Trade dynamics
Aizaz Ahmad Chaudhry
FIVE years after World War II, French foreign minister Robert Schuman proposed that the coal and steel industries of France and West Germany be placed under a single authority to prevent another war between the two countries. This ‘solidarity in production’ led to a common market in Europe, and eventually morphed into what became the European Union.
Conversely, in South Asia, mutual mistrust has prevented India and Pakistan from recognising the role of economics in building peace. Should India and Pakistan ever decide to open trade, traders on both sides would have access to vast, teeming markets, creating a win-win scenario for both. However, South Asia hasn’t embraced this logic.
Consequently, intra-regional trade in South Asia has shrunk from 19 per cent in 1948 to 4pc in 1950 to 2pc from 1967 to 1990. Bilateral trade has also been insignificant except for a brief period in 2006-7, when the India-Pakistan peace process was at its peak. In terms of formal trading arrangements, only ad hoc steps were taken. A bilateral trade agreement was signed in 1957, which expired in 1965. A protocol was signed in 1975. After the creation of the WTO, India accorded MFN status to Pakistan in 1996, but withdrew it in February 2019. The unpredictable state of relations has never led to an environment conducive to the expansion of bilateral trade.
Foreign Minister Ishaq Dar recently hinted that the government intended to examine trade ties with India. He referred to the concerns of Pakistani traders who had to incur extra freight, transshipment and transportation costs for trade via Dubai or Singapore. This has ignited a media debate in Pakistan and India. Dar’s statement was apparently aimed at indicating the government’s willingness to permit bilateral trade while also testing the response of the Indian government, which has not yet commented.
It isn’t in the interest of Pakistan and India to have conflictual ties.
Those trading houses in Pakistan which favour trade with India argue that it is the end consumers who would benefit most. For instance, during recent price hikes in Pakistan, it would have made sense to import essential food items, like onions, potatoes, etc, directly from neighbouring India to enable our consumers to buy these commodities at affordable prices. Trade with India would also divert Pakistan’s trade with other countries to the region due to lower transportation costs. Even informal trade currently being routed through Dubai would revert to the region. This segment of the trading community feels more confident and is less worried about the influx of goods from India, arguing that Indian goods would find a market in Pakistan only if they were cheaper than the ones imported from other countries, including China. Protecting inefficient domestic sectors should not translate into higher costs for our consumers. All in all, the proponents of bilateral trade point to the economic opportunities resulting from access to a large neighbouring market, saving both our importers and exporters substantial costs.
However, some traders and industrialists are not in favour of opening trade with India. One notable concern is that cheaper Indian goods could flood Pakistan’s market because of the economies of scale and technological advantage, similar to what happened after the free-trade arrangement with China. Another concern is the balance of trade. During 2004-8, when trade with India had soared to $3.6 billion, Pakistan ran a negative balance of trade mainly because of non-tariff barriers that India had imposed.
Notably, bilateral trade was suspended in August 2019 after India annexed the territories of Jammu and Kashmir that were under its illegal occupation. Some analysts argue that seeking to open trade would be a climb-down from a position Pakistan took to protest Indian actions in Kashmir. True, India has done little to inspire good-neighbourliness. However, given the common challenges that remain for both sides, such as poverty, pollution, etc., it is not in the interest of either side to maintain a perpetually conflictual relationship. Pakistan’s chargé d’affaires in New Delhi, speaking at the Pakistan Day reception, aptly remarked that the founding fathers of Pakistan and India envisioned amicable bilateral relations. “A cycle of perpetual conflict and tensions, is not our ordained destiny. We can emerge from the shadow of the past and script a future of hope for our two peoples based on peaceful coexistence, sovereign equality and mutual respect.”
India is headed for general elections in April-May this year. Should the Modi-led BJP return to power and seek to normalise relations with Pakistan, a limited and regulated trade opening with India could be considered. To do so, a propitious political environment and a better common understanding of trade dynamics would be required to move in this direction.
The writer is a former foreign secretary.
Published in Dawn, April 7th, 2024
Published April 7, 2024
DAWN
FIVE years after World War II, French foreign minister Robert Schuman proposed that the coal and steel industries of France and West Germany be placed under a single authority to prevent another war between the two countries. This ‘solidarity in production’ led to a common market in Europe, and eventually morphed into what became the European Union.
Conversely, in South Asia, mutual mistrust has prevented India and Pakistan from recognising the role of economics in building peace. Should India and Pakistan ever decide to open trade, traders on both sides would have access to vast, teeming markets, creating a win-win scenario for both. However, South Asia hasn’t embraced this logic.
Consequently, intra-regional trade in South Asia has shrunk from 19 per cent in 1948 to 4pc in 1950 to 2pc from 1967 to 1990. Bilateral trade has also been insignificant except for a brief period in 2006-7, when the India-Pakistan peace process was at its peak. In terms of formal trading arrangements, only ad hoc steps were taken. A bilateral trade agreement was signed in 1957, which expired in 1965. A protocol was signed in 1975. After the creation of the WTO, India accorded MFN status to Pakistan in 1996, but withdrew it in February 2019. The unpredictable state of relations has never led to an environment conducive to the expansion of bilateral trade.
Foreign Minister Ishaq Dar recently hinted that the government intended to examine trade ties with India. He referred to the concerns of Pakistani traders who had to incur extra freight, transshipment and transportation costs for trade via Dubai or Singapore. This has ignited a media debate in Pakistan and India. Dar’s statement was apparently aimed at indicating the government’s willingness to permit bilateral trade while also testing the response of the Indian government, which has not yet commented.
It isn’t in the interest of Pakistan and India to have conflictual ties.
Those trading houses in Pakistan which favour trade with India argue that it is the end consumers who would benefit most. For instance, during recent price hikes in Pakistan, it would have made sense to import essential food items, like onions, potatoes, etc, directly from neighbouring India to enable our consumers to buy these commodities at affordable prices. Trade with India would also divert Pakistan’s trade with other countries to the region due to lower transportation costs. Even informal trade currently being routed through Dubai would revert to the region. This segment of the trading community feels more confident and is less worried about the influx of goods from India, arguing that Indian goods would find a market in Pakistan only if they were cheaper than the ones imported from other countries, including China. Protecting inefficient domestic sectors should not translate into higher costs for our consumers. All in all, the proponents of bilateral trade point to the economic opportunities resulting from access to a large neighbouring market, saving both our importers and exporters substantial costs.
However, some traders and industrialists are not in favour of opening trade with India. One notable concern is that cheaper Indian goods could flood Pakistan’s market because of the economies of scale and technological advantage, similar to what happened after the free-trade arrangement with China. Another concern is the balance of trade. During 2004-8, when trade with India had soared to $3.6 billion, Pakistan ran a negative balance of trade mainly because of non-tariff barriers that India had imposed.
Notably, bilateral trade was suspended in August 2019 after India annexed the territories of Jammu and Kashmir that were under its illegal occupation. Some analysts argue that seeking to open trade would be a climb-down from a position Pakistan took to protest Indian actions in Kashmir. True, India has done little to inspire good-neighbourliness. However, given the common challenges that remain for both sides, such as poverty, pollution, etc., it is not in the interest of either side to maintain a perpetually conflictual relationship. Pakistan’s chargé d’affaires in New Delhi, speaking at the Pakistan Day reception, aptly remarked that the founding fathers of Pakistan and India envisioned amicable bilateral relations. “A cycle of perpetual conflict and tensions, is not our ordained destiny. We can emerge from the shadow of the past and script a future of hope for our two peoples based on peaceful coexistence, sovereign equality and mutual respect.”
India is headed for general elections in April-May this year. Should the Modi-led BJP return to power and seek to normalise relations with Pakistan, a limited and regulated trade opening with India could be considered. To do so, a propitious political environment and a better common understanding of trade dynamics would be required to move in this direction.
The writer is a former foreign secretary.
Published in Dawn, April 7th, 2024
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