Published: Daily Times, March 27, 2005

By Pradeep S Mehta & Huma Fakhar

Cricket seems to be a far greater force uniting nations and sentiments than war. If commonality of purpose can exist on the sports field it can also be a part of trade processes. If one can play cricket, one can also undertake trade

India and Pakistan have been at loggerheads over Kashmir, among other things, since independence. However, times seem to be changing. This change gathered momentum when Pakistani Prime Minister Shaukat Aziz, at the World Economic Forum meeting in Davos, Switzerland, at the end of January, proposed to his Indian counterpart to evolve a series of confidence building measures that need not be held hostage to the resolution of Kashmir, the central dispute.

The Kashmir issue has been singularly responsible for blocking cooperation between the two countries, except where it is imperative and unavoidable. At international fora, at times, both share similar views and stands. For example at the World Trade Organisation (WTO), both are members of the developing countries’ alliance — G-20 — which is trying to ensure that the Doha Development Agenda will protect the interests of poor countries. Both countries have been founder members of the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT).

The two countries are also members of the South Asia Association of Regional Cooperation (SAARC) and its various instruments: this includes the South Asia Preferential Trade Arrangement (SAPTA), to be succeeded by the South Asia Free Trade Arrangement (SAFTA). However, any progress on either of these protocols has been mortgaged to the Indo-Pak détente. Consequently, the entire region has suffered.

India-Pakistan economic relations have been facing the bugbear of some myths that continue to define the debate on whether the countries should or shouldn’t resolve all disputes prior to forging trade and economic relations. Thus, progress on economic cooperation between India and Pakistan has taken a backseat. In this article, we have identified the major myths and proceed to demolish them.

Countries at war can play cricket but cannot trade!

Cricket seems to be a far greater force than war. If commonality of purpose can exist on the sports field it can also be a part of trade processes. If one can play cricket, one can also undertake trade!

All disputes need to be resolved before economic cooperation?

Policymakers in Pakistan have so far been insisting that unless all disputes between the two countries are resolved, trade and economic cooperation will proceed on a case-by-case basis. While some change is taking place in this line of argument, the jury is still out. We need to proceed with gradual opening up on both sides: India should look into serious tariff reduction and Pakistan should give up on ‘sensitive’ lists. A good way to begin could be a Bilateral Investment Treaty (BIT).

Disputes have never prevented economic cooperation around the world. France and Germany had been at loggerheads for over a millennium, but now both are major players in the European Union, which is continuously deepening economic and political cooperation. Malaysia and Thailand too have border disputes but this has not prevented them from cooperating economically through the ASEAN Free Trade Agreement.

The deepening India and China economic ties also set a precedent. India and China have a border dispute but have decided to keep it on the backburner. In 2000, bilateral trade between both countries was around three billion dollars. Within three years, it crossed $10 billion. Several estimates show that India and Pakistan can also achieve similar levels of trade if they decide to open up their borders.

Reciprocity should be followed in dispute settlement

Reciprocity may not be useful in the current environs. Times are testimony to the adverse impacts economic growth has faced in both these countries. What cannot be undertaken officially has somehow been substantiated unofficially. The market apparently knows what is right. Unofficial trade has already reached an estimated staggering two billion dollars. Imagine if this trade is carried out officially, reducing costs and having a trickle down effect. India has already granted Pakistan the MFN status, in spite of pending disputes. Curtailing trade due to unsettled issues is reciprocity at its worst. One should therefore, attempt a non-reciprocal approach to foster more trade.

India will dominate the economy of Pakistan if trade is liberated

There is concern that if Pakistan liberalises trade relations with India, the latter will dominate Pakistan’s economy. Undoubtedly India will have a trade surplus against Pakistan as it has with other neighbours, Bangladesh, Nepal and Sri Lanka. Yet no one complains. To the contrary, the Free Trade Agreement between Sri Lanka and India has led the two to initiate talks on further custom union integration. Simple economic rationale indicates that India enjoys these surpluses because of the size of its economy and the comparative advantages it enjoys. But this does not translate into a domination of Pakistan’s economy by India.

If strong economies always dominated bilateral trade then China and the US would dominate all economies with which they have a trade surplus.

On the contrary, USA runs a deficit with most trading partners, which do not dominate the American economy. China has a trade surplus against US, which exceeded $68 billion in 2000. China had a trade surplus of $ 0.8 billion in 2003 against Pakistan. This doesn’t indicate economic subjugation. On the contrary it indicates vibrancy and a leashed domestic demand waiting to be harnessed and catered to. Bilateral trade will help both countries. Take the case of the India-Pakistan-Iran pipeline. It will fetch Pakistan an annual income of $500 million.

Trade will lead to disputes which will promote more conflict

Trade disputes take place between all trading partners, as can be seen from the history of the WTO and other dispute settlement machinery. These are resolved through legal processes. Countries do not and should not resort to violence to resolve commercial disputes. This is not something to worry about. Disputes indicate a dynamic relationship.

Will there be a peace dividend if the cooperation is concretised?

There will be a huge peace dividend if trade relations are strengthened. When two countries trade with each other, people develop an interest in maintaining peace, so that the flow of goods and services is not disrupted.

Will it lead to the dissolution of other issues?

When countries are trading with each other, they avoid conflicts. If there are any disputes, as is likely to happen, they use dialogue to resolve them. What has been seen in many similar situations is that countries decide to maintain the status quo (somewhat like the LoC) and move on.

They always say one should learn from the lessons of history. We should also not repeat the mistakes that were made while history was being written.

Pradeep Mehta heads a leading consumer protection NGO in India. Huma Fakhar heads Fakhar Law International and M@P in Geneva and Pakistan