Indo-Pak trade needs a push

Business Line, January 14, 2013
By Pradeep S Mehta, Abid Suleri and Joseph George

While the two governments have pared trade walls, non-tariff barriers require civil society intervention.

Instead of waiting, non-state actors should reinforce governmental efforts with their own and take advantage of opportunities of improved commercial relations.

The last two years have witnessed a number of promising developments on commercial relations between India and Pakistan. And they have to be nurtured, as against just crying over Pakistan’s decision to postpone the grant of the most-favoured-nation (MFN) status to trade with India. Recent developments show that Pakistan has provided de facto MFN status to India. The Indian establishment should look at it as a deferred success of its diplomatic efforts.
In real terms

From a narrow base of a positive list, Pakistan has decided to apply a broader negative-list approach. As against the earlier approach of allowing trade in just about 1,800 tariff lines, this base has increased to all product lines except about 1,200. In other words, earlier just over 20 per cent tariff lines (products) were allowed for trade between India and Pakistan.

Now, about 15 per cent are barred from being traded — opening up a new opportunity of trade in almost 65 per cent of the tariff lines. This was followed by a decision taken on the side of the trade ministers’ meeting on South Asian Free Trade Agreement held in Islamabad in early 2012.

Delegations led by respective commerce ministers paid mutual visits and declared a series of revitalising steps, liberal business-visa regime being the most notable one. Traders benefited from the commencement of an Integrated Check Post at the Wagah-Attari border.

However, there is fear that the momentum generated in the preceding years is running out of steam, as implementation of some of the decisions is taking longer than expected. Efforts at the governmental level are covering short-term shocks that may arise out of easing of trade restrictions. At this juncture, what is to be pondered over is how stakeholders other than governments can contribute to the latter’s initiatives on normalising our trade relations.
Non-tariff barriers

While tariffs are coming down, numerous non-tariff trade barriers (NTBs), particularly procedural ones, are hindering our trade. Removal of such barriers is now the key to fostering Indo-Pak trade, but what is lacking is a formal institutional mechanism to do so. This gap can be plugged by involvement of civil society. An initiative, supported by The Asia Foundation and in which CUTS International of India and Sustainable Development Policy Institute of Pakistan are joint participants, has recently made inquiries into the extent of NTBs affecting intra-regional trade in South Asia.

It was observed that costs amounting to 34.81 per cent of the value of total intra-regional trade can be saved if South Asian countries undertake minimal reforms to harmonise, regulate and remove NTBs. Our work has estimated that in the case of Indo-Pak trade, NTBs are much above the South-Asian average and accounts for about 43 per cent of the value of total aggregate bilateral trade.

This calls for a new tack. The current approach to trade reforms suffers from a number of problems such as unclear definition of NTBs, fragmented policy responses towards NTBs, difficulties in quantifying costs and benefits of reforms, and subsequent problems related to incentives and enforcements. Hence, disciplining NTBs remains sub-optimal.
Involving Pvt sector

Excluding relevant stakeholders in the process of reforming NTBs is a major limitation. Many important NTBs even fail to get discussed, as the directly affected trading community has limited access to the official channels.

Greater involvement of the private sector in the formal system of reforming NTBs would strengthen the official initiatives. Businesses possess first-hand information on trade costs and potential alternatives to costly and ineffective trade regulations. Direct inputs from them will make the reform process more informed and focused.

Besides fostering transparency and efficiency, an inclusive and participatory approach toward NTB reforms will also facilitate responsibility sharing, reducing some burden on the governments.

As the private sector gets involved in the process, starting from identification of non-tariff barriers to implementation of reforms, possibilities may be thrown up for public-private partnership in financing reforms, a pressing concern with respect to trade facilitation measures and improvement of trade infrastructure.

The most important building block of such a participatory approach is mutual consultation and consensus among various stakeholders such as government officials, business associations, political groups including trade unions, and consumer groups and other civil society and community-based organisations. The academia and media are required to complement such efforts for collective action.

Civil-society organisations should act as a catalyst for dialogues among these stakeholders. They are in a position to understand and analyse socio-economic implications of enhanced bilateral economic integration, particularly at the local level, and, thus, can potentially bridge macro-micro gaps in policy-making and its implementation. They can take the lead in generating awareness and anchor the dialogue by providing appropriate platforms. Creation of any new or restructuring of old institutional and legal systems is not required for empowering private stakeholders to deliver their respective roles in this participatory approach. Article 3 (Objectives and Principles) and Article 10 (Institutional Arrangements) of Agreement on South Asian Free Trade have adequate provisions for creating such a participatory system.

According to these provisions, businesses from South-Asian countries can access the NTB resolution authority under the South-Asian Free Trade Area through their membership in the national-level business and trade associations; some of them are also members of the regional apex body, Saarc Chamber of Commerce and Industry.

This proposed approach should include raising awareness on the harmful effects of NTBs on intra-regional trade, the urgency of addressing them, as well as the potential role businesses and other stakeholders can and should play. Some recent initiatives to promote the involvement of private sector and other stakeholders in trade liberalisation should be reviewed. Civil society should grab opportunities offered by improved commercial relations between the two neighbours.

Mehta is Secretary-General, CUTS International, Jaipur, and Suleri is Executive Director, Sustainable Development Policy Institute, Islamabad. Joseph George of CUTS contributed to the article

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