The Longest August (61 page)

In early 1971, Delhi and Islamabad inked a trade agreement. It fell apart in December with the outbreak of the Bangladesh War. It was only in 1975 that the two nations signed a fresh commercial protocol valid for three years. During this period the bilateral commerce favored India. Over the next twelve years, the total volume of trade varied between $31 million and $87 million, with Pakistan selling more goods than India. But as Pakistan raised the number of items on its positive list for imports to eight hundred in 1996 (when India granted it MFN status), two-way commerce, totaling $241 million, favored India to the tune of $168 million.
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Later, the size of the cross-border trade became susceptible to whatever diplomatic sensitivities prevailed between Delhi and Islamabad. The bilateral trade during fiscal 1999 shrank by 43 percent from the previous year's $319.5 million because of the Kargil War. Conversely, as a consequence of the composite dialogue for peace agreed by Vajpayee and Pakistani President Pervez Musharraf in January 2004 at the South Asian Association of Regional Cooperation (SAARC) summit in Islamabad, there was a pick-up in bilateral commerce. In fiscal 2004 it rose by 76
percent from $476 million in the previous year.
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The leaders decided to reopen closed rail and air routes.

The Wagah-Attari border crossing along the historic Grand Trunk Road in Punjab was the natural choice. But the implementation came in stages, with Pakistan being slow to reciprocate, allowing only fourteen Indian items to be imported by road. In 2005 the two sides signed a protocol to trade via this frontier post so long as the trucks were unloaded in the country of origin, with porters carrying the goods across the frontier.

Upgrading the Wagah-Attari Border Crossing

It was only on October 1, 2007, that Islamabad and Delhi agreed to trucks crossing the border and depositing their consignments at the other country's customs house, to be reloaded into local vehicles after inspection. On that day, the mood on India's Attari side was festive, with national flags flying amid cheerfully worded banners, and gaily dressed farmers singing and dancing. Indian Punjab's chief minister Badal sent off the first cargo of tomatoes in a decorated truck. By contrast, the atmosphere on the other side was lukewarm. Disappointingly, Badal's counterpart in Pakistani Punjab, Shahbaz Sharif, failed to reciprocate his gesture.
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India's exports to Pakistan jumped from $547 million in fiscal 2004 to $1.7 billion three years later. But Pakistani shipments to India stagnated around $300 million because most of its exports consisted of traditional textiles, leather products, sports goods, chemicals, and cement.
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In June 2008 the two governments decided to increase the frequency of Delhi-Lahore freight trains from two to five a week to cope with the steady rise in commerce.
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Interestingly, contraband trade through smuggling and third-country routing exceeded legitimate transactions. It was comprised not only of audio and video cassettes but also India-made machinery and spare parts, especially for the textile industry, and newsprint, which were bought by Pakistanis through the (UAE) or Singapore. Given Islamabad's tenuous foreign exchange reserves, the government ignored the illicit trade—until 9/11. Then, thanks to Washington's generous aid to Islamabad for the latter's participation in its war on jihadist terrorism, Pakistan's foreign exchange reserves expanded nearly sevenfold. With that the need for third-country imports from India slackened.
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The bonhomie between Indian prime minister Singh and Pakistan president Asif Ali Zardari, displayed at the end of their meeting in New York in September 2008, augured well for stronger economic ties. The next month India and Pakistan permitted limited commerce across the Line of Control in Kashmir on the Uri-Muzaffarabad and Poonch-Rawalakot trade routes. But the terror attacks in Mumbai reversed the upward trend in commerce. The bilateral trade in fiscal 2008 fell by $440 million.

Though the South Asian Free Trade Area (SAFTA) treaty, specifying reduction of customs duty on all traded goods to zero by 2016 for SAARC members,
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had become operational on January 1, India and Pakistan ratified it only in 2009. As a result, Indo-Pakistan commerce received a boost. In fiscal 2010 two-way commerce increased by a third, to a little over $2 billion. Yet Pakistan accounted for less than 0.5 percent of India's overall trade, and India just over 1 percent of Pakistan's.
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India urged Pakistan to reciprocate by according it MFN status. But its government failed to respond positively to Delhi's call because of considerable opposition at home. It came mainly from the farm lobby, fearing competition from Indian agriculture, and textile manufacturers. Focused primarily on foreign markets, Pakistani mill owners by and large produced better quality cloth, whereas their Indian counterparts, catering for the vast domestic market, prioritized cheap, lower-quality textiles. Pakistani manufacturers were thus vulnerable to imports of India's low-priced cloth. Unable to overcome resistance rooted in economics, combined with opposition from Islamist groups on ideological grounds, Pakistan's government dithered.

Nonetheless, hopeful of improved economic relations with Islamabad, the Indian cabinet decided to build an Integrated Check Point (ICP) at Attari on a plot of 118 acres in February 2010. Eighteen months later, in August 2011, it removed Pakistan from the negative list under the Foreign Exchange Management Act, paving the way for investment from Pakistan. In November 2011 Pakistan decided to grant India MFN status in principle.
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Pakistan's Qualitative Shift Ramps Up Trade

On March 21, 2012, Pakistan made a major policy shift. So far it had kept a positive list of goods that could be imported from India. It now replaced that with a negative list for Indian imports, with all other unspecified
items allowed entry into the country. By so doing the number of allowable Indian items leapt from 1,956 to 6,800. This helped Pakistani industrialists, who were now free to import raw materials from India except those produced domestically.
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Significantly, the 1,209 banned items were in agriculture, textiles, pharmaceuticals, and automobiles.
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Islamabad's liberalized protocol was expected to reduce the import of Indian goods through third countries, such as the UAE, which jacked up prices. Shipping Indian goods through Dubai was three times more expensive than transporting them overland to Pakistan. For instance, a bicycle tire, which had been on Pakistan's positive list for trade with India, shot up to 600 Pakistani rupees from the original 250 Indian rupees (1 Indian Rupee = 1.6 Pakistani Rupee) by the time it reached Pakistan through Dubai.
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On April 13, 2012, Attari was a beehive of activity. Since it was Baisakhi, a harvest festival coinciding with the New Year of Punjabis, the mood in the province was festive. That was the day India's home minister, P. Chidambaram, chose to inaugurate the Attari ICP, constructed at a cost of Rs 1,500 million ($30 million) and guarded by the Border Security Force, part of the home ministry. Pakistan's ICP at Wagah, built earlier on nine acres of land, was guarded by the Pakistan Rangers, a paramilitary force maintained by the interior ministry.

A structure of yellow and pink stone, the Attari ICP housed state-of-the-art facilities for security, customs, and immigration requirements for passenger and cargo traffic by rail and road. Its two-story passenger terminal resembled an airport terminal, with waiting areas, restaurants, rest rooms, and duty-free shops. The cargo terminal was constructed like an office complex, with different areas earmarked for government agencies, cargo handling agents, banks, and so on. Its parking area had space for five hundred trucks, and its warehouses, including cold storage places, were meant for receipt, inspection, trans-shipment, and delivery of imported goods. The prominently marked trade and passenger gates across the dust-blown arches completed the new, efficient arrangement. Such facilities were expected to reduce dramatically the delay of up to one week truck drivers had often experienced before.

Dressed in immaculate Tamil dress of white, open-neck shirt and a long flowing
lungi
, Chidambaram unveiled the ten-foot-high plaque, inscribed in Hindi, Punjabi, and English, dedicated to “the nation, and peace and harmony with Pakistan”—as Badal and his counterpart from Pakistan, Shahbaz Sharif, and Indian commerce minister Anand Sharma
and his Pakistani counterpart, Makhdoom Amin Fahim, clapped enthusiastically.
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On the previous day Sharma and Pakistan's commerce secretary Zafar Mahmood had inaugurated the Lifestyle Pakistan 2012 exhibition, displaying fashion textiles, jewelry, and designer furniture in Delhi. India had reduced the number of items prohibited for import from Pakistan by a third.

At Attari, speeches by the dignitaries followed. When Fahim ended his speech with the instantly coined slogan “Pakistan-Hindustan
dosti zindaba
d
” (Long live the Pakistan-Hindustan friendship), he got an enthusiastic response from the audience. Badal demanded that the ICP be allowed to handle all 6,800 items traded between Karachi and Mumbai, not just 137, as was the case then.
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Six months later Delhi agreed to curtail its sensitive list, allowed under SAFTA, to 100 items from the present 614 by April 2013, whereby a SAARC member was allowed to maintain high tariffs. Islamabad consented to phasing out its negative list in December 2012 and cutting its sensitive list of 950 items to 100 within five years.
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By April 2013, the Indo-Pakistan trade by road though Attari-Wagah almost doubled. And each day some three hundred people crossed the border.
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In fiscal 2012 the volume of bilateral commerce reached a record $2.6 billion. But that was far less than the Indo-Pakistan trade through third countries, estimated at more than $4 billion.
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The Pakistan People's Party (PPP)–led government in Islamabad failed to keep its promise to confer MFN status on India by the end of 2012. It justified its failure by pointing out that India did not address its concerns about nontariff barriers (NTB) erected by Delhi. Actually, India had argued that its NTBs did not apply exclusively to Pakistan and that this subject fell within the purview of SAFTA. In any case, Islamabad's noncompliance stemmed from the resistance of its automobile and pharmaceutical industries as well as the farm lobby, and the forthcoming general election in May 2013. Since the PPP was accused of being pro-Delhi by the opposition, its according of MFN on India would have played into the hands of its rivals.

Most Favored Nation by Another Title

Following the parliamentary election, Pakistan Muslim League (Nawaz), or PML (N), led by Muhammad Nawaz Sharif, formed the government
in June 2013 after being overthrown in a military coup in October 1999. In their meeting on January 17, 2014, the commerce ministers of India and Pakistan—Sharma and Khurram Dastgir Khan respectively—agreed on a protocol of nondiscriminatory market access on a reciprocal basis, because in Pakistan the term “most favored nation” had become politically charged. Islamabad consented to trimming its negative list of trade items with India while maintaining one hundred items on the sensitive list, on which an additional tariff was allowed.
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The ministers also decided to keep the Wagah-Attari border crossing open around the clock instead of twelve hours a day. Islamabad agreed to allow the import of all products from India at its Wagah ICP. These changes were expected to divert trade from the complicated sea route to a simplified one by land. And the declaration of Wagah and Attari as dry ports set the stage for shipping cargo by container, which would reduce transportation and handling costs.
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These steps boosted cross-border commerce. One of the main hurdles to further expansion of trade was the poor infrastructure on the Pakistani side of the land frontier. Its ICP at Wagah was a fraction of the size of India's at Attari.

In addition, bureaucratic and other procedures in Pakistani were far more arduous than in India. A Pakistani exporter had to deal with the paramilitary Pakistan Rangers; the military's National Logistic Cell, charged with crisis management and logistics emergency; the customs department; and the Anti-Narcotics Force, with overlapping responsibilities. Pakistan's railway infrastructure was also in a worse state than India's. And with Karachi being the only major Pakistani port so far, transportation by sea was constrained by limited port facilities, cumbersome customs procedures, and bureaucratic red tape. In addition, because of currency restrictions, all payments had to be made in a hard currency.

On the other hand, political opposition to normalization of commercial relations between the two neighbors was on the wane, while lobbying for it by businesses became more vigorous. In February 2014, Malik Tahir Javaid, chair of the Pakistan Industrial and Traders Associations Front, urged the government to allow the import of all those items not manufactured in Pakistan to be imported from India.
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Were this to happen, annual bilateral trade could easily reach $10 billion before the end of the decade. Other estimates put the figure at $20 billion under “normal” commercial relations between Islamabad and Delhi. After the Islamabad-Beijing free trade agreement went into effect in July 2007,
the bilateral commerce increased more than threefold in six years—from $4.1 billion in fiscal 2006.
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When the governments in Beijing and Delhi embarked on economic liberalization in 1991–1992, they decided to set aside their border disputes, which had led to war thirty years back, and tighten commercial ties. Within a decade, their bilateral trade ballooned from $265 million to $4.95 billion. During the subsequent decade the growth rate accelerated. With bilateral commerce amounting to $74.7 billion in fiscal 2012, China became India's number one trading partner.
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