The Hindu : Fostering Bilateral Trade

Online edition of India's National Newspaper
Friday, Jul 11, 2003

Opinion

Opinion - Editorials

Fostering Bilateral Trade

THE LATEST ATTEMPT by the Governments of India and Pakistan to improve bilateral relations has now extended to the economic sphere. While it may be fanciful to speak at this point of a "South Asian Union" trade bloc, as the Foreign Minister, Yashwant Sinha, has done, any move to increase trade between India and Pakistan is to be welcomed. An improvement in bilateral relations at the political level does lead to greater trade. The reverse is also true. The development of economic relations between countries too brings them closer. It is useful to remember that the European Union has its roots in the formation in 1952 of the European Coal and Steel Community, which was created partly to give West Germany a greater stake in a closely integrated Europe and thereby prevent the outbreak of another war on that continent. An India and Pakistan bound by a large movement of goods and people would have an interest in resolving the many disputes that have bedevilled bilateral relations for decades.

Trade between India and Pakistan is at the best of times a meagre $200 million a year. Unofficial trade, smuggled or routed through West Asia, is estimated at 10 times this amount. Still, the volume of total trade between the two countries is insignificant given their size and broadly similar economic structures. The political hostility between India and Pakistan that has spilled over into the economic arena has had another effect — of stifling the development of a free-trade region in South Asia. The tensions between the two biggest countries of South Asia have affected economic exchanges among all the countries in the sub-continent. And this has resulted in South Asia being one of the few regions in the world without a regional trade bloc of any significance. The South Asian Free Trade Area was supposed to have been established in 2002, yet even the preparatory union, the South Asian Preferential Trade Area, has not developed fully. Trade within South Asia is still a mere four per cent of the region's total external trade. Given the baggage of history that India and Pakistan carry, any improvement in economic relations can take place only slowly. But Pakistani industry, which for years fearing that it would be swamped by imports from India resisted the development of bilateral trade, has recently become more aware of the opportunities from trade between the two countries. There no doubt remain differences within Pakistani industry about the benefits to be had from removing the existing curbs, but the slow change in attitude reflects a new realisation that it is not only Indian industry that will gain from trade. Pakistani goods, especially in light engineering and textiles, will be competitive in the Indian market. The lifting of the old fears clears the way for Pakistan eventually treating imports from India on the same terms as goods from elsewhere. With Pakistan then granting India the "most favoured nation" status, one thorn in bilateral trade relations will be removed.

It is encouraging that the India-Pakistan Chambers of Commerce and Industry, the joint grouping that is working for greater bilateral economic links, is now focussed on highlighting the infrastructural constraints on trade. The strange aspect of India-Pakistan trade is that the legal movement of goods can be conducted only by sea and air. The establishment of road and rail trade crossing points and, of course, the creation of a visa regime that facilitates business travel are two pre-conditions for fostering closer economic links between India and Pakistan.

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