Trade for Economic Growth

Pakistan and India have not fared well over the past two decades in negotiating confidence-building and nuclear risk-reduction measures.  Existing measures, such as prior notifications for certain military exercises and ballistic missile flight tests, have been useful, but regrettably sparse. Many believed that these CBMs would lead to progressively more ambitious and stabilizing measures. Instead, the process of negotiating military- and nuclear-related CBMs has been like peeling an onion, one thin layer at a time.

Officials in Pakistan and India have viewed these CBMs as devices to alleviate external pressures after a crisis, as trading material, or as add-ons when bigger issues like Kashmir are properly dealt with.  If government officials viewed CBMs as worthwhile steps in and of themselves, a cruise missile flight test notification agreement and an agreement to prevent incidents at sea would have been negotiated long ago. Deals on a mutual withdrawal from the Siachen Glacier and a settlement of the Sir Creek dispute have also been within grasp for many years.

An agreement to permanently demilitarize Siachen appears stuck over whether or not to recognize in some fashion positions seized by the Indian Army in 1984. The continuing dispute over Sir Creek revolves around the extension of the land border seaward. Both countries capture fishermen that have crossed this imaginary, disputed line and then release them when they want to signal a warming trend. This ritual of rounding up and freeing the usual suspects no longer counts as a CBM because it has become a thoroughly expected peel of the onion.  
       
If India and Pakistan actually traded more onions, as well as other goods and services, this disappointing, familiar script might change. Increased trade could engage powerful cross-border constituencies to support more normal relations between India and Pakistan. If significant trade occurred between Sindh and Gujurat as well as across the Punjab divide, it would be hard to reverse course.
       
Trade expansion, like military CBMs, would also proceed in stages, but is likely to move at a faster pace because entrepreneurs have more clout and are in more of a hurry than diplomats. Increased cross-border trade is resisted by the privileged few who stand to lose profits if hard-pressed customers benefit from lower prices. Trade with India is also staunchly opposed by Hafiz Saeed and his followers.  It would not be surprising if die-hard groups seek once again to target iconic targets in India to halt improved bilateral ties.

The governments of Pakistan and India have been widely dismissed as being weak and beleaguered by scandal.  And yet Islamabad has taken constructive steps to increase direct trade with India. Pakistan has now given India Most Favored Nation trading status and is switching from a positive to a negative list of tradable items. This could become another exercise in onion peeling; after all, India accorded Pakistan MFN status in 1996, and the results have been negligible. At least now, prospects for direct trade are better than before. Prime Minister Manmohan Singh appears quite ready to reciprocate Islamabad’s moves. 

Pakistan cannot hope to increase its rate of economic growth, which now lags behind population growth, without more normal ties and more direct trade with what should be its largest natural trading partner. Instead, direct trade between Pakistan and India was $2.7 billion in 2010, less than India’s trade with Sri Lanka.  Pakistan exports more goods to Bangladesh than to India.

This abnormal situation could now change if Pakistan’s military leadership is on board. Islamabad’s trade initiatives imply Rawalpindi’s consent, perhaps because Pakistan’s military will benefit from economic growth, and because a well-funded Army that resides within a weak economy will generate increased public resentment. But Pakistan’s Army retains an abiding distrust and deep grievances against India, and no large institution holds monolithic views. Since improved trade can be short-circuited by mass-casualty attacks in India, the test of the intentions and competence of the Army leadership is whether it gains advance warning of future attacks and takes effective measures to prevent them.
       
India, boasting an economy over eight times larger than Pakistan, also has much to prove.  Generous terms of trade can serve New Delhi’s interests as well as Pakistan’s.  But India’s civil servants and diplomats take a back seat to no one when it comes to onion-peeling. Political leaders who want to accomplish something important and unusual in India will have to ride herd over a government and civil service bureaucracy that stubbornly resists change. The same holds true for Pakistan.
       
It is unclear whether Prime Minister Singh and President Zardari can follow through with real growth in direct trade.  They have both expressed longstanding, oft-repeated desires to normalize relations. This is the most convenient way to do so. 

Michael Krepon is co-founder of Stimson. 

This essay appeared in the Pakistani Daily, Dawn, on May 14, 2012.