In the aftermath of Pahalgam attack, Pakistan and India plunged into tit for tat response and Islamabad declared that all trade with India including to and from any third country through Pakistan is suspended forthwith.
This step requires implementation of the rules of origin of the products in their true letter and spirit, as multi-million dollar products were being routed through Dubai in recent years after the halting of trade and economic ties between the two arch rivals of South Asian nuclear states. South Asia proved as the least integrated region, so it remained in the clutches of poverty. However, there is a need to ascertain its reasons, and the major responsibilities lie on the shoulders of India as the much-awaited initiative of the South Asian Free Trade Agreement (SAFTA) remained an unfulfilled agenda mainly because of India’s rigid stance in the last few decades.
When India unilaterally suspended the Indus Basin Treaty in the aftermath of the Pahalgam attack without conducting any investigations so Pakistan was left with no other options but to respond in a befitting manner.
Although trade between the two countries through official channels was already halted but it continued through a third country. Now, Pakistan has decided to slap a ban on trade through a third country. So the rules of origin will have to be implemented in true letter and spirit to stop the trade of goods.
There are different studies conducted by experts in the past proved that bilateral trade might benefit both Pakistan and India. In the short term, Pakistan might face a loss, but medium to long term, it could reap the benefits. In the short run, India would extract the maximum benefits.
A State Bank of Pakistan study concluded that trade between Pak-India could go up by five times if Most Favored Nation (MFN) status were granted and nontariff barriers were removed by both India and Pakistan. Zareen Naqvi and Philip Schuler estimated that the trade between the two countries could jump from $2.5 billion in 2007–08 to $5 to 10 billion, or two to four times its current level.
Mohsin Khan, a senior fellow at the Peterson Institute for International Economics and former IMF official, had suggested that trade between the two countries could be five to ten times larger than the present value, thereby raising GDP and household incomes in both countries. Net welfare gains are positive in every single scenario, ranging from the most conservative to the most optimistic.
Former Governor SBP Dr Ishrat Hussain had argued in the past that the trade between Pakistan and India would be beneficial for Pakistan on a medium- to long-term basis; it was established through evidence that Islamabad’s benefit would be eight times more than what we were getting today. There is a study that the bilateral trade between Pakistan and India, normalized it could go up to $37 billion per annum.
Keeping in view recent escalation, the dream of promoting trade and economic ties might remain an unfulfilled dream, so both countries must defuse escalating tension and normalize relations, then move towards regional trade.
