New moves for more Indo-Pakistan trade

Published January 3, 2005

The year that has passed by, began with a landmark meeting between President Musharraf of Pakistan and Prime Minister Atal Behari Vajpayee of India allowing tariff concessions on 1,024 items importable from Saarc states.

The Saarc countries also signed a landmark agreement in January last on the South Asia Free Trade Area (Safta) with a pledge to scale down their tariff in two phases to 0.5 per cent to be effective from January 1, 2006. It would be fully implemented by December 31, 2015.

Recently, Pakistan added 81 groups of items to the 687 items importable from India, raising their total number to 768, with a 1,000 items as the ultimate objective. The new items are mostly raw materials and chemicals and other imports needed by domestic industries.

All that should be ushering in an increasing volume of trade between the two countries eagerly undertaking numerous confidence building measures; but that has not come to pass, while the Indian Commerce Minister Kamal Nath has been talking of a road map for developing larger trade between the two neighbours.

Now, Pakistan has set up a study group to ascertain the reasons for such tardy trade between the two countries despite the numerous large trade delegations visiting each other's countries, optimistic about a far larger volume of trade between the two neighbours.

While India wants Pakistan to give the Most Favoured Nation treatment to it, after it has given the same status to Pakistan, our officials and traders find the MFN status given by India to Pakistan has not resulted in a bigger volume of exports from Pakistan to India.

The reason why is there are too many hidden and open tariff and non-tariff barriers for imports into India. So the Pakistan study group will meet with the chambers of commerce, trade bodies and business groups here to ascertain the extent of barriers that inhibits Pakistan's exports to India. Thereafter, the study group will visit India to verify its groups' findings and try to remove impediments in trade.

The Indian argument is none of the barriers is Pakistan- specific or discriminatory to Pakistan. And the high import duty on agricultural products is to protect its agriculture.

India also argues that in spite of the high tariff in some areas, the world has been exporting to India and making money. So Pakistan too could do likewise. The highest rate of customs duty in India is as stiff as 70 per cent. Some agricultural products are subject to import duty as high as 80 to 150 per cent.

There are some items on India's list of banned goods. The other duties include additional customs duties, which are levied on all items imported into India, which is equivalent to the excise duty, and special duty on specific articles.

Special additional duty is levied on all articles and the rate varies for various items. An additional surcharge is levied from time to time and its rates vary for different items.

There is an educational cess of two per cent on all imports in the 2004 budget. After landing of the goods, the imports are also subject to taxes by the Indian states - Octroi, local sales tax and local government sales tax and toll tax.

The non-tariff barriers include the requirement of political and security clearance, sampling, customs inspection, requirement of technical standards certification, labelling and marking rules packaging rules and several other checks.

This seems to be a long list of tariff and non-tariff barriers; but the Indians argue that none of them are directed against Pakistan as such, and the world has been trading with India, and the barriers are falling one after another, or being softened. And now India says that a joint study group jointly chaired by the commerce secretaries of India and Pakistan would look at certain preferential trading arrangements for goods, services and investments on a fast-track basis.

India's commerce minister Kamal Nath told Parliament that the joint study group would also discuss the possibility of enhancing economic cooperation in other areas. The detailed terms of reference of the study group would be finalised after further consultations between the two sides at the first meeting of the group shortly.

Such a study group was proposed, he said, on the side-lines of the fourth Saarc commerce ministers, meeting in Islamabad on November 22-23 last. The foreign secretaries of the two countries meeting in Islamabad last week decided that commerce ministry officials of the two countries should meet early this year for technical discussions on the bi-lateral trade.

Indian entrepreneurs are keen on making sizeable investments in Pakistan. The very enterprising Reliance Group is among them. But before any large scale investment is made, the political hurdles have to be cleared, beginning with a positive approach to the solution of the Kashmir issue.

Meanwhile Kamal Nath says the number of visas for Pakistani businessmen to visit India is being raised to 8,000 a month. But what matters is not only the number of visas but also how soon they are available.

The issue of re-opening the Indian consulate general in Karachi is also very important for promotion of large scale bilateral trade. Otherwise, the Karachi businessmen may feel rather left out.

While the road-map for larger trade between India and Pakistan is slow in evolving, both Pakistan and China are trying hard to increase their trade with China. The Pakistan Commerce secretary Tasneem Noorani says that a Free Trade Agreement with China would be signed before the end of June to usher in unlimited commercial cooperation between the two countries. It would be up to the Pakistani businessmen to explore the Chinese market and export far more.

Mr Kamal Nath says that two-way trade between India and China between January and October 2004 touched $10.8 billion. If the two-way trade is calculated from the current financial year of India, beginning on April 1, their bilateral trade is expected to exceed $10 billion in 2004-05.

The businessmen of Pakistan and India are very enthusiastic about promoting more trade and have been visiting each other's country in very large numbers. The question is: how soon such goodwill or exploratory visits will be converted into bigger trade on a sustained basis? And how soon will the government of India move towards removing the bottle-necks standing in the way of larger export of goods from Pakistan into India?

While negotiations in respect of larger trade between India and Pakistan have been slow, rapid progress had has been made in reaching agreements on larger trade between its members. The SAARC has moved from Safta to Safta; but again the implementation is too slow and the volume of Saarc trade is disappointingly low.

What matters is that the numerous meetings and study groups should mean larger trade which is beneficial to all countries. With the bulk of the world's poorest people, 1.2 billion living in South Asia, the struggle against poverty must become real, and should be sustained steadily.

A major milestone in the area of economic cooperation between the two countries can be a pipe line to carry gas from Iran to India via Pakistan. Pakistan can also use that gas. But India is too slow to respond positively to the $4 billion pipeline. India voices its misgiving in respect of the pipeline including fear for the safety of pipe line which Pakistan has promised to guarantee.

India should instead respond positively, and quick, to make the pipe-line a reality for which Iran, too, is very anxious. India's foot dragging in this regard to obtain other concessions from Pakistan is very disappointing. It should have a more positive approach to it.



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