By-Ambassador Alaina B. Teplitz–
Namaste and good afternoon. Thank you for the invitation to speak here are Tribuvan University about U.S. foreign policy in South Asia and why the region is important to the United States. Thank you also to Vice Chancellor Dr. Tirtha Raj Khaniya and other esteemed guests.
I would like to focus on Nepal’s future and how the U.S. foreign policy of promoting regional economic collaboration in South Asia supports a democratic, prosperous, stable Nepal.
By 2060, demographers estimate South Asia will be the most populous region in the world. According to the World Bank, South Asia is also home to nearly half of the world’s poor – 570 million people living in poverty.
The rationale behind the United States’ efforts towards regional integration rests on the belief that prosperity, peace, and stability are more likely to be sustained when the countries of the region are tied together in trade and economic agreements and in physical infrastructure connections. People invested in each other’s future care about different things than those who care only for themselves.
That said, there are challenges to achieving greater peace and prosperity within South Asia. History, politics, philosophy, and bureaucracy – these barriers are real, and until greater priority is placed on identifying shared interests and finding common ground, South Asia will continue to fall far short of its tremendous potential as a stable, global economic catalyst. And nations around the world, including the U.S., will miss out on an extra measure of prosperity.
What would the U.S. like to see: 1) an increase in regional trade 2) improvement in the business climate to attract investment and 3) good governance. With this three step trio can come economic opportunity.
How can we get there? Through regional economic networking. Connecting the millions – almost billions – of people in this part of the world will help achieve the level of economic development required to mitigate poverty, enhance regional stability, and support prosperity.
And how do people “network”: trade. Let’s look at the trade picture. In South Asia: intraregional trade equals five percent of total trade volume. It is worth only about $2 billion, the lowest in the world. Compare that to the nations of ASEAN where intraregional trade accounts for 25 percent of total trade, or the Common Market for Eastern and Southern Africa, where intraregional trade has tripled in 10 years and is now valued at $22 billion. This suggests that regional connectivity is an imperative for the nations of South Asia if they are to remain the beneficiaries of global economic growth.
A recent report by the Asian Development Bank found that increased economic integration in South Asia, and also between South Asia and Southeast Asia, would result in more than $500 billion in economic gain for all countries in both regions. Notably, the report stated that the smaller countries of South Asia, such as Nepal, would see the most gain by connecting with the larger regional economies.
The World Bank also found that cross-border trade is especially important for landlocked countries such as Nepal. Cross-border trade provides the inputs that are needed for Nepal’s industry and creates opportunities for products made in Nepal to be exported throughout the region – and the world.
While landlocked countries have to rely on neighbors in different ways than those with access to the sea, there can be advantages…. and this is true for Nepal. Representatives from an American company recently told us that they envision setting up a factory in the Terai where they can distribute their products to underserved markets in India’s Bihar and Uttar Pradesh states.
On the one hand, it may be hard to compete when an economic giant is your neighbor. But having a big neighbor also means a market with hundreds of millions of people within easy reach, eager to consume products made using Nepal’s comparative advantage in certain agricultural products, for example. Nepal, if laws and conditions are more favorable than in India, will be compelling to the business world.
Increased regional trade is a key step to improving Nepal’s economy and the region’s, but it is only one in a trio of steps that must be made. There needs to be a business climate conducive to investment. According to the World Bank, Nepal attracted on average, about $50 million in foreign investment over the last eight years.
While this number might sound impressive, let’s put it into perspective—this is less than two dollars per year for every person in Nepal. In comparison, Sri Lanka, a country previously in conflict, attracted $750 million annually in foreign investment—more than $36 per capita, while Bangladesh received an average of $1.4 billion in foreign investment annually over the same time period.
If Nepal is to meet its goal of graduating from least developed country status, it will need to dramatically increase private investment. This will also mean increasing foreign investment. What do foreign companies look for when they want to invest overseas? Stability, straight forward tax policies, reliable power sources, a simple and transparent process for company registration and procuring visas for foreign staff, and a well-trained and reliable work force. Frankly speaking, these are all areas in which Nepal could improve, but in which it has potential.
You might recall that earlier this year, a Norwegian company pulled out of a 650 MW hydropower project in Nepal after trying to develop the project for several years. Company officials cited “an absence of necessary policies and regulatory framework” and “increased bureaucratic hurdles for foreign investments.” Although this was bad news for Nepal, I hope the government saw the lesson—Nepal is competing with countries around the world for investment and if the policies aren’t in place here, those companies will invest elsewhere. Africa may present more competition than other countries in the region.
Economic connectivity and an attractive investment climate are two of the components needed to create enduring peace and prosperity. Good governance is the last in the trio and an essential partner to development.
Democracies in the region need to strengthen transparent and accountable governance, adopt environmentally sustainable growth policies, and create inclusive political and economic systems that provide opportunity for all – especially for women and ethnic minority populations. South Asian nations, in their own self-interest, have to improve good governance at the same time as creating conducive economic conditions.
Governments themselves are critical to the economic “governance” necessary to promote trade and investment. Only governments have the capacity, the budgets and the reach to sign energy agreements, initiate infrastructure projects and assemble expertise to tackle the shared regional challenges of poverty, security and climate-change.
As governments in South Asia work together towards a more connected and more prosperous future, they will have the support of international partners like the United States. We are already taking several steps to support economic integration in South Asia.
On the energy side, we have been working with South Asian countries on steps needed to create a regional energy market through greater electricity trade.
On transit trade, the United States supports a strong regulatory environment for private investment and greater harmonization of trade standards across borders.
We have offered technical assistance to organizations that facilitate greater regional linkages to the global marketplace like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) secretariat.
We’re also taking steps to increase trade between the United States and Nepal. In February, President Obama signed the Trade Facilitation and Trade Enforcement Act into law. Pending a few more legal steps, this act will give duty-free access to select products made in Nepal and to the U.S. market.
The legislation lists up to 66 types of items eligible for this trade preference, including certain carpets, headgear, shawls, scarves, and travel goods. In 2015, these products accounted for about $8 million in exports. Now that these products will likely have duty-free access before the end of 2016, we hope to see a major increase in Nepali exports to the United States.
Also, in June, the United States Government will host a delegation from Nepal for the next round of talks as part of the Trade and Investment Framework Agreement, better known as TIFA. Some of you may recall that the United States and Nepal signed the TIFA agreement in 2011, but have not discussed it since.
The talks in June will be an opportunity to strengthen economic ties between our two countries and reinvigorate this economic agreement. Topics on the agenda include strengthening Nepal’s intellectual property right policies, improving sanitary measures, and helping Nepal meet international standards.
The United States sees a South Asia with unlimited potential, not only to dramatically increase trade within the region but to also reach out to regional neighbors in Central and Southeast Asia. This is why we are supporting initiatives like the Indo-Pacific Economic Corridor — connecting South to Southeast Asia — and the New Silk Road — connecting South to Central Asia — with greater energy, trade, transit, and people-to-people links.
It is clear that Nepal appreciates the importance of regional connectivity:
In February of this year, Nepal and India turned on the first double-circuit, cross-border transmission line between Dhalkebar (Dhal-kay-bar) and Muzzafarpur (Moo-zuh-fuhr-poor). This line will gradually be reinforced to allow up to 1000 MW of power to flow between India and Nepal.
The beauty of this accomplishment is that the transmission line allows Nepal to import power from India, but it would also allow India to receive excess power generated by Nepal’s hydropower, should that come fully on line. Sharing electricity through cross-border transmission lines helps to power both economies, and benefits the region as a whole.
Nepal and India are also working to make transit and trade easier. The open border is a start. During Prime Minister Oli’s visit to India this past February, the two leaders recommitted to opening transit access by road and rail. Another part of this agreement to make transit and trade easier is allowing Nepal access to a deep sea port in India (Vizag). Breaking down the barriers that slow or stop trade will help Nepal’s economy. I realize politics makes efforts such as these challenging, but I submit that priorities can influence politics.
Finally, Nepal can play an important role in improving regional integration by enabling the development of its hydropower sector. With more than 40,000 megawatts of hydropower potential, Nepal could be the battery for South Asia, driving economic growth and improved living conditions for Nepal’s citizens and its neighbors.
Now that we’ve danced around the elephant in the room, let me address it head on. I often hear from Nepalis that the United States has “outsourced” its foreign policy for Nepal to India. Isn’t that why the US supports regional “integration?” First, let me say the United States does not let India or any other country dictate our foreign policy, in Nepal or elsewhere. I’m always a bit surprised to hear this—after all, if that was the case, why would we have an Embassy here?
The United States has been a strong partner of Nepal for almost 70 years. We also have an important relationship with India. Our work and partnerships to promote regional connectivity in South Asia are about shared prosperity – within and between countries like Nepal and India. Developing stronger economic ties based on comparative advantage, trade, and investment is just basic economic sense – whether you are from the United States, India, or Nepal. And that’s where we’re coming from, a perspective of, a hope for, shared prosperity.
Regional cooperation and integration has vast potential for accelerating economic growth, and for reducing poverty and economic disparity within and across the countries involved; the people who live there, as well as for their global partners. The United States stands ready to help unleash the region’s true potential and to create a more prosperous and secure future.
Thank you.
Tribhuvan University
May 26, 2016