Free but Fair Tr ade - Dr Maleeha Lodhi

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Tue, May 22, 2012, Jamadi-Us-Sani 30, 1433 A.H. : Last updated 16 minutes ago

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Opinion

Free but fair trade

Dr Maleeha Lodhi

Tuesday, May 22, 2012

From Print Edition

The writer is special adviser to the Jang Group/Geo and a former envoy to the US

and the UK.

The economic conference organised earlier this month by the Jang Group and theTimes of India did more than bring together business leaders from Pakistan andIndia. The meeting in Lahore offered a timely opportunity to assess progress inthe trade relationship, review the benefits of liberalisation, identify thehurdles, and propose ways to overcome them.


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Soon after independence when the General Agreement on Tariffs and Trade (GATT)was concluded, its framers envisaged that Pakistan and India would constitute acustoms union in a mutually supportive economic relationship. That the Lahoreconference marked the move towards according Most Favoured Nation status to eachother an agreement simply not to discriminate against one another servedboth as a reminder of the reversal in the two nations trade relationship in thesix decades after independence and a measure of how far they have to go torealise the potential of trade.

The conference took place in the backdrop of an improved bilateral environmentand launch of official initiatives to liberalise trade. Several speakersreviewed these steps. In April a new, integrated border check post was opened tofacilitate the flow of goods. In February Pakistans cabinet decided to replacethe positive with a negative list, substantially increasing the items to betraded. The plan now is to phase this out and remove restrictions on tradableitems by December 2012, once negotiations are successfully concluded with Indiaon a level playing field for Pakistan.

To address mutual concerns in normalising trade, three MOUs have been signed on:a) customs cooperation, b) mutual recognition and c) redressal of tradegrievances. The key to further progress lies among other things in managing whatDr Ishrat Hussain, former governor of the State Bank, identified as eighteconomic and non-economic risks. His call to separate emotion from facts was awelcome one. Unless trade relations are embedded in reality, they risk beingshort-lived.

Along with the common refrain at the conference about the need to move past thepast, the hurdles in trade relations were detailed especially by Pakistanispeakers. Nothing, said Razzak Dawood, will happen unless the visa regime issimplified. This elicited assurances from officials that the upcoming meetingbetween the interior secretaries of the two countries would liberalise thecumbersome visa regime for the business community.

The advantages of mutual trade between South Asias two largest economies havelong been compelling. Even if all that happens is the bilateralisation ofcurrent indirect trade which takes place through third countries or other

informal ways the dollar volume of the present level of $2.6 billion inannual trade could quadruple. The potential of course is much more. Severalspeakers said bilateral trade would rise to $12 billion annually by 2015 anddouble that in ten years.

To achieve this potential, trade has to be free, but it also has to be fair.Trade liberalisation can be sustainable only if it is fair, balanced andmutually beneficial. At present bilateral trade consists of 15 percent of


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exports from Pakistan and 85 percent from India. So a conscious effort isrequired, and better preparation by Pakistans trade and industry, to ensuregreater equity in trade flows.

In particular the WTOs provisions on non-tariff barriers and other disguisedmeans that India uses to limit competitive exports as well as those relating toexplicit and hidden subsidies need to be faithfully implemented. Otherwise thespirit and substance of MFN will be defeated.

Indias trade regime continues to be much more restrictive than Pakistans. Theissue of tariff and non-tariff barriers (NTBs) resonated at the conference.Other than more general impediments imposed by Indias restrictive practicesthere are several Pakistan-specific barriers. They include stringent and lengthycertification requirements, transit restrictions, undue delays at customs postsand multiple customs clearances. One speaker referred to an official Indianreport that acknowledged that surveillance of those importing goods fromPakistan by Indias security agencies created formidable problems.

These issues and asymmetries in the tariff structures of the two countries haveto be resolved for fair trade. Pakistan also needs to strengthen its physicaland institutional capacity to ensure it can compete on equal terms. Pakistaniofficials assured participants that a positive outcome to negotiations underwaywith India on elimination of NTBs was a prerequisite to implementation of MFNstatus and scrapping the negative list.

Influential Pakistani voices at the conference also reminded the audience thattrade alone will not unlock solutions to the outstanding political disputesbetween the two countries. But it could lend impetus to problem solving provided

a deliberate effort is made to settle disputes.

It is worth remembering that movement in trade liberalisation and accompanyingimprovements in the political ambience, are as yet fragile. As has happened sooften in Pakistan-India history, painfully achieved progress can be quicklyreversed by an accident or incident arising from their political differences.Recent history also shows that the public mood in both countries, which todaysupports normalisation, can shift suddenly and dramatically.

Thus moves towards trade normalisation should not create a sense of complacencythat resolution of disputes has become any less urgent or imperative. On thecontrary, the positive atmosphere created should be utilised to find solutionswherever possible and to generate visible momentum for progress on alloutstanding issues including Kashmir.

There is no reason, for instance why the previously agreed outcome on the


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Siachen issue based on the 1989 joint statement cannot be formalised to endmilitary deployments by both sides, which exact such a high human and financialcost.

Steps taken in the past year by both sides to expand trade are an importantindication that the two countries want to accord primacy to economic developmentrather than political confrontation. As economic progress is a priority for bothcountries, they should also have every reason to avoid an expensive arms race,conventional and strategic that is still underway. Both countries must find aless dangerous and costly approach to preserve peace and security. Weaponsacquisitions and developments should address real not contrived threats tosecurity or those designed to project Great Power status.

History teaches that power including military power flows from the achievementof economic and social progress, not vice versa. Today both countries possespowerful militaries, deployed mostly against each other. Both are modern statesin some areas, but hardly so in others. In fact South Asia still contains overhalf of the worlds poorest who live in conditions often worse than in the

poorest parts of Africa. Neither country should ignore this grim reality.

Apart from Kashmir, the one issue that will dominate Pakistan-India relations inthe future is the equitable distribution and efficient use of the waters of theIndus Basin. So far agreement that has been elusive on water disputes. This mustbe forged in a spirit of accommodation on the basis of the existing Indus waterstreaty. A might is right approach will not work here anymore than it has inother areas.

If the political obstacles can be rationally addressed by Pakistan and Indiathis can open the door to three new and exciting dimensions of mutuallybeneficial economic cooperation.

Implementation of the South Asia Preferential Trade Agreement (SAPTA), interms of population the largest customs union in the world. This aims at zerotariffs by 2016.

Significant investment flows from within and outside the SAFTA zone.

Establishment of transit, transportation and energy links between South Asia,Central Asia, West Asia and China.


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As Mian Mohammed Mansha put it at the conference, the economic epicentre of theworld is shifting to Asia. This offers unprecedented opportunities for thosebold enough to seize them.

The prosperity that the above three approaches could generate are limitless. Butthere are hard choices for both the governments of India and Pakistan to make.Without these and the political accommodation needed to address outstandingdisputes, the trade opening could turn out to be another false start rather thana promising, new chapter in the relationship.

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