Pakistan-India Trade:
Pakistan-India Trade: Pakistan-India Trade:
The Pakistan-India Trade Relationship: Prospects, Profits, and Pitfalls | 1 | MICHAEL KUGELMAN In November 2011, the government of Pakistan announced its decision to grant Most Favored Nation (MFN) status to India. This means that India, in principle, will enjoy lower tariffs and fewer trade barriers in its economic relationship with Pakistan. The decision, which followed New Delhi’s extension of MFN status to Pakistan in 1996, underscores Islamabad’s willingness to deepen commercial ties with its long-time nemesis. The potential for greater trade between the two is considerable. Current trade volume is less than $3 billion, but some experts estimate that a normalized trade regime could eventually send the figure soaring to $40 billion. 1 Such projections take into account, in part, the large volume of informal Pakistan-India trade, which not long ago equaled that of formal trade, and is now estimated at about $1 billion. With more formal trade, according to an estimate from 2011, more Indian cotton, petroleum products, telephones, cars, organic chemicals, and tea will flow into Pakistan, while more Pakistani dates, jewelry, medical supplies, and petroleum oils will surge into India. 2 Many of these exports are now transacted informally (such as by smuggling or through third countries). Trade TalK In 2012, intensified trade diplomacy between Islamabad and New Delhi yielded a range of achievements. Early in the year, Pakistan abolished Michael Kugelman is the senior program associate for South Asia at the Woodrow Wilson International Center for Scholars.
Michael Kugelman its positive list of 2,000 goods that could be imported from India, and replaced it with a negative list of about 1,200 items that could not be imported (more than 500 of these untradeable items belonged to the automobile, iron, and steel sectors). Islamabad pledged to eliminate this negative list entirely by the end of 2012, thereby bringing the two countries closer to a fully operational MFN regime. In April, the two capitals launched a new integrated checkpoint at the Attari-Wagah land border crossing, generating promises from both countries that trade through this sector would increase tenfold. On the same day, India announced that it would permit foreign direct investment (FDI) from Pakistan. Over the summer, New Delhi removed a ban on Pakistani businesses setting up operations inside India. In September, the two sides concluded a landmark visa agreement that loosens travel restrictions. Later in the year, Islamabad announced new measures to boost capacity on its side of the Attari-Wagah border, including the installation of additional scanners and weighbridges, and the deployment of more customs officials to the site. Many observers believe increased trade will benefit each country’s economy, but also build constituencies for more cooperative bilateral relations—in effect opening the door to progress on core political and security issues. This is certainly an argument endorsed by Islamabad. Several months after Pakistan’s MFN announcement, Pakistani Foreign Minister Hina Rabbani Khar stated in a speech at the Lahore University of Management Sciences (LUMS) that more trade with India would enhance Pakistan’s prospects for peace and prosperity, and “put in place the conditions that will enable Pakistan to better pursue its principled positions” on territorial issues. 3 In 2012, recognizing the significance of trade in the Pakistan-India relationship, the Asia Program of the Washington, DC-based Woodrow Wilson Center, with co-sponsorship from the Wilson Center’s Program on America and the Global Economy, and with generous support from the Karachi-based Fellowship Fund for Pakistan, hosted a conference on Pakistan-India trade. The contributions in this volume were originally presented at this conference. | 2 |
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The <strong>Pakistan</strong>-<strong>India</strong> <strong>Trade</strong> Relationship:<br />
Prospects, Profits, and Pitfalls<br />
| 1 |<br />
MICHAEL KUGELMAN<br />
In November 2011, the government of <strong>Pakistan</strong> announced its decision<br />
to grant Most Favored Nation (MFN) status to <strong>India</strong>. This<br />
means that <strong>India</strong>, in principle, will enjoy lower tariffs and fewer<br />
trade barriers in its economic relationship with <strong>Pakistan</strong>. The decision,<br />
which followed New Delhi’s extension of MFN status to <strong>Pakistan</strong> in<br />
1996, underscores Islamabad’s willingness to deepen commercial ties<br />
with its long-time nemesis.<br />
The potential for greater trade between the two is considerable.<br />
Current trade volume is less than $3 billion, but some experts estimate<br />
that a normalized trade regime could eventually send the figure soaring<br />
to $40 billion. 1 Such projections take into account, in part, the large volume<br />
of informal <strong>Pakistan</strong>-<strong>India</strong> trade, which not long ago equaled that<br />
of formal trade, and is now estimated at about $1 billion. With more formal<br />
trade, according to an estimate from 2011, more <strong>India</strong>n cotton, petroleum<br />
products, telephones, cars, organic chemicals, and tea will flow<br />
into <strong>Pakistan</strong>, while more <strong>Pakistan</strong>i dates, jewelry, medical supplies, and<br />
petroleum oils will surge into <strong>India</strong>. 2 Many of these exports are now<br />
transacted informally (such as by smuggling or through third countries).<br />
<strong>Trade</strong> TalK<br />
In 2012, intensified trade diplomacy between Islamabad and New Delhi<br />
yielded a range of achievements. Early in the year, <strong>Pakistan</strong> abolished<br />
Michael Kugelman is the senior program associate for South Asia at the<br />
Woodrow Wilson International Center for Scholars.
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