A poised match

The News, Pakistan, May 15, 2011
By Shahzada Irfan Ahmed

Will enhanced trade between Pakistan, India be a win-win situation for both?

In an encouraging development, Pakistan and India have expressed the resolve to increase bilateral trade and end discriminatory policies towards each other.

Pakistan, which has so far allowed import of less than 2,000 items from India, has agreed to replace the positive list with the negative one. This means now Pakistan will only enumerate the items that cannot be imported from India rather than listing those which can be. The popular perception is that unlike in the past the number of importable products will be much larger than those not allowed entry into the country.

Similarly, India has offered to export petroleum products and electricity to Pakistan to help it overcome the worst energy crisis of its history. The country’s willingness to continue with trade talks despite an impasse on the diplomatic front has been hailed by the business community which foresees a manifold increase in bilateral trade volume in days to come.

If, on the one hand, these developments are being celebrated, the skeptics are also no less in number. Their fears are also not founded as they have seen similar enthusiasm fizzle out in the past on multiple occasions.

Secondly, they think India will be the main beneficiary in this case and Pakistan will hardly reap any benefits.

Over the decades, Pakistan has mainly exported food items to India and earned less from exports of raw materials and finished industrial goods. Indian exports, on the other hand, have included items like meat, edible oil, cereals, spices, soybean meal for poultry, tobacco, chemicals, fertilisers, leather, cotton, silk, coffee, tea and oilseeds.

History reveals India was the largest exporter of commercial and industrial raw material for Pakistan till 1965. Soon after the 1965 war, India stopped this supply and Pakistan had to look for alternative sources and develop linkages with them.

Today, Pakistan is once again thinking about reverting to India as transportation cost has become a major factor in international trade, says Malik Afzaal, an auto parts importer based in Rawalpindi.

Afzaal says the business groups who have always resisted imports from India are now demanding otherwise. “Raw material and unfinished goods are cheaper in India and reach Pakistan early, also costing less in transportation.”

Aftab Vohra, Standing Committee Chairman for Promotion of Pak-India Trade, Lahore Chamber of Commerce and Industry (LCCI), expects the volume of Indo-Pak trade to rise up to $6.5 billion from the present $2 billion. He urges the government to bring the concerned trade bodies on board and avoid taking unilateral decisions.

Explaining his point, Aftab says the Chambers of Commerce in Lahore, Faisalabad and Karachi and those in Amritsar, Delhi and Mumbai can together explore better venues of trade cooperation with each other.

The biggest opposition to enhanced trade with India has come from those who think Pakistani industry will suffer thereof and that its trade deficit (with India) will increase exponentially.

This apprehension is challenged by Pradeep S. Mehta, Secretary General, Consumer Unity & Trust Society (CUTS), a think-tank based in Jaipur, India. Mehta tells TNS that contrary to the popular perception, cheap imports from India will only help Pakistan stay competitive in the international market.

“Trade deficit on its own is not a bad thing,” he says, adding that both Pakistan and India have a trade deficit with China, “but does it worry us? After all imports are used for domestic production and consumption also, other than for our export efforts.”

According to Mehta, there are many fields where Pakistan can benefit from Indian exports: chemicals, engineering goods, plants and machinery, clothing (not textiles), automobiles and their components; and agricultural commodities like tea, sugar, cotton, minerals etc. Many items like cement and pulses have been a part of a two-way trade depending upon the situation in each country.

He says China imports cheap raw material from India and sells the finally produced goods to the world. Pakistan can do the same.

“The theory of comparative says that countries should produce only those goods which cost them less than they do the other countries,” he says, referring to the fears of the local industry in Pakistan.

Shahzad Ali Malik, Director, Guard Group of Companies, believes Pakistan can benefit from a liberal Indo-Pak trade regime. Instead of being an importer or an exporter, he says, both the countries can form synergies by establishing Combined Free Trade Zones along the Indo-Pak border.

Shahzad also suggests the two governments could reach an agreement under which people can enter or exit their areas by showing proofs of national identity.

“Once the trading rivals become partners, Pakistan will also be able to benefit from India in the field of biotechnology and research, especially on high-yielding seed varieties.”

Afaq Ahmed, a cement dealer based in Lahore, tells TNS that Pakistan can earn huge foreign exchange from export of cement to India. “As Pakistani cement is 25 percent cheaper [than Indian], it’s high in demand there,” he says, adding this has the capacity to produce 10 million tonnes in excess of its local demand.

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