July 21, 2008EconomyForeign AffairsIndiainternational relationsPakistanpeace processSecuritytrade

Trading for peace

Can Pakistan make the change?

This is an archived blog post from The Acorn.

While the crisis in Pakistan’s international and domestic politics gets a lot of attention, arguably the more worrisome one is the one enveloping its economy. To even attempt to address these crises, Pakistanis must change their mindsets towards India. Why, there is resistance to even accord India a most-favoured nation (MFN) trading status because many don’t like the sound of it. So it is good to see the Daily Times go all the way and argue for bilateral free-trade.

After decades of subordinating economics to politics we are now at a crossroads. The primary crisis in Pakistan is economic despite the fact that we keep distracting ourselves with other less relevant issues. The politics that has constantly overridden economics has not succeeded but it persists in our mental attitude. Arguments given above have long been refuted by circumstance; only those whose ideology was thus hurt did not care to take account of it. When the embargo was placed on imports from India under General Zia-ul Haq, the reason was political; and the economic wisdom of Dr Mahbubul Haq was defeated by a federal secretary who put forward the theorem that helping India profit from trade with Pakistan was a betrayal of the Kashmir cause”.

The theory of not relying on Indian imports has been disproved over time, to the disappointment of the intelligence agencies. From Gen Zia’s 40 items we are now importing 1500, most of them strategic raw materials. And we have not been let down” or become dependent” on India in any negative way. On the basis of this experience, in fact, we would be well advised to create an interest group” in India comprising exporters to Pakistan. (There is already a beginning of it in Punjab, Haryana, and Delhi Chamber of Commerce and Industry.) The intermeshing of economic interests is always more reliable compared to political compacts made when there is little mutual trust. On the other hand, the profit motive” is blind to politics and endures beyond the alarums of war and finally compels states to allow peace to prevail for profit”.

Pakistan has signed free trade area (FTA) agreements with Iran, China, Sri Lanka and Malaysia, but no increase in Pakistani exports to these countries has occurred because of the unstable situation in Pakistan. Therefore, it is hardly valid, on the basis of this trade imbalance theory”, to block trade with India. Imports of Indian raw materials and some other items are attractive because transport costs are relatively low across the border. If the increase in Indian imports is expected to be 30 percent, it will displace the import of the same volume of more expensive imports from elsewhere. This will help Pakistan cut its manufacturing costs and reduce the level of inflation. In fact, the whole theory of trade is built on the notion of comparative advantage and there is much advantage to Pakistan in trading with India. [DT]

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