There is a potential of $35 billion more trade between India and Pakistan, as trade between the two countries at present is only $2 billion and this could reach $37 billion, according to a World Bank report namely 'A Glass Half Full, the Promise of Regional Trade in South Asia.' During an interaction with media persons here on Wednesday, Director Trade and Investment WB Caroline Freud and Sanjay Kathria, editor of the report, emphasised the need for moving beyond politics to materialise the actual potential of trade between both the countries.
Sanjay said that there is a large gap between actual and potential trade in regional countries due to barriers against each other. These barriers include non-tariff measures despite a regional free trade agreement. Sanjay said that he has devoted a full chapter to how people to people contacts can help improve trust between the two countries. He said that current trade between the two countries is $2 billion while according to global gravity model, the potential is of $37 billion trade between Pakistan and India.
Replying to questions, they said that exchange rate issue is very complicated and entails implications on debt and inflation and therefore exchange rate must be at a level that brings equilibrium.
Another representative of WB said that exchange rate market value appreciation of 10 percent leads to contraction of 5 percent exports. Caroline Freud said that CPEC will open new trade avenues in the region.
Regional trade can create many more jobs and make the country prosperous if trade barriers with South Asia are removed, according to the WB report. Pakistan's trade with South Asia accounts for only 8 percent of its global trade, despite the region is the world's fastest growing region. However, intraregional trade in South Asia is among the lowest at about 5 percent of total trade, compared with 50 percent in East Asia and the Pacific.
A statement handed to the media documents what needs to be done to realise the full trading potential in South Asia. The report identifies four critical barriers to regional trade: tariffs and para tariffs, real and perceived non-tariff barriers, connectivity costs, and a broader trust deficit.
According to the report, the costs of trade are much higher within South Asia compared to other regions and average tariff in South Asia is more than double than the world average. South Asian countries have greater trade barriers for imports from within the region than from the rest of the world. These countries impose high para tariffs, which are extra fees or taxes on top of tariffs.
A key factor leading to suboptimal trade between India and Pakistan is the long list of product restrictions in bilateral trade; this bilateral trade relationship is the most restrictive in South Asia. Under SAFTA, both countries have reduced tariffs to a maximum of 5 percent, and India has reduced them to zero on imports from the least developed countries. However, India and Pakistan continue to maintain long sensitive lists including items (at the 6-digit level) on which no tariff concessions are granted.
The visa regime between India and Pakistan is particularly cumbersome, despite the liberalised bilateral visa agreement the two countries signed in 2012 to boost trade and people-to-people contacts.
More than one-third of the intraregional trade falls under sensitive lists, which are goods that are not offered concessional tariffs under the South Asian Free Trade Area (SAFTA). In Pakistan, nearly 20 percent of its imports from, and 39 percent of its exports to, South Asia fall under sensitive lists.
The South Asian countries are yet to reap the benefits of shared land borders and reduced policy barriers, such as eliminating the restrictions on trade at the Wagah-Attari border, or aiming for seamless, electronic data interchange at border crossings, will be major steps towards reducing the very high costs of trade between Pakistan and India.
The report recommends ending sensitive lists and para tariffs to enable real progress on SAFTA and calls for a multi-pronged effort to address non-tariff barriers, focusing on information flows, procedures, and infrastructure. Policy makers may draw lessons from the India-Sri Lanka air services liberalisation experience, the report suggests, where liberalisation was gradual and incremental, but policy persistence paid off. Connectivity is a key enabler for robust regional cooperation in South Asia, said the report.
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