Pragmatic | Bumpy road of Indo-Pak trade

Do not deny the reality. Bilateral trade isn’t diplomacy.

There is simply too much hype surrounding the bilateral trade talks held between the commerce ministers of India and Pakistan. Although the Joint Press Statement at the end of the ministerial talks didn’t go beyond platitudes, many analysts have pinned their hopes on these trade talks providing the breakthrough in Indo-Pak relations. The reality may be a bit different. Here are the reasons why.

One, there are few complementaries in trade between India and Pakistan. Even though it shouldn’t matter theoretically, the political nature of Indo-Pak relationship will not allow bilateral trade to flourish in the absence of such complementaries. If you compare this to the really flourishing bilateral trade partnerships that India has — with the US and with China — there are enough complementaries with them pushing the trade forward.

Two, more than trade, Pakistan actually needs Indian investment (or for that matter, any foreign investment). Considering the security scenario in Pakistan when even Chinese companies have been forced to pull out of that country, there is little chance that Indian businesses would be willing to invest there. The same was reaffirmed by Confederation Indian Industry (CII) in its latest report on Indo-Pak trade where it focused on the need to encourage bilateral trade — not investment — in healthcare, IT and entertainment.

Three, the veto over trade decisions concerning India in Pakistan is only with the generals at Rawalpindi. In India, the generals have no say but there are various business lobbies and interest groups — with their political constituencies — which influence decision-making over trade issues in India. Notwithstanding the statements from the Pakistani minister, it would be instructive to watch the stand that India takes in the WTO meeting on 20th October over the EU decision to provide trade concessions on 75 goods, primarily cotton apparels, representing 900 million Euros or 27% of the EU’s imports from Pakistan. Government of India has officially maintained a studied silence over the matter so far. Unless Bangladesh continues to block the EU move to provide concessions to Pakistan, India might find it hard to sell this political move to its cotton garment exporters, most of whom are based in the state of Tamil Nadu.

Four, Pakistan is obligated under the WTO rules to bestow the Most Favoured Nation (MFN) status on India, after India had done so in the 1990s.  But the official Urdu equivalents of the MFN, wherein the arch-enemy India would have to be called Sabse Pyara Mulk or “Pasandeeda Tareen Riyasat”, make it impossible for any government in Islamabad to do so. With a positive list of items which only can be imported by Pakistan from India in place — which is likely be replaced with a negative list in consonance with the SAFTA guidelines — granting of the MFN status by itself would make little difference to actual trade between the two countries. By linking these steps to India’s removal of non-tariff barriers — such as stringent certification codes, customs rules, security clearances and movement restrictions — Pakistan may end up further delaying this process of improving the trade ties.

This blogger has long believed that no volume of trade will resolve the problems between India and Pakistan, unless the structure and the nature of the Pakistani state, controlled by its military-jehadi complex, is changed. Trade is neither diplomacy by another means nor can it be an alternative to diplomacy. Trade will be driven by economic interests of people and businesses involved, and not by the strategic calculations of the two governments or the wish-lists of strategic analysts. While all attempts must be made to facilitate trade between the two countries, let us not raise unrealistic expectations and place all our hopes of normalcy on this one single mantra of bilateral trade. Else, we would be guilty of the mistakes committed by the candle-lighting brigade at Wagah — of denying the reality and treating hope as a policy.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.