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Insights into Editorial: Line of caution: On suspension of cross-LoC trade

Insights into Editorial: Line of caution: On suspension of cross-LoC trade            



the Ministry of Home Affairs announced the suspension from midnight of trade at the two designated points at Salamabad and Chakan-da-Bagh, citing concerns about “illegal weapons, narcotics and fake currency” being transported into India.

The Central government’s decision to suspend trade across the Line of Control between Jammu and Kashmir and Pakistan-occupied Kashmir is bad in conception, and comes at a particularly fraught time.


Why do India and Pakistan resort to informal trade?


Informal trade between countries happens through a third country. The third country will officially (formal trade) buy the goods from one country and sell it to the other country at a higher price.

This price is still lower than the price at which formal trading would happen.

For example, in the case of India and Pakistan, India-Dubai-Pakistan is the main channel for informal trading.

Trade is recorded between India and UAE and between Pakistan and UAE, but is not recorded between India and Pakistan.

The trade is allowed through two trade facilitation centres located at (1) Salamabad, Uri, District Baramulla and (2) Chakkan-da-Bagh, District Poonch.

As per a study by ICRIER, informal trade between the two countries in 2012-13 was almost double the value of formal trade, and most of this was routed through a third country.


LoC Trade: Kashmir specific confidence building measures:

Compared to the cross LoC bus service that was flagged off with much fanfare in 2005, cross-LoC trade between Jammu and Kashmir and Pakistan Occupied Kashmir got off to a low-profile start, receiving little attention at the time in India or Pakistan.

In diplomatic parlance, these two measures are categorised as “Kashmir specific confidence building measures”.

It then flowed out of backchannel negotiations between India and Pakistan on a resolution to Kashmir, in the belief that this would then give both sides legroom to “remake” India-Pakistan relations.


Cross-LoC trade  is one of the Four-point proposal:

Specifically, these measures seems to have originated in a four-point proposal for Kashmir that began to get regular airing from about 2005 from then military ruler General Pervez Musharraf. The four points were:

(i)The LoC will stay but Kashmiris on both sides will be allowed to move freely back and forth;

(ii) self-governance or autonomy to the region, but not independence;

(iii) gradual demilitarisation on both sides;

(iv) a joint supervision mechanism with India, Pakistan and Kashmir represented on it.


Reasons stated by Ministry of Home Affairs:

The ministry, while highlighting the terror outfits fuelling separatism in the valley.

“During ongoing probe of certain cases by NIA, it has been brought out that a significant number of trading concerns engaged in LoC trade are operated by persons closely associated with banned terror organisations involved in fuelling terrorism/separatism.”

It is also being argued that the zero-tariff barter arrangement is being violated through under-invoicing and the exchange of third party items such as U.S.-origin California almonds.

The first is presumably a way to transfer funds; and

the second would be to exploit the zero-tariff trade, something brought up by traders who operate via the Wagah border.

The government’s concerns may be well-founded, but the solution to violations of a trade agreement is to enforce the rules stringently, not stop exchange of goods.

It will put at risk the livelihood of countless people on both sides of the LoC.

At a protest in Srinagar against the trade suspension, for instance, a leader of the cross-LoC traders association argued that they had, in fact, themselves been seeking a “fool proof mechanism” to enforce the terms of the agreement.



LoC trade is meant to facilitate exchange of goods of common use between local populations across the LoC in Jammu & Kashmir.

The government has sent unsettling signals by closing the National Highway between Udhampur and Baramulla to civilian traffic for two days a week to secure the movement of troop convoys.

To now summarily suspend LoC trade is to invite suspicion that the step has been taken without careful consideration of the consequences and also for political reasons. The suspension must be urgently revoked.

A stricter regulatory and enforcement mechanism is being worked out and will be put in place in consultation with various agencies. The issue of reopening of LoC trade will be revisited thereafter.

More than its value in currency terms, the cross-LoC trade holds much symbolic value in Jammu and Kashmir, especially in the Poonch-Rawalakot sector, where there are more divided families and villages than at the Uri crossing point.