India Seeks Multilateral Partnerships to Counter China in Indian Ocean Rim.

During the first-ever business and commerce conference of the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC) in July, Indian Commerce Minister Anand Sharma called for an institutional mechanism to facilitate business interaction among members. Though the IOR-ARC has existed since 1995-1996, it has so far failed to emerge as a common economic platform, and India’s trade ties in the IOR region have progressed chiefly along bilateral lines. But with China’s economic overtures increasingly frequent and backed by commercial heft, India finds that it can no longer take its geo-economic position in the region for granted. To counter China’s commercial bilateralism, India seems to be trying to establish a multilateral mechanism for overseeing trade and investment that China may later have to join.

In November, when the Maldives unilaterally cancelled a 25-year contract with Indian firm GMR for modernizing and maintaining Male Airport, it became painfully apparent to the Indian establishment that IOR countries’ options for bilateral commercial agreements had expanded considerably due to greater Chinese interest in the region. A recent policy “blue book” from an official Chinese think tank advocated that China seek to deepen engagement with Indian Ocean littoral states, albeit on a commercial and not a military basis. To meet the development needs of growing populations, many IOR countries are amenable to overseas assistance; that kind of assistance is now forthcoming from a source other than India.

But India has chosen not to pressure the Maldives on the issue of investment protection. Indeed, any Indian attempt to exercise influence that looks even mildly coercive would only make other countries in the region more eager to look for forces to balance India. Instead, India is trying to create an institutional framework for securing commercial interests and, if necessary, facilitating dispute resolution. In that sense, India’s call for a formal business mechanism resembles India’s organization of the Indian Ocean Naval Symposium, a maritime security partnership that currently has 35 member states.

Maritime security in particular highlights the progress India has made on aggregating bilateral arrangements into wider groupings. Just this month, India, Sri Lanka and the Maldives entered into a tripartite agreement on maritime cooperation to secure sea routes in the Indian Ocean region. The agreement envisions India making its naval assets available for patrolling the exclusive economic zones of Sri Lanka and the Maldives, as well as tying those countries into the Indian navy’s maritime domain awareness system. It seems India is also looking to include in this arrangement traditional partners in the western Indian Ocean such as Oman, Mozambique, Kenya and Tanzania.

It is no coincidence that the security partnerships overlap with India’s economic interests. The coasts of East Africa account for a significant share of the two-thirds of global oil reserves and one-third of global gas reserves that are held by IOR-ARC countries; these are accordingly important for India’s future economic growth. India has already invested in coal mines in the region and is looking for greater access to massive offshore gas finds belonging to Tanzania and Mozambique. But India’s greatest ally near the East African coast is Mauritius, to which India gave a hydrographic research vessel and aircraft spare parts earlier this year. In his keynote address at the IOR-ARC conference this month, Mauritian Prime Minister Navinchandra Ramgoolam said that India had made “a significant contribution to fight against the scourge of piracy in our region.” During the conference, Ramgoolam also made an explicit call for a free trade agreement among the IOR-ARC member states, whose cumulative GDP is expected to grow to $9 trillion by 2016.

Indeed, Mauritius, with its numerous investment promotion and double taxation avoidance agreements with African jurisdictions, is likely to be the pivot around which India consolidates a regional economic grouping. Indian industry is openly seeking customs harmonization, a clearance mechanism for conducting trade in local currencies and a policy allowing export-import banks to undertake bilateral confirmation of letters of credit—all of which would prove particularly useful in conducting trade with countries such as Iran, which incidentally is a member of the IOR-ARC.

While advocating a path of open regionalism, the conference declaration also said that “members agreed to harmonize trade practices in line with international norms and take steps to minimize barriers to trade in the Indian Ocean region.” Mauritius, for instance, already offers free port services to manufacturing companies with units on its territory that export 80 percent of their output to Africa.

The open regionalism model for any future IOR-ARC trade agreement indicates that India is looking to put in place a regional bloc that China, which is currently an IOR-ARC dialogue partner, will have to work to join, just as China has forced India to work to integrate with East Asian groupings under New Delhi’s “Look East” policy. For instance, just recently India had to overcome Chinese opposition to become a member of the Regional Comprehensive Economic Partnership, or the so-called ASEAN Plus Six grouping, which is seen as an alternative to the Trans-Pacific Partnership led by the United States.

India probably believes that a multilateral grouping that keeps the door open to cooperation from nonmembers while consolidating intermember trade is the best bet for reducing episodic bilateral engagements in which China may become a factor in the background. So as China “looks west” to try to build a commercial web in the IOR that could also be used for security purposes, India is instead seeking to leverage its existing security arrangements in the region to foster commercial stability and growth.

Source : worldpoliticsreview.com