political economy of peace process

8/9/2019 political economy of peace process

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Introduction

Considering India-Pak relations as classic case study of conflict, where we strongly feel the need

of suggestive approach to resolve it on permanent basis. As compared to past conflicts where the

peace processes were dealt in military and political spheres alone, in past decades we have

noticed the increasing debate about the economic characteristics of the peace process, mainly

because the conflicts in the today’s global world have economic dimensions in one way or other.

ere it is necessary to understand that peace making is different from that of traditional peace

making discourse the International !elation has talked mostly about . ere we aren’t talking

about peace which comes after winning the war by one side and losing by other , rather it is

about bringing both parties on e"ual footing . Also the peace making is different in the sense that

unlike any armed conflict brought to peace , it has to consider duration and timings have to be

given importance ,letting it to unfold stages where it creates space for agreements and slow

implementation .

.

In case of India-Pak, the main source of issue is #ashmir. #ashmir dispute dates from $%&'.

Indian and Pakistan thus fought their first war over #ashmir in $%&'-&(. )ighting broke out

again in $%*+, but a ceasefire was established that eptember there have been many efforts to

long landing peace processes, but none has proved to be successful so far and no agreement hasreached to any ma or political conclusion, while the protectively evolving peace process has

faced so many difficulties . he post-Cold /ar period of the $%%0s has been a period of

heightened and continuous tension between India and Pakistan due to the ongoing Pakistan-

supported insurgency in #ashmir. he tension has persisted despite the gradual growth of

economic and other ties as part of the anemic, but nevertheless real, progress of the regional

cooperation process under the aegis of the outh Asian Association for !egional Cooperation

1 AA!C2, the advent of economic liberali3ation in both India and Pakistan in the $%%0s, and

democracy in Pakistan from the late $%(0s to $%%%.

!elations plummeted following the nuclear tests by both countries in 4ay $%%( and the #argil

war of 4ay56uly $%%%. And the latest blow was by terrorist attacks leading the accusations

from both sides.


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In short, there have been many hurdles in the indo-pack peace process, which raises the need of

all alternative approach to address the problem. In this paper I aim to study the political economy

of conflict and to establish how in current situation of the relations among both countries the

economic actors can help in building a bridge which would eventually to peaceful

sub-continent. his paper aims to study how effect the peace both in positive or negative way.

he paper e7plores the chances of Political economy to serve as peace agent under 8iven of

Indo-Pak conflict situation . he paper also analy3es the prospects of the outh Asian regional

organi3ations thriving as strong enough as 9: to establish powerful interdependence which is

above the conflicts and local politics . )urther , it aims to e7plore the future perspectives if both

countries go beyond the conflicts to create a strongly dependent political economy;

Theoratical framework

rade and economic cooperation have been part of e7tensive debate in academia . As the world

has grown , the number of conflicts have grown with it and this has introduced another debate for

discourse about whether 9conomic Interdependence mitigates conflicts or creates more

conflicts .

In order to understand the relation between 9conomic interdependency and peace process we

need to know how main school of thoughts e7plain the process.


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to balance a more powerful state in international politics. A state can by forming an alliance

strengthen its own national security by using its allies resources, and thus be able to balance a

more powerful state. /alt3 argues that the constraints 1structural 2 in the international system

lead to the balance-of-power theory, where all states are confined in the international structure,

which e7plains why a certain similarity in behavior is e7pected by the theory .>

he concept of self help contribute to the e7planation of why neo- realistis generally skeptical

about cooperation with other states. If two states e"ual in power , both have absolute gain, it

would still result in a relative gain , which means that the other state , however, will earn more

than that state . his could act as reason to conflict and destabili3ation between states,because

the the balance of power has shift in favor of one and the other has perceived threat to its

survival . Another aspect of cooperation between states is the neo realists argue is that theagreements and future intentions can not be guaranteed by the word or the signature of other

states, so there is the possibility that a state can violate an agreement could become a great risk

to national security itself . o if the states get into agreements ?cooperation they become

vulnerable . #eeping the above discussion in mind ,neorealism )ails to e7plain how

interdependency can create new paths for peace process .


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treatment of power and of states as units of the system B he critics, according to #eohane ,

sought to move beyond the nation-state by devising new international institutionalism , by

redefining the principles of sovereignty,or by challenging the validity of the Dstate as actorD

model on which neorealism relies. /hereas some critics called for more attentionto economic

and environmental interdependence as well aschanges in governmental functions,


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bot sides start mutually depending on each other for their vulnerabilities . #eohane and


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economic integration and relations between states he e7istence of such a correlation is

e7plained by Fcommon-sense’ within both academic and popular liberal discourse.

If the comple7 interdependency happen on world level , it also suggests that the same would

happen within region , e7plained by )unctionalism emphising the region mainly According to

functionalists, regional cooperation on relatively insignificant Flow political’issues can create

patterns of mutual interest and trust which will eventually Fspill over’ into the Fhigh political’

arena, nurturing both bilateral peace settlements and regional economic and political integration.

Proponents "uote the e7ample of 9uropean :nion 1the e7ample of high politics, grown out of

9C C started from low politics 2.=y considering the same e7ample, it is argued, inter- and intra-

state peace processes are best supported by broader processes of regional cooperation and

integration 5 in places as disparate as the 4iddle 9ast, outh Asia. In the outh Asian conte7t,similarly, Pakistani and especially Indian elites and commentators regularly identify links

between the consolidation of the outh Asian Association for !egional Cooperation 1 AA!C2

and their bilateral peace process, and often depict their planned Iran5Pakistan5India gas pipeline,

like the 9uropean Coal and teel Community +0 years earlier, as a potential catalyst to regional

cooperation and peace ( .


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national, ethnic and religious identities, and by contrast to stimulate the phenomenon of

cosmopolitan post-nationalism .All of these supposed developments have been identified

as having 1or as being likely to have2 profound effects upon peace processes. hus in the outh

Asian conte7t, analysts and political leaders alike have argued that the softening of state borders,

courtesy of globali3ation, provides

an opportunity for resolution of the India5Pakistan dispute of territory of #ashmir the redrawing

of state boundaries $0.

Another thing neo liberalist theory offer for peace process is the assumption that business actors

are a powerful, reliable and essentially positive constituency for peace. Increased foreign and

domestic private sector investment is vital, it is assumed, for societies emerging from conflict,

helping those societies to reap the material rewards of peace, as well as to strengthen

constituencies opposed to a return to war. =usiness ties are also viewed as crucialto functionalistFspill-over’, since business interactions are amongst those low-level forms of cooperation which

slowly help to merge shared interests and understanding between former enemies. )inally,

business actors’ standard combination of high influence and 1formal2 political nonpartisanship

is such that they can often play, it is claimed, defining roles in formal and back-channel peace

negotiations. As the Institute for 4ulti- rack @iplomacy has declared, typifying this orthodo7y,

the Fbusiness community has a great deal to contribute to any peace process’, there being Fa

natural partnership between business and peacebuilding’ .$$

10 adha K%)ar, Making !a ! +?#k/#: ;nit!d ati#ns ;ni !rsit/ r!ss, 2003-


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o start with, the liberal model of the connection between peace and globali3ation begins from

the idea that economic liberalisation and globalisation create interdependencies which in turn

help to forge ties of trust, interest and peace, both globally and across conflict regions. $> here

are at least few flaws in this model regarding the indo-pak case . )irst, it is far from clear that

there is indeed a positive relationship between commerce or economic openness on the one hand

and peace or peace processes on the other. Among the world’s most economically open and most

globally penetrated societies are many countries in Africa, Asia and Gatin America which are persistently home to civil and cross-border violence $B. he skirmishes on boreders of India-

Pakistan halt the trade and the economic?trade movement is stopped altogether sometimes.

Het another flaw found in this model is the presence of a prominent disagreement between

globalisation and the functionalist dream of peace through regional integration.In present-day

India, for instance, while political and business leaders repeatedly stress in their public discourse

the potential for AA!C to provide a regional conte7t for bilateral peacemaking, the reality

behind the rhetoric is actually "uite different. )or, "uite understandably, Indian business elites

are much more e7cited by the prospects for enhanced production,trade and investment ties with

the :nited tates, 9urope and 9ast Asia, than they are by the negligible benefits to be had from

any rapprochement with Pakistan. )or their part, @elhi’s foreign policy elites are much more

preoccupied with India’s place on the global stage than they are with the "uestion of India’s

difficult regional relations .

Also , we can’t say that globali3ation had limmited importance of borders and sovereignty, and

thereby territorial disputes. )or, counter-intuitively perhaps, the development of capitalism has

been characteri3ed by a social 5 and also spatial 5 differentiation of the political and economic

12 M 2onald, Pat!i " '. The Invisible Hand of Peace: apitalism! the War "achine! and

International Relations Theory . New o!": a b!idge 3ni4e!sity P!ess, #$$9.

13 &)/ h%a , W#r*d #n @r! : h#< !xp#rting "r!! )ark!t d!)# ra / br!!ds !thni

hatr!d and g*#ba* instabi*it/ !


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spheres, in which political sovereignty and boundaries become more precisely defined and

regulated at one and the same time that these boundaries are ever more routinely

transgressed. $&Absolute sovereignty and free trade developed together, as products an defining

features of capitalist modernity, and not in opposition to one anotherE and e"ually since $%(0, the

increased global flows of capital and bodies that are the hallmarks of globalisation have been

paralleled by a proliferation of new forms of border control, regulation and surveillance. At the

e7treme, the result has been the construction of towering militari3ed walls and electrified fences

between Indian- and Pakistani controlled #ashmir. Contrary to the functionalists’ claim that a

global knowledge economy is rendering borders irrelevant, the depth of contemporary conflicts

and ine"ualities is such that 5 atleast where states are capable of constructing and enforcing them

5 borders and barriers are more relevant than ever. In view of this, the relationship between

globali3ation and peace processes needs essential rethinking. )irst ,economic liberali3ation andincreased global commerce do not necessarily help and may indeed hinder peace processes 5

because they are also paralleled by increased global and civil ine"ualitiesE because, in the global

outh at least, they impede regional integrationE because they have been accompanied by the

tightening rather than withering of borders and state sovereigntyE and because, in any case, the

liberal e"uation of commerce and peace is very much open to doubt. =ut second, indirectly, both

Fglobalisation’ and Fpeace processes’need to be understood as narrative constructs which, to

borrow from !obert Co7, are Falways for someone and for some purpose’ $+. he discourseof

Fglobalisation’ depicts a world in the liberal image, and through so doing can serve a whole range

of functions more specifically, the argument that peacemaking is facilitated or rendered

inevitable by globali3ation, voiced so often by Peres and others, is less a statement of fact than a

rhetorical positioning of peace processes on theright side of history. 9"ually, the discourse of

Fpeace processes’ allows their participants to claim a commitment to the process of peacemaking,

and reap great benefits in return, without necessarily having to make any substantive sacrifices 5

it allows their participants Fto have their cake and eat it too’. he conse"uences can be profound.

Pakistan’s and India’s participation in an even more fictitious Fpeace process’ since >00B ganered

them a degree of international space and legitimacy, without re"uiring them to make any

14 .%stin , #s!nb!rg, ?h! C#**i!s #" *#ba*isati#n ?h!#r/ #nd#n: E!rs# , 2000 -

15 #b!rt #x, F$# ia* C#r !s, $tat! and W#r*d rd!rs: B!/#nd Int!rnati#na*

!*ati#ns ?h!#r/' , Mi**!nni%), E#* 10 # 2 +1 81-


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progress on core issues 5 which, as aresult, they have not. As both these cases illustrate, Fpeace

processes’ are a means by which states can re-brand themselves in the hope of improving their

position and competitive edge within the global political economy.Instead, then, of globalisation

furthering peace, it may be more accurate to say that peace processes and the appearance of

peace are amongst the competitive strategies of neo-liberalising states and societies in an era of

global capital.

Criti"u

he assumption made in both neo-realism and neo-liberalism that actors are rational would be

easy to prove wrong. he theories does, however, not say that this is true, but solely use it as an

assumption, similarly to how economic theory use it to build models. o assume that all actors

are rational is an e7treme simplification of the real world, and is an assumption that needs to be

taken with care. Applying the assumption of rational actors in order to understand the intent of astate, is futile. his has to do with the impossible task to foresee the future decisions taken by

leaders.


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Background and the Present

UNDERSTANDIN T!E E"#N#$I" AND "#$$ER"IA% "##PERATI#N

India and Pakistan are the two largest economies in outh Asia. ogether, they account for %0

percent of the gross domestic product 18@P2 and (+ percent of the population of the region.

hey share a long contiguous border, have similar cultures and in a not-too-distant a past,

en oyed well-integrated transport and market links. If we look at neighbouring countries which

are similar in si3e to India and Pakistan in terms of population or current 8@P, such as 4alaysia

and China or =ra3il and Argentina, bilateral trade accounts for >.> percent and $0.> percent,

respectively, of world trade in these countries. he case of India and Pakistan is "uite different.

At the time of partition, India and Pakistan were highly dependent on each other for trade.

hereafter, both resorted to deliberate measures to minimi3e their trade dependence on each

other. India’s share in Pakistan’s global e7ports and imports was >B.* per cent and +0.* percent

respectively in $%&(- &%. hese shares went down to$.B percent and 0.0* per cent in $%'+-'* and

$.$ percent and >.' percent respectively in >00+- 0*. $* imilarly, Pakistan’s share in India’s

global e7ports and imports was >.> percent and $.$ percent respectively in $%+$-+>. hese shares

went down to 0.0> percent and 0.& percent in $%'+-'*, and 0.' per cent and 0.$B per cent in>00+- 0*. his shows that the trade between these two neighboring countries has been much

below the potential. he potential sectors for economic cooperation between the two countries

include agricultural products, especially tea, auto spare-parts, minerals, chemicals,

pharmaceuticals, leather, te7tiles, telecommunications, iron ore, energy resources, electricity

generation using coal and wind energy etc. f all the above mentioned sectors, there is an

immense scope for cooperation in energy sector and te7tiles, especially ready-made traditional

garments.Bilateral trade 5in illions 3)6

Financial Year Exports from India Imports to India Total Trade %age increase Balance of Trade#$$8-$0 #% .90 7.70 800. % 79.%7 ;##9.#

16 anGit $ingh h%)an, Da ind!r K%)ar Madaan, HInd# akistan ?rad!

##p!rati#n and $&& J, !a ! and D!)# ra / in $#%th &sia, E#*%)! 2, %)b!r 1,

2006


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#$$0-$ #1.$ 90.97 1 .$# 7%.7# ;0# .$%#$$ -$ %9.#8 179. % %.79 01.$8 ;0 0.#8#$$ -$7 1,8 $.$9 8#8. # 1, 878.71 9#. 0 ;1,$# .07#$$7-$% 1,9 $. 8 #%7.97 #,#8%. $ % .#8 ;1, #.#$$%-$9 1,00$ 87$.17 1,%1$.17 7. # ;1,179.%8#$$9-1$ 1, 78.8# #7 .90 1,%09.# #.1 ;1,#97.8%#$1$-11 #,$89. 8 88#. # #,87#.$ #%.#7 ;1,7$7.$1#$11-1# 1, 01.#% 897. 1,989.#1 -1%.# ;1,10$.87#$1#-18 #,$ 0.79 01.%7 #, $ . 80.0# ;1, #8#$18-10

5A(!-)e(t

%79.1 1 %.70 1$07.%9

#o$rce: ommerce "inistry! G%I

PA&ISTAN'INDIA TRADE( T!E PAST

he bilateral trade ties between India and Pakistan are nothing new. In $%&(5&%, +* percent of

Pakistan’s e7ports were sent to India. )or the ne7t several years a period of tense political

relations India was Pakistan’s largest trading partner. =etween $%&' and $%*+, the two nations

entered into $& bilateral agreements related to trade facilitation. In $%*+, the year Pakistan and

India went to war over #ashmir, nine branches of si7 Indian banks were operating in Pakistan.

And in $%'>, following another ubcontinental war the previous year, the two sides concluded

an agreement that produced a resumption of limited trade.As we know, in August $%&', the =ritish colonial government partitioned the @ominion of India

into the independent countries of Pakistan and India.

he 8eneral Agreement on ariffs and rade 18A 2 was negotiated almost at the same time

that Partition was leading to the creation of Pakistan. he founding members of 8A , keeping

in view the fact that the ubcontinent was more or less a single economy, allowed special

dispensation for the two countries under Article >& 1paragraph $$2 of 8A . he accord was

signed by >B countries, including Pakistan and India, on ctober >B, $%&'. India ratified 8A

on 6uly (, $%&(, and Pakistan followed suit on 6uly B0, $%&(.

he founding fathers of both countries did not envisage adversarial relations between the two

countries. o the contrary, 4r. 4.A. 6innah, the founding father of Pakistan, had a very positive


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vision for Pakistan-India relations. e believed that the two states would co-e7ist in peace and

harmony like the :nited tates and Canada. :nfortunately, even before they attained

independence, problems started to bedevil relations.

It started with cross-border migration from both sides. Garge numbers of indus living in

what is now Pakistan and 4uslims in what is now India were forced to cross borders amidst a

fren3y of communal violence. ragically, over a million of the $&.+ million who decided to move

in either direction lost their lives.

In addition to bloodshed and mayhem on an unprecedented scale for the region, there was the

controversial anne7ation of princely states. In particular, the dispute over 6ammu and #ashmir

created deep suspicions, and over the years was the single most important issue that significantlycontributed to the outbreak of hostilities between the two sides.

It must be noted that while all this was going on, the political leadership kept trade and

economic issues separate from politics. In $%&(5&%, Pakistan’s e7ports to India accounted for +*

percent of its total e7ports, while B> percent of Pakistan’s imports came from India. he two

countries were trading normally during this turbulent period. India was Pakistan’s largest trading

partner, and this continued to be the case until $%++5+*.

=etween $%&( and $%*+, Pakistan and India used a number of land routes for bilateral trade.

hese included eight customs stations in Pun ab province at /agah, akia 8hawindi, #hem

#aran, 8anda inghwala, 4ughalpura !ailway tation, Gahore !ailway tation, aripur =und

on !iver Chenab, and the 4acleod 8an !oad !ailway tation. here were three custom

checkposts in indh at #hokrapar, 8adro, and Chhor. Pakistan and India, invoking Article

>&?paragraph B1a2 of 8A , even signed a bilateral agreement on @ecember >>, $%+', to

facilitate border trade. $'

imilarly, Pakistan and Afghanistan signed a number of agreements to facilitate land trade. he

two countries signed the )irst Pakistan- Afghanistan ransit rade Agreement on 4ay >%, $%+(,

17


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in #abul, which allowed the transit of goods from India via Gahore. Pakistan also signed a transit

trade agreement with , which allowed the transit of goods via the territory

of what was then 9ast Pakistan, and is now =angladesh.)rom $%&' to $%*+, Pakistan and India

entered into $& bilateral agreements related to trade facilitation. hese agreements covered

avoidance of double ta7ation, trade in goods, food items, trade facilitation, border trade, air

services, and banking. he spirit of pragmatism at this time led to an arrangement under which

Pakistan e7ported grain from indh to deficit provinces of India, and India e7ported flour to 9ast

Pakistan. =oth Pakistan and India had bank branches in each other’s country. In $%*+, there were

nine branches of si7 Indian banks operating in Pakistan. Pakistan’s abib =ank had a branch in

4umbai.=ut all this changed abruptly. he unresolved #ashmir dispute came into play. In $%*+,

war broke out between the two countries. his time, trade and economic relations became

causalities of war. n the fateful morning of eptember *, customs officers at /agah post nearGahore became the first civilian prisoners of war, and banks in both countries were sei3ed as

enemy properties.

After the $%'$ war, which resulted in the dismemberment of Pakistan, the imla Agreement was

signed between Pakistan and India in $%'>. :nder this agreement, trade resumed on a limited

scale in $%'&. =oth countries worked on positive lists, which e7panded incrementally over the

years. his continued until $%%+, when, upon signing the /orld rade rgani3ation agreement,

India unilaterally discontinued its positive list for trade in goods with Pakistan.

Pakistan, however, was prepared neither to react nor to reciprocate in similar fashion. Gobbies

linked the settlement of the #ashmir dispute to complete normali3ation of trade with India.

Immediately thereafter, the Pakistani private sector tried to e7port items to India which were

previously prohibited. India was obviously not pleased because of the lack of reciprocity on the

part of Pakistan. Pakistani e7porters who tried to e7port without properly studying India’s import

regime burned their fingers. hey encountered India’s non-tariff barriers 1< =s2. he result was

obviously not good. It created a strong negative perception in the minds of our e7porters who, to

this day, generally believe that India does not welcome e7ports from Pakistan.

In $%%(, nuclear tests were conducted by India, and Pakistan followed suit. Political relations

between the two countries became tense. he war in #argil the following year further soured


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already frayed political ties. )ortunately, however, the serious friction in political relations did

not disrupt trade relations in any significant manner.

In >00>, Pakistan’s private sector got another olt. /hen Pakistan’s e7porters were given a

concessionary package by the 9:, India promptly filed a case with the / . It is important to

emphasi3e here that Pakistan’s e7porters suffered when Pakistan became a partner in the war on

terror, and in fact they became a victim of that war. Immediately after the sad day of %?$$,

Pakistan became a war 3one, and the cost of Pakistan’s e7ports went up because of increases in

insurance premiums. =uyers were demanding air-liftings of samples and inventories to third

countries. 97porters started facing problems in obtaining visas. It was while Pakistani e7porters

were facing these challenges that India filed the case against the 9: package. his hostile act

further strengthened the Pakistani private sector’s perception of India as the Jenemy.K

"URRENT STATE #F BI%ATERA% TRADE BET)EEN INDIA AND PA&ISTAN

In 6anuary >00&, the governments of India and Pakistan announced the start of a Composite

@ialogue process. rade relations were one of the areas of focus. )our rounds were held between

>00& and >00'L

)irst !ound 1August (, >00&, Islamabad2 , econd !ound 1August %5$0, >00+, (5>%, >00*, Islamabad2 ,)ourth !ound 16uly B$5August $, >00',


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6anuary >0$$, I was told by our foreign minister that trade had been included as a track in the

Composite @ialogue, I studied the minutes of these four rounds. o my surprise, the minutes of

the Composite @ialogue made no mention of complete normali3ation of trade relations or the

granting of 4)< in the trade of goods. he Indian side had only asked for the inclusion of

additional items during the last round of talks held in >00'.

After the unfortunate terrorist attacks in 4umbai on *, >00(, the Composite

@ialogue process was suspended .$( At the time of resumption of the Composite @ialogue process

in >0$$, the respective position of the two countries was as followsL India saw the positive list

arrangement for imports from India by Pakistan and non-implementation of outh Asian )ree

rade Area 1 A) A2 obligations as barriers to trade. he private sector in Pakistan thought that

India was not allowing a level playing field, despite the abolition of the positive list, due to the

following < =s Misa and travel restrictions, echnical standards and regulation, Gimited number of ports and inland custom posts for imports, Cumbersome and comple7 import regulations ,

Customs clearance and customs valuation

Also, a report from India was widely "uoted in Pakistan to show the insincerity of India. In

ctober >00', the Indian Council for !esearch on International 9conomic !elations 1IC!I9!2

commissioned a two-part report titled JIndia Pakistan rade Possibilities and

9xt!rna* &Lairs, !< D!*hi, # !)b!r 26, 2008

http:


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from half a billion to about a billion dollars 1all dollar figures in this essay refer to :. . dollars2.

A large proportion of informal trade occurs via @ubai, a process which is inefficient and costly. >0

Informal sectors account for the ma ority of non-agricultural obs in the region. Indian e7ports to

Pakistan are largely limited to about $+ commodities . >$ hese goods accounted for around *&

percent of the total Indian e7ports to Pakistan in >000, rising to around (0 percent by >0$0.

hese commodities include sugar, raw cotton, synthetic fabrics, tea, and petroleum products and

chemicals, reflecting India’s diversified industrial base. hares of both raw cotton and woven

fabrics in India’s e7ports to Pakistan increased from almost negligible amounts in the year >000

to more than $B percent in >0$0, whereas the share of oil-cake and other solid residues

contracted from about $* percent to B percent during the same period. he composition of

official e7ports from Pakistan to India has been limited to ust a few commoditiesL fruits and

vegetables, wool and related products, petroleum products, chemicals, lead, and, more recently,cement. he sectors with large shares of e7ports from Pakistan to India in >0$0 were fruits 1$%

percent2, followed by cement 1$$ percent2, and petroleum products 1' percent2. he main Indian

products that reach Pakistan informally include tires, auto components, pharmaceuticals,

engineering products, chemicals, and some te7tiles. hese sectors in India are therefore e7pected

to benefit from a better trade environment. Pakistani consumers will benefit from reduced prices

for these products. 4eanwhile, Pakistan’s unofficial or informal e7ports to India include ce-

ment, fruit and vegetables, cotton, some speciali3ed te7tiles, and sports items currently arriving

via @ubai. hese are all e7pected to e7peri-ence a rapid boost with more formal India-Pakistan

trade.

Anal*+ing the Pros,ects

20 #han, haheen !afi. Quantifying Informal Trade between Pakistan and India . IslamabadL ustainable

@evelopment Policy Institute, >00' .

21 !ahman, 4ustafi3ur, /asel =in hadat, and 00*. J rade Potential in A) AL an Application of Augmented8ravity 4odel.K Paper $*, Center for Policy @ialogue, @haka, =angladesh, httpL??www.cpd.org.bd?pubOattach? P*$.pdf.


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=oth countries need to reali3e that the liberali3ation of bilateral trade between Pakistan and

India would not only lend impetus to both economies in a beneficial way, but also remove the

barriers to regional integration within outh Asia. he potential advantage for Pakistan from

broader regional economic integration appears to be large. 8oing well beyond the immediate

creation of trade flows, capital investment, and oint economic ventures, cooperation in the fields

of I , science and technology, and research and development would, in all likelihood, boost

productivity of domestic industries and stimulate economic growth.

4a or political parties and other influential stakeholders have reali3ed that the Pakistani

economy is lagging behind other countries and Pakistan has not taken advantage of its strategic

location between two of the world’s most populous and high-performance economies China

and India. /ith the signing of the free trade agreement with China in >00*, Pakistani marketsand producers have already ad usted to relatively cheaper imports from China. hey no longer

consider that the threat of Indian products flooding Pakistani markets and displacing domestic

Industries carries much substance. In some areas such as fashion wear, bed wear, home te7tiles,

and cement, Pakistan would be able to do much better and penetrate a much larger market. he

overwhelming support from Pakistani businessmen for 4)< status to India is partly a reflection

of this sense of confidence. raders and importers in Pakistan are anticipating much larger

business volumes, and thus profits, for themselves from this opening up. rade liberali3ation will

unambiguously benefit Pakistani consumers, since product prices should fall and consumer

choice e7pand when trade barriers are reduced or removed. Increased trade flow that stems from

the lifting of import prohibitions for items coming from India would lead to additional customs

revenue for Pakistan.

he overwhelming evidence of the advantages of bilateral trade liberali3ation has tilted the

balance within Pakistan in favor of the proponents of increased trade with India. =ut there are

still significant detractors who would be losers in the bargain. ome of them are vocal, articulate,

and powerful. hey cannot simply be ignored, as their nuisance value in retarding or reversing

this new bonhomie is not trivial.


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Need #f Peace Process

he Indo-Pak composite dialogue is a desirable approach but is prone to derailment if attempts

are made to find instant solutions to old and comple7 problems. here is no alternative to an

incremental peace process through political, economic and military confidence building

measures. @ramatic gestures or a few summit meetings between top leaders cannot bring peace,

which is only possible incrementally. he main achievements of the composite dialogue process

have been in the area of C=4s designed to enhance India-Pakistan contacts and connectivity .>> It

needs recognition that the dialogue process has not succeeded in resolving any of the ma or

issues in disputes like 6ammu and #ashmir, iachen, ulbul Pro ect or ir Creek. >BProgress on

these essential issues has been thwarted by the unreasonable positions and mutual distrust of one

another. he success of the composite dialogue process depends entirely on the importance both

states give to it. !egardless of how contentious the issues may be, so long as the participants aredetermined to remain engaged and work sincerely together, the process will bear fruit. here are

compelling reasons why India should pro-actively engage with Pakistan. )irst, a tension-free

relationship with Pakistan would help India to consolidate its nationhood, the bonding adhesive

of which is secularism >&. econd, th issue of terrorism can be effectively tackled only in

cooperation with Pakistan and not in confrontation with it. hird, India will not be able to play

its due role in international affairs so long as it is dragged down by its "uarrels with

Pakistan.9"ually is it in Pakistan’s interest to seek accommodation with India for three

counterpart reasons. )irst, the Indian bogey has harmed rather than helped consolidate the

nationhood of Pakistan. econd, Pakistan is unable to become a fullfledged democracy and a

sustained fast-growing economy owing to the disproportionate role assigned to alleged Indian

hostility in the national affairs of the country.

Identif*ing the Positions of &e* Economic Actors and Sectors towards Peace Process

22 &sh%t#sh Misra, H&n a%dit #" th! India akistan p!a ! pr# !ssJ, &%stra*ian .#%rna*

#" Int!rnati#na* &Lairs, #%t*!dg!, ;K, 2007, p 506

23 Mani $hankar &i/ar, HIndia akistan: !tr#sp! t and r#sp! tJ, Wi*h!*) E#n

# hha))!r M!)#ria* ! t%r!, !< D!*hi, 12 .an%ar/ 2011

24 I)p*!)!ntati#n $tat%s #n ! #))!ndati#ns "r#) th! akistan India

ar*ia)!ntariansJ, I D&?, $!pt!)b!r 2013


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here is a huge potential for India and Pakistan in political economy and both states are well

aware of it. hese economic ties can bring both bring peace between both states by developing

political interests and trust. Ashoka’s strategist #autilya had written a separate chapter in

Arthashastra for Fpolitical economy’ and demanded for the relation building with the neighboring

country through trade. )ortunately both countries are developing and competing with the world

economics and there are a lot of sectors which can be improved mutually. )or peace, though,

interaction of people is re"uired and trade sectors are a trusted platform for this purpose. igher

authorities are well aware of this fact as e7-P4 4anmohan ingh stated that the ma or reason

behind India Pakistan animosity is trust deficit. rade channels will facilitate people to

understand each other closely as they are the only nations of the region which used to live

together for entries and were integrated like a single society. o India and Pakistan’s relations are

inherited with linguistic and cultural bonds.


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Trade(

India and Pakistan got independence on the very same day in $%&' but at that time Indian

economy was way too stabili3ed than the Pakistan’s and there were suspicions about the future

collapse of Pakistan’s economy. 9ven Gife maga3ine of 6anuary $%&( had predicted the collapse

of Pakistan’s economy in the near future. oday Pakistan is the &B rd largest economy in the world

and India is $0 th largest economy in the world. /hile up to $%%0 Pakistan’s economy growth was

better than India but after that India changed its inward oriented strategy and the then finance

minister of India reshaped the Indian economy to an advanced level. In $%*0, Pakistan’s e7ports

were even higher than 4alaysia and hailand. Creation of some very premier institutes of higher

education in India was also the foresightedness of Pandit


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he ustainable @evelopment Policy Institute has conducted very precious research on the

formal trade between India and Pakistan and has come up with interesting results. A guess of the

formal trade on the basis of research is described in the table belowL

Sectors Rs- .$illions/)ruits and Megetables +&04edicines +%&0

e7tile B'0(&0pices %*0obacco &&&0

Automobile >*(&0Cosmetics &(00

erbals $$06ewelry ('%*.+

Total 0123144-5

rade on such an enormous level should not let the two states falls a prey to enmity and hostility.

hough India and Pakistan shares a bloody and violent history from the very beginning of their

independence but to prosper both the states need to reconsider their options. rade relations

between these two depend on the foreign policies, which vary from government to government

and so do trade relations. In order to sustain regional stability and peace trade relations should be

based on permanent basis rather on foreign policies.

Energ* "oo,eration(

as ,i,eline(

India’s economy is rapidly growing so as their energy demands. Potentially India is a future’s big

energy market and may absorb new sources of supply as they have materiali3ed the region.

Pakistan’s role in energy market is not of supplier but of a transit state. Currently, Iran-Pakistan-

India gas pipeline pro ect and urkmenistan-Afghanistan-Pakistan-India pipeline are under

consideration. API pro ect’s estimated cost is appro7imately '.* billion dollars. As per the

agreement India will pay transit fee to Pakistan and Pakistan will pay ferrying fee to Afghanistan./hile Iran-Pakistan-India gas pipeline is >'00 km pro ect and Iran is willingly giving *0N of the

installing cost. >*Pakistan can receive its transit fees along with it can purchase it from Iran.

26 @3RKM/ND)@AN A< =AND)@AN PAKD)@AN DN2DA A) PDP/+DN/ 5@APD . A essed

'anua!y 1$, #$1 . htt(:CCwww.isgs.("C(!o?e tsCtu!" enistan-aBghanistan-(a"istan-india-gas-(i(eline-

ta(i-0.


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Pipeline is not only secure and fast mean of supplying gas from India but it will also cut a huge

cost of transportation even after paying transit fees. hese initiatives will bring Pakistan and

India at a trust building platform. hese pro ects will not only add up to the Indo-Pak relations

but also toward the regional stability.

Electricit*(

Pakistan is facing serious electricity crisis for the last decade. Pakistan’s economy is facing a lot

of problems due to energy crises. !ecently Pakistan is looking forward to trade electricity with

India. Central 9lectricity Authority and Power 8rid Corporation of India are designated from

Indian side as the nodal technical agencies. A broad understanding has been reached to connect

the Amritsar and Gahore grids for the possible trade of +004/ of power. >'

Ser6ices(

=oth developing countries re"uire professional services for their different sectors which are still

developing. hese steps will further improve the relations among the people. ome of these

sectors are described below.

Entertainment(

he common culture and language of both states can provide them with a lot of new

opportunities in )ilm, @rama, 4usic and elevision sectors. his industry has a he potential andcan be encouraged by oint productions. 4ovie screening ban is hindering the cooperation which

should be removed along with visa ban, so that individuals can participate in cross-border

industries.

!ealth(

India has some very good health facilities and institutes which are well recogni3ed around the

globe. Pakistan’s patents visits these facilities but figures are not significant. Misa prohibition

should be rela7ed to facilitate the cross-border patients with better health facilities. igher patient flow can also facilitate the doctors in India.

27 )iddiFi, @ouBiF A. >Dndia-Pa"istan oo(e!ation on /ne!gy and /n4i!on ent: @o /nhan e )e u!ity.> &sian #$rvey :#%$-9$. A essed 'anua!y 1$, #$1 . htt(:CCwww.?sto!.o!gCdis o4e!C1$.#8$7C# 0 0 G

sidH#11$ %# 007788IuidH#IuidH0.


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Engineering Industr*(

rade liberali3ation with India will prove very significant for its industrial products. Pakistan

imports its Iron ore, an industrial raw material, from Australia and =ra3il at a very high cost.

Pakistan can trade this raw material from India which can pace Pakistan’s industry at a

significant advantage and can also bring down the cost of steal. @epending on each other for the

industrial goods will make the two countries to reconsider their options for making their foreign

policies.

Agriculture(

India and Pakistan can cooperate in agriculture sector which is a ma or part of 8@P of either

country. Agriculture and the food industry have a huge impact on regional economy even higher

than the telecom or the power industries. rade liberali3ation in fertili3ing industries can even

bring more opportunities of economic growth and 8@P of either country. Indo-Pak trade is

always crises driven but both countries should look forward for building permanent markets in

the region - he recent studies on Pakistan-India trade identify several areas of possible oint ventures and

economic cooperation between the two countries. Potential sectors for economic cooperation between the

two countries Jinclude agricultural products, especially tea >(

"onclusin

/ould cooperation in economic field produce a lock-in effect where dependence on the other’sdecisions making apparatus and could translate into relative security gains; Answer might be a

yes but both countries would re"uire more oint management and it re"uires positive action in the

form of an everyday commitment by the parties to cooperate, and to design policies with

disincentives to counter negative actions such as cutoffs and distortions .It is an open "uestion as

to who the relative gainer might be, but such interactive interdependence would certainly have a

cumulative character. he interdependence would spur trade, perhaps beginning with oint

development on gas-based power and fertili3er industries, and lead to the emergence of groups in

each country with an economic stake in trade with the other. his might, over time, lead to a

greater relative dependence of Pakistan on India, although the absolute level of dependence

28 ul, Nabiha. >/nhan ing Dndo-Pa" @!ade Pe!s(e ti4es B!o Pa"istan.> I'(I&)P&*I#T&'

(I&+%G,E %' %'-+I T RE#%+,TI%' &'( PE& E .,I+(I'G , no. 1## 5#$$9 . A essed

'anua!y 1$, #$1 . htt(:CCwww.i( s.o!gC(dBJBileCissueCD*1##-Ploughsha!es-Nabiha.(dB


25/27

might be small in comparison to the totality of Pakistan’s e7ternal economic relationships. It

might erode the political feasibility of the option of withholding economic cooperation in the

future as a bargaining chip over the #ashmir issue. In a scenario in which there is an

interconnection of their economies by a gas pipeline or an electricity grid, there is nothing that

India can do unilaterally to threaten Pakistan. Again, this is not a loss of a military option since

nucleari3ation has removed such possibilities anyway. =usiness communities must be on

the front lines of trade liberali3ation. In outh Asia, economic relations are better served by the

action-oriented, proactive, problem-solving approach favored by the private sector than by the

more plodding, reactive, and bureaucratic style associated with governments. Additionally, the

private sector is a powerful shaper of public opinion on trade 1popular support for trade

normali3ation increased in Pakistan after its business community became convinced of India’s

willingness to move forward2. Public-private partnerships, particularly those that facilitate moreinterconnectivity through infrastructural improvements 1such as by upgrading highways2, should

also be embraced.

In both Pakistan and India, media outlets, like the business sector, e7ert a powerful influence on

public sentiment. he media can therefore be a useful tool to amplify the advantages of bilateral

trade. 4edia reportage should spotlight consumers pleased about the cheap goods they import

from across the border, and producers happy about the lower costs associated with importing raw

materials and machinery.


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warehousing, and testing laboratories remains strong. o long as direct routes are marred by such

inefficiencies, traders will have little incentive to abandon the longer, more circuitous routes they

have patroni3ed for decades. >%

. A bilateral commission should be set up to oversee the Pakistan-India economic relation-ship,

with a focus on addressing non-tariff barriersE opening up more land routes for tradeE and

promoting more cross-border travel. A regional trade forum 1comprising members of the private

sec-tor, academia, and the media2 should be formed to monitor this bilateral commission. o

accommodate inevitable disagreements, a dispute resolution?grievance redressal mechanism

should be established as well. It should be operated not by the two governments, but by a private

sector consortium incorporating the Confederation of Indian Industries, )ederation of Indian

Chambers of Commerce and Industry, Pakistan =usiness Council, and )ederation of Pakistan

Chambers of Commerce and Industry. ighter Pakistan-India trade links lubricated by more integrated and efficient transport

networks and more open transit and visa arrangements can raise the entire region’s trade

prospects. Pakistan’s e7tension of 4)< status to India puts Pakistan and India on a more e"ual

footing within the outh Asia Association of !egional Cooperation, and provides impetus to

activate the long-moribund outh Asian )ree rade Agreement 1 A) A2.

If this negotiating process is sidelined, critics of trade normali3ation in Pakistan would be

emboldened, because they could argue that Pakistan’s principled positions on political and

territorial issues have been sacrificed for purely material gain. uch critics could also assert that

more trade does nothing to resolve these core issues.

o protect the integrity of both trade normali3ation and the broader peace process, India should

not impose punitive trade measures on Pakistan, or close its borders, in the event of isolated

terrorist attacks perpetrated by Pakistan-based e7tremists 1who might like nothing better than to

spark a harsh Indian response2. =oth sides should take care not to allow new security or political

tensions to spill into trade or economic relations. uspending trade in retaliation for

developments on the security front will further undercut trust, and complicate efforts to establish

a stable and long-term bilateral economic and political relationship.

2


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9conomic circum-stances dictate that each side act e7peditiously to cement trade normali3ation.

Comparative advantage e7ists not only in terms of goods to be traded, but also business

environment .Pakistan is currently ranked higher than India on numerous business and

infrastructural-efficiency measures. B0 his could change, however, if India lowers its business

costs and upgrades its infrastructure. Additionally, rich-country trading partners are facing

economic slowdowns, and 9urope’s financial crisis has contributed to diminished e7ports and

portfolio capital, as well as to reduced 8@P growth in developing countries. his all provides an

added incentive to ramp up Pakistan-India trade.

30 Kugel an, Mi hael. Pa/istan)India Trade: What 'eeds to .e (one0 What (oes It "atter0

Washington, 2. .: Wood!ow Wilson Dnte!national ente! Bo! ) hola!s, Asia P!og!a , #$18.

Documents

political economy of peace process