Majyd Aziz
Presented at ICRIER’s
3rd Annual Conference on
“Normalizing
India-Pakistan Trade”
New Delhi, India,
February 02-03, 2015
Preamble:
Stakeholders, economists, researchers and
people with eyes towards the future consider facilitation of trade and
investment as the catalyst for global peace. The acronyms, MFN, WTO, FTA, and NTB,
are some of the global trade facilitation and rationalization tools. In the
South Asian context, all these acronyms have a different connotation. They are confrontational
tools meant to score nationalistic, political, and brinkmanship points. These
factors take on an exasperating position when normalization of trade process
zeroes into the India Pakistan perspective.
Pakistan grants MFN to India, Pakistan does
not grant MFN to India status is akin to plucking the petals of a flower by
minors playing their childish games. But, in the environment of today’s
regional trade, this ensues into disconcerting implications. The issue is
further compounded by resorting to another tool that is universally referred to
as Non-Tariff Trade Barriers. This, too, is another roadblock in facilitating
smooth and fair trade.
The Pakistani exporters as well as the
government strongly accuse New Delhi of negative usage of various rules, regulations
and procedures while the Indian government maintains its oft-repeated mantra
that these are not Pakistani-specific. The on-going accusations and denials
impede the trade process and have deterred Pakistani exporters from taking rewarding
advantage of the potential available in the Indian marketplace.
Trade organizations as well as pragmatic think
tanks and researchers have been very vociferous and forthright in their
contention that there exists a deep-rooted bias against the entry of products
from Pakistan into India. Research studies and empirical evidence further
strengthen this viewpoint. There is nothing new in protecting domestic industry
against external competition or foreign goods that have a relatively lower
selling price. Thus, Non-Tariff Trade Barriers are conceived in this respect.
NTBs are structured by all countries on a regular basis and it is the
prescribed right of countries to protect and promote their local industry.
The question than arises is whether there are country-specific
NTBs and whether they are apparently real or whether these are perceived as
NTBs, In the Indo-Pak context, NTBs fall under three main categories. These are
Commercial, Consular and Combative.
Commercial:
It is the
concerted opinion of Pakistani exporters that India has the most protective
tariff regime against Pakistan within the SAARC region. India has Free Trade Agreements
with Nepal, Bhutan and Sri Lanka, and a Preferential Trade Agreement with
Afghanistan. Being an LDC, Bangladesh also gets favorable preferential treatment
under SAFTA. Pakistan only has a FTA with Sri Lanka among SAARC countries and
therefore relatively isolated in the SAARC region. At HS‐6 level, 30 % of the
items on India’s Sensitive List are agricultural while 34 % are textile
products. The corresponding figures on Pakistan’s Sensitive List are 4% and 24%
respectively. Pakistan’s Sensitive List restricts only 17% of imports into the
country, whereas the Sensitive List of India restricts about 40% of imports.
Karachi
Chamber of Commerce and Industry (KCCI) routinely seeks feedback from members
and Associations regarding the difficulties faced by those who export to India.
Arbitrary custom valuation is a major
concern for exporters. Indian Custom Valuation Rules 2007 allows Customs
Officers substantial discretion to reject declared value and:
a) Reclassify
goods as those having high duty
b) In case of
valuation as per international prices, value the goods at the prevalent price
on arrival rather than at the time of sale, if the international price has
risen during the transit period
c) Value the
goods based on prices of similar products from much more expensive markets such
as the EU thus raising the Customs value for valuing the imported goods
KCCI also
received anecdotal evidence from members regarding arbitrary treatment of goods
from Pakistan. A few anecdotal examples are mentioned to justify the contention
of KCCI members. Pakistan Fruits and Vegetable Association complained that
agricultural produce (e.g. onions) is at times valued as ‘similar’ or
‘identical’ products imported from EU, thus raising the value by 200% or more.
A large cross section of textiles exporters complained of an arbitrary increase
in value of up to 30%. Hence, certain exporters of bed linen export to India
via Dubai mainly to avoid Customs valuation issues. For participants of a trade
fair at Ludhiana, while the shipment was exempted from otherwise required
certifications, the entire consignment of goods to be exhibited was valued at
up to 50% more than that declared. It was reported by one fan exporter that
mist fans priced at US $80 were evaluated at approximately US $300. As a
result, the Indian importer did not place a follow up order. A SAFTA
certificate is required if the product receives a concession under the SAFTA
regime. In some instances a SAFTA certificate of origin was not accepted at
land borders as the relevant SROs had not been communicated to the Customs
authorities.
KCCI
members also lamented the arbitrary method for the calculation of import
duties, and at the same time, the administration of tariffs through numerous notifications
making the tariff structure complicated and non‐transparent. Calculation of all
charges applied to imports, including landing charges, the effective Customs
duty, the additional Customs duty, the special additional Customs duty, and the
education Cess show an average protection of 25.6% compared to the average
applied MFN rate of 12%. KCCI members also report that although Indian
importers of Pakistani goods may file an appeal against Customs decisions on
valuation matters, the appeal process is lengthy and cumbersome, and thus importers
have no option but to accept the re‐classification, over‐valuation and other
disputes in order to avoid detention and eventually other business
consequences.
Pakistani
cement has substantial demand in India. Exports to India have surged recently
despite facing NTBs, and it is mainly due to improvement in logistic services
and acceptable transportation of cement through Wagah. This is convenient for cement
units located in Punjab and KPK since the major volume of cement exports is
primarily through this route. Pakistan is producing high quality cement and even
Bureau of Indian Standards and other accredited Indian labs have confirmed this.
Nevertheless, the procedure for obtaining quality assurance certificate is
still complicated and it is imperative that the procedure be simplified and
arbitrary decisions be discouraged.
It is the shared
opinion of many exporters that there is an intentional bias against Pakistani
products at Mumbai Customs compared to other points of entry. It is suggested
that a comparative study should be initiated to determine the differences based
on clearance time, arbitrary valuation, and other bureaucratic red-tape. This
would provide a clear picture whether NTBs are real or misguidedly perceived by
Pakistani exporters.
As a means
to overcoming India’s NTB, the two countries signed the following three agreements
in September of 2012. Unfortunately, these have not been formally implemented:
· Cooperation and Mutual Assistance in
Customs Matters
· Bilateral Cooperation Agreement
between Bureau of Indian Standards and Pakistan Standards & Quality Control
Authority
· Agreement on the Redressal of Trade
Grievances
Both India
and Pakistan had also announced to facilitate the financial sector, mainly
through allowing the setting up of bank branches of designated banks of both
countries. Since there are no
bank branches in each other’s country, the correspondent banks impose their own
rules and procedures that hamper instead of facilitate financial transactions.
In the Indo-Pak case, the Pakistani banks open Letter of Credit through foreign
banks and vice versa. There is also no NOSTRO arrangement between Indian and
Pakistani banks. There is no Test Arrangement used within the banking channels for
Indo-Pak trade. Moreover, additional expenses are incurred due to procedural
delays and payments made through Asian Clearing Union. There are many other
deterrents that impact negatively on the cost of doing business by businessmen
on both sides of the border.
Consular:
Is it a sagacious
business decision to do trade or make investments in a country where the trader
or investor can be denied visa for whatever reason or where there is inordinate
delay in granting of visa? This is often the case at both the Indian and
Pakistani High Commissions. On the one hand, Ministers and diplomats assure
businessmen that fast track visas would be the norm for them, but on the
negative side, whenever tension heats up over contentious issues, the mood
changes in the Consular offices. Genuine Pakistani businessmen had hailed the
issuance of one-year, ten-cities, non-police reporting, and multiple-entry
visas. However, when matters flared up at the border in the last some months,
both High Commissions changed course and left a large number of businessmen of
both countries in a frustrated environment.
The point
to make is that this liberal process should not be abandoned or put in a slow
gear. Liberalization of visa regime is the highlight of the normalization
process and has ensued into an enhancement in bilateral trade. Nowadays, KCCI
has been inundated by businessmen demanding the Chamber hierarchy to agitate
with the Indian High Commission regarding delays in granting or outright refusal
of visas. Today, visas have become a serious NTB.
Combative:
Although
many would not consider militaristic skirmishes at the borders or heightened
calls for retributive action over touchy issues, the fact is that all these
have evolved into a disturbing scenario that has gradually become a NTB. The
scenario at the border, whether by provocation, by design or even by embedded
hatred, has aggravated the distrust factor. Fanning of extremist sentiments by
religious or nationalistic fundamentalists or retired members of the Armed
Forces have added fuel to the fire. Jingoism and emotions are on a crescendo.
These retired service personnel are obnoxiously vocal on the print and
electronic media and both the governments must rein in these personalities. US General Omar Bradley very wisely stated that “I am convinced that the best service a retired General can
perform is to turn in his tongue along with his suit and to mothball his
opinions.”
Conclusion:
NTBs are
not just confined to Indo-Pak trade. NTBs are protectionist tools developed and
used by nearly all countries. New NTBs crop up all the time. However, they are
major impediments in the global trade and against the spirit of WTO. Although
disregarding arbitrary or discretionary reliance on NTBs or even eliminating
them in an urgent mode is unlikely, efforts should be made to agree on
commitments to address these through meaningful negotiations. Allowing
political expediencies or military conflicts or even diplomatic brinkmanship to
intrude into the normalization process would obstruct any developments or
breakthroughs that have been made in confidence building measures. The business
community is the premier stakeholder in this process and it is incumbent upon
both the governments to involve them in all such negotiations or dialogues so
that sanity is introduced in bilateral trade and investment. The other course
of action is to let the process get derailed and continue with informal cross
border, third country, or undocumented trade.
Shakti Gawain, an American New Age author has given a poignant
message to organizations such as ICRIER and the business community. She states
that “When we consistently suppress and
distrust our intuitive knowingness, looking instead for authority, validation,
and approval from others, we give our personal power away.”
