Atlantic Council report: ''removing non-political constraints to boost trade''

Pakistan and India have been advised to focus on the removal of non-political constraints, which will result in the promotion of bilateral trade. A report compiled by the South Asia Centre of the Atlantic Council titled ''Prospects and challenges for increasing India-Pakistan trade'' discussed overall trade-related issues, myths and misperceptions, including the impact of trade expansion between Pakistan and India.
The question often raised inside Pakistan is: Will expansion of trade with India benefit Pakistan, or would its large neighbour swamp the country? A lot of myths and misperceptions on this point have taken root in public discourse. The South Asia Centre is the Atlantic Council''s focal point for work on Afghanistan, Pakistan, India, Bangladesh, Sri Lanka, Nepal and Bhutan, as well as relations between these countries and China, Central Asia, Iran, the Arab World, Europe and the United States.
The report was prepared by Dr Ishrat Hussain, Dean and Director of the Institute of Business Administration, Karachi, and former Governor State Bank of Pakistan (SBP). Among short-term goals, it recommended that Pakistan should grant Most-Favoured Nation (MFN) status to India while India should reduce its tariffs on agriculture commodities, textile and other goods that are of potential value to Pakistan.
India''s average tariff rate at 14.5 percent (in 2007) is much lower than tariff rates a decade ago. However, the applied tariff rate for agriculture exports (at 39 percent in 2007) is one of the highest in the world. This is a major barrier that Pakistan exporters of agriculture products face in terms of expanding trade with India.
The council also recommends that both countries should reactivate Safta and agree on phasing out the sensitive list (of items that each country deems important for its economy) over the next few years. A restrictive list will nullify the potential gains of preferential trade access. According to the council''s recommendations, both countries should rationalise and simplify technical barriers to trade and sanitary and phyto-sanitary measures which are, in fact, acting as powerful deterrents to the exchange of goods.
"These are, in fact, NTBs (non-tariff barriers) that hinder the flow of goods," the council observed. In a number of sectors, specific tariffs and regulatory duties outside statutory MFN tariff rates are levied. Potential textile exports from Pakistan are subject to specific duties which can go as high as 50 to 100 percent in equivalent terms. Pakistan exporters of textiles and garments say that these are important barriers in their ability to access the vast Indian market.
The council recommends that the following tasks should be carried out immediately: (i) trade facilitation via expeditious border crossings; (ii) streamlining documentation requirements; (iii) co-ordination of border agencies; (iv) opening new border crossings; (v) quick customs clearance; (vi) improving electronic data interchange, telecommunication and transport links; and (vii) creating new shipping protocols and the easing out of visa restrictions for businessmen.
It also proposed increased railway, air and road connections between the two countries. The council also called for replacing domestic tax, tariff and subsidy policies that distort incentives for production and trade in both countries with more neutral policies.
In 2005, Pakistan and India had signed an agreement to open branches of two Indian banks in Pakistan and two Pakistani banks in India. This agreement has not yet been implemented as procedural difficulties have been allowed to overwhelm the substance of the agreement. Without banking services, the opening of letters of credit and cross-border fund transactions, trade cannot take place, the Council observes.
The automobile industry in India is gradually evolving to replicate those of developed countries. Pakistan can import automotive components and spare parts from India at a lower price than from Thailand. On the other hand, India is expected to benefit from free trade due to relatively low raw-material, electricity and labour costs.
This would make import of automobiles from India much cheaper for Pakistan than those from other countries such as Japan and Korea. Citing a State Bank study, it said that bilateral trade could increase fivefold if MFN status was granted and both India and Pakistan removed non-tariff barriers.
It has been estimated that the two countries the quantum of bilateral trade could jump from $2.5 billion in 2007-08 to $5-10 billion, or two to four times its current level. Commerce Secretaries of both countries are meeting in the first week of May in Islamabad to resolve issues, which are hindering smooth trade between the two countries.