Evaluating Indo-Pacific Economic Corridor: Possibilities and Challenges

Concept of Economic Corridor

Trans-regional economic corridors have no strong theoretical background. They are conceptualized as part of the new economic geography and its development in the field of transportation. A broad corridor is a transportation route that extends beyond a national area or region. On the other hand, a narrow corridor is primarily used for transporting goods and commodities. This concept is referred to as a transition from a narrow corridor to a broad corridor. Regional economic corridors can bring benefits to communities, such as reduced poverty and improved living standards. Economic corridors can be used to stimulate growth in regions that are lagging behind in development processes. However, these corridors should be created between nodes and should not be labeled as “nowhere to nowhere”. Economic corridors are not isolated and should not be considered as an isolated concept. They should instead be analyzed as integral parts of an integrated economic network.

Indo-Pacific Economic Corridor (IPEC)

The Indo-Pacific Economic Corridor should be viewed in the wider context of the US' foreign policy. In 2011, the US initiated the pivot to Asia-Pacific, which is considered one of the most important changes in the country's foreign policy in recent years. The Indo-Pacific concept should be considered as a US-led alternative to China's growing influence. This concept should be considered as a counterbalance to China's growing strength. The US' strategy shifted from being averse to international organizations to being involved in various international initiatives. The establishment of IPEC is linked to the recognition by the US of the Indian and Pacific Oceans as a single maritime entity. This is a major step toward the U.S.' increasing influence in the region. Under IPEC's four main objectives, the goal is to promote regional economic connectivity and enhance the private sector's competitive advantage in South Asia. This objective is achieved through the promotion of regional trade and investment, as well as the improvement of the business environment.

The IPEC Vision focuses on various areas of infrastructure, trade integration, and energy markets. Although the vision has numerous shortcomings, it is still very promising. USAID, in collaboration with the State Department and the APEC, has allocated a modest budget for the development of the IPEC's implementation. The project is divided into three phases. Non-tariff barriers were identified as main obstacles to the expansion of trade between South and Central Asia. The second phase of the AMEG's study focused on the NTBs that were prioritized in the first phase. The third phase, which was carried out in partnership with private sector partners, identified various initiatives that will be implemented to eliminate these obstacles.One of the most important components of the IPEC was the establishment of a Borderless Alliance to promote NTBs and address the various information gaps in the region.

Trade Integration

Although economic corridors are both regional and national in nature, their effects are different. For instance, in the former, trade in goods and services can be facilitated within a country, while in the latter, it can be done across a country. Economic corridors are usually focused on the development of investment areas and rural roads. They are also used to promote cross border trade and investment. Establishing strong economic corridors would improve trade integration and provide opportunities for external economic operators in East and Southeast Asian regions. An intra-industry trade that is induced by the presence of certain vertical divisions in an area has become a feature of modern production networks in East Asian countries. This trade is typically conducted in the parts and components of machines used in the auto and electronics industry.East Asian production networks mainly focus on electrical machinery and equipment such as telecommunication, audio recording equipment, and semiconductors. However, they also rely on air connectivity to reach their destination. East Asia's trade flows are sensitive to various factors such as the availability of transport infrastructure and the cost of doing business. As a result, some countries have more liberal and open regulations than others.

Physically Connected Southern Asia

There are few areas in Southeast Asia that are bound by the economic corridors. These areas can be improved through various initiatives designed to improve connectivity. A seamless logistics system would help producers reduce costs and improve the reliability of their crossborder supply chains. Regulatory excellence would promote cross-border trade and inclusive growth.

Among the key trends that will affect Southeast Asia's physical connectivity are the rise of middle class and the challenges of productivity and competitiveness. These two factors are expected to have a significant impact on the region's infrastructure needs. There are a number of opportunities in the area of support infrastructure development. Some of these include the Asia Bond Fund, the AIF, the AIIB, and the NDB. Despite the emergence of public-private partnerships, there are still many obstacles in the way of achieving public-private partnership in infrastructure investment. The establishment of the ASEAN Economic Community and the various mega-regional trade blocks are expected to trigger intra-regional flows of capital and goods. There are numerous initiatives that promote trade integration and physical connections within the Association of Southeast Asian Nations (ASEAN). These include the Greater Mekong Subregion, the East Asian Gateway, and the IMT-GT.

South Asia used to face significant challenges in terms of connectivity. One of these issues is the isolation of Pakistan due to its historical ties with India and Afghanistan. Due to the lack of political legitimacy and energy, the initiatives related to physical connectivity have disappointed. Many members of the South Asian Association for Regional Cooperation (SAAR) have proposed establishing alternative frameworks for regional cooperation, such as the BBIN, which excludes Pakistan. If South Asia's second largest country is isolated, political rivalry and the need for dialogue prevail over dialogue, progress in implementing trade integration and improving connectivity will not be possible.

IPEC is not only for the US

Several countries, including the U.S. and Japan, are concerned about China's expansionism in the Indo-Pacific region. Australia has decided to invest in the US' nuclear-powered submarines. Australia has decided to terminate its contract with DCNS, which is the builder of the submarines. The country has spent more than A$2 billion on the project.

The Indo-Pacific Economic Cooperation (IPEC) project aims to establish a connected Indo-Pacific region that will stimulate economic growth and improve the living conditions of people in the region. The Indo-Pacific region needs to be prepared for the economic rivalry with China. This is because the concept of China's Belt and Road Initiative and the Indo-Pacific region are both seen as threats to the US' current role in the region. The U.S.' weak link seems to be its lack of a clear strategy for economic participation in the region. At the same time, the country can also benefit from its microeconomic status. The IPEC project is part of India’s broader strategy to connect South and Southeast Asia. It is expected to create thousands of jobs in the region. As a member of the Association of Southeast Asian Nations, Myanmar is India’s bridge to the region. The IPEC will accelerate the construction of the India-Thailand Trilateral Highway, which connects the Indian Ocean to the Asean region. Myanmar's reforms are needed to allow its economy to connect with other markets in the region. Doing so would help boost its infrastructure development and trade flows.

Establishing maritime connectivity between Southeast Asia and Southern India would help improve the economic and social ties between the two regions. There is a compelling case for India to be considered as a future member of the APEC, which is a key regional forum for trade and financial regionalism. Further, the proposed framework for the IPEC should be free from any mutual animosities. On its side, the East-West Corridor project, which is the biggest multi-lateral project in the region, is expected to expand the area of connectivity within the region. Other sub-regional initiatives such as the IMT-GT and the BIMP-EAGA are also expected to be launched.

UNITED STATES, UNITED KINGDOM AND AUSTRALIA ANNOUNCES A NEW SECURITY PARTNERSHIP FOR INDO PACIFIC

The new security partnership, which was announced by US Vice President Joe Biden on September 15, will focus on advancing America's interests in the Indo-Pacific. The launch of the trilateral grouping was made by Australian Prime Minister Morrison and US President Joe Biden at a video-link. The future of the Indo-Pacific is expected to have a significant impact on Australia's economic future. Vice President Joe Biden on Tuesday said the US needs to address the various factors that shape the strategic environment in the Indo-Pacific region. There was no divide between the interests of the US and its Pacific and Atlantic partners, Vice President Joe Biden said on Thursday. He noted that the US would work with other nations in the region. A senior administration official said the grouping would be focused on security.

18 Month Plan

Australia's Prime Minister Scott Morrison announced that the country would build its first nuclear-powered submarines at Adelaide. Officials said the vessels would be capable of carrying out long-range missions and being deployed more frequently. Australia is not actively seeking to acquire nuclear weapons, nor do it plan on building a civil nuclear capability. In response to the UK's decision to join the Nuclear Power Partnership, Mr. Johnson noted that acquiring a nuclear-powered submarine was a massive decision that would have enormous economic benefits. According to security expert Arzan Tarapore, the partnership between India and the US could be a game-changer for South Asia. With the acquisition of additional nuclear-powered submarines, India would gain a step-change in its anti-submarine warfare capabilities, said former Navy officer and defence analyst DS Tarapore. AUKUS will involve a new set of engagements and meetings with officials from the US, UK, and France. It will also focus on the development of new technologies and solutions. Tensions between Australia and China have been high since the country banned Huawei in 2108 and accused the company of using COVID-19.

Conclusion

The Indo-Pacific Economic Corridor is a vision of linking South and Southeast Asia to create a path to inclusive growth and prosperity. It is expected to boost trade and investment in the region. A coordinated approach toward the establishment of infrastructure and logistics centers would help boost the expansion of value chains in the region. A key component to successful cooperation between sub-regionalism and regionalism is a synergy between these two. However, in order to overcome the various challenges, such as mutual animosities, this process requires the presence of a facilitator and a dialogue. Among the economic benefits of the corridor creation, one can expect to see increases in household income, as well as the reduction of regional disparities. Regional economic corridors may also face difficulties, as they may not have a differentiated impact. Another issue is the cost. From the very beginning, the various projects related to the Indo-Pacific Economic Corridor require the establishment of a physical infrastructure. According to the Asian Development Bank, the total cost of establishing these connections was estimated at USD 73.1 billion in 2015.

 Pic Courtesy-IDSA GIS Lab

(The views expressed are those of the author and do not represent views of CESCUBE.)