Nearly there

Published: March 1, 2012

Trade normalisation between the two countries would be completed by the end of this year.

It would have been nice if they had done it while Indian Commerce Minister Anand Sharma was in Pakistan, but at long last, the government of Pakistan has decided to liberalise trade with India by moving from a positive list to a negative list. The decision by the federal cabinet on February 29, moves Pakistan to defining only the items that are banned for trading (the ‘negative’ list), and allowing the rest. Previously, the government defined what was allowed for trading (the ‘positive’ list), and banned the rest. And by December 31 of this year, even that negative list will be phased out.

New Delhi has been calling on Islamabad to make this move as part of the normalisation process. At long last, the politicians in Islamabad appear to have mustered up the courage to make the transition that every sensible economist and policy analyst says is good for both countries. At least, in one area of economic policy, this government appears to be headed in the right direction. We would like to applaud the patient perseverance of the civil servants in the commerce ministry and the Foreign Office, who have been pushing for this policy and did all the necessary ground work to make it possible. Commerce Secretary Zafar Mehmood’s leadership on this matter has been particularly commendable. Foreign Minister, Hina Rabbani Khar was reportedly also instrumental in overcoming opposition from sections of the establishment that are still wary of commercial ties with India.

Yet, it seems that in arriving at this pleasant outcome, the free market liberals in the government have had to make some unpleasant compromises. For instance, the negative list was supposed to have been kept ‘short’ to 636 items, per the understanding with India. Unfortunately, the list is currently about 1,209 items, far longer than it should be. It is gratifying, however, that the government is nonetheless committed to phasing it out completely by the end of the year. There will undoubtedly be lobbyists who will argue that this liberalisation is bad for Pakistani industry and it is true that at least some industries will suffer. But in the long-run, there is no arguing with the fact that the Pakistani economy as a whole stands to benefit from being able to sell to a larger Indian market and access their cheaper goods.

Published in The Express Tribune, March 2nd, 2012.

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Reader Comments (1)

  • Marium Lodhi
    Mar 3, 2012 - 12:38AM

    Too much liberalization seldom serves the interest of a state like Pakistan. While this may come as a welcome move under standard economic wisdom , economic theory also suggests that increased access to market does not necessarily create market demand!

    Have we truly done our homework on whether Pakistan’s exports are competitive ? Many economists will argue that such liberalization will create competitiveness…

    The question to be asked however is whether our lack of quality exports is due to a competition deficit in the market, lack of technical expertise or simply because the government has failed to create a stable business environment for our local producers( energy crisis, cronyism etc )?

    Not being a bearer of bad news I am all out for increased regional trade however, Pakistani Authorities must supplement this with a policy to improve the standard of its domestic production. Otherwise be prepared for a market capture by the Indians.I eagerly await for a corresponding adjustment to our Industrial policy making concessions for such liberalization.

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