India and Pakistan’s bilateral trade is only valued at a little over $2 billion, but it could be as high as $37 billion, says a World Bank report. The report, titled, “Glass Half Full: Promise of Regional Trade in South Asia”, released on Wednesday in Islamabad targeted four of the critical barriers to effective integration.
The four areas were tariff and para-tariff barriers to trade, complicated and non-transparent non-tariff measures, disproportionately high cost of trade, and trust deficit, the report stated.
While talking to a group of reporters on key points of the report at the World Bank office, lead economist and author of the document, Sanjay Kathuria, said it was his belief that trust promotes trade, and trade fosters trust, interdependency and constituencies for peace. In this context, he added, the opening of the Kartarpur corridor by governments of Pakistan and India would help minimise trust deficit.
He said such steps will boost trust between the two countries. For realising the trade potential between Pakistan and India, he suggested the two countries start with specific products facilitation in the first phase.
Kathuria said Pakistan had least air connectivity with South Asian countries, especially India. Pakistan has only six weekly flights each with India and Afghanistan, 10 each with Sri Lanka and Bangladesh and only one with Nepal, but no flight with the Maldives and Bhutan.
Compared to this, India has 147 weekly flights with Sri Lanka, followed by 67 with Bangladesh, 32 with the Maldives, 71 with Nepal, 22 with Afghanistan and 23 with Bhutan.
The report recommends ending sensitive lists and para tariffs to enable real progress on the South Asia Free Trade Agreement (Safta) and calls for a multi-pronged effort to remove non-tariff barriers, focusing on information flows, procedures, and infrastructure.
Kathuria said reducing policy barriers, such as eliminating the restrictions on trade at the Wagah-Attari border, or aiming for seamless, electronic data interchange at border crossings, would be major steps towards reducing the very high costs of trade between Pakistan and India.
He stated that the costs of trade were much higher within South Asia compared to other regions. The average tariff in South Asia was more than double the world average.
South Asian countries have greater trade barriers for imports from within the region than from the rest of the world.
He said these countries impose high para tariffs, which are extra fees or taxes on top of tariffs. More than one-third of the intraregional trade falls under sensitive lists, which are goods that are not offered concessional tariffs under Safta. In Pakistan, nearly 20pc of its imports from, and 39pc of its exports to, South Asia fall under sensitive lists.
World Bank Country Director for Pakistan Illango Patchamuthu said Pakistan is sitting on a huge trade potential that remains largely untapped. “A favorable trading regime that reduces the high costs and removes barriers can boost investment opportunities that are critically required for accelerating growth in the country,” he said.
World Bank’s Director Macroeconomics, Trade and Investment Caroline Freund said Pakistan’s frequent use of tariffs to curb imports or protect local firms increases the prices of hundreds of consumer goods, such as eggs, paper and bicycles.
They also raise the cost of production for firms, making it difficult for them to integrate in regional and global value chains, she said. “Pakistan needs to promote export promotion policies to ensure sustainable growth.”
On the issue of currency devaluation, she said undervalued currency is an anti-export measure. She suggests exchange rate should be determined by the real market trend.