As Winter Approaches, India-Pakistan Trade Relations Thaw

November 23, 2011 • Blogs, The Globalist Notebook • Views: 879

by Rachel Brown:

November has been a busy month for Indian and Pakistani diplomats. Recent trade negotiations indicate that, at least in economic relations, things are looking up for the two nations, who have fought three wars against each other and still deal with high tensions over the disputed region of Kashmir.

Last Tuesday, the Indian and Pakistani commerce secretaries met to discuss an easing of trade and visa restrictions. The most important result of the meeting was Pakistan’s decision to greatly expand the number of goods India can export to Pakistan. Until now, Indian exports to Pakistan have been restricted to items on a “positive list,” which currently contains approximately 2,000 goods. Beginning in February, however, India will be able to export an estimated 7,000 goods; all goods except a few hundred on a “negative list” will be allowed into Pakistan. Products from the engineering and pharmaceutical sectors will initially be restricted, because Pakistani companies worry about increased competition from Indian imports in these fields. Still, Pakistan plans to abolish the “negative list” entirely by the end of 2012.

At the India-Pakistan border in Jammu, both flags fly side by side, watched by rangers. (Vishal Dutta/Flickr Creative Commons)

At the meeting last week, officials also discussed easing visa restrictions for businessmen in order to facilitate commerce. Finally, the two nations explored the possibility of trading electricity and necessary infrastructure improvements for overland trading routes.

These announcements come on the heels of Pakistan’s decision earlier this month to grant India “most favored nation” (MFN) trading status. On November 1st, the Pakistani cabinet unanimously voted for the move to MFN status, even though such an action had formerly been dependent on a settlement of the Kashmir issue. Pakistan has had “most favored nation” trading status with India since 1996. Nations with MFN status usually face lower tariffs and are allowed to export more goods to the other country. Last week’s announcement regarding an increase in permitted Indian exports to Pakistan reflects one step in the process of achieving MFN status. India is expected to reciprocate Pakistan’s gestures by eliminating some of their own non-tariff trade barriers. Many Pakistani business leaders hope the elimination of these barriers will give them access to India’s large and rapidly growing consumer market. The influx of cheap imported Indian products will also be a boon for Pakistani customers.

But not everyone is enthusiastic about the recent changes: some Pakistani companies fear increased competition from Indian firms (particularly in the aforementioned pharmaceutical and engineering sectors). Jamaat-ud-Dawa, a religious charity in Pakistan, with ties to Lashkar-i-Taiba (the group accused of perpetrating the 2008 terrorist attacks in Mumbai), also announced nationwide protests against the decision to grant India MFN status and even accused the Pakistani government of abandoning the people of Kashmir.

At present, trade between the two nations is worth about $2.75 billion, but due to restrictions, goods going from one country to the other are often routed through a third country, usually the United Arab Emirates—an inefficient and excessively expensive method. Officials hope that following the implementation of the proposed changes, trade will double to nearly $6 billion.

Improvements have been made on other fronts as well. Last February, formal diplomatic peace talks between India and Pakistan resumed, following a hiatus after the Mumbai attacks. More recently, the Indian and Pakistani prime ministers met while both were attending a summit in the Maldives earlier this month. During their meeting, the two leaders vowed to open a “new chapter” in bilateral relations. While all of these changes represent significant improvements, much remains to be achieved. But perhaps one day when goods cross the Indo-Pak border, it won’t be a border bristling with soldiers.

Rachel Brown ’15 is in Saybrook College. She is a Globalist Notebook Beat Blogger on events in South Asia. Contact her at rachel.brown@yale.edu.

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