Growing intra-region trade is today the most obvious feature of international trade. Trade within regional blocs constitutes nearly 50 per cent of the global trade, which is likely to increase further. However, when it comes to South Asia, one is disappointed.

Trade among the seven member countries is less than 5 per cent of their global trade. The reasons for this are many but the major one is the low volume of trade between Pakistan and India, the largest economies and trading nations in the region.

The purpose of this article is to look into various issues concerning Pak-India trade. First we look at the volume of the merchandise traded between the two countries. The information is summarized in Tables 1,2 and 3.

The data show the following:

1. Though Pak-India trade has more than doubled from $237 million in 2002-03 to $476 million in 2003-04, it is merely 0.29 per cent of the total trade of the two countries! This means a lot needs to be done for an appreciable increase in trade between the two largest economies of the South Asian region.

2. During last five years that is between 1999-2000 and 2003-04 Pakistan's average exports to India have been $64.5 million a year. In 1998-99, Pakistan's exports to India were all-time high at $ 186 million. But the next years the same registered a sharp decline. Since then exports have failed to cross $100 million.

3. Pakistan's exports to India are much less than 1 per cent of its total exports. In recent times, it was only in 1998-99 that exports to India exceeded 2 per cent of the total exports. During last five years, the average annual share of exports to India in Pakistan's total exports has been only 0.63 per cent

4. During the last five years, Pakistan's total exports have grown up by 43 per cent. However, during the same period, exports to India have grown by 74 per cent. This means exports to India have increased at a faster pace than total exports.

5. In 2003-04, exports to India were recorded at $93.68 million, as against $70.6 million the previous years, thus showing an increase of 33 per cent. During the same period, however, Pakistan's total exports increased by only 10 percent

6. Imports from Pakistan form an abysmally small part of total imports of India. The latest figure being 0.12 per cent. In 1999-2000, the contribution of the imports from Pakistan in total Indian imports was 0.108 per cent, which means Pakistan's share in Indian imports during last half decade has remained almost stagnant. However, during the same period, total Indian imports have gone up by 52 per cent.

7. For Indian exports as well, Pakistan is a small market. Average annual exports of India to Pakistan during last five years have been $220 million-only 0.44 per cent of total Indian exports.

However, exports have shown an inconsistent trend: Indian exports to Pakistan almost doubled from $127 million in 1999-2000 to $238 million in 2001-02. However, the next year, exports declined. In 2003-04, exports increased by 129 per cent over the previous year.

8. During last five years, total Indian exports have increased by nearly 68 per cent, while during the same period, the country's exports to Pakistan have gone up by 200 per cent.

The share of imports from India 'in Pakistan's total imports has risen to 2.47 per cent from 1.36 per cent in 2002-03 and 1.23 per cent in 1999-2000. This means during the last five years, the share of Indian imports in Pakistan's total imports has gone up by 100 per cent, while 'during the same period Pakistan's total imports have increased by 50 per cent.

9. Trade balance has remained in favour of India. Pakistan's trade deficit has gone up by nearly 300 per cent from $73.65 million in 1999-2000 to 288.68 in 2003-04. Compared with 2002-03, trade deficit has increased by more than 200 per cent.

It is the increasing deficit in Pakistan's balance of trade with India that is one of the two capital reasons for Pakistan not to grant MFN status to India. The other major reason is the political tensions between the two countries rooted in the Kashmir problem.

However, it is only for the second reason that Pakistan has enjoyed exemption from giving the MFN status to India under the WTO. Thus reasons for restricted trade with India are two-fold: economic and political. We take the economic reasons first.

Despite enjoying MFN status, there has not been an appreciable increase in Pakistan's exports to India. But then the same is true of Pakistan's over-all export performance.

In fact, as mentioned in a preceding paragraph, increase in Pakistan's exports to India has outpaced increase in its total exports. The grant of MFN status in itself is no guarantee that exports will increase.

The basic condition for a considerable increase in exports is competitiveness. In a world of cut-throat competition, a country needs to offer high quality or inexpensive products to increase or even maintain its share in an 'export market. The major reason for slow growth of Pakistan's exports is that they are deficient in competitiveness.

Hence, for increasing its exports to India, or for that matter to any other market, Pakistan must enhance the competitiveness of its exports. No doubt, India has maintained high tariffs on most of the products exported by Pakistan. But then the WT0 itself does not specify how much tariffs are to be reduced.

The issue is to be settled on bilateral level. However, international negotiations are based on a quid pro quo. If Pakistan asks India to cut its tariffs, the former will have to offer the latter something in return. And it is doubtful India will settle for anything less than MFN status or better market access.

Besides, giving MFN status to other member countries is a basic requirement under the WTO and no country can get away with that indefinitely. Therefore, sooner or later, voluntarily or by compulsion, Pakistan will have to grant MFN status to India.

The other argument is that opening market to India will flood the Pakistani market with cheaper Indian goods and thus cause incalculable loss to the local industry. However, Pakistan has already unhindered trade with China whose products are as cheap, if not more, as India's.

Besides, certain safeguards are available under the WTO to protect the local industry: under the Agreement on Safeguards, a country can restrict imports of a product if they increase to such a high level as to cause or threaten to cause serious injury to competing local products.

Imports can be restricted either by increasing the bound rate of tariffs or by clamping quantitative trade restrictions or quotas on them. Normally, the safeguard action has to be taken in a non-discriminatory manner that is against the imports of all countries affecting the local industry.

However, in special circumstances, quantitative restrictions may be applied to only one country in case imports from that country "have increased in disproportionate percentage in relation to the total increase of imports of the product concerned in the representative period." The safeguard measure however is a stop gap arrangement available only for a maximum of 10 years, during which the competitiveness of the local industry has to be increased.

Under the Article XII of the GATT, a country can restrict imports to overcome balance of payment (BoP) problems. Hence, if Pakistan faces BoP problem due to a possible onslaught of Indian imports, the said article can be invoked.

Denial of MFN status to India is also, incompatible . with the SAFTA Agreement. How can Pakistan give preferential treatment to imports from India under the SAFTA agreement when it is not prepared to give it normal treatment under the MFN?

Trade with India will yield certain advantages:

* Greater access to Indian imports will definitely benefit Pakistani consumers, who will be having access to cheaper goods particularly autos and medicine.

* Textile industry will benefit by importing cheaper textile machinery. Cheap import of iron ore will benefit the steel industry.

* Pakistani products will have access to the second largest and potentially the largest market in the world. In case, we increase the competitiveness of our products, the potentially large demand may help realize the economies of scale, which will make our products more price competitive.

* The $3 billion worth informal trade between the two countries will be formalized. The legalizing of trade through smuggling will help the government earn revenue in the form of import taxes.. The third country trade will reduce the cost of transport and goods prices will come down.

As for the political reasons, Pakistan has linked normalization of economic relations with India to that of political relations, in particular the resolution of the Kashmir dispute. India's standpoint however is that economic relations between the two countries should not be affected by their political relations; in principle, the Indian argument is sound.

There are many examples of countries-China and Taiwan, the USA and the former USSR-having normal trading relations notwithstanding political tensions between them. Besides, better economic relations will increase common stakes, which will contribute a lot to defusing political tensions.

However, India on its part should show real willingness and sincerity to resolve political issues between the two countries, as all said and done it is difficult to separate politics from economics in our part of the world.