Against terror and tragedy: Indo-Pak relations have to be improved for a better future
The News Islamabad
06-04-2008
By Dr. Abid Qaiyum Suleri and
Pradeep S. Mehta

"Pakistan's economic growth has been impressive mainly as a result of its relatively open trade and investment regimes, sound macroeconomic policies and structural reforms that have also contributed to lower unemployment and reduced poverty," the World Trade Organisation (WTO) concluded after a recent trade policy review of the country (January 16-18, 2008).

In contradiction to the WTO's perception, macroeconomic policies did not deliver as macroeconomic stability could not be sustained. The moment newly elected government took charge of affairs; one started learning about stories of deficit economy. The State Bank of Pakistan (SBP), too, in its second quarterly report for financial year 2007-2008 (released on March 31), warns the government about the fragile state of economy. "Growing macroeconomic imbalances, particularly widening fiscal and current account deficits, continued to create complications and added to inflationary pressure," the SBP report says.
It must be kept in mind that the voters gave a heavy mandate to the Pakistan People's Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N), in the hope that this alliance will put an end to the constitutional as well as the economic crisis facing them nation. This mandate comes with a huge responsibility, especially in the presence of an independent media and a vibrant civil society. While restoring supremacy of the constitution would be a gradual and an ongoing process, the people want an immediate relief to their economic miseries. This, in turn, requires fiscal space, which according to the SBP's report is an extremely difficult task. Given this context, we will either have to increase our revenues or cut down our expenses.
Though Prime Minister Yousaf Raza Gillani did mention some positive measures to reduce state expenses while announcing his 'First 100 Days Vision', he did not say anything about the defence expenditure. The fiscal space to provide relief to the masses can easily be created by reducing the defence expenditure (one quarter of Pakistan's expenditure currently is defence-related, according to official figures) and by promoting intra-regional trade to reduce the trade deficit.

The political leadership across the border seems to be ready to avail the opportunity provided through a democratic change in Pakistan. India has already expressed the hope that economic relations between the two countries will improve after the formation of a democratically-elected government in Pakistan. In a similar vein, during his recent interview with Karan Thapar on NDTV, PPP Co-Chairperson Asif Ali Zardari said: "India and Pakistan could set aside the Kashmir issue to be addressed by a future generation, while they focus on trade and economic ties to improve bilateral relations."

"The people-to-people contacts should be improved, to be followed by inter-dependence of trade. If Indian industry depends on Pakistani energy and I depend on the Indian market for my product to be sold, we are both inter-dependent, financially integrated industry-wise," Zardari added. If the new government acts on this premise and decides to accord the much-awaited most-favoured nation (MFN) status to India, and India reduces the much criticised non-tariff trade barriers (NTBs) against Pakistan, the way for more trade and cooperation between the two most dominant countries in South Asia could be paved. These gestures would also give fillip to the so far dormant South Asia Free Trade Area (Safta).

In the context of South Asia, much debate has taken place whether people-to-people contacts lead to more trade or-vice versa. However, it is very obvious that none of the two may work in a security situation dominated by an invisible fear of terrorism. The terror attack on Delhi-Lahore train in 2007 reiterated the fact that, despite resumption of rail-road links, the journey between the two neighbours is critically dependent upon security and safety of the travellers. The governments of the two countries must address the challenges of security to sustain the renewed interest of the people to visit each other more frequently.
There are enough examples showing how treaties of sharing river waters, cross-border infrastructure projects and nuclear rapprochement have partially bridged divides between hitherto not-so-friendly or even belligerent nations. The Indus Water treaty of 1960 has ironically survived more than 47 years of conflict over Kashmir. The war between Cambodia and Vietnam has not prevented them from reaping the fruits of a 1500-kilometre long cross-border highway project. Similarly, the Middle East Regional Cooperation projects have encouraged trade and cooperation, and thereby peace and prosperity, in the region.
India and Pakistan are regional nuclear powers and have recently exchanged lists of their nuclear installations. However, mere exchange of lists is not sufficient cover for an unwarranted action by either party. The Argentina-Brazilian nuclear rapprochement is an example worth emulating. They initiated bilateral efforts towards nuclear rapprochement in early the 1980s. During 1985-88, they pursued the issue bilaterally and signed an agreement that was made legally binding in 1989. Subsequently, they became members of the regional and global non-proliferation regimes by taking the issue to the international fora.

This agreement encouraged the two countries to seek cooperation in the economic sphere as well. Having realised that closer and deeper economic relations facilitated by free trade would further strengthen understanding and mutual cooperation, the two countries successfully persuaded Paraguay and Uruguay to form the South American Common Market (Mercosur) in 1991. Later, they were joined by Chile in1996 and Bolivia in 1997. The common market was formed with an objective to enhance trade and investment among these countries. In a similar vein, Safta offers an opportunity to promote peace and prosperity in the region.

Such vehicles of peace have become very important, given the growing incidence of terrorism in the subcontinent. Both India and Pakistan have experienced the bitter taste of terrorism. This has demonstrated that terror has no religion and knows no national boundaries. Terrorism has, thus, become a common problem for the two countries. Close cooperation between Pakistan and India on this issue will go a long way in building trust and confidence as well as mitigating myths and distrust between the two countries.

Historically Pakistan has been a close ally of the United States, which has been helping it not only economically but also in many other ways. The US finds Pakistan a great ally in combatting international terrorism. Of late, India has also inked a civilian nuclear supply agreement with the US to meet its rising energy needs. Many political observers comment that in doing so, India has compromised its long-standing stance of non-alignment. Keeping such rhetoric aside, it may be beneficial to look for opportunities where the US (and the European Union's) foreign policies can support bilateral initiatives.
River diplomacy in Argentina, for example, accelerated bilateral cooperation in the nuclear arena. The initiative to expand Indo-Pak 'bus diplomacy' can flower with the support of the EU and the US. To create peace through economic (trade) cooperation in the Middle East, the US has offered a qualifying industrial zones (QIZ) scheme under its Generalised System of Preferences. Under this scheme, exports from Jordan and Egypt containing inputs from Israel enter the US market duty free. A similar scheme, if offered by the US to India and Pakistan, would go a long way in building trust and mutual cooperation between the two countries and peace in the region.

Some experts observe that there is little scope of trade expansion between India and Pakistan, as the two countries are competitors in the world economy. A booming illegal / informal border trade, however, indicates the opposite. Though official bilateral trade figures currently stand at slightly less than $ 1 billion, illegal trade is estimated to be $1.5-2 billion. Informal trade through a third country (like the purchase of foundry equipment) costs an extra $1 billion. Though informal and illegal trade estimates are mere guesstimates, they do indicate a huge potential for trade.

It is a pity that the potential for trade between India and Pakistan is not being tapped fully, despite the fact that entrepreneurship has flourished on both sides of the border. Unfortunately, the two governments are not doing enough to pave way for more trade and to restore amicable relations. In the era of globalisation, trade negotiators of the two countries should use the skills of commercial diplomacy as a complement, rather than a replacement for, to neighbourhood diplomacy and vice-versa. There are several examples of such diplomatic endeavours. For instance, China imposed a ban on the import of Japanese rice in 2003 due to the risk of insect infection. But later an agreement ('rice diplomacy') signed between Japan, the world's most expensive rice producer, and China, the world's largest rice consumer, restoring rice imports by China salvaged the relationship between the two neighbours.

It is important to point out that the two countries have come to each other's aid in times of crises. Pakistan approached India in 1990 to help it tide over a potato and onion crisis, and imported Indian sugar during a sugar shortage in 1997. Similarly, India imported food grains from Pakistan in 2003 due to an emergency. Who else could have helped on an emergency basis in the case of essential commodities, but for a neighbour? But to help each other, the two countries require internal stability that may be achieved through bilateral trade. Pakistani voters have rejected both the military and the mullaism. An econo-politically stable Pakistan is as important for India and the US as it is for people of Pakistan. Now it is the collective responsibility of the forces who want to see peace in the South Asian region to combat terrorism and tragedies through trade.
(Dr Suleri is executive director of the Sustainable Development Policy Institute, Islamabad, and Mehta is secretary general of CUTS, India.