ECONOMY-SOUTH ASIA: Trade May Yet Be The Key to Peace

By Ranjit Devraj Reprint | | Print |

Ranjit Devraj

NEW DELHI, May 8 2003 (IPS) - Trade may yet prove to be the cement with which feuding South Asian neighbours India and Pakistan can fix a see-saw relationship that has often erupted into open warfare over the past half a century.

Trade may yet prove to be the cement with which feuding South Asian neighbours India and Pakistan can fix a see-saw relationship that has often erupted into open warfare over the past half a century.

Left to themselves, the members of the India-Pakistan Chambers of Commerce and Industry, set up in 1999, would quickly move to mutually accord Most Favoured Nation (MFN) trade status to each other’s country.

The two countries are now gingerly trying to restore diplomatic ties and air links disrupted by an attack on India’s Parliament house in December 2001, which also nearly triggered off yet another war between the countries that went nuclear in 1998.

Last week, Indian Prime Minister Atal Bihari Vajpayee said he planned to make a third and final attempt at making peace with Pakistan and once again proffered a formula that would place trade and bilateral issues ahead of the contentious Kashmir issue.

Soon after that, Pakistan’s Foreign Minister Khursheed Mehmood Kasuri told an interviewer from the British Broadcasting Corp’s (BBC) Hindi service that his country was prepared to go along with Vajpayee’s idea.

”India has always said that it wanted to talk about trade issues and we have insisted that Kashmir should be discussed firstàNow we accept India’s argument and would like India to take the first step,” Kasuri told the BBC.

But it is not only the militants bent on mischief that move across the 1,000-kilometre long ‘live’ border between the two countries, but also an estimated five billion dollars worth of contraband each year.

”Obviously if there is peace, the beneficiaries of formalising that unofficial trade would be the governments of the two countries,” says Amit Mitra, secretary general of the power Federation of Indian Chambers of Commerce and Industry (FICCI).

Trade between the two countries, partitioned on the grounds of religion in 1947 and warring ever since over the disputed territory of Kashmir, was placed at a paltry 204 million U.S. dollars in the 2001-2002 financial year.

Kasuri also suggested that India and Pakistan talk about the Turkmenistan, Afghanistan and Iran gas pipelines which could benefit countries in the entire region from production, consumption or transit, but has been held up by conflicts in South Asia.

In April, delegations from Turkmenistan, Afghanistan and Pakistan met under the aegis of the Asian Development Bank (AsDB), which is expected to produce a positive feasibility report by September – provided India joins in.

The end of the Afghan war and the installation in Kabul of the pro-U.S. Hamid Karzai government meant that it would only be a matter of time before a decades-old plan to pump Central Asian gas through Afghanistan and Pakistan to India would be revived. Iran has already been negotiating to sell gas to India through an overland pipeline across Pakistan, but New Delhi has insisted ”for obvious security reasons” that it preferred an undersea pipeline bypassing its rival altogether – even if the costs would go up by several hundred million dollars.

Following discussions with visiting Iranian President Mohammed Khatami, India’s Petroleum Minister Ram Naik announced in February that the pipeline would bypass Pakistan. ‘We are not going to talk to Pakistan on this,” Naik said.

The new thaw in India-Pakistan relations could change that decision into a ”win-win” situation for all three concerned parties.

There are other trade anomalies waiting to be ironed out.

Pakistan, the world’s second largest consumer of tea, hardly buys any from India, which is the world’s biggest producer, and instead imports the beverage leaf from Kenya and Sri Lanka at greater cost.

Pakistan also imports its iron ore from Australia and Brazil rather than India, ignoring cheaper commodity costs and lower freight charges.

India could buy cotton from its neighbour Pakistan for its textile mills and export machinery.

Recently, a cotton mill in Karachi that was undergoing renovation imported major components from a textile machinery manufacturer in southern India through Dubai – which regularly skims off middleman profits because of a lack of direct trade relations between India and Pakistan.

One of the best-known truck tyre brands in Pakistan is the Indian-made ‘Apollo’, which is imported through what is officially called the ”circular trade” through the free ports of Dubai and Singapore or simply smuggled across the porous border.

Apart from political reasons, there are fears in Pakistan that increased trade with India would overwhelm its local industry. When New Delhi accorded MFN status to its neighbour in 1996, that move was never reciprocated.

But Nagesh Kumar, director general of the Research and Information System for Non-aligned and Developing Countries (RISC), a New Delhi-based economic think-tank, thinks that the Pakistani fears are misplaced.

Kumar said India has already been improving economic ties with other countries in the region and that it was only in the case of India and Pakistan that political expediency has overtaken simple economic rationality.

He pointed to estimates made by the Human Development Report, brought out by the United Nations, which indicate that Pakistani consumers could reduce their food bills by up to 30 percent through increased trade with India.

”Global experience has shown that trade can be used as a prelude to political reconciliation and building mutual confidence, as China and the United States have demonstrated,” Kumar said.