PAKISTAN and India have tremendous potential for a bilateral trade. However, trade and economics between the two countries have become victim of politics. Owing to this, the two-way trade does not reflect the real potential which is estimated around $10-15 billion. In 2003-2004, India exported only $382.4 million worth of goods to Pakistan, out of $61718 million total exports. Pakistan’s exports totalled $l2 billion, but only $93.7 million went to India. However, this has not always been the case (See Table 1) India is the second most populous country after China with a population of over one billion. In 2003-04, its GDP was $547.75 billion and per capita income $453 and GDP growth average a healthy 8.1 per cent. India’s external trade totalled $101.47 billion in 2003-04, imports $58.23 billion and exports $43.24 billion.

Though over one-third of the Indian population live below the poverty line, its economy comprises a strong and growing middle class of 300 million with a rapidly increasing purchasing power. The cumulative disposable income of the huge Indian middle class makes it an extremely attractive market. Indian market offers an unmatched trading potential for Pakistan.

Opening up of trade with India would help create economies of scale, make our products more competitive in the international markets, lower production costs and increased productivity would absorb more manpower. Trade is a two-way traffic and opening up trade with India could benefit us also.

Trade between the two countries will have other numerous benefits also. Pakistani textile manufacturers are interested in buying new materials, dyes and chemicals, machinery, finished goods and are keen to introduce their fabrics, textile made-ups to the vast Indian market. Opportunities are also available in plastics, packaging, automobile parts, electrical equipment and many other fields. Liberalization of the trade between two countries would reduce the undocumented trade, which is increasing alarmingly and would help the government in earning substantial revenues.

The potential items which Pakistan could export to India include: cotton yarn, fabrics, rock salt, dry dates, fresh and dried fruits, finished leather/leather goods, natural gas, electricity, vegetables, fish (fresh and frozen), sugar and molasses, limestone, fertilizer, marbles (including onyx), precious and semi-precious stones, textiles and clothing articles, accessories, knotted carpets and scientific instruments, etc.

The potential items that could be exported from India to Pakistan: iron and steel, auto components/spares, pharmaceuticals and raw materials, castings and forgings, tea, non-metallic mineral products, by-products of refinery, plastic materials, intermediaries for chemicals, agro-based raw materials e.g. oilseeds, cement and IT-related software.

However following are the trade barriers which need to be removed. The biggest hurdle is political. Pakistan does not extend the ‘Most Favoured Nation’ (MFN) status to India, but maintains a “positive list” of 600 goods that may be imported from India.

On the other hand, India in principle, granted MFN status to Pakistan in 1995-1996 and has no list of permitted or forbidden products, but the meagre imports from Pakistan suggest that India has found ways of imposing a de facto ban on most imports from Pakistan.

Informal trade between the two countries is much larger, involving such goods as chemicals, medicines, videotapes, cosmetics, and viscose fibre.

Indian import duty regime is quite cumbersome and protective. In the presence of a “highly unfair tariff regime”, there cannot be any meaningful trade with India. India does not impose formal restrictions on exports or imports from Pakistan but restrictions such as travel, remittance, custom clearance, etc., usually restrict imports to India.

Tariff rate quotas (TRQs) and technical standards, sanitary and phyto-sanitary (SPS) rules, health and safety regulations and TRIMS are being widely used by India to discourage imports. India has second highest average tariff rate after Mexico. Mexico’s average tariff is 33 per cent whereas the India’s 32 per cent, has now been slashed to 26 per cent after a lot of persuasion. Similarly, custom duty affects imports significantly. The peak rate of customs duty in India is 70 per cent. Moreover, imports are subject to tax/duties by the state, including octroi, local taxes, local government sales tax and toll tax.

Major trade deals with Pakistan/Saarc countries as well as China, need a political clearance from the ministry of external affairs. For example, import of molasses from Pakistan is permitted only in small drums. The Indian government does not allow import in regular rail tankers for security reasons, making it more expensive.

Normally, two per cent of any consignment is inspected but in India 25 per cent is checked and imports from Pakistan are subjected to aggressive/unfair inspections by customs officials/inspectors which results in loss of time and money besides making imports of perishable items unviable. Import of any item is also subject to mandatory compliance of Indian Quality Standards which requires certification by the Indian Standard Institute (ISI) or by an agency which has a tie-up with ISI.

Sanitary and phyto-sanitary (SPS) provisions of WTO are being used to unfairly discourage imports or restrict import of items like rexene, certain types of rayon and food items, which are used/produced elsewhere and in India as well. Pakistani textiles/bed wears are subject to colour testing at a rate of Indian Rs2500 per colour making the Pakistani textile highly uncompetitive.

Import of certain agriculture and sensitive items is controlled by the government/ministry and Pakistani exporters are required to obtain licence by the government, which is a very frustrating experience.

Taking into account all these barriers, Pakistan should urge India to remove such unnecessary tariff barriers for improving the trade and business environment in the region. Besides, the following confidence-building measures will go a long way in enhancing the trade between two countries:

Private sector in both the countries should be allowed a much greater role in the formulation and implementation of economic policies. Governments should permit visits of trade delegations, holding of trade fairs and business visits on the recommendation of the trade bodies.

Governments need to improve the local conditions of business risk, costs and time of setting up and operating business, infrastructure and communications.

Marked differences in the tariff structure of Pakistan and India is a major obstacle in implementation of free trade agreements. If a uniform tariff structure is agreed and is implemented simultaneously in consultation with the private sector, a level playing field will be provided for competitiveness of traded goods and services.

Pakistan should grant MFN status to India. All possible modes of direct transportation should be opened to facilitate efficient movement of goods and people and reducing time and costs of travel and transport within the region.

A liberal visa policy be implemented through efficient visa staff. Businessmen and professionals recommended by their chambers and associations, students and tourists be granted visa within shortest possible time.