Pakistan-India Trade Normalization: A Word Of Caution

India granted MFN status to Pakistan in 1996. SAFTA (South Asian Free Trade Agreement) came into force in 2006, resulting in tariff concessions by both India and Pakistan. The final step towards normalized trade relations between the two countries is thought to be NDMA status for India to be granted by Pakistan. This study argues for caution in granting India NDMA given the current challenges faced in Pakistan-India trade.

India, in addition to possessing very high export capability to Pakistan, offers substantive support to its producers in the form of subsidies and export support schemes and maintains intractable Non-Tariff Barriers to discourage imports. Pakistan possesses considerable export potential to India, but it offers little support or protection to its producers and exporters, and has relatively low Non-Tariff barriers. Therefore, huge quantities of Indian products that are cheaper than local Pakistani products can easily enter Pakistan post-NDMA. On the other hand, low quantities of Pakistani products that will in many cases be less competitive than local Indian products will enter India with difficultly post-NDMA.

If the NDMA is to lead to a mutually beneficial trade relationship, the following issues must be decisively addressed:

  • India must agree to gradually ease its Non-Tariff Barriers.
  • Pakistan must build capacity to support its exports and protect local industry from subsidized imports.
  • The details and time-frame of India’s promised concessions to Pakistan must be determined and considered before the granting of the NDMA.
  • India’s concessions to Pakistan must be consistent with its concessions to other SAFTA countries such as Bangladesh and Sri Lanka to ensure Pakistan gains fair access to the Indian market post-NDMA