Mohammad Fayzan Qadir
Student ID: 12U00649
Free Trade: Trade without “trade-distorting” policies such as
taxes, regulations, tariffs, quotas etc.
Regionalism: States in a regional agreement to foster
cooperation e.g economical.
SAFTA: South Asian Free Trade Agreement.
Trade openness: Extent to which countries/economies allow
to have trade with each other.
Financial Markets: Buyers and sellers participating in the
trade of assets such as equities, bonds, currencies.
Border Skirmishes: The sporadic cross border exchange of
fires between the two neighbors.
Pakistan`s exports to India only 1% of global exports, India`s exports to
Pakistan constitute only 1% of its total exports, 5% of Pakistan`s imports from
India. Thus a huge prospective for each other if political tensions cut down.
A strife torn market showing intent to rise. For example an estimated 77% of
India`s major exports have been excluded from access to Pakistani
market, despite this, Indian exports have shown growth from USD238 million
in 2001 to USD1734 million in 2010.
Cotton, sugar, vegetables, chemicals, soya bean, tea among top imports from
India. Emergence of new exports to India like leather, cotton fabrics, medical
and surgical instruments.
Free trade could yield negating of tariffs that enhance protectionism in sectors
which might possess a higher comparative advantage, for example
Standing tall as one, fight protectionist policies of greater markets and
negotiate with powers such as IMF convincingly.
Free trade regions and cross border movement of goods yielding confidence
in each other bringing down animosity and cutting down defense expenditure.
Solving of future water issues without going to wars.
Limited NTBs allowing penetration of Indian exporters, could entice India to
GDP: Pakistan`s GDP would increase by as much as 2%
per annum if trade is normalized which also entails to giving
Most Favorite Nation status to India.
Inflation: Help trim inflation down since cheaper Indian
imports would be present in the market.
Employment: The level would increase significantly and over
200,000 jobs would be created.
Balance of Trade: Help with the negative trade balance.
Informal and Illegal trade: The informal trade stands at $1billion whilst illegal trade at
$1.5-2billion. With guesstimates both combined ranging from $2-8billion.
Increase of Cost: The informal trade through a third country increases cost of products
Bilateral Trade: By 2015, if trade normalizing continues the current $2.4billion figure
could soar up to $12billion.
Cost of Military actions: From 2001-2010, war on terrorism cost s around
$43Billion, amounting to 6% of GDP.
Adopting a strategy for trade liberalization through tariff reduction.
A preferential trade system i.e a preferential access to certain products.
Signing FTAs and converting into free trade regions.
Pakistan and India being Non-LDCs to scale down tariff rates to 20
percent during second time frame of five years starting from January 2009
under SAFTA road map.
Opens gates to cheaper and wider variety of imports through reduction in
tariff and non-tariff barriers on product-by-product basis.
The free movement of goods is a prospect for the establishment of South
Asian Economic Union.
Standing tall as two, coming up with better bargains at economic forums
such as WTO.
Collectively Pakistan and India can deal with protectionist policies of the
Easily notch up the level of human skills, foreign direct investment, new
Openness to have a positive impact on economic growth by yielding
Quick border crossings, rapid custom clearance, state of the art
port facilities, enhanced transport links simultaneously would
add to the volume of cross border trade.
Allocating regional development funds by both countries so
institutions support the cause of economic regionalism.
Factor mobility must be increased through developing transport
infrastructure which also increases trade in turn.
Anti-trust laws to come into practice, commercial law, labor
relations, financial institutions should be harmonized.
Financial markets could be increased so they promote cross-
Domestic tax, tariff and subsidy policies should be harmonized
so trade disputes aren't recurring .
Use of anti dumping law.
The never ending negative list must be cut down to increase
volume of trade.
Address Climatic Variability and Uncertainty: The current IWT does not cater
the change in climate and rising variation in river inflow thus asking for
better storage of water and trans-border water cooperation and sharing of
responsibility, much because of glacial melting. For example Sutlej River.
Maintaining Ecosystems: The ecosystems around rivers, wetlands, costal
zones need to be maintained. An environmental clause must be added to
address to safeguarding the surroundings. For Example Mangroves
benefitting from the Indus.
Population Factor: Increasing three folds for both countries from 485Million
in `61, to 1390Million in 2011. Greater need for irrigation and energy
projects yielding intra-basin water management sharing.
Greater Scope of IWT: Must provide a framework for water sharing and
convert into a greater cooperative regime.
Signed in 1960, Western Rivers of Indus, Jhelum, Chenab to
Pakistan, Eastern to India, Sutlej, Ravi, Beas.
Total Permissible storage to Pakistan is 3.6 MAF.
Pakistan and India have been in three major wars.
1965, 1971 and 1999 Kargil War.
Skirmishes off the LOC.
Detaining of farmers who mistakenly cross borders being
held captive for unnecessary reasons.
Attacks on trains and other transport facilities hampering
trade and a good business environment.
The Kargil issue is never ending and both countries have to
pay a lot of price keeping watch at the glaciers in extreme
Kashmir is an issue needing to be solved with due
pragmatism. It’s a hallmark of Indo-Pak rivalry that is an
impediment to elevated regionalism.
Regional integration much on the pattern of European Union
through the already formed ASEAN.
Under ASEAN, Pakistan and India need to enhance
regionalism from security and stability to economic
development and political cooperation.
If ASEAN is more formally constructed, like European
Union, it would help India-Pakistan become stable.
Trade normalization is the only solution to bring about
prosperity in both countries. For example a common market
for France and Germany for coal and steel. (ECSC)
In the above stated example, Pakistan and India could
similarly do this to their cotton sector and agriculture.
Political motives have one solution, through economic ties as
proved by the former two arch rivals of Europe Germany and
Mercosur, redefining trade between Argentina and Brazil.
Similarly US and Mexico through NAFTA.
Implementing SAFTA would help increase the trade volume in
terms of expanding the positive list. For example it expanded
from 40 items in 1983 to 687 items in 2004/5, to 773 items in
2005/06 to1,075 items recently.
Under the cloud of SAFTA, the trade volume would significantly
increase as seen in the past.
Pakistan could further reduce its average-tariff because of trade
liberalization, nearing low tariff leaders in Asia.
Address illegal trade because its cost-effective and could well
be converted into legal trade if measures such as tariff
reduction take place.
Trade restrictive index of India, at 8/10, and Pakistan`s 5/10
shows that India need to cut on tariff and non-tariff barriers to
Trading freely with each other rather than trading as they do
with the rest of the world under the MFN status.
Implementing SAFTA could bring down the sensitive list.
Saving the import bill, Pakistan saves from 400million to 900
million if it allows imports from India. For example
Tea, spices, auto parts etc.
Solutions To IWT
The population of both countries has significantly increased
that asks for a pragmatic handling of Indus Water Treaty and
in turn keep a semblance of peace among the two.
IWT has successfully continued to engage India-Pakistan
into a dialogue and only two projects have gone into third-
Lacks under UN Watercourses Convention`s Articles such as
5 and 6. It has to be more than an allotment treaty which
facilitates equitable and reasonable utilization of water.
There is a dearth of transboundary environmental pacts that
point towards protection of rivers from pollution and the
environment around. For example Stockholm Declaration.
Armed Conflict Reduction.
Germany and France much similarly like India and Pakistan
had a strife torn relationship but understood the need to
integrate on economic level to negate the political
differences and come together for the betterment of people.
For example they were founding members of Treaty of Rome
that lead to the formation of European Union through a
common market for steel and coal.
Pakistan and India need to solve Kashmir and Kargil issue
once and for all.
The kargil war costs a soldier every four days, and two days
for Pakistan and India respectively.
People injured through land mines and standing crops
damaged because of border skirmishes.
The region could be converted into a free trade zone if agreements like SAFTA are
Trade liberalization would see 25% increase in gains on Pakistan`s end.
Cutting on illegal trade and implementation of SAFTA combined increases trade by
Trade liberalization would in turn convert the illegal trade into legal trade and thus
growth of GDP.
Protectionist policies are an impediment to trade volume increase.
If Pakistan and India join hands they have a better chance to tackle down IMF and the
protectionist policies of the developed world
Political tensions could only be minimized if greater trade takes place much the same
way in Europe after the World War II.
Trade could jump from $2.4 billion to a promising $12 billion by 2015.
Also letting go of protectionist policies would help Pakistan increase its trade openness
NTB and tariff barrier reduction could increase trade volume and its cost effective.
Trade divergence would be seen in the region.
Reduction in sensitive list of India and Pakistan. At 763 and 1183 products.
IWT has some loopholes that need to be addressed for example ensuring water
utilization than apportionment.
Under IWT there must be exchange of information on waters and study findings that
show the quarterly fluctuations.
Kashmir Issue has to settled since it adds fuel to fire and is a constant source of
Also, Kargil issue costs way too much to both countries expenditure and has to be
concluded through Composite Dialogue.
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Chapter 2. Trade Integration Between India And Pakistan.
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