Pakistan-India Trade:

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The Pakistan-India Trade Relationship: Prospects, Profits, and Pitfalls countries; and improving infrastructure at border crossings. Despite recent upgrades at the Attari/Wagah border, the need for x-ray machines, better warehousing, and testing laboratories remains strong. So long as direct routes are marred by such inefficiencies, traders will have little incentive to abandon the longer, more circuitous routes they have patronized for decades. 5. Establish new oversight institutions. A bilateral commission should be set up to oversee the Pakistan-India economic relationship, with a focus on addressing non-tariff barriers; opening up more land routes for trade; and promoting more cross-border travel. A regional trade forum (comprising members of the private sector, academia, and the media) should be formed to monitor this bilateral commission. To accommodate inevitable disagreements, a dispute resolution/grievance redressal mechanism should be established as well. It should be operated not by the two governments, but by a private sector consortium incorporating the Confederation of Indian Industries, Federation of Indian Chambers of Commerce and Industry, Pakistan Business Council, and Federation of Pakistan Chambers of Commerce and Industry. 6. Use bilateral trade normalization as a springboard for South Asia-wide trade normalization. Tighter Pakistan-India trade links—lubricated by more integrated and efficient transport networks and more open transit and visa arrangements—can raise the entire region’s trade prospects. Pakistan’s extension of MFN status to India puts Pakistan and India on a more equal footing within the South Asia Association of Regional Cooperation, and provides impetus to activate the long-moribund South Asian Free Trade Agreement (SAFTA). 7. Remain committed to the Composite Dialogue process. If this negotiating process is sidelined, critics of trade normalization in Pakistan would be emboldened, because they could argue that Pakistan’s principled positions on political and territorial issues have been sacrificed for purely material gain. Such critics could also assert that more trade does nothing to resolve these core issues. | 13 |
Michael Kugelman 8. Ensure that security and political tensions are not allowed to derail trade diplomacy. To protect the integrity of both trade normalization and the broader peace process, India should not impose punitive trade measures on Pakistan, or close its borders, in the event of isolated terrorist attacks perpetrated by Pakistan-based extremists (who might like nothing better than to spark a harsh Indian response). Both sides should take care not to allow new security or political tensions to spill into trade or economic relations. Suspending trade in retaliation for developments on the security front will further undercut trust, and complicate efforts to establish a stable and longterm bilateral economic and political relationship. 9. Act now, before the opportunity is lost. Economic circumstances dictate that each side act expeditiously to cement trade normalization. Comparative advantage exists not only in terms of goods to be traded, but also business climate (Pakistan is currently ranked higher than India on numerous doing-business and infrastructuralefficiency measures). This could change, however, if India lowers its business costs and upgrades its infrastructure. Additionally, rich-country trading partners are facing economic slowdowns, and Europe’s financial crisis has contributed to diminished exports and portfolio capital, as well as to reduced GDP growth in developing countries. This all provides an added incentive to ramp up Pakistan- India trade. The Perilous PaTh forWard Some of these recommendations—establishing a more permissive visa regime, easing transit and transport bottlenecks, instituting grievance redressal mechanisms—are already being addressed. Others—rejuvenating SAFTA, unilaterally removing tariffs—will require more time. Additionally, old habits die hard. Over the course of 2012, Pakistani and Indian media reports periodically highlighted setbacks to trade normalization that were linked to political or security concerns. At one point, a senior Indian official stated that momentum had slowed because Islamabad was linking trade “to progress on bigger issues such as | 14 |
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