India-Pakistan trade

Published September 29, 2011

A PAKISTANI commerce minister is visiting India after more than three decades, and reports from his trip point to heartening progress in bilateral trade talks that began in April this year. Along with 50 business delegates, Amin Fahim will be in India for a week, indicating how seriously Pakistan is taking the opportunity. The ministers jointly announced a concrete goal — doubling bilateral trade to $6bn in three years — and several steps they plan to take to achieve this, including finalising the liberalisation of the business visa regime, removing non-trade barriers and implementing preferential trade relations prescribed by the South Asia Free Trade Agreement. In October, an Indian central bank delegation will visit Pakistan to discuss the reciprocal opening of bank branches in both countries. As one piece of the broader peace process launched after three years, then, these steps demonstrate how much there is to be gained from talking again, and talking seriously. They also indicate a recognition on both sides of the obvious benefits to be gained from opening up trade, including new markets, reduced import costs and regional stability as increased business creates incentives to maintain close ties on the political front.

India also indicated that it would finally remove its objection to the European Union's plan to grant Pakistan certain trade concessions to help recover from the 2010 floods. India's move could also help tone down objections from Bangladesh and Sri Lanka, other countries in the region that have expressed concerns about implications for their own exports to the EU. But the regional impact would be limited, as the concessions would likely be time-bound for one year, and allowing them exhibits an understanding on India's part that, especially in light of this year's rains, Pakistan needs the opportunity, which could boost Pakistani exports to the EU by 100 million euros.

But there is still work to be done. Pakistan has yet to grant Most Favoured Nation status to India to bring it on par with other trading partners, as encouraged by the World Trade Organisation. India, on the other hand, has yet to reduce non-trade barriers such as visa restrictions, security clearances and stringent certification rules. And despite their generally positive reaction to opening up trade, business persons on both sides who are worried about increased competition can become impediments if they are not included in the process of designing the new trade regime or at least shown how they can benefit from increased trade. For both the governments and the private sectors in the two countries, this could be the beginning of a complicated but exciting new chapter in regional trade.

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