Originally Published 2013-07-31 11:16:49 Published on Jul 31, 2013
The normalisation of trade between India and Pakistan could lead to preferential trade arrangement under SAFTA (South Asian Free Trade Agreement of 1996). This would increase regional trade and stability.
Greater  India-Pak trade  interaction can dispel fears
"Trade between India and Pakistan is fraught with problems and benefits -- from trade are being denied to the people on both sides. There is hope that with Prime Minister Nawab Sharif at the helm, trade and investment relations between India and Pakistan would improve. Pakistanis love to shop in India and Indians love to buy Pakistani goods, especially textiles whenever they get a chance. Yet trade between the two countries with a common culture and tastes has been sub optimal. While normal trade has suffered, informal trade has flourished. Informal trade is close to $1 billion and it has a smuggling component as well as a third-party component in which goods from India travel via Dubai or Singapore to Pakistan. It means a loss to the exchequer for both countries and for third-country trade, Pakistani consumers suffer because transportation costs lead to much higher prices.

Both countries are relatively poor and both have common problems like inadequate infrastructure and obstacles in the form of tariff and non-tariff barriers impede the free flow of trade between the two countries. India accounted for less than 5 per cent of Pakistan’s trade in 2010-11 and the share of Pakistan in India’s trade was less than 1 per cent.

India granted Pakistan MFN status in 1996 but Pakistan is still dithering and though the likelihood of its coming through has increased, it has not yet happened. Pakistan is worried about being swamped by Indian goods if it were to give MFN status to India, which would automatically lead to bringing down import duties and giving India the same tariff treatment that it gives to other WTO members.

Certain amount of progress, however, has been made in recent times with the visit of Indian Commerce Minister Anand Sharma in September 2011 and the two countries agreed to pursue full trade normalisation. As a result, Pakistan moved from the positive list of 2,000 goods that could be imported from India to a negative list of about 1,200 items that are not allowed to be imported. According to one report, Pakistan still has a short positive list of 137 items. India is hoping that the negative list will get shorter in future.

With acrimonious political relations for decades, the hope that trade would usher in peace is hardly likely. India is sour with Pakistan on many counts -especially about the lack of any progress regarding the trial of the 26/11 Mumbai attack suspects, many of whom roam freely in Pakistan. There is also the escalating nuclear programme. India and Pakistan have fought three wars. Though the train service has been started between Lahore and New Delhi, it has not shown a way out of the impasse. There are fears of imported terrorism in India and there is deep suspicion of any political move that grants concessions to Pakistan. How can trade, and especially investment, flourish in such an atmosphere?

Although foreign direct investment from Pakistan has recently been allowed into India, not much has come. Nor is there much Indian investment in Pakistan; especially significant is the absence of any long-term investment and joint ventures. The cause for this slow movement of investible capital across the borders is the lack of investment guarantees. Also the problem of transferring money across the border, especially from India to Pakistan, remains. There are many possible joint ventures that would be beneficial to the people and businesses on both sides like food processing industries and IT, there is very little forthcoming because of the problem of guarantee and security of capital. Unless this problem is solved, hopes for enhancing investment are dim, which is a pity, because more investment would have created jobs and increased the GDP growth in both countries.

India, being the bigger neighbour and a country with much more developed industries and skilled manpower, can afford to be generous and reduce tariffs unilaterally. It can assure the agriculturists in Pakistan that it would refrain from dumping surplus agricultural products. Pakistan is also worried about opening up its agricultural sector imports because it fears the entry of subsidised Indian agricultural products. That is why there was a huge demonstration by farmers against the opening up of Pakistan’s farm imports.

While business contacts between the two countries are increasing and Pakistani consumers are seeing and buying more Indian goods in trade fairs, the governments’ stand remains cautious and constrained. Though the current trade volume is lower than its potential and is around $2.5 billion, there is scope for increasing trade to $10 billion in the next few years.

The infrastructural problems have to be addressed before opening up trade further. There are few good roads that can carry goods from India to Pakistan and there are problems in transporting goods through rail. In April 2012, the two countries launched a new integrated checkpoint at the Attari-Wagah land border crossing, which could increase trade through this sector at least tenfold. Both sides have concluded a landmark visa agreement that would loosen travel restrictions. Better infrastructure at the border check-posts would facilitate border crossings. There is need for better warehousing, x-ray machines and testing laboratories at the border.

Pakistani automotive parts and accessories manufacturers have also felt threatened by the prospect of freer trade between the two countries. India is, no doubt, the biggest economy in the region and the smaller neighbours have reasons to feel threatened. More contact between businesses from both sides could dispel fears and usher in more cooperation. There is no doubt that Pakistani producers would be happy importing low-cost raw materials and machinery from India. There is scope for cooperation in IT and pharmaceuticals also. India would want to access cement from Pakistan as it produces more than it can use.

India also has to be liberal in allowing Pakistan to access third countries like Nepal, Bangladesh and Bhutan via its territory and Pakistan should give transit rights to India to access export markets in Afghanistan. This is essential in furthering regional trade and including countries like China and Iran in the bigger trade map. The normalisation of trade between India and Pakistan could lead to preferential trade arrangement under SAFTA (South Asian Free Trade Agreement of 1996). This would increase regional trade and stability.

Both sides should remember that security and political tensions should not spill into trade and economic relations because thousands of lives are dependent on such trade. The suspension of trade due to isolated terrorist attacks can be counter-productive and will only lead to more fractured bilateral economic relations between the two immediate neighbours.

(Jayshree Sengupta is a Senior Fellow at Observer Research Foundation, Delhi)

Courtesy : The Tribune, July 30, 2013

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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