Ups and downs in relations between India and Pakistan are not a new thing. The two countries have a history of conflict but experts believe the flow of billions of dollars between the two countries from smuggling and rerouting could have many potential benefits in normalising trade relations.
Decline in Trade between two countries
India and Pakistan, despite having many similarities, have a long history of volatile relations but trade relations have seen their biggest decline since 2019. The Pulwama attack and the subsequent abrogation of the special status of Jammu and Kashmir led to the end of formal trade relations between the two countries. India imposed heavy penalties on Pakistani imports and suspended trade across the Line of Control.Pakistan retaliated by imposing a trade embargo and later allowed the import of only essential medicines. After five years, recent developments indicate that relations between the two countries can be expected to improve.
Pakistan's newspaper Dawn has reported exploring India-Pakistan trade relations. The report of Pakistan's big newspaper Dawn says that after being elected this year, the Prime Ministers of both the countries exchanged congratulatory messages on the social media site X. More importantly, Pakistan's Deputy PM Ishaq Dar has openly advocated normalisation of relations with India.This is important to note because the billions of dollars flowing between the two countries through smuggling and diversion routes underline the potential benefits of normalising trade relations. It is estimated that smuggling and rerouting through Dubai and other hubs will inflow Billions of dollars between the two countries.
Goods reaching each other through smuggling
Former Chairman of Pakistan and Federal Board of Revenue Shabbar Zaidi says that goods worth 1.5-2 billion dollars are being smuggled in a year, out of which one billion dollars is being smuggled from Dubai alone. A study conducted by the Indian Council of Research on International Economic Relations estimated that informal trade between the two countries was worth $4.71 billion in 2016.Zaidi says payments for this informal trade are often made through hundi/hawala channels, potentially involving border security forces. They say thousands of cows and other livestock moved across the border ahead of Eidul Adha, as well as illegal trade in betel nuts and tobacco products.
Pakistan smuggles rock salt and dry fruits from Afghanistan through the 3,300 km long border. Such a strong informal trade network underlines the potential benefits of normalised trade relations. While political tensions remain, economic logic suggests a way forward for mutual benefit.
Everyone benefits from trade'
Former Finance Minister of Pakistan Miftah Ismail says, 'All types of trade are beneficial and considering the proximity of both the countries, it is beneficial for both the countries. There is a dispute between China and Taiwan but their trade is flourishing. There is a dispute between India and China but their trade is flourishing.Despite the threat of invasion, China and Taiwan's bilateral trade exceeds $250 billion. Similarly, India will import goods worth $101 billion from China in 2023 and export $16 billion in 2023.
They say we are no closer to getting Kashmir back than we were before the ban. He also said that stopping trade relations with India has not been politically successful. He argues that an economically strong Pakistan can better represent the wishes and aspirations of the Kashmiri people at international forums than a weak Pakistan.
Will Pakistan's exports increase?
Does opening of trade with India mean that Pakistan's exports will increase? The experiences of various Pakistani businessmen on this question show that they have a prejudice against products labeled 'Made in Pakistan' in India. Moreover, before the Pulwama attacks, India had often imposed non-tariff barriers on Pakistan's exports. However this is not true for all potential exports. There is Majith Mandi in Amritsar, India.In which there are about 400 traders. Most of these traders used to import dry dates from Pakistan before 2019. Indian writers Nikita Singla and Priya Arora's report 'The Dubai Angled Triangle' states that customers who came to the market to buy dried dates used to buy other goods as well, but now the market looks like a barren land and most of the traders have gone out of business.
Another example is the lawn designer suit. It is not only Pakistani women who demand designer lawn suits. The Indian market witnessed a huge demand for Pakistani suits since the launch of the Lawn Designer collection in the mid-2000s, the report said. Exports of cotton suits increased from just $4,100 in 2009 to $247,800 in 2015. After the 2019 ban, supplies of clothes made in Pakistan were resumed via Dubai.
Saving in freight cost
Almas Haider, former president of Lahore Chamber of Commerce and Industry, argues that apart from exports, Pakistani businessmen can benefit from imports from India. Haider says that out of approximately $10 billion machinery imports, $1 billion and out of $10 billion raw material imports, $1 billion can be sourced from India.Former WTO ambassador Manzoor Ahmed said importing machinery from India via Dubai is particularly challenging. Not only is it difficult to re-pack large machinery, but importing parts is also another hurdle. They say Bangladesh's success partly lies in importing mainly from India.
Everything needs to be renegotiated
Currently Pakistan spends a lot on freight transportation costs. Haider explains that businesses pay about $3,000 to $4,000 per container for imports from far away. However, importing from India can significantly reduce this cost to $300 to $400 per container. Citing the example of the ill-conceived free trade agreement with China, which flooded Pakistan's market and received very little exports in return,Mr Haider argues that the first step to liberalising trade is to start with negotiations, which set tariff and non-tariff barriers in the interest of both countries. A comprehensive trade agreement with India would include important elements such as dispute settlement mechanisms, banking channels and modalities of government-to-government deals versus business-to-business deals. He says that the South Asian Free Trade Area agreement is outdated and everything needs to be renegotiated.