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Insights into Editorial: India and Pakistan can Start Opening up to Trade

Insights into Editorial: India and Pakistan can Start Opening up to Trade

24 October 2015

The trade between India and Pakistan has been minuscule for years now. The official bilateral trade between the two countries in 2014 is barely worth $3 billion. Despite their nearly seven decades of rivalry, the two countries have a bottom-line interest in increasing commerce between them. If existing trade barriers are removed, the trade could increase by almost 10 times. Presently, both countries lose millions in potential customs revenue to smuggling. Eliminating trade barriers could also make goods cheaper for consumers and factories more competitive.

Other implications:

  • Deeper commercial ties could also help help ease geopolitical tensions between the two countries.
  • Trade volumes in the range of $10 billion to $15 billion annually could create a lobby in Indian and Pakistani business circles influential enough to steady relations.

Developments so far:

  • India has granted Pakistan “most favored nation” trading status since 1996, when both countries joined the World Trade Organization.
  • Pakistan has also drastically reduced the number of Indian imports banned or subject to high duties since 1996.

Pakistan also wants India to reciprocate by lowering so-called non-tariff barriers that allegedly disadvantage Pakistani producers—everything from strict licensing and inspection rules to subsidies for Indian farmers.

Recent developments:

India has planned to bypass Pakistan entirely and reach Central Asia via the Iranian port of Chabahar. Pakistan has gone ahead with China withs a $46 billion economic corridor project linking its own port at Gwadar to China’s massive market. These moves have increaseed the tension between the two countries and have widened the existing gap. Political talks have been stalled for months, with India insisting they focus only on eliminating terrorism and Pakistan demanding that the status of Kashmir be on the table as well.

 

What should both the nations do to enjoy the full benefits of open trade and improve the existing situation?

  • Work jointly at improving logistics, untangle red tape, build new roads, ports and rail connections.
  • Allow businesspeople to travel and invest more freely, and to remit their profits.
  • A jointly run special economic zone along the border that divides the Indian and Pakistani Punjabs can be created.
  • To ease security concerns, goods, workers and executives going into and out of the zone could be monitored.
  • For companies that are setting up shops, rules governing financing and remittances could be eased, visa restrictions and other bureaucratic barriers can be lifted.
  • Factories should be given a steady supply of power.
  • Other countries can also help in easing the situation. The US and the European Union, for instance, might offer tariff-free access to any goods exported from the zone.
  • Foreign companies that currently manufacture in both countries could be encouraged to consolidate their operations.

 

Hence, in the short run, both countries should look for a more limited opening rather than strive for a major breakthrough.