Pakistan business hits at barriers to India trade

LAHORE, Pakistan, Nov 27 (AFP): Cosmetics are smuggled by donkey through Afghanistan, chemicals and medicines track through Dubai. But only a fraction of legal trade travels directly from India to Pakistan. A baffling array of legal and practical barriers to exports between the suspicious neighbours has spurned unofficial trade worth up to $10 billion, dwarfing official exchanges of $2.7 billion. But a recent rapprochement that looks to normalise trading relations between India and Pakistan could end a decades-old system that stifles business and saps profits through networks of middlemen, money changers and smugglers. A booklet of 1,945 items lists trade allowed to run from India to Pakistan-but only 108 can be trafficked directly by road through the border post at Wagah, near the eastern border city of Lahore. At old markets in Lahore, traders peddle whitening creams and hair dyes that have journeyed from India to Karachi by sea bound for Afghanistan, before being reloaded and smuggled along the Taliban-hit Hindu Kush to re- enter Pakistan. Along the way a simple anti-wrinkle cream rises from 75 rupees (85 cents) to 160 rupees ($1.82), while black hair dye doubles from five to 10 rupees. Tonnes of industrial chemicals and drugs travel into Dubai, where their port of origin is relabelled to hide their Indian provenance before being sent on to Pakistan. The process entails a mark-up of 15-20 per cent, say importers. But 15 years after India granted Pakistan "Most Favoured Nation" status in line with World Trade Organisation (WTO) rules, Pakistan this month finally agreed to return suit, paving the way for a radical reorganisation of bilateral trade. Pakistan has pledged to open its market to over 7,000 products from India over the next three months and says India should have MFN status by the end of 2012, a step to removing discriminatory higher pricing and duty tariffs. The list of nearly 2,000 items allowed for trade is to be replaced by a list of disallowed items, and a second trading post has been opened at Wagah. Observers say the rapprochement signals a seismic shift from Pakistan's traditional and strategic antipathy to India, and a deeper economic engagement between the nuclear rivals that is crucial for lasting peace in the region. "People who are pro-trade have prevailed. For the first time our strategists are viewing economic security as a significant element of national security," said Abid Hussein, who teaches trade policy at Lahore University of Management Science. The IMF, which failed to agree a loan package for Pakistan this year amid stalemate on economic reforms, says that GDP growth for the current fiscal year is unlikely to top 3.5 per cent, compared with more than double that for regional superpower India. But the Pakistan Business Council estimates that enhanced bilateral trade could bump its growth rate by 1-2 per cent. Experts predict $1.5-2 billion could be saved by routing imports directly into India and its 1.2 billion consumers.