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India Pakistan Trade: Changing Trends & Emerging Scenarios

India Pakistan Trade: Changing Trends & Emerging Scenarios






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    India Pakistan Trade: Changing Trends & Emerging Scenarios India Pakistan Trade: Changing Trends & Emerging Scenarios Presentation Transcript

    • India Pakistan TradeChanging Trends and Emerging Scenarios 28th March 2013 1
    • Outline• Overview of India Pakistan Trade• Sector-specific Non-Tariff Barriers (Perspective from Pakistani Exporters)• Informal Trade between India and Pakistan• Investment Cooperation between India and Pakistan• Way Forward• Open Discussion
    • Steps in Enhancing India-Pakistan Business Engagement Research Advocacy Capacity Building Participatory Trade diplomacy at Sector-specific non- approach to Ministry of tariff barriers and address non-tariff Commerce and role of subsidies barriers Foreign Affairs Participatory Liberalizing Visa FDI Prospects for approaches to Policy with in-built India and Pakistan South Asian Safeguards at regional integration Ministry of Interior Automatic Route Cost of non- Investment led by Informal trade: cooperation to Chambers and Gainers Vs. Losers South Asian Board of Consumers Investment
    • Current State of Non-Tariff Barriers
    • General Non-tariff BarriersCustoms Rejection of transaction valueValuation Re-classification Arbitrariness, delays, non-transparencyBIS Currently, BIS has 18,592 standards for various product categories, only 84% are equivalent to International StandardsStandards No data available on how many are actually enforced Usually, ISO standards are sufficient but in case of imports from Pakistan, discretionary powers are used
    • General Non-tariff Barriers Tightly regulatedImportLicensing Easily available for export-oriented industries (example of leather) Not easily available for value-added products Indian banks do not honor L/Cs opened by Pakistani banks beyondFinancial $10,000. Thus, shipments released in partsMeasures Indian banks usually request for an extension in maturity date of L/C up to 60 days Absence of direct courier service
    • Sector-specific NTBs
    • Textile & Clothing Sector• Non-value added products imported• Importers need to submit shipment samples in public sector labs to ensure that dyes and colors used are not hazardous• Automatically generated invoices by manufacturers are unacceptable, have to be reformatted.• Specifications and standards certified by company labs are unacceptable• Certificates of international standards and other international certifications such as SJS are unacceptable• Sampling takes up to 3 months
    • Textile & Clothing Sector• Pre-shipment inspection used to determine use of hazardous dyes• PSI certificate is required from a textile testing lab accredited by the National Accreditation Agency of Pakistan. There is no such facility in Pakistan• Thus all Pakistani samples are tested and certificates for these are granted by Indian agencies• Over 25% of samples are drawn for testing, and the report is only valid for 6 months• Hefty testing fees complex procedures impede imports of high quality apparel & those imported in small quantities
    • Fruits & Vegetable Sectors• Agricultural sector heavily subsidized in India, making imported goods uncompetitive• Total subsidies in 2010 $28.9bn (2.2% of GDP)• Minimum support prices, credit and insurance schemes, fertilizers, irrigation water, electricity, diesel at subsidized rates• All agricultural products require import license, SPS certificate and import permission from Plant Quarantine Authorities• Challenges in completing SPS requirements: SPS & Bill of Lading required by issuing bank to initiate L/C
    • Fruits & Vegetable Sectors• All food products are tested by Port Health Authority. Officials absent at times and samples sent to other labs• Consignments with pending reports are sent to warehouses, not equipped to store perishable items• Results of lab authorities cannot be challenged• Certificates from Pakistani labs not accepted, those from other international labs are accepted
    • Leather Sector• Demand in India due to footwear industry picking up since last 5 years• Thus, NTBs in this sector are minimal• Import licenses are easily available since leather is required by Indian export industries selling value added products• Leather footwear is on Indian negative list• Other finished goods of leather are subject to extensive sampling procedures• Exporters complained about packaging being destroyed while inspection and sampling procedures
    • Recent Developments• BIS – PSQCA• Relaxed Visa Regime: executive order issues but not implemented• Wagah-Attari: Integrated check post available, but has already reached full capacityNeed for:• Trucking Agreement• More land routes need to be opened• Containerization via railways• Direct courier services
    • Trade – Despite of NTBs• This was Pakistani exporter’s perspective• Indian claim: these are same for all exporting to India• Two replies from Pakistan – Pakistan should adapt – While rules same for all – they are applied more strictly on Pakistan• What about the consumers? – Trade with India continues – case of informal trade
    • Informal Trade • Land routes • Product categories • Quantification
    • Methodology for Identification of Sectors• Some available literature e.g. Shaheen Rafi Khan et al. (2005)• Expanding inquiry in line with products mentioned on negative list as of Dec-2012• Creating inventory of products identified by informal traders in various hubs of informal exchange• Validating the above mentioned inventory with wholesalers, retailers and custom clearing agents
    • Selected Identified during SurveyFruits and Automobile Textile Jewelryvegetables parts HerbalCosmetics Medicine Tobacco products Paper and Spices and paper Crockery Herbs products
    • Respondents in Informal Trade Survey• Importers/Exporters (19)• Retail whole sellers (67)• Transporters (10)• Custom clearing agents (2)• Government Officials (5)• Kheepas, Frequent family travelers (9)
    • Markets & Cities in SurveySector Primary Market City Primary City Primary City Market MarketTextile Bolten Market Karachi Shaalam Lahore - - MarketTobacco Nanakwara Karachi Paan Mandi Lahore - - (Anarkali) KharadarLivestock Yazman, Rohi Bahawalpur - - - - MultanAutoparts Ranchor line Karachi Badami Lahore Perwadhi Rawalpindi Al-Noor market BaghPharmaceutical Peshawar Shahalam Lahore - - MarketCosmetics Bolten Market Karachi Anarkali lahore - -Jewelry Bolten Market Karachi Anarkali Lahore - -Spices Jodiah Bazar Karachi Shaalam Lahore - - market
    • Informal Trade Routes• Major routes – India Dubai Iran (Bander Abbas) Afghanistan (Kandhar)  Chaman Karachi – India Dubai Iran (Bander Abbas) Afghanistan (Kabul)  Torkhum/Bara Lahore and Rawalpindi – India Iran (Bander Abbas) Torkham/Bara  Lahore and Rawalpindi – India  Karachi  Afghanistan  Peshawar (Afghan Transit Trade)• Minor Routes – Kashmir-Chakoti border – Regions adjoining Bahawalpur• Work in Progress – Qusai Fromal trade (Singapore and Dubai)
    • Fruits and Vegetables• At the time of survey team’s visit (February 2013) Kinoos and plums where being exchanged through Kashmir-Chakoti border• The volume of informal exchange was around 20-30 trucks per week and value of exchange amounted to PKR 540 million• There is anecdotal evidence for other minor crops
    • Textile and Clothing Sector• Sarees, Bridal dresses and other fancy suiting is being exchanged through:• Route: – Gordaspur  Karachi channel – Kheepas & frequent family travelers – via Dubai (Qausi formal)• The inward value of exchange is valued at PKR 370 billion
    • Auto Parts and Light Engineering• The spare parts being exchanged include gears, differentials, windscreens, pumps, and nozzles• The Tyres being exchanged included Indian brands such as Apollo, JK, MRF• Route: – Dubai-Iran-Afghanistan-Chamman/Torkham – Afghan Transit Trade – Iran-Balochistan-Karachi• Market share in local market: – Spare parts: 30% – Tyre: 70% (include majority refurbished tyre)• Monetary worth: – PKR 26.8 billion
    • Jewelry and Related Products• The informal exchange includes high grade artificial jewelry, bridal sets, bangles and lockets• The mode of exchange is through Keepas, family travellers, Afghan transit and Quasi formal trade via Dubai• Monetary worth: – PKR 8.8 billion
    • Cosmetic Products• Informally exchanged items include soaps, beauty creams, makeup kits.• The well know brands available include Godrej, Garnier and Liril products made in India• Routes – India  Afghanistan(Kandhar) Chamman Karachi – India  Afghanistan (Kabul) Peshawar (Bara/Thaurkhum) Lahore and Rawalpindi – Kheepas, Family visits• Monetary worth: – PKR 4.8 billion
    • Medicinal Products• Informally exchanged medicines include Aspirin, Amoxilin, Ampicillin, Cemetidine, Laxotanil, Co- trimaxazole, famotidine, Ciprofloxine, Rentidin• Route: – India  Afghanistan  Peshawar – India  Afghanistan Peshawar Lahore – India to Afghanistan (Formal)• Monetary worth: – PKR 5.9 billion
    • Tobacco Items• Informally exchanged items include Betel leaf (available in Pan mandi, Lahore)and ghutka (available in Nanakwara and Kharader, Karachi)• Route – Betel leaf coming through indirect channel • Kerala Mumbai Dubai Lahore – Kheepas and informal sea routes• Monetary worth: – PKR 4.4 billion
    • Herbal Products• Informally exchanged items include creams and hair oils• Route: – Kepaas and family travellers – Via Dubai (Qusai formal)• Monetary worth: – PKR 110.4 million
    • Spices & Herbs• Informally exchanged items include Black tea, Cardamom, Cinnamon, Jaiphal, Javitri• Route: – India  Afghanistan(Kandhar) Chamman Karachi – India  Afghanistan (Kabul) Peshawar (Bara/Thaurkhum) Lahore and Rawalpindi – Sri Lanka’s tea also available through Kashmir route• Monetary worth: – PKR 960 million
    • Estimated Informal Trade PKRSectors MillionFruit and VegetablesPharmaceuticalTextileSpices (inculdes tea and spices)Tobacco itemsAutomobileCosmetic itemsHerbal medicineJewelryPaper and paper productsCroceryTotal (Rs million)Total US $millionTotal US $billion
    • FDI in India: Prospects for Pakistan
    • Pakistan’s Outward Investment Flows• Pakistan to UAE: USD 670 million (FY 2012) – Annual Increase stands around 33 percent – Includes investment through routed channel• Pakistan to Afghanistan: <USD 700 million (FY 2011-12)• Pakistan to Malaysia: <USD 600 million• Pakistan to Bangladesh: <USD 30 million (since 2008-09)• Pakistan to Sri Lanka : >USD 0.15 million (July-Jan FY13)
    • Potential Pakistani Investment in India Sector Amount (Million US $) PercentageTextile 1,209 48Cement 327 13Hotel and Restaurant 276 11ServicesAuto Sector 202 8Sugar & Wheat Products 151 6Banking and Insurance 102 4Others 253 10Total 2,520 100
    • Trade-Investment Nexus• Investment creating trade – What Pakistan learnt from Investment in Bangladesh?• Trade creating investment – What Pakistan learnt from Trade with Sri Lanka?
    • Top 5 FDI Recipient Cities FY 2011-12 US $ Million 9,553 7,983 1,533 1,422 1,001 Mumbai New Delhi Bangalore Chennai AhmadabadSource: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India
    • FDI Flows to Neighboring Regions of Pakistan FY 2011-12 140 130 120 US $ Million 100 80 60 40 33 20 0 Chandigarh RajasthanSource: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India
    • Sector-specific Observations• Leather Sector • Hand-made products require specific labour • Pakistan can introduce technology • Capacity building of current leather units in India • Joint venture in tannery sub-sector
    • Sector-specific Observations• Engineering (and Auto Sector) • Pakistan has import demand of raw material from India • Can increase margins if subsidiaries in India are initiated • Pakistani producers if in India should be able to access local subsidies • Ease the screening process through mutual recognition of standards • Due to the large sunk costs involved Pakistani producers want to access local finance (particularly for working capital) • Anecdotal evidence of Mittal episode • Civil interrogation of several types (excessive red tape)
    • Sector-specific Observations• Surgical and Sports Goods • Need for a strengthening of competition policies on both sides for preventing imperfectly competitive practices • In international market Pakistan selling soccer balls for USD 2.50 versus India at USD 2.48 • Pakistan also supplies to China however did not physically invest due to Intellectually Property  specific local technology used in the production process
    • Sector-specific Observations• Food Processing Sector • Containerization through railways • Demand continuously outpaced supply • Integrated check post reaching full capacity • For import of raw material need for enhanced presence of plant departments on both sides • City specific restrictions will curtail supply chain
    • Sector-specific Observations• Social Services Sectors • Education • Visa policy for faculty and students • How many Pakistani faculty members in South Asia University, New Delhi? • Difficulty for Pakistani students to open bank accounts • Registration with national and local education authorities • Opening up of cellular services, online conferencing and e- commerce • Direct courier services missing • Health • Expedient visas needed for patients • Need permission for special private flights • Secure direct video conferencing protocols
    • Framing of Recommendations Need to open Investment-specific Privilege visa regimeinvestment through Dispute resolution for investors automatic route mechanism IntegratingLabour mobility and transport and Access to finance work visas warehousing infrastructure Legal cover in the event of political Double taxation Currency Swapupheaval/sovereign issue Guarantee How have both countries performed on Bilateral Investment Treaties?
    • Layers of Policy Dialogue• Board/Ministry of Investment  automatic route of investment• Ministry of Industries  Advanced recognition of standards/inputs and production processes• Ministry of Interior  synchronizing visa policy with flow of merchandise• Ministry of Foreign Office  ensure compliance of above mentioned
    • Way Forward
    • Trade in Services– Potential • Over half of both economies are led by services sector • Youth bulge will require new services in education, IT and health sectors • Growth domestic commerce will fuel demand for transport, communication and finance– Issues • Double Taxation Issue • Visa Regime
    • Trade in Energy– Power Sector • Transmission lines through Wagah-Attari border • Surplus pockets in Indian Punjab (and downwards) • Pending negotiations on tariff– Gas Sector • Longer term vision required • Gas pipelines will require security and order in the region • Pending negotiations on tariff 46
    • Commitment at SAARC-level• Joint techno-economic evaluation of opportunities and determination of pre-requisites• Establish financially sustainable energy entities, promote competition and ensure cost-reflective pricing of energy goods and services• Develop project-specific legal/institutional arrangements• Seek advice and support from multilateral institutions particularly in drawing experiences from Southern Africa Power Pool, Nordel/Nord Pool and electricity trade in Europe 47
    • SAARC Energy Supply Chain EfficientPetroleum Infrastructure energy products development markets Trade in Decentra power lized electricit y solutions
    • Thank You vaqar@sdpi.orgwww.sdpi.org, www.sdpi.tv 49