INDIA-PAKISTAN BILATERAL TRADE
PROF. SAEED AHMAD SIDDIQUI
Jan 2 - 8, 2012
Whenever the politico-economic relations of India and Pakistan are analyzed and discussed, various wishful thinking and analytical and illusive aspects are raised.
The cabinet of Pakistan decided unanimously to award the status of most favorite nation (MFN) to India on Wednesday November 2, 2011. It was the startling breakthrough, which would lessen the existing socio-political bitterness between the two nuclear powers.
Both the countries, from their inceptions in 1947, have fought three wars. Normal trade between the two countries was suspended since a long time. It is expected that restoration and expansion of trade relations would create the environment of stable peace between India and Pakistan.
The question of paramount importance is that why Pakistan was constantly opposing the free bilateral trade. This opposition was due to some reservations (true or false) as mentioned below:
1. In 1947, General Agreement on Tariffs and Trade (GATT) was signed, among others, by south Asian countries inclusive India and Pakistan for mutual free trade. This agreement, due to various reasons, was replaced by world trade organization (WTO) much later in 1994.
GATT permitted Pakistan to impose certain restrictions on import of some items from India because Pakistan, being a newly emerged state and specific perspective of its creation, was a weak economy incapable to bear the load of free trade with India.
2. Pakistan is a textile-based economy. The quality and cost of Pakistani textiles is determined by foreign not the local markets. Contrary to it, India is export-based economy therefore, the quality and cost of textiles is determined not by foreign but local market.
Quality of Pakistani cloth, no doubt, was better than that of Indian but fairly expensive which was unaffordable for poorer Pakistanis. Indian textile, despite having poor quality, was cheaper therefore, affordable for majority of Indian society. This was the reason that Pakistani textile producers were afraid and opposed free trade. Import of cheaper textiles would destroy textile industry of Pakistan.
Feudal lords, textile business community having political clouts, and textile magnets continued to be successful in maintaining the policy of not entering the free trade with India. This success was due to the fact that textile sector was the main source of government revenue.
3. The government of Pakistan, in 1995, appointed a working group assigning the job to analyze the consequences of giving India the status of MFN in the field of trade. This group strongly opposed the proposal of government. Example of Bangladesh was quoted in this respect, which was kept underdeveloped by India through its exports. In another meeting, when the report of working group was discussed with the foreign ministry, the same opinion was maintained not to give MFN status to India on the basis of 'Kashmir Issue'.
4. No government including existing one, did anything to fulfill the desire of India. The present government did it but enforcement is a far cry. The government, with the Chinese cooperation, decided to give a boost to information (software) technology. This program gave positive results but a long time is required to come at par with India in this field.
5. 'Security' is another trade barrier between India and Pakistan. Pakistan is ready to give transit right to Afghanistan with India but not vice-versa because Indian exports to Afghanistan could be highly alarming for Pakistan. This reservation of Pakistan is due to two reasons. First, Pakistan does not want to make India a rival in Afghan market and secondly, Karachi Port is a big source of revenue for Pakistan because most of Afghan trade comes at Karachi Port. Moreover, Pakistani transport companies also monopolize land routes. If India is given transit rights with Afghanistan, it could use Mumbai Port.
6. During 1993-96, Iran first time extended a proposal to provide natural gas to India through pipeline running through Pakistan. Inter Services Intelligence (ISI) did not agree with this proposal by saying that if it was done, India would emerge as most stable and strong economy.
Government of Pakistan turned down this proposal of Iran and said that if Iran and Pakistan could be connected through pipeline, it would be a futile exercise to provide gas to India.
Iran-India gas pipeline project could also not be culminated into reality due to pressure of Islamic minded political parties. They declared pipeline a security risk.
The following options then, in the light of all these circumstances, are there for India to adopt:
- Apart from pipeline, other sectors should be searched out in which India could cooperate with Pakistan as former Prime Minister Shaukat Aziz said that India could cooperate with Pakistani Punjab in agriculture.
- Indians think Pakistan should persistently be pressurized for enforcing MFN status to India. Indian idea is that if the pressure technique don't work, it would be at least an effective psychological weapon because indirect message could be given to international community that Pakistan is not a reasonable power.
- Dialogues in connection with the gas pipeline from Iran to India through Pakistan should continue so that the objective might be achieved soon.
- Contacts should be extended with Pakistani business community, which desires to make the trade relations normalized with India. Obviously, a voice would be raised in favor of India from within the Pakistani society.
Pakistan decided to award MFN status to India for making the trade relations normal.
Countries that have normal trade relations (NTR) with the US are Laos, Iran, Iraq, Syria, Sudan, and Afghanistan. According to the American law, 'absolute free trade' is not necessary for NTR because it is related to tariffs. In other words, non-tariff and other sanctions may be imposed without affecting normal trade relations.
For instance, Libya, Iran, Iraq, Sudan, Syria, and Afghanistan, without losing NTR status, have normal trade relations with the America.
What advantages can be expected from normalized trade relations between Pakistan and India? Despite the common history, language, culture, and long borders, why is the volume of trade between India and Pakistan so limited?
If trade is normalized between them, the present volume of annual trade ($2 billion) can be increased to sevenfold i.e $14 billion.
Although Pakistan, in principle, has announced to award MFN status to India but culmination of this announcement into reality is not easy because:
- Duty on imports from Pakistan, on the basis of MFN, has been accepted 13 percent but import duty 40 percent on specific items will remain the same. These specific items include agricultural goods, textiles and leather goods.
- In addition to tariffs, other bottlenecks are also there which include insufficient infrastructural facilities, bureaucratic behavior and delaying tactics which impede trade to reach at the expected level.
Although a long time would be required for establishing complete free trade between India and Pakistan, MFN status to India is a very significant move.
The higher level of trade between India and Pakistan would benefit both the countries but India would gain more benefits.
Since India occupies key position for economic growth amongst south Asian countries. Both the government of Pakistan as well as Pak army are fully aware of this ground reality.
Although trade is not the solution of all the problems, intensity of bitterness is definitely expected to decrease with normalized bilateral trade.
Trade between India and Pakistan will decrease tension not only between the two countries but also create good growth-driven atmosphere in entire south Asia.