Recent developments have rekindled hopes for resumption of Indo-Pak dialogue. Building on the border ceasefire agreement last month, the two countries are slowly resuming bilateral exchanges. It has started with Pakistani delegation’s long-awaited visit to India for Indus Water Treaty talks earlier this week. Meanwhile, PM Modi has sent his goodwill on Pakistan Day; he also wished PM Khan well after the latter’s Covid-19 diagnosis. On cue, leadership in Pakistan has also been emphasizing regional peace.

After several years of cold gestures and hot borders, it doesn't matter who blinked first. What is important is to create an environment where the two countries can discuss mutual apprehensions, minimize irritants and seek common ground on shared challenges. Both countries already have a lot on their plate, what with a raging pandemic, economic sluggishness, climate disasters of greater frequency and intensity, and the deadly prospect of a prolonged civil war in Afghanistan disturbing peace and stability in South Asia.

The two nations can create goodwill by collaborating on those issues. It helps that the top foreign policy and national security officials in the Biden administration have dealt with the two South Asian nuclear powers before. And there are early signs from their interactions with both countries that these officials are placing a premium on forging cooperation rather than stoking conflict between India and Pakistan. Biden looks keen to close shop in Afghanistan, but only after a peace deal. Indo-Pak thaw helps on that front.

What comes next is the question on the minds of many people. Earlier this week, Bloomberg News reported that the border ceasefire was “only the beginning of a larger roadmap to forge a lasting peace between the neighbors”. And the upcoming confidence-building measures include posting of high commissioners in each other’s capitals, followed by talks on trade resumption, and then talks on Kashmir.

While posting of top diplomats may not be a big deal, the issue of trade resumption must be a top priority. Official trade, in which India had been scoring a significant surplus, has suffered in the wake of hostilities. After the Pulwama attack in February 2019, India withdrew Pakistan’s MFN status and imposed 200 percent customs duty on all Indian imports from Pakistan. Whereas Pakistan was happy to oblige six months later when India’s Kashmir annexation forced Islamabad to institute a complete trade embargo with India. Later, exceptions were made for few critical imports such as life-saving medicines.

Calculations based on SBP data show that Pakistan’s exports to India used to average about $400 million per annum before trade ties eventually broke down in 2019. Since then, Pakistan’s exports first dipped to $115 million in CY19, and then reached a paltry $14 million in CY20. Pakistan’s imports from India were about $2 billion in CY18 in the pre-embargo period. Once relations spiraled, imports dropped first to $1 billion in CY19 and later dipped to $185 million in CY20.

Pakistan has lately been exporting to India about 4 percent what it normally used to, but it is importing about 9 percent (more than double the rate of reduced exports) of what it typically would. Given that India’s exports have the capacity to still reach Pakistani ports via indirect channels through the so-called “circular trade” from third countries’ ports including Dubai, Hong Kong and Singapore, it is clear which side is the main loser from trade suspension.

While there is now an opening to address this issue, Pakistan’s trade diplomats will do well to take up the perennial issue of non-tariff barriers that have been faced by Pakistani exporters in the past. Over the past decade and a half, while Indian exports to Pakistan have grown manifold, Pakistan’s exports to India have been stuck. But first, it remains to be seen if the current bilateral détente will spill over to broader talks on trade normalization between the two countries.

Comments

Comments are closed.