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East-west corridor

March 11, 2018

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THE China-Pakistan Economic Corridor (CPEC) is viewed as a project that will alter the economic destiny of Pakistan. Energy and infrastructure projects, a modern port at Gwadar, and Special Economic Zones across the country are sure to generate significant economic activity in the years ahead.

CPEC, however, is primarily a north-south trade corridor that will enhance connectivity to China’s periphery beyond the Himalayas in the north, and Middle Eastern countries across the Arabian Sea in the south. To truly realise economic gains from its geo-economic location, however, Pakistan must complement this north-south corridor with an ambitious east-west connectivity project.

CPEC’s strength is that it offers an alternative land corridor to China for critical energy supplies from the Middle East. These supplies are currently routed through the Strait of Malacca, a key oil trade chokepoint connecting the Indian and Pacific oceans through the South China Sea. Over 16 million barrels of oil move through this region daily; the majority end up on China’s eastern ports. Once CPEC is completed, China could route its energy supplies through Pakistan to Xinjiang, thereby reducing its reliance on the strait.

CPEC’s weakness lies in the fact that the western periphery of China which Pakistan is connecting with lies thousands of kilometres away and is relatively small — Xinjiang, Gansu, and Qinghai, three provinces that would be in closest proximity to CPEC, have a population of a little over 50m. This means the economies of scale from trading with China’s western periphery would be limited as the size of the market and distances involved would raise the cost of doing business.

Trade flows rest on greater interaction.

These economies of scale can be achieved by complementing CPEC’s north-south linkages with an east-west trade corridor. On the east lie India’s population centres of Gujarat, Rajasthan, Punjab, Haryana and Delhi, with a population roughly equalling Pakis­tan’s total population. To the west are the markets of Iran and Afghanistan, which have a total population of over 110m people.

These markets are larger, more proximate and have historic trade, linguistic and cultural ties that were only severed in the 20th century. These advantages can be utilised to leverage the competitive advantage offered by each economy and develop industrial zones and an integrated supply chain across the region. Further, the flow of transit trade can be taxed by Pakistan, enabling the country to reliably meet its growing forex requirements.

Attempts to realise this east-west corridor have been made previously but progress has been stymied by increased tensions, mistrust, and unresolved disputes. The Afgha­nistan-Pakistan Transit Trade Agreement was signed in 2010 but disputes between the two countries have led to a decline in trade volumes in 2017. Attempts were made to enhance trade ties with India following former prime minister Nawaz Sharif’s election in 2013 and there was talk of Pakistan granting India most-favoured nation status, something India had given Pakistan in 1996.

However, an uptick in violence in India-held Kashmir led to increased tensions and the suspension of foreign secretary talks between the two nations in January 2016. The Iran-Pakistan-India pipeline was a project that would help meet the growing energy needs of India and Pakistan. However, this project has been delayed and while it hasn’t officially pulled out, progress on US-India strategic ties led to a cooling of interest in India. Pakistan and Iran agreed to proceed nonetheless, but Iran has reportedly threatened to move international arbitration courts and seek damages of over $1 billion from Pakistan for failing to abide by its agreements.

The east-west trade corridor, however, can pave the way towards resolution of these disputes. Firstly, enhanced trade flows would foster greater economic activity, generate employment and raise the living standards for millions of people in the region. Secondly, trade along this corridor would increase economic interdepen­dence and constrain hardliners who benefit from conflict and violence. Finally, trade flows rest on greater interaction of people and societies, and this interaction between people, particularly in India and Pakistan, could build trust and a shared commitment to the peaceful resolution of regional disputes.

In 1950, France’s foreign minister Robert Schuman proposed the creation of the European Coal and Steel Community. The Schuman Declaration, as it is now known, created the ECSC and laid the European Union’s foundation. The idea was to seek “the elimination of the age-old opposition of France and Germany” in order to bring peace and prosperity to a Europe devastated by two major wars. South Asia may not have witnessed such a devastating conflict, but it has, to quote the declaration, devoted its energies “to the manufacture of munitions of war”. A commitment to fostering greater east-west trade could be the South Asian equivalent of the ECSC, and lead to the economic and social development of the region.

The writer is a South Asia analyst at Albright Stonebridge Group in Washington D.C.

Published in Dawn, March 11th, 2018