PAK-AFGHAN-INDIA TRADE

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
Jan 31 - Feb 6, 20
11

Pakistan has common border with Afghanistan and India. Pakistan has an obligation to provide landlocked Afghanistan transit trade facility. Year after year amendments are made in the agreement to facilitate swift movements of goods but also to minimize misuse of the facility.

Lately, India has been investing heavily in Afghanistan and also demanding movement of its goods via Pakistan. In an attempt to minimize Pakistan's importance in trade with Afghanistan, India is helping Iran in the construction of Chabahar port and also linking it to Central Asian countries through rail and road. However, movement of Indian goods via Chabahar port is not likely to prove cost effective and cannot undermine Pakistan's importance in trade with Afghanistan.

PAK-INDIA TRADE

Potential of India-Pakistan trade can be best understood by the fact that while trade through the official channels is just US$2 billion, the unofficial figure which includes informal trade and via third country transit, is $10 billion. This indicates the tremendous potential for bilateral trade between the two countries.

Lately, Sultan Ahmed Chawla, president, Federation of Pakistan Chamber of Commerce and Industry (FPCCI) said that the trade volumes were pathetic considering the population, proximity and the historical linkages between the two countries. "It is unbelievably low. The sub-continent has 17 per cent of the global population and not even a fraction of the trade," he said.

He wanted movement of people and investments to be liberalized. He had raised many pertinent questions: "Why import from across the seven seas when you can import from the next door? Why should a textile factory in Punjab haul materials from Chennai when it can get it much closer from Faisalabad in Pakistan?

He called for removal of non-tariff barriers by India and highlighted the need to increase the traffic frequency by road, rail and air, increase in customs check posts, allowing bank branches to be opened in both countries and trade facilitation. He asked India to lower tariffs on goods of interest to Pakistan. He even went to the extent of demanding cross-border investment to encourage foreign direct investment in each other's country.

Nirupama Rao, India's Foreign Secretary, has expressed the hope that the Pakistan government implements the recommendations of the panel of economists appointed by the Pakistani Planning Commission, to give Most Favored Nation (MFN) status to India and shift from a positive list of imports to a negative list regime. India has maintained a 'sensitive list' of around 850 tariff lines for all the non-LDC members of SAFTA, including Pakistan. Trade under these items is allowed under MFN. Over the years, Indian tariff rates have come down to the levels prevailing globally. India is setting up a modern integrated check post at the India-Pakistan border at Attari for trade facilitation. This is expected to be ready by April this year.

Regarding the oft-repeated complaint about non-tariff barriers imposed by India on exports from Pakistan, Rao clarified, "Most non-tariff issues raised by Pakistan are linked with phytosanitary measures, and other domestic regulations of consumer protection. There is no discrimination against Pakistani exports because the same standards are applied for imports from any other country."

AFGHAN INTEGRATION

Afghanistan is the newest member of SAARC. Pakistan has an obligation to facilitate Afghanistan, a landlocked country in its trade with rest of the world. The initiation of TAPI gas pipeline project will make Afghanistan even more important for energy starved Pakistan and India. Till recently bulk of goods to and from Afghanistan were passing through Pakistan. However, Indian involvement in the construction of Chahbahar port in Iran and linking it with Central Asian countries through rail and road merits Pakistan to review its strategy.

While Gwadar port may be the best option, the potential has not been realized due to under utilization of the port and inadequate road and railway links.

In December 2010, Prime Minister Syed Yousuf Raza Gilani said that Pakistan was committed to enhance bilateral trade with Afghanistan to $5 billion by 2015, while addressing a luncheon hosted in honor of his delegation at the Presidential Palace by Afghan President Hamid Karzai. The two countries were committed to the full implementation of the new Afghanistan-Pakistan Transit Trade Agreement, as it would create new economic and trade opportunities. He said that Pakistan and Afghanistan should jointly endeavor to establish trans-regional corridors for communication, transportation, trade, and energy.

One of the common complaints is that Afghan Transit Trade facility has been grossly violated, resulting in most of the goods detained for Afghanistan never crossing the border. That is one of the reasons, Pakistan has not allowed export of Indian goods to Afghanistan via Pakistan through Wagah border. However, Afghan goods destined for India are allowed to pass through Pakistan.

Experts are of the view that historically Afghan transit trade facility has been grossly misused by the groups having vested interest. While Pakistan government had to pay billions of rupees subsidy on wheat flour, a huge quantity of wheat was smuggled to Afghanistan because of porous border.

Interestingly, this year India offered Afghanistan free of cost wheat but Pakistan's refusal to let it go through Wagah border deprived Afghans of low cost wheat, when they needed it the most.

They are also of the view that groups having vested interest are pressurizing the government not to allow free trade between Pakistan and India on one or the other pretext. Tons of Indian goods are smuggled into Pakistan and vice versa, which deprive both the governments from billions of rupees revenue.

It is believed, if the number of items on the negative list is reduced and duty rate reduced there will be no incentive to smuggle these goods. It may not be wrong to say that 'hawks' prevail only because politicians and bureaucrats have proved 'spineless'.