The regional trade puzzle

Updated February 11, 2019

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WHILE haziness may persist the deep clouds are said to be lifting, clearing the horizon for a robust regional trade. Currently all power yielders (civil and military) in Pakistan are said to be on the same page for normalisation of ties with India. The proponents of this position cite the Prime Minister’s public statements for initiating dialogue with India.

Pakistan desperately needs a consistent upward trajectory for exports to rein in the trade deficit and manage external sector vulnerabilities. The scope of expanding exports in a highly competitive environment to the West or China appears difficult owing to a low level of product sophistication and limited exportable surpluses.

The recent economic package and earlier incentives for the five export oriented sectors, trade experts believe, may not yield satisfactory results if the market access in the region is not improved.

Razzak Dawood, a top member of the ruling party’s economic team, responding to a question by Dawn related to cognisance in the government of the value of trade ties with India, was clear. He claimed that currently everyone in the power nexus was on the same page and wished to improve relationships with all neighbours, particularly India.

Mr Dawood conceded that Prime Minister Imran Khan’s friendly initiatives towards India have failed to break the ice. He attributed the lack of progress to a cold response from the Indian side, rooted in their internal political dynamics in an election year.

Razzak Dawood insisted in keeping hope alive although historically every time a step has been taken towards peace between Pakistan and India, it has ended with two steps back. We have a better chance now than we had at any point in the past

He said that this was an unfortunate circumstance and that he did not expect the Narendra Modi government to reciprocate in the immediate future. However, the convergence of the economic interest of the two biggest nations of South Asia will eventually force both countries to show patience and flexibility to resolve long standing issues that have held hostage the immense economic potential of this region.

“At this point we certainly don’t have much scope...well let’s see after the Indian elections whether there’s a change in the government or not. Even if the Indians vote the BJP back to power we expect a more responsible attitude from the same party’s leadership after a fresh mandate for the next five years,” Mr Dawood stated.

He insisted in keeping hope alive although historically every time a step has been taken towards peace between Pakistan and India, it has ended with two steps back.

“My gut feeling is that we have a better chance now than we had at any point in the past. We might be able to actually pull it off this time around.

“Currently I think the ball is in the Indian court. It’s a great irony that when they are ready there is inflexibility on our side and when we come around full circle to initiate talks, they are hesitant. This has been going on for the last 70 years,” the advisor told Dawn.

Many members of the government’s Economic Advisory Committee were contacted but most did not respond and the few who did were cautious to the point of becoming generic.

Salim Raza said that only the government’s stance is relevant in the end on this diplomatic issue, adding that any progress ‘would be good news’. Dr Farrukh Iqbal messaged back that while he had not been following this matter “Most economists feel that more open trade with India would be good for Pakistan.”

When reached over phone Ehsan Malik, CEO, the Pakistan Business Council — which projected friendly trade relations with India as one of four key demands of the business community before the 2013 elections — said any progress in relations with India that do not translate into greater access to that market will be meaningless.

He was not particularly optimistic because of the rampant use of non-tariff barriers in India that effectively block all incoming merchandise and services. Mr Malik said that the increasing muscle power of anti-Pakistan rouge elements under the Indian government’s patronage has scared trading houses interested in certain Pakistani goods.

“People fear vigilante action against their establishment if they promote or even keep Pakistani products. Even products of the Spanish brand Zara had to be removed from racks in India because ‘Made in Pakistan’ was printed in their tags,” he stated.

In this regard the CEO also mentioned the limited appeal of Pakistani brands in India. “There is a lack of public awareness regarding our products in India. The blockage of Pakistani channels in India limits the reach of local brands in the gigantic market next door.”

Mr Malik shared that some years back, in a meeting, a member of the Confederation of Indian Industry (CII) told him that the CII was keen to build strong economic ties with Pakistan but the government in Delhi was hostile to the idea.

He chose not to elaborate why the PBC dropped its demand to improve diplomatic relationship with India.

Some business leaders who wished not to be identified took a more nuanced view of the future of South Asia.

“There are multiple moving parts of this jigsaw puzzle. I find predicting the future lame. Yes someday the Indo-Pak situation may change but I think verbal invitations are not enough. Unless trust building measures are announced and implemented in Pakistan I see no progress beyond verbosity,” a senior business leader commented.

Two years back the PBC in its publication titled ‘Pakistan’s trade with its regional partners’ used trade data and analysis to show trade patterns and identify potential. It showed that none treat Pakistan as their priority partner as Pakistan’s share in their annual trade was abysmally low and has been on a decline over the past few years. Despite this low share the balance of trade is in their favour.

Published in Dawn, The Business and Finance Weekly, February 11th, 2019