Jahangir's World Times First Comprehensive Magazine for students/teachers of competitive exams and general readers as well.
Despite the fact that India and Pakistan can form a market equal to one fifth of the world’s population, both are still unable to take advantage of geographical proximity, and conduct trade through third countries like UAE, Singapore and Hong Kong.
During the visit of the Commerce Minister Makhdoom Amin Fahim to India at the invitation of his Indian counterpart Shri Anand Sharma, from September 26 to October 2 both ministers agreed to jointly start efforts for increasing bilateral trade leading it to two times within three years, from current levels of $2.7 billion per annum to about $6 billion. In this regard, a Memorandum of Understanding (MoU) was signed between India Trade Promotion Organisation and the Trade Development Authority of Pakistan.
Both ministers agreed that the bilateral trade liberalisation process should be irreversible and uninterruptible. The Commerce Secretaries of both the countries will be meeting again in November, 2011 where they would decide laying down specific timelines to normalise all trade relationships including dismantling of all non-tariff barriers. Pakistan wants to complete the process on the negative list before the meeting of secretaries. During the last few months, India and Pakistan have constructively engaged towards a liberalised business regime, and they plan to liberalise movement of businessmen before November talks.
Pakistan and India are developing nations with a common border in the South Asian region, and also “natural partners for trade”. Despite the fact that India and Pakistan can form a market equal to one fifth of the world’s population, both are still unable to take advantage of geographical proximity, and conduct trade through third countries like UAE, Singapore and Hong Kong.
After independence in 1947, India was the largest and most significant trading partner of Pakistan, with exports to India at 56% of total exports (mostly from former East Pakistan) and imports at 32% of our total imports. Following the Indo-Pak war in 1965, trade was insignificant for a period of nine years. From 1975-76, the volume of trade began to improve again, and got an impetus in 1987. The WTO became effective in 1995, and the same year, India granted MFN status to Pakistan. It was expected that trade between the two countries would increase significantly, as the two countries would be required to open their borders for trade, but this did not happen, and trade became low during the decade.
During 2000-1 to 2007-8, bilateral trade has increased eightfold, from $236.2 million to $1,954.7 million, while trade declined in 2009-0 to $ 1,202.45 million. However, after the signing of the SAFTA agreement, exports to India have increased substantially to $313 million in 2008-9, but again declining to $272 million in 2009-0. Imports from India increased at a faster pace, from $802 million in 2005-6 to $1.45 billion in 2009-0. Informal trade is estimated at $2-3 billion annually involving goods such as chemicals, industrial machinery, cement, tires, tea, medicine, video tapes, cosmetics and viscose fiber. The volume of informal trade reflects the potential of trade between India and Pakistan.
Formal trade will increase the state’s income by cutting down the quantity of informal trade practiced in the region. This informal trade puts a lot of burden on the consumer’s pocket and provides an economic heaven to black marketers and economic thugs. The increase in intra-regional formal trade will prove beneficial to both countries in increasing mutual economic benefits and decreasing the trust deficit.
As a matter of fact, both the countries, since partition in 1947, have been under the shadow of great powers. All of their bilateral decisions have been decided after consultation with their masters. In case they come together as individual countries and discuss their problems, probably they may obtain a major breakthrough on one or two contentious issues. Even on Afghanistan they may reach some sort of adjustment because this is going to be a major headache for both countries after the US-led ISAF will leave this war-trodden country. According to some political commentators, Afghanistan is going to be the new Kashmir for the two countries, where they are likely to fight for the establishment of hegemony and counter-hegemony. Both countries must consider the Afghanistan issue as a regional one and sit across the table to break the much-needed political impasse over it. If possible, they should cooperate to meet the future needs of Afghanistan or otherwise just provide aid to it and leave the decision making process in the hands of the elected government without any day-to-day interference.
Though there are vested interest groups who never want any sort of reconciliation between the two countries. To meet this challenge, the state as a rational actor must try to control these internal and external groups. Their lobbying and stands must not have any form of impact on the bilateral dialogue between the political leaderships from the two countries.
India and Pakistan together account for roughly 80% of the GDP of the South Asian Association for Regional Cooperation (SAARC) countries. The enmity between them has hinÂdered the progress of not only the two nations, but the entire SAARC bloc. The signing of the South Asia Free Trade Agreement (SAFTA) can unfold a vast array of opportunities for Indo-Pak trade through elimination of tariffs, para-tariffs and dismantling of trade barriers on the moveÂment of goods. Though this agreement came into operation on January 1, 2006, its Tariff Liberalization Programme (TLP) started only on July 1, 2006, as the member countries were not ready. Pakistan and India are required to bring down their tariffs to 0-5%t by 2013. India and Pakistan have 884 and 1183 sensitive items, respectively, on which there is no tariff reduction. SAFTA will lead to free trade area in the region only on January 1, 2016.
Admittedly, SAFTA has not been able to make much headway due to volatile bilateral relations between the member countries, espeÂcially India and Pakistan. There exists a ‘Trust Deficit’; instead of fostering bilateral trade and economic relations in regional context, they are entering into bilateral FTAs with other conÂstituent SAARC members. India and Pakistan have signed separate FTAs with Sri Lanka. India has also signed trade treaties with Nepal and Bhutan, whereas the Pakistan is in the process of negotiating an FTA with Bangladesh.
Barriers
Visas are the single most important non-tariff barrier to trade between the two countries. The present practice of issuing city-specific visas is a major hurdle for visiting businessmen. The forÂmal trade barriers (tariff) and non-tariff barriers (quota restrictions, trade bans and social, enviÂronmental and quality standards) remain much higher in India than Pakistan. Informal trade, lack of electronic data interchangeable (EDI) facilities, environmental and quality standards, lack of confidence, weak telecommunications and political pressures are other impediments, which have reduced the volume of trade.
Indian banks do not recognize Letters of Credit (L/Cs) from all Pakistani banks. Business transactions between India and Pakistan are routed through foreign banks at present rather than the use of local banks which increases the transaction cost.
Bottlenecks
Transportation links between the two counÂtries are very weak. The sea route between Mumbai and Karachi has been the only consisÂtent operational link and the only operational land route is the rail link across the Attari / Wagah border. Major problems on the land route are related to availability of rail wagons, restrictions on wagon balancing and lack of Electronic Data Interchangeable (EDI) facilities.
Under the trade agreement signed between the two countries in August 2007, the two countries had decided to allow 100 truckloads of goods from each side. Implementation on the agreement had begun in October the same year but it was one sided from Pakistan only. This has affected our cement export capacities which can be immediately quadrupled, as Railways are not quipped to handle more than 50,000 tons per month, whereas the demand is more than 200,000 tons by land-route only.
There are many areas in which both the countries can complement each other’s needs and thereby produce cost-effective quality goods in through joint ventures:
Trade in agricultural commodities between it( both countries could bridge the short-term supply shortages caused due to seasonal crop fluctuations. India and Pakistan can enter into joint ventures for the production of bulk drugs with arrangement in terms of technology supply and in marketing support.
Pakistan and India are respectively the 4th and 3rd largest producers of cotton in the . Hence both can work in collaboration by developing the backward and forward linkages in the textile and clothing sector to reap the true potential especially due to the phasing out of Multi-fiber Arrangement. There are huge opportunities for two-way trade in readymade garments, particularly in ethnic garments.
Agro-food processing is one of the strengths of most of the South Asian countries. India has made considerable progress in this regard, and it could exploit its IT knowledge to enhance productivity and to create more knowledge-based in food-processing activities. Pakistan is doing well in fresh and dry fruits trade and has made considerable advances in food processing. There is potential to set up modern food machinery to design and development centers in India and Pakistan with facilities for design R&D, pilot plant, fabrication workshops and consultancy facilities.
Pakistan produces a sufficient quantity of naphtha, and there is a need to set-up at least one naphtha cracker plant in Pakistan for improving plastic sector production. India and Pakistan can enter into a joint venture for establishing of the naphtha hydro cracker plant.
In India, the IT industry has made tremenÂdous progress and has emerged as one of the fastest growing sectors. In Pakistan, the IT industry is in its infancy and is struggling to catch up with the regional and global industry. This is one of the potential areas which could be exploited. India with its wider software industry can extend help to Pakistan to promote IT through the establishment of joint Pakistan has the potential to become an imporÂtant software exporting and training centre. India can become a role model and both the countries should cooperate and collaborate to tap the large global market for software.
Pakistan imports about 4.5 million tons of diesel annually, mostly from Kuwait, but forbids import from India, which exports diesel of more than 5 million tons annually. The import of diesel from India will lower the cost due to lower transportation cost.
Pakistan is currently wholly dependent on imports of major polymers to feed the demand for petrochemical consumer industries. These items can be imported from India at lower prices because the petrochemical industry is quite advanced in India.
The import of rice farm machinery, namely paddy harvesters and dryers, from India can increase and improve the production, quality, variety and area of production of rice. Pakistan can import this machinery from India on lower transportation cost rather than Japan, UK, USA and Russia etc.
India is specialized in a manufacturing of a diverse range of printers of Hewlett-Packard (HP) LaserJet P2030 series. This printer series has high-performance, faster printing speeds, professional-quality results, with flexible conÂnectivity options at cheaper prices, which will also help in boosting productivity of businesses. Pakistan has imported this type of printer from Japan, Italy, Switzerland, USA and Germany in past years. Pakistan has great potential to import this item from India on lower cost.
The following recommendations are suggested for improving trade and economic relationship:
Citizens of 60 years and above should be exempted from visa requirements. They may also be exempted from police reporting. Their visa should not be subject to restrictions of 1 or 2 cities, but they shall be allowed to travel all cities (except some of the restricted areas).
One year multiple visas should be issued to the business community on the recÂommen-dation of FPCCI and FICCI. Business visa applications shall be processed on urgent basis and it may be issued preferably on the same day.
Both the countries should allow opening of bank branches for facilitation of business transÂactions.
Both the countries should set up laboratories to approve standardization and quality of goods according to the demand and requirements of their respective Governments.
Indian airlines should see the possibility of starting operations from Delhi-Karachi and Mumbai-Karachi. At present, there is a select number of flights scheduled; Lahore-New Delhi, Karachi-New Delhi and Karachi-Mumbai flights. There are no flights between Islamabad and New Delhi.
The agreement between the two Railways that 4-5 Freight Trains will run daily between Lahore to Amritsar due to heavy demand to carry the goods should be implemented forthÂwith.
Technical barriers to Trade (TBT), Sanitary and Phyto Sanitary Measures (SPS) that are in fact, acting as powerful deterrents to exchange of goods should be rationalized and simplified.
To conclude, things are slightly improving between India and Pakistan. The need is to maintain the ongoing momentum and consistency in the dialogue process without any interruption. The political leadership must acknowledge the fact that they have to stay together as neighbours and cannot afford to be in a bitter relationship for so long, as already more than 60 years of animosity have passed with nothing being gained except mutual destruction.
