Trading with the enemy -- by S. P. Udayakumar Back   Home  
Pakistan’s Commerce Minister, Mr Abdul Razzak Dawood, is the first top-level Pakistani leader to visit India since the Agra fiasco. Mr Dawood was in Delhi to attend the SAARC Commerce Ministers meeting. But before he left Islamabad, he took care to mention that he would not have a one-to-one meeting with his Indian counterpart, Mr Murasoli Maran, to discuss trade-related issues between the two countries. Islamabad maintains trade relations between the two countries cannot be normalised without serious progress on the Kashmir issue.

Even so, trade between Pakistan and India has registered a gradual increase over the last decade. In 1990 India’s exports to Pakistan were just Rs 740 million and imports were Rs 840 million. In 1995, exports grew to Rs 2.56 billion and imports to Rs 1.51 billion. By 1999-2000, India’s exports to Pakistan have grown to Rs 4.05 billion and imports to Rs 2.97 billion (all figures are in Indian Rupees).

Experts agree that greater trade potential exists for both if the two sides could focus on each other’s specific needs and capabilities. Pakistan can import Indian iron ore, machinery and steel items, chemicals and dyes, wheat, spices, tea and other products while India can buy cotton yarn and textiles, leather products, surgical instruments, water coolers, papers, vegetables, fruits and other things from Pakistan. Meanwhile, unofficial trade between the two flourishes and is worth US$5 billion, five times the official trade figures. Indian textile machinery, tanneries-equipment, machine tools, and spare parts are often ordered from Dubai, Hong Kong or Singapore and then re-exported to Pakistan at a greater cost.

However, the trade history between India and Pakistan reflects the hostile bilateral relations. In 1995, Pakistan imported 5,000 tons of potatoes from India. For some reason the first consignment was delayed by almost eight days and the potatoes had begun to rot. The political parties in Pakistan made a big noise over India exporting rotten potatoes. Similarly, Pakistani businessmen were afraid of exporting disposable syringes to India for fear of the accusation that they were exporting AIDS across the border.

India conferred the most favored nation (MFN) status on Pakistan in 1995. Islamabad has not reciprocated the move. Mr Dawood said granting the MFN-status was pointless unless some of the obstacles in bilateral trade were removed. Although India removed quantitative restrictions on some 2,000 items for SAARC countries including Pakistan at the December 1999 Colombo summit, Pakistan still restricts trade to some 600 importable items even after raising the number following the second round of the South Asian Preferential Trade Agreement (SAPTA) negotiations.

The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Federation of Pakistan Chamber of Commerce (FPCCI) together formed the India-Pakistan Chamber of Commerce (I-PCC) in April 1999 following the Lahore bus diplomacy of February 1999. The I-PCC seeks to strengthen bilateral economic relations, and to provide an officially recognized common platform for the businessmen and industrialists in both the countries.

Despite the I-PCC and other efforts, India and Pakistan remain mired in several trade-related conflicts. Because of surplus quantity, the Pakistani government imposed a ban on importing Indian sugar in March 2001. Although Islamabad has allowed entry of Indian sugar consignments booked prior to the ban, Indian traders allege that every rake is being confiscated to establish the authenticity. Pakistani traders, on the other hand, claim that most deliveries were of LOCs (lines of credit) that had been illegally extended and were unauthorized.

With the exception of a treaty on sharing the waters of the Indus, India and Pakistan have not signed any significant trade or commercial agreement in the last 50 years. Even on the riverfront, everything is not rosy. India and Pakistan have failed to make any progress on the planned 450 MW hydroelectric power project on the Chenab river at Baglihar in Kashmir. Although the Chenab belongs to Pakistan, India has the right to construct the run-of-the-river projects without diverting or reducing the river water flow as per the 1968 Indus Water Treaty. Since 1992 Pakistan has asked India to revise the design of the dam and the latest meeting of the Indo-Pak Indus Commission in May this year also resulted in a deadlock.

The idea of Pakistan selling surplus power to India was first mooted by the prime ministers during the SAARC summit at Male (Maldives) in 1997. The deal was further solidified when Mr Nawaz Sharif and Mr Vajpayee met in September 1998 in New York. The first round of technical discussions was held at Islamabad in November 1998 when an agreement was reached to transfer 500 MW in the short run and 2000 MW in the long run. The second round was held in January 1999 when infrastructural and monetary issues were considered. Having been stalled by the politicking in Islamabad and Delhi, the power deal as well as the grand scheme of creating a South Asian power grid for sharing electricity among the subcontinental states was eventually killed by the Kargil war. Now Mr Dawood says the surplus power might not last long since Pakistan has not had additional power generating capacity.

Yet another potential victim of the India-Pakistan animosity is the proposed gas pipeline between India and Iran through Pakistan. An onshore 1,900 km overland gas pipeline with a capacity of 30 billion cubic meters per annum is being considered by Iran, the second largest producer of gas and India, that has a shortfall of some 30 to 50 million metric standard cubic meters per day. While 1,100 km of the pipeline will be in Iran, some 800-km will run through Pakistan and fetch almost US$200 million as transit charges every year when gas is transmitted. The abortive Agra summit that was supposed to have discussed this project left it high and dry.

New Delhi thinks Islamabad’s hands are twisted by political and strategic considerations and pressure groups that are against trading with New Delhi. Such vested interests at work in India too. Speaking at a business function in New Delhi last week, Mr Dawood commented: “But the world is not purely economics. To that you have to add the political and social dimension.” Translated into plainspeak, it means: improved trade relations between our countries could result in better life for the poor and the downtrodden but prolonged hostility is the thing that assures continued good life for us, the powerful.
Published in FridayTimes, Pakistan.