The initial excitement over prospects of Pakistan and India trading freely with each other in spite of their long-standing political and territorial disputes is fast waning.
Many businessmen are disappointed by India's ‘unwillingness’ to dismantle tariff, non-tariff and technical barriers restricting Pakistani exports. They are also not happy with their own government for moving too fast on India-Pakistan trade during the last two years without securing fair trade terms for the domestic industry from New Delhi.
With the process of granting MFN (most favoured nation) status to India already stalled, a majority of the businesspersons want Islamabad not to abolish the negative list of items that cannot be traded with India until it agrees to take steps to remove restrictive trade regime for the Pakistani goods.
Islamabad initiated the process of granting MFN status to India in late 2011 and set December 31, 2012 as deadline for full normalisation of bilateral trade. The decision was deferred for the time being due to India's failure to ‘reciprocate’ with same speed on Pakistan's concerns over NTBs.
Now the industry wants the government to use the intervening time to negotiate hard with the Indians to get fair trade terms before complete opening up of bilateral trade. "We are not opposed to normalisation of trade with India. No businessman is. But it shouldn't be done at the cost of domestic industry," says a senior executive of a local motorcycle maker on the condition of anonymity.
He says Pakistan will lose power to negotiate better trade terms with India once the MFN status is granted unconditionally. "We may see thousands of manufacturing jobs shift to India unless a level playing field is made available to Pakistani exports. With Pakistan facing severe energy crisis and security problem, who would want to invest here if he could set up industry just across the border and send his goods here and beyond without any difficulty?," he asks.
Many point out that Pakistan's exports to India stood at just $300mn - nearly 1.2 per cent of the country's total exports - compared to India's exports of nearly $1.5bn though New Dehli had granted us MFN status in 1996. They blame different NTBs related to complexity of regulatory procedures, non-transparent regulations, port restrictions and safety and health standards and valuation of the goods, etc for the low level of Pakistani exports that the government hopes would rise to $1.5bn by 2016 if bilateral trade relations are normalised.
A new Indian Council for Research on International Economic Relations (ICRIER) study - Enhancing India-Pakistan Trade - has estimated bilateral trade potential between the two countries to be $19.8 billion, which is 10 times larger than the current $1.97 billion in trade. Of this, India's export potential accounts for $16 billion and import potential $3.8 billion. The potential in mineral fuels is another $10.7 billion, of which export potential is $9.4 billion and import potential $1.3 billion.
The study points out that a substantial proportion of India’s export potential, around 58 per cent, is in products that are on Pakistan’s negative list for India or on the sensitive list applicable to India under the South Asian Free Trade Area (Safta). Likewise, 32 per cent of India’s import potential is in items on the sensitive list for Pakistan under the agreement. India’s sensitive list indicates that the textiles sector is protected the most - an area in which Pakistan has an edge.
The study acknowledges NTBs have always been a key issue with Pakistani businesspeople while accessing the Indian market. While the study admits the NTBs to be genuine, it says these aren't Pakistan specific or discriminatory and are being addressed in India’s ongoing reform process.
"It is more difficult to address ‘perceived barriers’ that businesspeople face in entering each other’s markets. Businesspeople fear entering these markets as they are not sure their goods will be welcomed. This is more so in the consumer goods market segment.
However, there is evidence that some businesses have made a bold entry with their country labels and have not met much resistance...," the study states.
Tasnim Noorani, the former commerce secretary, believes that free trade with India on fair terms can bring windfall for Pakistan. But, he adds, it is unlikely to happen unless India changes its mindset towards Pakistan. "With the MFN status for Pakistan already in pace, there is little India can do to increase export potential of Pakistan when it comes to opening up of their borders for trade. The mood (towards Pakistan) created by media and political parties) is not favourable to Pakistan although we have given them a major concession by shifting to the negative list of items that cannot be traded from positive list of items that could previously be traded. They see Pakistani products entering their market as a challenge to their nationhood. That kind of mindset will have to be changed."
He agrees that India does not have Pakistan-specific NTBs. However, he says, it is the way the trade barriers are implemented that restrict Pakistan's penetration into the Indian market. Indian bureaucracy takes a very narrow and clerical view of the import restrictions while applying them to Pakistan.
"It is a matter of implementation (that makes the tariff and non-tariff, technical barriers Pakistan-specific): you may take magnanimous view or you may take a clerical view of the restrictions. In Pakistan's case they take clerical view."
A leading textile exporter, who believes that normalisation of trade with India will provide a very big market for the country's textile industry ridding it of its dependence on Europe and America, concurs with Noorani. "When I appointed a person as agent for my company in New Dehli, he was questioned by RAW and in less than one week he left the job," he says, requesting anonymity because of his business interests. He says it is near impossible or Pakistani textile companies to expand their business in India as tariff and non-tariff trade restrictions double their price by the time their products reach Indian consumers.
Former Lahore Chamber of Commerce and Industry president Irfan Qaiser Sheikh thinks that the two countries should continue to talk on easing restriction to facilitate bilateral trade despite problems, political and others. He doesn't believe that normalisation of bilateral trade will shift Pakistani jobs to India or affect investment here although it may impact on highly protected and monopolistic industries. Yet, he insists, India must remove all kinds of barriers restricting trade between the two countries in the larger interest of people of the two countries.