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Indo-Pak Trade

INDO-PAK TRADE

In January, at the end of a week-long visit to India by Pakistan’s Commerce Minister and negotiations with his Indian counterpart, both countries agreed to allow round-the-clock movement of goods via the Wagah-Attari border, signalling the warming up of relations after a year-long freeze caused by skirmishes on the Indo-Pak borders.

After the parlays, India’s Minister of Trade announced that “We have agreed that we will open the Wagah-Attari border 24/7”, which presently stays open from dawn to dusk. Both commerce ministers also approved a liberalised visa policy for businessmen to facilitate interaction and increasing bilateral trade which, in 2012-13, was barely $2.5 billion.

Both sides agreed to provide non-discriminatory market access (NDMA) to businesses from both countries to harness full potential ($10 billion annually) of bilateral trade, and to facilitate it, State Bank of Pakistan proposed to the Reserve Bank of India to grant banking licences to three Pakistani banks, and promised to reciprocate this initiative.

Agreeing on NDMA aims to dilute any political fallout from trade concessions in the election year (2014) in India, that’s what politics demanded. While Pakistan has now agreed to unrestricted imports (compared to only 137 items at present), India hasn’t, although IMF sought both countries to give each other the Most Favoured Nation status.

While both sides promise to expand bilateral trade, relaxation in India’s non-tariff barriers (NTBs) and bureaucratic red-tape that block access to its markets remains uncertain. India continues to maintain high import tariffs; on textiles they add up (ad valorem plus specific duty) to almost 100 percent. A question mark therefore hangs on trade expansion.

Both sides agreed to convene regular meetings of the Indo-Pak Joint Business Forum and of working groups from customs, railways, banking, and energy sectors, and regulators that set quality standards, to devise effective implementation measures for expanding trade in textile, energy, light engineering, pharmaceutical and tourism sectors.

All this sounded promising because it conveyed the impression that, finally, both countries had accepted the fact that sharing a common land mass implies a shared future, and given the oil price hike, it is only rational that by trading among themselves they optimize the benefits that accrue from the lowest transportation cost of goods.

Sadly, however, two days later, things took an adverse turn. While the media reported that Pakistan was waiting for India’s response to finalise a much-touted deal whereby Pakistan would import 500MW of electricity from India, trade across the Indo-Pak border came to a halt because Pakistan was blamed for exporting narcotics to India.

Pakistan’s Deputy High Commissioner in New Delhi was summoned to India’s Foreign Office over Pakistan’s retaliatory suspension of Srinagar-Muzaffarabad and Rawalakot-Poonch bus services because a Pakistani truck driver, was arrested in India for allegedly smuggling narcotics in 114 packets (reportedly worth Rs 1 billion) across the Line of Control in Kashmir.

One media report said these packets contained brown sugar while another said they contained almonds but the Indian version said they contained narcotics. While it remained unclear which version was true, 48 other truck drivers from Azad Kashmir were detained at Salamabad Trade Facilitation Centre after the stand-off freezing the cross-border trade began.

The incident showed how vulnerable are the two governments to what unskilled, incompetent or politicised low-level staffers in their administrations can do, and the way governments react to suspect events – Pakistan’s Deputy High Commissioner being summoned to explain an event whose truth wasn’t even investigated, let alone established credibly.

The logical course for India was to invite Pakistan’s Customs Authorities on the border crossing, and show them proof of the crime committed by the detained Pakistani truck driver, not create the scene India created. Besides, allegedly, the suspect item was narcotic material, not arms, and it was dumb to assume Pakistani government’s involvement in its export.

Such rash reactions suggest that ministerial-level Indo-Pak parlays are mere charades; both sides (India doing so often) kill the initiatives for normalizing bilateral relations, which strengthens the argument of those who insist that India never reconciled to partitioning of the subcontinent i.e. creation of Pakistan. Deep-rooted enmity still reigns supreme.

India’s non-tariff barriers limit its imports. While national interests do need safeguarding, securing them at the cost of neighbours has had harsh consequences. Trading practices based on fairness alone can expand regional trade. Given the rise in poverty in South Asia, realism not blind nationalism, should guide policies governing regional trade.

In the 2012 round of trade talks, a Mutual Recognition Agreement for validating the certification of quality verification by agencies in both countries was agreed. According to reports, during the recent negotiations too, Pakistan sought a clear understanding on the critical quality issue that leads to imposition of NTBs on Pakistan’s exports to India.

While India insists that NTBs aren’t Pakistan-specific, experience proves otherwise. The other barrier is the ‘negative list’ of goods; although Pakistan’s commerce ministry says that during his forthcoming visit to Pakistan, India’s Commerce Minister will announce a reduction in them, it seems unlikely in an election year when being anti-Pakistan certifies contestants’ patriotism.

Trading activities that help Pakistan’s industrial sector to regain its earlier level of efficiency will be welcomed. Above all, this could slow an inflationary trend that is worsening the current economic slide. It is such benefits – India’s regional obligations – that India overlooks, and consequently, SAARC continues to fail in delivering on its lofty promises.

For their collective benefit, instead of producing everything, South Asian economies should focus on sectors wherein they have competitive advantage, and to enhance import substitution, prioritize combining these capacities regionally – a focus shift requiring meaningful deliberations to devise a strategy that they also commit to follow.

Pakistan’s trade bodies complain that, while India intends to increase exports to Pakistan it doesn’t realize that some exports could cause business closures in Pakistan e.g. in the auto sector. India must focus on export of processed raw materials to improve the cost-efficiency of Pakistan’s industry – the sector handicapped by deficiencies in Pakistan’s physical infrastructure.

India and Pakistan must rewrite history for their common good. Indians and Pakistanis no longer want conflicts; wars pushed them farther away though, sharing a common land mass, they must come closer. That, however, is possible only if their governments aren’t misled by short-sighted or politicised bureaucrats, as was the case in January this year.

Until 1965, there were 11 crossing points on the Indo-Pak border. While so many crossing points aren’t required (nor feasible for security and control reasons), Wagah-Attari border crossing alone is insufficient for expanding trade to $10 billion level; Khokhrapar-Monabao crossing too needs reopening that Pakistan’s federal government isn’t bothered about.

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