Opinion Commercial benefits
A momentous year for Indias trade relations with Pakistan,Bangladesh
This has been a historic year for Indias changing trade relations with two of its important South Asian neighbours Bangladesh and Pakistan. The idea that economic gains through freer trade could serve as a powerful means for conflict resolution appears to be finally finding full acceptance by all three countries.
India,Pakistan and Bangladesh along with Bhutan,the Maldives and Nepal signed the South Asian Free Trade Agreement (SAFTA) in 2006 under the aegis of the SAARC. Afghanistan was included as a member in 2007. A major reason for the SAFTA remaining a non-starter was that Pakistan did not accord MFN status to India. Under the MFN clause,all members of the WTO are obliged to extend trading benefits to a country,equal to those accorded to any other country. Under the extant bilateral trade arrangement between the two countries,Pakistan permits the import of only a limited number of items from India,currently 1,934 items,often referred to as the positive list approach. This approach is applied exclusively to India. Items not on the list are banned from entering Pakistan. Trading under the positive list approach has led to large informal trade flows,mostly in items excluded from the positive list. A large proportion of such trade is routed through Dubai from where goods enter the Pakistani market after passing through Iran and Afghanistan or directly to Karachi by sea. The positive list approach also lacks transparency,creates uncertainties for traders and leads to high transaction costs.
Even though India accorded MFN status to Pakistan in 1996,the latter did not reciprocate as the MFN issue was closely linked to the dispute on Kashmir. The deadlock continued until the trade negotiations shifted to a different peg following the deliberations of member countries under the SAFTA. A request from Pakistan to India to remove non-tariff barriers for improved market access in exchange for granting MFN status was indeed the turning point in trade negotiations.
Bangladesh has had a major grouse against India,as the latter had kept a significant amount of trade outside the scope of preferential treatment by keeping it on the sensitive list. From Bangladeshs point of view,it is not difficult to understand why it had such a strong grievance all these years over concessions that it has received from India under the SAFTA. Textiles are a major item of export,accounting for about 70 per cent of its total exports. With these items on the sensitive list,it had restricted market access in a category that was of crucial importance to its economy. On the other hand,India had offered massive tariff concessions to Bhutan,Nepal,Sri Lanka and Afghanistan under bilateral arrangements which preceded the SAFTA. Bangladesh also had concerns about the non-tariff measures that India imposed which restricted market access.
On November 2,Pakistans federal cabinet decided to grant MFN status to India. India,on its part,has taken measures to address non-tariff barriers identified by Pakistans business community. The identified barriers were related to complex and lengthy visa procedures in India and the lack of awareness on the part of Pakistani business and government authorities of Indian regulations and licensing requirements for a range of products. To address these barriers,India arranged interactions between Indian regulators and Pakistani regulators and business groups to address information gaps on the business environment between the two countries. This innovative,yet simple method of addressing non-tariff barriers not only serves as a powerful confidence-building measure,but is also an effective way to facilitate further trade.
India made an attempt to address Bangladeshs concerns by reducing the sensitive list in stages. In 2007,the sensitive list was reduced from 744 products to 480 products. In the subsequent year,India offered duty-free access to 164 textile items up to a limit of eight million pieces and raised the limit to 10 million pieces in April 2011. In a significant move,in September,India announced duty-free access to 46 of these items. Perhaps what is of significance is the approach that India has followed in offering these concessions. India requested Bangladesh to send a list of items of their interest on which they wanted zero duties. Clearly,this novel approach left no room for dissatisfaction on the Bangladeshi side; rather it restored confidence in Indias trade liberalisation efforts. The confidence was further strengthened with India reducing the sensitive list further to 25 items on November 9. On non-tariff barriers as well,India has resolved several of the outstanding issues under a bilateral dialogue.
The pace at which trade liberalisation measures have been undertaken by India,Pakistan and Bangladesh is unprecedented. These developments also lay down a sound foundation for enhancing trade,bridging the trust deficit and eventually restoring peace in the South Asian region.
The writer is a professor at ICRIER,Delhi. Views are personal,express@expressindia.com
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