India, UAE pact on Transcontinental trade corridor

This article is written by Danish Sharma

Abstract

The India-Middle East-Europe Economic Corridor (IMEC) is envisioned as a significant initiative to improve regional connectivity and foster economic cooperation between India, the UAE, and other countries in the Middle East and Europe. Its primary objective is to provide an alternative to China’s Belt and Road Initiative (BRI), which has been a major infrastructure development program in Asia. The IMEC aims to connect various countries along its route, including India, the UAE, Saudi Arabia, Jordan, Israel, and European nations. By establishing robust transportation and trade links, the corridor intends to facilitate the movement of goods, services, and people, thereby enhancing economic integration and regional development. During Prime Minister Narendra Modi’s visit to the UAE, ten agreements were signed between India and the UAE. While the specifics of these agreements were not disclosed in the official statement, they cover crucial sectors such as energy, infrastructure, and digital projects. These agreements highlight the commitment of both countries to deepen their bilateral cooperation and promote mutual economic growth. The IMEC initiative has garnered support from the United States and the European Union, reflecting the recognition of its potential benefits and the importance of strengthening regional connectivity. By establishing rail and sea routes, the corridor aims to provide efficient and reliable transportation options for trade between Europe and India, bypassing traditional routes. This alternative route has the potential to reduce transit times, lower costs, and enhance trade volumes between the regions.
Overall, the IMEC represents a collaborative effort to promote economic integration, bolster regional connectivity, and provide an alternative to existing trade routes. By connecting multiple countries and leveraging the strengths of each, the corridor aspires to create a transformative impact on the strategic and economic landscape of the region.

Introduction

An ambitious plan supported by the United States and the European Union, India, and the United Arab Emirates signed an agreement on Tuesday to establish a trade corridor that aims to connect Europe with India through parts of the Middle East by rail and sea. The Indian foreign ministry released a statement announcing the framework agreement, which was reached during Prime Minister Narendra Modi’s visit to the Gulf state. However, the statement did not provide many details about the agreements that the parties had reached.
The corridor was unveiled in September of last year during the G20 summit in New Delhi. Its goal is to connect Saudi Arabia, Jordan, and Israel with Europe by way of the United Arab Emirates, which is located across the Arabian Sea from India.
During the G20 meeting in New Delhi in September of last year, the corridor was officially opened. Its objective is to use the United Arab Emirates, which is situated across the Arabian Sea from India, to link Saudi Arabia, Jordan, and Israel with Europe. close allies The Middle East trade corridor’s initial phase is being worked on by India and the United Arab Emirates, with protocols enabling the quickest clearance of shipments.

REGIONAL INSTABILITY

Under the Abraham Accords, a U.S.-backed initiative, the UAE established diplomatic ties with Israel in 2020. This led to the establishment of ties between Bahrain and other Arab states. The UAE has continued to have diplomatic ties with Israel despite frequently denouncing Israel for its bombardment of Gaza and demanding an end to hostilities. The framework agreement between the UAE and India seems to indicate that both countries are moving forward with the plan to build the corridor, which could potentially jeopardize China’s strategy for a road connectivity belt and global trade infrastructure.
Additionally, it was signed at the same time that the Houthi movement in Yemen, which is supported by Iran, began attacking Red Sea shipping vessels, claiming that these attacks were in retaliation for Israel’s bombing of Gaza. Trade via the sea route is now in jeopardy due to the attacks. Along with exchanging cooperation agreements on trade, digital infrastructure, and electrical interconnection, the UAE and India also signed a bilateral investment treaty. Later, Modi is scheduled to speak in front of tens of thousands of Indian expatriates at a stadium in Abu Dhabi. On Wednesday, he will also give a speech at a summit in Dubai before the first-ever stone-built Hindu temple in the Middle East is opened in Abu Dhabi.
Since taking office almost ten years ago, Modi has made seven trips to the Gulf state, fostering closer ties with one of India’s main trading partners.

Key Features

Initial reports state that the IMEC will have an eastern leg that will connect the land route of the corridor with the well-established shipping routes from India’s west coast, carrying container traffic from India to the UAE. The goods would travel via Saudi Arabia and Jordan before arriving by rail at Israel’s Haifa port on the Mediterranean coast.
Repositioning the containers on ships in Haifa, the western portion of the corridor would transport them to ports in Europe, including France, Italy, and Germany, where they would be transported by European rail networks to their ultimate destinations. Reducing reliance on the Suez Canal and establishing a route that could be 40% faster are the main draws of the two-way transport link. High-speed goods trains would be able to travel at 120 mph or roughly four times the speed of ships.
There is a significant distinction between the corridor and China’s Belt and Road Initiative (BRI), despite some observers drawing similar comparisons. The IMEC is an economic corridor that is not just for trade in goods. A safe, fast data pipeline is also suggested in light of the growing importance of cyber security, as it may help India export its IT services to West Asia and Europe.
From an Indian perspective, the incorporation of electricity grids into the corridor framework holds particular significance. India has already supported the “One Sun, One World, One Grid” initiative as part of its leadership of the International Solar Alliance. This initiative is an ambitious attempt to link the world’s essential regional grids into a single green grid that can transfer renewable energy from one region to another. Utilizing various time zones, it would optimize solar energy utilization and minimize the requirement for costly energy storage devices. The plan to add clean hydrogen pipelines to the corridor is similarly progressive. Many people think that clean hydrogen will be the best long-term substitute for fossil fuels, and the Indian government has already committed US$2.5 billion to help the nation become a hub for green hydrogen development. Along with the UAE and Saudi Arabia, other corridor members, Reliance Industries, the Adani Group, Larsen & Toubro Limited, and ReNew Energy Global, have all announced multibillion-dollar investments to develop their green hydrogen projects. As production ramps up, electrolyzer prices should drop dramatically. Green hydrogen produced with renewable energy sources may follow the same price curve as solar and wind energy.
Nonetheless, doubts persist regarding the feasibility of hydrogen as a substitute mass fuel and the existing technologies for its safe and cost-effective global transportation.

Political Will and Geoeconomic Gains

Though they might seem futuristic, the initial stages of creating transcontinental green transit routes connecting Europe and Asia are already underway. The announcement in New Delhi that a high-level meeting would be held in 60 days to commit the participating nations “to develop and commit to an action plan with relevant timetables” also conveyed a sense of urgency.
As the participating nations begin to coordinate to meet the range of challenges, their political will and resolve will be put to the test. Every vertical component of the corridor will present a unique set of challenges. The technology, financial, and commercial viability issues about the physical infrastructure—such as railway connections, clean hydrogen pipelines, electricity, and data cables—will be addressed as a first step. Simultaneously, issues with soft infrastructure about harmonizing standards for railroads, ports, and customs will also need to be resolved.
The opportunities that could arise from a project based on trendlines and projections to 2030 and beyond, as well as the challenges, are real. It makes use of a paradigm in geopolitics and geoeconomics that did not exist ten years ago. Green hydrogen and interconnected electrical grids would never have been possible without the rapidly declining costs of renewable energy. But for the time being, the IMEC project has to address the facts of the developing situation in West Asia, at least for the foreseeable future. The details of a resolution are still quite vague at the time this paper is being written. The Arab world is truly outraged, and this will undoubtedly put a dampener on a high-profile project that suggests active collaboration with Israel.
Amid West Asia’s current downturn, it is important to remember that the proposed corridor is a long-term connectivity project. The completion of the comprehensive project reports and financing options is probably going to take several years. In the shifting sands of West Asia, a lot can change at this time, and that should give some encouragement to keep up the preparatory work.
By highlighting the crucial work areas in the early stages, this report highlights three important connectivity verticals (transport, digital, and energy), as well as their geostrategic drivers and considerations. It also provides a summary of the prospects the IMEC will create in the future.

Transport Connectivity

The IMEC is the most recent of many connectivity initiatives that have been mobilized in the previous 20 years. For these corridors to become a reality, the participating states must invest enormous political and economic resources in them. A new era of collaboration between Europe, West Asia (the Middle East), and India was heralded by the IMEC’s announcement on the fringes of the G20 Summit in New Delhi. These regions are connected by their alliances with the United States.
Projects involving intracontinental transportation are intricate, protracted endeavors. The North-South Transport Corridor, which was conceived in 2000 and signed in 2003 to connect and bridge the economic gaps between India and Russia through Central Asia (specifically, Iran and Azerbaijan), provides a good example of the opportunities and challenges that come with large-scale projects of this kind. New Delhi’s experiences with the project are noteworthy. These projects are gaining popularity even though India’s experience with the Chabahar Port does not inspire confidence in their integrity. This is primarily because there is a growing global awareness of the need to diversify supply chains beyond China.

The railway links

The IMEC mainly concentrates on shipping routes from the perspective of India’s transportation system. Major transit hubs already exist at ports on the Western coast of the nation, including Mumbai, Kandla, Mangalore, Mormugao, and Kochi. One of the main areas of bilateral cooperation between New Delhi and Abu Dhabi currently involves trade with the Gulf states, especially the United Arab Emirates. The two IMEC partners already have an ecosystem in place that provides an easy way to access money without needing to build any new large-scale infrastructure right away. Promoting the port in Fujairah, on the Gulf of Oman on the UAE’s eastern seaboard, could also make more geopolitical sense as it eliminates the divisive waterways of the Strait of Hormuz. Ports in the United Arab Emirates, like Jabel Ali in Dubai, are being hailed as the ideal destination for their geographic and economic positioning. Since port facilities are already available in India, the above-land designs of the IMEC, particularly in West Asia, will be the main focus. Although some of the participating nations in the region have operational rail systems, integration will take some time. The Western coast of the UAE, including the ports of Jebel Ali and Khalifa, is anticipated to be covered by the Etihad Rail network up to Ghuweifat, which is located close to the Saudi border. The plans aim to cover the most important ports and economic zones by rail, despite the network’s small size. The smaller neighbouring states like Jordan and Israel that are intended to be a part of the IMEC will probably benefit from the UAE and Saudi Arabia’s centrality for the overland movement of goods. For instance, if other nations want to join the corridor project, they should closely examine the intra-link rail agreement between the United Arab Emirates and Oman, which is not a member of the International Energy Community.

The Energy Corridor

Emerging economies like India have to balance the need to transition to green energy with the challenge of maintaining affordable and accessible energy. Additionally, the environment, energy security, and geopolitical ties will be impacted by the shift to green energy. Newer supply chains for these green technologies and a shift in the power dynamics surrounding energy will accompany the transition to newer forms of energy. This is a chance for India and a large portion of the developing world to reconsider domestic energy security and establish themselves as more significant players in the global energy system. Resolving the energy trilemma may be facilitated by integrating energy corridors as a focal point within the IMEC. It also provides India with a way to strengthen its position as a leader in the switch to green energy. The IMEC’s efforts to facilitate cooperation in the energy sector have identified two crucial priority areas.

BRI VS IMEC: A COMPARISON

The IMEC has been referred to by some pundits as a reaction to China’s BRI. China’s transition to “consumption-led growth” is what gave rise to the Belt and Road Initiative (BRI). In its 13th five-year plan (2016–2020), the country specifically committed to promoting “consumption-led growth” by increasing domestic purchasing power. China needed a stable growth engine within its economy as a safeguard against the volatile nature of the external sector, which is dependent on erratic international trade and finance. Over the past ten years, this has led to a notable increase in wages and labor expenses in the nation. Afraid that their exports would lose their competitive edge, Chinese policymakers considered relocating production-related components to areas with cheap and plentiful labor and natural resources. Thus, the BRI is an attempt to reach both the “product” markets in the US, EU, and West Asia, as well as the “factor” markets in Africa and South Asia.
The Belt and Road Initiative (BRI) has generated a lot of discussion and criticism despite openly endorsing Beijing’s strategic goals. The Belt and Road Initiative (BRI) has been described as a tool of Beijing’s “debt-trap diplomacy” since it has initiated projects of questionable merit to guarantee and increase Chinese access to resources and regional markets.
It demonstrates China’s desire to become more powerful globally, posing serious debt problems for several vulnerable economies. The port of Hambantota in Sri Lanka and the 22 African countries experiencing financial hardship are two examples. An additional instance of Beijing promoting its agenda for strategic development is the China-Pakistan Economic Corridor. It’s comparable to “market imperialism.”
To capitalize on the current complementarities, the IMEC, on the other hand, is more of a project of respect and cooperation between parties. The IMEC, which offers a replicable framework, can serve the opportunity to meet the aspirations of over 6 billion people in the developing world and not just the top 1 billion population of the developed world. for additional plurilateral frameworks of this kind in various locations. The process can lead to innovative initiatives such as the establishment of a trade and connectivity corridor connecting India, West Asia, and Africa, as well as connectivity links to Africa and eventually to South America.

Financing the IMEC

Several things need to happen for the IMEC to take off, continue, and thrive, but finance is the most important one. According to preliminary estimates, the expenses associated with every route within the transport corridor may vary from US$3 billion to US$8 billion. It’s difficult to find the money for this capital project. Initiatives in economic corridors are fraught with significant risk because they necessitate the collaboration of numerous international players. It is becoming more and more crucial to investigate efficient and low-risk financing options for these endeavors to draw in private investors seeking a consistent return that is risk-adjusted. Nonetheless, banks and other financial institutions frequently find it difficult to allocate their investible funds due to the risk premiums they pay when making investments in transnational transport or economic corridors. The concerns of high levels of corruption and political instability that are prevalent in many countries are often too great to be overcome, even with the strong creditworthiness that reputable multinational companies bring to these initiatives. Nonetheless, the IMEC statement may depend on the G7’s June 2023 promise to raise US$600 billion over five years from both public and private sources of funding.
This initiative, a calculated countermeasure to the Belt and Road Initiative, aims to finance the development of infrastructure in emerging economies. US President Joe Biden claims that this action is an example of the useful benefits of forming alliances with democratic organizations. Moreover, the goals of the IMEC to improve hydrogen energy logistics align with the strategic agendas of the US and the EU, which center on shifting Europe’s energy dependency on Russian fossil fuels. Therefore, funding the capital costs related to the corridor will be of great interest to the US and the EU. When viewed from a European perspective, the IMEC is richly significant. It is not just rhetoric; Europe has the opportunity to truly implement these lofty goals and declarations. This corridor could be integrated into the EU’s Global Gateway initiative, serving as a potent ally in achieving the initiative’s goals of encouraging sustainable growth, increasing infrastructure investment, and strengthening ties with the nations it passes through. Furthermore, the EU has a sizable treasure trove—roughly US$300 billion set aside for the Global Gateway—that is ready to finance the physical infrastructure required for projects inspired by IMECs.
Saudi Arabia and the UAE must also make a significant amount of investments at the same time. For the corridor, Saudi Arabia has already pledged $20 billion. Innovative financing tools must be introduced in this situation, though, as IMEC capital expenditures may have long gestation periods and take some time to pay off. The roles of Islamic financial products from the Arab economies are introduced in this way. This will give their banking and financial system the essential stake in the project with a share of the profits, and encourage interest-free loans from the Arab economies, which will aid in the cause of capital expenditure. India has enormous potential in terms of its demographic dividend, natural capital, green energy, and digital potential, making it a top investment destination for both the United Arab Emirates and Saudi Arabia. The United Arab Emirates announced in October 2023 that it intended to invest US$75 billion in India over some time, while Saudi Arabia proposed an investment goal of US$100 billion. The Abu Dhabi Investment Authority (ADIA), the biggest sovereign wealth fund in the United Arab Emirates, made the most recent financial commitments. It has allotted approximately US$5 billion for investments in India. The tax-neutral GIFT City finance hub in Gujarat, India, has given the go-ahead for the ADIA to operate.

CONCLUSION

It is critical to acknowledge the mutually reinforcing nature of trade facilitation—which includes border infrastructure and customs procedures—and transport connectivity, which includes both physical infrastructure and international regulations. The importance of both factors in promoting trade is undeniable, but in policy discussions, the connection between trade facilitation and transportation is not always evident. This synergy’s template is the IMEC. Both enormous opportunities and formidable challenges are presented by the IMEC. It can increase trade between Europe and India and change the nature of trade between Asia and Europe, mainly via the Suez Canal.
The IMEC faces difficulties despite its enormous potential because it must foster a cooperative spirit among several states with disparate goals. In contrast to the BRI, which is exclusively funded and managed by China, the ambitions of the numerous IMEC economies with their diverse social and economic makeup must be balanced to achieve a single objective. To guarantee the trade route’s long-term sustainability, its design must conform to current market conditions. However, things like the attacks in Israel on 7th October could cause the ambitious plan to stall. With its withdrawal from the RCEP, India faced criticism for its protectionist policies, which the IMEC aims to address. In addition to facilitating the exploitation of complementarities between India and the other participating states, it will also enable the integration of Indian MSMEs with the GVC, improve consumer and producer surpluses (or benefits), increase the competitiveness of Indian corporations, and advance the general well-being of the economy. Therefore, the IMEC establishes a new standard for international connectivity and trade facilitation; however, how this plays out remains to be seen.
REFERENCES

  1. India, UAE sign pact on trans-continental trade corridor | Reuters
  2. India-UAE to work on IME Economic Corridor protocols in May | Latest News India – Hindustan Times
  3. PM Modi’s UAE visit: India-Middle East-Europe Economic Corridor takes shape amid regional tensions | India News – Times of India (indiatimes.com)
  4. India-Middle East-Europe Economic Corridor: Towards a New Discourse in Global Connectivity (orfonline.org)

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