Seize The Moment

By Amir Zia
April 30, 2012
Money Matters
The News

"The real challenge for the two governments and advocates of enhanced regional trade is to ensure that their efforts remain on course and do not get torpedoed by some unexpected turn of events that includes the threat of another Mumbai-like terror attack"

Pakistan-India trade relations have taken some big strides over the last 12 months. What appeared impossible in April 2011 now seems not only possible but within grasp as the two countries have moved fast to remove some of the key barriers impeding bilateral trade.

If in April 2011, the two countries announced a roadmap to boost trade relations, the April of 2012 saw the formal opening of the trade gate at the Wagah-Attari border and New Delhi making the surprise announcement that it will allow direct Pakistani investment in India.

While India promised to resolve the issue of non-tariff barriers (NTBs) that choke Pakistani exports to its giant neighbour, Islamabad pledged to grant most-favoured nation (MFN) status to India. But more importantly in the near-term is Pakistan’s decision to relax the constraints on Indian imports by switching to a “negative list” that bans only 1,209 items; the other 7,000-plus exportable items India can sell to Pakistan without let. Even the negative list is to be phased out by Islamabad by end-December this year. Given that till last month, Pakistan maintained a “positive list” comprising the 1,963 items that India could export, the switchover to a negative list is a huge step taken by Islamabad for the normalization of trade relations.

In the wake of this thaw in relations, both the countries hosted each other’s trade fairs with much fanfare that not only underlined the huge prospects of bilateral trade but also showed the desire for friendly ties on a people-to-people level.

With the two countries now considering relaxing visa regimes, especially for businesspeople, and allowing one another’s banks to open branches, there is lot of optimism and hope that current volumes of bilateral trade – $2.7 billion – will double or triple over the next couple of years.

In this context, the 2nd Aman ki Asha Economic Conference, planned for May 7-8 in Lahore, is likely to further crystallize and articulate aspirations of the top business and corporate leaders of the two countries. This conference aims to provide a rare independent platform where the private sector and the government representatives can interact and discuss issues that are vital to promoting economic collaboration seen by many as the most important driver for peace and stability in the region.

However, both the economic and political leaders have to be mindful of the fact that the two South Asian nuclear-armed states still have a long way to go to strengthen this fragile peace process. They need a lot of patience and determination to expand economic relations that remain vulnerable to terrorism in the near- to mid-term and some protracted issues in the long-run that include the thorny problem of the divided Himalayan region of Kashmir.

In this regard, such conferences and interactions are important as they manage to highlight challenges and suggest the way forward. The Aman ki Asha platform has managed to play this vital role and help nudge the two countries to bring the economy back on the agenda at a time when relations were at an all-time low following the November 2008 Mumbai terror attacks. But the two countries have moved beyond Mumbai.

The euphoria gripping many peace lovers and economic interest groups following the recent developments in the trade ties is understandable. But perhaps it is too early to celebrate as the field still remains infested by mines and there are some legitimate concerns whether Pakistan is getting a fair deal or not.

On Pakistan’s side, there are some strong voices among seasoned economists who want the government to adopt a more cautious and a slower approach while normalizing trade relations with India.

There are reasons for skepticism among various Pakistani interest groups, which overwhelmingly favour trade with India, but want the government to put the country’s interests first.

The doubts in many Pakistani minds stem from the fact that despite enjoying MFN status from India since 1995, the country has failed to get access to Indian markets due to the strict NTBs. Indian goods, on the other hand, have managed to find a sizeable market in Pakistan despite its non-MFN status.

No wonder that the trade balance remains lopsided in India’s favour. In fiscal 2010/11 Pakistan’s exports to India were around $380 million against Indian imports of $1.7 billion. Similarly, in 2009/10 Pakistan’s exports to India were $268 million against Indian imports of $1.228 billion. This trade imbalance has been similar since the mid-1990s when India granted MFN to Pakistan.

However, the trade imbalance should not be the reason to discourage Pakistan from normalizing trade with its eastern neighbour. Pakistan has a bigger trade imbalance with China, which does not mean the building of walls to block imports. That era of restrictive trade regime is gone. But while dealing with India, with which Pakistan has a bitter history and several unresolved issues, granting one-sided concessions may backfire and wipe out the gains made in recent months.

To consolidate and broaden trade relations, Pakistan must get a level playing field from India, which has a much tougher trade regime as compared to Pakistan’s liberal import policy. Pakistan’s liberal trade regime has worked in India’s advantage without even an MFN status.

Although India has promised to remove its NTBs for Pakistani goods, this is easier said than done because of the bureaucratic red-tape and slow decision-making and implementation processes. In India, both the central and state governments have to get on the same page to remove NTBs which in some cases require legislation or a change in regulations.

The expression of good intentions is not enough. One major test case in the short-term will be how fast New Delhi moves to reduce the high tariffs on agricultural commodities, textiles and other goods that comprise Pakistan’s main export basket.

The one-sided concessions by Pakistan will not help the case for durable trade ties. The Pakistan government needs to link the scrapping of the “negative list” and MFN status with the Indian decision of liberalizing its restrictive import regime. India needs to reciprocate Pakistan’s move with concrete steps.

In Pakistan, while some leading textile tycoons are bullish on trade with India and establishing commercial outlets there, others within their community are for a more cautious approach. In the short-run, definitely those Pakistani textile houses will benefit which have pre-Partition day relations and contacts in India. For others, India is likely to prove a tough market to crack.

However, it is Pakistani manufacturers who are most worried about opening the flood gate of Indian imports. The country’s automobile sector, which already has suffered due to inconsistent government policies that often allow the import of second-hand vehicles, see tougher times ahead due to trade liberalization as the Indian engineering sector is far more advanced and strong because the way it was protected by the successive Indian governments.

Imported Indian vehicles could cost less in Pakistan and benefit consumers but it may prove a big blow for Pakistani manufacturers. The government needs to safeguard Pakistani automobile sector which remains vital for expanding the country’s industrial base and its modernization.

On the other side, the Pakistani textile sector will not be the only beneficiary if it gets free access to the billion plus Indian market. Sectors including cement, information technology and pharmaceutical will gain from the improved trade relations.

The real challenge for the two governments and advocates of enhanced regional trade is to ensure that their efforts remain on course and do not get torpedoed by some unexpected turn of events that includes the threat of another Mumbai-like terror attack. To ensure that the present gains are not lost, along with efforts to normalize trade, similar focus is needed to build greater people-to-people contacts as well as make serious efforts to resolve long-standing political and territorial disputes. This holistic approach will be the best guarantor of peace, progress and prosperity in the region. The challenge is as big and as high as Himalayas, but is there any obstacle greater than the human spirit? The Pakistani and Indian leadership have a chance to rewrite history. They must seize the moment.

A Favoured Option

By Amir Zia
The News On Sunday
May 15, 2011

The overwhelming response of business leaders remains in favour of boosting trade ties which they see as beneficial for both nations, dispelling the impression that Pakistan, being smaller in size, won’t be able to compete with its giant neighbour

Given the bitter history of hostility and distrust, Pakistan-India talks are mostly a tense affair. But this time around when the commerce secretaries of the two countries met in Islamabad on April 27-28 after a gap of more than two years, they managed to break the inertia that had marred the trade relations of the two South Asian nations for decades.

The two-day talks managed to generate optimism regarding an early resolution of some of the key matters, including granting the most-favoured nation (MFN) status to India by Islamabad and addressing the issue of non-tariff barriers (NTBs), which choke Pakistani exports to India.

“It was a huge 20-point agenda,” said Zafar Mahmood, Pakistani commerce secretary. Compared with the last four rounds of trade talks -- held prior to the 2008 Mumbai attack -- the two sides now managed to go beyond a mere articulation of good intentions and actually put in place a mechanism to implement decisions, he said.
The enthusiasm of the Pakistani business community regarding enhancement of trade ties with India encouraged the government to move confidently into these talks. Mahmood had held detailed interactive sessions with business and corporate leaders ahead of talks with his Indian counterpart Rahul Khullar.

The overwhelming response of business leaders remains in favour of boosting trade ties which they see as beneficial for both nations, dispelling the impression that Pakistan, being smaller in size, won’t be able to compete with its giant neighbour.

Wajid Jawad, a leading businessman and former chairman Export Promotion Bureau, says China enjoys a special status in trade with Pakistan, but the local businesses have managed not just to stay competitive but also to benefit from this relationship.

“Because of proximity, Indian imports will be cheaper and benefit Pakistani consumers,” he adds. “Pakistani goods will also get an access to a billion-plus market, which will result in capacity utilisation and trigger growth.”

However, the two sides need to cover a lot of ground and will have to walk through a political and bureaucratic minefield to realise the dream of enhanced trade and reap its benefits.

According to Mahmood, Islamabad’s decision to move from the positive list of around 2,000 items -- allowed to be imported from India -- to the negative list, which blocks certain items, is a huge step forward. It should lead to granting the MFN status to India by October.

Islamabad has already extended the MFN status to more than 150 countries. Pakistani officials say it is a misperception that the local markets will be flooded with Indian goods if India is given the same status.

“MFN only provides equal and non-discriminatory treatment. It does not offer any sort of tariff concessions to a specific country,” says Naeem Anwar, a leading international trade economist. “Pakistan’s refusal to extend MFN to India is based on the fact that our products are denied market access through the NTBs, which means the benefits of MFN granted by India are being circumvented. We seek removal of these NTBs for granting MFN.”

Pakistani businessmen are of the view that any Indian product, having a demand in the Pakistani market, reaches here anyway by a formal channel or a third country. By granting MFN, Pakistan will not expose any new industry to competition but only divert the third-country trade to the formal channel, they say.

Anwar says that Pakistan has always been saying New Delhi denied market access to Pakistani goods by installing the NTBs, which nullifies the benefits of MFN granted by India.

In a joint statement issued after the talks, India for the first time agreed to look into the NTBs which, according to Anwar, implies that the Pakistani concern was genuine. “These NTBs are not traceable to one source or document,” he insists. “They include administrative procedures, policy restrictions, personal conduct of customs officers, quality and standard regulations, security formalities and hidden subsidies.”

He also underlines the importance of a comprehensive study in order to list these NTBs as well as to point out those which are Pakistan-specific.

The Commerce Ministry sources say the two countries agreed to set up a Working Group to investigate, examine and analyse the NTBs and recommend measures to remove or minimise them at the earliest.

“The Commerce Secretaries will review the progress of this Group and take appropriate decisions in their October 2011 meeting,” says one official, requesting anonymity.

Pakistani business leaders say the biggest hurdle to the market access in India is their visa regime.

Amin Hashwani, a leading businessman, says the delays in visas remains the biggest discouragement for Pakistani exporters. “After the Mumbai terrorist attack, applicants have to wait sometimes up to two months to get their visas.”

Pakistani officials estimate more than 80 percent visa applications of Pakistani businesspeople were rejected without assigning any reason, in 2010, compared with 8 percent rejection by Pakistan during the same year.

“The remaining 20 percent Pakistanis are discouraged by city restrictions, police reporting requirement and less-than-necessary days of stay in their visas,” says an official of Pakistan High Commission, New Delhi.

“Next, the businessmen have to seek hotel accommodation in India which means going through an entire documentation requirements and facing the inconsiderate authorities all of which makes sure they don’t come back again,” he says.

Under such circumstances, says Anwar, it is not just difficult but almost impossible to strike business deals. “It’s ironical that on the one hand you grant the MFN status to Pakistan and on the other you deny us entry what with your visa policy!”

Pakistani officials also claim visa processing at Pakistan High Commission in New Delhi is criteria-based, non-discriminatory and evenly applicable.

As Hashwani puts it, Pakistani exports to India suffer because of a lengthy clearance procedure by the Indian authorities. “A pre-inspection certificate should be enough, but the Indian authorities have a lengthy process for clearing goods, which involves inspection and laboratory tests on arrival.”

Then there are specific duties on certain goods which usually hurt Pakistan, he adds. On paper, these duties range between 20 to 25 percent, but practically they are between 50 to 60 percent due to specific or minimum import duties.

No wonder, the trade balance between the two countries remains hugely in India’s favour. Indian exports to Pakistan are 300 to 400 percent higher than Pakistani exports to India.

However, Pakistani products have a great potential in the Indian market. “We remain competitive in terms of price, quality and other commercial parametres,” says Anwar. “Our home textiles, woven fabric, ladies’ garments, footwear, surgical instruments, sports goods, inorganic chemicals, fruits, marble and onyx, and gypsum have a huge market if the NTBs are removed.”

Given the peculiar dynamics of Pakistan-India relations, trade and economic interests can go a long way in easing tensions and creating powerful lobbies, having stakes in peace between the two countries. If economy takes the centrestage, it will work as a catalyst in the resolution of long-standing disputes and issues.

Yes, We Can Compete In Trade

By Amir Zia
May 1,2011
The News


Never before in the traumatic history of these two nations, one finds so little opposition to building ties of trust through economic and trade relations and so much support for giving peace a genuine chance

“Yes, we can compete in trade with India. Its huge size, booming economy and technological edge should not be a cause of concern for us, but rather seen as an opportunity.”

That was the crux of the message, which a select group of business leaders gave to Commerce Secretary Zafar Mahmood in Karachi — a few days before he was scheduled to meet his Indian counterpart Rahul Khullar to resume the stalled talks on trade after a gap of more than two years.

The confidence of Pakistani business leaders in the informal meeting came as a pleasant surprise for me. Being a journalist, perhaps we are more accustomed to only hearing stories of doom and gloom, especially in the Pakistani media world where negativity reigns supreme. But more on the issue of rampant cynicism in Pakistani media and how it affects the country in general and the economy in particular some other time.

Getting back to Pakistan-India trade, it was indeed an eye-opener to find representatives of various sectors — from textile to information technology and cement to automobile — underlining the fact that despite the non-tariff barriers imposed on Pakistani exports by our giant neighbour, estranged relations, and host of other practical problems that impede bilateral trade, they not only see themselves as competitive in the Indian market, but expect their businesses to grow with the normalisation of trade and economic relations.

One of the leading textile entities of Pakistan, which could not export its goods to India through the relatively cheaper rail, road or sea routes because of this or that constraint, decided to send products via the costly air route. Surprisingly, it still managed to remain not just competitive, but also expand exports.

A representative of the automobile sector appeared optimistic about selling engineering goods to India. The spare-parts of Pakistani tractors already have a niche in the Indian market, and select other products can also find buyers because made-in-Pakistan automobile parts are of superior quality as well as offer competitive prices.

The Indian information technology sector — one of the mainstays of its booming economy — generating staggering revenues of 70 billion dollars a year and employing more than two million people — offers Pakistan a huge potential to expand and grow.

Pakistan’s information technology sector, though small, with a around 150,000 professionals and one billion dollars worth exports, eyes winning business process outsourcing from India, establishing collaborative development centers, cross-selling of products as well as tacking other markets in joint ventures. According to Jehan Ara, president of Pakistan Software Houses Association for IT & ITES (P@SHA), Pakistani professionals remain second to none and have proved themselves by developing some of the most sought after software in the world.

Similarly, spokesmen for the cement sector, which has been exporting more than 600,000 metric-tonnes on an average to India for the last four years, claim that with its 10 million tones of surplus production capacity, it has a tremendous potential to expand sales in the Indian Punjab and Haryana states if trading is relaxed through road and rail links.

The brainstorming session with the commerce secretary ahead of his April 27-28 talks was organised by leading businessman Amin Hashwani, an active peace campaigner and advocate of Pakistan-India trade relations through the platform of Aman Ki Asha — a civil society-led peace movement launched jointly by the country's media giant, the Jang Group and The Times of India group.

The optimism and the enthusiasm seen at the interactive session with Mahmood did not prove misplaced. The two-day Pakistan-India talks on trade manage to achieve more than what one expected keeping in view the history of rocky and estranged relations between the two nuclear armed neighbours.

What makes the recently-held talks different from the four other such rounds of discussions was summed-up aptly by Mahmood. “In the past, it was just the articulation of good intentions. This time round, we have put in place, a mechanism to implement those intentions,” he told this scribe.

And indeed, it was a huge 20-point agenda which was put on the table, which according to the commerce secretary requires time — at least six months — to get absorbed and digested for implementation. The two sides have set up working groups and tasks forces, which will submit their reports and pave the way for another interaction between the commerce secretaries of the two countries in six months time.

“We have managed to break the inertia of decades,” said Mahmood. The two sides have put in place a roadmap that encompasses all vital issues from the question of granting most-favoured nation (MFN) status to India to the non-tariff barriers on Pakistani goods, he added. “By October, we hope to grant MFN to India.”

The good thing is that the Pakistani business community does not appear worried about the local market being flooded by Indian goods as a result of relaxed trade regime. They see it as an opportunity to make a niche for themselves in the billion plus Indian market. Stiff competition improves the competent and annihilates those who lag behind. This remains the spirit of free trade.

When Pakistan can compete with China, which has a preferential trade agreement with Islamabad, it indeed stands a chance in the face of the Indian challenge. Currently, the trade balance is heavily tilted in India's favour. Its exports are four to five times higher than Pakistani exports to India.

However, in the mid- to long-run, trading with India makes more sense. It will not just bring cheaper imports and give an access to a bigger market, but greater economic linkages and dependency will also help in the resolution of longstanding political conflicts and ensuring peace in this volatile region. Building bridges of peace through economic ties should be the mantra in this day and age. And the good tiding is that not only the interest groups, but the governments of the two sides appear to have finally realised this. Never before in the traumatic history of these two nations, one finds so little opposition to building ties of trust through economic and trade relations and so much support for giving peace a genuine chance. There are reasons to be optimistic.