Re­mov­ing the Trade Bar­ri­ers

Trade re­la­tions be­tween In­dia and Pak­istan may be gov­erned by po­lit­i­cal dis­putes. But there is light at the end of the tun­nel.

Southasia - - REGION PAKISTAN - By Jamil Nasir

It may come as a sur­prise to many, es­pe­cially those who were born af­ter 1970, that Pak­istan and In­dia were the ma­jor trad­ing part­ners soon af­ter in­de­pen­dence. In 1948-49, 56 per­cent of Pak­istan’s to­tal ex­ports were des­tined for In­dia and 32 per­cent of its to­tal im­ports were from In­dia. Both coun­tries en­joyed nor­mal trad­ing re­la­tions till 1965 and used a num­ber of land routes for bi­lat­eral trade. These in­cluded eight cus­toms sta­tions in the Pun­jab at Wa­gah, Takia Ghawindi, Khem Karan, Ganda Singh­wala, Mughalpura Rail­way Sta­tion, La­hore Rail­way Sta­tion, Haripur Bund on River Chenab and the Ma­cleod Ganj Road Rail­way Sta­tion. Out of these, only two rail­way sta­tions – Wa­gah and Mughalpura – are now op­er­a­tional.

Pak­istan and In­dia en­tered 14 dif­fer­ent bi­lat­eral trade agree­ments re­lated to trade fa­cil­i­ta­tion be­tween 1947 and 1965. These agree­ments cov­ered ar­eas like trade in goods, bor­der trade, air ser­vices, bank­ing and trade fa­cil­i­ta­tion. In 1965, six In­dian banks had nine branches in Pak­istan while the Habib Bank of Pak­istan had a branch in In­dia. It can be said that de­spite bit­ter mem­o­ries of blood­shed, car­nage and com­mu­nal ri­ots of 1947, a spirit of prag­ma­tism pre­vailed in trade re­la­tions be­tween the two coun­tries.

How­ever, the sit­u­a­tion took a dras­tic turn af­ter the 1965 war, with trade be­com­ing the first ca­su­alty. Cus­toms of­fi­cers posted at the Wa­gah Cus­toms Sta­tion were the first who be­came civil­ian pris­on­ers of the In­dian Army on the first day of the war. Bank branches op­er­at­ing in the two coun­tries were seized as en­emy property. Trade re­la­tions re­mained sus­pended till 1972 and were re­sumed af­ter the 1972 Simla

Agree­ment but on a very limited scale. Even then, both coun­tries traded with each other on the ba­sis of pos­i­tive lists which, al­though long, were re­stric­tive per se.

These lists con­tin­ued till 1995 when the World Trade Or­ga­ni­za­tion (WTO) was carved out from the Gen­eral Agree­ment on Tar­iffs and Trade (GATT). In­dia uni­lat­er­ally dis­con­tin­ued trad­ing based on a pos­i­tive list and granted Pak­istan MFN ( most fa­vored na­tion) sta­tus which sim­ply means ‘fa­vor one, fa­vor all’. Pak­istan, how­ever, con­tin­ued with the pos­i­tive list in­cor­po­rated in its Im­port Pol­icy Or­der as Ap­pen­dix G. The list of trad­able items reg­is­tered a grad­ual and pro­gres­sive in­crease. In 1995, only 328 items were im­portable from In­dia but the list ex­panded to 687 items in 2004. In 2006, it cov­ered 1075 items.

With the re­sump­tion of the Com­pos­ite Di­a­logue in Jan­uary 2004, trade re­la­tions be­came a ma­jor fo­cus be­tween Pak­istan and In­dia. Sev­eral rounds have been held so far. The po­si­tion of the two coun­tries on trade re­la­tions is that In­dia con­sid­ers trade based on a pos­i­tive list a clear vi­o­la­tion of WTO prin­ci­ples. Pak­istan has shown com­mit­ment to grant­ing MFN sta­tus to In­dia but has de­ferred the de­ci­sion due to po­lit­i­cal ex­i­gen­cies at home. The cab­i­net in its meet­ing on Fe­bru­ary 29, 2012, gave in prin­ci­ple the ap­proval of a neg­a­tive list, sub­ject to fur­ther ne­go­ti­a­tions on trade with In­dia. This neg­a­tive list of 1209 items was pre­pared by the Min­istry of Com­merce in con­sul­ta­tion with the stake­hold­ers and no­ti­fied vide SRO 280 dated March 20, 2012. The pos­i­tive list (Ap­pen­dix G) of the IPO will now be sub­sti­tuted by the neg­a­tive list but the point here is that it still falls short of MFN sta­tus to In­dia. The key ques­tion is: why is Pak­istan op­posed to grant­ing MFN sta­tus to In­dia?

This writer had an­a­lyzed the ques­tion back in 2007 in his paper ‘SAFTA: po­ten­tial, prospects and lim­i­ta­tions’ pub­lished by the Re­search and De­vel­op­ment Wing of the La­hore Cham­ber of Com­merce & In­dus­try (LCCI) in the form of a book. Four fac­tors were iden­ti­fied for Pak­istan’s re­luc­tance to trade with In­dia on MFN ba­sis. First is the is­sue of non­tar­iff bar­ri­ers in In­dia. The per­cep­tion in the lo­cal busi­ness com­mu­nity is that Pak­istan will not gain much in terms of over­all trade bal­ance with In­dia due to such Pak­istan-spe­cific non-tar­iff bar­ri­ers. Sec­ond, it is ar­gued that un­less the trade deficit be­tween the two coun­tries is bridged, strate­gic con­sid­er­a­tions de­mand that we should not in­crease our de­pen­dence on In­dia through trade.

Third, as long as a so­lu­tion of dis­putes like the Kash­mir con­flict is not sought, trade re­la­tions will al­ways re­main vul­ner­a­ble and can break with the slight­est de­gree of strain. It means that longterm sus­tain­able cor­dial trade re­la­tions are not pos­si­ble un­less the is­sues at the root of po­lit­i­cal dif­fer­ences are re­solved first. Fourth, ‘the in­fant in­dus­try ar­gu­ment’ is also ad­vanced by some sec­tors of busi­ness to op­pose grant of MFN sta­tus to In­dia. For ex­am­ple, the phar­ma­ceu­ti­cal in­dus­try is con­cerned about the flood­ing of Pak­istani mar­kets with cheap and low-qual­ity In­dian medicines. Then there are con­cerns about hid­den sub­si­dies, es­pe­cially to In­dian agri­cul­tur­ists in the sup­ply of elec­tric­ity for tube wells.

The sit­u­a­tion has im­proved some­what in the last few years. If a well thought-out strat­egy for man­ag­ing trade re­la­tions be­tween In­dia and Pak­istan is evolved, things may im­prove re­mark­ably in the com­ing years. Some­times se­man­tics also mat­ter. The first no­tice­able fea­ture about MFN (most fa­vored na­tion) is its very nomen­cla­ture. MFN is a mis­nomer and evokes the per­cep­tion in the minds of the people (es­pe­cially when it is trans­lated into Urdu) that we will be giv­ing some spe­cial priv­i­leges to In­dia, com­pared to other na­tions, by trad­ing with it on MFN ba­sis. This is cer­tainly not the case. The nomen­cla­ture of MFN is used as a bo­gey by hawk­ish el­e­ments in Pak­istan to sup­port their anti-In­dia nar­ra­tive. So a way out can be to come up with a new term with­out jeop­ar­diz­ing its spirit. Pak­istan has sug­gested the term ‘Non-Dis­crim­i­na­tory Ac­cess ( NDA)’ which means ex­actly the same as MFN. Seem­ingly it is a small change but it could mean a lot in terms of mold­ing pub­lic opin­ion in fa­vor of trade with In­dia.

The is­sue of non-tar­iff bar­ri­ers is an­other im­por­tant area. Tech­ni­cal bar­ri­ers to trade (TBTs), quo­tas and im­port li­censes, ag­gres­sive use of safe­guard and anti-dump­ing mea­sures, fre­quent use of coun­ter­vail­ing du­ties, mul­ti­ple cus­toms clear­ance pro­ce­dures, strin­gent cer­ti­fi­ca­tion re­quire­ments, visa re­stric­tions and nonac­cep­tance of LCs is­sued by Pak­istani banks, etc. are some of the non­tar­iff bar­ri­ers Pak­istani busi­ness­men of­ten com­plain about. In re­sponse, the In­dian side has al­ways taken the plea that non-tar­iff bar­ri­ers are not Pak­istan-spe­cific. Here, two fac­tors need to be given top pri­or­ity. First, a clear iden­ti­fi­ca­tion of Pak­istan-spe­cific non-tar­iff bar­ri­ers and an­nounce­ment of a sun­set date for their dis­man­tling by In­dia is a must. It will give a sense of con­fi­dence to the Pak­istani busi­ness com­mu­nity for trad­ing with its In­dian coun­ter­parts. Some work has al­ready been done on this count.

Sec­ondly, both In­dia and Pak­istan agreed to con­clude three agree­ments – the Co­op­er­a­tion and Mu­tual As­sis­tance in Cus­toms Mat­ters Agree­ment, the Bi­lat­eral Co­op­er­a­tion Agree­ment on Mu­tual Recog­ni­tion be­tween PSQCA and BIS and the Agree­ment on Trade Grievances. These three agree­ments were signed dur­ing the 7th round of Pak­istan-In­dia talks on commercial and eco­nomic co­op­er­a­tion held on Septem­ber 20-21, 2012 in Is­lam­abad. The need is to im­ple­ment them in their true spirit with­out fur­ther de­lay.

Strong trade re­la­tions be­tween In­dia and Pak­istan are cer­tainly not a smooth and easy process, given the deep-rooted mis­giv­ings. But a prob­lem­solv­ing and proac­tive ap­proach to re­duce the ir­ri­tants to bi­lat­eral trade can make a dif­fer­ence.

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