TRADE BALANCE BETWEEN INDIA & PAKISTAN
Aug 25 - 31, 2008
With 75 per cent imports and 25 per cent exports from Pakistan, the bilateral trade balance currently goes in favor of India. The balance may be corrected or improved if Pakistan increases its exports of commodities, which are increasingly demanded by India for their acute shortage. India can import cement, marble, sports and surgical equipments, fruit, vegetable and salt from Pakistan. Trade Development Authority of Pakistan (TDAP) can play a significant role in this regard. Pakistani exporters however complain that the TDAP is not extending them any support to capture the Indian market.
For instance, India is facing shortage of cement with an annual demand of around 5 million tons. India has shown willingness to import maximum quantity of cement from Pakistan through sea as well as land routes. Under a deal recently signed between the two states, Islamabad is to export about 0.1 million tons cement to India on monthly basis. Analysts believe that India is the most feasible market for exporting Pakistan's excess cement capacity. The estimated demand/supply gap in India is around 10 million to 12 million tons per annum and the cement demand started to outpace supply.
A joint research study recently conducted by CUTS International--an Indian based leading research and networking group and its Pakistani partner Ms Huma Fakhar, the Lahore-based lawyer, reveals that the formal trade with India could be doubled from $1 billion to $2 billion after a recent action by Pakistan to increase the positive list of tradable products from 773 to 1075 items. The study finds that the exchange can quadruple, if only there is closer economic cooperation and that could lead to better peace. The researchers believe that trade can help in normalizing relations between the two archrivals, but to expect more peaceful relations between the two fast growing economies through trade is a dream.
The study suggests that the US government can promote mutual trade between the two countries by offering duty-free imports, if one used the other's inputs in their exportable items to the US. The study pointed out the example of US scheme of qualified industrial zones (QIZs), which was in operation since 1996, in a bid to promote peace in the Middle East between Israel with Jordan and Egypt. The scheme allowed duty free export to US market from Jordan and Egypt in case a minimum level of inputs from Israel was used in the manufacturing of these products.
CREATING AN FTA ACROSS LOC
Last year, an Indian based working group suggested creation of a free trade area (FTA) across the Line of Control (LoC). The working group headed by M Rasgotra was set up by the Indian government with a mandate to work out some practical solution for allowing trade between the two divided regions of Jammu and Kashmir. According to the report submitted by the group at the third roundtable conference on Kashmir in April 2007, there is lot of enthusiasm for the opening up of trade and commerce between the two sides.
The group recommended setting up a joint consultative machinery of officials and representatives of commerce from both sides, to resolve any difficulties in the flow of trade. The list of items suggested for export and import include handicrafts, fruits, cement, iron, medicines, sugar, basmati rice, machinery and equipment, and other items that are manufactured or assembled by small-scale industries in Jammu and Kashmir.
The issue of state taxes on goods traded across the LoC may be determined by the state government after due consideration of all aspects.
India and Pakistan made the landmark agreement to revive trade and commerce between the divided regions of Jammu and Kashmir in the year 2006. The two sides had already agreed to allow trading of only raw products, mostly food items, between the divided regions of Jammu and Kashmir.
BILATERAL TRADE BARRIERS
Pakistan is the most feasible cement exporting country for India, as it is most competitive in the form of transportation charges as compared to other regional countries, which usually constitute of 15 percent of the imported price of cement. There is also no big gap in the cement prices of Pakistan and India. China is the biggest rival to Pakistan in the regional markets. The quality of Pakistan's cement is however far better than China and it has already exported around 3 million tons of cement to India and North African countries. Pakistan produces four types of cements and the raw material- gypsum, limestone, clay/shale- used for cement manufacturing is found in abundance in the country.
Unfortunately, TDAP is not giving freight subsidy for export of cement, which is a non-traditional commodity, to India. Cement exports are also being affected by the high freight charges, which are received by the tucks and foreign shipping companies for the haulage of cement from Pakistan to India. The cement exports to India have largely been through sea or by railway. While Pakistan railways charge US$8 per ton as freight for carrying cement to Indian border, India only charges US$3 per ton on its side.
Though India is the non-traditional cement market, yet a number of non-tariff barriers (NTB) are hampering Pakistani exporters to export cement to India. Despite all these barriers and problems, the Pakistani exporters, who have already got registration and certification from the Bureau of Indian Standard (BIS), are struggling hard to capture the Indian cement market. Last October around 0.2 million tons of cement were exported to India. The Pakistan Railways have doubled cement loading capacity to India.
The immediate barrier in the way of export is inadequate transportation facilities for the lucrative trade across the border. Both the sides have realized the need for improving road transportation facilities for smooth flow of trade. Due to abolished countervailing duty and additional customs duty on cement imports, the Pakistani cement would become competitive in the huge Indian market. Analysts calculate that the landed cost of Pakistani cement in India would be cheap.
The two countries have agreed to allow trucks to move into each other's border up to half or one km and construct truck terminal facilities. While Pakistan has already developed a truck terminal at Wagha with a capacity to accommodate about 100 truck lorries, India has yet to construct the facility on its side at Attari border.