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10 May 2013, Gateway House

Pakistan’s potential as trade and transit partner

Pakistan’s national elections will take place in the backdrop of a troubled economy, severe energy crisis, and frequent terrorist attacks. Can these problems be solved if the next leadership agrees to open its territories for trade and transit purposes between India and Afghanistan?

Former Fellow, International Security Studies Programme

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As Pakistan gears up for the general elections on May 11, it is important to note the absence of any significant anti-India rhetoric in the election campaign.

A transformation in bilateral ties in recent years has driven this change. The ruling coalition, led by the Pakistan Peoples Party (PPP) since 2008, and the United Progressive Alliance in India, have both invested energy in strengthening relations, including the decision to grant Most Favoured Nation (MFN) status. The next elected regime is expected to act on the MFN decision, which indicates Islamabad’s desire to enhance economic cooperation with India despite strident opposition from right-wing anti-India groups.

Although bilateral relations may not be completely normalised without a resolution of the Kashmir issue and without addressing India’s concerns on cross-border terrorism, a deepening trade engagement may enable the relationship to withstand the regular periods of animosity.

Despite the tumultuous patches, bilateral trade has grown. From April 2011-March 2012, India’s imports from Pakistan increased to $ 489 million from $ 369 million in April 2010-March 2011. Exports grew to $ 305 million from $ 251 million during the same period. [1]

Like the PPP, other mainstream political parties also support improving trade and bilateral relations with India. The election manifesto of the Pakistan Muslim League-Nawaz faction (PML-N), though largely focussed on internal issues, states it will pursue a “policy of normalisation with countries with which we have differences’ and establish “cordial and cooperative ties” with neighbouring countries. [2]

The PML-N is eager to develop closer trade relations with India because most of the benefits are likely to go to Punjab, which constitutes the party’s primary support base. Similarly, Imran Khan’s Pakistan Tehrik-e-Insaaf has stated that the “progressive detente with India will benefit both countries if centred on conflict resolution and cooperation, especially in the field of energy.” [3]

In fact, as part of its strategy to intensify engagement with India, the PML-N has proposed linking New Delhi and Afghanistan through an overland trade route. This is especially significant given Pakistan’s resistance in the past to two land connections – extending the Pakistan-Afghanistan Transit Trade Agreement (PATTA) and the Iran-Pakistan pipeline, to India.

Under the PATTA, signed in October 2010, only Afghanistan was allowed access through Pakistan to export goods to India. India’s exports to Afghanistan are presently only worth $ 305 million, and imports are at $ 489 million. [4]

This arrangement has frustrated both Afghans and Indians. But Islamabad has justified it for “security reasons.” This is perhaps a valid concern, because militants linked to Taliban have frequently attacked NATO cargo trucks transiting through Pakistan, and Islamabad fears that Indian cargo trucks might also be attacked. The Taliban has indeed threatened to attack “Indian trade convoys.”[5] The restricted passage is also driven by Afghanistan’s refusal to allow Pakistan access to Central Asia.

Pakistan’s geographical location in the Indian subcontinent gives it the potential to be an excellent transit hub linking India with Afghanistan and Central Asia. The longer Pakistan denies India access to its territory for trade with Afghanistan, the greater its own loss. Clearly, putting transit and trade to India in their election manifestos is a sign of a dawning realisation in Pakistan’s political establishment that the country has not taken full advantage of its location.

India has to capitalise on this incipient realisation and prod the Pakistani establishment to ease the restrictions in the PATTA on the use of Pakistan territory.

India has initiated steps in its northeast to extend transit arrangements for the movement of goods between Bangladesh and Nepal. As the country that shares borders with all other countries in the region, India can also draw the roadmap for access to Nepal and Bhutan into the Pakistani market. [6]

If India successfully pushes for this access, it will not only deepen the sub-continental trade, but also help Pakistan to flourish as a transit economy. The transit fees which Pakistan earns from NATO will certainly diminish after the U.S. substantially withdraws from Afghanistan, forcing Islamabad to explore new sources of revenues. [7] Enhanced bilateral trade with India and transit fees from connecting India to Afghanistan and Central Asia can be one such option.

Creating a sub-continental transit grid through Pakistan will also deepen the trust between the two neighbours, be a catalyst for other avenues of intra-regional economic cooperation and trans-regional projects like TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline – and for peace in South Asia. A lot is riding on the next elected government in Islamabad.

Sameer Patil is Associate Fellow, National Security, Ethnic Conflict & Terrorism, Gateway House.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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© Copyright 2013 Gateway House: Indian Council on Global Relations. All rights reserved. Any unauthorized copying or reproduction is strictly prohibited.

References

[1] Department of Commerce, Government of India. (2013). ‘Export Import Data Bank Version 6.0-Tradestat’. Retrieved May 7, 2013, from http://commerce.nic.in/eidb/ecntq.asp and http://commerce.nic.in/eidb/icntq.asp

[2] Pakistan Muslim League (N) National Agenda for Real Change Manifesto 2013. (2013). Retrieved May 5, 2013, from https://docs.google.com/viewer?url=http://www.pmln.org/documents/manifesto-english.pdf&chrome=true

[3] PTI Manifesto Election 2013(2013). Retrieved May 6, 2013, from http://www.scribd.com/doc/134950996/PTI-Manifesto-2013

[4] Department of Commerce, Government of India. (2013). ‘Export Import Data Bank Version 6.0-Tradestat’. Retrieved May 7, 2013, from http://commerce.nic.in/eidb/ecntq.asp and http://commerce.nic.in/eidb/icntq.asp

[5] Agencies. (2011). ‘Taliban warn Govt over MFN status to India’. The Daily Mail. Retrieved May 5, 2013, from http://www.dailymailnews.com/1111/18/FrontPage/index.php?id=5

[6] Taneja, Nisha, Prakash, Shravani, & Kalita, Pallavi (2013), India’s role in facilitating trade under SAFTA. (ICRIER Working Paper 263). Retrieved from http://www.icrier.org/pdf/working_paper_263.pdf

[7] Some of these transit fees are reflected in the Coalition Support Fund (CSF) given by the U.S. Pakistan has received approximately $ 1.8 billion in the last fiscal as CSF: State Bank of Pakistan Press Release. (2013). ‘Economy showing mixed picture halfway into FY13.’ Retrieved from http://www.sbp.org.pk/press/2013/Q-Reports-13-Apr-2013_.pdf.

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