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India, Pakistan trade much below than potential, says World Bank report

India, Pakistan trade much below than
potential

The current trade between India and Pakistan is at a little
over USD 2 billion, much below than the potential, and can go
up to USD 37 billion if the two countries tear down artificial
barriers like lack of connectivity, trust deficit and
complicated and non-transparent non-tariff measures, according
to a World Bank Report. The report titled ‘Glass Half Full:
Promise of Regional Trade in South Asia’ was released here on
Wednesday. Dawn reported that it says that the current trade
between the two countries is much below than full potential. It
could only be harnessed if both countries agree to tear down
artificial barriers.

The bank also estimated Pakistan’s potential trade with South
Asia at USD 39.7bn against the actual current trade of USD
5.1bn. The report also unpacks four of the critical barriers to
effective integration. The four areas are tariff and
para-tariff barriers to trade, complicated and non-transparent
non-tariff measures, disproportionately high cost of trade, and
trust deficit. Talking to a group of journalists on key points
of the report at the World Bank office in Islamabad, lead
economist and author of the document Sanjay Kathuria said it
was his belief that trust promotes trade, and trade fosters
trust, interdependency and constituencies for peace. In this
context, he added, the opening of the Kartarpur Corridor by
governments of Pakistan and India would help minimise trust
deficit. He said such steps will boost trust between the two
countries. For realising the trade potential between Pakistan
and India, he suggested the two countries can start with
specific products facilitation in the first phase. Kathuria
said Pakistan had least air connectivity with South Asian
countries, especially India.

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Pakistan has only six weekly flights each with India and
Afghanistan, 10 each with Sri Lanka and Bangladesh and only one
with Nepal, but no flight with the Maldives and Bhutan.
Compared to this, India has 147 weekly flights with Sri Lanka,
followed by 67 with Bangladesh, 32 with the Maldives, 71 with
Nepal, 22 with Afghanistan and 23 with Bhutan. The report
recommends ending sensitive lists and para tariffs to enable
real progress on the South Asia Free Trade Agreement (SAFTA)
and calls for a multi-pronged effort to remove non-tariff
barriers, focusing on information flows, procedures, and
infrastructure. The report stated that Pakistan’s decision of
not granting MFN status or non-discriminatory market access to
India was also a barrier to trade.

The preferential access granted by Pakistan on 82.1% of tariff
lines under Safta was partially blocked in the case of India
because Pakistan maintained a negative list comprising 1,209
items that could not be imported from India, the report noted.
Policy-makers may draw lessons from the India-Sri Lanka air
service liberalisation experience. Connectivity is a key
enabler for robust regional cooperation in South Asia. Kathuria
said that reducing policy barriers, such as eliminating the
restrictions on trade at the Wagah-Attari border, or aiming for
seamless, electronic data interchange at border crossings, will
be major steps towards reducing the very high costs of trade
between Pakistan and India. He argued that the costs of trade
are much higher within South Asia compared to other regions.

The average tariff in South Asia is more than double the world
average. South Asian countries have greater trade barriers for
imports from within the region than from the rest of the world.
He said these countries impose high para tariffs, which are
extra fees or taxes on top of tariffs. More than one-third of
the intraregional trade falls under sensitive lists, which are
goods that are not offered concessional tariffs under The World
Bank Country Director for Pakistan, Illango Patchamuthu, said
Pakistan is sitting on a huge trade potential that remains
largely untapped. “A favorable trading regime that reduces the
high costs and removes barriers can boost investment
opportunities that are critically required for accelerating
growth in the country,” he said. The World Bank’s Director
Macroeconomics, Trade and Investment Caroline Freund said
Pakistan’s frequent use of tariffs to curb imports or protect
local firms increases the prices of hundreds of consumer goods,
such as eggs, paper and bicycles. They also raise the cost of
production for firms, making it difficult for them to integrate
in regional and global value chains, she said. “Pakistan needs
to promote export promotion policies to ensure sustainable
growth.” On the issue of currency devaluation, she said
undervalued currency is an anti-export measure. She suggests
exchange rate should be determined by the real market trend.

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