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Published Date: Dec 22, 2014

India-Pakistan Trade: An Analysis of the Pharmaceutical Sector(W*)-(The Paper was published by ICRIER)


With  the ongoing trade  normalisation  process  between  India  and  Pakistan,  opportunities  to integrate have opened up between both countries. The pharmaceutical sector is crucial to health issues in developing economies and would be an ideal segment to focus on in improving trade relations between the two countries. Here, an empirical and theoretical analysis of India-Pakistan trade using some statistical indicators reveals low levels of current trade but huge trade potential.

Since China has virtually dominated the trade scene in nearly all manufacturing sectors, this study also looks at the tripartite dynamics of trade in pharmaceutical items among India, Pakistan and China. An analysis of the China-Pakistan and the South Asia Free Trade Area Agreements reveals  that  while  Pakistan  does  not  give  any  favourable  treatment  to  China  in  items  on Pakistan’s negative/sensitive list for India, there is some indication that the favourable tariff treatment to China in general may have affected India’s low trade in pharmaceutical products with Pakistan. The study further argues that the opening up of the Pakistan pharmaceutical market to India would lead to an increase in consumer surplus, given the advantages of competition. Since many items are already imported from China, the argument that India’s imports would stifle domestic producers seems misplaced. Hence, non-discriminatory access to Indian  products  seems  reasonable.  A  positive  start  could  be  the  phasing  out  of  Pakistan’s negative list. The incorporation of trigger mechanisms would help appease the apprehensions of the pharmaceutical industry in Pakistan about an influx of pharmaceutical items from India.

Discussions with some major Pakistan pharmaceutical producers indicated that normalising trade would also provide external economies in areas like R&D and standards. In some areas, the benefits could flow to Indian producers. In this context, it seems necessary to establish a process for establishing mutual recognition agreements (MRAs), which would improve product quality in both countries.

Finally, since FDI is just another way of doing trade, it seems necessary to explore the possibilities here at least to boost future trade prospects. Some harmonisation of FDI policies may be warranted.