INTRODUCTION

• A glimmer of hope for India-Pakistan trade emerged recently, with signs suggesting a potential rollback of the 2019 trade ban that choked trade for years due to strained relations.

HISTORY OF INDIA - PAKISTAN TRADE

1. Pre-Partition Boom (1947):

1. Deep economic ties existed.

2. Over 70% of Pakistan's trade was with India, and India was a major export destination for Pakistan.

2. Post-Partition Downturn (1947-1970s):

1. Partition in 1947 severed these ties significantly.

2. Several attempts were made to revive trade through agreements, but wars in 1965 and 1971 further strained relations, leading to a sharp decline in trade volume.

3. Limited Resumption & Regional Initiatives (1970s-2000s):

1. After the 1971 war, some trade resumed, but remained limited.

2. The South Asian Preferential Trading Arrangement (SAPTA) was signed in 1995 aimed for regional integration provided some tariff concessions.

1. It paved the way for South Asian Free Trade Area (SAFTA) in 2004, between Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.

4. Short-lived Normalization Efforts (1990s-2010s):

1. India granted Pakistan Most Favoured Nation (MFN) trading status, leading to a temporary rise in trade.

2. Initiatives like switching to a negative list system (easier trade) and opening land routes for trade were undertaken.

REASON FOR THE TRADE BAN

1. Pakistan suspended bilateral trade with India in August 2019, after the Indian government abrogated Article 370 of the Indian Constitution.

2. India withdrew Pakistan’s Most Favoured Nation (MFN) status in the aftermath of the Pulwama terrorist attack in 2019 which led to the deaths of 40 personnel.

TRADE STATUS BEFORE BAN

1. Trade Imbalance:

1. India maintained a significant trade surplus over Pakistan: In 2019-20, India's exports to Pakistan were estimated to be around $750.58 million, while Pakistan's exports to India were around $80 million

2. Top Indian Exports to Pakistan:

1. In 2018-19, cotton ($550.33 million) and organic chemicals ($457.75 million) accounted for around half of Pakistan’s imports from India..

3. Top imports from Pakistan:

1. In 2018-19, included mineral fuels and oils ($131.29 million), edible fruits and nuts ($103.27 million), salt, sulphur, stone and plastering materials ($92.84 million), ores, slag and ash ($17.18 million) and raw hides and leather ($16.27 million).

CURRENT TRADE STATUS BETWEEN INDIA - PAKISTAN

• Trade Halt: Formal trade between India and Pakistan has been suspended since August 2019 due to Political tensions, particularly regarding Kashmir.

WHY PAKISTAN IS RECONSIDERING IT NOW ?

1. Economic Distress: Pakistan's new government faces significant economic challenges due to devastating floods in 2022, high inflation, and political instability alongside structural issues, resuming trade with India, a much larger economy, could offer several benefits such as:

1. Increased market access for Pakistani goods, potentially boosting exports.

2. Access to cheaper raw materials and finished products from India, lowering production costs for Pakistani businesses.

3. Potential for attracting foreign investment due to a more integrated regional market.

2. Limited Success with Other Partners:  Pakistan's heavy reliance on China might not be yielding the desired economic benefits. Diversifying trade partnerships, including with India, could be a strategic move.

3. Dependence on External Support: Pakistan is heavily depended on the International Monetary Fund (IMF) or friendly countries like Saudi Arabia and China for billions of dollars in loans. With the pause in trade with India and importing goods from faraway countries further depletes its low foreign exchange reserves.

4. Unofficial Trade:Large unofficial trade ($2 billion annually) shows unmet demand for trade between two countries. Formalizing it would benefit economies.

1. Unofficial estimates suggest billions in lost trade ($10-12 billion) rerouted through Dubai and Singapore.

2. A World Bank study identifies significant potential for increased trade between India and Pakistan, estimating it could reach $37 billion with the removal of taxes and import bans

IMPLICATIONS ON INDIA:

1. POSITIVE IMPLICATIONS:

1. Rebuilding Trust and Dialogue: Trade restart could be a confidence building measure, boosting dialogue and regional peace through increased interaction.

1. Solution for matters related to the Indus water Treaty and Line of Control.

2. Boosting economic growth by reviving theTrade Potential: India-Pakistan trade holds untapped potential, promising growth, jobs, and broader economic cooperation if restarted.

1. Bilateral trade between India and Pakistan has increased to USD 1.35 billion during April-December 2022 as against USD 516.36 million in the whole 2021-22.

3. Diversification and Competitiveness: Open trade routes between India and Pakistan mean more choices and lower prices for both: India gets Pakistani textiles, Pakistan gets Indian medicines, competition boosts the quality too.

4. Reducing Conflict Risks: Trade dependence discourages conflict by making war too costly for both sides, also shared economic interests could push India and Pakistan towards peaceful solutions.

5. Addressing Cross-Border challenges:Trade facilitation requires addressing and managing security concerns at border crossings, which could lead to improved security protocols and cooperation. 

6. Facilitate Indian Exports: By establishing a trade mechanism with Pakistan, India could gain access to a land route for exports to Iran, Afghanistan, and Central Asia.

1. Major boost to the International North-South Transport Corridor (INSTC) is a 7,200-kilometre-long route that connects India, Iran, Azerbaijan, Russia, Central Asia, and Europe via ship, rail, and road.

2. NEGATIVE IMPLICATIONS:

1. Security Concerns: India's security establishment might worry that expanded trade routes with Pakistan could be exploited for smuggling or terrorist activities.

2. Competition:  Pakistani imports could put pressure on some Indian industries especially Textile and Chemical Industry.

3. Uncertain Political Climate:  Pakistan is always facing political unrest, so any future political tensions could disrupt trade flows again, creating economic uncertainty for Indian businesses.

4. Implementation Challenges:  Re-establishing trade infrastructure and  protocols could be a complex process, requiring significant investment and potentially facing bureaucratic hurdles.

WAY FORWARD

1. CONFIDENCE BUILDING MEASURES:

1. Phased Approach: Begin with resuming trade in non-controversial goods, building trust before expanding to more sensitive sectors.

2. Sports and Cultural Exchanges: The recent exchange of sports visas is a positive step. Expanding such CBMs, like cultural exchanges or joint events, could foster goodwill.

3. Improved Communication: Resuming meetings of the Indus Water Commission, responsible for managing shared water resources, demonstrates commitment to peaceful solutions.

2. Addressing Security Concerns:

1. Joint Counter-Terrorism Efforts: India and Pakistan can cooperate on tackling terrorism, demonstrating a commitment to regional stability.

2. Transparency and Cooperation: 

1. Trade Statistics Portal: Establishing a joint online portal publishing comprehensive trade statistics, including data on imports, exports, and customs procedures, would enhance accessibility for businesses and policymakers.

2. Real-time Trade Data Sharing: Implementing systems for real-time or near-real-time data exchange on trade flows can improve transparency and reduce discrepancies.

3. Regional Integration:

1. Multilateral Trade Agreements: Explore the possibility of regional trade agreements involving India, Pakistan, and other South Asian countries, promoting broader economic cooperation.

2. Focus on Shared Challenges: Work together on regional challenges like poverty, climate change, and infrastructure development, fostering a sense of collective responsibility.

3. Long-Term Vision: Develop a long-term vision for economic integration in South Asia, with trade as a cornerstone for regional stability and prosperity.

   SHORT TAKE

   • WTO’S Most Favoured Nation Principle: It aims to promote non-discrimination and equal treatment in international trade, which can lead to increased competition, lower prices for consumers, and greater economic growth.

   • It requires Members to accord the most favourable tariff and regulatory treatment given to the product of any one Member at the time of import or export of “like products” to all other Members. 

CONCLUSION

Despite Pakistan's past actions, India should engage with their recent overtures for better relations. However, India must make clear that ending terror support is a non-negotiable condition. Regional crises like COVID-19 demands cooperation, and a divide

Tags:
Polity

Keywords:
INDIA PAKISTAN WTO TRADE NEIGHBOURHOOD IR