Monday, March 07, 2005

fwd: Trading with neighbours

One more of Pakistan's problems. Dawn is one of the better newspapers in
Pakistan. FYI

Subject: Trading with neighbours
Date: Mar 4, 2005
> Dawn (Pakistan)
> 03 March 2005 Thursday 21 Muharram 1426
> Trading with neighbours
> By Sultan Ahmed
> Pakistan's trade with countries in the region continues to be small
> despite its need for a larger volume of trade with them, and its
> location in a strategic area. Neither religious affinity, nor
> neighbourhood and not even political or economic alliances have
> helped the country to achieve the volume of trade set from time to
> time with each of them hopefully.
> When it comes to trading with India it may be argued we had three
> wars with it in the first 25 years after Independence, and a cold war
> that lasted, with Kashmir being the central divisive factor, for
> almost 30 years.
> In such a tense environment, meaningful trade with India was not
> possible. And even the SAARC of seven South Asian nations which has
> lasted for 20 years now has not made much of a difference when it
> comes to active economic cooperation between India and Pakistan.
> In the case of Iran we have not only religious affinity but also
> commonality of history and traditions. And the two countries have
> been members of blocs like the Cento, RCD and, following the break up
> of Soviet Union, of the ECO of ten Muslim states. That makes the
> close relationship between the two countries as old as 50 years. And
> yet the volume of trade between them is only 400 million dollars both
> ways. Now the leaders of the two countries have now resolved to raise
> the volume to one billion dollars.
> Pakistan's economic relations with Afghanistan had a chequered
> history because of unsettled conditions there. The Russian occupation
> and then the US dominance altered conditions there radically.
> A large volume of goods have exchanged between the two countries
> unofficially or through smuggling, which included drugs from the
> poppies grown in that country by the poor farmers.
> The Afghan transit trade with its long list of goods earlier had
> always been a contentious issue as most of the tax-free goods usually
> came back to Pakistan quick and competed with the tax paid imported
> goods or locally manufactured items with heavy duties in Pakistan.
> If the western manufactured goods like electronics came through
> Afghanistan earlier, the Japanese and Korean goods came later through
> the same route followed by the Russian manufactures during Russian
> occupation of Afghanistan.
> Things got greatly mixed up during the Taliban rule and later came
> the Americans along with President Karzai. Now prime minister Shaukat
> Aziz hopes the Afghan transit trade list would end soon and Pakistan-
> Afghan trade would rise to one billion dollars which seems a distinct
> possibility.
> Several constraints come in the way of large scale trade between
> Pakistan and the Central Asian states, including the fact that the
> latter are rather new to the market economy.
> Road links between Pakistan and those countries are not good either,
> and the proposed road development schemes are slow to materialise.
> Nor are our traders very familiar with those countries and their
> traders. But they are members of the ECO, and they reaffirm the need
> for trade on a preferential basis from time to time earnestly, but
> without adequate follow-up.
> But now in a world without textile quotas and where WTO regime is
> becoming more assertive and commercial competition is constantly on
> the increase, all the countries in the region feel the need for
> larger volume of trade between them.
> On the other side if there is no formal trade agreement between
> Pakistan and India to step up their volume of trade that does not
> mean that exchange of goods between them is not taking place.
> Smugglers on both sides are carrying on informal trade to the extent
> of one to two billion dollars. India's commerce minister Kamal Nath
> says the volume of trade between India and Pakistan carried on
> through third parties is more than double the formal trade between
> them. He wants the two countries to gain by formal trade as well as
> from duties instead of the latter going to other countries. No one
> has disputed him.
> Joining the government leaders in this area are the top businessmen
> who have been visiting each other's countries in large numbers and
> have formed a joint chamber of commerce to boost and broad base the
> trade. They want such initiatives to ultimately result in mutual
> industrial investment and deepen their economic involvement.
> The proposed Iran-Pakistan-India gas pipeline is only the first
> reflection of the benefits of cooperation between India and Pakistan
> in association with other countries in the region.
> The proposed Turkmenistan, Afghanistan, Pakistan, India gas pipeline
> is another indicator in that direction. Both countries need gas in
> increasing quantity to meet their future needs of rapid economic
> growth.
> Hence, following Kamal Nath's visit to Islamabad and a meeting of the
> foreign ministers of the two countries, a joint study group was set
> up with the commerce secretaries of the two countries as co-chairmen
> to identify the deterrents to large scale trade and specify measures
> to promote such trade.
> The committee met in New Delhi for two days last week and decided on
> further measures to remove road-blocks to trade on a large scale.
> They are not moving in an idealistic or hasty manner but
> pragmatically.
> The joint study group discussed the trade issues threadbare for two
> days and decided to report their deliberations to their principals
> for final decisions on contentious issues.
> And the group constituted two working sub-groups which will deal with
> customs cooperation, trade facilitation and removal of non-tariff
> barriers. Promotion of trade between the two countries has now become
> part of the composite dialogue.
> The officials separated the apparent political issues in respect of
> trade, like Pakistan granting the most favoured nation status to
> India and facilities for India for transit trade with Afghanistan, to
> be taken up by the political leaders.
> Pakistan found that in spite of India giving the MFN status to it
> there has been little of export from Pakistan to India. But during
> the first six months of the current financial year ending September
> last exports from India to Pakistan increased by 256 per cent - to
> 246 million dollars from 69 million dollars in the preceding year.
> The upward trend was truly satisfying for India.
> The realization came to the officials on both sides that although
> businessmen were keen on promoting large scale trade between the two
> countries they did not know enough about the latest laws and rules
> governing trade in both the countries, and that needed to be updated.
> The enthusiasm for larger trade has to be matched with real insight
> into the conditions for trade in both countries, and that vacuum
> needs to be filled for the trade to move fast on both sides.
> During prime minister Shaukat Aziz's visit to Iran last week three
> significant agreements were signed between the two countries to
> enlarge the scope of economic cooperation.
> It may be said the spirit of the agreements was the same that
> motivated earlier agreements, but this time with a pragmatic prime
> minister like Shaukat Aziz on Pakistan side they are determined to
> operationalize the agreements and they have quantified the extent of
> cooperation between them.
> The first agreement was to set up a joint investment company with a
> paid up capital of 25 million dollars which will become operational
> in 90 days. It will promote investment and broaden the areas of
> industrial and economic cooperation. The second agreement would
> provide Iran's agricultural support and enhance the export of
> Pakistan's fruits, mainly kino and mangoes to Iran.
> The two countries also signed a protocol to amend the Preferential
> Trade Agreement and operationalize the tariff and trade regime. An
> annual trade target of one billion dollars was also set in place of
> the current trade of 400 million dollars.
> They also signed an MOU to follow up various decisions taken during
> the bilateral talks. Following their decision Iran would provide 200
> million dollars credit to Pakistan for the development of
> infrastructure, mainly railways and road network.
> It was also decided to set up a committee of the commerce ministers
> to devise an action plan for trade and removal of tariff and non-
> tariff barriers. Both the countries have also decided to have
> meetings of the joint economic commission every six months.
> Iran and Pakistan have also agreed to have a meeting of the petroleum
> ministers of both countries plus the Indian petroleum minister Mani
> Shankar Aiyar on March 19 in Islamabad to discuss the gas pipeline
> from Iran to India via Pakistan, which Shaukat Aziz describes as the
> pipeline of peace.
> It seems odd that while we seek a Free Trade Area agreement with the
> distant US we have so little trade with our Muslim and non-Muslim
> neighbours and even Saarc partners. But we may argue that the US is
> Pakistan's largest export partner receiving 23.9 per cent of our
> exports and hence an FTA agreement with the US is important.
> Pakistan's commerce secretary Tasneem Siddiqi this week flew to the
> US to begin preliminary talks in Washington for the FTA which are
> expected to be protracted.
> We are also supposed to sign an FTA agreement with China during the
> visit of the Chinese prime minister later this year to inaugurate the
> Gwadar Port, the construction of which is assisted by China.
> And Pakistan has already signed its first FTA agreement - with Sir
> Lanka - and we are supposed to import far more tea from Sri Lanka
> following the heavy import duty on Pakistani rice by Kenya from which
> we import a large quantity of the tea.
> We have been toying with the PTA and FTA within the Saarc orbit as
> well. While the member countries have signed the needed agreement
> they are too slow to implement their key provisions. However, trade
> with Afghanistan has improved a great deal. And president Karzai now
> wants to join Saarc, and Shaukat Aziz is very supportive of that
> move, which India too would welcome so that it could have larger
> trade with Afghanistan.
> In fact larger mutual Saarc trade and higher economic cooperation
> depend on the normalization of relations between India and Pakistan
> which are making a slow progress.
> While the businessmen, artists and the people as a whole are keen on
> having a larger cooperation and mutual understanding, the governments
> are slow to move from their stated positions on major issues,
> particularly the key issue of Kashmir. A major question now is: how
> can the government get around this major obstacle to peace and
> harmony in the region?
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