Opinion - News Analysis

India-Pakistan trade set for a quantum leap

Sushma Ramachandran

The decision to remove all trade barriers is expected to help trade between the two countries increase substantially.

WITH THE green signal given at the political level to remove all barriers to trade between India and Pakistan, the stage is now set for a quantum leap in exports and imports. The focus on trade during the visit to India of Pakistan President Pervez Musharraf and the commitments made on both sides to eliminate any perceived or real obstacles are expected to smooth out most of the irritants facing traders in the two countries.

One of the issues that India, as the bigger economy, will have to look at sympathetically is the skewed balance of trade with Pakistan. During 2004-05, exports from India are expected to reach $440 million while imports from Pakistan are to be about $60 million. New Delhi has promised to address the concerns about non-trade barriers being raised by Pakistan in a bid to raise the level of imports.

Commerce and Industry Minister Kamal Nath told The Hindu: "We will remove any perceived non-trade barriers to imports from Pakistan." He clarified, however, that in the case of high tariffs on items such as textiles, it would only be possible to reduce them as part of a bilateral agreement. The recently set up Joint Study Group on trade would aim at such an agreement, he said.

Perceived barriers

There are also other "perceived" NTBs such as certifications required for products such as molasses and textiles, which are expected to be resolved as far as possible unless strategic or security issues are involved.

Mr. Kamal Nath was upbeat about the prospects of more trade flows largely because of the change in approach by Gen. Musharraf who highlighted the issue during the talks with Prime Minister Manmohan Singh. The Pakistan President is believed to have been circumspect about the prospect of giving most favoured nation (MFN) status to India mainly because of the huge imbalance in trade. He was, however, enthused by the prospect of buying raw materials from India to fuel the manufacturing sector in his country. Till then, he had been concerned about possibilities of industry in Pakistan being swamped by cheaper products from India's much larger business houses.

One of the proposals being considered, for instance, is to import long staple cotton at zero duty and in turn, export value added cotton yarn also at zero duty to Pakistan. Steel exports from here would also help industry in that country, being much cheaper than imports from the rest of the world. Similarly, the prospect of buying wheat from India is said to have been discussed during the recent talks between the two Commerce Ministers. Some quality issues were raised, but quickly dismissed as similar types of wheat are grown in both countries.

Long negative list

The next step for Pakistan will be to reduce its long negative list of imports from India. Commodities such as wheat and raw materials such as steel will have to be removed from this contentious list for any forward movement to take place. As for India, it will have to make specific duty concessions to ensure that the current estimated "unofficial" trade of $ 1 billion between the two countries moves through the official route.

What is of significance is the pace at which the talks have moved. The morning meeting between Gen. Musharraf and Manmohan Singh was followed on the very same day by talks between Mr. Kamal Nath and his counterpart, Humayun Akhtar Khan. It is to be seen whether bilateral trade flows which have already doubled from $250 million to $500 million over the last three years rise with the same speed.

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