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Trading Their Way Out of Trouble

KARACHI, Apr 6 2012 (IPS) - Azhar Karimjee (52), an exporter based in Karachi, is eyeing the “huge market”, comprised of the Indian middle class, for his Bermuda and cargo shorts and chino pants once trade links open between Pakistan and India.

Having done business in Europe since the 1980s, Karimjee considers Pakistan’s decision to accord India the long awaited Most Favoured Nation (MFN) status by October 2012, to be a harbinger of prosperity.

“While India has a monopoly over ladies’ garments (made of finer quality fabric) we have an edge over them in men’s clothing, made of twill and canvas,” Karimjee told IPS.

Although India granted Pakistan MFN status back in 1996, Pakistan hitherto only allowed India to trade some 2,000 items.

Yusuf Raza Gilani said his government planned to remove restrictions on Indian imports by 2013. New Delhi, for its part, has assured Pakistan it will not oppose preferential trade access to Pakistani products in the European Union.

Current bilateral trade stands at 2.7 billion dollars, tilted heavily in India’s favour. But if restrictions are removed, trade can be expected to increase to as much as 6 billion dollars by 2014. However, informal trade through ‘third-party’ countries (the United Arab Emirates or Sri Lanka for example) is estimated at 10 billion dollars.

Controversy over ties with India

The news has stirred a round of passionate debate in the country as to why Pakistan needs to trade with a country long held to be its “enemy”.

For the longest time, Pakistan’s political leaders held the view that there was to be no business with India until the Kashmir dispute was resolved. The current government led by President Asif Ali Zaradari, considered one of the weakest in recent years, seems to have separated the Kashmir issue from the trade issue and opened the country’s market to India.

“Delinking trade from a resolution of Kashmir is a betrayal of the pledge we have made to the Kashmiri people,” Asif Ezdi, a former member of the Pakistan Foreign Service, told IPS. “We must keep alive the flame of azadi (freedom) that burns in the hearts of the Kashmiri people, not extinguish it for dubious trade benefits,” he added.

At the time of independence in 1947 almost three-fifths of Pakistan’s exports were directed to the Indian market and one-third of its imports came from India. Trade relations were severed following the 1965 war between the two countries and the 1971 debacle in which Pakistan lost its eastern province, which is now Bangladesh.

Relations between the two nuclear-armed nations slipped further in 1999 after the Kargil war. Then in 2001, after an attack on the Indian parliament by Kashmiri terrorists allegedly trained in Pakistan, there was renewed tension, which peaked during the 2008 terrorist attack in Mumbai.

Abid Qamar, a senior economist with the State Bank of Pakistan, told IPS that a “stressed relationship” between the nuclear-armed neighbours resulted in low trade.

Today, however, the “sheer logic” of economic benefit attached to open bilateral trade has made the option too attractive for political leaders and businessmen to pass it by, said Asad Sayeed, a Karachi-based economist.

Benefits outweigh risks

The push for opening trade barriers gained ground after five major political parties (comprising 90 percent of representatives in the parliament) endorsed trading with India at an event organised by the Pakistan Business Council last April, Sayeed said.

“Pakistan is in dire need of improving its trade and India, being a large economy sitting next door, is a great opportunity,” said Qamar. He said if countries like the United States and Brazil were so enthusiastic about trading with India, Pakistan could not afford to miss out. He cautioned that according India MFN status does not ensure “trade will pick up” between the two and “it in no way means any special treatment to India.”

Still, there are others who are sceptical of trading with the “enemy” country.

Ezdi, for example, feels opening up trade links makes no “economic sense”. “There will be a sharp rise of Indian imports that will destroy our industry and jobs. There will be no gain for Pakistani exporters or Pakistan’s economy,” he said. Many experts like Ezdi are apprehensive that this may lead to items such as chemicals, machinery, vehicles, base metals, plastics, precious or semi precious metals and stones flooding Pakistan’s market.

Others, like Sayeed, believe in Pakistan’s economic resilience, arguing, “If our local producers have not been ruined by (the entrance of) industrial giants like Germany, UK, the U.S., China etc (with whom we trade freely), then India does not stand much of a chance!”

In the short term it may hurt the industry; but in five years’ time, Pakistan’s economy can expect to benefit, acknowledged Qamar. “More exports mean more economic activity and more employment in the country. We also benefit if we substitute our expensive imports with cheaper imports from India, assuming similar quality,” he added.

“If Pakistan can import machinery or pharmaceutical raw materials or steel from India at a cheaper rate (and lower transport cost) than it does from Germany or the U.S. then it is in Pakistan’s benefit,” Sayeed said, adding: “A bilateral trade deficit with India may still result in a smaller aggregate trade deficit for Pakistan.”

Ironing out the wrinkles

However, there are certain contentious business hurdles that need to be crossed before a just and fair trade relationship can develop. While India has given MFN status to Pakistan and allows all items to be exported from Pakistan into India, Amin Hashwani, a prominent Karachi-based businessman, pointed out that there are many non-tariff barriers that “prevent Pakistani goods from entering (Indian) markets.”

Pakistan’s goods in the Indian market amount to less than 0.1 percent of its total imports, according to Hashwani. “We want to enter into an agreement with them that is open and fair to both sides and allows Pakistani goods to enter into the Indian market in a meaningful manner,” he told IPS.

Most experts believe trade can also help reduce political tensions. “Increased trade between India and Pakistan will make it harder for the two to go to war,” Hashwani speculated.

“When the two countries have substantial economic stakes, it will actually motivate them to keep their relationship normal,” said Qamar. After all, sparring nations like the U.S. and China; Iran and Iraq; and Saudi Arabia and Iran keep their political differences from affecting their economic relationship.

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