REMOVING BOTTLENECKS IN PAK-INDIA TRADE
Nov 7 - 20, 2011
Islamabad has decided to grant Most Favored Nation (MFN) status to India, while New Delhi has agreed to support Pakistan in getting final approval of World Trade Organization (WTO) regarding Pakistani products' access to European markets. The recent visit to India by a 75-member delegation headed by Federal Commerce Minister Makhdoom Amin Fahim was the first visit by a Pakistani commerce minister to India in last 35 years and it proved instrumental in removing reservations and bottlenecks in the trade between the neighboring countries. The two countries also agreed to issue multiple visas to each other's businessmen for a year to expand bilateral trade. The two sides also agreed to double their bilateral trade from the current $2.7 billion to around $6 billion per annum within three years and open a second border trading post. A memorandum of understanding was signed between the Trade Development Authority of Pakistan (TDAP) and India's Trade Promotion Organisation to enhance bilateral trade. The analysts consider the ministerial level trade talks very important in making a significant breakthrough in easing restrictions on trade between the South Asian countries. Deepening economic engagement between the two countries is seen as crucial to establishing lasting peace in South Asia.
The trade talks was a bid to put back on track the peace process between the two neighbors which was derailed by the 2008 Mumbai attacks. Before Mumbai attack, the two countries have been engaged in negotiations to devise a comprehensive mechanism for removing the bilateral trade barriers, which have increased the cost of doing business between the two countries, hence bilateral trade is routed through third countries like Singapore and Hong Kong. The two countries were expecting to enhance the bilateral trade to $10 billion from the current level of $2 billion a year. The direct trade between the two countries is not more than $250 million a year. The prospects for expanding direct trade between the two countries had brightened as a result of trade talks resumed between the two neighbors in 2003. With 75 per cent imports and 25 per cent exports from Pakistan, the bilateral trade balance currently goes in favor of India.
The analysts see the India's decision to support the country at a November 7 meeting of the WTO General Council against EU trade concessions as the most significant outcome of India-Pakistan trade talks. The head of the EU Delegation to Pakistan, Ambassador Lars-Gunnar Wigemark has Welcome the outcome of Pak-India trade talks and considered the decision relevant in the light of renewed floods in southern Pakistan. Europe's top trade officials were already expecting a softening of Indian stance on the issue.
"We welcome news reports (of India planning to drop its veto) but of course await any decision at the level of the WTO," Reuters reported John Clancy, spokesman for the EU Executive Commission as saying. "If it is approved, it is likely to add 100 million euros ($136 million) to Pakistan's annual exports."
Interaction between the business communities of the two countries is important in bringing the two major south Asian economies closer. Last week an 11-member delegation of the Northern India Textile Mills Association (NITMA) visited Pakistan on the invitation of All Pakistan Textile Mills Association (Aptma) to increase business cooperation and interaction. Both countries together produce just less than half the global cotton but their share in the global textile trade is only 5-6 per cent. textile industry of both has enormous potential to increase their share in the world markets if they work jointly to each other's advantage. Under a free trade pact, Pakistan's textile sector, the backbone of its economy, would gain access to India's 300 million-strong middle class.
India already granted Pakistan MFN status in 1996, but India still heavily subsidizes exports that put Pakistan at a disadvantage. Presently, India-Pakistan official bilateral trade accounts for only 1 percent of their respective global trade because of restrictions on the types of goods that can be traded. This restriction on traded goods has forced both countries to rely on trade with far off countries for important raw materials leading to high transportation costs.
Comprehensive analysis of trade data shows that the two countries are important partners in trade. Pakistan's exports to India are almost half its exports to South Asia, while its imports from India are in excess of 70 percent of its imports from South Asia, which in value terms are more than its imports from France, Canada, the Netherlands, Turkey, Iran and Thailand. Nevertheless, trade between the two countries is lower than its potential.
Recent estimates on trade potential suggest that trade could be in the range of $3 billion to $10 billion compared with the annual official trade flows over the last six years of less than $400 million. In other words, only 4 percent to 13 percent of the potential bilateral trade is being exploited. Since Pakistan and India account for almost 90 percent of South Asia's GDP, low bilateral trade is an important constraint for growth of South Asian exports to the rest of the world, as well as for expansion of interregional trade.
There is a need to reduce non-tariff barriers which are more pernicious on Pakistan's exports to India. Moreover, there is also a need for a simplified and harmonised system of Technical Barriers to Trade (TBTs) and sanitary and phyto-sanitary standards (SPS). The immediate trade barrier has been inadequate transportation facilities for the lucrative trade across the border. Both the sides had realized the need for improving road transportation facilities for smooth flow of trade. The two countries had 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.
For India, Pakistan is most competitive in the form of transportation charges as compared to other regional countries. India has already shown willingness to import maximum quantity of cement from Pakistan through sea as well as land routes.