India-Pakistan trade takes a terrorist hit By Raja Murthy
MUMBAI - Bilateral trade between India and Pakistan, considered a vital aspect
in improving the prospects for sub-continental peace, have become a victim of
the terrorist attacks on cricketers this month in Lahore in Pakistan and on
civilians late last year in Mumbai in India.
Terrorism is being cited alongside the global downturn for a forecast 60%
plunge in trade volumes between India and Pakistan in the financial year about
to start, according to the Federation of Indian Chamber of Commerce and
Industry (FICCI).
Bilateral trade between Pakistan and India will probably fall to US$900 million
in the year ending March 31, 2010, compared with
$2.2 billion already earned in the fiscal year ending this March 31, according
to the New Delhi-based FICCI. The organization has more than 1,500 companies
and 500 chambers of commerce and business associations among it members.
Given the current anti-terrorism mood in India with regard to the Pakistani
establishment after the November 26 terrorist attacks in Mumbai - which Indian
and US law enforcement agencies attribute to Pakistan origins - even the
forecast trade volume may be optimistic.
The March 3 terrorist attack on visiting Sri Lankan cricketers in the Pakistan
city of Lahore has made more remote the chance of a resumption of bilateral
trade ties that India snapped after the Mumbai attacks.
Indian businessmen have been refusing since the Mumbai attacks to travel to
Pakistan, even to sign previously agreed contracts, let alone to strike new
business deals, according to FICCI. The Pakistani business side is reported to
be showing a similar reluctance to travel to India.
In February, commerce secretaries of the eight-nation South Asia Association
for Regional Cooperation (SAARC) meeting in New Delhi discussed measures to
strengthen the South Asian Free Trade Area (SAFTA) agreement that was signed in
2004 in Pakistan. Little progress was made to benefit the Indian and the
Pakistani business communities.
Even though Indian and Pakistani officials met directly during the New Delhi
SAARC conference for the first time since the November 26 attacks, they failed
to crack the ice on the frozen bilateral ties.
India's trade links with other violence-ridden neighbors such as Sri Lanka have
survived any similar drastic dive in volumes. India and Sri Lanka expect trade
in goods and services to rise from $516 million to $1.5 billion by the time
their Comprehensive Economic Partnership Agreement (CEPA) takes formal shape,
probably by 2012.
Pakistan is not included among the special bilateral trade pacts that India is
exploring with other Asian countries and with the European Union (EU). India
first entered into a CEPA agreement with Singapore, and is moving towards
similar trade pacts with the 10-member Association of Southeast Asian Nations,
South Korea, Japan and the EU.
Key sectors expected to significantly dip in India-Pakistan cross-border trade
include textiles and clothing, textile machinery, cotton, agricultural
products, particularly cereals, and steel and chemicals.
The trade decline will hit Pakistan's foreign exchange earnings most severely,
with the balance of trade favoring India, according to a "System on Foreign
Trade Performance Analysis" by India's Department of Commerce.
India's imports from Pakistan in the April to October period last year rose
about 70% to $253.62 million compared with the same period in 2007, according
to provisional data. India's exports to Pakistan in the period slipped to $914
million from $917.11 million, according to Commerce Ministry data.
If life were more peaceful, annual potential trade volumes between the two
nations have been estimated by various trade associations at between $6.6
billion and $10 billion by 2010.
Pakistan ranks second in India's import list of South Asian countries, after
Nepal. In contrast, Pakistan ranks fourth in India's list of export
destinations to South Asian countries, after Afghanistan, Maldives and Bhutan.
India’s exports with Pakistan are overshadowed by the country's total of
$144.26 billion in exports for the April 2008 to January 2009 period, an
overall growth of 13.2% from $127.45 billion for the corresponding period in
the previous year, according to Commerce Ministry data.
That India and Pakistan do strictly limited business with each other emerges in
the contrast in export figures for India to other countries during the same
April-October 2008 period. India's exports to the US grossed $12.75 billion,
United Arab Emirates ($12.14 billion), Singapore ($5.75 billion), China ($4.82
billion) and Hong Kong ($4.15 billion), the top five destinations worldwide for
Indian exporters.
Pakistan's loss in bilateral trade with India could be the gain of third
countries such as Dubai, Singapore and beyond. "For textiles, Indian importers
have already initiated talks with producers and manufacturers from countries
like Egypt and Italy as these are considered as good replacements for import
sources from Pakistan," according to FICCI.
Historically, India and Pakistan trade relations see a repetitive pattern of
brief upswings interrupting longer phases of rupture that India has
consistently blamed on Pakistan's currently most infamous export - terrorists.
Pakistan, in turn, blames tensions on its pet peeve - the Indian-run part of
Kashmir, which Pakistan claims in addition to that part of the state it
controls.
Even before the Lahore attack this month, the otherwise lucrative business in
the sport between the two countries had taken a severe hit after India
suspended its scheduled January 2009 cricket tour of Pakistan following the
Mumbai attack.
The cancelation, which led to the Sri Lankans touring instead, led to an
estimated $40 million loss to the near-bankrupt Pakistan Cricket Board, which
suffers from similar boycotts from other cricketing countries fearing terrorist
attacks. The sudden flight home of Sri Lankan players who bucked the trend by
venturing into Pakistan, six returning with bullet wounds, will serve as a
long-remembered warning against other such tours.
Pakistan's players are also paying a financial penalty for the attacks and
government responses, over and above the immediate loss from canceled games. In
retaliation to India pulling out of its January tour, the Pakistan government
banned its cricket stars from participating in multi-billion dollar Indian
Premier League, denying their own players and families massive income from six
weeks of playing in Asia's richest cricket tournament.
In response, eight IPL franchise teams suspended the IPL contracts of Pakistan
players, at considerable cost to those involved. Misbah ul-Haq lost $125,000 in
his annual contract fee, Sohail Tanvir $100,000, Umar Gul $150,000 and Kamran
Akmal $150,000. The contracts of the other five Pakistani IPL players were
terminated, costing Younis Khan $225,000, Shoaib Akhtar $425,000, Mohammad
Hafeez $100,000, Shoaib Malik $500,000, Salman Butt $100,00 and Shahid Afridi
$675,000.
Terrorism is not the only factor dragging down official bilateral trade, nor
are laments on the dismal state of affairs new.
"The official trade between our two countries is meager at around $200 million
and the unofficial trade including both smuggling and through third countries
is estimated around $1.5 billion to $2 billion," A C Muthiah, the
then-president of FICCI, said in July 2003, during a meeting of the
India-Pakistan Chamber of Commerce and Industry, a Karachi-based body promoted
by the FICCI and the Federation of Pakistan Chambers of Commerce and Industry.
The India-Pakistan Chamber of Commerce and Industry, like its respective
governments, has made little progress in resolving the long-standing sore
points hindering trade relations between the two countries, apart from
cross-border tensions.
In July 2005, the Federation of Indian Export Organizations, a 43-year-old body
of exporters and related organizations, released an internal study specifying
impediments to bilateral trade relations and remedies that included:
Pakistan reciprocating India in granting most-favored nation (MFN) status to
India, in accordance with World Trade Organization rules. The MFN status
ensures that all trading partners of a country receive equal trade benefits
such as low tariffs.
A multiple-entry business visa with a two-year validity instead of the current
six-month validity that India and Pakistan offer.
Increasing overland trading routes.
Trading carried out in local currencies at a mutually accepted exchange rate
rather than in international currencies, and traders being spared paying
exorbitant higher currency rates per business transaction.
And, of course, the basic requirement of getting rid of gun-toting terrorists
using businessmen on either side for target practice.
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