There is never any disagreement on the potential for greater trade between India and Pakistan. Current trade volume is less than $3 billion; it can soar to $ 40 billion level if both sides enter into a normalised trade regime since informal trade itself is estimated to be around around $10 billion annually.
How this can be done is the subject of a volume brought out by Woodrow Wilson International Centre. Regional economic revitalisation and normalisation of trade between the two countries would serve Pakistan well, given its geographical position and important trade routes, says the report edited by Michael Kugelman and Robert M. Hathaway
Their hypothesis is that while on their own India and Pakistan have taken promising first steps to intensify bilateral trade, there is still much to be done.
"These essays provide a range of suggestions about how to consummate Pakistan-India trade normalization; some of the major ones are described below. They appear here not for the sake of endorsement, but rather to spark additional debate about proper next steps", say the editors.
Read their prescription
For Pakistan
1.Craft a more comprehensive trade policy. Current policies lack strategic focus, and are mainly concerned with protecting local monopoly interests. Pakistan should devise measures that promote open commerce, not protectionism. This will entail a stronger emphasis on improving transit trade, transport infrastructure, and cross-border banking. Pakistan’s trade policy should regard India’s economic growth as an opportunity, not a threat. It should draw on India’s skilled worker pool and cutting-edge technologies in order to enhance its own competitiveness.
2. Expand the national security paradigm to include economic stability and trade. Economic hardship is a driver of Pakistan’s widespread violence, yet trade can fuel growth in economically depressed areas. Additionally, economic liberalization can help ease security fears; experts estimate that trade volumes in the $10 to $15 billion range can make trade gains powerful enough to outweigh geostrategic concerns.
3. Protect liberalization’s losers. Islamabad should use its increased revenues from tariff collection, customs duties, and other outcomes of expanded legal trade to compensate those who do not benefit from trade normalization. Outside stakeholders should help soften the negative impacts of trade liberalization by promoting comparative advantage and fostering interdependencies in vulnerable sectors. For example, Japan should ensure that some of its automobile companies operating in Pakistan export to India, while some of its India-based firms export to Pakistan—even while it arranges for some of its Pakistan-based companies to import from sister companies elsewhere in Pakistan.
For India
1. Promote a selective export policy toward Pakistan. India enjoys a sizeable trade surplus with Pakistan. At least in the short term, India should increase exports to Pakistan (such as machinery and technology) that the latter currently imports from other countries at high prices, but hold back on exports that could hurt Pakistan’s small and medium businesses.
2. Devise trade measures that are sympathetic to the region’s economic asymmetries. India’s economy—blessed with a large industrial base and skilled labor pool, and accounting for more than 80 percent of gross regional product in South Asia—is the most powerful in the region. New Delhi should grant more trade concessions to its smaller neighbours—including by unilaterally removing tariff and non-tariff barriers. It should also address the restrictions it imposes on remittances to Pakistan, which are problematic for India-based Pakistani service providers. Addressing these long-held grievances can increase both Pakistani and regional goodwill toward India.
3. Simplify, and make more transparent, all trade rules and procedures . To prevent confusion in, and miscommunication with, Pakistan about non-tariff barriers (whether real or perceived), India should make its trade regulations clearer—especially for food produce, pharmaceuticals, and other products requiring prompt processing. India should also boost the capacities of its laboratory and certification facilities used for trade purposes, and keep the WTO informed about its trade-related decisions pertaining to Pakistan.
For Pakistan and India
1.Empower the private sector. Business communities must be on the front lines of trade liberalization. In South Asia, economic relations are better served by the action-oriented, proactive, problem-solving approach favored by the private sector than by the more plodding, reactive, and bureaucratic style associated with governments. Additionally, the private sector is a powerful shaper of public opinion on trade (popular support for trade normalization increased in Pakistan after its business community became convinced of India’s willingness to move forward). Public-private partnerships, particularly those that facilitate more interconnectivity through infrastructural improvements (such as by upgrading highways), should also be embraced.
2. Engage the media. In both Pakistan and India, media outlets, like the business sector, exert a powerful influence on public sentiment. The media can therefore be a useful tool to amplify the advantages of bilateral trade. Media reportage should spotlight consumers pleased about the cheap goods they import from across the border and producers happy about the lower costs associated with importing raw materials and machinery. Notably, the Aman-ki-Asha initiative, a joint project of the largest media houses in Pakistan and India, has already spearheaded bilateral cooperation in business, the arts, and society.
3.Loosen restrictions on transit. India and Pakistan restrict each other’s ability to use the other’s territory to reach third countries. India has not allowed Pakistan to access Nepal, Bangladesh, and Bhutan via its territory, and Pakistan has not given transit rights to India to access export markets in Afghanistan. Such transit limitations (along with related concerns about rigid visa regulations) must be placed on the normalization agenda. This is essential if the full benefits of region-wide trade (stretching from China to Iran) are to be enjoyed.
4. Enhance the efficiency of trade routes. Swift and cost-efficient interstate (and intrastate) movement of goods will entail removing restrictions on the type and size of trucks and train cars; ameliorating the quality of the roads and railways used for trade in both countries; and improving infrastructure at border crossings. Despite recent upgrades at the Attari/Wagah border, the need for x-ray machines, better warehousing, and testing laboratories remains strong. So long as direct routes are marred by such inefficiencies, traders will have little incentive to abandon the longer, more circuitous routes they have patronized for decades.
5.Establish new oversight institutions . A bilateral commission should be set up to oversee the Pakistan-India economic relation ship, with a focus on addressing non-tariff barriers; opening up more land routes for trade; and promoting more cross-border travel. A regional trade forum (comprising members of the private sector, academia, and the media) should be formed to monitor this bilateral commission. To accommodate inevitable disagreements, a dispute resolution/grievance redressal mechanism should be established as well. It should be operated not by the two governments, but by a private sector consortium incorporating the Confederation of Indian Industries, Federation of Indian Chambers of Commerce and Industry, Pakistan Business Council, and Federation of Pakistan Chambers of Commerce and Industry.
6.Use bilateral trade normalization as a springboard for South Asia-wide trade normalization. Tighter Pakistan-India trade links—lubricated by more integrated and efficient transport networks and more open transit and visa arrangements—can raise the entire region’s trade prospects. Pakistan’s extension of MFN status to India puts Pakistan and India on a more equal footing within the South Asia Association of Regional Cooperation, and provides impetus to activate the long-moribund South Asian Free Trade Agreement (SAFTA).
7. Remain committed to the Composite Dialogue process. If this negotiating process is sidelined, critics of trade normalization in Pakistan would be emboldened, because they could argue that Pakistan’s principled positions on political and territorial issues have been sacrificed for purely material gain. Such critics could also assert that more trade does nothing to resolve these core issues.
8. Ensure that security and political tensions are not allowed to derail trade diplomacy. To protect the integrity of both trade normalization and the broader peace process, India should not impose punitive trade measures on Pakistan, or close its borders, in the event of isolated terrorist attacks perpetrated by Pakistan-based extremists (who might like nothing better than to spark a harsh Indian response). Both sides should take care not to allow new security or political tensions to spill into trade or economic relations. Suspending trade in retaliation for developments on the security front will further undercut trust, and complicate efforts to establish a stable and long-term bilateral economic and political relationship.
9. Act now, before the opportunity is lost. Economic circumstances dictate that each side act expeditiously to cement trade normalization. Comparative advantage exists not only in terms of goods to be traded, but also business climate (Pakistan is currently ranked higher than India on numerous doing-business and infrastructural efficiency measures). This could change, however, if India lowers its business costs and upgrades its infrastructure. Additionally, rich-country trading partners are facing economic slowdowns, and Europe’s financial crisis has contributed to diminished exports and portfolio capital, as well as to reduced GDP growth in developing countries. This all provides an added incentive to ramp up Pakistan-India trade.
10. The Perilous Path forward. Some of these recommendations—establishing a more permissive visa regime, easing transit and transport bottlenecks, instituting grievance redressal mechanisms—are already being addressed. Others—rejuvenating SAFTA, unilaterally removing tariffs—will require more time.
11. Ultimately, the trade normalization process will experience highs and lows. Yet, the reasons for pushing forward on trade are compelling, with immense potential payoffs for both sides—and beyond the region as well.
