Guest Lecture on “Feasibility of Granting Transit Facility to India for Afghanistan and CARs.”

Guest Speaker Dr Kamal Monnoo  Member BOG IPRI and Director Samira Fabrics, gave a presentation on April 17, 2014 on “Feasibility of Granting Transit Facility to India for Afghanistan and CARs” to IPRI scholars at IPRI Conference Hall.

Dr Monnoo began his presentation by raising the question whether or not and how to grant India transit facility via Pakistan for Afghanistan and the Central Asian Republics.  He said the feasibility of granting trade facility to India was not limited to a mere bilateral arrangement between Pakistan and India, but carried much wider regional implications. The eight member countries of the South Asian Association for Regional Cooperation (SAARC) accounted for around a quarter of humanity, with a population of nearly 1.7 billion. However, SAARC only had a combined share of 3% of world GDP, roughly 2% of world exports and imports and around 1.7% of world inward FDI.Although, the South Asian economies were now increasingly looking to exploit the benefits of greater market openness, their performance lagged behind other regions. Intraregional trade for the SAARC region stood at 2% of GDP compared to 40% for the South East Asian region. The trade as a percentage of GDP had risen from 19% to 30% between 1994 and 2010, but was still well below other regions like East Asia (58%) and Europe (66%). To address this challenge of low trade and GDP in the region the logjam of relations between Pakistan and India must be resolved first.

He said that China must be taken as an inspiration thathow it conducted itself in neighborly disputes in the East China Sea with Japan and in the South China Sea with the Philippines.Under Deng Xiaoping, China truly began to emerge as a global economic power; the policy on territorial disputes was set aside and worked with the opposing party to exploit mutual resources and potential. So if countries around Pakistan could cast aside territorial disputes (at least in the short term) to address poverty and lack of development at home, so why couldn’t Pakistan and India?

On the question that what should be the framework of mutual cooperation, Dr Monnoo said that there were lessons to be learned from successful examples of regional trade, Free Trade Areas (FTAs) and common currency zones. The underlying benefits of integrating markets with larger populations became visible over longer term in shape of emergence of optimized and highly competitive regional supply chains. On the other hand, the challenges of integrating such markets and supply chains mainly came down to the sheer willingness and ability of nations to balance national interests with the benefits of bilateral economic linkages. The three key issues that emerged from this were: 1) identification of the existing frameworks of regional, sub-regional and bilateral cooperation, 2) reflections on the path-making. Here, China-Japan- Republic of Korea (ROK) Free Trade Talks (FTT) could be used as a model, and 3) implications of Pakistan-India economic linkages and an invitation for new thinking on SAARC integration.

However, in the context of South Asia and especially in the case of Pakistan and India, there existed some serious security concerns.India had never shown concern about the necessity of creating long term important linkages such as technology transfer, joint resource management mechanism, cross border investments, financial connectivity, regional anti-trust treaties, equal opportunity amongst SAARC nations, and devising joint regional legislation on rules of doing business. India was eager to gain direct access to Central Asia and Europe via Pakistan, but not willing to offer any such reciprocal accessibility to Pakistan on its eastern and northern sides. The Indo-Afghan Agreement, which covered a wide ambit from humanitarian assistance ranging from education to capacity development, portrays India’s policy that still remained more focused on isolating or encircling Pakistan than to become its vibrant economic partner.

Focusing on recent developments, Dr Monnoo said that in 2012, three key bilateral agreements regarding non-tariff barriers were signed but they had not been implemented. In the last quarter of 2013, Pakistan announced about granting MFN (most favored nation) status to India but soon the MFN was named as NDMA (non-discriminatory market access) and later again re-named as NDMARB (non-discriminatory market access on a reciprocal basis).The cabinet meeting scheduled on the last Friday of March 2014 to officially adopt the NDMARB never took place as the entire Indian elections were myriad with Pakistan bashing and India’s suffering Muslim population. Even India’s incoming government may have refused to accept Pakistan’s offer. Under the circumstances, government in Pakistan would prefer to wait till the post-election situation in India becomes clear and would like to build relations with new Indian government. Also, this delay allows the government time to work out a strategy for improving Pakistan’s manufacturing competitiveness vis-à-vis India, before NDMARB is formally granted to that country.

 Dr Monnoo also mentioned about the “Game Theory” in context of Pakistan-India relations. The game theory referred to a syndrome where any one of the two parties refused to adopt a beneficial proposal simply because the other also stood to benefit from it.  Pakistan had over time fell victim to it. But in world economies it had been seen that as the bilateral economic activity increased, lower gains today tended to ultimately grow overtime. Mutual dependency grew and the two economies got inter-linked cum inter-locked through market mechanism, cross investments, and consumerism providingdistinct advantage to the smaller party. Numerous examples could be given to highlight this phenomenon, such as USA and Japan, USA and Canada, Russia and the European Union, USA and India and lately China and India.

At the end of his presentation, Dr Monnoo gave following recommendations:

• A bilateral commission should be set up to oversee Pakistan-India economic relationship, with a focus on addressing non-tariff barriers; opening up more land routes for trade; and promoting more cross-border travel.
• A regional trade forum (comprising members of the private sector, academia, and the media) should be formed to monitor this bilateral commission.
• A dispute resolution/grievance redressal mechanism should also be established to accommodate inevitable disagreements.
• Composite dialogue process must be kept alive to avoid criticism that political and territorial issues have been compromised for the sake of bilateral trade normalization.
• To ensure that security and political tensions are not allowed to derail, trade diplomacy should continue.
• Empowerment and engagement with the private sector and keeping media as a watch dog is necessary for free and fair trade.
• Putting numerical value on cross border facilitations and acknowledgement of accreditations by the trade agencies on both sides should be done.

Dr Monnoo concluded the discussion by saying that the delay in granting MFN status to India would politicize the issue. The implementation was important rather than announcement of the MFN status. There was a need for establishment of rules of trade, anti-trust trade laws and management of trade mechanisms and non-tariff barriers. Kashmir and other core issues must not be linked with trade. The bilateral trade normalization between Pakistan and India could then only be used as a springboard for South Asia-wide trade normalization.

Disclaimer:  Views expressed are of the speaker and are not necessarily reflective of IPRI policy.