Pakistan-India Trade:

Additional Trade Challenges: Transport, Transit, and Non-Tariff Barriers
two countries now takes place under global maritime arrangements and
practices, whereby countries are free to send cargo via foreign vessels,
and can also send cargo to a third country through the port of another
country. This amendment has led to greater competition, and therefore
to a reduction in costs for sea-based trade between Mumbai and Karachi.
Transit Issues
The ongoing bilateral dialogue between India and Pakistan has so far
not addressed the issue of transit. India has not allowed Pakistan to access
Nepal, Bangladesh, and Bhutan through its territory. Similarly, Pakistan
has not given any transit rights to India to access the Afghanistan market
for its exports. However, Pakistan offered transit rights to Afghanistan’s
exports through its territory to reach the Indian market in 1948.
Until recently, Afghan transit goods in Pakistan were transferred
under the Afghan Transit Trade Agreement (ATTA) signed by the
two countries in 1965. In July 2010, Afghanistan and Pakistan signed
an amended transit trade agreement, the Afghanistan-Pakistan Transit-
Trade Agreement (APTTA), which improves the joint transit system
to reflect current economic conditions, infrastructure, technology, and
transport practices. The new transit regime provides for an increased
number of transport routes available to trucks from Afghanistan and
Pakistan, lowering the cost of imports and making exports more competitive
in the global market. However, the APTTA does not allow
India’s exports to Afghanistan through Pakistan via the land route.
In order to increase their gains from the trade normalization process,
India and Pakistan must put this transit issue on their trade agenda.
Transaction Costs
It follows from the above analysis that prior to the amendment of the
maritime protocol and the opening of the road route in 2005, the restrictive
trade and transport regimes created a high-cost trading environment
for India and Pakistan. Based on a survey in January 2005, Taneja
(2006) provided estimates of transaction costs on alternative routes and
compared these routes in terms of efficiency parameters. These estimates
were based on responses provided by freight forwarders and traders on
| 89 |