The business of Indo-Pak trade

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The Indo-Pak trade normalisation process has maintained its steam for the past 18 months or so. The upcoming formalisation of the MFN status to India early next year is expected to set aside recent signs of inactivity. The convoluted nature of Pakistans political economy kept it for 16 years from reciprocating the MFN status to India. And now it increasingly appears that there is a political economy to this bilateral trade normalization process as well.

The current quantum of trade between India and Pakistan is said to be less than a quarter of the potential. Due to trading restrictions and tariff measures, most of the indirect and unaccounted for trade (origin and destination of which is India and Pakistan) is routed through the GCC countries. For the two billion dollars of bilateral trade in FY12, India is favoured 80:20 in terms of exports.

The political economy of trade is obvious in the non-tariff barriers (NTBs) experienced by Pakistani exporters, which some available literature suggests are not Pakistan-specific per se. While that may be somewhat true for standards, certification and QoS benchmarks, Pakistani exporters refer to significant NTBs that exist in areas like border coordination and facilitation, logistics, and infrastructure availability on the ports.

Indias is still a protectionist regime, independent economists say, and refer to Indias trade restrictions that have also been criticized by the authorities in the United States and EEA region. This restrictiveness is also apparent in IMFs Trade Restrictiveness Index, as it is placed seventh (on a scale of 1 to 10), compared to Pakistan at six.

Exporters complain that there are over two dozen technical and standards organisations in India, at the centre and state levels, which operate under an ecosystem of myriad rules and regulations enforced by a plethora of actors. Other than the sector-specific NTBs, the NTBs highlighted by Pakistani exporters from various sectors and industries can be broadly segmented into these three groups.

Firstly there are the quality certifications, technical standards, laboratory testing and accreditations. Secondly, there are gaps in trade infrastructure, logistical constraints, limited (or lack of) warehousing and cold storage facilities on the border. Thirdly bureaucratic delays are cited due to the Indian Customs and clearance holdups.

The public sector has to play the lead role in the resolution or easing of some of the most significant NTBs. Some progress has been made, which must be appreciated. The Ministerial Working Groups, led by the Ministries of Commerce on both sides, having private sector representations, were able to increase the trading hours at the Wagha-Atari border from four hours to eight hours. Moreover, the documentation for mandatory intelligence agencies clearance has been reduced.

A perpetual state of cold war and hostility is unsustainable. Trading in goods and services, and people-to-people contact at different levels will help thaw the ice and improve lives on both sides of the border. However, some informed observers terms it a tall order to overcome Indias systemic structure of imports restrictions and its indifference to trade policy harmonisation within Saarc.

Yet such trade normalisation efforts are unprecedented, which therefore need to be sustained and deepened. More importantly, NTBs shouldn turn into a bogey to shun trade normalisation with India. Despite the NTBs, Pakistani businesses must keep on trading. After all, the Chinese companies have weathered the same obstacles in last 10 years, and today they are exporting more than 60 billion dollars worth of goods to India.

Courtesy: Business Recorder


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