Important Articles On Indo-Pak Relations

siddiqui88 · #1 Thursday, October 25, 2012

Pakistan’s Relations with India: Beyond Kashmir?

In March 2011, the Pakistan Peoples Party (PPP)-led government resumed the composite dialogue with India, with the rapid pace of its economic liberalisation program demonstrating political will to normalise bilateral relations. The November 2011 decision to grant Most Favoured Nation (MFN) status to India by the end of 2012 is not merely an economic concession but also a significant political gesture. Departing from Pakistan’s traditional position, the democratic government no longer insists on linking normalisation of relations with resolution of the Kashmir dispute. India no longer insists on making such normalisation conditional on demonstrable Pakistani efforts to rein in India-oriented jihadi groups, particularly the Lashkar-e-Tayyaba (LeT), responsible for the 2008 Mumbai attacks and hence suspension of the composite dialogue. The two countries need to build on what they have achieved, notably in promising economic areas, to overcome still serious suspicion among hardliners in their security elites and sustain a process that is the best chance they have had for bilateral peace and regional stability.

Within Pakistan, the normalisation process enjoys broad political support, including from the Pakistan Muslim League (Nawaz, PML-N), the largest opposition party. Viewing liberalised trade with India as in Pakistan’s economic interest, the PML-N also believes that broader economic ties would provide a more conducive environment to address longstanding disputes like Kashmir.

Liberalised trade, stronger commercial links and deeper bilateral economic investment would strengthen moderate forces in Pakistan’s government, political parties, business community and civil society. Yet, an effective integration of the two economies would only be possible if Pakistani and Indian traders, business representatives and average citizens could travel more freely across borders. For this, the stringent visa regime must be relaxed, including by significantly reducing processing times, granting multiple-entry visas, eliminating police reporting requirements and removing limits on cities authorised and the obligation for entry and exit from the same point.

However, Pakistan’s ability to broaden engagement with India and move beyond Kashmir depends on a sustained democratic transition, with elected leaders gaining control over foreign and security policy from the military. Pakistan must also counter anti-India oriented, military-backed extremist groups. These include the LeT – banned after the 2011 attacks on the Indian parliament but re-emerging as the Jamaat-ud-Dawa (JD) – as well as the Jaish-e-Mo*hammad and similarly aligned outfits. A powerful military, deeply hostile towards India, still supports such groups and backs the Pakistan Defence Council (PDC, Defa-e-Pakistan Council), a new alliance of jihadi outfits and radical Islamic and other parties aligned with the military that seeks to derail the dialogue process.

Within India, with suspicions of Pakistani intentions still high, Prime Minister Manmohan Singh has limited political support for talks that do not prioritise the terrorist threat. Another Mumbai-style attack by a Pakistan-based jihadi group would make such a dialogue untenable. It could also provoke a military confrontation between the two nuclear-armed neighbours. Meanwhile New Delhi’s heavy-handed suppression of dissent and large military footprint in Jammu and Kashmir (J&K) alienates Kashmiris, undermines Pakistani constituencies for peace and emboldens jihadi groups and hardliners in the military and civil bureaucracies.

There are numerous other impediments. Water disputes, for example, could place the Indus Waters Treaty (IWT) of 1960, which has successfully regulated the distribution of a precious resource between the two countries for over five decades, under greater strain. India, with its larger population and mushrooming energy requirements, uses much more of the shared waters, and its domestic needs are rising, while Pakistan depends increasingly on them for its agriculture. With India constructing several dams in the Indus River Basin, the Pakistani military and jihadi groups now identify water disputes as a core issue, along with Kashmir, that must be resolved if relations are to be normalised.

RECOMMENDATIONS

To build on the momentum of, and demonstrate commitment to, the dialogue process

To the Government of Pakistan:

1. Implement its pledge to grant MFN status to India by the end of 2012.

2. Punish those involved in the 2008 Mumbai attacks, communicating any challenges to trials of the accused or related legal processes, including military interference, to Indian counterparts.

3. Act against banned groups that operate freely and against any groups and individuals calling for jihad against India, invoking laws against incitement to violence.

4. Take action against all militant groups, including India- and Afghanistan-oriented jihadi outfits.

To the Government of India:

5. Respond to the above steps by:

a) acknowledging that non-tarrif barriers (NTBs) are a legitimate Pakistani grievance and ensuring that Pakistani exporters have unimpeded access to the Indian market under the MFN regime; and

b) repealing the Armed Forces Special Powers Act (AFSPA) and other draconian laws, replacing a military-led counter-insurgency approach in Jammu and Kashmir (J&K) with accountable policing and holding a meaningful dialogue with all Kashmiri groups.

To the Governments of Pakistan and India:

6. Grant each other overland transit rights.

7. Relax visa regimes significantly.

8. Focus on short, medium and long-term measures to optimise the use of water resources, going beyond project-related disputes that the IWT can already address.

9. Prioritise cooperation on joint energy-related ventures, such as petroleum product pipelines from India to Pakistan, and assess the feasibility of a bilateral, and at a later stage regional, energy grid.

10. Ensure Kashmiri participation in the dialogue process.

International Crisis Group

siddiqui88 · #2 Friday, October 26, 2012

An overview of Indo Pak Relations From Indian Perspective.
http://millat.com/democracy/Foreign%.../brief3eng.pdf

siddiqui88 · #3 Sunday, October 28, 2012

Managing India-Pakistan trade relations - I

DR ISHRAT HUSAIN

Background: Economic historians and analysts have been faced with a conundrum for quite some time. They found it hard to comprehend that South Asia, which was a single large market until a few decades ago with goods, services, capital investment and skilled labour flowing freely and the newly independent countries inheriting a common historical, legal, cultural and administrative background and a very well linked infrastructure was the least integrated region in the world while East Asia with countries having such diverse background and very little in common historically had become the most integrated region second after the European Union.

Moreover, there was almost a consensus among academic economists in both the countries that the normalisation of trade relations would bring substantial economic benefits evenly. Among many reasons responsible for this puzzle the political tension and rivalry between the two major countries of the region - India and Pakistan - stands out as the main explanatory variable.

In last one year there has been some healthy developments in relaxing this constraint and resuming better trading relations. Academic consensus has now spilled over to the business community and a majority of the businessmen on two sides of the border appear convinced that liberalisation of bilateral trade would be in their mutual interest. Finally, the policymakers, for a variety of internal and exogenous circumstances, seem to have overcome their reservations and a momentum has been built up in the last several months to move the process forward.

The breakthrough came in form of Pakistan's decision to grant Most Favourite Nation (MFN) status to India and moving away from a highly restrictive positive list of items that could be imported from India to a negative list. The negative list will also be phased out by December 2012 and there will be no restriction on tradable items. Out of 8000 items only 15 percent or 1209 items are placed in the negative list. The remaining 6800 can now be imported from India, while the previous positive list had only 2000 items. This is a significant change whereby 85 percent of tradable goods can be procured from India compared to 25 percent previously. The South Asia Preferential Trade Agreement (SAPTA) which both India and Pakistan has signed will gradually phase out all tariffs on traded goods with zero tariffs by 2016.

Fifty percent of the goods on the negative list belong to Automobile, Iron and Steel, and Paper and Board Industries which were relatively more vociferous in their opposition to he movement from the positive to negative list.

It may be useful to recall that in spite of many hurdles and obstacles India-Pakistan trade has recorded almost a tenfold increase between 2001 and 2011 reaching a level of $2 billion. Unofficial trade, including that through third countries, is also estimated at almost the same amount. Pakistan. Estimates based on different assumptions and models indicate a jump ranging between five to tenfold from the current levels if all the barriers - tariff and non-tariff barriers - are dismantled.

Most studies calculate that because of low transport costs, dismantling of tariff and non-tariff barriers, grant of MFN status to India by Pakistan, and improvement of logistics arrangements the total volume of bilateral trade should be able to rise to approximately $8-10 billion annually. Pakistan and India together ship $300 billion worth of goods to all parts of the world. This increased volume would still account for about 3 percent of the two counties' trade volume. Therefore, the expectations at least in the short run should, therefore, be tampered with a sense of realism on both sides. The full scale realisation of the potential of trade will take some time but like a newly planted sapling it will require tender care in nurturing and protecting it from strong winds and other extraneous influences that will otherwise uproot this weak plant.

This paper (a) presents the reactions of Pakistani business groups to the grant of MFN status to India (b) identifies major risks to the growth of India-Pakistan trade and concludes by (c) arguing for careful management of this relationship by the two sides as it remains fragile.

Pakistan realises that the liberalisation of bilateral trade between Pakistan and India would not only lend impetus to both economies in a beneficial way but also remove the barriers to regional integration within South Asia. The potential advantage for Pakistan from broader regional economic integration appears to be large. Going well beyond the immediate creation of trade flows, capital investment and joint economic ventures, co-operation in the fields of IT, Science and Technology, Research and Development would, in all likelihood, boost productivity of domestic industries and stimulate economic growth.

Major political parties and other influential stakeholders have realised that Pakistani economy is lagging behind other countries and Pakistan has not taken advantage of its strategic location between two most populous and high performance economies ie China and India. With the signing of the Free Trade agreement with China, Pakistani markets and producers have already adjusted to relatively cheaper imports from China. They do no longer consider that the threat of Indian products flooding Pakistani markets and displacing domestic industries carries much substance. In some areas such as fashion wear, bed wear, home textiles, cement etc. Pakistan would be able to do much better and penetrate a much larger market.

The overwhelming support from Pakistani Businessmen for MFN status to India is partly a reflection of this sense of confidence. Traders and importers in Pakistan are anticipating much larger business volumes and thus profits for themselves from this opening up. Trade liberalisation will unambiguously benefit Pakistani consumers since product prices should fall and consumer choice expand when trade barriers are reduced or removed. Increased trade flow that stems from the lifting of import prohibition for items coming from India would lead to additional customs revenue for Pakistan.

The overwhelming evidence of the advantages of bilateral trade liberalisation has tilted the balance in favour of the proponents of increased trade with India. But there are still significant detractors who would be losers in the bargain. Some of them are vocal, articulate and powerful. They cannot simply be ignored as their nuisance value in retarding or reversing this new bonhomie is not trivial.

Voices of Pakistani businessmen:

The focus group consultation with the businessmen engaged in Automobile, Chemicals, Pharmaceuticals and Textiles sectors etc held at Karachi and Lahore during early 2012 revealed strong reservation about the non-tariff barriers imposed by India. According to them, Technical Barriers to Trade (TBT), Sanitary and Phyto-Sanitary Measures (SPS) are in fact acting as powerful determents to exchange of goods. Unless these are rationalised and simplified the smooth flow and desired level of Pakistani exports from Pakistan will be hindered Table below shows the Indian non-tariff barriers Pakistani exporters have identified.

Indian non-tariff barriers :

Sanitary and phyto-sanitary measures
Technical barriers to trade
Quotas and import licences on 600 items
Aggressive use of safeguard and anti-dumping measures
Frequent invocation of countervailing duties
Stringent licence requirements from the Bureau of Indian Standards
Multiple customs clearance requirements
Non-standard customs valuation methodology
Stringent and lengthy certification requirements
Restrictions on rail movement of goods
Complicated and restrictive visa requirements
Long dwell times at ports and border points
Transit restrictions
Absence of testing labs at the border crossing points
State Governments' restrictions on use, sale, and consumption of certain goods
Uncertainty about inter-state movement of goods
Non-acceptance of letters of Credit issued by Pakistani banks

In addition to the general reservations expressed about the above NTBs there were sector specific grievances that are briefly summarised in the following paragraphs. Some sectors such as textiles were, on the contrary, quite upbeat about the prospects of their industry.

The pharma industry's main concern was that India has the advantage of having a reservoir of essential raw materials and large economies of scale that will ease out their products due to lower costs of production and distribution of competing products from across the border. Laxity in enforcement of standards would also bring in drugs of dubious quality at low prices edging out some of the local substitutes from the market. Quality control measures in Pakistan are not too stringent and was argued that arrangements have to be put in place to apply the same quality standards effectively to Indian products as India has against Pakistani products.

Agriculture sector was concerned about many kinds of hidden and implicit subsidies granted by several State Governments in India such as on electricity for tube wells. These subsidies would not provide a level playing field for Pakistani agriculture producers to compete. They also pointed out that the May 2006 notification of Super Basmati by the Indian Ministry of Commerce has been challenged by Pakistani exporters in 2008 and the case is still pending before the court despite a passage of four years. Barriers in the movement of trucks across the state boundaries and the consequential delays do damage perishable commodities.

In the Automotive sector, there is a clear difference of opinion. Some of the Japanese companies favour the opening of trade as they can import components and parts at much cheaper rates from India compared to Japan. The Manufacturers of auto parts are opposed to the idea because they believe that Indian auto parts will flood the Pakistani market and decimate the local industry. Efficient and low cost Pakistani exports would still be at a disadvantage as Indian assemblers have a tendency to prefer locally manufactured parts and have entered into long term agreements with these local firms. The question of switching from their partners to other suppliers, however competitive they may be, does not arise.

Chemicals and synthetic fibre sector argued that India was having a surplus of fibre which was equal to 80 percent of the local demand in Pakistan. They could simply dump them in the Pakistani market as the enforcement regime of Anti-dumping laws was quite weak. The domestic fibre industry which has recently invested hundreds of millions of dollars in expansion of the capacity would suffer financially.

Textile manufactures were by and large optimistic that on price and quality they can capture a significant share of Indian market provided the Indian textile industry does not use the Government machinery to thwart their inroads by different kinds of administrative and restrictive practices or non-tariff barriers. Some of the cotton lawn, home textiles and bed wear manufacturers were already exploring the opportunities for joint ventures with Indian partners to open retail outlets for selling those products which are in high demand. Imports of textile machinery from India will be cost efficient as compared to importing it from other parts of the world. Some of the garment and knit wear and other value added manufacturers expressed the concern that their Indian competitors were receiving various hidden subsidies and the level playing field was not even.

While it was explained that the non-tariff barriers were not Pakistan-specific and were applicable across the board the opponents of the trade liberalisation narrated their actual experience with cross-border trade in the past which had not been too pleasant. Anecdotes of delay by the Customs Authorities, Testing laboratories and Bureau of Indian standards and Railways causing losses to Pakistani exporters were cited at these meetings. When it was pointed out that the bureaucratic indifference and inertia and hassle formed part of the administrative culture in the two countries that had inherited the common civil service it was asserted that the difference in the attitude towards Pakistani exporters was quite stark.

Major risks to trade relations:

What are the major risks that can derail this process? There are many but at least eight of them need to be highlighted and steps taken to mitigate them. First, there exists a huge Trust Deficit between the two countries for the reasons that are well-known. This Deficit dominates the populist thinking on both sides. The bridging of this Deficit is not easy, will take some time and will depend upon a series of positively reinforcing measures taken unilaterally by both sides in a consistent manner. There is a palpable fear of collective punishment and sanctions on Trade against Pakistan if something goes wrong on the security and political front. Any unforeseen or unplanned contingency can trigger strong adverse reaction on either side. So far the two countries have behaved responsibly in military terms in post 1998 era but there is no guarantee that the axe of such a triggering episode may not fall on Trade and the Trade flows may be disrupted. Both the dialogue process and trade relations should continue "uninterrupted and uninterruptible" as Mani Shankar Aiyar has argued. At times of crises the policy of engagement rather than abrupt withdrawal would prove to be effective in defusing the situation and finding an amicable resolution to the problem.

The possibilities of the knee jerk reaction of suspending the trade or putting some tough retaliatory measures in the future cannot be ruled out. This stop and go policy would act as a powerful deterrent to the establishment of long term relationships across the borders as it creates uncertainty, fear and unpredictability about the trade regime. This tendency has to be curbed if the businessmen have to take advantage of the liberal trade regime.

Second, the South Asian political parties when in opposition behave quite differently and diametrically opposed to their policies when in power. Scoring points and discrediting the ruling party are their main hobby horses. They may easily join the ranks of the extremist elements who are the biggest detractors of normalising relations between the two countries. The trigger point for such a coalition may be the persistence or expansion of trade imbalance in favour of India. Such bilateral imbalances are to be expected as India is a much larger and diversified economy. The political backlash caused by this imbalance may put undue pressure on anyone of Government in Pakistan which may choose to sacrifice Trade in order to survive. This myopic action which may win some relief for the ruling party will do enormous damage to the promotion of trade in the long run. Fickle minded populist actions are counterproductive for durable relationships to take shape.

The third risk arises mainly from the possible ascendency of the losers lobby. It must be realised that in the short run there will be some losers and some winners from opening up of the trade. While Traders and Importers in both countries would be happy to see their business expanding the inefficient manufacturing firms will be losers from this liberalisation. They may lobby the Government and political parties by making noises that the onslaught of cheaper imports from the other country is destroying domestic industry and jobs. Depending on the power and influence of the lobby it is quite conceivable that some retaliatory measures may be taken that will kick off a spate of countervailing measures. The consequential dilatory tactics would once again widen the Trust Deficit and hamper the growing trade relations.

Fourth, the media and the civil society in both India and Pakistan have become quite powerful. In case the Small and Medium Enterprises suffer disproportionately from the trade liberalisation the media could take up their cause and create such venom that the Trade flows can be set back .Another possibility is that integration through trade and capital flows may amplify the contagion effect. A negative shock to the Indian economy may be transmitted to the Pakistani economy which may slow down as a result depending upon the trade intensity. The media in Pakistan may use such occasions to put pressure on the Government to take some protectionist measures. If as a consequence tariffs, quantitative restrictions or non tariff barriers or capital controls are introduced the credibility of the liberalisation process will be damaged setting back the evolution of relationship. It is in the interest of everyone that the media should have enough positive stories to tell which generates goodwill . Frequent exchanges between the representatives of the media and holdings of seminars, meetings, roundtables of civil society organisations can help clear the mental fog and obdurate obfuscation. The businesses in the two countries will be well advised to advertise through the other countries' media.

Fifth, there would be constant need for the validation of the new popular narrative that the proponents of India-Pakistan Trade are espousing. Consumers should feel that the procurement of certain goods from the other side has really benefited them while the producers should be able to testify that the sourcing of raw materials, machinery or components has in fact lowered their costs. Such human interest stories should be disseminated widely through the popular as well as social media. The validation of the new narrative can become one of the contributory factors in bridging the Trust Deficit.

Sixth, the Composite Dialogue on outstanding political issues should continue with seriousness, commitment and constructive attitude. If such a dialogue does not proceed forward those who are opposed to normalising economic relations would be able to gain grounds by asserting that the principled stand and the core issues have been abandoned for the sake of paltry material gains. This can set the ball rolling for a larger movement that would blame Trade as the major impediment in the way of resolution of political issues. The political leaderships of the two countries are very much committed to peaceful resolution of the issues confronting them and the momentum on the dialogue should not be lost.

Seventh, other areas of economic co-operation such as subcontracting by Indian IT Firms to Pakistani Companies, Tourist Packages, collaboration in Higher Education, Agriculture, Health, Research and Development between the two countries would be highly beneficial. India has developed many first rate hospital facilities at much lower costs than the Western countries. There is no reason as to why branches or subsidiary hospitals cannot be set up in Pakistan as they have been done in Bangladesh. Indian IT firms are market leaders in Business Process Outsourcing but are faced with increasing labour costs. They can sub-contract some of the work to Pakistani firms at rates that are relatively cheaper than what they pay in India and thus maintain their market share. Eighth, there should not be any iota of doubt that disputes will arise in the course of business and grievances of all kinds will emerge. It is imperative that a Dispute Resolution/ Grievance Redressal mechanism is put in place right from the beginning. This mechanism should be expeditious, inexpensive and equitable. In place of the Governments, the Confederation of Indian Industries CII/ Federation of Indian chambers of Commerce and Industry FICCI and Pakistan Business Council PBC/ Federation of Pakistan chambers of Commerce and Industry FPCCI should be involved in setting up and operating this mechanism.

To overcome these concerns and anxieties of Pakistani businesses India - a much bigger economy accounting for more than 80 precent of Gross Regional Product, and imbued with self-confidence and aspirations to become an economic power - could demonstrate a greater degree of generosity by removing these tariff and non-tariff barriers unilaterally without risking much in return. A wider offer to its neighbouring countries in terms of opening up the markets and trade and removing barriers to mobility would ultimately benefit India, reducing hostility and favouring its exporting and importing industries, as well as benefiting Indian consumers with lower prices for goods imported from Pakistan. It would be in India's long term interest to establish asymmetric relationships with its neighbours and provide more concessions to them, initially expecting less from them in return. This posture will be helpful in generating wider economic benefits for India itself and its trading partners in South Asia in the long run.

Given the large and growing size of its effective market, the economic losses to India would be minuscule, while political goodwill and returns would be substantial over time. Pakistan, Bangladesh, and Sri Lanka would be much better off economically if they were able to penetrate the buoyant Indian market. Friendly, peaceful, and irritant-free neighbours would aid rather than hinder India in moving toward its long-term goals, enunciated periodically by its leaders. South Asia, a region with the highest number of people living below the poverty line, would surge ahead. (To be continued)

Business Recorder

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