ISLAMABAD, 26 September 2005 — The question uppermost in the mind of Pakistani leaders is whether to trade or not to trade with India and Israel.
Trade with India and Israel at the best of times was either uncertain or virtually nonexistent. From 1947, when both Pakistan and India became independent, trade between these two nations became the first casualty when tensions flared. But trade with Israel became a possibility on Sept. 1, when Pakistani Foreign Minister Khurshid Mahmud Kasuri met with Israeli Foreign Minister Silvan Shalom.
It was nudged further into the realms of reality when President Pervez Musharraf shook hands with Israeli Prime Minister Ariel Sharon in New York this week.
With a thaw in ties with Israel and also the closing of the divide across the border with India, Pakistan hopes to boost trade with these two countries, especially with India. The focus will be on Prime Minister Manmohan Singh’s visit, on Musharraf’s invitation, to Islamabad on Oct. 3 and 4. Will there be a major shift in the talks? For till date the issue of Kashmir has invariably poured cold water on all the warmth generated from other issues, with India always saying “trade first”, while Pakistan insisting “Kashmir first.”
In this new climate, politicians from both the countries could well be swamped by the tidal wave of empathy that has developed following the people-to-people contacts. Also the region’s newfound economic drive has energized businesses and with the nation’s economy growing at a phenomenal rate, businessmen want to cash in on the opportunities. They are demanding: Open up trade now. Their reasons: Mutual trade can escalate to $10.0 billion a year within no time, providing cheaper products to 1.2 billion common folks just across the border, with nominal freight costs and several other advantages. Mutual trade is already more than $3 billion a year. Of this, the official trade is, $600 million. The rest comes via third countries, including Singapore and Dubai, and smuggling.
At one time, when India was short on wheat and Pakistan short on liquor, barter through smugglers proved a roaring business. Smugglers use long lines of camels, carrying everything from cotton to chemicals, and electrical machinery to kitchen utensils still move overland — smooth as sand. But the two governments lose millions of dollars in customs duties and taxes. They can trade in rupees, being members of the Asian Clearing Union, and that saves millions in dollars.
Short of a range of food items, Aziz took a bold decision by allowing duty and tax-free import of Indian potatoes, tomatoes, onion, garlic, sugar, goats, sheep and live animal. When truckloads started arriving overland in May it did impact the prices in Pakistan’s second largest city Lahore, located just 15 kilometers away from Indian city of Amritsar. The overland cargoes, first in 56 years, could draw a big laugh from today’s closely integrated Europeans and other blocs.
Normal business among India and Pakistan, can also enable the entire South Asia achieve a fast track growth, under South Asian Association for Regional Cooperation (SAARC), a market of nearly 1.5 billion people. SAARC’s South Asian Free Trade Agreement (SAFTA) goes into operation Jan. 1, 2006, slashing tariffs and boosting trade among its seven members — Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan and Sri Lanka.
Several trade, economic and investment delegations visiting India and Pakistan, this year, are forcing their governments to reduce political tensions.
Rajesh G. Kapadia, President Indian Merchant’s Chamber, Bombay, and 40 top Indian businessmen had extensive talks, this week, with Pakistani counterparts and the provincial and federal governments in Karachi, Lahore and Islamabad, to free trade from political tensions. Chador Muhammad Saeed, president of the Federation of Pakistan Chambers of Commerce & Industry (FPCC&I), and business chambers of Karachi, Lahore, and Islamabad, supported him.
Some of the best proposals that emerged included doing trade in rupee currency, not dollars. They also proposed updating the present India-Pakistan shipping protocol to allow free movement of ships, flying Indian and Pakistani flags to each other’s ports and permission to carry third country cargoes. Better travel and visa facilities, travel to whole of Pakistan and India and longer duration of stay were also proposed. All agree, open trade will generate for governments more revenues from customs duties and taxes, lower prices for the people, reduce cost of production and eliminate smuggling. FPCC&I’s Saeed, said tea, chemicals, industrial machinery, cement, tires, pharmaceuticals, cosmetics, video tapes, and viscose fiber are already being smuggled into Pakistan. Legal trade, besides these items, can also include iron ore, textiles, textiles machinery, coffee, sports gear, chemicals, surgical appliances, leather and leather products.
Pakistani businessmen offered India to start joint ventures in software development, telecom, IT, computer engineering, biotechnology, light engineering, foundry machinery items, metallurgy, precious & semi-precious gemstones and petrochemicals.
Present shipping bans will have to go. Bombay, Karachi, Dubai ferry services are now starting to enable cheaper travel, cut cargo costs, and reduce shipping time. For instance, a cargo, at present, costs $300 from Bombay to Singapore, but the same consignment costs $1,400 from Bombay to Karachi, just next door, via Dubai.
Trade diplomacy is moving fast. Pakistani Commerce Minister Humayun Akhtar, this week, when Kapadia was in Pakistan, was in New Delhi and Bombay calling for increase in trade. He offered private Indian airlines to fly into Pakistan under its open skies policy, on a reciprocal basis. At present only state-owned airlines — Pakistan International and Indian Airlines — are being allowed to fly into the two nations. Akhtar also said, “the outdated shipping agreement” will be revised to move larger cargoes directly between the ports of the two countries. Countrywide travel visas, longer duration for stay and other facilities will be allowed for Indian businessmen. Kamal Nath, Humayun’s counterpart in the Indian Cabinet, reciprocated, saying: “Ours is a partnership that can be the strongest in the region.”
While the environment for larger India-Pakistan trade and economic cooperation is moving into a positive mode, it is a different story on the Israeli front.
The government’s initial contacts with Israel have ignited a big controversy, forcing the government to be careful. Israel is keen to import Pakistani textiles to produce finished fabrics and prepare ready-to-wear garments at its Israel-Jordan Qualified Industrial Zone (QIZ) for export to United States, duty-free or at low tariff.
Mushtaq Ali Cheema, Minister for Textiles, said Pakistani textiles are currently reaching Israel through Cyprus. However, Prime Minister Aziz says, “Pakistan is not going to initiate trade with Israel... We will not recognize Israel until the establishment of an independent Palestinian State.”
Political statements notwithstanding, businessmen in all the three countries are hopeful that the change in attitudes will lead to a change in trade directions for all of them.