Trading with India: some current impediments for Pakistan

• Published date: 18 March 2019
• Date: 18 March 2019
• Pages: 39-55
• DOI: https://doi.org/10.1108/JITLP-04-2018-0017
• Author: Rabia Manzoor,Abbas Murtaza Maken,Shujaat Ahmed Syed,Vaqar Ahmed
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Trading with India: some current

impediments for Pakistan

Rabia Manzoor,Abbas Murtaza Maken,Shujaat Ahmed Syed and

Vaqar Ahmed

Department of Research, Sustainable Development Policy Institute,

Islamabad, Pakistan

Abstract

Purpose –This study aims to examine the possible gains andchallenges for the enhancement of bilateral

trade ties between Indiaand Pakistan. It is interested specifically in analyzingand deliberating an attempt to

identifythe key challenges and bottlenecks in cross-border trade.

Design/methodology/approach –This paper offers in-depth case study of trade between India and

Pakistan using time-series data and through various stake holders' interviews. As further discussed in the

paper, the data investigationand interviews highlight impediments in India–Pakistantrade from trade policy

to other policiesinvolved in this process.

Findings –Based on time series data and stakeholders’interviews, the study concludes that poor trade

logistics and abysmal transport infrastructure, high tariffs and non-tariff measures, lengthy customary

procedures, heavy import duties, port restrictions, lack of appropriate storage facilities, strict visa regime,

financial transaction barriersand lack of telecommunication facilities are the major challenges in the way of

regionaltrade.

Originality/value –The study proposessome key reforms and policy measures to boost the formal trade

to minimize the trade obstacles such as public–privatepartnerships and inclusion of private sector in a joint

trade commissionto strength the business relations between the two countries.

Keywords Investment, Non-tariff measures, Trade logistics, Transport infrastructure

Paper type Research paper

1. Introduction

The current body of literature on regional trade in South Asia suggests that there is often

less trade among neighboring countries than there is with geographicallydistant countries

(Ahmed et al.,2014). Perhaps, this notion also applies to the trading relationship between

India and Pakistan. Even though both countries have relatively large economic size within

South Asia, they have a less than optimal levelof bilateral trade, which stands around 3 per

cent of the total trade volume. The volume of exchange as of 2010, stood at US$2.6bn –far

lower than the estimated trade potential of US$20bn(Taneja et al., 2016). Despite numerous

efforts to promote trade between India and Pakistan, there has not been tangible progress

(Batool and Ahmed, 2014).

Trade also takes place either through informal channels or personal baggage scheme

through the land borders or third countries via UAE, Singapore and Thailand. The actual

volume of informal trade is unknown, but there are different informed “guesstimates”of

informal trade betweenIndia and Pakistan (Ahmed et al.,2014).

Export categories may changeif tariff and non-tariff measures are lowered and informal

goods are allowed to gradually come through formal channels. Additionally, this will also

require addressing the complex, non-transparent or divergent regulatory requirements (e.g.

custom formalities, technicalregulations and sanitary standards) that markedly increase the

Trading with

India

39

Received23 April 2018

Revised11 September 2018

26September 2018

3 October2018

Accepted3 October 2018

Journalof International Trade

Lawand Policy

Vol.18 No. 1, 2019

pp. 39-55

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-04-2018-0017

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1477-0024.htm

transaction costs of trade, thereby encouraging traders to escape formal procedures and

duties (e.g. in Pakistan, traders often lack information on often changing regulatory

requirements and facelengthy and costly custom delays when trading formally).

Informal cross-border trade can also arise due to lack of land routes and banking

facilities, dissimilar custom procedures, visa restrictions, labeling and packaging

requirements and the excessive checkingof consignments among others. Finally,weakness

in the “rules of origin,”resulting in traderouted through a third country, results in leakages

in transit trade in turn further distortingdomestic policies and lead to higher indirect taxes

and give rise to illegal transportof goods.

This study therefore is an attempt to identifythe key challenges and bottlenecks in cross-

border trade. Section 2 describes literature review which resulted in identification of

research gap. Section 3 presents methodologyand findings focusing on identification of key

challenges and bottlenecks in cross-border trade between India and Pakistan. Basedon the

results, focus will be on reforms and policy measuresfor formalizing and encouraging trade

in both countries inSections 4 and 5. Section 6 concludes.

2. Literature review

Bilateral trade between Indiaand Pakistan seems to be one of the challenging and daunting

tasks for policymakers of the present and past. Hiccups and measures in this regard are

mostly associatedto:

retaining the existing trade;

scaling up the trade;

India–Pakistan trade and investment cooperation.

So when one looks at the challenges in bilateral trade, it is to note that despite creation of

South Asian Cooperation (SAARC) in 1985 and South Asian Free Trade Area (SAFTA) in

2004, economic integration in South Asia has been far surpassed by the economic activity

witnessed in other regions due to hostility and volatile nature of relations (Taneja et al.,

2015).

Similarly, there are several regulatory impediments in increasing the level of cross-

border trade in South Asia in general and trade between India and Pakistan in particular

(Sahai and Laxmi, 2014). Taneja et al. (2013) pointed out the limited transportation routes

and vehicles in addition to the negative lists and bureaucratic hurdles involving transport

protocols and procedural clearances along with transportation costs as hindrance to

bilateral trade.

To achieve benefits from pre-existingbilateral and regional frameworks for further help

in sustaining politicaland economic linkages, there is need to have focus on:

logistics;

management of positive and negative lists; and

product diversification (Dash, 2013).

Further to scale up trade, continuity in the existing volume can be achieved through the

elimination of non-tariff barriers to facilitate the cross-border movement of goods and

services and help cementa cordial relationship both the countries (Ali et al., 2015).

Beside continuity, a politically stable Pakistan with an improved infrastructure and

power system is deemed essential to economic development and trade promotion in the

country. Specifically, measures by federal and provincial governments to improve the

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