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    Trade with India

    Should Pakistan increase trade with India or wait till Kashmir issue is resolved?


    Kashmir conflict sidelines India's trade overtures
    By Nadeem Iqbal

    ISLAMABAD - When a goods train rolled into the eastern Pakistani city of Lahore in late September, it was a big moment for those seeking open trade between the South Asian foes.

    It was carrying not just 1,500 tons of sugar from India, but hopes that the two nuclear weapon-armed rivals would not let politics stand in the way of economic common sense.

    The sugar was bought by the Trading Corporation of Pakistan, which had earlier accepted an Indian offer placed as an advertisement in the international media. More trainloads of Indian sugar are to arrive in the coming days to meet an acute shortage of the sweetener in this country.

    The event was a rare instance of Pakistan buying an essential commodity from its neighbor. What made it even more surprising was that this was done even as the leaders of the two nations accused each other of bad faith in resolving political disputes.

    "We believe that trade and business should be given a chance to flourish in the subcontinent," said the Frontier Post, a daily published from the northwestern border city of Peshawar. "This would also provide an enabling environment to talk about peace and amity.''

    Last year, Pakistan sold sugar to India even as the two countries were in the midst of an undeclared war in Kashmir in which hundreds of soldiers from both sides died. However, independent business analysts cautioned this did not mean that good sense was at last prevailing.

    They pointed out that in early September Pakistan's military rulers rejected a proposal from the Independent Private Power Producers (IPPs) to sell 1,000 megawatts of surplus electricity to energy-deficient India. The IPPs offered to share half the sales profit with the government. However, the government claimed that Pakistan did not have surplus power.

    Those supporting freer trade with India, speak of the gains from lower freight costs as the two countries are linked by road, rail, sea and air. The two main ports - India's Mumbai and Pakistan's Karachi - are within two days sailing time of each other. Presently, Pakistan still imports wheat from the far away United States, which it can also buy from India. It also buys costly medicines and farm fertilizers from third nations, though these can be bought much cheaper from India.

    Fears have been raised that the smaller Pakistani economy would be swamped by that of the bigger neighbor should barriers come down. But even some officials in Islamabad admit that such worries are more political than real, poining out that no-one raises an eye brow over greater trade relations with China, which has a far bigger economy than India, but is Pakistan's friend.

    According to Commerce Minister Abdur Razzak Dawood, every year about 600 items worth US$35 million are traded between Pakistan and India. Independent studies, however, put the annual volume of bilateral trade between $1 billion-$2 billion.

    Most of this involves smuggling, either across the India-Pakistan border or through a third country, mainly the United Arab Emirates. Smuggled video tapes of Indian films, artificial jewellery and cosmetics are popular in Pakistan. Video tapes of Pakistani television plays and dried fruit cross the border in the other direction. It is estimated that smugglers are causing an annual revenue loss of around $500 million to Pakistan in custom duties alone.

    The main hurdle to India-Pakistan trade remains the Kashmir dispute, which has spoiled relations between the two countries for more than half a century. The dispute is said to be the main hurdle to the emergence of the regional free trade bloc, the South Asian Free Trade Area.

    It's also the main reason why Islamabad has yet to reciprocate New Delhi's granting of Most Favored Nation (MFN) status to Pakistan over a decade ago. India did so in keeping with its obligation under world trade rules, but Pakistan has justified its decision not to reciprocate by arguing it gave the country room to protect domestic industry.