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Mainstream, VOL L No 13, March 17, 2012

Indo-Pak Trade Ties

Tuesday 20 March 2012, by Sunita Vakil


After much procrastination, Pakistan on February 29 decided to switch to the negative list approach for trade with India indicating its resolve to improve relations with its regional rival despite opposition from Islamic groups. This came soon after Commerce Minister Anand Sharma’s visit to Pakistan which gave a much-needed boost to India-Pakistan bilateral trade paving the way for full liberalisation of trade between the two countries, eventually culminating in the granting of the Most Favoured Nation (MFN) status to India. It needs to be stressed the while India had granted Pakistan MFN status way back in 1996, a furore was created in Pakistan last year when granting India the MFN status was being contemplated. There were howls of protest from the country’s jingoistic fringe in the electronic media as well as on the streets.

However, the decision of the Pakistani Cabinet to defer the modalities of doing trade with India from its existing positive list approach to a nega-tive list approach should not be looked at pessimistically as that will happen over time given the overall agenda of normalising relations between the two countries. It is understood that Pakistan would phase out restrictions on imports from India by December, part of a commitment it made last year to liberalise trade with New Delhi. But what is significant is that some progress appears to have been made this time as both sides have reconciled to the gains of enhancing inter-dependence through trade despite the internal political constraints as well as bilateral impasse over issues like Kashmir and Siachen.

It needs no reiteration that liberalised two-way trade has been a longstanding demand of the business community on both sides of the border. However, longstanding political taboo in Pakistan that there could be no bilateral trade till the issue of Kashmir was settled—has prevented business relations from reaching their full poten-tial. That Islamabad has thrown its border open for trade with India is welcome signifying an important break in the approach. Be that as it may, it is equally true that this shift is not an overnight change of heart. The two sides have been working on trade normalisation since April last year. Nevertheless, patience is India’s great virtue in dealing with Pakistan. New Delhi must be appreciated for having the vision and courage to push through radical reform to which Islamabad has also responded enthusiastically.

At the same time, it must be remembered that in the past, troughs in Indo-Pak relations are known to have affected the progress of regional initiative for trade liberalisation. Given the fragility of relations between the two countries, done deals often unravel at the last moment and foreign policy plans have gone awry thanks to the accident prone domestic politics. That the political relations between the two neighbours took a sharp nosedive post-26/11 Mumbai terror attacks is a case in point. Two-way trade currently stands at $ 2 billion but is expected to touch a high of $ 6 billion by 2014 after the restrictions are removed. A fuss is being created by extremist groups that are against a thaw in India-Pak ties. Some sections of Pakistani businessmen who are afraid of Indian goods flooding the Pakistani market are also campaigning against the move. This hoping against hope and unpredictability is all the more reason why India should establish as many lines of communication with Pakistan as possible. For this, it is imperative upon New Delhi to do more to address the trade imbalance by lifting all non-tariff barriers and facilitating more imports from Pakistan. This also calls for enhanced points of trade, improved customs facilities and financial services so that our neighbours have greater access to India’s vast market.

IF trade were to open up, a whole new dimension of opportunities would be added to the relation-ship between the two countries. The nuclear-armed neighbouring countries have fought three wars since 1947. Much hostility still remains. The relations between them have been plagued by border disputes as well as accusations of Pakistan’s militant activities in India. The push to remove trade barriers between them have led to hopes of closer political ties and eventually resolution of their long-standing disputes. As such, deepening economic engagement between the two countries can be seen as crucial to establishing peace in the troubled South Asian region. To sideline terrorist outfits, India will have to develop more cultural and trade engagements with Pakistan. India can be a benevolent big brother showing mutual commercial and other benefits to the involved neighbours in having such a co-operation in South Asia. Indeed, it would be a win-win situation for both the countries. Trading directly will not only make things cheaper but will also do away with the trip via UAE that only perpetuates middlemen.

People on both sides want peace. There are more voices in Pakistan and India now who advocate peace for an economically prosperous and thriving South Asia. The realisation has dawned upon Islamabad that the region cannot make full use of its economic potential unless peace is given a chance. And progress in trade between India and Pakistan is in the right direction of peace in the subcontinent. When the trade between the two countries improves, the threat of military action is proportionately reduced as they have a greater economic stake to indulge in border incur-sions or war. This will help achieve status quo on the borders which diplomacy or military action has failed to do for more than six decades.
But achieving status quo at the borders is not an end in itself. As Zardari delinks the political from the economic, there is no reason why a politi-cally negotiated settlement of border problems should not be strived for in earnest by the two countries. India must also make efforts to clinch mutually satisfactory agreements on Siachen and Sir Creek, where much ground has already been covered. It could also pave way for India to consider new confidence building measures with J&K and on the Line of Control. All these would open the door for more trade relations thereby reducing the threat of war in the subcontinent.

Having said that, economic ties will be a good starting point but it is too early to count one’s eggs. The need of the hour is to break barriers slowly and cautiously. New Delhi must signal that it will not compromise on the security issue. It is also a propitious moment for India to make the demand to punish the culprits of the Mumbai attacks. As Delhi and Islamabad stare at the window of opportunity in their bilateral relations, it is time for India to remain alert keeping in mind the long history of back-stabbing by Pakistan.

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