Remove non-tariff barriers for facilitating Indo-Pak trade: CUTS

July 31, 2012, Jaipur
“While recent tariff liberalisation is giving a boost to trade between India and Pakistan, non-tariff barriers, especially deficiency in transport infrastructure and procedural opacity, are contributing significantly to the cost of doing cross-border trade,” said Bipul Chatterjee, Deputy Executive Director CUTS International. “Trade between India and Pakistan will get a huge boost by reducing non-tariff barriers and the resultant spin-off benefits to stakeholder groups in both countries will be of huge magnitude,” he added.

Quoting the results of a recently concluded study by CUTS, Joseph George, Assistant Policy Analyst, CUTS International, said that in about nine major product categories Pakistan stands to save US$ 1.4 billion by resorting to low-priced imports from India if such imports are facilitated by reducing NTBs including difficulties in documentation and transportation.

With the objective of finding out consumer welfare gains by way of reduction in trade cost and subsequently prices, the CUTS study identified products with high trade potential which remains non-traded even after application of low preferential tariff rates under the South Asian Free Trade Agreement. Such products are currently being imported by Pakistan at a higher price from regions outside South Asia, while India and other South Asian countries have capacity to export them at a lower price.

Aviation spirit, light petroleum distillates, gold and silver jewelry and iron ores are some of the most prominent potential export items from India which faces significant non-tariff barriers in Pakistan. Likewise India also stand to gain about US$ 80 million if non-tariff barriers on the Indian side are removed for facilitating cheaper imports from Pakistan in about 13 main product categories.

The current volume of trade between India and Pakistan is found to be far below potential and both countries are forgoing huge welfare gains by not acting proactively to facilitate growth in bilateral trade. In 2010, India’s export to Pakistan was worth US$ 2.24 billion. Though figures reveal a definite growth of export in recent times, they conceal the true potential that can follow trade facilitation measures.

Finding solutions for removing non-tariff barriers is the most yielding area of policy reform for Indo-Pak trade to grow beyond status quo. It is estimated that roughly US$ 3 billion worth of informal trade happens between the two countries, which can be brought into the mainstream through better trade facilitation measures.

Most of the informal exports from India to Pakistan, constituting mostly of readymade garments, jewelry and spices, are reportedly routed through major ports like Dubai in the Middle East and Singapore in Far East. The fact that per unit trade cost including transportation, warehousing, testing and documentation of longer circuitous trade routes are found cheaper than that of short distant direct routes – one of the reasons of informal trade – indicates strong prevalence of non-tariff barriers in the formal channels of trade.

One of the reasons often cited by Indian exporters is the reluctance of Pakistani authorities to permit trade in a wider range of commodities through land routes. Though Pakistan has adopted a negative list of doing trade with India which contains 1209 non-tradable items, following its decision to grant most-favoured nation status to India while switching from a positive list of about 1800 commodities, imports of only 137 items are permitted through the land route of Attari-Wagah border.

CUTS International, in partnership with the Islamabad-based Sustainable Development Policy Institute and London-based Market Access Portal Limited, has initiated a project on potential benefits of reduction in non-tariff barriers in Indo-Pak trade. It aims to provide policy prescriptions on how non-tariff barriers in some selected sectors can be removed, phased out or replaced with less time-consuming measures. Preliminary results of this work will be presented at the Fifth South Asia Economic Summit to be held in Islamabad in September this year.
For more information, please contact:

Bipul Chatterjee, +91(0)9928207628,
Joseph George, +91(0)8003766304,