Preliminary analysis of Pakistan India trade and a viable roadmap for trade liberalization

This Study conducted by the Pakistan Business Council (PBC) identifies potential for bilateral trade between Pakistan and India. It highlights 419 items of interest for Pakistan’s exports to India and 758 items of interest for India’s exports to Pakistan. These are the items along which the two countries could seek preferential treatment for each other. The Study estimates potential bilateral trade of US $ 18 billion, of which US $ 3.6 billion is Pakistan’s export potential to India whereas US $ 14.2 billion is the potential for Indian exports to Pakistan.

Current Scenario

India maintains a list of 614 items on its SAFTA Sensitive List for imports from Pakistan. On all other items, Pakistan is offered reduced tariffs of 5% and 8% under the SAFTA Liberalization Programme. Pakistan not having granted MFN/NDMA status to India maintains a negative list of 1209 items that are not importable from India. In addition, its SAFTA sensitive list consists of 916 items and only 137 items can be imported from India via the land route of Wagah- Attari border.

Findings and Recommendations

1) Exportability to India

Even though, India granted MFN status to Pakistan in 1996 and offers concessional tariffs under the SAFTA agreement, Pakistan’s exports to India are merely 10% of its export potential, which has been estimated under this Study to be US $ 3.6 billion.

In a meeting between the Commerce Secretaries of Pakistan and India in September of 2012, it was agreed that India would bring down its sensitive list to 100 items (from the current 614) once Pakistan grants MFN/ NDMA status to India and opens the Wagah land route for all products. In addition, Pakistan would reduce its sensitive list to 100 items over the next five years.

Most exportable items to India (in million dollars)
Potential value 3,649.20 419 items
Potential value part of India’s Sensitive List 411.3 109 items
Share of potential products part of India’s Sensitive List 11% 109 items

This Study however shows that only 11% of Pakistan’s export potential is accounted for by items which are currently in India’s sensitive list. The majority of the exportable items are not protected under this list. The Study suggests that Pakistan cannot benefit simply from a reduction of India’s sensitive list as India has in place a systematic network of Para-tariff measures together with sector and non-sector specific non-tariff barriers that restrict market access for Pakistan’s exports.

2) Notion of Reciprocity and vulnerable industries

This Study estimates India’s potential exports to Pakistan of about US $ 14 billion, of which a potential of US $ 3.4 billion is part of Pakistan’s sensitive and negative lists. Once MFN/NDMA is granted, the negative list will no longer be operative. The impact of this is feared by the local agricultural lobby and domestic producers002C particularly automobile and pharmaceuticals who contend that cheaper/subsidized imports from India would hurt their interests.

Most Importable Items from India (in million dollars)
Potential value 14,248 758 items
Potential value part of Pakistan’s Sensitive/ Negative Lists 3,434 261 items
Share of potential products part of Sensitive List / Negative List 24% 261 items

The current negotiations between the two countries if concluded without providing adequate safeguards as permitted under the WTO/SAFTA agreements would lead to further imbalance in trade due to India’s restrictive trade regime.

The Study recommends that the Government of Pakistan as a prelude to trade normalization with India establish a strong regulatory and safeguard mechanism and strengthen regulatory bodies such as NTC and PSQCA to protect its local interests, while negotiating with the Indian side for a level playing field for Pakistan’s exports into the Indian market.

Such a level playing field can be achieved if Pakistan’s decision to grant MFN/NDMA status to India and opening of the Wagah border for all items is reciprocated by India categorically addressing its non-tariff barriers that have played a significant role in limiting Pakistan’s export potential.