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Pakistan-India standoff "Impact on trade"

The illegal trade would keep on benefiting India which has find the Pakistani market pretty lucrative

Jan-14 - 20, 2002

The India-initiated and Pakistan-retaliated closure of road, railway and air links could be blessing in disguise to help save precious foreign exchange on bilateral trade heavily favouring war-mongering India.

The closure of trade, both official and illegal, benefited India much more than Pakistan resulting in drain of foreign exchange on goods all of them are easily available from other sources. None of the goods imported from India are essential and their absence would hardly been felt here in Pakistan.

According to Haji Shafiq-ur-Rehman, a former president of Karachi Chamber of Commerce and Industry and spice importer and trader at the country's biggest commodity market Jodia Bazar Karachi, the average volume of legal trade between Pakistan and India amount to around $ 300 million per year. This trade, he said, tilted highly in favour of India Pakistan was importing about $ 240 million of goods while exporting a mere $ 55 million of merchandise. In last five years, India enjoyed a heavy trade surplus from the official bilateral trade except for a single year during the government of the now exiled Nawaz Sharif. It was made possible due to sizeable quantity of sugar exports to India and resulted in a $ 30 million trade surplus in favour of Pakistan, Shafiq-ur-Rehman told PAGE.

The official trade between the two countries is limited to a small number of items dry fruit and clothes from Pakistan and spices, tobacco leaf, chewing tobacco, spices, herbs, chemicals and dyes from India. The closure of official trade, as stated above, would hurt India more than Pakistan and the beneficiary of it would be other countries who are capable of replacing India at competitive prices.

However, the illegal trade would keep on benefiting India which has find the Pakistani market pretty lucrative to push whole range of toiletries, chewing tobacco, betel, betel nut, a small number of spices, kattha, etc. The particular cause for concern is that the entire demand of such widely used spices as cardamom, cinnamon, jaifil and jawitri in the biggest of the four national provinces, Punjab, and also of the North West Frontier Province (NWFP) is fed by the illegal Indian trade. This is also the case in areas of upper Sindh but to a lesser degree.

The volume of illegal trade is costing Pakistan a huge $1 billion annually in lost legal trade and duties, taxes thereof. Shafiq-ur-Rehman expressed apprehensions that the closure of rail, road and air links between Pakistan and India would not eradicate the massive illegal trade through third countries, mainly the free ports of Dubai and Singapore, mainly through Afghanistan. In fact, the markets of Punjab and NWFP are still flooded with the Indian spices finding its way under the Afghan Transit Trade.

According to Shafiq-ur-Rehman 50 per cent demand of the spices in the country is being met by the illegal trade while Punjab is almost entirely dependent on the smuggled cardamom, cinnamon, jaifil and jawitri. Even in Sindh where the demand of spices is met by the legal imports, the smuggled Indian spices have started flowing in bulk quantities at Jodia Bazar thanks to the traders who have links in the border cities of Peshawar and Quetta, he alleged. Needless to say the nefarious activities are carried out in connivance, and league, with the officials of the concerned departments for reasons much too obvious, he added.

He said that though the closure of the rail, bus and air link resulted in retail price of items such as betel leaf, betel nut and Kattha initially resulted in retail prices here in the country they have since stabilized. This has been primarily to the fact that 40 per cent of the total betel leaf demand in the country is met by the locally grown variety and imports from Sri Lanka and Bangladesh which are cheaper compared to their Indian counterpart. In addition, he said, betel nut itself smuggled into India from elsewhere while Indian Kattha is inferior in quality.

Shafiq-ur Rehman, said that none of the items imported from India include food and there are none whose replacements are not available elsewhere. In the free trading world of today Pakistani importers would not face any difficulty to find competitive sources to replace India for limited number of items which till recently kept pouring in the country. This is more true particularly to spices only a few of which came from India in bulk quantities. As is, spice imports make up only 0.1 per cent of the total imports on an average.

High import duties

Shafiq-ur-Rehman, however, said that the high import duty is the primary cause of smuggling of Indian spices in the country. He alleged that a powerful lobby was behind the decision to increase the import duty on spices from 15 per cent to 20 per cent in the Budget 2001-2002. The increase obliterated whatever little progress was made to discourage the smuggling after the import duty on spices was reduced from 35 per cent to 15 per cent in a previous budget. He said the total impact of the 20 per cent import duty on spices adds up to a cumulative high figure of 58 per cent including sales tax and income tax. This renders the legal imports highly incompetitive to the smuggled counterparts thus encouraging smuggling. It is imperative to slash the import duty to discourage smuggling of spices, he added.