Is a thaw in Pakistan’s suspended trade relations with India nearing? Does trade and investment advisor Razak Dawood’s support for an immediate resumption of the bilateral trade hint at behind-the-scene engagements between the two neighbours? Well, nothing could be said with certainty at the moment.
The history of bilateral trade ties between the two countries nevertheless suggests that there are reasons to be cautiously optimistic. Weeks before the trade advisor threw his weight behind reopening of the borders for trade with India, Pakistan’s leading businessman Mian Mohammad Mansha had hinted that backchannels are working for the revival of trade and economic cooperation between the two largest economies of South Asia, which may yield positive results sooner than later.
This is encouraging for those who believe that trade between India and Pakistan can help them tackle the more complex and difficult political and territorial disputes that have bedevilled their bilateral relations at the expense of their hapless two billion citizens since independence.
Yet it is difficult to predict which way the ongoing efforts for a rapprochement will lean since the bilateral relations between the two neighbours are driven more by their geopolitical considerations rather than their shared economic interests.
For example, it was early last year when Pakistan’s top economic decision-making body, the Economic Coordination Committee (ECC) of the Cabinet, decided to import sugar and cotton from India to bridge domestic shortages for the consumers and the textile industry. The decision was made public by federal minister Hammad Azhar and it was expected to revive limited trade ties with India after a hiatus of around 20 months. The next morning the cabinet chaired by Prime Minister voted against the decision and the plan was shelved till such times the Indian government revoked its decision of stripping the Occupied Kashmir of its special status.
The ECC decision had come days after the exchange of letters between the prime ministers of the two nations, expressing a desire for peaceful and cooperative relations with each other. Prime Minister Imran Khan had stated that Islamabad “desired peaceful, cooperative relations with all neighbours, including India”. India’s leader Prime Minister Narendra Modi had written that “India desires cordial relations with the people of Pakistan”.
In the meanwhile, Indian trade minister Hardeep Singh Puri also gave a statement in the parliament that his country desired normal relations, including on trade, with all countries, including Pakistan. “Pakistan unilaterally suspended bilateral trade with India in August 2019. It is for Pakistan to review its unilateral measures on trade,” he said.
Bilateral Indo-Pak trade history highlights that trade ties are always the first casualty of any emerging dispute between Islamabad and New Delhi. India was quick to withdraw the most favoured nation (MFN) status it had granted to Pakistan and imposed 200 per cent customs duty on its imports from Pakistan in the wake of the Pulwama attack in February 2019. In a quid pro quo, Islamabad found a reason to suspend trade with India in August that year after New Delhi revoked the special status of Occupied Kashmir and increased its troops in the valley to suppress protests against its decision.
Such decisions always underline the fact that the two states do not realise or consider the large costs of economic non-cooperation for their impoverished citizens and the rest of the South Asian region. Even before the two neighbours cut off their trade ties, the value of goods traded between them was paltry at $2.56 billion in 2018-19 because of tariff and non-tariff barriers, mostly by India.
Restrictions imposed since 2019 have diverted much of this trade to informal channels or trade through a third country like the UAE, Thailand and Singapore. A 2018 World Bank study estimated that the trade potential between India and Pakistan was around $37bn. The study suggested that this potential remains unrealised owing to unresolved political disputes as well as impediments in transport and transit facilities, non-tariff restrictions, and on and on. The lack of cooperation between Pakistan and India is not only holding either or both back, it means that entire South Asia is unable to realise the potential economic and trade benefits.
The political and military leadership of the two nations must recognise that the suspension of trade relations puts an enormous burden on their people. The chances of a resumption of trade ties require both sides to work together and not hold bilateral economic cooperation hostage to their geopolitical disputes.
The resumption of trade would not only have a positive economic impact but also help build confidence between the two countries, reducing the chances of a conflict. History illustrates that as countries build on their economic cooperation and interdependence they significantly reduce their chances of armed conflict which would mean forgoing economic benefits.
In March last year, army chief Qamar Javed Bajwa told participants of a security dialogue in Islamabad that ‘a nation at peace and a region in harmony are thus essential prerequisites for attainment of national security in the true spirit… I also firmly believe that no single nation in isolation can perceive and further its quest for security. And finally, it is time that we in South Asia create synergy through connectivity, peaceful co-existence and resource sharing to fight hunger, illiteracy and disease instead of fighting each other.’ This can prove to be the building blocks for a durable and mutually beneficial economic cooperation in the region and for connecting South Asia with Central Asia and beyond. If Europe could come together to form a regional economic bloc despite fighting the first and second world wars why can’t India and Pakistan? And the revival of trade wouldn’t mean Pakistan giving up its stance on Kashmir.
Published in Dawn, The Business and Finance Weekly, January 28th, 2022