Pakistan Takes Giant Step With Trade Move

By James Lamont for The Financial Times

The move to grant Most Favoured Nation status to India by Pakistan marks a small step for the world trading system. But it is a giant step for Pakistan.

For decades, these two nuclear-armed rivals have strangled trade along what in centuries past was a commercial highway between the subcontinent and central Asia. Today bilateral trade totals a paltry $2.7bn – a fraction of its potential.

The obstacle is ideology. Pakistan’s leadership insisted that trade ties were conditional on progress in resolving a bitter dispute over the territory of Kashmir, a Muslim majority region claimed by both countries after the end of British rule in 1947.

India’s leadership was obligingly intransigent.

The “in principle” granting of MFN and easing of business visas, responding to Indian signals of goodwill, are courageous moves by Pakistan’s civilian and military leaders.

They have immediately attracted criticism from domestic industrial sectors which fear greater competition. Executives in Pakistan’s pharmaceuticals industry were quick to warn that their companies would be hurt by market access for India’s generic drugs companies.

Other sceptics hold up the example of India’s Bollywood film industry, already swamping the Pakistani entertainment market, as a sign of worse to come.

More menacingly, Kashmiri groups have condemned the decision as a betrayal. The United Jihad Council called trade liberalisation a “direct contravention” of Islamabad’s fight for Kashmir. It threatened “grave consequences” of going soft on Hindu-majority India.

Many fear that militant attacks on India will ensue in a bid to sap Delhi’s confidence in peace with Pakistan, and derail negotiations. Such attacks already rain down almost daily across Pakistan.

Most of all, the move reflects a mighty shift in opinion in Rawalpindi, the headquarters of the powerful Pakistani army, at a time when the local economy is weakening.

A section of the army’s leadership is deeply worried about a mismanaged economy and anxious to put Pakistan, growing at 3 per cent, on a higher trajectory similar to the economies of India and China. With good reason. Railway workers go unpaid, industrialists are starved of power for their factories, and foreign investors, alongside Pakistani talent, are being frightened away by security risks.

More long term, some generals view the hostile position against India as unsustainable, and see incentives to normalise ties. They also say that Pakistan’s long-term military expenditure, supported by assistance from the US, cannot be borne by a broken economy.

Many of Pakistan’s most powerful industrialists are encouraging this change of heart. They see opportunity for cement, agriculture, banking and engineering in more access to the Indian market. More broadly, they say that the benefits of opening up more to China will only bear fruit when India too can compete in the local market.

From their offices in Karachi and Lahore, they dream of Pakistan forming a regional trade grouping with fast-growing China and India akin to that formed between Canada, Mexico and the US by the North American Free Trade Agreement.

That is of course a long way off thanks to one of the most intractable of world conflicts.

Some diplomats in Islamabad are highly sceptical of regional integration so long as the disputes fester over Kashmir and a security menace pours out of the border regions with Afghanistan.

They say that security still dominates the strategic debate in Pakistan. Any bilateral relationship is hamstrung by failure to find agreement on Kashmir.

Earthmovers are already busy at the Wagha border, the principal land crossing between the two countries, preparing a new freight handling facility for rising commerce.

The current limitations are plain to see. A delegation of Pakistani traders crossed the post on Tuesday on their way to a fair in Chandigarh, the capital of India’s Punjab state. The existing facilities, usually catering to about 20 foot passengers a day, were entirely overwhelmed.

Both sides need to capitalise on what are baby steps towards more open markets. The first thing they can do is improve the infrastructure linking the two countries. The second is to ease other obstacles like quantitative restrictions, customs procedures and formidable non-tariff barriers.

The far bigger task is to resist efforts to blow up reconciliation through commercial ties, and to proceed equally purposefully on some of the thornier issues that make the region one of the world’s most dangerous.

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    • academicresearcher
    • October 18th, 2011

    do not agree with how you have defined the role of the “generals”.

  1. October 18th, 2011

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