The promise of trade

What would better relations between India and Pakistan look like? According to the World Bank’s latest report, ‘A Glass Half Full: The Promise of Regional Trade in South Asia’, if there were better relations between the two neighbours, trade between them could reach $37 billion. The report, which discusses the potential of trade within South Asia, highlights how little South Asian countries have done to cement their bilateral trade relationships. In the case of Pakistan and India, despite numerous stop-start efforts, little progress has been made over trade cooperation. Earlier this decade, a conversation over both countries giving each other ‘Most Favoured Nation’ status in trade gained pace, but it collapsed like other initiatives designed to normalise relations between the two. India’s decision to undermine Pakistan’s attempt to host the Saarc summit last year has only strengthened Pakistan’s resolve not to be bullied by India. Any future must be predicated on mutual respect and mutual trust – attributes which have been severely lacking in the relationship between the two countries and which have in the past few weeks only become worse.

Trade between Pakistan and India merely stands at around $2 billion right now. Both countries maintain long lists of sensitive items on which no tariff concessions are granted. Pakistan has a list of 936 items on which an 18 percent tariff applies to imports from all Safta countries. India has a list of 25 items, which extends to 64 items for Pakistan and Sri Lanka. The WB notes that India has a more open trade relationship with Pakistan, having accorded Pakistan MFN status in 1996 after joining the WTO. However, Pakistan has not made use of the opportunity, which perhaps explains why Pakistan has been reluctant to grant a similar status to India. The crucial question is: who would stand to benefit from the $37 billion potential in trade that the WB sees between the two countries? Pakistan’s stuttering agricultural and manufacturing sectors simply might not be able to compete in an open regional trade environment. And these are legitimate concerns that the WB report does not address. However, an import-reliant economy such as Pakistan’s could benefit from importing major goods from across the border, rather than getting them shipped from further and more expensive markets. Pakistan maintains a list of 1,209 items that cannot be imported from India, and which usually come to Pakistan through a third country, usually the UAE. Improving trade between Pakistan and India is a long and arduous challenge – but it might be the first step needed to normalise political relations between the two neighbours. That said, the current hostile posture taken by India will need to soften for any kind of talk on trade to move forward.