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Establishing trust

Updated March 11, 2019

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‘Creating economic interdependence will help us prevent violent conflicts 
in future’.— AFP/File
‘Creating economic interdependence will help us prevent violent conflicts in future’.— AFP/File

TRADE, it is assumed, can help resolve outstanding political and territorial disputes between nations, and minimise chances of cross-border conflicts.

But in the case of Pakistan and India, this assumption does not seem to hold.

Instead of trade bringing peace between the two adversaries, increased political tensions and trust deficit have adversely affected their bilateral commercial and investment relations.

For one reason or the other, economic ties have always been the first casualty of escalation in tensions between the two largest South Asian economies. There are many examples where bilateral commercial cooperation has fallen victim to intensified tensions between the two neighbours.

The latest decision by New Delhi to withdraw the Most Favourite Nation status from Pakistan, and increase customs duties to 200 per cent on its imports a day after the Pulwama attack, can be cited as one amongst many.

But then it can be argued that the two countries have historically not engaged in trade sizeable enough to create a ‘business constituency for peace’.

Instead of trade bringing peace between the two adversaries, increased tensions and trust deficit have adversely affected their bilateral commercial and investment relations

Pakistan imported goods worth $2.4 billion from India and exported merchandise valuing $488 million last year. The bilateral trade volume made up just 3.6pc of Pakistan’s total international trade worth $79.3bn in 2017. In case of India it made even less than 0.4pc of its trade of $738.3bn. Also, it is only just over 12pc of intra-regional trade of $23bn in South Asia.

The suspension of this low level of direct trade does not much affect either the businesses or the consumers on either side of the border. At least not to the extent where they start building pressure on their political class and security establishments to keep from engaging in periodic hostilities at the cost of their commercial relationship.

In case of complete cessation of trade it will not be difficult for either side to find a new market elsewhere for their goods. And there’s also a strong possibility of indirect trade flows via third countries, estimated at present to be more than $4bn, surging to a new level once the direct trading avenues are closed.

It is generally assumed that the actual volume of bilateral Pak-India trade routed through Singapore and Dubai is higher than the direct trade. It is often pointed out by multilateral agencies like the World Bank that the two countries have huge potential for increasing their bilateral trade. A recent World Bank study said the trade between them can shoot up to $37bn but for non tariff barriers (NTBs) erected on both sides of the line because of political and territorial disputes.

The trust deficit between India and Pakistan because of their security concerns and dispute over Kashmir isn’t hampering their commercial and investment ties alone. This is a major snag in the way of economic integration of South Asia, which is one of the least integrated regions in the world. Intra-regional trade accounts for only 5pc of South Asia’s total trade, compared to 25pc in Asean and intra-regional investment, and is smaller than 1pc of overall investment.

‘Creating economic interdependence will help us prevent violent conflicts in future’

A large number of businessmen from the two sides largely agree with the idea of liberalisation of trading and investment ties. This would enable the two nations to take advantage of their close physical proximity as well as use this interdependence as a tool to settle their longstanding political and territorial disputes.

A few years back, an Indian businessman having interests in paper industry in Amritsar had told this correspondent that there is a strong need for some sort of a bilateral trade accord between the two nations outside the Saarc framework. This would boost peace constituency and make armed conflicts much more costly than commercial ties.

Many on this side of the border concur with this idea. But the real question, they say, is how can this be achieved? The long history of military conflicts and security concerns on the two sides shows it is a difficult if not impossible task.

“You cannot increase trade interdependence unless the two countries agree to seriously engage in a dialogue and make some sort of progress on their political and territorial issues. Some kind of progress on non-economic issues plaguing the bilateral relationship is required to create an environment of trust and push commercial and investment ties forward,” a leading businessman, who has remained actively involved in Saarc Chamber of Commerce and Industry in the past, told this correspondent.

“Once trust is established and signs of earnest desire to settle disputes and dismantle barriers to economic cooperation and investment start showing, only then can we move to trading with each other. Creating economic interdependence will help us prevent violent conflicts in future.”

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