Improving Indo-Pak Relations through Bilateral Trade

Posted on March 16, 2012 in Business and Economy, GlobeScope

By Waleed Tariq:

While consecutive Indian and Pakistani governments have often repeated the desire for peaceful relations, reaching over a comprehensive agreement over its long-standing disputes still does not seem to happen, any time soon. Therefore, developing stronger economic ties between the two countries is a way forward.

Since the Partition, both India and Pakistan have been unwilling trading partners, however, recently, trade relations between the two appear to be improving significantly as Pakistan is likely to grant India the Most Favoured Nation (MFN) status. Under the World Trade Organization (WTO) agreements, all member states are obliged to grant equal treatment to member countries with respect to trade in goods. India granted Pakistan MFN status in 1996, but Pakistan held back, citing “strategic considerations”.

So, does Pakistan’s offer matter?

In my opinion, yes it does. It signals determination and goodwill to resolve issues, and build, at last, peaceful and productive economic and political relations amongst the two.

Realization upon Islamabad has come that the region cannot make full use of its economic potential unless peace is given a chance. And to a greater degree, there are encouraging signs so far in terms of the present political configuration in the country is concerned. While the extremist elements have opposed, the dominant political parties in the National Assembly — Pakistan People’s Party and Pakistan Muslim League (N) — have both favoured trade liberalization with India.

As per the Pakistan’s Federal Minister for Commerce and Industry Makhdoom Amin Fahim ‘The purchasing power of Pakistani consumers will increase with the grant of MFN status to India because they will have access to goods at competitive rates.’ The local industry would gain access to the large Indian market with a customer base estimated between 300 and 500 million consumers’. (

Positive sum game for both the countries?

A positive sum game occurs when no one country gains at someone else’s expense and the sum of positives and negatives (wins and losses) are advantageous for both. A fine example of this is the mutually beneficial gains from trade in goods and services between nations. More trade between India and Pakistan will lessen uncertainty, with peace dividends for South Asia and the rest of the world.

Opening up trade will add a whole new dimension of opportunities to the relationship between the two countries. At the national level, the peace dividend is expected to build up as a result of turning aside, the resources from security to development. The nuclear armed rivals have fought three wars since 1947, but when trade between countries improves, the threat of military action is relatively reduced as they have a greater economic stake than to indulge in armed conflicts, i.e. China and the USA. Moreover, increasing trade can significantly raise Gross Domestic Product (GDP) and household incomes in both the countries.

As there is a general agreement over the proposed measures for reducing trade barriers between the business communities on both sides of the border, there is a need of broader constituencies, and greater lobbying in each of the states for an increase in bilateral trade. Trade will obviously not solve all the problems, but will prove to be a catalyst in the hope for peace and lowering of tensions, which certainly is in the interest of the arch-rivals.

Waleed is the Pakistan Lead of Youth Ki Awaaz.