Salient Features of Pakistan's Trade with India

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History of Trading Relations:

* Major Trading Partners at time of Partition

* Disruption following India devaluation

* War with India in 1965; complete breakdown

* 1974 - Restoration of Trade Relations on a Government to Government Basis

* 1976 - Commencement of Private Sector Trade

* 1979-86 - Reversion of Trade Relations to Public Sector only

* 1986-1987 - Some Trade liberalisation with Return of Private Sector

Trade Regimes Vis-a-Vis Each Other

GOP allows import from India of 577 items including some raw materials and industrial goods. Clear discrimination with respect to India, QRs only applicable to India. Otherwise, liberal import policy.

Following Trade Liberalisation moves by India in recent years. India apparently does not openly discriminate against Pakistan. However, general import policy not so liberal. Myriad of complex controls and quantitative restrictions, especially on agricultural products and consumer goods. Altogether, not so transparent import policy. Nominal Tariff Barriers somewhat less than Pakistan, with maximum tariff rate of 50% and in Pakistan, 65%. However, effective tariff protection higher due to QRs.

Lack of Discrimination by India has created pressures for granting MFN status to India by Pakistan. Same treatment as to other trading partners.

Volume of Trade

In 1994-95, Pakistan's exports to India were about $42 million and imports of $64 million. Total Trade of $100 million Pakistan exports 1/2% and India about 1/5%. Balance of Trade has shifted in favour of India since 1993-94. Little growth in volume of trade.

Major Pakistani exports to India are Fruit and fruit preparations (including juices), woven cotton fabrics, crude vegetables materials, cotton yarn and leather.

Major Indian exports to Pakistan are vegetable (including pulses), spices, oil seeds, coal, dyes tanning and other materials, machinery, construction materials (including comment).

Issues at the Highest Level

The basic question is whether TRADE NOW, PEACE LATER or PEACE NOW and TRADE LATER. Political considerations have traditionally restricted trade with India. There is a strongly held view that we should not develop economic and trade relations with India unless a just solution is found for the Kashmir dispute. Relaxation at this stage will be seen as a betrayal of the Kashmir freedom fighters. India will see trade liberalisation as a process of normalisation in the region which will tend to de-emphasise solution of the Kashmir problems.

Proponents of trade, however, argue that enlargement of trade will create a constituency for peace, bring the peoples of the two countries together and not only create pressure for political recounciliation but also bring the arms race in Pakistan and India to an end.

The other broad issue is the fear that even if political considerations are ignored of economic domination by India. India is the largest economy in South Asia, with an advanced industrial structure, cheaper labour, lower energy prices and interest rates will be a formidable adversary for Pakistan. With open trade and low transport costs Indian manufactured products which are more competitive will flood the local markets and wipe out the local industries such as pharmaceuticals, textiles, cement, engineering goods, dyes and chemicals, etc. India can, therefore, effectively engage in an economic war, through trade against Pakistan and destroy the economic base which supports our defiance expenditure.

As opposed to this, it is argued that historically Pakistan's export performance is better, India has traditionally followed a stronger import substitution regime as a result of which Indian industry is outdated and inefficient. The quality of products is generally low and are unlikely to satisfy the preferences of Pakistani consumers. Pakistan will be able to reap major economies of scale by accessing into the potentially huge Indian market. …