Pakistan-India Trade:

The Pakistan-India Trade Relationship: Prospects, Profits, and Pitfalls
favor more trade is the strong “historical memory” prevailing in the
western Indian states bordering Pakistan. Here, people fondly remember
the trade corridors and other economic linkages with present-day
Punjab province in Pakistan—links that flourished pre-Partition and
persevered until the Pakistan-India war of 1965.
Virmani calls on Indians and Pakistanis to better publicize the positive
dimensions of bilateral trade. These include the fact that more trade
would eliminate the “deadweight loss” resulting from diverting commerce
to third countries. Additionally, using examples from the free
trade agreement between India and Sri Lanka, he discusses how nations
can enjoy new advantages of economies of scale. Sri Lankan tea exporters
were long shut out of India, one of the world’s largest producers.
Now, however, they can easily “test” their products in southern India;
many have now established operations and brands in Tamil Nadu state.
The risKs of Trade norMaliZaTion
There is, however, another side to this story. Economists often say that
free trade creates both winners and losers. Indeed, numerous sectors and
interests in Pakistan have expressed strong misgivings about increased
trade with India.
Particularly outspoken in its opposition is the Pakistani automobile
industry, which had more items on the negative list (385, according to
data provided in this volume) than any other sector. In late 2012, the
chairman of the Pakistan Association of Automotive Parts and Accessories
Manufacturers warned that local car parts makers “will be hurt significantly”
by trade liberalization because the “nascent industry” cannot compete
with India’s formidable auto sector. He called on Islamabad to wait at
least 10 years before lowering tariff lines in this sector. 4
Some agricultural interests are unhappy as well. A 2012 Foreign Policy
report found Pakistani farmers worried about the prospect of heavily subsidized
(and hence cheaper) food imports coursing into Pakistan from India.
(However, in the same report, other food producers relished the prospect
of acquiring better-quality foodstuffs from India, because of their expected
profitability in Pakistani food markets.) A major concern of farmers
is that agricultural trade will not serve Pakistan’s comparative advantage;
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