As Prepared for Delivery

Thank you for that introduction and it’s great to be out here for Member’s Weekend – with virtually all my time spent in DC, I often fear that the Pacific Council might eject me for absenteeism, so I’m always grateful for the opportunity to come out West and meet with fellow members. It’s also an honor to participate on this panel with the brilliant economic and legal minds of Dr. Ramachandran and Mr. Medlong. And of course I don’t mind trading, if only for a couple days, a view of the Potomac for one of the Pacific.

At the State Department, much of our time is spent dealing with some of the most pressing challenges around the world. This conference is rightly focusing on a range of such global issues, from the refugee crisis, to conflict in the Middle East, to global pandemics. U.S. leadership is critical to helping solve these challenges, and our unparalleled capability to do so is a direct product of our economic strength – it is the source of our influence in the global marketplace and on the world stage.

Secretary Kerry has often said that foreign policy is economic policy, and economic policy is foreign policy. If we view that notion through the context of globalization, we see that smart trade policy – with a focus on connectivity – is what empowers us to defend our strategic interests around the world. This is not just because of the old adage that "if goods don't cross borders, soldiers will." It is also because deepening our trade and economic ties around the world – and helping others do the same – enables us to promote essential economic reforms, build international norms in accordance with democratic values, and foster cooperation among nations to address many of the shared global challenges that this weekend’s conference is focusing on.

So let me unpack this a bit in the context of this session's theme, and with respect to the part of the world on which I spend a good deal of my time - South Asia.

I would like start by offering a brief and broad vision of globalization, and describe why its tenets – the freer flow of trade, people, and capital – are so important for U.S. interests in South Asia, which is my portfolio at the State Department.

First, the statistics show that the effects of globalization have been overwhelmingly positive, especially for the poor. Since the 1990s, one billion people have escaped extreme poverty. Chronic hunger and infant mortality have both halved. In 1980, only half of all children in the developing world finished primary school – today its four out of five. And progress is accelerating: it took over 30 years – from 1975 to 2006 – for the global middle class to rise from one billion to two billion people, yet it’s only taken ten years to grow to three billion today, and we could surpass four billion by 2021 – just five years from now.

Today, we’re seeing voices around the globe calling for a retrenchment of globalization, for closed borders and protectionism. But the fact is that this would hurt all consumers, and it would hurt the poor the most. In a study that included 13 developing countries, economists from UCLA and Columbia found that closing borders to trade would cause people on high incomes to lose 28 percent of their purchasing power, while the poorest 10 percent of people would lose 63 percent of their spending power.

Studies also show that freer trade forces firms to be more innovative, resulting in increased spending on R&D, more patents, greater use of information technology, and higher productivity – all of which makes companies more competitive in global supply chains.

The evidence is also in favor of free trade agreements. Since 1985, we’ve signed 15 FTAs that cover a total of 20 countries. While these countries make up just one-tenth of GDP outside of America, they account for nearly half of all our exports. In 2012, U.S. exports to those 20 countries grew twice as fast as the average, and, compared to non-exporting firms, exporting firms pay a wage premium of between 13-18 percent. When it comes to the potential of deals like TPP and TTIP, the data is pretty clear.

With all that being said, there is definitely some truth to the notion that trade and technology can disrupt certain sectors of the economy and cause job losses. And more can and should be done to mitigate those effects. So we need to be cognizant of the potential social and environmental consequences that can result from poor economic management and insufficient regulation.

Our own economy thrives because of global trade, and most global trade happens on the seas – 90 percent of the world’s trade by weight and volume travels over the oceans. And the Indian Ocean is the most critical crossroads of global maritime trade – half of the world’s container traffic and two-thirds of seaborne oil trade transit the Indian Ocean, while about 30 percent of global trade is handled by Indian Ocean ports.

So you can plainly see how the security of the Indian Ocean is inextricably linked to the stability of the global economy. And maritime security in the Indian Ocean will depend more and more on the ability of countries like India, Sri Lanka, and Bangladesh to work with each other, and partners like America, to uphold international norms like freedom of navigation. Stability inland also depends on how well they can combat piracy and trafficking of drugs, weapons, and people on the high seas.

And because economic prosperity underpins military strength, the ability of those countries to be regional security providers will depend on their continued growth, which will come, in large part, from greater regional economic connectivity.

South Asia has tremendous growth potential -- the region boasts more working-age people than anywhere else in the world, with its economies growing at an average of over seven percent. And over 250 million South Asians will move into cities in the next 15 years, creating strong demand for infrastructure and services. In fact, the World Bank estimates that the region will need about $2.5 trillion in infrastructure investment over the next ten years to reach its full economic potential.

And while the countries of South Asia are increasingly trading more around the globe, the region is still one of the least economically-integrated in the world, with less than six percent of its total trade and less than one percent of its investment flows occurring from within the region.

Compare that last statistic to North America, where over 50 percent of total exports are sold within the region, or Europe, where the same figure has averaged more than 70 percent over the last 20 years.

Of course, we want the region’s growth to be broad-based, inclusive, and sustainable, and that means taking into account the very important social and environmental factors that are often at tension with the quest for quick profits. But more sustainable growth isn’t just about making us feel good, it makes economic sense – we know that ignoring the environment now creates much greater costs down the road, both for the region and the world. And more inclusive growth – which means improving female participation in the workforce – isn’t just about empowerment, it’s also about economics: the IMF projects that India could expand its GDP significantly if women participated in the labor force at the same rate as men.

Therefore our efforts to build prosperity and stability in South Asia are not only about improving trade and connectivity, but also have very strong social and environmental components. With India, we have increased bilateral trade to over $100 billion a year, while launching dozens of programs to promote women’s entrepreneurship and equitable access to healthcare, education, finance, and more.

We are now the largest single-country importer of Bangladesh’s primary export, garments, and have launched multi-million dollar programs to improve worker safety and labor rights.

We’re working with Sri Lanka to boost trade and tourism, with a special focus on the regions that were hit hardest by the war.

And in Nepal, the Millennium Challenge Corporation is developing a Compact that will focus on improving the transport and energy sectors, especially hydro-power, while we are running water management programs that will help mitigate disaster risks while improving agricultural outcomes.

Regionally, our Indo-Pacific Economic Corridor (IPEC) initiative is working to link the countries together by building cross-border energy trade, improving trade and transit corridors, streamlining customs and border procedures, and networking people and businesses, especially women entrepreneurs. IPEC has already has some notable successes, like the 500 megawatt line connecting India and Bangladesh, which will soon be expanded to 1000 megawatts.

And the countries of the region are taking a lot of initiative – India’s Act East policy, for example, has helped result in the resolution of some long-standing land and maritime border disputes that were constricting commercial opportunities.

The countries of the region are also taking steps to bilaterally reduce barriers to trade. With Sri Lanka, India is pursuing an Economic and Technology Cooperation Agreement. India also has older trade agreements with Bangladesh, Nepal, and Bhutan that reduced or eliminated tariffs. And the Bangladesh-Bhutan-India-Nepal Motor Vehicles Agreement, or BBIN, has drastically reduced transit times between the four countries and will allow for the faster, cheaper movement of goods and people across borders.

To conclude, we’ll continue to strengthen and expand our work to promote regional connectivity in South Asia, which can underpin the region’s prosperity, security and stability. As President Obama has said, “in an interconnected world, we all rise and fall together.” It’s an axiom that animates our commitment to South Asia, a region which already functions as the crossroads of globalization, and one whose political, strategic, and economic importance will only increase in the decades to come.