April 11, 2004

‘Ninety per cent of Belgium’s trade is with its neighbours. The European Union does 75 per cent of trade among its members. The ASEAN does around 50 per cent, while we, here in the subcontinent with over a billion people, are down to just 10 per cent,’ notes leading industrialist Razak Dawood

THE present change in the Indo-Pak relations has suddenly put trade on top of the national agenda, leading many people to believe that one side will gain more out of this equation at the cost of the other. Dispelling these doubts and fears, Razak Dawood, who is a leading industrialist and was the federal minister for Trade and Commerce till not long ago, talks unreservedly about the many facets and implications of trading with India.

Calling it better than the “sabre-rattling approach of the past”, Mr Dawood believes the formation of neighbourly blocs based on trade has always served the dual purpose of sustaining regional peace and improving economies concerned.

Talking to Dawn Magazine recently in Lahore, Mr Dawood sounded optimistic, but tried not to overlook the jagged edges of doing trade with India. The following are excerpts from the interview:

Q. Why are some sections of the business community wary of doing trade with India?

A. We have a whole array of people with varying attitudes. Some fear trade, while others see it as a welcome development. A large part of it has to do with the fear of the unknown.

Q. Fear of the unknown? Unofficial trade already exists between India and Pakistan, why should there be fear of the unknown?

A. As the trade is at an unofficial level, the cost is very high, as commodities have to come through Dubai. Pakistani business people feel they will be in an uncompetitive position when the duty starts dropping between the two countries.

Let’s look at it in terms of what India will get and what Pakistan will get out of it. One of the biggest plus points that we have is getting a bigger market, while India gets a smaller market. What India will get for its large industry is another outlet. Getting a source for cheaper raw material is a point which is definitely to our advantage. Having cheaper raw material is one of the reasons why India’s industry is competitive. As for labour, I am not too worried. We are the same in that area.

Why I am not so concerned about India is because we get a bigger market. If we can tap into the same source of cheaper raw material at the same price as India, why should we be worried? The challenge lies in their productivity versus our productivity. It lies in the quality of that product and better marketing.

On many issues in the field of quality control, we are better. Our textile product is certainly better and so are our home appliances. A genuine area of concern for our businessmen is India’s high non-tariff barriers which are far greater than what we have. It is easier to bring a product into Pakistan than India. Our economy is also more open than the Indian economy. Not only is their duty very high, their non-tariff barriers are also higher.

Q. Do you think the problem of high non-tariff barriers can become a point of major concern between the two countries?

A. Absolutely. On a recent visit to India, that was one of the points I raised when I gave a speech to the Indian Federation of Commerce and Industry. I told them that they should use their non-tariff barriers far more effectively. I even raised the same issue in a meeting with the Indian industrialists visiting Lahore. I told them that if they wanted to move and work with us, they would have to improve on this count.

You see, when both sides have not traded officially, the smooth transportation of goods becomes difficult. That is why all these procedures at the border on both sides need to be sorted out. The problem will be far greater for India because of its procedures, like bureaucracy, which in many ways backs its business community more than we do.

The other big difference is that India has not been inside the IMF programme as much as we have been. The IMF has forced us to liberalize many things, which entails good and bad points. Our subsidies and cross-subsidies have been ironed out, whereas Indians have not done that. Their agriculture, electricity and so many other aspects of economy are heavily subsidized.

Q. What will be India’s position on subsidies when SAFTA comes into force?

A. They might continue to keep some of their subsidies and cross-subsidies, giving their products a competitive advantage. That is the worrying part. If we look at the duty structure of this region, India has the highest in place. Sri Lanka is the lowest, with Pakistan coming second, followed by Bangladesh. So, at this moment, India is far more protective of its industry than we are.

In the last IMF programme, we had two rounds of reduction of duty. We brought the duty down from 35 to 30 and from there down to 25. India is still at 45, making it another area of concern. But, putting aside the benefits for both the countries, we have to ask ourselves whether trade with neighbours is good or bad. The world economy indicates that trading with neighbours has been beneficial.

Whenever I went abroad as minister for trade I always asked my counterpart about the amount of trade done with the neighbouring countries.

Why should Pakistan import coal and iron ore from Australia when we have them next door? We would gain in lowering our cost. It is always good to bring down your cost if you trade with your neighbours. In our case, we have to remove all the impediments and create a level playing field for everyone. Of course, it won’t be easy because right now I am talking purely about economics and have not put politics into the picture.

Q. Is politics not the core issue here?

A. Absolutely important. Can’t go without it. Once you put Kashmir into the picture, it becomes complicated. India’s approach is that all other issues to be resolved, believing that Kashmir will automatically get sorted out in the end. We want it the other way round. We have already started the CBMs, but the point is, how far along the line do you go before you hit the tougher issue?

Obviously, if there is not sufficient progress on Kashmir, a point will come where trade will stagnate if not roll back completely. But, what I am saying is that the more we go along on the CBMs and the people-to-people contact, the better chances we have of solving the Kashmir issue.

Q. Do you not find it ironical that while there is talk of trade and the CBMs, the issue of Kashmir still looms large?

A. That is what I am saying. For us, it is just not possible to abandon the Kashmir cause.

Q. Considering the Kashmir issue, do you still maintain that trade is possible between the two countries?

A. I have already said trade is a good idea, but there is a fly in the ointment. Once the niceties are over and you get down to hard realities, the point of putting trade before Kashmir surfaces on the Indian side.

Q. Where, then, does the situation lead us to?

A. I am afraid it is a chicken-and-egg situation. Let me try to explain it another way. India is exceedingly huge in Information Technology. There is talk of their exports in IT going as high as $10 billion. Obviously, that type of work creates its own force. These people will say that look, things are going so well for us that if there is another war with Pakistan people might not come to India. The Indian business industry can force its government to make a compromise on Kashmir.

By the end of this year our growth in GDP will be 5.5. Next year, we will hit between 6.2 to 6.5. India is already at a GDP growth rate of 8. India is now seeing the benefit of growth and is ahead of us in creating a middle class. That in itself brings in its own pressures. Is not Vajpayee’s election campaign of peace with Pakistan a big change?

Q. True, but how can we be sure that peace with Pakistan means more than winning elections?

A. It could be! But from a historical perspective, elections were won by raising the anti-Pakistan sentiments. So, there is a big difference now and we have to look at it positively. Both the countries have trodden the same path for more than 50 years which hasn’t worked. Now, we must try something different. How sincere India is on Kashmir, we don’t know. We are poles apart on what is meant by solution.

Q. Keeping in view the skepticism and the difference in perception, how can uninterrupted trade be the focal point of our relations?

A. I don’t think there will be uninterrupted trade; there will be some movement. Remember we have signed the SAFTA, which will be implemented by 2006. In those two years, both sides need to finalize their list of items. Among SAARC countries, Bangladesh is an LDC (Least Developed Country), and is asking for special treatment. We will have to give that.

Q. Does that mean that by 2006, we will automatically award the Most Favoured Nation status to India?

A. I think we have to cross that bridge when we come to it.

Q. Which areas in Pakistan will get adversely affected by trade with India?

A. In think we can get hurt in pharmaceuticals because India is very huge in that area with a lot of their own patents. They can also hurt us in industries where both of us depend on imported raw material. One of the reasons is India’s volume of business is much higher. The shipping industry is another sector in which they have an advantage. Ours is too small and inefficient and the government will have to focus on that. Then there’s the chemical, the petro-chemical, and the automobile industries.

What is required is to build up the trust factor. We can’t deny the doubts plaguing the two countries. We have a young generation that doesn’t have a problem with India. I would prefer a slow period, as opposed to a quick one, of building trust.

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