With trade comes greater peace, and a unique opportunity
At the Shanghai Cooperation Organization (SCO) summit in Bishkek, the Prime Ministers of India and Pakistan are participating in the same conference after a military showdown earlier this year, and on the back of Indian elections, which gave Narendra Modi a second term as Prime Minister following a nationalist campaign centred on a muscular projection of national security. This places Modi in a uniquely strong position to build ties with Pakistan and work with Imran Khan towards trade development not only with each other, but also regional trade with Afghanistan and Central Asia.
Other participants at the conference also know that a peace dividend between the two nuclear armed countries will not only bring benefits for India and Pakistan but for the entire region. Countries with adverse political relationships have engaged in cross-border investment, and trade, without giving up their principled stand on disputes and differences. Over time these activities have helped foster a better understanding of each other’s viewpoints. Although Singapore and Malaysia broke up as partners in a political union, both countries have improved political relations because of close economic ties. Confidence-building measures and the creation of stakeholders in the countries eventually defuse tensions and soften the ground for the peaceful resolution of disputes.
It is therefore not right to wait to resume economic relations until bilateral political disputes are resolved. If economic engagement is fierce and picks up steam, new stakeholders who benefit from such an engagement will confront the hawks in each country. Investors, traders, transporters, bankers, and business groups who will be working for Indian firms in Pakistan and vice versa will act as strong lobby groups to preserve and promote peaceful bilateral political relations.
Evidence from history and statistical data reveal that a changed global economic scenario has brought about radical changes in the socio-political relations of nations, which have embraced economic cohesion instead of pursuing politically motivated policies. The volume of trade between India and China, which was only $1 billion in the 1990s, has increased to more than $84 billion through the signing of the Sino-Indian Bilateral Peace and Tranquility Accords. Another example is the 60 year old China-Taiwan fray, which eventually ended up with an agreement on direct air, sea and postal links in 2008. It was in fact the result of vertical growth in trade which witnessed a tremendous increase from $8.1 billion in 1991 to more than $176 billion in 2016.
The economic growth of nation states is linked to their ability to exploit interdependencies within strong regional blocks. Despite the reversals of Brexit and Donald Trump renegotiating NAFTA, various forums such as the EU, ASEAN, USMCA, as well as regional treaties, are successful examples of how connectivity and trade liberalization considerably boost overall regional economic activity.
In 2004, SAARC member countries including Pakistan and India concluded a landmark treaty called the South Asia Free Trade Agreement (SAFTA) with a pledge to allow free trade among member countries by eliminating trade barriers and scaling down tariffs.
If economic engagement is fierce and picks up steam, new stakeholders who benefit from such an engagement will confront the hawks in each country.
Quite aside from being mandatory as an integral part of the commitments undertaken by both countries, trade liberalization serves to increase trade flows, and gradually brings down tariff and non-tariff barriers, and therefore boosts productivity and economic growth across the region.
A number of studies have looked into the sectional impact of opening up India-Pakistan trade. Still, it is important to note that if it is felt that Indian imports into Pakistan are increasing due to unfair practices like price undercutting, Pakistan will be free to restrict the imports of specific products by increasing tariffs under various provisions of the WTO like anti-dumping duties, countervailing and anti-subsidies. Trade liberalization will not eliminate tariffs, which are necessary to protect local industries and jobs.
There will be many challenges that can create serious impediments for devising a solid policy. These need to be highlighted and steps must be taken to mitigate them e.g. addressing issues of trust deficit; the dangers of large trade imbalances causing political backlash; and several other ‘soft issues’ that could create misconceptions and eventually derail the process.
Keeping in mind these challenges, Pakistan nevertheless needs to take advantage of its unique geostrategic edge to see the maximum benefits of globalization. Its location allows it opportunities to facilitate trade between its surrounding countries by acting as a trade hub. It is particularly well suited to facilitate trade between Central Asia, which has a surplus of oil and gas, and India, which requires a constantly increasing supply of energy.
Within the protective walls of regional economies, both countries can achieve specialization in various subsectors of their economies. Moreover, the strengthening of bilateral/regional trade will also cushion the economies of both countries from global financial or stock-market shocks.
Bilateral trade balance with any particular country does not have to be positive. There would be no trade in that case. Pakistan would run a trade deficit with India just as it does with China, and run surpluses with other countries. India is a larger, more-diversified economy, and also produces goods that Pakistan exports.
The determining factor is whether the cost of imports from India is less than comparable quality imports from other sources. In that case, Pakistan’s local industry and its consumers would both stand to benefit.