Pakistan-India Trade:

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The Pakistan-India Trade Relationship: Prospects, Profits, and Pitfalls concern about non-tariff barriers to trade on the Subcontinent. These include oppressive licensing and customs requirements, draconian visa policies, long waiting periods at borders, and poor road conditions. Nisha Taneja, a professor at New Delhi’s Indian Council for Research on International Economic Relations, addresses these challenges in her essay, with particular emphasis on transport and transit obstacles. Presently, Pakistan-India trade is permitted on only one land route (via the Attari-Wagah border crossing). Road border infrastructure—warehousing, parking facilities, testing laboratories—is poor, and extensive security checks cause major congestion. Meanwhile, rail routes for trade can carry goods across an expanse of only 30 kilometers. Train cars are in scarce supply, and only certain types are permitted for trade. These problems on direct trade routes have been so widespread, according to Taneja’s research, that a few years ago several circuitous indirect routes were found to be twice as trade-efficient (as measured by transaction costs incurred per container per kilometer). Many Pakistanis argue that non-tariff barriers in India are particularly damaging; in Husain’s focus group discussions, Pakistani businesspeople identified 17 such obstacles. According to Husain, they fear that, barring Indian corrective actions, such obstacles will undermine “the smooth flow and desired level of exports” from Pakistan. Taneja, however, believes that some of this criticism is misguided. She contends that some measures described by Pakistan as discriminatory are in fact permitted by the WTO on safety and health grounds. Other measures cited by Islamabad, according to Taneja, represent what were once legitimate grievances, yet, perhaps unbeknownst to Pakistan, have since been addressed by New Delhi. Nonetheless, Taneja concedes that non-tariff barriers are a major concern, and must be addressed if deeper bilateral trade is to materialize. She is echoed by Kalpana Kochhar and Ejaz Ghani, both of the World Bank. Their essay argues that for India and Pakistan to enjoy the “greatest gains” from MFN and liberalized trade, “accompanying reforms of trade facilitation and connectivity”—especially infrastructural and institutional improvements—are essential. The authors undertake an exercise that simulates two different scenarios. In the first one, Pakistan simply extends MFN to India. In the second, Pakistan extends MFN to India, but at the same time an element of trade facilitation is introduced—transportation | 7 |
Michael Kugelman costs for bilateral trade decrease by 25 percent. The gains are much higher in this latter scenario; Pakistan’s exports to India rise by more than 200 percent, compared to less than 1 percent in the first scenario. reGional raMifiCaTions Kochhar and Ghani insist that more trade facilitation will result in gains not only for India and Pakistan, but for South Asia on the whole. The region is one of the world’s least integrated, and is plagued by poor electricity grids, railways, and roads; damaging trade costs, as illustrated by the long waiting periods for trucks at border crossings (lines at the India- Bangladesh border can last 99 hours); and crushing poverty. However, their essay argues, better trade facilitation would generate such an increased flow of commerce that regional growth could increase by 1 to 2 percent. At the same time, Pakistan-India trade need not be accompanied by trade facilitation measures in order for broader South Asia to benefit; the authors note that a mere increase in the exchange of goods can increase the prospects for a variety of region-wide boons—from increased FDI flows to transboundary gas pipelines. According to Nabi’s essay, South Asia’s economic revitalization would serve Pakistan particularly well, given its geographic position. In the pre-colonial era, several important trade routes ran through presentday Pakistan—extending from Iran, Afghanistan, and Central Asia in the west to India in the east. These routes were later severed by the imposition of colonial-era borders and poor relations with India. A liberalized regional trade regime, he writes, “will help restore the vibrancy” of the Pakistani economic and cultural centers—including Sindh province in the south and the cities of Lahore and Peshawar further north—that served these former east-west trade routes. PreCarious PoliTiCs In her speech at LUMS, Foreign Minister Khar declared that normalizing trade with New Delhi “helps make better a relationship that has for too long been based on mistrust and the baggage of history.” Unfortunately, | 8 |
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