Remarks by Robert D. Hormats, U.S. Under Secretary of State for Economic Growth, Energy, and Environment "Asian Regional Economic Integration"

New Delhi, January 30, 2013

The Federation of Indian Chambers of Commerce and Industry and The U.S. - India Business Council

(As prepared for delivery) 

Thank you for your kind introduction and warm welcome.  I’d also like to express my appreciation to the members of the Federation of Indian Chambers of Commerce and Industry and the U.S. India Business Council for inviting me to speak here today.  I want to congratulate both of these organizations for the great work they are doing.

Yesterday, in Agra, I discussed the key elements of our expanding bilateral economic relationship.  Today, I want to widen that aperture a bit to focus more broadly on opportunities for expanding economic ties between India and the wider Central, South, and East Asia-Pacific region.  We see these as opportunities for revitalization of the historical connectivity of this area through a New Silk Road and a robust Indo-Pacific Corridor.  And we can see this as providing enormous business opportunities.  Indeed, if this is to be successful, business must be the driving force.

Greater connectivity and greater integration could provide an enormous boost to economic growth for both India and the entire region.  The New Silk Road concept provides a vision of the way this area used to be when there was a huge amount of interaction, both trade and financial, but also interaction in the form of the exchange of ideas and cooperation among peoples.

For centuries this area was one of the most prosperous parts of the world, largely due to interconnectivity.  Alexander the Great recognized this in his passage from Macedonia to India.  Monks and merchants took Buddhism from its origins here in India to the entire Asia Pacific.  The Mughal dynasty, which lasted in various forms from 1526 until 1857, was renowned not only for constructing numerous World Heritage sites such as the Red Fort and the Taj Mahal, but also for expanding trade routes to Arab and Turkic lands.

So India has for centuries played a central role in historic interconnectivity linking it to Europe, the Mediterranean, Central Asia, and the Arab world all the way through the East, including the Indonesian archipelago, mainland Southeast Asia, and many parts of China.  And this interconnectivity was not just overland.  It was a network of marine transportation as well.  The Silk Road concept actually was a web of mutually beneficial, multi-directional land and sea interconnections.  It is an idea whose time has come, gone, and can come again.  The Indian Ocean can play a key part in this.  It provides a multitude of new opportunities.  As economic activity is growing rapidly in South and East Asia, Indo-Pacific sea lanes are emerging as the dominant international waterways of the 21st century – just as the Mediterranean Sea was in the ancient world and the Atlantic Ocean was in the 20th century.

I would like to focus first on the north-south trade and transport corridors, connecting Central and South Asia.  By connecting the burgeoning wheat, cotton, and energy markets of Central Asia to the Indian subcontinent and beyond, this “New Silk Road” can significantly strengthen the region’s economic prospects.  Business will be critical to its success and great beneficiaries.

The idea is a simple one.  We need to expand the region’s potential transportation and energy infrastructure, and more actively promote cross-border business collaboration, networking, investment, and trade.  If we succeed, the Central Asia-South Asia network can once again become a driver of commerce and jobs for the countries of the region, and beyond.  Central Asia sits on some of the world’s largest energy and mineral reserves.  While India has only half the natural gas it needs to fuel power plants and manufacture critical agricultural inputs like fertilizer, Turkmenistan has natural gas reserves of approximately seventy-one trillion cubic feet.  Indian energy demands are projected to expand at a compounded annual growth rate of 19% over the next five years.  Kazakhstan is home to a significant amount of oil.  Uzbekistan also has large proven oil reserves. 

The United States is working on several New Silk Road and Indo-Pacific Economic Corridor energy projects in the area.  These include USAID’s South Asia Regional Initiative-Energy (SARI-E) aimed at promoting regional power market integration. We are also undertaking a comprehensive analysis of the impact new unconventional gas technologies and LNG supplies will have in the near-to-mid term on India, Japan, and China.  We also have to find additional ways to work with these countries and others during this period of dramatic changes in energy technology and equally dramatic changes in the energy market – with broad economic, maritime, and energy security implications. 

The energy boom in the United States will not cause us to turn inward.  Indeed, we see it as an opportunity for more constructive engagement with other nations.  We also will continue to support the TAPI pipeline because of its potential benefits to economic development, regional integration and political stability.

All of this emphasis on connectivity is not news to the Government of India.  India has already signed a number of MOU’s with regional governments that focus on natural gas delivery, pipeline infrastructure development, and uranium trade for nuclear energy.  Business interconnectivity will be key to making all of this work.  The Gas Authority of India has also worked with its counterpart in Uzbekistan to build liquefied petroleum gas facilities outside of Tashkent.  Turkmenistan has received Indian investments in liquefaction plants, refineries, and gas distribution networks.  Whether we are talking about reduced barriers to trade or regulations to accelerate regional economic cooperation, the policies and principles I’ve just outlined don’t just promote economic prosperity – they act as a conduit of peace and stability.

In Afghanistan, three extremely important transitions are currently underway:  A major security transition, in which the Afghan Government will assume full responsibility for security; a political transition, including presidential elections in April of next year; and an economic transition, in which the Afghan economy will adjust to lower levels of military-related and foreign aid spending and will need to have a strong interest in continuing its path towards sustainable self-reliance.  As this transition occurs, the international community, with India remaining enthusiastically engaged, is essential to ensuring that the progress we have all worked so hard to achieve is preserved and has the momentum to continue.  Afghanistan’s successful transition will depend largely upon the region’s ability to effectively pursue shared interests.  This is not just hyperbole – Afghanistan’s neighbors and near-neighbors now include some of the fastest-growing economies in the world.

India is already a major supporter of Afghanistan’s successful transition.  In addition to the Government of India’s significant foreign assistance program, Indian companies have invested billions in agri-business, construction, logistics, banking, telecom, and real estate.  As a result, India now accounts for fully one quarter of Afghanistan’s exports.  India-Afghanistan trade is predicted to double to $1 billion by 2013.

The United States is clear-eyed about the challenges that exist.  But our goals in Central and South Asia are long-term ones as is our shared interest in ensuring a successful Afghan transition.  In that regard we will fully support the work of the Asian Development Bank, the World Bank, and other international institutions.  A lynchpin in such efforts has been the ADB-facilitated Central Asian Regional Economic Cooperation program.  CAREC already has implemented over 100 projects – worth in the area of $17-billion in transportation, trade facilitation, broader trade policy, customs improvements, trade expediting measures, and energy. 

India has made exceptional progress in expanding commercial ties with its other neighbors.  And many countries of the region have made notable progress towards establishing a more integrated regional market.  As we discuss these issues here today, rail lines, highway infrastructure, energy connections, trade agreements, fiber optic cables, and cross-border exchanges are being built out.  Many of your companies are playing a key role.

Despite the events of the past few weeks, it’s clear that closer economic cooperation between India and Pakistan can lead to greater mutual prosperity.  The United States continues to support efforts by both sides to improve all aspects of the relationship, including the expansion of trade and people-to-people ties.  I believe that increased India-Pakistan trade is a key element in South Asia’s connectivity with Afghanistan, Central Asia, and beyond. This is part of the reason the bilateral gains made by India and Pakistan over the past two years are important, and indeed historic.  Two-way trade at the Wagah border crossing – which I had the opportunity to visit on a recent trip – has increased by more than 50% in the last year alone.  If remaining trade barriers were removed, India-Pakistan trade could jump to $10 billion per year, more than doubling cross-border trade within three years, and creating countless jobs.

But this will be a long-term, step-by-step process, and it will not always be easy.  Both sides have a strong interest in staying committed to normalization, and expanding the India-Pakistan economic relationship.  Developments like liberalized visa regimes or India’s pledge to reduce the number of items on its sensitive list are concrete steps in the right direction.  Whether we look at the allowance of FDI from Pakistan in India, or the possibility of daily air connectivity between Delhi and Islamabad, or the formation of cooperative cross border business councils, things are moving ahead.

Looking east, we observe efforts by the Governments of Bangladesh and India to improve bilateral relations. They include Sheikh Hasina’s landmark visit to New Delhi in January 2010, and the signing of an MOU on renewable energy during Prime Minister Singh’s visit to Dhaka in September 2011.  Indeed, the commercial opening between India and Bangladesh, born out of those visits, has the potential to lift millions out of poverty.  Bangladesh isn’t just a moderate, secular democracy with a dynamic economy.  It remains the critical gateway for greater Indo-ASEAN trade.  In that regard, we support the ASEAN Master Plan which defines physical, institutional and people-to-people connectivity as the keys to expedite establishment of the ASEAN Community.  India has increased its engagement with ASEAN countries, and now has an $80 billion dollar trade relationship.

To India’s south, the success of India’s free trade agreement with Sri Lanka, has quadrupled trade over the last ten years.  On the open border between India and Nepal, the free flow of goods, information, and people has been a boon for both countries.  Recent progress in the Comprehensive Peace Agreement promises to open the door to further India-Nepal engagement.

Finally, Burma’s political and economic reforms have generated enormous opportunities for trade and engagement.  Prime Minister Singh and President Obama have recently made historic visits there.  My own visit there last year underscored my optimism for Burma becoming a future economic success story and for its becoming a gateway between South and East Asia. 

Today, it isn’t unreasonable to imagine products made in Chennai getting shipped across the Bay of Bengal to Burma, and then transported overland to Thailand, Cambodia, Vietnam and beyond.  This greater degree of cooperation between South Asia and South East Asia is what is increasingly referred to as the Indo-Pacific Economic Corridor.  Such a Corridor, linking the rapidly expanding economies of South and Southeast Asia through improved infrastructure and maritime links, and increased business contacts, would promote peace and regional stability.  It would also help lift millions of people out of poverty and advance the ideals of democracy and respect for human rights.  

An Indo-Pacific Economic Corridor through Burma – by both sea and land links – would provide India particularly eastern India and the rest of the region with avenues into new markets.  It would help preserve economic growth, while increasing mutually beneficial access to information, technology, innovation, and the vast markets of East Asia.  The completion of the final 28-km of the Tamu-Kalewa-Kaleymyo (TKK) road, for example, could link India’s Manipur state with the large cities of Mandalay and Rangoon.  On the other side of the border, Burma might build a new highway that links Manipur with Thailand, leading to greater trade and passenger service between India, Burma and Southeast Asia. 

The development of these new routes will create enormous investment opportunities for U.S. and Indian businesses.  And as Burma continues to pursue democratic reforms, greater interaction with other democracies and economies in the region will further support and enhance that progress.  We all have a strong interest in supporting reforms, job creation, and peace and stability in the country – which has already made impressive gains.

Much credit belongs to India.  During Prime Minister Singh’s May 2012 visit to Burma, he underscored the need for greater regional infrastructure links.  He pledged that India would repair 71 bridges on the Tamu-Kalewa friendship road linking the two countries.  He also agreed to cooperative efforts to upgrade the Trilateral India-Burma-Thailand Highway to one day include Laos, Cambodia, and Vietnam. 

The Asian Development Bank has also embarked on a study to produce policy recommendations for effective economic integration and cooperation, between South and East Asia, including China, Japan, South Korea and other neighboring economies.  This will be presented at the Bank’s annual meeting this May.  India, Thailand, Japan, and others deserve great credit for their significant support.

I’ll conclude with three final thoughts.

First, I want to underscore this is really a challenge for all of us.  We will need to try to build a greater understanding of how countries in the region can benefit from greater interconnectivity with one another. We will also have to work together to take the measures needed to make this work.

Second, there is a growing support and optimism around the idea of improved connectivity among the countries of Central Asia, and also between Central Asia and South Asia and Southeast Asia.  This whole notion of connectivity provides opportunities for a greater public-private sector involvement.  

Finally, the United States is ready to engage, both financially, through our business communities, and in terms of its convening power to help make this

vision a reality.  Thank you very much.

Remarks by Robert D. Hormats, U.S. Under Secretary of State for Economic Growth, Energy, and Environment "Asian Regional Economic Integration"

New Delhi | January 30, 2013

The Federation of Indian Chambers of Commerce and Industry and The U.S. - India Business Council

(As prepared for delivery) 

Thank you for your kind introduction and warm welcome.  I’d also like to express my appreciation to the members of the Federation of Indian Chambers of Commerce and Industry and the U.S. India Business Council for inviting me to speak here today.  I want to congratulate both of these organizations for the great work they are doing.

Yesterday, in Agra, I discussed the key elements of our expanding bilateral economic relationship.  Today, I want to widen that aperture a bit to focus more broadly on opportunities for expanding economic ties between India and the wider Central, South, and East Asia-Pacific region.  We see these as opportunities for revitalization of the historical connectivity of this area through a New Silk Road and a robust Indo-Pacific Corridor.  And we can see this as providing enormous business opportunities.  Indeed, if this is to be successful, business must be the driving force.

Greater connectivity and greater integration could provide an enormous boost to economic growth for both India and the entire region.  The New Silk Road concept provides a vision of the way this area used to be when there was a huge amount of interaction, both trade and financial, but also interaction in the form of the exchange of ideas and cooperation among peoples.

For centuries this area was one of the most prosperous parts of the world, largely due to interconnectivity.  Alexander the Great recognized this in his passage from Macedonia to India.  Monks and merchants took Buddhism from its origins here in India to the entire Asia Pacific.  The Mughal dynasty, which lasted in various forms from 1526 until 1857, was renowned not only for constructing numerous World Heritage sites such as the Red Fort and the Taj Mahal, but also for expanding trade routes to Arab and Turkic lands.

So India has for centuries played a central role in historic interconnectivity linking it to Europe, the Mediterranean, Central Asia, and the Arab world all the way through the East, including the Indonesian archipelago, mainland Southeast Asia, and many parts of China.  And this interconnectivity was not just overland.  It was a network of marine transportation as well.  The Silk Road concept actually was a web of mutually beneficial, multi-directional land and sea interconnections.  It is an idea whose time has come, gone, and can come again.  The Indian Ocean can play a key part in this.  It provides a multitude of new opportunities.  As economic activity is growing rapidly in South and East Asia, Indo-Pacific sea lanes are emerging as the dominant international waterways of the 21st century – just as the Mediterranean Sea was in the ancient world and the Atlantic Ocean was in the 20th century.

I would like to focus first on the north-south trade and transport corridors, connecting Central and South Asia.  By connecting the burgeoning wheat, cotton, and energy markets of Central Asia to the Indian subcontinent and beyond, this “New Silk Road” can significantly strengthen the region’s economic prospects.  Business will be critical to its success and great beneficiaries.

The idea is a simple one.  We need to expand the region’s potential transportation and energy infrastructure, and more actively promote cross-border business collaboration, networking, investment, and trade.  If we succeed, the Central Asia-South Asia network can once again become a driver of commerce and jobs for the countries of the region, and beyond.  Central Asia sits on some of the world’s largest energy and mineral reserves.  While India has only half the natural gas it needs to fuel power plants and manufacture critical agricultural inputs like fertilizer, Turkmenistan has natural gas reserves of approximately seventy-one trillion cubic feet.  Indian energy demands are projected to expand at a compounded annual growth rate of 19% over the next five years.  Kazakhstan is home to a significant amount of oil.  Uzbekistan also has large proven oil reserves. 

The United States is working on several New Silk Road and Indo-Pacific Economic Corridor energy projects in the area.  These include USAID’s South Asia Regional Initiative-Energy (SARI-E) aimed at promoting regional power market integration. We are also undertaking a comprehensive analysis of the impact new unconventional gas technologies and LNG supplies will have in the near-to-mid term on India, Japan, and China.  We also have to find additional ways to work with these countries and others during this period of dramatic changes in energy technology and equally dramatic changes in the energy market – with broad economic, maritime, and energy security implications. 

The energy boom in the United States will not cause us to turn inward.  Indeed, we see it as an opportunity for more constructive engagement with other nations.  We also will continue to support the TAPI pipeline because of its potential benefits to economic development, regional integration and political stability.

All of this emphasis on connectivity is not news to the Government of India.  India has already signed a number of MOU’s with regional governments that focus on natural gas delivery, pipeline infrastructure development, and uranium trade for nuclear energy.  Business interconnectivity will be key to making all of this work.  The Gas Authority of India has also worked with its counterpart in Uzbekistan to build liquefied petroleum gas facilities outside of Tashkent.  Turkmenistan has received Indian investments in liquefaction plants, refineries, and gas distribution networks.  Whether we are talking about reduced barriers to trade or regulations to accelerate regional economic cooperation, the policies and principles I’ve just outlined don’t just promote economic prosperity – they act as a conduit of peace and stability.

In Afghanistan, three extremely important transitions are currently underway:  A major security transition, in which the Afghan Government will assume full responsibility for security; a political transition, including presidential elections in April of next year; and an economic transition, in which the Afghan economy will adjust to lower levels of military-related and foreign aid spending and will need to have a strong interest in continuing its path towards sustainable self-reliance.  As this transition occurs, the international community, with India remaining enthusiastically engaged, is essential to ensuring that the progress we have all worked so hard to achieve is preserved and has the momentum to continue.  Afghanistan’s successful transition will depend largely upon the region’s ability to effectively pursue shared interests.  This is not just hyperbole – Afghanistan’s neighbors and near-neighbors now include some of the fastest-growing economies in the world.

India is already a major supporter of Afghanistan’s successful transition.  In addition to the Government of India’s significant foreign assistance program, Indian companies have invested billions in agri-business, construction, logistics, banking, telecom, and real estate.  As a result, India now accounts for fully one quarter of Afghanistan’s exports.  India-Afghanistan trade is predicted to double to $1 billion by 2013.

The United States is clear-eyed about the challenges that exist.  But our goals in Central and South Asia are long-term ones as is our shared interest in ensuring a successful Afghan transition.  In that regard we will fully support the work of the Asian Development Bank, the World Bank, and other international institutions.  A lynchpin in such efforts has been the ADB-facilitated Central Asian Regional Economic Cooperation program.  CAREC already has implemented over 100 projects – worth in the area of $17-billion in transportation, trade facilitation, broader trade policy, customs improvements, trade expediting measures, and energy. 

India has made exceptional progress in expanding commercial ties with its other neighbors.  And many countries of the region have made notable progress towards establishing a more integrated regional market.  As we discuss these issues here today, rail lines, highway infrastructure, energy connections, trade agreements, fiber optic cables, and cross-border exchanges are being built out.  Many of your companies are playing a key role.

Despite the events of the past few weeks, it’s clear that closer economic cooperation between India and Pakistan can lead to greater mutual prosperity.  The United States continues to support efforts by both sides to improve all aspects of the relationship, including the expansion of trade and people-to-people ties.  I believe that increased India-Pakistan trade is a key element in South Asia’s connectivity with Afghanistan, Central Asia, and beyond. This is part of the reason the bilateral gains made by India and Pakistan over the past two years are important, and indeed historic.  Two-way trade at the Wagah border crossing – which I had the opportunity to visit on a recent trip – has increased by more than 50% in the last year alone.  If remaining trade barriers were removed, India-Pakistan trade could jump to $10 billion per year, more than doubling cross-border trade within three years, and creating countless jobs.

But this will be a long-term, step-by-step process, and it will not always be easy.  Both sides have a strong interest in staying committed to normalization, and expanding the India-Pakistan economic relationship.  Developments like liberalized visa regimes or India’s pledge to reduce the number of items on its sensitive list are concrete steps in the right direction.  Whether we look at the allowance of FDI from Pakistan in India, or the possibility of daily air connectivity between Delhi and Islamabad, or the formation of cooperative cross border business councils, things are moving ahead.

Looking east, we observe efforts by the Governments of Bangladesh and India to improve bilateral relations. They include Sheikh Hasina’s landmark visit to New Delhi in January 2010, and the signing of an MOU on renewable energy during Prime Minister Singh’s visit to Dhaka in September 2011.  Indeed, the commercial opening between India and Bangladesh, born out of those visits, has the potential to lift millions out of poverty.  Bangladesh isn’t just a moderate, secular democracy with a dynamic economy.  It remains the critical gateway for greater Indo-ASEAN trade.  In that regard, we support the ASEAN Master Plan which defines physical, institutional and people-to-people connectivity as the keys to expedite establishment of the ASEAN Community.  India has increased its engagement with ASEAN countries, and now has an $80 billion dollar trade relationship.

To India’s south, the success of India’s free trade agreement with Sri Lanka, has quadrupled trade over the last ten years.  On the open border between India and Nepal, the free flow of goods, information, and people has been a boon for both countries.  Recent progress in the Comprehensive Peace Agreement promises to open the door to further India-Nepal engagement.

Finally, Burma’s political and economic reforms have generated enormous opportunities for trade and engagement.  Prime Minister Singh and President Obama have recently made historic visits there.  My own visit there last year underscored my optimism for Burma becoming a future economic success story and for its becoming a gateway between South and East Asia. 

Today, it isn’t unreasonable to imagine products made in Chennai getting shipped across the Bay of Bengal to Burma, and then transported overland to Thailand, Cambodia, Vietnam and beyond.  This greater degree of cooperation between South Asia and South East Asia is what is increasingly referred to as the Indo-Pacific Economic Corridor.  Such a Corridor, linking the rapidly expanding economies of South and Southeast Asia through improved infrastructure and maritime links, and increased business contacts, would promote peace and regional stability.  It would also help lift millions of people out of poverty and advance the ideals of democracy and respect for human rights.  

An Indo-Pacific Economic Corridor through Burma – by both sea and land links – would provide India particularly eastern India and the rest of the region with avenues into new markets.  It would help preserve economic growth, while increasing mutually beneficial access to information, technology, innovation, and the vast markets of East Asia.  The completion of the final 28-km of the Tamu-Kalewa-Kaleymyo (TKK) road, for example, could link India’s Manipur state with the large cities of Mandalay and Rangoon.  On the other side of the border, Burma might build a new highway that links Manipur with Thailand, leading to greater trade and passenger service between India, Burma and Southeast Asia. 

The development of these new routes will create enormous investment opportunities for U.S. and Indian businesses.  And as Burma continues to pursue democratic reforms, greater interaction with other democracies and economies in the region will further support and enhance that progress.  We all have a strong interest in supporting reforms, job creation, and peace and stability in the country – which has already made impressive gains.

Much credit belongs to India.  During Prime Minister Singh’s May 2012 visit to Burma, he underscored the need for greater regional infrastructure links.  He pledged that India would repair 71 bridges on the Tamu-Kalewa friendship road linking the two countries.  He also agreed to cooperative efforts to upgrade the Trilateral India-Burma-Thailand Highway to one day include Laos, Cambodia, and Vietnam. 

The Asian Development Bank has also embarked on a study to produce policy recommendations for effective economic integration and cooperation, between South and East Asia, including China, Japan, South Korea and other neighboring economies.  This will be presented at the Bank’s annual meeting this May.  India, Thailand, Japan, and others deserve great credit for their significant support.

I’ll conclude with three final thoughts.

First, I want to underscore this is really a challenge for all of us.  We will need to try to build a greater understanding of how countries in the region can benefit from greater interconnectivity with one another. We will also have to work together to take the measures needed to make this work.

Second, there is a growing support and optimism around the idea of improved connectivity among the countries of Central Asia, and also between Central Asia and South Asia and Southeast Asia.  This whole notion of connectivity provides opportunities for a greater public-private sector involvement.  

Finally, the United States is ready to engage, both financially, through our business communities, and in terms of its convening power to help make this