With Pakistan’s cabinet approving the negative list approach with a commitment to grant the much-hyped most-favoured-nation (MFN) status to India by late 2012, bilateral trade and economic relations are all set to get a boost.
With expanding bonhomie, is it not time for both to join up to look at international trade issues with third countries which affect them both, even if at varying intensities?
This is simply important because after a long era defined by conflicting cohesiveness and cohesive conflicts, both the countries are now willing to identify and remove the deterrents to their bilateral relations. Such initiatives are bringing optimism and increasing affinity among the trading communities on both sides, while also being praised by the international community.
In a globalising world, the bilateral engagement will also be affected by external factors as diverse as differences at the World Trade Organisation (WTO) and competitive nature of their external trade (including efforts to diversify their respective export portfolio in common markets).
Therefore, an important arena of interventions to the bilateral engagement comes from how both countries are interacting and competing internationally and whether they will be able to build common positions on issues shaping the global economic order and their own conflated interests.
For example, when the basmati rice patenting case came up in 1997 due to a US company — Ricetech obtained a patent in the US Patent Office — it affected both adversely. India had filed an objection. Subsequently, it emerged that basmati can be protected as a Geographical Indication under the TRIPs agreement, provided it is so registered under the country’s laws.
India approached Pakistan to jointly register it, but Pakistan did not agree as there was a lack of consensus on the definition, areas of cultivation, etc. Following that Pakistan granted a trade mark on basmati rice to its rice growers’ association which only led to further confusion.
The lesson from the basmati case raises the question of how both countries should pursue issues of mutual interest at other international forum; and also whether common international issues will affect bilateral pursuits.
Recently, Iraq banned the import of non-basmati rice from India and Pakistan and revised the minimum length of the grain to 6.8mm from 6.0mm. This meant that only premium basmati rice can be exported by India and Pakistan to Iraq. Reportedly, Pakistan also started importing basmati rice from India, perhaps for re-export.
Thus, how both the countries will cooperate and collaborate in their domestic as well as international markets over such commodities remains a challenge. The two countries have to look into such issues seriously by forging a common platform for developing a bilateral or regional supply chain. This will enable economies of scale in their export strategies.
The two countries are also competing internationally in export of mangoes. Most Indian mangoes are exported to the traditional markets across Asia and Europe, especially Bangladesh, West Asia and parts of Europe. In newer markets like the United States, the standards requirements, like those relating to pest-mitigation, are stringent.
Pakistan may fare better in the long run, despite the less costly Indian mangoes. But even more than that, Brazil and other Latin American and Caribbean countries could get a better hold than both India and Pakistan in the North American mangoes market. Thus, such economic scenarios need to be analysed so that bilateral cooperation can well be supported with competitive collaboration.
The competitive nature of most of the products from both the countries in international market needs to be dealt with special focus, considering the level of complementarity in economic activities of both countries. The bilateral relations may be soured by economic rivalries in overseas markets.
Almost a year down the line, much has changed in the approach of India and Pakistan towards each other on the trade front. Nearly a year ago, New Delhi argued against Pakistan the issue of concession on Pakistan’s textiles products by the European Union (EU), such as those given to LDCs.
Earlier, EU was wanting to give concessions to Pakistan’s products by reducing tariffs because of the severe floods there. This would allow EU to remove tariffs on a list of more than 70 items, mainly textile products. This was seen as discriminatory by major textile exporters in India, Bangladesh, Brazil and Indonesia. However, India graciously back tracked on its opposition considering the current progress on bilateral trade relations.
Both India and Pakistan can seek tariff concessions from the USA and also Europe by creating Qualifying Industrial Zones such as the ones which exist in Jordan and Egypt. In 1996, the US Congress authorised designation of QIZs between Israel and Jordan in 1999 and Israel and Egypt in 2004, which would have allowed exports to the US duty-free if the products contain a specified level of inputs from Israel. The purpose of this initiative was to support peaceful prosperity and stability in the region by encouraging economic cooperation. It has worked well.
Other than third country issues, better cooperation between both would enable SAARC to function well. Thus far, many of the regional issues being discussed at the SAARC platform are mortgaged to the Indo-Pak relations and, therefore, the movement is either slow or negligible. For example, a good initiative like the SAARC Food Bank, an initiative which was approved during the 14th SAARC summit in Islamabad in 2007 with the aim ‘to adopt a common approach to collective food security of the region’.
Though the food bank is functional, but more capacities need to be built to cope with disaster mitigation, as the region is prone to calamities like floods, earthquakes, etc. The 17th SAARC Summit in Maldives in November 2011 also called for resolving the operational issues soon so that its effective functioning can be ensured.
Another pertinent issue of bilateral cooperation is the challenges of climate change. In fact, in February 2012, Sustainable Development Policy Institute (SDPI) and Heinrich Boll Stiftung (HBS) organised a Track-II Dialogue on Climate Change for Peace in which stakeholders emphasised that both India and Pakistan should work closely to address climate change challenges in order to achieve food and energy security and South Asian energy grid, among other areas for a sustainable livelihood.
Considering the huge shortage of electricity power in Pakistan, there is also a proposal to buy it from India. Pakistan intends to import 500 MW of electricity from India to meet the increasing demand.
Not that India has surplus power, but it is considering the supply seriously so as to build closer relations. Pakistan is also facing a huge shortage of natural gas, while India is badly wanting to buy natural gas from Central Asia and the pipelines will have to transit through Pakistan. Thus, it will be a win-win situation for both.
The mantra of success for both India and Pakistan is simple — collaborate more both regionally and internationally so as to have a strategic depth in bilateral economic engagement.
Pradeep S Mehta is Secretary General of CUTS International, Jaipur, India and Abid Suleri is Executive Director of Sustainable Development Policy Institute, Islamabad, Pakistan