India-Pakistan Trade Relations

Bidanda M. Chengappa, Senior Fellow, IDSA

 

What war could ravish, commerce could bestow

And he returned a friend, who came a foe

India and Pakistan propose to expand economic linkages with each other despite problems persisting in their political relations. Prime Minister Nawaz Sharif told media persons, during Prime Minister Vajpayee's February visit to Lahore, that Pakistan would hold consultations with India on the issue of granting Most Favoured Nation (MFN) status to India which indicates scope for restoration of bilateral trade ties. In tune with such positive signs it is observed that India-Pakistan bilateral trade has risen 14-fold over the past decade from Rs 47.15 crore in 1987-88 to Rs 463.92 crore in 1998-99. To that extent, bilateral trade ties are the only hope in normalising India-Pakistan relations.1 On April 10, 1999, the largest subcontinental neighbours signed a memorandum of understanding in New Delhi to set up the India-Pakistan Chamber of Commerce.

India-Pakistan economic relations can be divided into trade which is done between business communities, and cooperation which is conducted through governments. Scope for cooperation at the government level is generally limited to infrastructure related projects in sectors like the railways, power and telecommunications. However, last year, New Delhi imported onions and sugar from Islamabad purely to cater to the severe shortages of these commodities in India which is only an ad hoc measure, besides the on-going talks over the sale of power supply to India. Though businessmen conduct trade, the government still has to play a facilitatory role and promote this activity by relaxing the visa/travel regime and reducing tariff barriers which are pre-requisites for trade promotion.

This paper examines India-Pakistan economic relations in terms of trade ties which operate at the level of businessmen in either country. The paper discusses the dichotomy in Pakistani perceptions which favour and oppose trade ties. It then provides a brief overview of the Pakistani economy in order to understand its trade policy; besides the problems constricting bilateral trade flows, like the MFN status issue. The paper brings out the factors propelling trade ties and analyses the scope/prospects for improving bilateral trade. In conclusion, it suggests some steps to promote mutual trade ties.

Introduction

India-Pakistan trade ties have three components, namely: "black" or illegal trade transacted through the land borders; circular or "informal" trade which is carried out through "third" countries and re-exported from there to Pakistan; finally, formal trade through imports/ exports of merchandise through all recognised seaports, airports, land customs stations and inland container depots. The illegal trade channels are smugglers who operate along the 675 km unfenced stretch of the Rajasthan sector along the contiguous Indo-Pakistan border; besides carriers, khepias who misuse personal baggage through the "green channel" facilities at international airports. Circular trade is conducted through agents who are stationed in free ports like Singapore or Dubai and estimated to be US $1 billion. Thus, the combined volumes of illegal and circular trade are much larger than formal levels of trade which in reality, therefore, amounts to "pseudo" trade between the two countries.

Table 1. Indo-Pakistan Trade*

(In Indian crore rupees)

Year Export Import Total Balance Of Trade

1987-88 19.12 28.03 47.15 - 8.91

1988-89 36.20 72.17 108.37 - 35.97

1989-90 51.39 53.79 105.10 - 2.40

1990-91 73.60 84.49 158.09 - 10.89

1991-92 98.61 149.98 248.59 - 51.37

1992-93 151.26 73.50 524.76 - 222.24

1993-94 200.66 136.48 337.14 + 63.18

1994-95 179.71 165.61 345.32 + 14.10

1995-96 256.80 150.80 407.60 + 106.00

1996-97 558.12 128.36 686.48 + 429.76

1997-98 537. 14 139.68 676.82 + 397.46

1998-99 184.84 463.92 648.76 - 279.08

* Indian exports and imports to Pakistan

India has no separate commerical office in Pakistan at this point in time—only a commercial wing attached to the high commission which is headed by an experienced counsellor assisted by a personal assistant, an assistant and a lower division clerk. The handful of staff for commerce shows that till now the two neigbours have only emphasised the political and military elements of their bilateral relationship at the cost of economic, social and cultural components for the past five decades. However, Indian trade bodies like the Federation of Indian Chambers and Commerce and Industry, Confederation of Indian Industry, Punjab Haryana Delhi Chambers of Commerce and Industry and Federation of Indian Exporters Organisation with their Pakistani counterparts namely the Lahore Chambers of Commerce and Industry and Karachi Chambers of Commerce and Industry have over the past couple of years exchanged visits from time to time.

Pakistan prefers to first solve the Kashmir issue and only thereafter promote trade relations with India. However, Kashmir issue despite being unresolved has not stopped the considerable amount of illegal trade taking place between Indian and Pakistani business interest groups. Voluminous smuggling of commodities and merchandise between the two sides is an indication of the mutually profitable economic opportunities and reflects the suppressed desire of the business communities in either country to trade with each other. Indian 'black' or smuggled trade exports to Pakistan are industrial machinery, cement, tyres, chemicals and tea. Indian 'black' trade imports are edible oils, spices, dry fruits and pulses.

Earlier the circular trade also took advantage of the formal Indo-Afghan economic interaction. Traders exported merchandise from India to Afghanistan which was subsequently smuggled into Pakistan through Peshawar which lies along the Pakistan-Afghanistan border. In this context, therefore, government initiatives by both countries aim only at formalising this trade which is already underway. The Kashmir problem therefore remains a non-issue for business persons who are ever eager to "capture" new markets and make their cash registers ring. Importantly, normalised trade between the two neighbours will mean citizens in both countries can get merchandise/commodities at cheaper prices and also enable the governments to earn more revenue in the process.

Trade Imperatives

In the post-Cold War period, nations have shifted the emphasis in their domestic and foreign policies from politics to economics. This is evident from the growth of regional economic blocs like the Association of South-East Asian Nations (ASEAN), European Union (EU), North American Free Trade Area (NAFTA). While these groupings had their origins prior to 1991, they gained greater importance in the post-Cold War period. In the Indo-Pakistan context, the role of the South Asian Association for Regional Cooperation (SAARC) has also generated greater awareness among the political leaderships in the subcontinent on the need to increase intra-regional cooperation and trade. Moreover, an enlargement of India-Pakistan economic relations is imperative for increasing the level of South Asian intra- regional trade flows as a whole.

On April 11, 1993, the SAARC member states signed an agreement on a South Asian Preferential Trade Agreement (SAPTA) at the SAARC summit at Dhaka. The agreement provides a broad framework of rules for a phased liberalisation of intra-regional trade.2 It envisages periodic rounds of trade negotiations for exchange of trade concessions on tariff, para-tariff and non-tariff lines. Such preferential trading arrangements imply a reduction of tariffs on trade among SAARC member states. The eighth SAARC summit held in India had decided to establish a South Asian Free Trade Area (SAFTA) on the lines of the European Free Trade Area (EFTA) in order to liberalise intra-regional trade.

Professor Vijaya Katti writes, "Moving from SAPTA to SAFTA would, however, require several initiatives on the part of the member states in many other areas allied to trade. These include : trade facilitation measures like institutional policy, regulations at border controls, transit facilities, trade document procedures and financial procedures connected with trade play an important role in the expansion of intra-regional trade."

Significantly, in Pakistan the repeal of the Eighth Amendment to the Constitution should curtail the military and bureaucratic role in Islamabad's foreign policy which would enable the leadership to take people- oriented political decisions like promotion of bilateral trade.3 This is linked to the fact that the Pakistani military is a major player in the national decision making structure and has articulated the policy of peace first and cooperation later with India.

Scope

The attraction of mutual trading between the two sides is linked to low freight costs which translates into cheaper prices, given the contiguous borders between these two countries. In such a situation, a government keeping in view the people's interests, is obliged to ensure that commodities and merchandise are imported only from such countries. The other conducive conditions are cultural affinity, common language, similar economic and social systems which provide an ideal foundation for broader India-Pakistan trade ties.

For instance, Pakistan imports iron ore from Brazil and Australia, besides tea from Kenya at higher prices, though these items could be available at lower rates from India.4 Similarly considering Indian pharmaceutical products are 30 per cent cheaper than Pakistani products, it would certainly make a difference to the common citizen in that country. In turn, this would help Indian pharmaceutical products to sell larger volumes in geographically proximate markets, besides impacting positively on industrial growth.

Indian coffee which is now smuggled into Pakistan, due to the absence of formal trade in the commodity, has scope of being a lucrative export item. In 1994-95, India liberalised its coffee industry and coffee growers/traders are now free to sell their crop to private parties. This has resulted in greater investments in coffee cultivation within the country owing to the higher prices available both in the domestic and international markets.

Pakistan is estimated to be the second largest tea consumer in the world with market size of around 130-150 million kg per annum and for several years it did not import tea from India. Eventually, India and Pakistan signed a contract for the sale of tea in August 1997 owing to compulsions, as the tea gardens in Kenya, Sri Lanka and Indonesia were hit by drought.5 Commenting on Pakistan's tea imports, MP Lama writes, " Tea was not imported from India since 1988 . Two major multinational tea traders in Pakistan have their tea gardens in Kenya and it is natural for them to make Pakistan a captive market. In this context the Kashmir issue is only a veil to justify command over the market by multinationals."6

Pakistan's economy which is characterised by inadequate industrialisation, has created a demand-supply gap and drives both "black" and circular trade for truck tyre exports from India. The size of the market in the country is one million truck tyres annually and production facilities exist for only two lakh tyres, of which half is taken by the government sector. This leaves only one lakh truck tyres for sale in the open market. Therefore, Indian truck tyres are a popular product in Pakistan. However, though the item has been placed on the 'open' import list, the high duty structure of 46.6 per cent would make Indian tyres costlier in Pakistan than tyres imported through the Turkmenistan route.7

India and Pakistan both being agrarian economies could cooperate in agriculture which is a core component of the GDP and the largest employment generation sector in either country. To quote, "It, therefore, makes sense for the two countries to cooperate in areas of common interests as it would be to their mutual advantage. Just as coal and steel were the 'lead sectors' in European integration, there is every possibility of agriculture emerging as the major sector in which cooperation and joint action can benefit both countries especially in the context of the liberalisation of these sectors."8

The food and agri-business industry has a significant impact on the regional economy. This industry has one of the highest economic multiplier effects among the various industries, even ahead of the telecom or power sector. According to an estimate, liberalised India-Pakistan trade in the agro-sector would generate around 2.7 lakh jobs in India and 1.7 lakh jobs in Pakistan.9

An India-Pakistan track-two diplomacy group which comprises academics, editors and former military leaders from both countries has made suggestions to improve economic relations between both countries. These include : the two countries should regularly pursue a joint gas pipeline project, encourage tourism and convene a joint meeting of finance and commerce ministers from both sides to promote bilateral trade.10

Pakistan's Perceptions

There are two view points in Pakistan on boosting trade relations with India and each has its own rationale to support their respective positions. While the view opposing trade ties with India will be discussed first, the line favouring ties is taken up next.

Pakistan's traditional fears that trade relations with India would prove inimical to its own interests is part of the problem. Pakistani Commerce Secretary Iqbal Fareed has stated, " We cannot afford free trade with India as it would badly hurt our industry".11 This is linked to the fact that India with its much larger industrial economy would result in an unfavourable balance of trade. Viewed objectively, Pakistan's bilateral trade flows have an unfavourable balance not only with India but also with other industrial economies too.12 Perhaps Pakistani trade planners are now realising the need to make their economy globally competitive in the aftermath of the US sanctions after the Chagai nuclear tests. In the process, India would then be perceived just as any other trading nation and not necessarily as a hostile neighbour. Surprisingly, Pakistani markets are not really flooded with Chinese products despite free Pakistan-China trade.13

The Lahore Chambers of Commerce and Industry study highlights the disadvantages that would accrue to Pakistan in case free trade is allowed between the two countries.14 Apart from these disadvantages the paper makes a strong case for promoting trade ties with India.

(a) India has a very stringent import policy and is seeking to increase exports at a greater pace than imports

(b) India has lower labour costs than Pakistan and thus has lower prodction costs.

(c) India has several mills which are 100 per cent export-oriented and can freely import raw materials from anywhere, including Pakistan. On the other hand, Pakistan has tried to give a similar impetus to industry by providing export processing zones, but no concrete outcome is yet evident.

(d) The resources in Pakistan and India have many similarities. Consequently, in world markets, we are competing countries rather than being able to supplement each other's deficits in resources.15

According to Pakistani economist Ejaz Ahmad Naik, "A trade regime that exposes the domestic market to international competition has to be an essential element of Pakistan's developmental strategy."16 For Pakistan, it would be appropriate to initially get exposure to regional competition which will not be as stiff as international competition. On the other hand, dealing with regional competition will enable Pakistani manufacturers and marketeers to develop an orientation to international business with higher stakes. And India-Pakistan trade offers Pakistan exactly such an opportunity to improve its economy.

However, Ejaz Ahmad subsequently writes, "The sheer size (area, population, resources and level of industrialisation) of India acts as a hurdle towards achieving any arrangement of regional cooperation in South Asia...India being by far the biggest country in the region, should lead the way and suggest ways and means of removing the causes of friction in the political field and allaying fears of its smaller neighbours in the economic sphere." In this context, India has already taken the initiative and accorded Pakistan MFN status and yet, the economist is critical of India.

India-Pakistan trade potential is best reflected in an advertisment supplement published in the mainline English daily newspaper Dawn of December 30, 1997, printed from Karachi and Lahore. This was the first ever trade report published on India and it reflects the pulse of the Pakistani business community to initiate trade with India. While governments have been known to go wrong in gauging the thinking of citizens, newspaper advertising sales managers can seldom afford to make such mistakes because such business costs them money. Importantly, such supplements enable business communities to develop market intelligence databases so necessary for trade promotion.

A research paper prepared by the Karachi Chamber of Commerce and Industry entitled, "Freer Trade With India: Raison d' etre and Impact" argues strongly in favour of Indo-Pakistan trade relations. The paper sees the possibility of transfer of appropriate technology to Pakistan from India; besides, that liberalised bilateral trade would give the two countries a bargaining chip in negotiating with the developed countries. The reasons listed out are as follows:

— low cost capital and consumable inputs which would help to cover the short fall in agricultural produce;

— labour wages in Indian manufacturing sector are two-thirds those in Pakistan with better productivity;

— superior technology;

— Indian engineering goods are 30-35 per cent cheaper than corresponding Pakistani products. While an Indian scooter sells at Rs 20,000 which is one-third the price of a Pakistani scooter which is priced at Rs 65,000; a car costs Rs 4.5 lakh compared to Rs 6 lakh.

— India licence-produces Swiss and German textile machinery which Pakistan imports at higher costs from other sources.17

India-Pakistan trade ties also have a Central Asian dimension . According to one view " In case Pakistan agrees to let India and the Central Asian Republics (CARs) trade through its territory and Afghanistan is accepted as a member of SAARC as anticipated, the whole region, especially Pakistan-India relations,would witness dramatic changes of both economic and political nature."18 The new CARs namely Kazakhstan, Uzbekistan, Tajikistan and Turkemenistan have signed several bilateral trade and economic cooperation agreements with India. However the continuing conflict in Afghanistan is preventing the implementation of these non-political ties from taking shape with India. After peace is restored to the region, "Pakistan will be pressed by the CARs into granting trade transit facilities to India. In view of Pakistan's own keenness to set up close relations with the CARs in various fields, including trade, it will hardly be able to resist this pressure.''19

Pakistan's Trade Policy

Pakistan's trade policy is best understood in the context of its economy which is more agriculture based than industry based. This is because the Indian economy, prior to partition, was treated as a single entity and the regional diversity resulted in a degree of interdependence. According to Professor B.M. Bhatia, the region comprising Pakistan had surpluses in foodgrain, jute, finer varieties of raw cotton and industrial raw materials which served as inputs to the area now called India;20 whereas the Indian side supplied cotton cloth, coal, steel and household products or manufactures owing to a comparitively higher level of industrial activity. Thereafter, in the post-partition period, out of a total of 14, 677 industrial units, only 1,414 units or 9.6 per cent of the total were located in Pakistani territory; similarly, of the 3.14 million industrial workers Pakistan's share was only two lakh workers or 6.3 per cent of the total manpower strength. The smaller industrial profile of Pakistan is highlighted by the fact that prior to partition the manufacturing sector contributed only 5 per cent of the total industrial production of undivided India, observes Professor Bhatia.21

At the time of partition, both India and Pakistan inherited economies which were complementary in nature. However, their politically-driven economic policies resulted in divergence as the two neighbours promoted competition among themselves. For instance, Pakistan developed its cotton textile industry soon after gaining nationhood and in the process obviated the need for importing cotton manufactures from India. Instead, it competed with Indian garments in international markets. Similarly, India also enhanced cotton production levels and the resultant surplus enabled it to compete with Pakistan in international markets. The other cases include sugar and leather industries wherein Pakistan which was earlier dependent on India attained self-sufficiency. Pakistan also developed an indigenous leather manufacturing industry to eliminate the need to export raw leather hides and skins to India.

Pakistan's economy was, therefore, resource rich and agro-based without an adequately developed industrial infrastructure and lacked technology. Its limited manufacturing capacity included a few textile mills, cement factories and an oil refinery. Thus, its trade policies revolved around finding markets for its commodities and acquisition of technology.22 In view of this, Pakistan's trade relations, like those of most developing countries, are primarily with the Western industrialised democracies owing to its dependence on technology and their reverse-dependency for raw materials. Yet the Western nations' terms of trade proved to be unfavourable and this prompted Pakistan to develop an inward looking trade policy which resulted in a switchover of resources from export-oriented policies to import-competing industries.

During the early 1950s Pakistan pursued an import substitution policy wherein exports were not subsidised and this resulted in stagnation (decline in some areas) in export earnings. This led to a change-over to an export oriented policy "but the objective was only partially realised because the net protective margin on import substitution industries was greater than that for export-oriented industries. Thus, the overall impact of the revised policies was quite limited."23

Islamabad's import policy has been restricted through licensing and quantitative constraints and tariffs have been used mainly to generate revenues. The country started exports of manufactured items only during the early 1960s with the introduction of an export bonus scheme. Eventually, almost two-thirds of the total exports were manufactured by the end of the decade. Pakistan, it would appear in this context, has never really had a proper and planned economic policy to promote trade and instead has alternated its approach between an internal and external orientation. A major step to boost trade relations is to develop strong trade ties with regional countries and, therefore, Pakistan focussed on South-west Asia rather than South Asia due to politico-religious reasons. It is a member of the Economic Cooperation Organisation (ECO) which includes Iran, Turkey, and, later in November 1992, the CARs alongwith Afghanistan also became members. However, in the 1990s, Pakistan slowly began trading with new partners like India and Bangladesh and shifting away from Sri Lanka.24

Problems

Though political relations are an impediment to bilateral trade ties, the role of vested economic interests perpetuating the present Indo-Pakistan "black" trade also become relevant as they amount to pressure groups who prefer to sustain the status quo to their advantage. This refers to the nexus of the politician-businessman-criminal-official who collectively make money from smuggling activity through bribery and corruption of officialdom to sustain the flow of illegal trade. It results in a loss of revenue like customs duties, sales tax and income tax to both governments but in turn enhances the profit margins of traders on both sides.

Commerce Minister Rama Krishna Hegde stated in Parliament on July 28, 1998, that Pakistani intelligence harassed businessmen who attempted to contact the commercial wing of the Indian High Commission at Islamabad. Such state sponsored moves are serious obstacles to the growth of bilateral trade ties. More recently, on April 21, 1999, the Indian commercial attache, Ravindranath, at the Indian High Commission in Islamabad was assaulted by Pakistanis while on a visit to Lahore.25

The MFN Status Issue

Today, India-Pakistan trade which has a phenomenal potential, is stymied through tariff differences and a Pakistan imposed restriction on Indian imports to only 600 items. Summing up the reason for 'suppressed' India-Pakistan bilateral trade flows, P. Chidambaram, then minister of state for commerce, stated in December 1995 in the Rajya Sabha that this was due to the Pakistan government's restrictive policy for imports from India. It currently allows imports from India only against a list of 570 items many of which do not have a real export potential from India, he said. Under these circumstances, it is not feasible to formulate a promotion strategy for trade with Pakistan, even if there is vast scope. The Indian government has made a formal demarche to the Pakistan government about the MFN status, and it awaits a response, Chidambaram added. MFN status stipulates that the contracting parties have to accord each others' exports and imports the same tariff and trade restrictions which are given to other nations.

While India has taken the initiative and already granted Pakistan MFN status, this economic initiative has not yet been reciprocated and thereby constricts natural trade flows between the two sides. Today there are three views in Pakistan about liberalising trade with India. Significantly, a section of economists and businessmen advocate trade with India as they feel that it would be a mutually beneficial proposition. However, another group of businessmen does not favour trade ties which are considered synonymous with an Indian economic invasion. Finally, the security services are opposed to economic relations with India for purely political reasons. They feel that bilateral trade ties should be formed only after the Kashmir problem is solved between the two nations.26

Pakistani Commerce Minister Ishaq Dar, commenting on the reciprocation of MFN status to India told media persons in 1998, "We have neither given nor have intention to give it. We are not bound to give them MFN status. The government does not deem it proper to give MFN status to India."27

In reality, Pakistan's trade policy towards India goes against the World Trade Organisation (WTO) rules wherein a country accorded MFN status by another one is under obligation to reciprocate the same. However, Pakistan has chosen to flout this rule of international economic diplomacy vis-à-vis India despite being a signatory to the WTO agreement. While India on its part has not yet raked up the issue with a multilateral forum, it has reminded Pakistan about this discriminatory trade policy.

A distinguished Pakistani economist, the late Mahbub-ul-Haq had stated, "Pakistan is totally wrong in denying non-discriminatory trade to India. It is an inferiority complex. If we can compete with other developed nations , why can't we compete with India", he told a reporter from the Indian news agency, the Press Trust of India (PTI).28

Pakistan had set two pre-conditions for according India MFN status: one external and the other internal. The external condition was that New Delhi must stop subsidising manufacturers/exporters; and the internal condition was that Pakistani industry prepares itself to compete with Indian imports. Some Pakistani manufacturers feel that Indian industry gets massive incentives on raw material and other inputs which gives it a competitive edge against them. Prospects for India-Pakistan free trade by 2000 appear bleak with Islamabad subscribing to a section of the business community's view that trade with India would hurt the Pakistani economy.

The reported reason underlying Islambad's decision to withhold MFN status is because the Pakistani security services are not keen on initiating a policy of trade and cooperation with New Delhi till the Kashmir problem is settled between the two countries. Probably, the Pakistani security services believe that once Indo-Pakistan trade ties take shape, the Kashmir issue could recede from public memory and could cease to be an issue within the country.29 According to newspaper reports Islamabad is keen on a treaty to avoid double taxation. Perhaps this could be interpreted as a face-saving device to promote bilateral trade with India while publicly maintaining that the MFN status will not be given to India.

Conclusion

Over the years, as a new post-partition generation comes of age in Pakistan, the mindset towards India is bound to change. Perhaps they would ensure that economic considerations in terms of trade opportunities with India override emotional ones about partition traumas. Such attitudinal shifts in the future are likely to contribute to an improvement in Indo-Pakistan trade ties. A few suggestions towards improving the growth of bilateral trade are listed here:

(1) Relax visa/travel regimes between the two countries wherein citizens/businessmen are given city specific visas and have to report to the police authorities periodically during their stay in either country. Instead there should be multiple entry visa facility which would ease travel restrictions in a major way.

(2) Positive media reportage would also help in creating better impressions in the minds of visitors to each other's countries. While democratic governments in either country have no direct control over news media, journalists invariably tend to pick up news leads informally from officialdom about the other country. Probably enforcement of a "zero-interaction" policy between officials not authorised to talk to the press could prove effective in projecting a better national image of the other country.

(3) Land routes—road/rail—are more beneficial than sea borne trade for India-Pakistan trade flows. The long distances from the port city of Karachi to the hinterland by road/rail may prove to be uneconomical in comparison to the shorter distances directly through the contiguous land borders between the two sides.

(4) Regular interaction between businessmen is necessary as a mechanism to gather market intelligence. These meetings should ideally take place independently of political summiteering between the two sides. Such meetings enable businessmen to understand the strengths, weaknesses, opportunities and threats of their competitors which is essential for successful negotiations that eventually translate into higher trade statistics.

The last time that the neighbours focussed on economic relations was in early 1996 when business delegations exchanged visits to each others' country. Perhaps the political will to come closer was not as strong then as it is in the post-nuclear period. In the present period, both countries have attempted to adopt more pragmatic policies towards each other and intra-regional trade is an effective means to dilute their mutual mistrust and suspicion ingrained over the past five decades. Importantly, India-Pakistan economic relations would kick-start SAARC intra-regional trade and thereby, transform the regional states into a powerful economic bloc. Hopefully, Prime Minister Nawaz Sharif being a businessman32 turned politician would prioritise trade with India more than a "plain" politician at the helm of affairs in Pakistan.

 

NOTES

1. For a similar view see , Prakash Nanda "It's Trade That Will Normalise Indo-Pak Ties' in Op-ed page Times of India, June 19, 1997.

2. The salient points derived at the concluding regional seminar held in Kathmandu during December 1994 include (1) SAPTA must be made effective by agreeing to excahnge concessions on products with high trade preferential; (2) The effectiveness of SAPTA must be increased by agreeing to sectoral or across the board concessions (3) SAPTA must be made a meaningful instrument by agreeing to exchange concessions which are deeper than the concessions already available to members under other multilateral agreements (4) For SAPTA to make a meaningful impact on the intra-regional trade, the non-tariff barriers, including transit barriers should be removed and shipping services should be introduced where non-existent, and be improved in case they already exist (5) Services may be included in the framework of SAPTA for cooperation on a preferential basis. Vijjaya Katti, "From SAPTA To SAFTA", World Focus, vol. 17, no. 7, July 1996, p. 13.

3. For a detailed discussion and text of the Eight Amendment, see Mohammad Waseem, The 1993 Elections in Pakistan (Lahore: Vanguard Publishers, 1994) pp. 246-284.

4. For a detailed exposition on India-Pakistan trade ties, see, V.R. Panchmukhi, V.L. Rao, S.K. Mohanty, Nagesh Kumar, I.N. Mukherjee and MP Lama in Economic Cooperation in the SAARC Region: Potential, Constraints and Policies (New Delhi: Interest Publications, 1990).

5. News report entitled "India-Pakistan Tea Contract Signed," in The Statesman, August 13, 1997. Also see PTI news report published in the Business Standard, "Pak Tea Industry to Promote Indian Brands" January 30, 1998.

6. M.P. Lama, "Boosting India-Pakistan Trade" Hindustan Times, January 1, 1999.

7. The Tribune, August 28, 1997.

8. Sanjeev Chopra, "Agribusiness and Food Trade Between India and Pakistan," paper specially prepared for the first Indo-Pak Parliamentary Conference-II (Towards a Detente in the Subcontinent) New Delhi, April 30-May 3, 1999.

9. Ibid.

10. Shirin Tahir Kheli, "India And Pakistan: Opportunities in Economic Growth, Technology and Security: A Report of the Balusa/Princeton Group" May 2-4, 1997.

11. Muhammad Najeeb, in The Pioneer, September 7, 1998.

12. Pakistan's trade with the Western industrial democracies, like the USA, for instance will have an unfavourable trade balance similar to India or any other developing country.

13. This view is expressed by M.S.N. Menon in "Free Trade Pact: Next Best After Pokhran" The Tribune, January 8, 1999. Also see Bharat Bhusan, "Freer Trade Will Help Boost Pak Economy", Hindustan Times, November 1, 1998.

14. Cited in Rashid Ahmad Khan, "Indo-Pakistan Trade: Prospects and Constraints," Regional Studies (Quarterly Journal of the Institute of Regional Studies, Islamabad) vol. XIII, no. 1, Winter 1994-95, pp. 41-57.

15. The problem of "competitive" exports arises when two countries attempt to export a common commodity/product to a foreign market and they have to compete with each other there. This factor therefore naturally hampers progress of bilateral free trade between two countries. In the Indo-Pakistan context, it is best illustrated with a case related to basmati rice exports. During 1995 the export of basmati rice from both these countries was smuggled out of Pakistan into India in order to avail the European Union rebate. Such a situation arose because India had a duty concession of ECU 250 per ton of rice for brown basmati rice while Pakistan got only ECU 50. The higher duty rebate for India was only because the EU recognised that prices from India have been consistently very high in Europe. This proved to be an irritant in India-Pakistan trade ties. Cited in Bidanda M Chengappa, "Indo-Pak Ties: The Thaw Through Trade" The Hindu Business Line, February 3, 1996.

16. Ejaz Ahmed Naik, "Pakistan: Economic Situation and Future Prospects" in S.P. Gupta, William E. James, Robert K McCleery eds., South Asia as a Dynamic Partner (New Delhi: Macmillan India Ltd, 1994) p. 178.

17. The Hindu, October 5, 1997.

18. n. 7, p. 51.

19. Ibid.

20. B.M. Bhatia, "Indo-Pak Economic Relations: A Perspective" in Jasjit Singh ed., India and Pakistan: A Crisis of Relationship (New Delhi: Lancer Publishers, 1990) pp. 72-85.

21. Ibid.

22. Zafar Mahmood, "Pakistan: Trade Relations" in Charan Wadhva, S.A. Reza, H.G. Siddiqui, Zafar Mahmood, S. Sureshwaran and Y. Schokman ed., Regional Economic Cooperation in Asia: Bangladesh, India Pakistan and Sri Lanka (New Delhi: Allied Publishers, 1987) pp. 205-251.

23. Ibid.

24. n. 13, pp. 218-220.

25. Hindustan Times, April 22, 1999.

26. Dr Mirza Arshad Ali Baig in an article in the Pakistan and Gulf Economist which is cited in The Tribune, of January 5, 1997, states, "It is not the bureaucrats or politicians responsible for the low India-Pakistan trade but it is the securuty agencies which consider India as enemy number one and hence advocate status quo." According to Foreign Secretary Shamshad Ahmad, "How can the government promote trade ties with the arch rival neighbour which is not keen to settle the age old Kashmir dispute", in The Statesman, December 11, 1998 quoting the Dawn.

27. Times of India, May 2, 1998.

28. Deccan Herald, November 14, 1997.

29. An editorial in Times of India of November 11, 1998, states, "...If Pakistani producers and entrepreneurs have access to the great Indian bazaar, this will over time encourage the forces of pragmatism to compromise across the border."

30. Times of India, December 11, 1997.

31. Among government servants till now, only the armed forces have been fairly successful in ensuring that their members do not unauthorisedly talk to the Press. This is entirely in keeping with the military code of conduct vis-a-vis the Press that could be with some effort extended to other areas of government dealing with foreign countries.

32. Lt General (Retd) Hamid Gul, a former director general of the Inter-Services Intelligence Directorate of Pakistan is quoted in India Today news magazine March 1, 1999, stating, "Nawaz Sharif is weak and being a businessman is trying to find economic answers through opening the trade route."