Thank you Dudley for such a warm introduction. I’d also like to quickly thank the faculty and administration at the University of Virginia, especially my good friend Gowher Rizvi, the Vice Provost for International Programs, the Frank Batten School of Public Policy, and the McIntire School of Commerce. It really is a pleasure to spend time on this beautiful campus.
The last few months have marked a period of intensive engagement for my bureau of South and Central Asia Affairs. With the fulcrum of geo-politics shifting rapidly to Asia, this is an opportune moment for me to review some of the intensive efforts the United States has been undertaking to advance our interests in the Asia Pacific and the vital and South and Central Asian region.
The U.S., South Asia, and the Asia-Pacific Region
President Obama’s hosting of the Asia-Pacific Economic Cooperation (APEC) forum in Hawaii earlier this week and his attendance today and tomorrow at the East Asia Summit (EAS) in Bali, Indonesia underscore the strategic priority the United States accords to the Asia Pacific region and to bolstering our commitment to supporting Asia’s regional institutions, including APEC, EAS and the ASEAN Regional Forum. As President Obama said at last week’s APEC summit in Hawaii,
“The Asia Pacific region is absolutely critical to America's economic growth. We consider it a top priority. And we consider it a top priority because we're not going to be able to put [Americans] back to work and grow our economy and expand opportunity unless the Asia Pacific region is also successful.”
Naturally, a focus on promoting American prosperity means a greater focus on trade and economic openness in the Asia-Pacific. The region already generates more than half of global output and nearly half of global trade. It is not a coincidence that the three free trade agreements the President signed into law last month were all with Pacific Rim partners.
As you well know, achieving balance in our trade relationships requires a two-way commitment. That's the nature of balance – it can't be unilaterally imposed. So we are working through APEC, the G-20, the Trans-Pacific Partnership and our bilateral relationships to advocate for more open markets, fewer restrictions on exports, more transparency, and an overall commitment to fairness.
American businesses and workers need to have confidence that they are operating on a level playing field, with predictable rules on everything from intellectual property to indigenous innovation.
A pillar of Asia’s prosperity is the rise of India. Thanks to the economic reforms put in place by Manmohan Singh two decades ago, India today is one of the fastest growing economies in the world and on track to be the third largest economy in the world by 2025. U.S. trade with India has flourished. Our exports to India have quadrupled over the last eight years and that pace is projected to continue for the foreseeable future.
Economic cooperation has been the driving force behind our transformed bilateral relationship that President Obama has called one of the defining partnerships of the 21st century. It has also been a decisive factor behind India’s achievement of greater influence and responsibility in the international system.
It should come as no surprise then that the U.S. and India have established a Strategic Dialogue led by Secretary Clinton and External Affairs Minister Krishna to broaden and deepen our strategic partnership into new areas such clean energy development, preventing cyber attacks on our infrastructure and forging new opportunities for higher education cooperation to sustain our knowledge and innovation-driven economies.
And it is no surprise that we want to work more closely with India in the Asia Pacific. We both want to help shape the future of the region and there are big questions for us to consider. Will this region adopt basic rules of the road or rules of the sea to mobilize strategic and economic cooperation and manage disagreements? Will it build the regional architecture of institutions and arrangements to enforce international norms on security, trade, rule of law, human rights, and accountable governance?
In a speech in Chennai, India in July, Secretary Clinton said that “India’s leadership will help to shape positively the future of the Asia Pacific. That’s why the United States supports India’s Look East policy, and why the United States wants to ensure a prominent role for India in the Asia-Pacific architecture. President Obama will be meeting with Indian Prime Minister Singh in at the East Asia Summit in Bali, Indonesia. We see the East Asia Summit as a perfect opportunity to deepen the U.S.-India dialogue on security and economic architectures in Asia, and are working with India and others to make the East Asia Summit the premier forum for Asia-Pacific leaders to discuss pressing security and strategic issues.
As Secretary Clinton noted in her recent Foreign Policy article “America’s Pacific Century,” U.S. engagement in Asia will proceed along six key lines of action: strengthening bilateral security alliances; deepening our working relationships with emerging powers; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights. India plays a key role in nearly every one of these areas.
The SAARC Summit
India also plays the pivotal role in driving prosperity and security in South Asia. I participated last week as the U.S. observer at the 17th summit of the South Asian Association for Regional Cooperation, known as SAARC. The United States has been an observer in SAARC since 2007. We are an observer in SAARC not only because of the importance we attach to our relations with each of the SAARC countries, but also because of the importance we all place in promoting greater regional integration, which is the one of SAARC’s main organizational goals.
At this year’s SAARC summit, several of the SAARC heads of state lamented that the institution has made only incremental progress towards regional integration. That is true: South Asia remains one of the least integrated regions of the world: intra-regional trade represents just 5% of total trade.
SAARC members continue to pursue a 2016 goal of harmonizing customs and eliminating tariffs within a South Asia free trade zone, known as the South Asia Free Trade Agreement (SAFTA). So that’s a development we are eager to embrace.
A fully implemented SAFTA would provide a strong, stable and transparent framework for investment in the region, and would have the potential to accelerate trade and opportunity for the one-fifth of the Earth’s population represented by SAARC members.
So you reasonably might ask, ‘if this free trade agreement is so worthy, why hasn’t there been more progress towards integration?’ First, SAARC operates by consensus, and each country must agree to each proposal before it can be implemented. Second, some SAARC states are concerned they may not be able to compete with India if they opened up their economies.
On the first impediment, consensus has historically been hard to reach because of tensions between India and Pakistan. That’s why the recent progress between India and Pakistan has been so important, not only because it has reduced tensions between those two important countries, but also because it has enhanced prospects for regional integration. This year, Prime Ministers Singh and Gilani met again and affirmed a new chapter in Indo-Pak relations.
The unanimous decision by Pakistan’s cabinet to approve a path to normalize trade relations with India was an enormous step forward. The potential for expanded trade in both directions between India and Pakistan clearly exists, and would be in the interest of each neighbor.
Currently, the two countries officially exchange about $2.6 billion in goods -- $2.3 billion in exports from India to Pakistan, and only about $300 million in Pakistani exports to India. But due to barriers to trade and transit between the two neighbors, significant additional trade flows indirectly through third countries in the region – most often, through Dubai and Singapore.
If the two sides remove barriers to trade and make border crossings more accessible, it is easy to imagine that the doubling in cross-border trade envisioned by Indian and Pakistani Commerce Ministers within three years could be realized. As it becomes easier for business people to get access to visas and for goods to traverse the border, either via an expanded crossing at the Wagah border – which the two sides are working to open soon – or via expanded sea borne routes, the trade relationship will flourish. Pakistan could quickly double its official exports to India from $310 million per year to close to $1 billion per year.
It is our hope that this process of normalization in both directions, including the extension of Most Favored Nation (MFN) status by Pakistan and the reduction of non-tariff barriers by India, will lead to expanded economic opportunity and stability for the people of both countries. It would also open the way for accelerated integration in the wider South and Central Asian region, a subject I will come back to in a moment.
The second impediment to greater SAARC progress is the concern of some South Asian states that they may not be able to compete with India. The success of the Sri Lanka-India bilateral free trade agreement shows this is likely a misplaced fear.
In the 11 years their bilateral FTA has been in effect, total volume of trade between these two countries has quadrupled, with Sri Lankan exports to India increased more than Indian exports to Sri Lanka. Increased trade has been followed by increased investment, as a number of prominent Indian companies have invested in Sri Lanka, and several well known Sri Lankan garment companies are now investing in India.
As Indian Prime Minister Singh said at the SAARC Summit “The fact that the global economy is not doing too well is a further incentive for countries of the SAARC region to learn to cooperate with one another. And there is a growing realization that a country like India, with its vast market, with its strong growth rate performance, can help other countries in the region to raise their sights for economic development.”
And the economic promise of South Asia is not limited to India. Look at Bangladesh, a country of 160 million people whose economy has grown consistently at a rate of roughly 6% a year for the past two decades, and a country known as one of the world’s most successful exporters of ready-made garments.
The welcome improvement of relations between Bangladesh and India is something we have encouraged for many years. Sheikh Hasina’s landmark visit to New Delhi in January 2010 and Prime Minister Singh’s visit to Dhaka in September 2011 are the most visible examples of the two countries’ remarkable efforts to cooperate and build new bridges, presenting a credible model for regional cooperation throughout South Asia and beyond.
Nepal is another country undergoing potentially transformational change. After a decade long civil war from 1996 to 2006, Nepal’s political parties agreed on November 1st to resolve issues that could lead to a lasting settlement. If fully realized, this agreement will help Nepalis finally move beyond conflict to tackle other challenges, including improving its struggling economy, poor infrastructure and critical energy shortages.
On the open border between India and Nepal, the free flow of goods, information, and people has been a positive development for both countries. Many aspects of this freedom of movement can and should be seen as a model for the rest of the region.
The New Silk Road Vision in South Asia
The recent positive regional dynamics in South Asia offer hope for propelling wider integration between the South and Central Asian regions. That is one reason why Secretary Clinton has articulated a vision of a New Silk Road that can help link the economies of South and Central Asia, along with the greater region, in a web of trade, transit, and energy connections.
This New Silk Road envisions a network of economic and transit connections running throughout Central and South Asia, with Afghanistan at its heart. As the Secretary said in Chennai last July, the “New Silk Road” vision “means upgrading the facilities at border crossings, such as India and Pakistan are now doing at Wagah. And it means removing the bureaucratic barriers and other impediments to the free flow of goods and people. It means casting aside the outdated trade policies that we all still are living with and adopting new rules for the 21st century.”
The idea is a simple one: by actively promoting cross-border collaboration and trade and maximizing the use of existing transportation and energy infrastructure, Central and South Asia can once again become a bustling hub for global commerce. This is the exact same vision Prime Minister Singh outlined at last week’s SAARC summit when he said “the imperative of greater regional integration, of a regional economy without boundaries, is an objective to which India is fully committed.”
Because it is not unreasonable to imagine Tajik nuts moving south across Afghanistan to processing facilities in Pakistan or Indian plastic goods heading north to Almaty’s green bazaar; entrepreneurs in Chennai starting businesses in Bishkek, or Turkmen gas powering businesses in Afghanistan, Pakistan, and India.
That vision is taking hold: many of our partners in Central Asia are already eagerly asking how they can strengthen commerce with Afghanistan and South Asia. And, as evidenced by the progress being made in expanding commercial interactions between India and Pakistan, the countries of South Asia also see the benefits in progress.
Toward that end, we have been supporting Afghan, Turkish, and German efforts to organize a series of important conferences that will strengthen commitments by the region and the international community to Afghanistan beyond 2014.
At the recent Istanbul conference on Afghanistan, Afghanistan’s neighbors reiterated their commitment to a stable, secure, and economically viable Afghanistan, reaffirming the importance of Afghanistan-led reconciliation, transition to Afghan security leadership, and a shared regional economic vision.
We outlined our vision of the New Silk Road mindful of the work already done by the region and the difficult work ahead needed to turn this vision into a reality. The United States government is focused on the critical economic elements needed to support Afghanistan’s transition as outlined at the Lisbon Conference last year.
Importantly, Afghanistan needs a sustainable private sector-led economy that is not dependent on international assistance. The Afghan government needs to make important policy choices and set priorities to attract private sector investment and enable economic growth, and we will continue to support their efforts to do so.
In the upcoming Bonn conference on December 5, we will urge the members of the international community to welcome these regional initiatives, Afghanistan’s own commitment to reform and to reaffirm their own commitments to Afghanistan as transition proceeds.
As our transition to Afghan-led governance continues on the security side, Bonn will be an opportunity to review how the international community and Afghan government can work together on behalf of Afghanistan’s political and economic future.
Ladies and gentlemen, let me conclude by noting my optimism that recent trends in the Asia Pacific and South Asia offer the promise of greater prosperity and security for the people of the region and the United States. There is no doubt that challenges remain, and we should be mindful that comprehensive change is often a long-term endeavor.
However, the United States is encouraged by recent developments in South Asia to address long-standing animosities, bring to conclusion long periods of conflict and strife, and come together to promote a more integrated South and Central Asia.