Increased Trade to Spur Growth

in Program

By Michael Krepon – Pakistan and India have not fared well over
the past two decades in negotiating confidence-building and nuclear
risk-reduction measures.

measures, such as prior notifications for certain military exercises and
ballistic missile flight tests, have been useful, but regrettably sparse. Many
believed that these CBMs would lead to progressively more ambitious and
stabilizing measures.

the process of negotiating military- and nuclear-related CBMs has been like
peeling an onion, one thin layer at a time.

in Pakistan and India have viewed these CBMs as devices to alleviate external
pressures after a crisis, as trading material, or as add-ons when bigger issues
like Kashmir are properly dealt with.

government officials viewed CBMs as worthwhile steps in and of themselves, a
cruise missile flight test notification agreement and an agreement to prevent
incidents at sea would have been negotiated long ago. Deals on a mutual
withdrawal from the Siachen Glacier and a settlement of the Sir Creek dispute
have also been within grasp for many years.

agreement to permanently demilitarize Siachen appears stuck over whether or not
to recognize in some fashion positions seized by the Indian Army in 1984.

continuing dispute over Sir Creek revolves around the extension of the land
border seaward. Both countries capture fishermen that have crossed this
imaginary, disputed line and then release them when they want to signal a
warming trend.

ritual of rounding up and freeing the usual suspects no longer counts as a CBM
because it has become a thoroughly expected peel of the onion.

India and Pakistan actually traded more onions, as well as other goods and
services, this disappointing, familiar script might change. Increased trade
could engage powerful cross-border constituencies to support more normal
relations between India and Pakistan.

significant trade occurred between Sindh and Gujarat as well as across the
Punjab divide, it would be hard to reverse course.

expansion, like military CBMs, would also proceed in stages, but is likely to
move at a faster pace because entrepreneurs have more clout and are in more of
a hurry than diplomats.

cross-border trade is resisted by the privileged few who stand to lose profits
if hard-pressed customers benefit from lower prices. Trade with India is also
staunchly opposed by Hafiz Saeed, chief of Jamaatud Dawa, and his followers. It
would not be surprising if die-hard groups seek once again to target iconic
targets in India to halt improved bilateral ties.

governments of Pakistan and India have been widely dismissed as being weak and
beleaguered by scandal. And yet Islamabad has taken constructive steps to
increase direct trade with India. Pakistan has now given India Most Favored
Nation trading status and is switching from a positive to a negative list of
tradable items.

could become another exercise in onion peeling; after all, India accorded
Pakistan MFN status in 1996, and the results have been negligible.

least now, prospects for direct trade are better than before. Prime Minister
Manmohan Singh appears quite ready to reciprocate Islamabad’s moves.

cannot hope to increase its rate of economic growth, which now lags behind
population growth, without more normal ties and more direct trade with what
should be its largest natural trading partner. Instead, direct trade
between Pakistan and India was $2.7 bn in 2010, less than India’s trade
with Sri Lanka. Pakistan exports more goods to Bangladesh than to India.

abnormal situation could now change if Pakistan’s military leadership is on
board. Islamabad’s trade initiatives imply Rawalpindi’s consent, perhaps
because Pakistan’s military will benefit from economic growth, and because a
well-funded army that resides within a weak economy will generate
increased public resentment.

Pakistan’s army retains an abiding distrust and deep grievances against India,
and no large institution holds monolithic views. Since improved trade can be
short-circuited by mass-casualty attacks in India, the test of the intentions
and competence of the army leadership is whether it gains advance warning
of future attacks and takes effective measures to prevent them.

boasting an economy over eight times larger than Pakistan, also has much to
prove. Generous terms of trade can serve New Delhi’s interests as well as
Pakistan’s. But India’s civil servants and diplomats take a back seat to no one
when it comes to onion-peeling.

leaders who want to accomplish something important and unusual in India will
have to ride herd over a government and civil service bureaucracy that
stubbornly resists change. The same holds true for Pakistan.

is unclear whether Prime Minister Singh and President Zardari can follow
through with real growth in direct trade. They have both expressed
longstanding, oft-repeated desires to normalize relations. This is the most
convenient way to do so.

This article was originally published in, on May 14, 2012.

Photo Credit: IRLR via Wikimedia Commons,,_Stevie_Mann_-_Loading_sweet_sorghum_stover_into_truck_for_use_as_bio-fuel_and_livestock_feed_in_Andhra_Pradesh,_India.jpg

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