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Trading in mis-trust
By: Dr Abid Qaiyum Suleri

At a time when India and Pakistan have resumed trade
normalisation talks, an ICRIER (Indian Council for Research on International
Economic Relations) survey has revealed that stakehokders in neither country
perceived country labels to have any negative impact on trade flows. “However,
the perception about the negative impact of political events on trade was to
some extent perceived by Indian traders but not by Pakistani traders,” says the
ICRIER survey.

The popularity of "Made in India" label in Pakistan was
evident in the second "India Trade Show" held in Lahore recently. The same gets
reciprocated when Pakistani traders have their exhibitions in India. Having
accepted the fact that consumers in both countries want to buy the products
exported from their neighbour, one wonders what the way forward is. Should we
wait for normalisation of bilateral relations before we can normalise the trade
or should we let trade normalisation help in ironing out our political
differences?

The examples from Latin America, of China and USA, and of
China and India guide us that trade normalisation is a major deterrent against
war. However, there are many more reasons for India and Pakistan to trade with
each other besides avoiding a potential war.

First thing first, it is in the interest of consumers on
both sides that they should have access to quality products from neighbouring
country at an affordable price. Why to import from third country at much
expensive rates, what Pakistan and India can supply to each other. Second, it
is in the interest of India to have normal trade relations with Pakistan.
India, now a part of emerging economies, should try to address its issues with
Pakistan if it wants to play a meaningful role in international governance
institutions, including the UN.

Many a times, one could sense a visible change of hearts
both in Delhi as well as in Islamabad vis-à-vis bilateral trade and investment.
However, this change seems to be vulnerable to internal and external shocks.

Third, trade with India is in Pakistan’s benefit too. A weak
Pakistani rupee against Indian rupee would boost Pakistani exports to India.
Indian consumers find their purchasing power getting doubled when they buy a
Pakistani product. An improved trade between India and Pakistan is in the
interest of South Asian countries, who often complain that South Asia Free
Trade Agreement is held hostage to Indo-Pak bilateral issues.

Finally, manifestation of bilateral trust through trade
would help bring stability in the region. Pakistani army, relieved of any issue
at eastern border, would be in much better position to focus on its western
border, especially in post-Nato forces withdrawal scenario.

Thus, it is a win-win situation for everyone except for few
sectors in Pakistan, i.e., agriculture, pharmaceutical and automobile who have
their concerns on opening trade with India. Some of their concerns are
legitimate and cannot be ruled out, whereas most of their concerns are mere
perception without evidences. These are more to do with inaction by home
government rather than anything to do with India.

Unfortunately, political compulsions and political decisions
go beyond capitalising on a win-win situation. This has repeatedly happened to
the Pak-India trade talks. Many a times, one could sense a visible “change of
heart” both in Delhi as well as in Islamabad vis-à-vis the bilateral trade and
investment. However, this “change” seems to be very vulnerable to internal and
or external shocks and get easily sabotaged by those who do not want peace in
the region.

After a long pause, Indo-Pak trade got a new life in
February 2012, when Pakistan took the historic decision to replace the positive
list (list of tradable items), allowing import of over 5,000 Indian products.
Through this decision, Pakistan allowed trade in 85 per cent tariff lines
compared to 35 per cent tariff lines before February 2012. It was through
granting a de-facto Most-Favoured Nation Status (MFN) to India. Both of the
countries also decided that by 2020 they would scale down tariff to a maximum
of five per cent and remove all non-tariff barriers (NTBs) for a broader
regional economic integration.

Unfortunately, the secretary-level trade talks got suspended
in September 2012 due to the killings of soldiers across the Line of
Control.  Pakistan had agreed to give India MFN status by December 2012
but it missed that deadline because of political considerations involved. In
response to MFN, India had agreed to bring down its sensitive list under SAFTA
to 100 tariff lines from 614 by April 2013. None of the deadlines could be met.

A year later, in December 2013, Punjab Chief Minister
Shahbaz Sharif visited New Delhi and met Indian Commerce Minister to start the
talks. Shahbaz Sharif announced with clarity that the new government of
Pakistan was committed to full normalisation of trade relations.

The secretary-level trade talks could not be resumed till
January 2014, when the commerce secretaries met in Delhi ahead of a meeting of
their commerce ministers. The January 2014 meeting of commerce ministers was
extremely fruitful. They decided to allow greater trade through land route, signaling
a thaw in relations after a year’s standoff over military tensions on the
border. They agreed to allow round-the-clock movement of trucks and containers
through Wagah-Attari border, the main border crossing between the two South
Asian neighbours.

The border gates at the moment are open only from dawn to
dusk. They also approved a liberalised visa policy for businessmen to help
expand two-way trade, which was barely $2.5 billion in 2012/13fiscal year
against a potential $10 billion. Pakistan also proposed that Reserve Bank of
India should grant banking licences to three Pakistani banks on a reciprocal
basis.

The most important development was Pakistan’s decision to
provide Non-Discriminatory Market Access (NDMA) to Indian companies and
businesses. NDMA was devised to grant MFN status to India on a bilateral basis
rather than through WTO. The later becomes irreversible if granted, while
bilateral can still be negotiated if required. However, in Pakistan certain
lobbies criticised Khurram Dastgir’s decision of NDMA as a "conspiracy" to
grant MFN status to India.

It was in this context, Indian commerce minister who had to
visit Pakistan during Indian trade show, cancelled his trip saying Pakistan had
failed to enact trade-boosting measures that had been agreed upon, including
the start of round-the-clock truck passage at Wagha-Attari border crossings and
the opening up to trade of hundreds of currently restricted items. The Indian
minister might have cancelled his visit to avoid an embarrassment like the one witnessed
in February 2012 when he led a high-profile Indian business delegation to
Pakistan, but the federal cabinet deferred the finalisation of a ‘negative
list’ of products. The list was announced about 14 days later, but by then the
Indian delegation had left.

Besides cancellation of Indian commerce minister’s visit,
the second setback to current trade normalisation efforts is the messages from
Islamabad that it would not implement NDMA to India until New Delhi addressed
Islamabad’s concerns about non-tariff barriers. However, it is very typical of
Indo-Pak relations and personally I feel that status quo in our relation is
better than negative developments. I do feel that despite any delay in
operationalisation of Delhi declaration, the Indian commerce minister should
have visited Pakistan to build upon momentum of trade liberalisation.

He was to be invited by Chief Minister of Punjab, among
others, in Lahore. Their meeting would definitely have yielded some positive
results on trade front. Only a mood of cooperation, where strengths and
weaknesses are balanced for the benefit of all, could create a new momentum to
overcome the stalemate on political and geostrategic issues.

 

This article was originally published at:

The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.