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In South Asia, the time has come for border economic zones

April 11, 2017

In South Asia, connectivity is seen as the prerogative of capital cities, ignoring people who live in border areas. Instead of finding ways of improving connectivity throughout the region, summits of the South Asian Association for Regional Cooperation usually focus on whether the Indian and Pakistani prime ministers will shake hands, followed by a debate on their body language when they do.

At a recent conference in New Delhi on South Asian connectivity, I found myself wondering whether there are better ways to push connectivity on a people-to-people basis -- a way that would have a real and positive economic impact for the millions living in border areas that were too often imposed in great haste by colonial or post-colonial powers.

Borders have become geometric lines that create opportunities for governments -- and more specifically, unscrupulous officials -- to benefit. Customs and security staff are said to be willing to pay for jobs at border posts, where they can extract payments from travelers, turning crossing points intended to facilitate movement into impediments to communication.

Ordinary people are frequently harassed as they fetch basic commodities across these borders. Sometimes, people are even killed in the name of maintaining security. The more deadly the security threat, the more opportunity there is for security personnel and others to extract payments -- so-called "rent seeking" -- from people for whom border crossings are a necessity of everyday life.

There are multiple examples. Nepalese farmers trying to cross to India to sell ginger are told to have their products tested by a laboratory in a city they have not heard of. Fruit sellers from Bangladesh are told by Indian officials to send their produce 1,000km to Varanasi for testing. Indians crossing to an eye clinic in Eastern Nepal are harassed by Nepalese security officials.

Across South Asia there are multiple disputes related to border management, but security and customs personnel have surely played a role in making frontiers a money-minting machine for themselves.

When a security system seeks rent in this way, cartels emerge offering to fix anything -- from the price of unloading a bag of potatoes from a truck to the exorbitant fares for short distance transport by rickshaw or taxi. People are often left at the mercy of middlemen, touts and opportunist. Few politicians and bureaucrats travel to the borders to see these things for themselves.

 

Connectivity 'clusters'

In an earlier period, free trade zones and special economic zones emerged as a way of overcoming the pernicious effects on trade and economic activity of excessive taxation and regulation. There is now an opportunity for a similar approach to overcome excessive regulation of borders.

The creation of border economic zones could facilitate the growth of clusters of connectivity on both sides of regional borders. For instance, on Nepal's eastern border with India, the tea-growing industry spans both sides of the frontier, taking in the Nepalese region of Kakarvitta and the Indian region of Naxalbari.

Both could be included in a BEZ in which tea and other agricultural produce could be grown and harvested on both sides of the border and processed at a factory located within the zone. Radical changes to regulations would be required in both Nepal and India, but path-breaking regulatory frameworks have already been created for FTZs and SEZs, and it should be possible to do the same for a BEZ.

Security issues could be resolved through the use of digital technology to develop cheap and reliable ways of identity checking. In Nepal, citizens must pay $100 for passports -- a sum for which they could buy smartphones that could be used for communication and money storage as well as proving identity.

SEZs and FTZs create zones where labor laws, tariff structures and legal requirements differe from those outside the zones. BEZs would face a different challenge -- finding innovative ways to focus on benefiting the people living and working in the border zones. But border zones could also help to ease tensions between neighboring countries, which can tarnish national images even when they do not escalate into fully-fledged wars.

A blockade of the principal border crossing between India and Nepal between September 2015 and February 2016 drove historic ties between the two countries to a low point from which they have not yet recovered, in spite of efforts at reconciliation.

Border economic zones could be particularly useful for India, whose large population and economic weight obliges it to find new ways of managing its relations with its smaller neighbors -- not least to improve its image with bigger countries. BEZs could help it to do that. There are times in history when new economic growth models emerge. This could well be such a time.