Trade dilemma

LAHORE: There was a time when India wanted trade relations with Pakistan, but currently, Pakistan’s market is not of much significance for Indians. Some politicians favor a liberal trade regime with India, but others strongly oppose it.

We have to decide whether we want to promote regional trade, including trade with India. Our immediate neighbors are Afghanistan, Iran, and India. Our trade with India has mostly been through informal routes. We have traded both formally and informally with Afghanistan for a long time, but lately we have lost most of the formal trade to Iran. Iran itself is mired in geopolitical problems, and there is a huge difference between its official rate against the dollar and that in the open market. Thus, Iran's exports become uncompetitive if we export goods through official channels. Barter trade is an option that has never been seriously explored. India buys oil from Iran and has more opportunities to barter its rice and other products.

Under these circumstances, when we lost the lucrative Afghan market to India and Iran, our first priority should be to regain that market without damaging our interests, like imported products from Afghanistan being re-exported to Pakistan. Theoretically, India is a very big market, having the largest population in the world. India has also made giant strides in agriculture, industry, and IT. Because of its huge population, its industries enjoy the economies of scale as well. It would be impossible for similar Pakistani products, products and services, to compete with India. Are we prepared for one way trade with India?

Pakistan must understand that bilateral trade between the two countries is not feasible and it would remain one-way-traffic, where India has some advantage because production is based on economies of scale. Both the countries export and are developing capacities to export similar items like textiles, light engineering goods, auto-parts, carpets, and information technology services. That India has overtaken Pakistan in these fields is another matter, but our potential for exports in many of these fields is as big as that of India.

Even in agriculture, we compete with India in export of Basmati rice, mangoes, and citrus fruits. The vegetables we are trying to export are the same as those being exported by India. In handicrafts, India has overtaken us due to better marketing and planning. The export items have great similarities.

India produces industrial raw materials that Pakistan does not produce but are required by its industries. The rates of Indian raw materials look cheaper because of reduced transportation cost. Other suppliers like China, Korea, or Japan could be persuaded to match or even lower the rates at which the Indians supply the raw materials, provided our trade associations of different industries join as cooperatives and import major raw materials jointly in bulk. The government should be inducted in the process to ensure the export of best quality materials from China, where the Pakistan government should ask its Chinese counterpart to ensure that only the best quality raw materials are exported to Pakistan.

The Indians discourage imports from Pakistan through technical trade barriers on items that could be exported at competitive rates to India. Pakistan continues to open its markets for Indian products. India, for instance, allows its spinning industries established in special export zones to import duty free yarn from anywhere in the world except Pakistan. The Indian government has fixed a 10 percent duty on import of fabric, but with the condition that the minimum duty would be Rs120 per kg, that effectively increases the duty on Pakistani low cost fabric to many times the normal duty.

Time is not ripe for free trade with India because of its trade barriers. It is unlikely that it would remove those barriers. Till then, Pakistanis should import those items and raw materials from India that are competitive and match global quality.