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Trade to the aid here

Some recent economic initiatives hold out the promise of improving Indo-Pak ties, Rohit Viswanath writes.

india Updated: May 11, 2012 23:03 IST

A modern Integrated Check Post (ICP) equipped with a dedicated passenger terminal and a cargo facility was inaugurated at the Attari border recently. The initiative is significant since it symbolises the unprecedented pace at which trade cooperation talks between India and Pakistan have proceeded in recent months. The renewed thrust has the potential to increase bilateral trade to $8 billion per year in the next two years from the current $2.6 billion.

The leaders present at the ceremony not only championed free trade but also easing of travel restrictions between the two countries, for which a joint working group has been formed. Indian officials appealed to Pakistan to extend its approved list of 137 items traded from the Attari land route to be brought at par with the nearly 6,000 items being traded through the Mumbai-Karachi sea route. They also urged Pakistan to allow transit of Indian goods to Afghanistan, as it already allowed trade from Kabul to New Delhi through Islamabad.

In the past, the Pakistan Army has been the staunchest opponent of greater economic ties between the two nations. Recent events have rendered it fragile, leaving a window of opportunity open for strengthening democracy and civil institutions. India must leverage this extraordinary prospect for designing economic inducements for Pakistan’s domestic and external streamlining. As economic considerations supersede security considerations in the visa policies of India and Pakistan, liberalisation of visas would become inevitable. This will lead to not only business-to-business contacts but also burgeoning people-to-people contacts.

The current euphoria among businesses on both sides of the border and also among those who believe that trade is a means to conflict resolution, owes itself to the tremendous ground that was covered since April 2011. The adherence to all timelines set for every aspect on the agenda is unparalleled. The most tangible decision was regarding the most-favoured nation (MFN) status, which Pakistan granted to India on January 10.

Further, on March 21, Pakistan’s ministry of commerce issued the Statutory Regulatory Order (SRO) for switching over to a negative list regime to trade with India. This will go a long way towards saving time and costs incurred by a third country trade route that encompasses almost 20,000 items, which could otherwise follow the bilateral route. India should now start thinking in terms of the next generation of liberalisation of trade with Pakistan like freeing foreign direct investment (FDI) flows that can help build manufacturing linkages in the region. It should also consider taking India-Pakistan trade to the South-Asian Free Trade Agreement (SAFTA) regime.

Pakistan’s refusal to accorded MFN status to India at the multilateral level has been the key reason for SAFTA still lingering as a dark horse. According to the MFN clause, all members of the World Trade Organisation are required to extend trading benefits to a country, equal to those accorded to any other country. The current volume of South Asian Association For Regional Cooperation (Saarc) intra-regional trade remains the lowest among major regional groups. India’s trade with its Saarc neighbours stands at a meagre $12.7 billion. Factors inhibiting economic integration in South Asia include barriers to trade, investment and movement of people; poor intra-regional connectivity in terms of transport infrastructure and highway networks; and high trading and transportation costs compared to other regions because of border restrictions.

Modelling Indo-Pak relations on the lines of the Sino-Indian bilateral relationship has huge benefits. The model testifies that expansion of economic and trade ties promote cooperation in all other aspects. Bilateral trade, standing at $70 billions last year, serves to counterbalance difficult issues in other areas between Beijing and New Delhi. The present initiatives surely hold the promise of putting Indo-Pak relations on the same trajectory. This, in turn, will provide the much-needed shot in the arm for greater South Asian integration.

(Rohit Viswanath is a foreign policy analyst with ICRIER, New Delhi)

The views expressed by the author are personal

First Published: May 11, 2012 23:01 IST