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March 7, 2019

Pak-India trade is only $2b against $37b potential

Islamabad

March 7, 2019

Islamabad : Trade between Pakistan and India has experienced many upheavals since partition of Sub-Continent, and after lapse of almost 72 years; the trade between the two countries hardly surpassed the figure of just over $2 billion knowing the fact that both the nuclear states have the potential of annual trade of $37 billion between them, a top official at commerce ministry told ‘The News’.

“Soon after the partition, in 1948-49, 23.6 percent of Pakistan’s global exports went to India and 50.6 percent imports of Pakistan’s global imports came from India, but over the years and decades on account of wars the trade between the states went down and currently stands at just over $2 billion,” he said.

History shows, the official said, that first trade bickering between the two countries started when Pakistan Finance Minister Ghulam Muhammad in October 1949 announced to remove some articles imported from India from the exemption list for import duty and in return Indian Commerce Minister KC Neogy told the Lok Sabha that India suspended export of coal to Pakistan because Pakistan had deliberately detained enormous quantities of jute purchases paid by Indian nationals. After 1965 war and then 1971 war, bilateral trade tumbled to zero.

The official while quoting the World Bank report titled A Glass Half Full: The promise of Regional Trade in South Asia, said that the current trade between the two nuclear states is just $2 billion and it could touch the staggering figure of $37 billion if the trade barriers are removed.

Prior to Pulwama incident the trade between the two neighbouring countries stood at $2.5 billion out of which imports from India were at $1.7 billion and exports from Pakistan were at $350 million. Following war like situation, India imposed 200 percent customs duty on Pakistani products virtually ending to tariff concessions under MFN status earlier extended to Pakistan. The one sided imposition of 200 percent duty on Pakistani products also ate up the tariff concessions earlier available under SAFTA (South Asia Free Trade Agreement). Now Pakistan’s export to India is subject to lifting of 200 percent duty.

Soon after India imposed 200 percent duty on Pakistani products, the top authorities in the Commerce Ministry had worked out tit-for-tat strategy. Under the strategy it was proposed to place Indian 90 items in the negative list under which import from India will immediately be curtailed by $500-600 million. Ministry also proposed to ban Indian items worth $600 million being exported to Afghanistan under transit trade agreement. But the top leadership did not accord approval to it.

However, both countries currently have no bilateral trade agreement, rather it was SAFTA accord signed between SAARC countries and being WTO member, under which all countries give MFN status to each other and under that status, India was giving to Pakistan the tariff concession which it is giving to all trading countries. However, under WTO regime, member countries can have bilateral agreement such as Preferential Trade Agreement and Free Trade Agreement. The South Asian Free Trade Area (SAFTA) is an agreement reached on January 6, 2004, at the in Islamabad and the said agreement came into force on January 1, 2006 creating a free trade agreement of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (as of 2018, the combined population is 2.08 billion people, about 27% of the world's population). India and Pakistan ratified the treaty in 2009, whereas Afghanistan as the 8th member state of the SAARC ratified the SAFTA protocol on 4 May 2011.

In case of Pakistan, India has withdrawn MFN status and tariff concessions under SAFTA regime which is why export to India at the moment came to halt. Pakistan established the negative list under which India cannot export 1209 items to Pakistan.

India granted MFN status to Pakistan in 1996, a year after the formation of WTO. But India under Prime Minister Narendra Modi has withdrawn the MFN treatment to Pakistan. Pakistan still hasn’t granted MFN status to India. Pakistan argues it has no benefit of MFN status as NTBs are creating hurdles for smooth exports of Pakistani products to Indian market.

The official said Pakistan switched over to Negative List regime for trade with Pakistan in March 20, 2012 and to this effect an SRO (Statutory Regulatory Order) was issued under which 1209 items were included in the Negative List (Over 500 of which were auto, iron and steel products). Only 137 item were importable from India. Major items included in the list of importable items are livestock, vegetables and newsprint in rolls or sheets.

For the manufacture of pharmaceutical products, the manufacturer also import raw material (except basic manufactured locally) and packing material approved by the Director General Health Government of Pakistan.

Pakistan, currently, trades with India under positive list regime and imports items through other countries which increases the cost of the items in the local market. To a question, official said that trade with India in negative list regime was allowed only to protect our local industry and the phasing out of negative list had been linked with removal of Non-Tariff Barriers (NTBs) by India ensuring the access of Pakistani products in the Indian markets. The official said that neither India removed NTBs nor Pakistan phased out Negative List.

Pakistan is currently exporting 74 products to India. Pakistan export in 2015-16 stood at $312.2 million, in 2016-17, exports were at $348 million and in 2017-18 export were at $ 350 million. However, Pakistan imports 137 products through wagha. The import from India remained in 2015-16 at $1.66 billion which slightly came down to $1.64 in 2016-17 and slightly went up to $1.79 billion in 2017-18.

Pakistan has a list of 936 items and almost 17.9pc of tariff lines that apply to imports from all Safta countries. India maintains a list of 25 items (0.5pc of tariff lines), which includes goods such as alcohol, firearms, etc. However, it has a much longer, 64-item list, (almost 11.7pc of tariff lines) for Pakistan and Sri Lanka, but which effectively applies only to Pakistan, because India applies a smaller sensitive list to Sri Lanka as part of a separate India-Sri Lanka Free Trade Agreement.

Items on the Indian sensitive list can be imported at the most-favoured-nation tariffs from any Safta country, including Pakistan, because India accorded Pakistan the status in 1996, soon after the accession of the two countries to the World Trade Organisation. However, Pakistan has not granted India the most-favoured-nation’s status or non-discriminatory market access.

In addition, the preferential access granted by Pakistan on 82.1pc of tariff lines under Safta is partially blocked in the case of India because Pakistan maintains a negative list comprising 1,209 items that cannot be imported from India. In practice, many of these items are exported from India to Pakistan through a third country, usually the United Arab Emirates. Pakistan import from India cotton, organic chemicals, Plastics and articles thereof, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other colouring, Rubber and articles thereof, Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal, Iron and steel, Ships, boats and floating structures Miscellaneous chemical products, Man-made staple fibers. Pharmaceutical products, Essential oils and resinoids; perfumery, cosmetic or toilet preparations, Coffee, tea, maté and spices, Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial, Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral, Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal, Man-made filaments; strip and the like of man-made textile materials, Edible vegetables and certain roots and tubers, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Aluminum and articles thereof, Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof, Edible fruit and nuts; peel of citrus fruit or melons, Cereals, Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery, Miscellaneous manufactured articles, Meat and edible meat offal, articles of stone, plaster, cement, asbestos, mica or similar materials, Preparations of cereals, flour, starch or milk; pastry cooks products, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical, Lac; gums, resins and other vegetable saps and extracts, Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad , Printed books, newspapers, pictures and other products of the printing industry; manuscripts, Sugars and sugar confectionery, Albuminoidal substances; modified starches; glues; enzymes, Fertilisers, Preparations of vegetables, fruit, nuts or other parts of plants, Copper and articles thereof, Knitted or crocheted fabrics, Miscellaneous edible preparations, Products of the milling industry; malt; starches; inulin; wheat gluten, Other base metals; cermets; articles thereof, Zinc and articles thereof, Salt; sulphur; earths and stone; plastering materials, lime and cement, Raw hides and skins (other than furskins) and leather, Glass and glassware, Ores, slag and ash, Articles of apparel and clothing accessories, not knitted or crocheted, Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal, Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere , Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable , Articles of iron or steel, Vegetable plaiting materials; vegetable products not elsewhere specified or included, Articles of apparel and clothing accessories, knitted or crocheted, Lead and articles thereof, Cocoa and cocoa preparations, Paper and paperboard; articles of paper pulp, of paper or of paperboard, Miscellaneous articles of base metal, Nickel and articles thereof, Vehicles other than railway or tramway rolling stock, and parts and accessories thereof, Other made-up textile articles; sets; worn clothing and worn textile articles; rags, Railway or tramway locomotives, rolling stock and parts thereof; railway or tramway track fixtures , Residues and waste from the food industries; prepared animal fodder, Wood and articles of wood; wood charcoal, Toys, games and sports requisites; parts and accessories thereof, Ceramic products, Commodities not elsewhere specified, Footwear, gaiters and the like; parts of such articles, Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates, Wool, fine or coarse animal hair; horsehair yarn and woven fabric, Works of art, collectors' pieces and antiques, Photographic or cinematographic goods, Headgear and parts thereof, Cork and articles of cork, Clocks and watches and parts thereof, Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn, Products of animal origin, not elsewhere specified or included, Aircraft, spacecraft, and parts thereof, Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles, Carpets and other textile floor coverings, Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings, Musical instruments; parts and accessories of such articles, Beverages, spirits and vinegar, Silk, Tobacco and manufactured tobacco substitutes.

However, Pakistan exports to India edible fruit and nuts; peel of citrus fruit or melons, Salt; sulphur; earths and stone; plastering materials, lime and cement, Raw hides and skins (other than furskins) and leather, Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical, cotton, Iron and steel, copper and articles thereof, Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, sugars and sugar confectionery, fertilisers, ores, slag and ash, Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal, glass and glassware, Rubber and articles thereof, wool, fine or coarse animal hair; horsehair yarn and woven fabric, Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other colouring , Plastics and articles thereof, Articles of apparel and clothing accessories, not knitted or crocheted, beverages, spirits and vinegar, preparations of vegetables, fruit, nuts or other parts of plants, Lac; gums, resins and other vegetable saps and extracts, Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof, coffee, tea, maté and spices, articles of apparel and clothing accessories, knitted or crocheted, toys, games and sports requisites; parts and accessories thereof, other made-up textile articles; sets; worn clothing and worn textile articles; rags, articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles, Essential oils and resinoids; perfumery, cosmetic or toilet preparations, Knitted or crocheted fabrics, Paper and paperboard; articles of paper pulp, of paper or of paperboard, Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof, Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal, Articles of stone, plaster, cement, asbestos, mica or similar materials, Silk, Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable, Articles of iron or steel, Man-made staple fibers, Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television, Fish and crustaceans, molluscs and other aquatic invertebrates, Residues and waste from the food industries; prepared animal fodder, Printed books, newspapers, pictures and other products of the printing industry; manuscripts, Lead and articles thereof, Footwear, gaiters and the like; parts of such articles, Miscellaneous manufactured articles, Edible vegetables and certain roots and tubers, Man-made filaments; strip and the like of man-made textile materials, Organic chemicals, Preparations of cereals, flour, starch or milk; pastry cooks' products, Carpets and other textile floor coverings.

The past trade history also unfolds that the economic managers of the both the states realized the importance of the bilateral trade agreement and to this effect both the states inked an 11 months first ever bilateral trade agreement on August 5, 1952 which came into effect from August 8, 1952 till June 30, 1953. Under which Pakistan was to import 26 commodities from India, And India was to import 14 commodities from Pakistan. Mr M Karamatullah signed the trade agreement on behalf of Pakistan whereas Mr Bhoothalingam on behalf of India. Mr M Karamatullah was leader of Pakistan trade delegation who remained in talks with India trade team headed by Mr Bhoothalingam.

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