January 25, 2006	Wednesday	Zilhaj 24, 1426

KARACHI, Jan 24: The State Bank estimates the potential of Pakistan-India trade in the range of $1 billion to $5.2 billion in a year as according to an analysis of bilateral trade composition in the year 2004 there are 1,181 items worth $3.9 billion common between Pakistan’s exports and Indian imports. Similarly, against 2,646 common items of Pakistan’s imports worth $7 billion in the year 2004, India had exports worth over $15 billion.

The SBP study found that in case of over 50 per cent of these items, the unit values for Pakistan’s imports are more than the unit value of Indian exports hinting at the possibility of the import potential from India to Pakistan of many of these items at far cheaper cost than what is being paid now.

“Even after excluding the items which are currently permissible for imports from India, about 45 per cent of the items still remain in the common list which could be imported from India at a lesser cost than the current cost of import from rest of the world.” The study assesses Pakistan’s average national saving in foreign exchange between $400 million to $900 million provided Pakistan government expands its positive list of importable items from India.

There is an enormous potential for increasing trade flows between Pakistan and India. Compared to officially reported flow of $476 million during 2003-04, the SBP quotes an informal estimate of trade potential at $2.7 billion made by the commerce ministry.

A step wise approach has been suggested in expansion of bilateral trade. Initially, Pakistan should expand its positive list of importable items from India to include industrial raw materials which are now being imported from rest of the world at a higher cost. Such imports will be cheaper as transportation cost would also be low.

“The list can gradually be expanded in response as India offers more access to Pakistan’s exports,” the study suggests while proposing that the Pakistan’s list can finally be expanded to include all such importable items for which Indian tariffs and quantitative restrictions equivalents are equal or are lower than tariffs in Pakistan.

A reference has been made to Pakistan’s persistent trade imbalance with India for about last 10 years during which the growth of bilateral trade volume has also been dismal. The study blames restrictive trade regulations of Pakistan and Indian trade systems. India’s average tariff in 2003 was relatively high at 22.2 per cent compared to 14.9 per cent in Pakistan. The average median for developing countries is 11.2 per cent. Indian tariff peaks are concentrated in the agricultural, automobile and textiles and garments. In addition significant non-tariff barriers as well as export subsidies and domestic support in India have made difficult for Pakistani products to enter the Indian market.

Access to Indian markets can be negotiated in a bilateral framework while keeping in view the balance of payments concerns. The State Bank suggests the Pakistan government to initiate negotiations to seek reduction in restriction on its exports to India. There are recent precedents of bilateral negotiations between major trading partners arising due to growing trade imbalance owing to trade restrictions and an example of US-Japan trade negotiations has been mentioned.

The study expects social benefits for the poor people of Pakistan and India from the improvement in two way trade. There are about 373 million people living below poverty line out of combine population of 1.20 billion. India is a huge market second to China. Free trade will provide smaller economies like Pakistan access to new markets and increased demand for their products which in turn would raise output and employment levels and contribute to their prosperity. Continued strong growth in two large low income countries reduce global poverty, serve as an incentive to other developing countries and will benefit the world economy as a whole.

Trade liberalization, the study asserts will benefit consumers particularly in Pakistan, increase custom revenue and push out smugglers and trade mafias involved in what is being called circular trade through Dubai, Singapore and Afghanistan.

“With political and economic stability, India and Pakistan can expect fresh foreign investment,” the study hopes while pointing out cheaper cost of production, skilled labour, educated middle class, female literacy, booming economy, vital US and European interests in the region can change the fate of many people of the sub continent in a span of five to ten years.

The report observes that economic relations between countries are changing fast because of globalization and World Trade Organization (WTO) is making such changes compulsive. There are too many examples in the modern world of economic cooperation and cultural exchanges between political rivals leading to eventually a political settlement. The study mentions the close economic and trade relations between the Soviet Union when it existed with USA and Western countries, China and the USA and between China and India.

Improvement in India-Pakistan trade relations will make Saarc more vibrant and make it competitive for other regional blocs like ASEAN.