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Trade deadlines with India

January 03, 2013

AN important deadline has just been missed. Pakistan had committed to itself that from Jan 1 onwards, it would remove the so-called ‘negative list’ under which it trades with India, and inaugurate a fully normalised trade regime with its neighbour.

Of course that date came and went without any such thing happening. The government of Pakistan has rightly moved to manage the inevitable disappointment on the other side by saying that the delay is temporary, and very soon the negative list will be phased out.

The disappointment is entirely warranted, but here’s a plea to hold the tiller firm. The whole rapprochement has become possible because of a new approach towards each other that both countries have struggled to implement since at least the Lahore Declaration of February 1999.

The idea behind this new approach was to separate the various issues around which there is dispute, and pursue each dispute in its own separate compartment and prevent linkages from forming.

There were three main issues to be discussed. One related to how lines ought to be drawn on a map and policed on the ground.

The second related to the sharing of river waters. And the third related to the normalisation of trade ties.

The good news is that after more than a decade of trying, these three issues are being successfully settled in their respective compartments. Stray voices are still to be heard from time to time demanding that linkages be formed between these issues, but such stray voices are becoming increasingly marginalised, a development that needs to be appreciated.

Having accomplished this crucial first step, now comes the time to redeem the pledge, to borrow a few words.

After all, the talks are not an end in themselves, but a means to an end, and in the compartment where they sit talking about the normalisation of trade ties, that end is the free movement of goods and services and investible resources and entrepreneurial energies and the fruits of professional experience and technical expertise.

Having successfully disentangled the issues from each other, the government of Pakistan woke up to the realisation that trade talks are not a straightforward matter. Please realise one thing: this is the first time that Pakistan is engaged in negotiations to develop a bilateral trading regime of any depth and complexity.

There are some free trade agreements (FTA), such as with Sri Lanka and China, but none of these were really negotiated in any serious sense of the word.

With China, Pakistan doesn’t negotiate anything, and the FTA has been a disaster for local industry whose woes matter not a bit when it comes to the bizarre ‘strategic’ logic that subordinates all decisions in our dealings with China.

With Sri Lanka, the FTA is with a country whose share in our total exports is less than our exports to Spain and South Korea, and only marginally higher than those going to South Africa, meaning that it’s a very minor trading partner. And even here Pakistan did not seriously negotiate the FTA and did not have to worry about creating a consultative process for domestic stakeholders, or worry about non-tariff barriers.

Pakistan largely sleepwalked into the WTO, waking up to its realities only after the regime had been implemented, and was largely strong-armed into the Afghan Pakistan Transit Trade Agreement which was activated on the basis of an MoU.

So we’re new to this whole trade negotiation business. As a result our government has underestimated the enormity of the task and the intricacies of the negotiations.

The Pakistani idea of negotiating a trade regime is to ask for preferential trade access on the grounds that we’ve suffered a natural disaster or are bearing the brunt of the war on terror.

Now for the first time ever, Pakistan is being forced to consider what its economic interests are in a complex engagement. For the first time, the government is reaching out to domestic stakeholders asking them for their input into the formulation of a large and intricate economic road map, something that has not happened before in this country where a thin line separates processes like stakeholder consultations and collusion and rent-seeking access.

It is by now well-known that three major industries are expressing their reservations regarding trade with India. These industries are pharmaceuticals, textiles and automobiles. But not all reservations are equal in these cases.

In textiles, the largest industry group — APTMA — that represents spinners, is in favour of normalising trade ties because they see enormous markets to the east.

Those opposing are the so-called ‘value-added’ sector, who argue that their Indian counterparts enjoy enormous economies of scale, and will buy up all the yarn in Pakistan and drive out the value-added sector.

In pharmaceuticals, there is also a divide between the large-scale operators based out of Karachi, who see great benefits through access to India’s world-class pharma raw materials and consultancy services.

Those opposing belong largely to the clusters of small producers based around Lahore, the cottage industry so to speak, who have brought us fake cough syrups and other drugs that claimed more than 100 lives last year.

The automobile sector is a different story. It’s hard to find a single person who sympathises with their concerns, and their growing dependence on government protection. In any event, their case to be included in the sensitive list can be accommodated while a more lasting solution is sought and productivity enhancements encouraged.

The point is simple. There is no real opposition to normalising trade ties with India, except by those who prefer to keep all relations with India entangled in considerations arising from lines on a map.

The hard-fought battle to disentangle the issues has been successfully concluded. But a little more patience will be required for the fruit of cooperation to ripen.

The writer is a Karachi-based journalist covering business and economic policy.

Twitter: @khurramhusain