A step for Indo-Pak trade normalisation

The News, Pakistan, February 05, 2012

By Pradeep S mehta

For now, efforts to improve trade ties between the two countries seem to be on the right track

The forthcoming visit of Indian Commerce Minister to Pakistan on February 13 is likely to make way for developing a sustainable model of bilateral trade. The Maldives SAARC Summit has already asserted the vitality of bilateral cooperation as a necessity not only for the region, but for all their trading partners as well.

The Pakistan’s Cabinet nod for grant of Most Favoured Nation (MFN) status to India and the Indian Prime Minister’s optimism for gradually moving toward Preferential Trade Agreement (PTA) are defining the baselines of trade normalisation. The visits by the two commerce secretaries: Rahul Khullar and Makdhoom Amin Fahim to Pakistan and India have generated an atmosphere of optimism. This has been resonated by not only the business community on both sides but also echoed by policy honchos as more than baby steps. Further, Makhdoom Fahim’s declaration that they now have the mandate from their establishment to move ahead in this direction reflects the hubris.

It is, therefore, pertinent that bilateral relations be strengthened to reach the true potential. A study by CUTS in partnership with SDPI, Pakistan and other think tanks in the region, entitled, “Cost of Economic Non-Cooperation to Consumers in South Asia”, supported by the Asia Foundation, has taken a close look at the impact of tariff liberalisation under SAFTA on consumption expenditure of five of the largest countries of South Asia.

The study found that trade between India and Pakistan has the highest growth potential. While a large share of gains to Indian consumers will be through Pakistani exports in plastic-based articles, minerals and mineral fuels, Indian exports in pharmaceutical ingredients and electrical equipment will significantly reduce the burden of Pakistani consumers.

In order to have a comprehensive and deeper engagement, both countries need to focus on several other issues, besides tariffs, which act as impediments to both bilateral trade as well as regional integration. A bilateral cooperation package in terms of coverage on transport and connectivity; mutual recognition for the harmonization of standards in pharmaceutical, textile, cement, food products etc.; streamlining financial institutions and banking facilities; and, working for a common competition regime in South Asia, among others have become highly desirable goals.

In the context of MFN, one of the crucial issues to be addressed is the issue of trade in petroleum products. Both countries are paying due attention to this issue and have formed a joint working group. Numbers reveal that India accounts for an estimated average of one million barrels of petroleum products exports per day, and enjoys a global comparative advantage in petroleum products owing to its efficiencies in cost of production and R&D.

Interestingly, the US$ 7.6 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project is also moving ahead. In the last week of January, both countries have agreed to a transit fee formula for the TAPI project, with Pakistan agreeing in-principle to accept the formula as is settled between India and Afghanistan.

Another pertinent issue is related to the poor trade infrastructure and transport connectivity through the Wagah-Attari land route, which are taking its toll on trade costs. It has been agreed by both sides that all infrastructure construction would be completed by February and trade through this route shall resume to its full potential. A Rs150 crore package is all set to upgrade the checkposts.

The Integrated Check Post at Attari will also help reduce the various associated non-tariff barriers and bottlenecks especially those relating to lack of mechanised loading and unloading facilities, poor infrastructure facilities, stringent customs procedures and other such trade facilitation measures. Also, it is hoped that plans of possible grid connectivity between Amritsar and Lahore, which can enable trade of upto 500 MW of power, reaches its logical conclusion.

Pakistan currently uses a positive list approach, but a move toward having a sensitive list approach would be more beneficial for both the countries. Recently, it amended the Import Policy Order 2009, and added 12 more commodities to its list of items that can be imported from India. This takes the number of commodities to 1,946 up from 1,934 in the positive list that Pakistan maintains for trade with India. In a more recent development, Pakistan proposes to have a small negative list.

It is also important to save time and cost incurred by third country trade that encompasses almost 20,000 items, which could otherwise follow the bilateral route. The present volume of trade is marred by exorbitantly priced imports from third countries like UAE. Moreover, the illegal trade between the two countries, which as per various estimates accounts for more than US$4bn can also be checked, thereby contributing to an estimated three-fold increase in bilateral trade over a short span of time. In a recent development, Pakistan proposes to have a smaller negative list by this month.

The CUTS study disseminated at a regional meeting in Kathmandu on 3-4 February 2012 also shows about 91.24 percent of the total consumer welfare due to India will accrue by way of imports of rice, plastic and polyethylene based articles, household articles made of polymers, cotton yarn and woven fabrics from Pakistan. India’s total current import expenditure on these items is about US$939.54mn, out of which not less than US$545mn can be saved if such imports from outside the SAFTA region is replaced by imports from Pakistan. This implies that India and Pakistan can together save a minimum of 55 per cent of their import bills on about 200 product categories, reducing the consumption expenditure by consumers of both the countries by more than US$800mn per year. .

On the other hand, the main product categories which exhibit maximum consumer welfare gains for Pakistan from imports from India are pharmaceuticals and ingredients for medicines, various electrical and electronic products including telephonic or telegraphic switching apparatus, and automotive spare parts.

Currently these products are included in the sensitive list of items to which preferential tariff rates prescribed under SAFTA are not applied. Application of SAFTA preferential tariff rates on a number of commodities on which both Indian and Pakistani consumers would gain will be an important step leading to an eventual PTA between India and Pakistan.

Also, the business visa regime is all set to be relaxed with the expected decision for multi-entry/ multiple cities for businessmen. We thus need maintain the momentum of optimism of smoother business relations and taking it towards a peak. Importantly, two most vital ideological considerations need continuous attention. One is the political willingness, and the other being the effort to eliminate the trust deficit through change in hearts on both sides!.
(The author is Secretary General of CUTS International, India )

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