Regional Peace through Economic Integration: Applicability of EU Model in South Asia
Md. Golam Robbani
United Nations University-Comparative Regional Integration Studies (UNU-CRIS)
Potterierei 72, B-8000, Bruges, Belgium
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For the International Conference:
Regionalisation and the Taming of Globalisation? Economic, Political, Security and Social Issues
At the University of Warwick, UK
26-28 October 2005
Regional Peace through Economic Integration: Applicability of EU Model in South Asia
Abstract:
Regional integration is increasingly being considered as a solution to problems related to economics as well as global governance. The miraculous success of the European Union in achieving both the ends have prompted many to contemplate whether the EU model is replicable elsewhere. As SAARC in South Asia has been plagued with the India-Pakistan political deadlock, and bilateral/intergovernmental approach have grossly been unsuccessful in finding a solution, this paper investigates the applicability of EU model in achieving regional peace and security in South Asia.
Introduction
The days of Robinson Crusoe are over. No matter how powerful it is, hardly any country can live alone at this age of globalization. Advances of communication and transportation technology, combined with free-market ideology, have given goods, services, and capital unprecedented mobility. At the beginning, enormous pressure from the North[1] to open the market for their industrial goods in the South, and later on, immense competition among the South to capture the lucrative market in the North, compel developing countries to take massive liberalization programs by reducing tariffs and allowing privatization. This reduction of tariff and non-tariff barriers with a view to integrate to the global economy has opened up unlimited prospect for developing as well as least developed countries. This, however, is not without challenges. On the one hand, decisive shift from import substitute to export-led growth strategy has offered unique opportunity for developing countries; on the other hand, this has made them overly dependent on the global system, and extremely vulnerable to external shocks. Perhaps the realization of this ‘risk-return tradeoff’ encouraged countries to liberalize through the ‘second best’ option (through regionalism), rather than the ‘first best’ (through multilateralism).
Liberalization can be achieved through bilateral, regional, and/or multilateral system. Although none of these contradicts to the development of the other(s), all these processes have their respective pros and cons. However, it is generally accepted that bilateral way of liberalization is better than no liberalization; regional integration is superior to bilateral; and liberalization through multilateral system is the best. As the result through bilateral deal is bound to be narrow, and multilateral process is frequently caught up with numerous problems, it seems that the only way forward is the regional integration, which is aided by bilateral relations and, plausibly supports to multilateral system of liberalization.
When multilateral trading system gained substantial strength to enforce its rulings through dispute settlement mechanism under the WTO, since 1995, countries suddenly discovered the beauty of Article XXIV in GATT, which allows considerable derogation from a fundamental clause of ‘most favored nation’ principle. By invoking this article, states started forming numerous regional trading arrangements (RTAs). This new development instigated substantial debate over the impact of such RTAs on multilateral trading system. Subsequently, the speed of region formation has overshadowed the fundamental debate of ‘building bock vs. stumbling block’, and that there seems to have no time to calculate ‘who gains at whose pain’ even in South-South cooperation (e.g. in Africa, Latin America, and Asia). While the number of such organization is amazingly high, the success of attaining their stated objectives is disappointingly low. The European Union, of course, is an obvious exception.
Gradually, by encompassing a wide range of non-trade issues (e.g. socioeconomic, political, and humanitarian), the deepening and widening of RTAs are being popularly known as regional integration (RI). In general, regional integration arrangements are being seen as a major trend with a new, genuinely worldwide economic and political phenomenon having a significant impact on various issue areas (Hettne, 2005). Region formation around the globe is now a rule, rather than exception. Apparently, the world of nation-states is being converted into a world of regions. Apart from economic benefits, new hopes are hovering around the effectiveness of regional organizations in maintaining regional peace and security[2].
Liberalization through regional integration has economic, social and political impacts. By entering into free trade agreements with regional partners, countries try to capture trade creation effect to enhance their competitive edge over other regions. Frequent engagements with neighbors help find agreeable solutions to many bilateral and regional problems. Above all, such commercial tie up has pacifying effect on conflict between member states. The European Union (EU) started its journey in 1950s with a long-term view to ‘make another war impossible’ among European states. After 50 years, it has been clear that another war in the EU is indeed unlikely. Recalling this extraordinary success in attaining regional peace through economic integration, the EU is proclaimed as the most successful integration arrangements in the world (see Soderbaum, Stalgren & Luk, 2005). As a corollary, it is also contemplated whether the EU experience is replicable elsewhere—particularly in South Asia where decades long Indo-Pak conflict resembles to the century-long Franco-German rivalry.
The objective of this article is to highlight the relationship between regional integration and regional peace & security, and to examine the usefulness of the EU experience for South Asia to end India-Pakistan rivalry, which has virtually blocked the progress the “South Asian Association for Regional Cooperation” (SAARC).
The next section will take a brief note on theory of how economic interdependence and regional integration interact with security issues. The third section will touch upon the past and present situation of regional integration in South Asia, and its security dilemma. The fourth section will compare and contrast the situation of South Asia with that of the EU, mainly during its formation stages. The fifth section will highlight the lessons to be learned for South Asia, and the sixth section will conclude the paper.
Economic interdependence vs. Conflict-- A brief literature review
Why some states engage in conflict but others do not; or what factors deter states to consider military action against other(s) are the issues of wide disagreements. Since long it has been claimed that economics has something to say in this debate. Discussion over the link between economic interdependence and conflict is neither new nor forgotten in the research arena. The idea that (trade) interdependence may reduce conflict dates back to the writings of two great philosophers in the eighteenth century: Baron De Montesquieu and Immanuel Kant. In The Spirit of the Laws, Montesquieu (in 1748) argues that commerce is a cure for most destructive prejudices. It improves manners, and leads to peace among nations (Bok, 2003). In Perpetual Peace: A Philosophical Sketch, Immanuel Kant (1927 [1795]) suggested that peace could be established on a foundation of three elements: republication constitutions, “cosmopolitan law” embodied in free trade and economic interdependence, and international law and organizations (Oneal, Russett and Berbaum, 2002). So called “Manchester Liberals”[3] also claim that free trade is justified not only on the grounds of economic efficiency, but also as a solution to the problem of war. These arguments are generally dubbed as ‘commercial peace hypothesis’.
Except a few controversies (e.g. Barbieri, 1995, 1996; Barbieri & Levy, 2003), recently many studies have found that economically important trade has statistically significant and substantial important benefits for reducing interstate violence (Oneal & Russett; 2003)[4]. Bruce Russett (2003:159), for example, believes that the effect of trade in reducing conflict is a strong and robust generalization[5]. Very recently Erik Gartzke (2005) has shown strong negative relationship between economic freedom and peace. Proliferation of regional integration arrangements since 1990s has emerged as a new form of economic and political interdependence among nations. The next section will discuss how regional integrations fit into the ‘trade versus conflict’ debate.
Positioning regional integration in commercial peace hypothesis
Selective trade liberalization through bilateralism either makes one country dependent on the other (most likely between uneven partners) or increases mutual dependency on each other (with more or less, equal partners). In the first case, considering its opportunity cost, this might deter the dependent country from initiating or escalating conflict against its important partner, or it may instigate the deprived one to start conflict against the powerful partner. Surprisingly, empirical research supports both the possibilities (See, Mansfield & Pollins, 2003; Schneider, Barbieri & Gleditsch, 2003). In case of equal partners, the possibility of conflict, however, is less than asymmetric dyads.
Globalization has increased the availability of (strategic) goods as well as trading partners. Therefore, at present pacifying effect through bilateral engagement is limited. Liberalization through multilateral trading system is based on principle of ‘non-discrimination’ (See WTO, 1999). As this arrangement is more general than specific, the pacifying impact is also limited. As a matter of fact, better communication, lower cost of transportation, presence of multinational corporations with intense competition, and availability of wide range of substitutes, has made the global market similar to that of perfect competition. As a consequence, dependency must have increased, however, not on a particular country, but on the global system. In other words, it appears that all countries are now dependent on all countries; but no country is dependent on any particular country.
As interstate conflict is very common between nearest neighbors, and regional integration is basically formed among regional partners, the pacifying effect of trade liberalization through regional integration is naturally the highest. In addition, with widening and deepening of regional integration, countries gradually become dependent on a group of countries around them, rather than on a particular one. Furthermore, we should note that regional integration is something more than RTAs under the WTO. Although trade is still a significant part, it is no longer the only factor of interdependence. There are numerous treaties or understandings, often with separate institutions, through which member states bind themselves in a system of collective governance. As a result, states could become sufficiently interdependent through regional integration without increasing the share of trade. In other words, increased trade may not necessarily make nations interdependent because of wide options or substitutes available these days. Therefore, the discussion over economic interdependence vs. conflict is bound to become incomplete if we do not consider regional integration in the analysis, and redefine the measurement of interdependence accordingly. Further elaboration on the issue is beyond the scope of this paper. It is vital, however, to mention that the inclusion of regional integration in the analysis may change the definition and/or measurement of interdependence, but it does not change the basic idea. It supports, rather than contradicts to, the pacifying role of commercial peace hypothesis. Apart from the EU, there are some other emerging initiatives along the line. ASEAN Regional Forum (ARF), African Union, and ECOWAS[6] are some of the flourishing initiatives for peace through regional integration. In the next section, we will see the situation of regional integration in South Asia and its security dilemma.
Regional integration in South Asia, and its Security Dilemma
South Asia joined the race of region formation in 1985 by establishing SAARC— the “South Asian Association for Regional Cooperation”. SAARC is a 7-nation regional forum comprising of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Occupying only 3% of the world's land, the region is the home of one-fifth of the world's population. With 55% of adult literacy, more than 40% of the population lives below poverty line. The region shares only 0.8% of the global trade, and the intra-SAARC trade is about 5.3%[7].
On economic front, SAARC initiated ‘South Asian Preferential Trade Arrangement’ (SAPTA) in 1993. Lately, negotiation has been started to form South Asian Free Trade Area (SAFTA) to be operational since 2006. However, this progress has frequently been caught up by political deadlock, mainly between India and Pakistan, several times. For example, the postponement of the 13th SAARC Summit supposed to be held in Dhaka early this year because of New Delhi’s ‘grave concerns’ in neighboring countries raised skepticism over the progress in economic cooperation through intergovernmental dialogue. Although it seems that the things are moving to the right direction at the moment, there are numerous obstacles still to overcome. In any case, past experience shows that politics has always been the main obstacle to progress in economic cooperation among South Asian nations.
The Security Dilemma in South Asia
In South Asia, India-Pakistan conflict has been going on for more than half a century. The two nations have fought in several occasions but reached no solution. Apparently they are trapped in a security dilemma: Independent action taken by one state to build its own strength and security makes the other more insecure (Nye, 1997:12). The arms race between India and Pakistan has ended up with nuclear capability in both the sides. As a matter of fact, the desire to make oneself secure by collecting superior arms has proved false[8]. The conflict between India and Pakistan has not only been a problem between the two but also has appeared as a big obstacle to the overall development of the region, and in particular, the progress in SAARC, with which the livelihood of millions of poor is directly linked.
States could cooperate to avoid this security dilemma; that is they could agree that neither should build up its defenses and all would be better off (Nye, 1993:12). In reality, however, it is difficult to achieve. Many factors, such as mistrust and miscalculation, become hindrance to such a mutual agreement. Nye (1993:37), therefore, argues that a better solution of avoiding war is to pursue economic growth in an open trading system without military conquest. Following this proposition since World War II, Japan has established the fact that economic strength is no less powerful than military might (see Rosecrance, 1986).
After 20 years, it has been clear that the progress in SAARC is far from satisfactory, if not disappointing[9]. India-Pakistan political deadlock has been the main obstacle to the progress in SAARC. A popular saying goes, “SAARC will never get momentum until the problems between India and Pakistan are solved” (See Bhatta, 2004; Naik, 2004). On the contrary, there are views that problems between India and Pakistan will never be solved until SAARC takes momentum (Dahal, 2004). This is clearly a ‘chicken and egg’ problem. Hitherto, political attempt to solve the Indo-Pak enmity for half a century has not been successful. The poorest of the poor people in the region cannot afford to allow politicians another half a century to solve the problem. Therefore, there is a pressing need to look for alternatives. As mentioned before, one of such alternatives is popularly known as commercial-peace-hypothesis i.e. the use of economic interdependence to minimize political rivalry. This is a soft and indirect way of tackling hardcore political problems. The unprecedented success of European Union in bringing political tensions down to zero among member states could be a good guide for other regions, which is particularly true for South Asia. The following section will examine how EU succeeded in initial years of region formation and achieved economic as well as political objectives.
Regional integration in Europe
Destruction of two World Wars within the quarter of a century forced the Europeans to be united against such happenings again. As founding fathers rightly envisaged that political integration at the first stage would be difficult to carry out, they decisively took indirect (i.e., economic) route to accomplish the goal. In the words of Baldwin & Wyplosz (2004:26), “While the goals were always political, the means were always economic”. The idea of ‘United States of Europe’ came up in the discussion several times in the aftermath of the First World War, but it did not get enough momentum before another annihilation happened during 1940s. At the beginning, the idea of forming a federation or confederation among European States led the move. In reality, however, leaders realized extreme difficulty in ‘selling’ their idea of forming such a ‘federation’ among warring nations. Consequently, ‘piecemeal’ approach through functionalism tested the ground by establishing the European Coal and Steel Community (ECSC) in 1951 by virtue of the Schuman Plan and miraculous public relations excellence of Jean Monnet. The ECSC offered the first gratifying taste of cooperation among European nations— the success of which encouraged signing of the Treaty of Rome in 1957 to form the European Economic Community (EEC) – the precursor of today’s EU. The first decade of the EEC was very successful when the Common Agricultural Policy (CAP) was adopted, and common external tariff (e.g. customs union) was established.