Trade, can it Herald Peace?

Talk of nothing but business, and dispatch that business quickly.
-- Aldus Manutius (1449 – 1515)


Aldus Manuutius, the Venetian scholar, who founded the Aldine Press, had said these words nearly five centuries ago and in a context that is entirely different from the politico-economic situation that exists between India and Pakistan. But one look at this profound statement and it immediately becomes clear how well it applies to India and Pakistan, as indeed to the whole of South Asia.

India’s total export trade in 2001-2002 was US $44 billion; its total export to Pakistan was a paltry US $204 million. These figures reveal that India exports less than one percent of the total goods exported in a financial year, to its western neighbor. During the same period, it exported $930 million worth of goods and services to Bangladesh, and $662 million to Sri Lanka.
These facts, however just tell half the story as these figures reflect only the official trade. It is estimated that the ‘unofficial’ (read: illegal) trade that exists between the two neighbors is worth much more. Conservative estimates put it at anywhere between US$ 1.5 billion to US$ 2 billion. Notes rediff.com an Indian portal: “The preferred back door routes for such unofficial trade are through the land borders between the two countries, and via the borders of Iran and Afghanistan. A third route is circuitous; Indian items are officially imported by Singapore and Dubai; these countries then re-export to Pakistan.”

So why is the volume of trade between the two countries abysmally low? Are there any government imposed trade restrictions, which come in the way of private, and government enterprises on both sides of the border to transact business with each other? Evidently not overtly.

Says Muralidhar Reddy, an Indian journalist based in Islamabad: “New Delhi has not placed any restrictions on import of goods and services from Islamabad. In other words theoretically one is free to export any good or service from Pakistan to India subject of course to the domestic policies of India and Pakistan." Just to illustrate his point he says: “ Pakistan is surplus in power. Independent Power Producers (IPPs) in Pakistan have been demanding that they be allowed to export power to the Indian side of Punjab.”

In fact even at the height of the Kargil war, India was importing sugar from Pakistan, and regimes on either side of the border had a tough time dealing with this fact, in the light of the nationalist 'fervor' (read: hysteria or jingoism) that had engulfed both the countries.

If one were to analyze the steps taken by each nation so as to bolster trade related ties, it would be clear that India has clearly accorded more sops to Pakistan and the latter’s reciprocation amounts to a naught. In the mid nineties India accorded the Most Favored Nation (MFN) status, essentially a status that would weed out any discrimination that exists in the export of goods to Pakistan and has so far been demanding the same in return, but to no avail.

What then has Pakistan’s hesitation been in granting the MFN status to India? Manpreet Singh Gill, a graduate of Delhi School of Economics cites conflicts of interests as the main reason. He elaborates further: “The army is powerful, and lots of other big problems exist in Pakistan. Conflict with India is something the army needs to justify its own existence, and something the government (whether civilian or army) can use to divert attention from domestic problems...again a time-tested practice”.

The popular refrain so far has been that Pakistan cannot award such a ‘coveted’ status to a country with which it has an ‘ideological’ conflict. Says Reddy: “In political terms the stated position of Pakistan for popular consumption or for gallery is it could not trade with India on the blood of the Kashmiris.” The problem, if one Pakistani businessman is to be believed, is nothing more than that of nomenclature. Rediff.com quotes a Pakistani businessman Waquar Ahmed Sheikh as saying ” Why don’t you change the term? In Pakistan, people think granting of MFN status to India is something too special."

Pakistan is a WTO signatory and in compliance with WTO norms, it would anyway have to grant India such a status in 2005. Further, with the historic signing of SAFTA at the recently concluded SAARC summit in Islamabad, the granting or not of the MFN status becomes even more irrelevant. But the fact that nomenclature might have been a major impediment in granting the MFN status points to something more deeply rooted.

While at a superficial level, it might suggest that the problem is only attitudinal in nature, a closer look at the mindset of the Pakistani business community reveals that they are afraid of allowing India unfretted access to their markets. They feel that if India were allowed to encroach unhindered into their markets, it would flood their markets with goods, which in turn might spell doom for the Pakistani industry.

Indian analysts however feel that the fear in the minds of the Pakistani businessmen is unfounded as precedent suggests otherwise. They cite Sino-Pak relations and conclude that despite enjoying excellent relations with China, Pakistan has not been flooded by Chinese goods, as imports depend upon domestic demand, which in turn depends upon the purchasing power of the populace of a country. Ironically, the Indian business community itself fears a Chinese invasion into its own markets.

Pakistan watchers on this side of the border (India) reckon that the Pakistan Army has a vested interest in not allowing more trade to flow across the divide. Trade would inevitably increase people to people contact and this would mean that the army’s control over the establishment would loosen as increasing number of people would interact with people from the ‘other side’ and this would mean infusion of liberal ideas in the hereto closed society.

But Pakistan and its army are not the only ones to blame. A “politician-businessman-smuggler” racket might exist on this side of the border too, and it might as well be the single biggest impediment to fostering trade ties between both the nations.

But what could the two countries trade? Says Reddy: “From tea to textiles and from Bollywood to pharmaceuticals, the list is endless.” He points out that prices of certain medicines in Pakistan are up to two hundred per cent higher than in India, and it is anybody’s guess, how much Pakistan would benefit, were it to procure these drugs from India.

Education is another area where Pakistan could benefit from its eastern neighbor. Pakistan has few educational institutions, especially in the professional field and this forces its elite to spend ten to fifteen times the cost that they would incur were they able to send their children to institutions like the IITs and the IIMs, which have acquired a global reputation for being Centers of Excellence.

The only area where market forces in Pakistan seem to have a free reign vis-à-vis anything Indian, is in the Indian entertainment industry, which has a near total domination over the local industry. Pirated cassettes and CDs of Indian movies are readily available in Pakistan and as Reddy points out, sometimes these movies are actually ‘released’ in Pakistan hours prior to their release in India.

It is worth noting that peace overtures, like the one that arose out of the SAARC summit in Islamabad, have been made in the past. What then is different this time? Analysts point out that the very fact that the Pakistan Army is behind these moves (which has not been he case in the past) lends credence to the belief that trade between the two nations could look up in future. Also, with WTO coming ever closer, it would not be possible for Pakistan to keep its markets closed to India and remain a signatory to the WTO at the same time.

On being asked if the two Punjabs might be central to the trade ties, both Reddy and Gill disagree. While Reddy reckons that it is blasphemous to even assume such a thing considering the near total dominance of the Punjabi community in the national life of Pakistan and the relative lack of it on the Indian side, Gill believes that trade would depend more on specific industry factors.

Another factor that seems so favor trade ties is the fact that trade could be seen as a confidence building measure (CBM). China might be cited as one example in this regard. In the recently concluded Sino-India summit, China has tacitly agreed to give up the demand for Sikkim and has in fact agreed to open a trade route through Nathu La, a border post in Sikkim. Similar trade routes could be opened between Rajasthan and Sindh and between Srinagar and Muzzafrabad. This would, besides improving the flow of trade, also help in furthering people to people interaction, thereby lessening hostility on either side.

If India wants to reach a situation where she wants peace with Pakistan, with trade being a main factor (which in all likelihood it would, as has been with China) then the policymakers need to take as given, that existing power equations in Pakistan mean that self-interested people would lose more from peace than war. Now see how one can change that self-interest, how trade can be made in their self-interest. India would need to work out a policy based on this, and then watch things happen. Adds Gill ”You can’t just sit back and propose trade at each stage, get rebuffed and generally complain about how the Pakistanis don’t want peace.”