India and Pakistan In a Trade Thaw by Stealth: Choudhury

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By Chandrahas Choudhury

Perhaps more than 90 percent of news items that bring together India and Pakistan, the subcontinent's two great powers, report something negative: tensions along the border, bickering over the disputed state of Kashmir, concerns about terrorism, or, at its most benign, a storm of jingoistic sentiment and flag-waving on both sides on the eve of an important cricket match (as when the two countries met in the semifinal of the cricket World Cup last year).

So it came as a surprise last week when Pakistan's announcement of a "negative list" of items that couldn't be traded with India was warmly welcomed by the governments of both countries as a positive development. Margherita Stancati and Tom Wright reported in the Wall Street Journal:

Pakistan announced a goal of normalizing trade with India by the end of the year, a gesture that is part of tentative attempts to improve relations between the nuclear-armed neighbors.

In a statement Wednesday, the office of Pakistani Prime Minister Yousuf Raza Gilani said the government planned to phase out major restrictions on Indian imports by Jan. 1, 2013.

Pakistan recently scrapped a system of allowing imports of fewer than 2,000 items from India. It moved instead to a "negative list," which bans around 600 items from India but allows trade in all other goods.

Must news of an opening up of trade relations between neighbors that have gone to war on each other thrice in six decades be phrased by governments in such a contorted way? Apparently it must, or no one will take it seriously. The technicalities of this statement, and its implications for bilateral trade, were explained in The Times of India:

The Pakistani cabinet's decision to switch over to a negative list for trade with India could mark a historic step in bilateral relations. The move comes in the wake of Indian commerce minister Anand Sharma's recent visit to Pakistan that saw Islamabad promise normalisation of trade relations, eventually culminating in the granting of most-favoured nation (MFN) status to India. Although India had granted Pakistan MFN status way back in 1996, Pakistan maintained a restricted positive list of 1,900 Indian import items. [...]

Liberalised two-way trade has been a long-standing demand of the business community on both sides of the border. However, political exigencies have prevented business relations from reaching their full potential. Two-way trade currently stands at $2.7 billion but is expected to touch a high of $6 billion by 2014 after restrictions are removed.

As the article notes, trade between the two countries, with a combined population that is one-fourth of that of the world, stands currently at a pitiful $2.7 billion. As a World Bank study in 2007 on the prospects of bilateral trade as a growth driver for both countries noted, current volumes of India-Pakistan trade amount to "only 9 percent of the trade that occurs between Argentina and Brazil, two countries of comparable size and proximity." As things stand, the balance of what little trade that exists is heavily weighted in India's favor. The decision, therefore, has much more significance, both as an opportunity and a challenge, for the struggling Pakistani economy, and many Pakistani newspapers voiced fears that local industry would be jolted by a flood of cheap Indian imports.

But the larger context of the news wasn't so much economic as political. The more that two neighboring countries trade with each other, the harder it is for them to go to war. In the case of India and Pakistan, the walls against trade erected by both governments are even more tragic given the subcontinent's long history as an integrated market and as the site of one of the world's most ancient and storied trade routes: the Silk Road, encompassing present-day India, Pakistan, and Afghanistan.

People in both countries carry family histories, and, inevitably, memories of trade, rooted in a world that now lies across the border (the prime minister of India, Manmohan Singh, was born in 1932 in a part of west Punjab that now lies in Pakistan; Pervez Musharraf, the former president of Pakistan, was born in New Delhi). These memories continue to circulate, as I found out last week when I said to the fruit vendor on my street in Delhi that his pomegranates weren't very good and he replied, "You should have been around in the old days, when pomegranates used to come in from Pakistan. Oh, they tasted like honey!"

The same World Bank study noted that South Asia's intra-regional trade was the lowest in the world, lower even than local trade in sub-Saharan Africa. It explained how trade between India and Pakistan had been in a state of regress over six decades:

At the time of independence, almost three-fifths of Pakistan’s total exports were directed to the Indian market, and one third of its imports came from India. The situation began to change when Pakistan refused to devalue its currency after India’s devaluation in 1949 and later imposed import restrictions. Bilateral trade declined sharply during periods of conflict or heightened tensions. It increased only slowly as political relations improved. Trade between India and Pakistan almost ceased altogether from the mid-1960s to mid-1970s due to the 1965 India–Pakistan war and the 1971 East-Pakistan war, which led to the creation of Bangladesh. More recently, bilateral relations between the two countries became tense after the 1999 Kargil war, as well as after the attack on the Indian parliament building in December 2001 by allegedly Pakistan-trained Kashmiri terrorists. Overall, it took four long decades before trade volumes (measured in nominal terms) between the two countries exceeded the levels of the early 1950s.

This may now change, perhaps to the extent that there occurs -- to use the jargon of international relations -- a long-awaited paradigm shift in the relations between the two countries. The most ringing endorsement of the work done by the two governments was supplied by the political analyst C. Raja Mohan in The Indian Express:

In a great irony, one of Pakistan’s weakest governments, led by President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani, has broken one of the country’s biggest political taboos by throwing open its borders for trade with India. Until recently, Pakistan’s leaders had a simple political guidance: no trading with the enemy until the question of Jammu and Kashmir is resolved. Islamabad is now ready for business, and its new course could alter the economic, political and security landscape of the north-western subcontinent.[...]

Despite some residual opposition, Zardari and Gilani have delivered on normalising commercial relations with India. Their boldness vindicates Prime Minister Manmohan Singh’s policy of engaging Islamabad despite the lack of progress in bringing the plotters of the November 2008 terror attack on Mumbai to justice. Dr Singh’s decision in the summer of 2009 to break the political linkage between the resolution of the Mumbai case and renewed dialogue with Pakistan drew much flak in India. Pakistan’s civilian leaders had little to do with the Mumbai attack; nor were they in a position to confront the forces that had organised it. It would have been utterly unwise for India to turn its back on Zardari who came to power in 2008 promising to open a new chapter in relations with India. [...]

Annual bilateral trade is expected to grow rapidly from the current pitiful figure of US$ 2.7 billion. According to business chambers in the two countries, trade volumes could reach US$ 10 billion by 2015, as the current indirect trade flows through the official channels. That is just the beginning. As part of the current trade liberalisation, the two sides are close to easing the current restrictive visa regime, which was established way back in 1974. Other agreements are on the anvil for letting their banks open branches across the border, permitting mutual investments, connecting electric grids, and promoting overland petroleum trade.[...]

[But] Delhi will have to do a lot more to nurture and deepen the emerging economic engagement with Pakistan. For one, it must be politically sensitive to the current imbalance in bilateral trade which is likely to further widen in India’s favour as Pakistan opens up. India’s current exports to Pakistan are nearly eight times the value of imports. Just as Delhi complains about the unequal trade with Beijing, trade deficit is bound to emerge as a political issue in Pakistan in the not-too-distant future.India must consciously facilitate more imports from Pakistan. Demonstrating that trade with India can be both free and fair is a major strategic imperative for India.

As Zardari delinks the political from the economic, Dr Singh must signal that contentious security issues are not being taken off the table.

And in a piece entitled "Economics scores over mindless patriotism" in The Economic Times, Amiti Sen wrote:

Pakistan also needs to be applauded for managing to separate the Kashmir issue from trade. For decades the two have been linked and the Pakistani government had been maintaining that it could give India MFN only when the Kashmir problem was satisfactorily resolved.

Pakistani foreign minister Hina Rabbani Khar [...] pointed out that Pakistan's founder Muhammad Ali Jinnah had bequeathed to the people "normal trade relations" with India at the time of the country's creation in 1947, and that these arrangements had continued till 1965, when the two countries fought a war.

In the last 47 years since the war, a lot of water has flown under the bridge and both India and Pakistan are facing completely different economic and political realities. Since regional trade groupings have become the new trade order now, it is time for both countries to bury their differences and work together to make the South Asia free trade agreement more meaningful.

Of course, there is still plenty of wariness on both sides because of the continuous history of troubled relations between the two countries over core issues of foreign policy. The Indian Express warned that "it must be remembered that subcontinental foreign policy — especially in Pakistan, and with regard to India — is prone to sudden domestic reversals which can unravel deals already secured."

Even so, my fruit-loving self hopes to see a day not very far in the future when I can buy Pakistani pomegranates in a Delhi winter, and then voyage to Lahore or Karachi in the summer (the Pakistani government having generously liberalized the current forbidding visa regime, and my friends among Pakistani novelists -- such as the dashing HM Naqvi, who owns as many fur-lined jackets as Imelda Marcos had pairs of shoes -- having invited me over) to find in the markets there the splendid benishan mangoes of south India.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for the World View blog. The opinions expressed are his own.)

To contact the author of this blog post: Chandrahas Choudhury at

To contact the editor responsible for this post: Max Berley at

-0- Mar/07/2012 17:28 GMT