SCO: What it means for trade

Late last week, neighbouring rivals India and Pakistan were awarded memberships into the Shanghai Cooperation Organization (SCO) to bolster cooperation between all member countries – Russia, China, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan – in the fields of security, energy, and trade. No doubt that this development is a step in the right direction. But keeping the politics aside, let’s have a look at Pakistan joining the SCO from a purely trade standpoint.
The numbers reveal that for the 11 months ended FY15, SCO countries (including India) were the destination for over 10 percent of our total exports while forming around 19 percent of total imports. But a closer look reveals that the only heavy hitter in this group of countries is China; our most friendly neighbour accounts for 8 percent of our total exports and 15 percent of total imports. This means that the remaining lot account for a meager 2 percent of exports and 3 percent of imports. We already have an FTA with China. So what did we gain from joining the SCO?
Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan, together account for less than 0.1 percent of Pakistan’s exports, and even less so of imports; our trade with these countries is negligible, so they can be excluded altogether. What we’re left with then, are Russia and India.
The trade potential between Pakistan and India has been estimated at between ten to twenty times the current trade levels. The impediments lie in mistrust between the two countries, visa restrictions, inadequate transportation links, infrastructure constraints, and lack of financing facilities. Pakistan could greatly benefit from India’s fuels, minerals, hides and skins, steel, and could find a huge market in its 1.2 billion populations.
Similarly, trade with Russia isn’t also reflective of the true potential between the two countries; the Russian market holds great potential but hasn’t been fully tapped because of lack of infrastructure in terms of necessary bilateral trade agreements and trade offices, according to the TDAP. Russia’s main exports are fuels and metals, both of which Pakistan imports in spades.
Thus, there does seem to be some benefit to be accrued from Pakistan joining the SCO from a trade standpoint. Recently, Modi and Nawaz have been in the news for holding talks, but this isn’t something we haven’t seen before. So, the benefit might only come in the form of enhanced trade with Russia; last week, the TDAP requested the finance minister to open official banking channels with Russia to enhance bilateral trade. Here’s hoping that we can make both Russia and India bigger trading partners.