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South Asia

Aug 12, 2005

India, Pakistan talk trade

After years of hostility, India and Pakistan are finally talking money. After a two-day secretary-level trade talks concluded Wednesday, the nuclear rivals announced steps to increase bilateral trade, speed up shipping and aviation agreements and open banks in each other's countries. The two sides also agreed to establish the fiber optic link between Amritsar and Lahore.

"We agreed on the point that bilateral trade between the two countries should be increased as both sides have great potential. We should find out ways to enhance the trade volume," said Syed Asif Shah, Acting Commerce Secretary of Pakistan. Indian Commerce Secretary S N Menon expressed satisfaction over the current trend in bilateral trade. "Our trade is increasing substantially. As of 2004-05, bilateral trade touched US$600 million and each year it is growing at a good pace."

The talks, however, were inconclusive on the issue of Pakistan granting the Most Favored Nation (MFN) status to India. India has long granted MFN status to Pakistan and has been demanding reciprocal treatment, but Islamabad links the issue to Kashmir. However, although Pakistan has been withholding MFN status to New Delhi, which means it does not extend its lowest tariffs to Indian exports, it has recently lifted restrictions on import of over 770 commodities from India.

The talks come close on the heels of Pakistan opening the Wagah land route for trade. Pakistan last month allowed duty-free import of live animals, meat, garlic, onions, potatoes and tomatoes through the Wagah border station. Pakistani diplomats said the measure would help bring down soaring prices at home. India and Pakistan, who have fought three wars since their independence and came very close to a fourth war in 2000, have been on a trading frenzy lately. Bilateral trade jumped by 76% to $600 million in 2004-2005, with India enjoying a surplus. But that is still about 0.5% of the value of trade the two nations carry on with the rest of the world each year.

While India's exports to Pakistan in 2004-05 jumped 76% to $505.44 million from $286 million in 2003-04, exports from Pakistan to India rose by 65% over the same period to $95.33 million from $57.74 million. The Associated Chambers of Commerce and Industry, an Indian industry lobby group, holds that bilateral trade could touch $10 billion in five years if the two sides succeed in drafting a free trade agreement. Indian Commerce Minister Kamal Nath has said the two countries should aim to increase bilateral trade by five times in the coming years.

Last week, Pakistan also lifted a ban on sugar imports from India and allowed the state-run trading agency to buy 100,000 tons to boost its stocks. Both countries are also moving forward on cutting import duties on fruits, dry fruits, and textiles to boost trade. Earlier this year, Pakistan agreed to import from India select vegetables and livestock that were in short supply. India agreed to import lentils, cotton, sugar and dry fruits. In India, the most anticipated import from Pakistan is cotton, earlier imported through rail and sea routes. The opening of the Wagah land route has been welcomed by Indian traders as Pakistani cotton is cheaper than that imported from China. The Indian government has already cut the duty on textile imports from Pakistan.

India's exports to Pakistan included iron ore, dyes and chemicals, drugs and pharmaceuticals, and plastic and linoleum products, among others. Fruits and nuts, cotton yarn and fabrics, pulses, spices, man-made filament and are the major imports from Pakistan. But decades of hostility means these goods often have to undergo expensive detours through distant countries. Tires, until recently, used to be exported from Amritsar to Lahore - a 90-minute drive - through Dubai, Afghanistan and Iran. These detours may be worth around $1 billion. Besides, trade restrictions have also bred a flourishing smuggling racket, with rice and salt coming into India and whisky going to Pakistan. The estimated value of illegal trade between India and Pakistan is more than $2 billion, significantly higher than the value of the official trade between the two nations, the Federation of Indian Chambers of Commerce and Industry (FICCI) estimates.

Individual companies have also shown great enthusiasm to do business in what is still referred to as enemy territory. Tata Consultancy Services Ltd, India's No 1 computer software exporter, is seeking to open a training center in Lahore. If the experiment succeeds, a software code-writing center may follow, the Washington Post reported last month. Indian herbal medicine maker Dabur wants to set up a factory in Pakistan.

(Asia Times Online)

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