forming an Indian Ocean Rim (lOR) economic grouping came to the forefront. The idea of bringing together the countries of the Indian Ocean Rim into a new form of economic cooperation was first mooted by Mauritius in August 1992. In January 1994, the Mauritian Prime Minister, elaborated the idea and called for the creation of an "Indian Ocean Rim trading bloc" through economic cooperation between Asian and African countries of the Indian Ocean and Australia.

The concept of an lOR initiative was also publicly mooted by the South African foreign Minister, Pik Botha in November 1993. President Nelson Mandela reinforced Pik Botha's idea when he visited India in January 1995.

"Recent changes in the international system demanded that the countries of the Indian Ocean Rim shall come on a single platform. The natural urge ofthe facts of history and geography should broaden itself to include exploring the concept of Indian Ocean Rim and socio¬economic cooperation and other peaceful endeavors".

This proposal was well received both by the India and Australian governments. For India, it was consistent with the vision of India's first Prime Minister, Jawaharlal Nehru, who had encouraged unity among the Indian Ocean states. For Australia, this was in line with their 'Look West' policy.

The Mauritius-Indian Ocean Rim Initiative, of the government, business and academia (Port Louis) on 29-31 March 1995, had delegates from seven countries-Australia, India, Kenya, Mauritius, Oman, South Africa and Singapore. The meeting took note of the recent significant changes in the political and economic conditions, particularly the conclusion of the Uruguay Round of GATT negotiations and the setting up of a World Trade Organisation. (WTO) which promised to usher in a more liberal international trading system, growing trend towards regionalism and the increasing adoption of market-friendly policies by a growing number of countries. The meeting concluded that the vital interests shared by the expansion of free trade and investmen~, at the regional and global levels, called for greater cooperation for a more effective utilisation of human, natural and other resources of the lOR for sustained, accelerated economic growth. And also for the improvement of the economic and social welfare of its people, who shared history, and had close cultural links and long-standing trade relations.

The meeting set out the principles, objectives, scope of activity and future course of action to be und~rtaken by the core group, namely those participating in the "initiative". The principles stated that, in a spirit of open regionalism, it seeks to build and expand understanding and mutually beneficial cooperation through a consensus-based, evolutionary and non-intrusive approach. The underlying principles of the entire concept were stated to be:

- Cooperation within lOR's framework to be based on respect of the principles of sovereign equality, territorial integrity, political independence, and non-interference in internal affairs, peaceful coexistence and mutual benefit;

- Such cooperation shall not be a substitute for bilateral and other forms of multilateral cooperation entered into by member states, but shall reinforce and be complementary to those forms of interaction, and shall be consistent with the bilateral and multilateral obligations of member states;

- Eligibility for membership is open to all sovereign states of the lOR;

- All decisions shall be taken 'on the basis of consensus';

- But bilateral and other issues likely to generate controversy and be an impediment to regional cooperation efforts shall be excluded from the deliberations, and Member states shall undertake the work programmes of the Association 'on a voluntary basis'.

Australian perceptions

Since the beginning of the nineties, Australia's policy has been marked by reorganisation and reorientation. It focused on making the country a major market economy in the Asia-Pacific region. The Asia-Pacific Economic Cooperation (APEC) was launched in 1989 at Canberra, Australia. On 16-18 November 1992, a major trade and investment convention named "Into Asia" Convention was held at Perth, attended by some 500 government and business representatives. In the keynote address at the convention, the then Premier of Western Australia, Dr. Carmen Lawrence, noted that the state was at the forefront of a national transition to a more Asian¬oriented economy. Not only did the state conduct 70 percent of the trade with Asia, this activity provided 40 percent of the jobs. As Asian Australians becoming increasingly involved in such trade initiatives, he said," Western Australia could become a major gateway to Asia".

Following the Mauritius inter-governmental meeting in March 1995, and before the Perth Conference in June 1995, the Australian Foreign Minister, Gareth Ev(;!ns, undertook an eleven-day visit to eight countries around the Indian Ocean: India, Pakistan, Sri Lanka, the Seychelles, Madagascar, South Africa and Mauritius. He espoused an indigenous Indian Ocean region-wide process of cooperation. The Perth Conference, was comparatively a more representative gathering of the Indian Ocean States. In this conference, there were 122 participants from business, academia and government from 22 lOR countries. These were: Australia, Bahrain, Bangladesh, India, Iran, Kenya, Kuwait, Madagascar, Malaysia, Maldives, Mauritius, Mozambique, Oman, Pakistan, Saudi Arabia, Seychelles, Singapore, South Africa, Sri Lanka, Thailand; United Arab Emirates and Yemen. In this conference, six major approaches were dealt with:

- Historical Interaction: regional, commercial and economic interaction through cross-fertilization of cultures and technologies, prior to the arrival of the European colonial powers.

- Current Economic Situation: the nature of current economic characteristics and linkages in the Indian Ocean Region. The major thrust was on trade share of the lOR economies and commodity trade structure.

- Intra-Regional Trade: to bring the lOR countries closer and would provide an economic underpinning for reduction of tension and maintenance of security.
- Global and Regional Security Arrangement: trade routes carrying trans-oceanic trade, the "Choke Points", and the general concern about oil security within the Gulf.
- Non-Military Issues: illicit drug trafficking, illegal movement of people, terrorism and border disputes.
- Networking Prospects: existing networks of cooperation and their prospects for further development. There are organisations representing particular specialist areas such as law and those with interests in a particular sector of the Indian Ocean.
- In the law category major organisations are: the African Asian Legal Consultative Committee (MLCC); Indian Ocean Marine Affairs Cooperation (IOMAC); Association of Shipping and Ports Authorities (ASPA); the Indian Ocean Fisheries Commission (IOFC); Indian Ocean Tuna Commission (IOTC) and the Port management Association for Eastern and Southern Africa (PMAESA). Another category comprises the Indian Ocean Island Commission in the southwest, the GCC, SMRC, ASEAN and SACEP (South Asian Cooperative Environment Programme). The reasons for the absence of networking were attributed to the lack of awareness, political commitment and financial support as well as the reluctances of some countries to be involved in multilateral activities.


The major outcomes of Perth Summit were:
- Consultative Business Network: The Australian Chamber of Commerce and Industry would act as the interim coordinator for this network;
- A charter for, a new business organization; Information technology, including telecommunication; Customs and trade documentation; Non-tariff barriers and impediments to investment; and Maritime affairs.

Second track approach
The first meeting of the tripartite working group in Mauritius (15¬-17 August 1996) supported the establishment of a second track process consisting of business and academic networks. This was complementary to the intergovernmental movement. A further meeting in Mauritius (10-11 September 1996) finalised a charter for the creation of the lOR-ARC with a doubling of membership to include Indonesia, Malaysia, Madagascar, Mozambique, Sri Lanka, Tanzania and Yemen. Finally, with 14 members the lOR-ARC was formed in March 1997 in Port Louis, Mauritius. The functioning mechanism of lOR-ARC was demarcated in this meeting, according to the given provision.

The lOR-ARC Working Groups are the Indian Ocean Rim Academic Group (IORAG) representing the academia, and the Indian Ocean rim Business Forum (IORBF) representing the business community. These two groups identify special areas for economic cooperation and identify projects to strengthen this process with adequate consultations.

Work programmes
i) The IORBF focuses not only on trade facilitation, trade promotion, trade liberalisation and investment promotion, but also on providing mechanisms for consultation and co-operation on trade-related infrastructure (shipping, air services, and telecommunication); and on establishing programmes for cooperation in technology, tourism, and human resource development. At meetings of the IORBF in Maputo, Mozambique on 3-4 July 2000, and again in Muscat, Oman on 4 April 2001, progress on 8 projects, comprising part of the work programme of the lOR-ARC, was reviewed.

ii) The objectives of IORAG are to service the needs of both government and business within the ambit of the lOR-ARC, to promote intellectual dialogue between member countries of the Association, and to provide co-ordinated research in support of the lOR-ARC. Research projects can be grouped into two broad categories; of applied nature and aimed at facilitating economic interaction within the lOR region; and of an academic/scientific nature and aimed at improving scientific knowledge and/or promoting academic/scientific exchange within the region. At meetings of the IORAG in Maputo, Mozambique on 28-29 March 1999, and again in Muscat, Oman on 4 April 2001 , progress on 17 projects the Indian Ocean Rim Business Forum.13

At the Second Ministerial meeting in Maputo (March 1999), five new members of the lOR region namely, Thailand, Bangladesh, United Arab Emirates, Iran and Seychelles were added, increasing the total number of members of the lOR-ARC to 19. Also, Japan and Egypt were welcomed as dialogue partners. The last meeting of IOR¬ARC was held in Oman on April 2001. A high level task force (HL TF) comprising Australia, India, Indonesia, Iran, Mozambique, Oman, South Africa, Sri Lanka and Yemen was established to study the further direction of the lOR-ARC; the organisational structure and funding of the Co-ordinating Secretariat; the idea of a 'special fund' for the implementation of lOR-ARC projects and programmes. However, the Charter was finalised in March 1997 with the following objectives: 14

- To promote sustained growth and balanced development of the region and to create common ground for regional economic cooperation;

- To focus on those areas of economic cooperation which would provide maximum opportunities to develop shared interest and reap mutual benefits; and, in so doing, formulate and implement projects for economic co-operation in the areas of trade facilitation, promotion and liberalisation, foreign direct investment, scientific and technological exchange, tourism, the free flow of people, goods and services, and human-resource and infrastructural development;

- To explore all possibilities and avenues for trade liberalisation with a view to augment and diversify trade flows among member states;

- To promote liberalisation, and to remove impediments and barriers to a free flow of goods and services, investment and technology within the region;

- To encourage close interaction of trade and industry and academic institutions of the lOR-ARC members; Cooperation among members on global economic issues, and to develop shared strategies and common positions on issues of mutual interest in the international forum; Closer institutional links for development of human resources and training.

Conclusions
'Open Regionalism' is a model of economic cooperation, representing an effort to resolve one of the central problems of contemporary trade policy. It is a flexible arrangement where decisions are taken by consensus. When the Indian Ocean Rim initial grouping was formed in 1995, open regionalism was embraced without much discussion of its limitations in promoting economic integration in the regional grouping.15

This concept was developed to avoid the possibility of a discriminatory trading bloc. However, its real implications depend on the economic and political conditions of the region, internal policy of an economy and communication networks. The regional perspective is meant to complement, supplement and incorporate without any political intervention. Regionalism with institutional foundation is the strongest strategy for economic linkages


References
1. J. Poon, Global Regionalisation Tendencies: Spatial Structure and Linkages, Southeast Asian Studies Working Paper (National University of Singapore, 1995), pp. 5-7.
2. C. Fred Bergsten, "Open Regionalism", The World Economy, Vol. 20, No.5,1997,p.545.
3. Ibid., p. 137.
4. P. Krugman, Regionalism Versus Multilateralism: Analytic Notes, in J. De Melo and A.Panagariya (eds.), New Dimensions in Regional Integration (Cambridge: Cambride University Press, 1993), pp 58-79.
5. Patriot, 17 May 1994.
6. Hindu, 6 March 1997.
7. Ibid.
8. Denis Venter, "The Indian Ocean Rim Initiative: A Vehicle for South ¬South Cooperation", paper distributed at the Indian Ocean Research Network (lORN) Meeting in Durban, March 10-11, 1997, p. 1.

9. Greg Mills, 'Security and a (Nuclear) Indian Ocean Rim', in Greg Mills (ed.), South African Year Book of International Affairs (Durban: Sunray Publishers Ltd., 1998-99), p. 148.
10. Kuldeep Kaur, 'Australia's Changing Orientation from Pacific to Indian Ocean', Journal of Indian Ocean Studies, Vol. 8, No.3, December 2000, pp.210-11.
11. 'Strategies: Western Australia-Springboard to Asia', Insight, 30 November 1992, pp. 13-14.
12. For detail, see lOR-ARC, Report of IORBF, Maputo, Mozambique, 3-4 July 2000, Vacoas: lOR-ARC Co-ordinating Secretariat, July 2000, p. 4; lOR-ARC, Report of the Indian Ocean Rim Business Forum (IORBF), Muscat, Sultanate of Oman, 4-5 April 2001, Vacoas: lOR-ARC Co¬ordinating Secretariat, April 2001, p. 4.
13. For details, see lOR-ARC, Report of the Indian Ocean Rim Academic Group, (IORAG), 28 and 29 March 1999, Vacoas: lOR-ARC Co-ordinating Secretariat, March 1999, Maputo, Mozambique, p. 6; lOR-ARC, Report of the Indian Ocean Academic Group (IORAG), Muscat, Sultanate of Oman, 4-5 April 2001, Vacoas: lOR-ARC Co-ordinating Secretariat, April 2001, p. 5.
14. J. Mahender Reddy, 'Overview', in J. Mahender Reddy (ed.), Trade and Investment: Issues in the Indian Ocean Rim (New Delhi: Sterling Publishers Pvt. Ltd., 2000), pp. 4-5.
15. Saman, Kelegama, 'lOR-ARC Beyond Maputo: Open Regionalism in the
Indian Ocean', in Reddy (ed.), n.14, p. 45.
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