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Trading in mis-trust

The decision of the Pakistan government to provide Non-Discriminatory Market Access (NDMA) to India is seen with scepticism

Trading in mis-trust
Cross-border trade a win-win situation for everyone. Photos by Rahat Dar

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.

 

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