India-Pakistan preferential trade agreement is a welcome move: CUTS

November 14, 2011, Jaipur
“India’s move towards negotiating a preferential trade agreement with Pakistan could be an important confidence-building measure which can catalyse peace-building efforts in other areas,” said Pradeep Mehta, Secretary General of CUTS International. He was speaking on the occasion of commerce secretary level talk between the two countries. “Prime ministers of both countries should be congratulated for taking bold initiatives to facilitate trade relations,” he added.

The commerce secretary level talk is expected to clarify Pakistan’s move to grant most-favoured-nation status to India. Also, India is expected to consider a more liberal visa regime for the Pakistani businessmen.

There are many misplaced fear in both countries about the likely impact of Pakistan granting MFN status to India. Some sceptics point out the threat of competition from across border to Pakistani manufacturing and agrarian sectors as well as the likelihood of price rise in India as lucrative export opportunities may lead to supply shortage in the domestic markets.

Countries with similar economic status, strong cultural ties and matching consumption patterns possess huge trade potential for satiating each other’s demand with own productive surpluses. This is true for South Asian countries in general and the Indo-Pak trade relations in particular.

Currently, Indo-Pak trade is only US$ 2.65 billion a year. It is ridden with hurdles, forcing both countries to source over-priced import from other countries while cheaper alternatives are available next door.

This positive move by Pakistan should be leveraged to lower preferential tariff rates under the South Asian Free Trade Agreement which would further trigger greater trade volume, attract the attention of policy makers and private investors toward procedural reforms and infrastructure development to address a host of non-tariff barriers faced each other’s exports.

An on-going Study by CUTS International shows that India and Pakistan together stand to save a minimum of 55 percent of their import bills on about 200 product categories, reducing the consumption expenditure by buyers of both the countries by more than US$ 800 million per year. Currently these products are included in the sensitive list of items to which preferential tariff rates prescribed under SAFTA are not applied.

The CUTS study entitled Cost of Economic Non-Cooperation to Consumers in South Asia and supported by The Asia Foundation took into account the impact of tariff liberalisation under SAFTA on consumption expenditure of five of the largest countries of South Asia and found that trade between India and Pakistan has the highest growth prospect. 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.

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 preferential trade agreement between India and Pakistan.

CUTS International is a Jaipur-based non-governmental think-tank doing policy research and advocacy on trade and regulatory issues. Enhancing regional cooperation in South Asia is one of its major areas of work. The organisation has created a dynamic network of South Asian think-tanks, academia, policy-makers, media representatives, etc to take forward this initiative.
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