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March 13, 2019

Make trade, not war


March 13, 2019

Trade between Pakistan and India becomes one of the first victims of tensions between the two neighbours. Instead of looking towards Europe, which sorted out decades of warfare between each other, by recognising their collective interest in trade, the two South Asian neighbours continue to see trade as a bargaining chip. Amidst a resumption of barter trade on the Kashmir border after the recent tensions, officials at the Ministry of Commerce have briefed that historic tensions between the two neighbours have resulted in a collective loss of around $35 billion in potential trade between the two countries. If the political leadership of the two countries wanted to do their job better, they would work towards actualising the potential that this trade offers to their respective economies. This failure of policy has caused a loss of potentially trillions over the last decade as the rhetoric of enmity has triumphed over the mutual benefit the two countries could have drawn from each other.

There was a time when both countries were heavily reliant on each other. In 1948-49, 23.6 percent of Pakistan’s exports went to India, while around 50 percent of Pakistan’s imports came from India. Decades of tensions have brought those percentages down with trade between the two countries stagnant at just over $2 billion. Part of the fault lies with Pakistan. India extended the Most Favoured Nation (MFN) status to Pakistan under the WTO framework in 1996; Pakistan has never reciprocated the gesture. The first trade issues between the two started in 1949 when the Pakistani finance minister removed some items from India from the exemption list. India reciprocated by suspending coal exports to Pakistan. Bilateral trade tumbled to zero after the 1965 and 1971 wars.

After the Pulwama attack, India imposed a 200 percent customs duty on Pakistani products, which meant little beyond a symbolic gesture at showing strength to the Indian public. Pakistan’s actual exports to India today lie at a meagre $350 million. The Ministry of Commerce in Pakistan responded in kind by proposing to put 90 items imported from India under the negative list as well as banning $600 million in items exported from India to Afghanistan. The Pakistani leadership made the bold choice of not agreeing to the measures, which suggests sanity prevailing on at least one side of the border. The story of the lost trade potential between Pakistan and India is an important one when talking about the case for peace between the neighbours. The shift to a Negative List regime for trade between Pakistan and India, instead of the South Asia Free Trade Agreement or WTO framework does not bode well for either country. Both countries have suffered losses as a result of their inability to sort their issues through diplomacy.

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