Pakistan Business Council’s recently published Agenda for the Economy is strangely silent on regional trade. The brief and only passing reference to regional trade is in the context of PBC’s emphasis on Make in Pakistan.
“Trade with China, Afghanistan and Iran should be a priority of the Make in Pakistan strategy. It should also be the basis of preparing for trade with India when relations allow,” the PBC wrote. “When relations allow”. This from an organisation that practically houses the now slow-pacing Pakistan India Joint Business Forum, and publishes a Pak-Central Asia trade analysis every now so often.
What explains the change of heart perhaps requires a sit down with the PBC. But know well that Islamabad is currently buzzing with talks of regionalism. No one can surely say, if these talks will remain talks as usual or whether this time it is different. But unlike what some quarters opine at the side-lines of conferences - that the establishment doesn’t want Pak-India trade to flourish – there is enough evidence that many times it is merely inter-sectoral politics at play.
For instance, the famous row between Pakistan’s cotton yarn producers and cloth/garment producers over import of cotton yarn from India. Or the case of agriculturalists in Sindh who urged the then President Zardari not to liberalise farming trade with India in previous regime. In comes another interesting story that shows that some of the non-tariff barriers in Pak-India trade may in fact be a function of inter-sectoral business politics rather than geo-politics or security concerns per se.
The story so goes that until recently, Pakistan’s solvent-extracting industry was not using soybean seeds for the obvious reason that it is not economical. Oil yield from soybean is only 17 percent compared to sunflower and canola seed that has a yield of 47 percent and 33 percent. It was logical for them to not use the soybean seed to produce edible oil products. This is why it was mainly the poultry industry that was importing soybean meal.
The poultry industry was importing the commodity from India and things were hunky dory. Then almost overnight the demand for Indian soybean meal increased due to global demand hike for non-GMO meal that India produced. As a result, prices shot up.
In order to reduce costs, the poultry industry decided to import soybean seeds themselves instead of buying the meal, which is the residue left after oil extraction. But then the plot thickens. In comes the solvent industry and gets the government to reduce on soybean seeds the duty from 17 percent to six percent – even though its yield for edible oil purpose is low.
Meanwhile, India increased its production after which prices of soybean meal eased and Pakistan started importing the soybean meal from India again, because under the SAARC agreement the import duty from India was lower. But that hit solvent extractors because by now they had ventured into soybean oil extraction with hopes to sell the residue to poultry industry. And that’s when this inter-sectoral rivalry intensified.
At the one end extraction industry got its tax incentives exclusively on its own process – extraction – whereas the process that poultry industry used – extrusion – was not given any such tax incentive. At the other end, extraction industry first claimed that Indian soybean meal had pig traces in it.
When that claim was rubbished through lab tests, the extraction industry successfully lobbied to ban Indian soybean meal imports claiming that it has two difficult-to-pronounce fungi - aspergillus and fusarium. These fungi are already quite abundant in Pakistan and the quarantine law says that you quarantine that which is not already in the country. However, that ban on Indian soybean meal still exists. So does the tax incentive on extraction whereas no such incentive is available on extrusion process that the poultry industry uses.
The result: cheaper soybean meal imports from India are nearly zero; and the poultry industry is now importing solvent extraction plants to benefit from tax incentive on extraction process, when in fact for their industry extrusion process is more suitable.
The moral of the story: in the case of Pak-India trade, sometimes it is the “self-interest” of the corporations and business lobbies which is clothed in the argument of “national interest”. And the powerful lobby often wins.
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