There is no shortage of people in Pakistan that favour an open trading system with India. Their case would undoubtedly be strengthened by a research document (entitled "Implications of liberalising trade and investment with India") released recently by the State Bank.
It clearly calls for more liberalisation of trade with India, which the State Bank believes, will be more beneficial for Pakistan, as the country would save hundreds of millions of dollars by importing from India instead of elsewhere.
The research document deplores that intra-regional trade remained stagnant at less than two percent of the total trade in the last 25 years. About 1181 items worth 3.9 billion dollars were common between Pakistan's exports and India's imports during FY04, covering 45 percent of the total items exported by Pakistan. Of the total value of Pakistan's exports in that year, 32 percent represented those items that are also imported by India from the rest of the world.
About 70.3 percent of the common items exported from Pakistan have unit values less or equal to Indian imports' unit values. Therefore, "there is a large scope for export of these items simply by producing the quality required in India. The potential of trade (exports plus imports) between the two countries estimated by the SBP amounts to $5.2 billion".
There were also 2646 common items of Pakistan's imports worth over seven billion dollars, while of these items India had also exports worth over 15 billion dollars. The State Bank analysis revealed that for 48.7 percent of the items in FY04, the unit values for Pakistan's imports were more than the unit values of India's exports.
Even after excluding the items which are currently permissible for import from India, about 45 percent of them still remain in the common list which could be imported from India at a lesser cost than the current cost of import from the rest of the world.
"Allowing import of such items from India (ie expanding the current list of positive items) will give Pakistan an average saving estimated between $400 million and $900 million". The research at the SBP has also identified potential sectors for mutual co-operation between India and Pakistan such as agricultural products, tyres, auto spare parts, minerals, chemicals, pharmaceuticals, leather, textiles, telecommunication, gas pipeline and electricity generation equipment.
The research of the State Bank also talks about the concerns and threats posed by opening the Pakistani markets to Indian products. It is a fact that despite liberalisation, Indian's trade regime still remains more restricted than Pakistan's in terms of both tariff and non-tariff barriers and there is a general apprehension that opening up of trade will adversely affect our industries in which Pakistan is not so competitive in terms of prices.
According to the research analysis, the decision to liberalise the trade will need to be made keeping in view the developmental stage in different industries. "For example, in case of automobile industry, we may prefer to import automotive components and spare parts from India instead of importing complete assembled cars which are much cheaper in India compared to Pakistan".
The State Bank, in our view, has made a commendable effort by analysing and examining a subject that is of vital interest to all and sundry in the country and is often keenly discussed without a thorough knowledge of the basic parameters. In fact, the nation is clearly divided between two groups, one that is in favour of open trade with India and the other that opposes such a proposition.
The State Bank's contribution is that it has given all the details about the subject in a single document so that the readers may consider various options and make up their own mind. In a way, the research document could help in initiating an informed debate in the country and assist the policy makers in making decisions based on facts on the ground, though the State Bank's position on the subject is very clear.
It has even calculated the net gain to our external sector and the economy, which is quite sizeable. In order to assuage the concerns of the industries likely to be affected, the State Bank has also made certain proposals that make sense.
To forego the benefits of an open trading system without very sound reasons would be a folly that the country can ill-afford. Of course, the research document has not discussed Kashmir and other irritants that hinder trade between India and Pakistan.
The State Bank has wisely preferred not to bring in political considerations while discussing the subject purely from an economic point of view.
The major opposition to trade liberalisation between Pakistan and India is based on the argument of tariff and non-tariff barriers to protect the Indian markets from foreign competition and the potential of adverse impact on some of the industries in Pakistan, particularly those related to agriculture, textiles and engineering sectors.
While the tariff barriers are easy to sort out, non-tariff barriers are difficult to identify and disencumber because of their hidden and discriminatory nature. Unfortunately, India is notorious for erecting a maze of non-tariff barriers that include requirement of political or security clearance, sampling or customs inspection, requirement of technical or standard certification and labelling, marking and packaging specification rules. All these barriers are not easy to cross.
Pakistani authorities need to take the country's exporters and industrialists into confidence, examine their experiences and genuine apprehensions and then convince Indian authorities to remove these barriers. If that does not happen, Pakistan needs to be careful in proceeding further in the matter. India granted MFN status to Pakistan in 1996 but Pakistan has not reciprocated in the same manner.
As a signatory to the WTO agreement, Pakistan, however, is bound to grant MFN status to all member countries, including India, without any discrimination. We are sure that Ministry of Commerce would take all these aspects in view while discussing trade with India and succeed in striking a bargain that suits and benefits both the countries.
The argument of adverse impact on our industry is, however, not very convincing in the conditions prevailing at present. If Pakistan can have open trade with China, then there is no reason to be afraid of competition from India which at the current rate of exchange generally produces goods at a higher cost. At the most, some of the Chinese imports into Pakistan will be substituted by Indian imports without causing any deterioration in the overall trade balance of the country.
Also, consumers whose interests are generally ignored would have better access and more choices in goods and services at competitive rates. Investment and tourism will also be greatly facilitated. Most of the arguments favour a much freer trade with India but only if the two-way trade is non-discriminatory, transparent and free from unnecessary complications.
Added bonus of such an arrangement would be the creation of vested interests in both the countries that would try to promote peaceful co-existence and avoid conflicts.