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Why Pakistan Needs Enhanced Regional Integration With India: Trade, Armed....


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Why Pakistan Needs Enhanced Regional Integration With India: Trade, Armed....

  1. 1. Mohammad Fayzan Qadir Student ID: 12U00649 Sec: D
  2. 2. Key Words  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.
  3. 3. Significance:  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 agriculture, textile.  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 reciprocate.
  4. 4. Macroeconomic Indicators.  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.
  5. 5. Continued.  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 from 17-35%.  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.
  6. 6. SAFTA-A Prospective.  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 developed countries.  Easily notch up the level of human skills, foreign direct investment, new technology.  Openness to have a positive impact on economic growth by yielding higher investment.
  7. 7. Continued.  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- border investment.  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.
  8. 8. Environment.  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.
  9. 9. Armed Conflicts.  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 temperatures.  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.
  10. 10. Rationale: 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 France.  Mercosur, redefining trade between Argentina and Brazil. Similarly US and Mexico through NAFTA.
  11. 11. Trade Liberalization.  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 liberalize trade.  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.
  12. 12. 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- party hands.  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.
  13. 13. 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.
  14. 14. Findings  The region could be converted into a free trade zone if agreements like SAFTA are committed to.  Trade liberalization would see 25% increase in gains on Pakistan`s end.  Cutting on illegal trade and implementation of SAFTA combined increases trade by 60%  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 factor.
  15. 15. Continued.  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 fostering animosity.  Also, Kargil issue costs way too much to both countries expenditure and has to be concluded through Composite Dialogue.
  16. 16. Pak-India Trade: Ramifications of Political Tensions.
  17. 17. References.  Imran, Pasha.(September 2012).The Prospect for Indo-Pakistan Trade. The Lahore Journal of Economics., 293-313/  SAARC Database.(2010). Database of Macroeconomic and HRD Indicators in SAARC.  Sayeed, Asad.(December 2011). Gains from Trade and Structural Impediments to India-Pakistan Trade.  Abbasi, Arshad.(2012). Indus Water Treaty Between India and Pakistan.  Indurthy, Ratnam.(2011). Kashmir Between India And Pakistan. And Intractable Conflict 1947/  From Surprise to Reckoning: The Kargil Review Committee Report, pp. 214–219.  Arshad, Mohammad.(2012). Modeling Trade, Investment, Growth and Liberalization: Case Study of Pakistan.  Samina. Kazmi.(2007). Economic Effects of Recently Signed Pak-China Free Trade Agreement.  Trade Between Pakistan and SAARC Countries. SAARC Report.  Mehta, Pardeep.(2010). Trade Relations Between India And Pakistan. PILDAT/
  18. 18. Continued.  Biilal, Sanoussi.(August 2005). Can EU Be A Model of Regional Integration.  Chapter IV. World Economic and Social Survey. Economic Impact of International Migration.  Fatima.Phillip.(2007). The Challenges of Potential Pakistan India Trade. World Bank Report.  Noorani, Tasneem.(2012).MFN Status and Trade Between India Pakistan.  Sarfraz, Hamid.(2012). Revisiting the 1960 Indus Waters Treaty.  Hanif, Mohammad.(Unknown). Economic Integration in South Asia: Pakistan's Perspective. Islamabad Policy Research Institute.  Raihan, Salim.(2013). India-Pakistan Economic Cooperatio Implications for Regional Integration in South Asia.  Chapter 2. Trade Integration Between India And Pakistan.  Tribune Blogs.(2013).Trade with India for a Better Pakistan. Available at:  News Pakistan(2011). Trade Between India and Pakistan SDPI Seminar. Available at:  Academia(2010). Trade between India and Pakistan has the.. . Available at:
  19. 19. Continued.  Pakistan Today(2013). MFN Status to India Could Raise Pakistan`s GDP. Available at: to-india-can-raise-pakistans-gdp-by-2-ipp-research/  Academia. Informal and Formal Integration. Available at: egration_Model_Applicable_to_ASEAN  The Hindu(2002). The Cost of War.  The Nation(2013). Pakistan India Ties to Pave way for S Asia Trade: Available at: online/business/13-Jan-2013/pak-india-ties-to-pave-way-for-s-asia-free-trade- zone  SDPI Research and News Bulletin.(2005). Can Illegal Trade between Pakistan and India be Eliminated. Available at :,%20No.%203%20( May%20-%20June%202005)/can_illegal_trade%20.htm  Zee News(2013). What Pakistan can Gain from Giving India MFN Status. Available at: by-giving-mfn-status-to-india-says-expert_822875.html  SDPI(Unknown). Pakistan and India Informal Trade. Available at: