India Insight

Can commerce be ultimate CBM for India and Pakistan?

September 29, 2011

The running theme of the 21st century is that of economic partnerships, from the European Union to ASEAN, with the aim of fostering and maintaining economic prosperity and social progress.

And arch rivals India and Pakistan might also discover the economic and political dividend of cooperation if they are sincere in liberalising bilateral trade.

As a Pakistani commerce minister visited India for the first time in 35 years, big words are flowing from both sides about agreements reached in easing trade restrictions and their sincerity in pushing up by several notches a fragile peace process that was shattered following the 2008 Mumbai attacks.

Initiatives like the present trade agreements which include opening a new customs post and easing visa rules are termed confidence building measures (CBMs), whose larger purpose is to gradually normalise ties.

And officials say they are more sincere than ever in fostering cooperation.

“You would appreciate the difference in approach this time. Both sides are committed that they would make this dialogue process irreversible,” Pakistani Commerce Minister Makhdoom Amin Fahim said.

Indian commerce minister Anand Sharma added: “The visit will be a defining one … we have talked on all things in an environment of frankness and openness.”

The potential benefits of greater economic cooperation are great – India and Pakistan’s bilateral trade of $2.04 billion amounts to less than 1 percent of their respective global trade, according to figures by industry body FICCI.

Restrictive policies like having only a small basket of tradable goods has pushed informal and third country trade to an estimated $10 billion, underlining the potential for bilateral commerce if their markets opened up.

Trade via third countries like Dubai, Singapore and central Asian nations also pushes up prices of raw materials and transportation costs, which would all go down if India and Pakistan buy directly from each other.

There are other forms of CBMs like the occasional exchange of prisoners and bilateral sporting events, but encouraging a greater flow of people and goods between the two neighbours is the best CBM as economic gains by both sides would sustain goodwill.

As minister Sharma said: “Only shared prosperity can bring lasting peace.”

But in the case of India and Pakistan, any gains will always be fragile as even a small political miscommunication or an act of violence by fundamentalists can always bring the confrontation back.

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