1
PART II
FACTORS OBSTRUCTING TRADE, ECONOMIC AND POLITICAL INTEGRATION
13. The percentage of trade between India and Pakistan, despite being neighbors, is
miniscule compared to the size of their economies. The only means by which India and
Pakistan can gain from trade liberalization is by adding sufficient trade reforms on both
sides. These reforms should focus on reduction of trade barriers and increase of
bilateral trade. Currently both countries are suffering because of trade barriers as they
raise the cost of trade. The trade is rerouted by using third countries which is not only
more expensive but definitely time consuming as well. Trade transit is also a major
influencer and adds to trade barriers especially in South Asian region where the general
trade transport forms include roads, rail and sea routes.
14. Both countries have recently taken a step forward in improving their trade
structure with each other however according to a report of the of IMF in 2004 the policy
implemented by India is more stringent than that of Pakistan. 1 The reason for this
according to traders on both sides is the lack of MFN (Most favored Nation) status
granted to India.
15. If both countries focus on improving their trade relations and economic
cooperation it will have a significant impact on peace building and political stability in the
region. India and Pakistan focus on keeping their local or domestic industry
monopolized and what needs to be realized is that increased foreign trade will not only
increase competition but also improve the quality for the local consumer. Factors
effecting trade are as under:-
a. Transportation. Throughout history the most common means of trade
transport have been roads because transport by land is cost effective and
malleable as well. The trade between the two countries by sea account for
65 %, whereas by air it is 4%, and by road 23%.2 The cost of trade by road
is not yielding the desired output for the reason that both sides have
stringent custom regulations which impede the trading and there is a lack
1
Annual Report of the Executive Board IMF for the Financial Year Ended April 30, 2004
2
S. Akbar Zaidi,SabaAslam,FarheenGhaffar,‘’MISPERCEPTIONS ABOUT INDIA-PAKISTAN TRADE: Peaceworks no.
128”, pg 7
2
of logistical support and infrastructure. Lack of warehousing is also a
hindrance faced by traders on both sides. India does not allow transit for
Pakistani trade en-route to Bangladesh and Nepal through its territories
similarly Pakistan does not provide the transit facilities for Indian trade to
Afghanistan through borders although it allows Afghanistan to transport its
trade goods to India through its borders.3
b. Trade transit issues. There is serious lack of infrastructure and
logistical support for the land route and rail route between India and
Pakistan. The major limitations by rail include:
(1) Inadequate number of wagons provision.
(2) Inefficient machinery for the safe and secure transportation of
liquids and sensitive material.
(3) There is limited handling capacity in both Lahore and Amritsar
stations.
(4) Trade transit by roads may be the preferred trade medium, it
however has many demerits on account of the condition of the
trade routes such as:
(a) Lack of warehousing on both sides of the border.
(b) Inadequate management of time even though goods include
perishable items.
(c) Lack of cold storage facility.
(d) Deteriorating quality of roads.
(e) Choice of route for the transport of good is predetermined.
c. Custom Protocols. Custom Procedures and Protocols also act as a delay
in the efficient transportation of trade between both countries. The custom
regulations are both inefficient and time consuming. It includes the valuation
of goods, certificate of origin as well as various other documents. This delay
can be rectified or at least reduced with the introduction of Electronic Data
Interchange (EDI) allowing the declaration of goods to be filed through
3
Shumaila Khalid,“Non tariff barriers between Indian and Pakistan : the Rawalpindi chamber of commerce and
industry”
3
electronic means making it more efficient and less time consuming.4 Visa
restrictions also hinder the traveling of traders from both countries to develop
contacts and acquire market entry.5
d. Certification costs and delays. Traders from Pakistan are not complacent
regarding the strict regulations and conditions set by India when it comes to
the trading of textile and agricultural material. The major delays incurred by
traders include but are not limited to:
(1) The testing laboratories are at quite a distance from the land port or
point of entry in India.
(2) For textile export, the trader is required to get an approved pre-
shipment certificate denoting the fact that non-hazardous dye was used
and in most cases the said certificate is disapproved by the Indian
customs.
(3) For pharmaceuticals the process of registration of drug with the Indian
recognized body i.e Central Drug Standard Control, is extremely
frivolous and strenuous as well as time consuming.
(4) For agricultural items the obtainment of phytosanitary certification and
testing results may vary from a few days to several weeks in India.6
e. Leadership roles. Bilateral trade between Pakistan and India have been
effected because of the dispute on Kashmir. Both countries disagree on the
misrepresentation of the Kashmir issue. The history of both countries is
turbulent consisting of wars and ceasefire. Nonetheless the international
community sees them as constantly bickering neighbors. The economic
relations of both the countries are adversely affected by the current political
scenario. This was not the case in the beginning when both countries gained
independence as they both did maximum trade with each other in the early
years despite the turmoil times of separation for economic benefit. During
Benazir Bhutto’s regime (1988-1990) various steps were taken to normalize
4
Ibid
5
Hafiz A. Pasha and Muhammad Imran The Prospects for Indo-Pakistan Trade :The Lahore Journal of Economics
17 : SE (September 2012): pp. 293–313
6
Ibid
4
relations with India these included the exclusion of Sikh insurgents support in
Indian Punjab and the establishment of confidence building measures
(CBMs) as far as security matters were concerned. However, Bhutto was
ousted by the President in November of 1990. Nawaz Sharif during his
second regime in power tried to encourage relations between India and
Pakistan, he invited Atal Bihari Vajpaee on the inaugural ceremony of the bus
service between the two countries and at that time the Lahore declaration
was also signed. These efforts however did not last long as the issue of
Kargil ensued. During that time the parliamentarians blamed the leadership
for this irregularity and as a result Nawaz Sharif was ousted by the military in
1999. During the SAARC summit the president cum military chief Pervez
Musharraf in the year 2004 made an endeavor to develop and continue
diplomatic relations with India on all issues peacefully. When Musharraf was
ousted, the PPP regained leadership after elections in 2008. President Asif
Ali Zardari stressed that relations with India should be peaceful and
progressive and should not center around solely on the Kashmir issue. Their
efforts to resume composite dialogues were hindered due to the terror attack
in Mumbai 2008. However, both countries tried to put the past behind by
resuming relation in 2010, during the SAARC summit in Bhutan. Various non-
government efforts from both sides have also been made to ensure the
progression of development and improvement in relations between both the
countries. In December 2010 a conference comprising of both Pakistan and
Indian businessmen was held, the salient features on which the members
agreed they could mutually benefit were: health, information technology,
agriculture, energy conservation, textiles as well as skill and education
sectors. CEO’s of various notable companies comprised of a committee to
look upon the strategy and steps to be take for future. 7 During the regime of
Nawaz Sharif after winning the elections in 2013. A number of meetings were
held among the traders and businessmen of India and Pakistan.
Collaborative efforts resulted in Pakistan moving to a point of considering
7
ASIA report no 224: PAKISTAN’S RELATIONS WITH INDIA: BEYOND KASHMIR?Pg 5
5
granting India as MFN (Most Favored Nation) status however Pakistan and
India relations came to a complete stop again due the cross border
confrontations8. It was expected that India would be granted MFN status in
the year 2013 but sadly the border scenario changed that all.9
8
Rohit Kumar, " India-Pakistan trade relations: Current and Potential," n.d., http://jinnah-institute.org/india-
pakistan-trade-relations-current-and-potential/ (accessed September 26, 2018).
9
MohsinKhan , “India-Pakistan Trade Relations’’ , 29. Jan 2013, https://www.newamerica.org/international-
security/policy-papers/india-pakistan-trade-relations/(accessed September 26, 2018)
6
PART III
LEARNING THROUGH EXPERIENCE AND ECONOMIC GAINS
16. Economic Integration Gains. Gains through economic integration are only
possible if the countries make internal changes which are liberal and nondiscriminatory.
The regional institutions can only be used for dialogue and discussion to promote
liberalization therefore any changes that will result in economic gains have to be made
on the ground such as cross border regulations and opportunities for multi nationals to
invest. This will in time provide benefit to the regional consumer and producers as well.
17. Advanced Economies of Asia. Asia is regionally and economically diverse as
the East Asian side comprising of countries like Japan, South Korea, Taiwan and
Singapore which are economically more integrated and have advanced economies. On
the latter side though are the low or middle income countries such as India, Pakistan,
Bangladesh, Srilanka, Malaysia and Thailand these countries are yet to realize the full
potential of economic integration. The diverse histories, politics and institutions play a
major role as to why economic integration has not been so successful.
18. The Least Integrated Region. East Asia is more evident in regional
integration due to manufacturing exports. Starting from light exporting goods such as
consumer goods to west than moving to capital intensive goods later. In this way Japan,
Taiwan, Malaysia and South Korea have made their position in global integration
evident. South Asia is the least integrated region in the world even lagging behind Sub
Saharan Africa and North Africa. There is discrimination in trade for instance India’s
trade with its neighbors is less than 3% of its total trade. 10Contrary to popular belief that
India is a rising superpower, India is hardly recognized as a sub-regional power
because it is deeply mistrusted by its neighbors. If the negative list of India is taken into
accord it is actually larger than any of its bilateral free trade agreements.
10
Richard Newfarmer and Martha Denisse Pierola, “SAFTA: promise and pitfalls of preferential trade ar9.
rangements”, chapter 2 in Zareen Fatima Naqvi and Philip Schuler eds., The Challenges and Potential of Pakistan-
India Trade, World Bank, June 2007, pp. 1-2.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/
2007/07/11/000020953_20070711135032/Rendered/PDF/
402730P07493901India1Trade01PUBLIC1.pdf#page=35 ;AparnaSawhney and Rajiv Kumar, “Why SAFTA?”
Commonwealth Secretariat/CUTS International, pp. 3-5. http://genderandtrade.org/files/178432/File-
Name/WhySAFTA-Final.doc2.pdf
7
19. Barriers to Trade Liberalization. Pakistan and India have political differences
and a variety of security concerns regarding each other these reasons add to barriers of
trade liberalization. Pakistan and India have been unable to economically integrate due
to lack of trade liberalization. There is a trust deficit and political tensions have always
been high between them. Policies implemented have focused on import substitution
thereby protecting native industries. There is also lack of commitment towards regional
growth which have been proved by the stance of both countries as they do not attempt
to arbitrate based on political differences, not even for the betterment of the region.
20. Prospects of Economic Integration. Pakistan and India have recently
opened up their economies and are adding reforms to promote economic integration.
The major reforms include forsaking import substitution, lessening tariff rates, removal
of regulating duties as well as quantitative restrictions. The countries have signed the
SAFTA agreement which will focus on the removal and reduction of tariffs. Based on
this agreement there will be facilitation of cross border goods transport and eventually
devise a conceptual framework for future economic integration.
21. Case Study. Many lessons can be learned from history, for instance
Europeans after the collapse of Communism and the fall of Berlin wall recuperated
themselves and chose to move forward instead of bickering over political differences.
European Union agreed to trade goods and services among the countries to promote
economic and social growth. The case of European Union clearly denotes that
economic growth and cooperation is only possible with strong political will and
determined leadership. According to various studies by liberal theorists it is usually an
integration of trade and economic cooperation that results in the peaceful coexistence of
adversaries. This can further be illustrated by following the example of the cooperative
economic relations between World War II enemies France and Germany who were
direct adversaries in the war but chose to share their coal and steel resource for the
economic benefit of their people after the War under the agreements laid by European
Union due to which eventually they were united. Focusing on the European Model
provides evidence that the peaceful co-existence is only possible with the integration of
economic cooperation benefiting both sides and promoting regional growth. Similarly
8
member countries of ASEAN also focused on improving trade and economic integration
between rival and competing adversaries this resulted in the gradual normalization of
political tensions and a rise in the overall economic and growth of the whole region. All
these instances from history are evidence of the fact that liberalism by leadership of
various countries plays a key role in the economic development and growth of a region
resulting in a peaceful coexistence. The substantial advantage that EU and ASEAN had
was the support of countries like United States.
22. On the contrary Indo-Pak region have done nothing but constantly feud over
political issues and ideologically differences. All that has resulted from this is increase
distrust and greater animosity from either side. The support of countries like United
States is seriously lacking and instead there is evidence to suggest that the US has
acted to ally to both yet has remained unable to play a significant role or lend support
for the peaceful resolution of political issues and any initiative to promote economic
integration between the neighboring adversaries.
23. SAARC being a regionally body has been unable to provide significant lucrative
ventures when it comes to relations between India and Pakistan. As SAARC is a forum
that abstains from political discussions. This also shows that economic integration and
cooperation goes hand in hand with peace and sound leadership.
