Pakistan-India Trade:

Michael Kugelman
some food wholesalers fear that India will flood Pakistani markets with
bananas and oranges, which already exist in abundance in Pakistan. 5
Similar concerns were voiced in focus group consultations with business
leaders overseen by Karachi’s Institute of Business Administration
(IBA) in early 2012. Ishrat Husain, IBA’s dean and director, highlights
the findings from these conversations in his essay. He writes of agricultural
producers’ fears that they will be unable to compete with their Indian
counterparts, who in some states benefit from “hidden and implicit” subsidies
(including for electricity to power tubewells). Meanwhile, car parts
manufacturers are anxious that Indian parts “will flood the Pakistani market
and decimate the local industry,” and that Pakistani exports will suffer
because Indian car makers prefer domestically manufactured parts. Husain
also reports unease within the pharmaceutical and chemical/synthetic
fiber industries. The first sector believes that India’s abundance of raw materials
and large economies of scale will “squeeze out” Pakistani products,
while the second predicts that India, with such a large surplus of fiber, will
simply dump its excess in Pakistani markets.
Husain also discusses factors beyond sectoral opposition that risk derailing
the Pakistan-India trade regime. First, opposition political parties
in both countries, possibly aligned with “extremist elements,” could take
virulently anti-trade positions that pressure Islamabad and New Delhi into
supporting less trade-friendly policies. Second, the “losers lobby”—powerful
industries in both nations that feel threatened by greater trade—
could prevail on their governments to impose retaliatory trade measures.
Finally, the powerful Pakistani and Indian media could take up the cause
of smaller industries that suffer from trade liberalization, and “create such
venom that trade flows could be set back.” Given these risks, Husain concludes,
it is essential that both sides are proactive in their management of
trade policies and processes, and vigilant in their implementation.
naViGaTinG non-Tariff Barriers
Free trade, not to mention a full-fledged MFN relationship, requires
not only the simple exchange of low-tariff goods, but also the smooth
and unfettered flow of goods within countries and across borders—a
rarity in South Asia. Indeed, several contributors to this volume express
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