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Of two rivals, a disputed border and poor bilateral trade

June 8, 2019
Of two rivals, a disputed border and poor bilateral trade

Photo: AFP

Pakistanis may like to think New Delhi perceives us as the biggest threat, but a group of high achieving Indian journalists I met in London on an exchange programme recently don’t seem to agree. These mid-career journalists from across the LoC considered the Chinese expansion in the region as one of the major security threats, certainly bigger than Pakistan.

We have fought three wars with India which is public knowledge, but not every Pakistani knows about India’s troubled history with China over a disputed border. I will skip the details, for it is not my topic, but it is a good example of how two conflict-stricken countries can work together for a common interest or economic benefit.

In 1962, India went into full-scale war with China. The bilateral trade between these countries was less than $1 billion at the time. The conflict remains unresolved. China’s increasing influence in the region wasn’t any help in easing the tension, but bilateral trade between these two economic powers has increased manifold, passing $80 billion last year.

How come two rivals with a disputed border could increase bilateral trade so significantly one may ask? This is because they decided to separate politics and economic interests. Experts say having common economic interests can work as a big deterrence to war between the parties involved — think Germany and France, the opponents of both the world wars that share the same currency and move freely across the borders now.

Similarly, if Pakistan and India, the nuclear-armed rivals which almost went into a fourth war earlier this year, can have higher economic stakes, they will be highly unlikely to go to war. Unfortunately, mistrust and a national security threat overshadow economic benefits when it comes to free trade between India and Pakistan.

It is a pity that South Asia is the fastest growing economic block, yet it accounts for one-third of the world’s poor. Regional integration can address this imbalance, alleviate poverty and bring prosperity as evident from the progress of trade blocks like the North American Free Trade Agreement (NAFTA), European Union (EU) and the Association of South East Asian Nations (ASEAN).

Experts say globalization is no more the engine of growth; it is mega trade blocks and regional integration. However, South Asian countries are yet to reap the benefits of shared land borders as noted by World Bank Lead Economist Sanjay Kathuria.

The lack of open trade between India and Pakistan, the two key players, is what is holding the entire region back. Consider this: it is cheaper for Pakistan to trade with Brazil than with India, Kathuria says—no wonder the bilateral trade between India and Pakistan stands at a mere $2 billion despite the fact that these two account for nearly 90% of the region’s GDP. Kathuria says Pakistan and India could increase trade value to $37 billion by reducing policy barriers, such as eliminating the restrictions on trade at the Wagah-Attari border or reducing high costs of trade through efficient electronic data interchange at border crossings.

Experts say free trade between South Asia’s largest and second largest economies can benefit the entire region, not just these two countries. However, Sri Lanka and Bangladesh can’t trade with Pakistan via land without going through India. Similarly, Afghanistan can’t trade with India without passing from Pakistan. However, a free movement of goods across borders can mean the whole region can benefit.

According to a report by United Nationals Economic and Social Commission for Asia and the Pacific (UNESCAP), regional trade liberalization and enhanced facilitation to reduce trade costs can generate substantial welfare gains for all member states, leading to more balanced regional development. Currently, the intraregional trade is valued at $26.8 billion, much less than its potential ($81.2 billion), it says. This is because South Asia is the world’s least integrated region.

It is high time the two countries put politics behind, and joined hands for common benefits of their people and that of the region.

It doesn’t help India to increase tariffs on Pakistani tomatoes. Who did it hurt? Poor Indian farmers who had already been suffering from Pakistan’s refusal to buy their produce after it failed to pass quarantine standards. Likewise, it is not in the interest of Pakistan to ban Indian movies, which serve as oxygen for Pakistani cinema industry and provide employment to thousands associated with the industry. On a larger scale, a prolonged conflict means higher defense spending, which leaves the governments on both sides with little money to spend on their people.

According to the WB, India’s defence expenditures are seven times higher than Pakistan’s while the latter spends nearly 70% of its budget on military and debt servicing. This money could be saved by avoiding conflict and spent on people’s welfare.

Now that elections are over and new governments are in place, the leadership on both sides of the border can engage in peace talks and explore what they can offer each other that can lead to shared prosperity and regional growth.

There is a long way to go before South Asia can unleash its full growth potential, but shunning politics is the first step in that direction.

 
 
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India, Pakistan, trade, barriers, China, World Bank
 
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