India and Pakistan have shown some maturity in
talking trade; do they actually mean it?
talking trade; do they actually mean it?
Unfortunately, a mention of Pakistan and India; and one gets ready to hear some unpleasant news. However, after a long time the meeting between Pakistani and Indian Commerce Ministers resulted in an excuse to rejoice. Not only that, after three and a half decades Pakistani Commerce Minister visited India. Both the ministers were also able to take some tangible and positive steps towards trade normalisation between their countries.
For the last many years, few of us have been advocating that small steps towards promotion of friendly relations between Pakistan and India should not be underestimated. There are no quick fixes for the chronic mistrust and misunderstandings between the two neighbours but to trust each other more.
It is said that trade follows the trust; but my theory is that trust follows trade. Despite its flaws, I am a believer in multilateral trading system. Trade between India and Pakistan would not only provide an opportunity for enhanced people-to-people contact but also turn the business community into a catalyst force for peace as they would have to safeguard their business interests. We have already observed this happening in case of “China and USA” and “China and India”. Normalisation of trade between India and Pakistan would also provide increased choices to consumers both in terms of quality as well as in terms of prices.
The cost of economic non-cooperation between the two countries is extremely high not only for both of them but also for the whole region. Pakistan and India had been the main stumbling block in success of South Asia Free Trade Agreement (SAFTA) which was signed in Islamabad in 2004. As per SAFTA, SAARC members have to bring their tariffs down to zero for each other by 2016. If implemented with political will and get accompanied by an agreement on trade in services as well as an agreement on investment; SAFTA has the potential to turn around the economy of whole region.
Although their bilateral trade grew over the last decades, their estimated mutual trade potential is around US$11 billion. Various studies have been suggesting that both Pakistan and India can save billion of dollars by importing from each other, the essential items that they have been importing from third countries.
As I mentioned earlier, there is no quick solution to the chronic bones of contention between India and Pakistan. However, the issues hampering trade could have been resolved following a fast track approach. Some of these issues include visa for business community; non-tariff trade barriers (NTBs) that Pakistan complains are being imposed by India on its products; “most favoured nation” (MFN) status that India requires from Pakistan; trade on negative trade lists versus positive trade lists; infra structure development for enhanced trade; treaty on free flow of investment; and mutual recognition of standards.
Both the countries showed the resolve to tackle these issues by jointly agreeing to work to more than double bilateral trade within three years, from current levels of US$ 2.7billion per annum to about US$ 6billion.
Pakistan complains India about its NTBs, especially on cement and textiles. However, India claims that its NTBs are not Pakistan specific. In fact, India is ranked 115th of 125 countries to impose trade tariff on “Trade Tariff Restrictiveness Index” (TTRI) by the World Bank. One of the positive developments of current talks between trade ministers is the identification of issues impeding trade in sectors such as cement, textiles, and surgical instruments. From Pakistan’s point of view this is quite substantial achievement as India has recognised that there are factors impeding Pakistani exports.
Another positive development is on the issue of visas. Both the ministers have showed consensus to issue multiple entry one year visas to the business community. Pakistani visitors would be able to travel anywhere in India unlike the current city specific visas. This initiative on its own, if implemented in letter and spirit, has the potential to double the bilateral trade over next three years.
Pakistan indicated to give India the MFN status. Here it is pertinent to mention that India gave Pakistan the MFN status in 1995 (since inception of WTO). We do need to raise awareness in Pakistan about the term MFN. Its Urdu translation has created so much media hype as Pakistan would declare India its best friend. Although both the countries should declare each other their best friends and live in peace and harmony so that billions of dollars which are being spent on military expenditures to counter each other’s defense power may be diverted to social sector development. Yet, MFN has nothing to do with friendship. Together with the principle of national treatment (i.e., there cannot be discrimination among WTO member states on the basis of nationality), MFN is one of the cornerstones of WTO trade law. In effect, if India gets an MFN status from Pakistan then Pakistan would have to treat it at par with all other WTO member countries. Here it is pertinent to mention that all WTO member countries are bound to give each other MFN.
There is also a welcome development on trade on the basis of negative lists during the recent ministerial discussion. Current “positive list approach” allows only those items to be traded which are on positive list. Everything else gets restricted by default. Whereas negative list approach, which is practised internationally will contain only those items which should not be traded hence creating new venues for bilateral trade.
Ministers have also agreed to improve the infrastructure facilities to promote trade at Wahga and Atari. India is also contemplating removing its blanket ban on capital inflows from Pakistan (Islamabad has no such ban on Indian investment). Another significant development that tool place during Pakistani Commerce Minister’s tour is that India has announced to withdraw its objections on the European Union trade concessions to Pakistan.
To me all of the above-mentioned developments are extremely important milestones in the trade history of both the countries. Those of us who are always vocal in criticizing our policy makers and political leaders when they are in wrong should come forward to appreciate these positive developments that may lead to a sustainable peace in this region.
The writer is the executive director of Sustainable Development Policy Institute and is contactable at firstname.lastname@example.org