Over the past three decades, regional cooperation and integration (RECI) has benefited Asia and the Pacific, powering trade, economic growth and stability. It has attracted investment as markets were liberalised, competitiveness improved, and policy makers undertook structural reforms to overcome domestic challenges. Our region’s experience demonstrates RECI has the potential to reduce poverty. Undertaken with the 2030 Agenda, RECI could make a major contribution to delivering inclusive and sustainable development in our region.
RECI has recently been given renewed significance because of a resurgent economic nationalism that is questioning the value of free market, free trade and development agendas. To help arrest this growing discontent with globalization, to dispel unfounded criticisms of free trade, global value chains and labour migration, RECI must be inclusive. It must contribute to reducing rising inequalities by offering opportunities for marginalized countries and people. Cooperative development solutions should contribute to defusing political tensions and support conflict prevention.
There are promising signs the region’s integration will gain momentum from the new opportunities offered by the all-encompassing 2030 Agenda for Sustainable Development, as well as the global push for lower greenhouse gas emissions and environmentally sustainable growth. Our region has led the way in its efforts to structure cross continental projects backed by new, well-resourced regional financing vehicles. It is playing its part in a technological revolution, enhancing productivity and new inclusive financial services to those unreachable thus far.
Asia and the Pacific, with a combined GDP of $27 trillion, could account for almost half of the global GDP by 2050. The role of regional cooperation and integration – particularly to strengthen infrastructure linkages – will be key to achieve this positive scenario. It will help rescue our region from poverty, improve access to services, offer new job opportunities to a growing work force and meet the demand of a rising middle-income class which is expected to reach 3.5 billion by 2030. With these positive demographic, income and economic trends comes a growing responsibility for our region, a responsibility to lead in shaping global governance and to support international cooperation and multilateralism.
Unsurprisingly for a region of such wide diversity, the level of RECI varies across Asia and the Pacific. East Asia enjoys the highest level of overall integration. Indeed, the experiences of East and South-East Asia show what regional cooperation could deliver if trade and investment were further liberalised and competition, innovation and human capital strengthened. Nurturing the right political dynamics across sub-regions will go a long way to support deeper integration.
Market integration is essential for goods, services, capital and labour to move freely. Today, trading costs are a major barrier to intra-regional commercial exchanges. They are compounded by a multitude of inconsistent legal and regulatory frameworks which weigh on trading activity and deter foreign direct investment. The costs of trading between countries in the Asia-Pacific region range from 51 per cent to a prohibitively high 368 per cent of the value of exports. Sub-regional differences are significant. The lowest trade costs are in East and North East Asian economies and the highest in the Pacific island economies.
High trade costs are partly due to transportation and border-crossing costs. Lowering these requires seamless regional connectivity, for which transport, energy and information and communication technology linkages need to be completed. Yet most cross-border projects in the region have been negotiated bilaterally and networks are fragmented. This cannot continue. For improved infrastructure the region needs coherent, harmonized intergovernmental agreements. A coordinated approach to developing national and cross border linkages across sub-regional blocs is needed to support peace and stability and build transport, energy and ICT networks.
Crisis prevention demands the continued strengthening of regional financial cooperation. Macro prudential and financial surveillance mechanisms are needed to guard against imbalances. Emergency lending mechanisms are important to contain unforeseen economic shocks and financial market volatility. Deepening financial markets would be beneficial to provide funding for sustainable investment including for infrastructure. Indeed, deeper capital markets could foster the development of institutional investors with longer time horizons and the ability to finance infrastructure projects. There is also more scope for infrastructure projects to be supported by public private partnerships, and multilateral development banks like the ADB have an obvious role in helping to mobilize funding. In addition, domestic resource mobilization remains fundamental to a successful implementation of the 2030 Agenda. This requires us to redouble our efforts to reform tax and public expenditure policies by rationalizing taxation structures, making legislation simpler and more transparent, and improving the capacities of tax administrations.
RECI’s potential to support sustainable growth and development in the Asia-Pacific has been recognized by several regional initiatives championed by the region’s member States. The most extensive is emerging to be the Belt and Road Initiative. It supports better regional connectivity through its cross continental linkages. With a total Chinese commitment of $124 billion from the Silk Road Fund, it will not only finance infrastructure but foster trade and financial integration through enhanced cross border flows of FDI and bank lending. China’s development banks have already committed $200 billion. Yet some $4 trillion of infrastructure investments will be needed to link China to Europe and the countries in between by land and sea. An ESCAP study finds China’s Belt and Road Initiative alone could help raise economic output levels by an average of 6 per cent in participating countries.
Through its Act East Policy, India has focused on strengthening economic and cultural cooperation towards east and south-east Asia and the Pacific. The ASEAN-India Free Trade Area has enabled trade between the two blocks to reach $70 billion dollars in 2016-17. But other initiatives also hold promise. I am thinking of the Bay of Bengal Initiative to Multi-Sectoral Technical and Economic Cooperation (BIMSTEC); the Economic Cooperation Organization focused on development, trade and investment; the Mekong Ganga Cooperation initiative which has just agreed a master plan focusing on connectivity and economic corridors across member countries; and the Indian Ocean Rim Association (IORA) which provides a forum for coastal states of the Indian Ocean.
To support economic cooperation and integration in North and Central Asia, ESCAP works on connectivity agreements with the Shanghai Cooperation Organization, SCO, as well as the Eurasian Economic Commission. The SCO has enshrined the importance of gradually moving towards the free movement of commodities, capital, services and technology. The Treaty on the Eurasian Economic Union aims to create conditions for sustainable development. Its ambition is to create a common market; and to ensure the modernisation and competitiveness of national economies within the global economy.
The Republic of Korea and Russia are cooperating on “nine bridges” for simultaneous and multilateral cooperation. These include cooperation in the fields of gas, railways, shipbuilding, agriculture and the development of a Northern Sea Route. To link the Pacific and Eurasia, the Japanese Government launched the Partnership for Quality Infrastructure in 2015. In collaboration with the Asian Development Bank, Japan has committed to providing approximately USD 110 billion for “quality infrastructure development” in Asia over five years. Mongolia`s Steppe Road Initiative is a key infrastructure construction program to boost the Mongolian economy through trans-border transportation.
New initiatives for grid interconnections are also being taken forward. Mongolia is committed to creating an “Asia Super Grid”, to exploit the potential of renewable energy. China has proposed a global energy interconnection based on renewables, starting with grid interconnections in North-East Asia, and established the Global Energy Interconnection Development and Cooperation Organization. The President of Russian Federation has called for an “East Asia Super Energy Ring” connecting all North-East Asian countries. And the President of the Republic of Korea has supported the idea of building a Northeast Asian super grid to enhance regionwide energy cooperation.
In the Pacific, the Pacific Islands Forum is the key political and regional cooperation and integration platform. ESCAP has been assisting the development and implementation of its latest strategic initiative, the Pacific Regional Roadmap for Sustainable Development. By prioritizing the means of implementation and adopting a comprehensive SDG indicator framework particularly relevant to the Pacific and to small islands developing States, the Pacific roadmap is an excellent example of how to pursue regional economic cooperation and integration in a manner consistent with the 2030 Agenda.
The benefits all these initiatives bring are significant. As your secretariat, we stand ready to promote all of these initiatives in Asia and the Pacific, if, as proponents of these initiatives, you request us to do so.
Our four key recommendations to deepen RECI in our region remain largely unchanged. Now is the time for implementation.
First, to achieve greater market integration; we need to reduce non-tariff barriers and reach multilateral agreements to streamline regulatory frameworks and agree on common standards. The implementation of Framework Agreement on Facilitation of Cross-Broder Paperless Trade in Asia and the Pacific will make a positive contribution to this agenda.
Second, seamless connectivity in the areas of transport, energy and ICT needs to happen. We want to build on existing bilateral intergovernmental agreements and projects by developing multilateral agreements and make them coherent across the region as a whole. Our teams are working to promote sustainable transport networks, sustainable energy through renewable energy and power grid enhancement, and the Asia-Pacific Superhighway.
Third, we need to deepen regional financial cooperation – particularly to improve regional surveillance and crisis management capacity; deepen financial markets; and deliver innovative financing solutions to support SDGs.
Fourth, we must address shared vulnerabilities and risks, ranging from challenges created by natural disasters, to food security, to climate change.
ESCAP has long standing mandate to promote RECI in Asia and the Pacific. We are committed to working with all our member States and partner organizations – such as the Asian Development Bank – to take these recommendations forward, to build a more integrated and connected Asia-Pacific which leaves no one behind.