Trade between hostile neighbours blossoms

Sixteen months into a cautious peace process between India and Pakistan, trade between the two nuclear powers is still an exercise in frustration and missed opportunities.

Since the two stepped back in 2002 from the brink of what would have been their fourth war since independence from Britain in 1947, relations have warmed to the point where Pakistan's cricketers are reciprocating a tour last year by the Indian team.

In another step forward, a bus service is due to start in April across the heavily militarised ceasefire line that divides Kashmir.

Trade is improving, too, and is on course to rise more than 150 per cent in the financial year that ends this month to about US$500 million ($680 million), but the detente is spreading all too slowly for Indian businessmen.

Barriers to commerce cemented by more than half a century of hostility mean companies selling everything from wheat to tyres to Pakistan are forced into costly detours via third countries such as Afghanistan or the United Arab Emirates.

These indirect shipments are estimated to be at least six times greater than cross-border trade. "Why should your textile mills be furnished with Indian machinery purporting to come from Dubai?" businessman Omkar Kanwar asked Pakistan's Trade Minister, Humayun Akhtar Khan, at a fringe meeting of the G-20 alliance of developing-country trade ministers.

Khan's presence brought together leaders of India's four main industry lobbies who, in a rare display of unity, took turns to air their grievances.

Chief among these is that Pakistan is withholding most favoured nation (MFN) status, meaning it does not extend its lowest tariffs to India.

Mahendra Sanghi, of the Associated Chambers of Commerce and Industry, predicted that two-way trade could reach US$10 billion within five years of signing a free trade agreement.

Sanghi said India could buy cotton yarn, vegetables and sports goods from Pakistan and sell everything from tea to steel in return. It's the "everything" that worries Pakistan, whose US$66 million worth of exports to India in the eight months to November were dwarfed by imports of US$315 million.

Islamabad fears freer trade could only deepen the deficit. Khan said there were problems in the way of granting MFN and urged patience. "Let's continue to build faith in each other," Khan said. "Give it time. Don't expect too much. A few months, a few years here and there, is not a long time."

But time is money. Rakesh Mittal, of the Confederation of Indian Industry, pointed out that China and Taiwan had not let heavy historical baggage stifle two-way trade, which now amounts to US$80 billion a year. The irony is that while cross-border trade is stunted, India and Pakistan are working together to influence the course of world trade talks as members of the G-20.

The frustration for the subcontinent's businessmen is all the more acute because China illustrates the sort of opportunities that are going begging in fellow neighbour Pakistan.

India's trade with China soared 79 per cent last year to US$13.6 billion. In 2001, it was just US$1.8 billion. "It is regional trade which is the primary factor in any nation's trade - not so here," said Indian Commerce Minister Kamal Khan.

"These two nations are so close and yet so far."

- REUTERS

Stumbling bloc

* Pakistan exported US$66m of goods to India in the eight months to November and bought US$315m worth in return.
* A free-trade deal could increase two-way trade to US$10 billion in five years.
* India's trade with China soared 79 per cent to US$13.6 billion last year. In 2001, it was just US$1.8 billion.
* Historical baggage hasn't stifled trade between China and Taiwan, now worth US$80 billion a year.