The Broad Mind | Regularize the unofficial Indo-Pak trade

By Vineeth Atreyesh

Traditionally, India-Pakistan trade relations have never been completely realized. Tense relations have hampered trade to an undesirable extent. Pakistan currently imports 1% of their total world-wide imports from India. Post 26/11, trade is estimated to have dipped by over 17% fledgling at about $1.85 billion in the last financial year. India mainly imports Cotton, spices and wool. Exports include dyes, pharmaceutical drugs, chemicals, spices, tea among others.

Recent developments exhibit a renewed interest from both the countries to promote bilateral trade between the two countries. Commerce Secretaries of India and Pakistan held talks in the last week of April, 2011. The two sides, among other things, agreed to improve trade infrastructure and expand trade through Attari-Wagha land route. Currently, 150 trucks are being handled at Attari. The Indian Government should focus on improving the road infrastructure. More importantly, there should be a stringent check on the duty-free trade among the LoC border. The duty-free trade route is hindering the trade along Attari-Wagha border. Whilst the duty-free trade is meant for Kashmiri goods alone, many have been using this route to trade goods from various Indian states, labelling as “Kashmiri”. Indian Government should establish constant checking of flow of goods along the LoC border. Functioning Integrated Check posts in land routes from India to Pakistan would be a start.

Media reports suggest that Pakistan will provide the Most Favoured Nation (MFN) status to India. Whilst a MFN status is newsworthy, the conditions of a MFN are widely debated. Under WTO agreements, if duty rates are lowered, these duty rates have to be lowered for all other WTO members. Under the Most Favoured Nation treatment, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country. India gave Pakistan a MFN status in 1996. A reciprocal after a gap of 15 years is welcome. However, the impact of a MFN alone should not be overstated. A concrete effort is needed from both sides to regularize the unofficial trade through third countries.

Unofficial trade through third countries like UAE has been estimated to be around $2.5 billion per year. If existing unofficial trade is regularized, Pakistan Government itself stands to gain an additional $450 million per year in customs revenue. Pakistan, a signatory of the South Asia Free Trade Agreement (SAFTA) has stipulated that imports from India would continue to be as per their positive list. This limits the number importable items from India to 1,075 items at a reduced tariff rate. No reason has been attributed to restricting the number of items that can be imported from India. Irrespective of the positive list, imports are done through third world country, it is only sensible for Pakistan to adhere to SAFTA in its entirety.

Vineeth Atreyesh is a research associate at the Takshashila Institution and a LAMP Fellow at PRS Legislative Research.

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.