Statement at Senior Officials Segment of the Second Ministerial Conference on Regional Economic Cooperation and Integration

Delivered at Senior Officials Segment of the Second Ministerial Conference on Regional Economic Cooperation and Integration in Bangkok, Thailand

Excellencies,

Distinguished delegates,

Ladies and gentlemen,

Welcome to the Second Ministerial Conference on Regional Economic Cooperation and Integration, RECI. Calls to convene this round of consultations were made at the First Ministerial Conference in 2013 recognizing the need for ESCAP to assess how RECI has unfolded in Asia and Pacific and how the integration process should be taken forward for the welfare of the region in the light of emerging challenges and opportunities.

In recent years, there has been considerable progress towards regional integration across Asia, most notably in the ASEAN Economic Community which celebrated its 50th Anniversary last week. The AEC’s growing alliance with regional economies will support its evolution into a large economy of $ 4.1 trillion by 2025. In North and Central Asia, recent examples of integration include the dissolution of customs controls on the Kyrgyz-Kazakh border (2015) and streamlined cross border formalities between the Russian Federation and Kazakhstan on the Chongqing-Duisburg international railway. Enormous potential exists in other regions. In South Asia, intra-regional trade stands at less than one third of its potential. Trade amongst Pacific Island Countries was only 3 per cent of total trade in 2015.

In the future, the regional integration process should benefit from the implementation of the 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda for Financing for Development adopted in 2015. These agendas’ financing needs are close to $2.5 trillion a year in our region alone. Without multilateral cooperation, their ambitious goals are unlikely to be met.

Maintaining RECI’s momentum in Asia and the Pacific is critical to counter anti-globalization sentiment and the threat of protectionism. To avoid jeopardizing past achievements, Asia-Pacific countries need to take the lead in re-articulating, reinforcing and sharing experiences of their regional economic cooperation and integration. The implementation of trade and investment liberalization measures in several economies since the 1980s has led to unprecedented economic growth and a significant reduction in extreme poverty.

Yet it has become increasingly evident the proceeds of this growth have not always been evenly distributed. Inequality has risen and is growing. Regional cooperation approaches and policies need to be refocused to help those left behind.

This new direction is critical. In the past, cooperation and integration policies concentrated overridingly on economic growth. The social dislocation and environmental costs which come with rapid market-based integration were not sufficiently recognized, leading to income inequality and environmental distress. The underserved population has since sought a political voice. They have often found it in the politics of identity – of race, ethnicity or religion – which frequently goes hand in hand with nationalism and protectionism. We must work together to reverse this trend. Promise lies in mainstreaming the 2030 Agenda which focuses on the quality and sustainability of growth, and even more importantly on implementing credible policy measures to lift the development game for vulnerable countries and groups.

Since the first ministerial meeting, several new opportunities have arisen which could provide further impetus to regional cooperation and integration.

First, China’s Belt and Road (BRI) and Eurasian initiatives should strengthen seamless connectivity in the region. BRI aims to foster cultural ties and sustainability anchored on both connecting internal regional and cross continental connectivity through a multimodal network of road and rail routes, improved seaports, oil and gas pipelines, regional power grids and ITC fiber optic links. The BRI needs to be in sync with the 2030 Agenda by supporting the development of climate friendly resilient infrastructure projects. New developments must safeguard and nurture environmental, social and economic benefits, while bearing in mind beneficiary countries’ macroeconomic stability.

Second, the establishment of new financial cooperative arrangements, which go beyond financial safety nets to new funding mechanisms, should accelerate infrastructure development through the Asian Infrastructure Investment Bank, New Development Bank, and the Silk Road Fund. Newly established financing institutions along with the ADB are expected to double the available funds for multilateral and cross-border infrastructure financing in Asia-Pacific.

Third, there is now increasing recognition regional cooperation and integration could serve as a tool for conflict prevention and effectively address the shared cross border vulnerabilities of the fragile states.

The first ministerial meeting not only called for the new dynamics of Asia and the Pacific’s regional scene to be considered, but also for ESCAP to work with member States to reflect on how to advance RECI through four pillars, moving the region towards the formation of an integrated market, seamless connectivity, enhanced financial cooperation, and cooperation to deal with shared vulnerabilities and risks.

Strategically, the first pillar calls for deepening market integration by addressing high bilateral trade costs associated with non-tariff barriers, regulatory and procedural burdens and inefficient transport corridors. Together these could account for up to 90 per cent of total trade costs. Market integration could be bolstered by improved coordination, mutual recognition and harmonization of a plethora bilateral trade agreements and dealing with hidden forms of protectionism such as regulatory and procedural border processes through trade facilitation measures. Common investment regimes should replace existing regimes which mirror preferential trade agreements.

The second pillar calls for the better management of labour mobility which is also important from a social perspective. Labour market integration in Asia and the Pacific still lags other forms of integration. Mechanisms to promote orderly migration have failed to match demand and supply of migrant workers. This has resulted in irregular migration, putting migrant workers at risk of exploitation and abuse. By cooperating on labour migration policies, migrant workers can be treated fairly and can contribute to host country development processes.

The third pillar needs to be refocused to achieve seamless connectivity. Transport, energy and ICT links need to be strengthened in our region, especially in countries with special needs. Seamless connectivity encompasses “hard” and “soft” infrastructure. It deals with ICT co-deployment to maximize synergies. Building this infrastructure is key to establishing economic corridors to promote trade and investment.

Many challenges are common to the three connectivity sectors. Most relate to the lack of planning and coordination which impede effective cross-border connectivity projects which are typically negotiated bilaterally, often leading to high transaction costs and project fragmentation. Regional infrastructure projects invariably involve asymmetric costs and benefits, have large externalities and require fair competition and compensation. To overcome these challenges, appropriate institutional platforms need to nurture careful planning and coordination, deal with resource deficiencies, and resolve differences in legal and regulatory regimes. Most infrastructure projects, even domestic, should be valued as regional public goods.

Strong regional vision combined with political will is needed to ensure planning and coordination expands existing networks of transport, energy and ICT. Regionally accepted transparent and fair rules and regulations need to be put in place to internalize asymmetric costs and to ensure the fair distribution of costs and benefits among stakeholders.

The next phase of financial cooperation must strengthen financial surveillance and liquidity support to gradually reduce the fragmentation of subregional initiatives and cross-country regulatory differences and to move towards a region-wide crisis management framework. The integration of the region’s capital markets requires both the demand and the supply sides to be harnessed by leveraging a diverse set of issuer and investor bases and targeting those with long-term horizons. Developing national financial market infrastructures is the first step.

Since the adoption of the 2030 Agenda, ESCAP members led a consultation on the financing for development track. This backed extending regional cooperation to promote public finances to increase tax/GDP ratios and recalibrate tax policy and practices to finance multidimensional aspects of the 2030 Agenda and RECI. This is also needed to improve financial inclusion for households and small and medium enterprises by cross fertilizing financial innovation including Fintech companies and promoting regulatory and supervisory frameworks to maintain financial stability. Regional cooperation will pave way for leveraging public capital to mobilize cross border private finance and deploying it to boost infrastructure investments. The establishment of dedicated financing mechanisms for cross-border projects could help boost coordination among countries.

Improving the collective management of shared vulnerabilities and risks is a major challenge that needs to be dealt with through regional cooperation. In terms of disaster risk reduction, cooperation is needed to (i) set up a regional action plan for multi-hazard early warning systems, (ii) promote space application and multi-hazard early warning systems supported by developing methodologies and guidelines for risk assessment and mapping and scenario-based impact outlooks for slow-onset disasters and (iii) promote regional peer learning for index-based insurance and risk pooling based on new technologies to increase the effectiveness of risk transfer mechanisms.

Where food security is concerned, we should work together to build regional food markets. This is the best way to insure against localized food production shortfalls. Coordinated policies and information sharing to support sustainable food production are needed to manage transboundary resources and pool food security risks through innovative mechanisms. Integrated markets could also increase food production. It’s clear that taking advantage of improved technology in agricultural production should also lead to improved food security outcomes.

I trust your deliberations on the four pillars of RECI over the next two of days will provide concrete suggestions on how to move forward in these areas. A fundamental re-think of the entire approach to cooperation and integration is needed – from traditional RECI policies and frameworks that tend to be ‘growth-centric’ to an innovative approach that incorporates social and environmental considerations. For this purpose, the narrative of the 2030 Agenda needs to gain further traction - in the work of all cooperation initiatives - to become the dominant approach of our age.

ESCAP is pleased to be co-hosting this conference with the Asian Development Bank that has a proven track record of regional development with the United Nations’ Regional Economic Commissions mobilizing their expertise and sectoral intergovernmental platforms to pursue normative work and analysis, and coordinate mutual recognition and harmonization of regulatory frameworks. Our intergovernmental committee structure allows us to work on the various constituent areas of RECI and integrate them with the 2030 Agenda. Our multidisciplinary technical and research expertise should enable us to effectively support our member States to accelerate progress in a coordinated manner.

Member States of our region are poised to leap to the next stage of regional cooperation and integration. RECI integrated with the 2030 Agenda, based on a multilateral approach and multilateral agreements, under the aegis of the United Nations in Asia-Pacific, will best address the needs of all nations in our region, and most importantly those of countries and citizens who are most in need. Your deliberations and declaration will serve as a guide for regional economies, and the ESCAP secretariat, as we work to the RECI agenda forward in Asia and the Pacific.