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Pakistan army on board trade liberalisation with India

Jyoti Malhotra  |  New Delhi 

Commerce minister Anand Sharma will travel to Pakistan in mid-February next year to take forward the already underway normalisation process, with Islamabad promising the most favoured nation (MFN) status to India and both sides promising last week to end their decades-old animosity by moving from a positive to a negative trading list like the rest of the world.

Sharma’s visit, with a large delegation of Indian businessmen, will coincide with the decimation of the so-called “positive list” of 1,946 items at present — only these items can be traded between the two countries — and the creation of a “negative” list, which throws open all the bilateral trade except for the items on that list.

The fact is that Prime Minister Manmohan Singh has not only managed to leverage the distractedness of the political class over 2G and other scandals at home by employing political will to break down barriers with India’s most intractable neighbour, but has also managed to insulate trade and economics from hugely contentious and emotional issues like terrorism and action against the Mumbai attacks accused.

In the second decade of the 21st century, economics is politics. That is why, when the home secretaries of India and Pakistan meet next month, they will agree to significantly liberalise the anachronistic visa regime between the two countries.

In pursuit of the long-honoured dictum that time is money — and India-Pakistan are proof of the exception, considering both have frittered away 64 years on war, proxy war and mutual recrimination — the liberalised visa regime is being targeted at businessmen from both sides, who will now be able to avail multi-city and multi-entry visas, also exempt from police reporting.

It can now be confirmed that Pakistani businessmen have had huge influence in persuading their government, as well as the all-powerful army, to end the linkage between improving trade with India and talks on Kashmir.

Significantly, the Pakistan army, which dominates the decision-making process and has taken charge of foreign policy towards India and the US, is on board the trade liberalisation process with India.

In fact, a huge concession was also made last week when trade across the Line of Control in Kashmir was increased from two to four days, even as for the time being, the same 21 items can be traded as those enumerated in 2005.

A card-carrying member of Pakistan’s elite with close Army links said on the condition of anonymity, “The Pakistani army has watched, with some concern, as Pakistan’s macro-economic indicators have dropped and India has managed to sustain its economic performance despite a worldwide recession.”

“The Generals in the Army can see that if this goes on for much longer, the disparity between India and Pakistan will be unbridgeable,” the observer added.

No wonder that at the commerce secretary-level talks between Rahul Khullar and Zafar Mahmood last week, an unnamed representative of the National Logistics Cell (NLC) in Lahore was present.

Now, although Wikipedia describes the NLC as the “crisis management arm of the Pakistan government in relation to logistics emergencies,” and is headed by Major-General Junaid Rehmat since June 2010, it is widely rumoured to be a sister organisation of the Pakistan Army and the ISI.

In fact, the NLC has already cornered 100 acres on the Pakistan side of the Wagah-Attari border where the integrated check-post is in the final stages of being built. When it is ready in a couple of months, it will be a state-of-the-art facility, where Pakistani and Indian trucks bearing fresh produce and goods like cement and textiles — items that Pakistan is desperate to trade with India — will be able to drive in, offload their goods and then drive back into their own countries.

Certainly, the Pakistan army’s willingness to allow the Yousaf Raza Gilani-Asif Ali Zardari government in power to normalize trade and economic relations with India is, for the moment, limited to this sector.

But, a recapitulation of the unfolding story, behind the scenes, from speaking to officials and policy observers on both sides, reveals a fascinating mix of power play and national interest.

Over the last few months, commerce ministers Anand Sharma and Makhdoom Amin Fahim and commerce secretaries, Rahul Khullar and Zafar Mahmood drove the process, naturally coordinating with those in the highest echelons of power — in Pakistan, with Gilani and Zardari as well as Army chief Ashfaq Kayani, and in India, with prime minister Manmohan Singh, national security advisor Shivshanker Menon and the PM’s AfPak envoy, Satinder Lambah.

In the wake of the deteriorating relationship with the US, the Pakistani leadership’s realisation that, in effect, it had no option but to open channels with India, was ironically underlined by the fact that Pakistani businessmen were telling US officials they were “very, very eager” to rebuild the economic relationship with India.

To Delhi’s credit, it never publicly revealed Pakistan’s economic desperation. However, Delhi also realized the process would not go anywhere if it did not drop its own non-tariff barriers that were cause of legitimate complaint within Pakistan and help save the latter’s face.

These NTBs include the compulsory certification of Pakistani cement, opacity of sanitary and phyto-sanitary concerns, testing and packaging of food products, customs and valuation procedures and most important, testing for the use of azodyes — a dye banned in India and Pakistan — in Pakistani textiles, as well as marking and labeling requirements in Pakistani ready-made garments.

There was also the matter of Pakistan acceding to the Safta preferential trading regime vis-à-vis India, which it had refused to do so far because of its hostile relationship with Delhi. But, under the sunny sun in the Maldives 10 days ago, Gilani promised Pakistani would abide by its commitments. Last week in Delhi, Pakistan’s commerce secretary reiterated Islamabad’s decision, saying the mandate for “full normalisation of bilateral trade relations” would be accompanied by its “meeting of all legal obligations.”

In other words, by February 2012, the “positive list” would give way to the “negative list”. By November-December 2012, the “negative list”, which allows trade at MFN tariffs, would give way to “preferential trade” where all goods could be traded — some at MFN tariff, and some even below MFN tariffs.

Aware that the breakthrough represented not only a huge increase in trade – from $7.5 billion at present ($2.5 billion official trade and $5 billion via Dubai) to $11 billion by 2012-end — officials from both sides said they were savouring the historical moment.

“After all, it isn’t every day that India and Pakistan agree that they should at last become normal nations,” they said.

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First Published: Mon, November 21 2011. 01:45 IST