Indo-Pak Non-Tariff Barriers: Real and Perceived

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.”