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Trade With India:Pakistan Starts Emulating China?

During his visit to Pakistan in December,1996, Mr.Jiang Zemin, the then Chinese President, made a speech titled “Carrying Forward Generations Of Friendly And Good-neighbourly Relations And Endeavoring Towards A Better Tomorrow For All” in Islamabad on December 2, 1996. He highlighted five points which,according to him, governed China’s foreign policy towards the South Asian countries.He explained one of these points in the following words:”We should look at the differences or disputes from a long perspective, seeking a just and reasonable settlement through consultations and negotiations while bearing in mind the larger picture. If certain issues cannot be resolved for the time being, they may be shelved temporarily so that they will not affect the normal state-to-state relations.”

2.Even though he did not make any specific reference to India or Pakistan,his highlighting this point was widely interpreted in Pakistan as a hint to it that it should emulate China, which has not allowed its long-standing border dispute with India to come in the way of the development of economic and other relations between the countries.It was seen as an advice to Pakistan that while negotiating with India on the Kashmir issue,it should not allow it to come in the way of normal economic and other relations with India.Ever since Pakistan became independent in 1947, successive Governments have been following a policy of not agreeing to a normalisation of trade relations with India till the so-called Kashmir dispute was resolved to mutual satisfaction. While the Pakistani authorities always cited the pending Kashmir issue as standing in the way of normal trade relations, another reason was their fear that their industries might not be able to compete with their Indian counterparts if trade was normalised.

3.It was reported at that time that Mr.Jiang had raised this point more explicitly with the Pakistani authorities and suggested that Pakistan should emulate China’s example by normalising its trade relations with India without allowing them to remain frozen till the Kashmir issue was resolved.They reportedly did not accept his advice.

4.Pakistan’s policy on the question of normalising its trade relations with India consisted of the following:

  1. Not reciprocating India’s action in granting the Most Favoured Nation Status to Pakistan till the Kashmir issue was resolved.

  2. Allowing a strictly limited bilateral trade only in respect of certain commodities included in a positive list without accepting India’s suggestion of having a limited negative list mentioning commodities which cannot be traded and allowing restriction-free trade in respect of all commodities not figuring in the list.

  3. Not allowing Indian investments in Pakistan and

  4. Not allowing banks to open branches in each other’s territory.

5.In addition, as part of this policy, the Governments of Mrs.Benazir Bhutto and Mr.Nawaz Sharif, which were in power between 1993 and 1999, also rejected repeatedly an Iranian proposal to construct a gas pipeline through Pakistani territory for the supply of gas to Pakistan and India.

6.The first change in this policy was introduced by President General Pervez Musharraf shortly after the army overthrew Mr.Nawaz Sharif in October,1999,and the General took over as the Chief Executive.He decided to treat the gas pipeline proposal as a stand alone issue and initiated talks with Iran and India on this project. He justified his decision to consider this proposal without linking it to a solution to the Kashmir question on the ground that in view of Pakistan’s desperate economic situation at that time, it would need the transit fee estimated at US$700 million in 2000 which it would receive for allowing this pipeline to be constructed.

7.The removal of economic restrictions on Pakistan by the West and multilateral financial institutions after 9/11 and the flow offunds from them led to an improvement in the economic situation, thereby reducing its dependence on the transit fee for economic sustenance. Despite this,Musharaff decided to continue the discussions with India and Iran on the construction of the pipeline and to continue to treat this as a stand-alone issue.

8.As a result of the current political crisis confronting Musharrafin the wake of his unsuccessful attempt to remove Chief Justice Iftikar Mohammad Chaudhury from the office of Chief Justice of the Supreme Court,the Pakistan Government has been going slow in the bilateral talks with India on the Kashmir issue and on bilateral co-operation in dealing with terrorism. Pakistani officials have been attributing the lack of forward movement on these two issues since March,2007,to the preoccupation of Musharraf and other leaders with the forthcoming elections to the National Assembly, which are due by the end of this year,and to Musharraf’s own preoccupation with arrangements for his re-election as the President for a second term.

9.However,this slowing-down has not affected the bilateral talks on economic matters.This became evident during the third round of the bilateral talks on economic co-operation held by the Commerce Secretaries of the two Governments at New Delhi on August 2 and 3,2007. The meeting reportedly took a significant decision to work for an increase in the value of the bilateral trade from US$1.7 billion as it was in 2006-07to US$10 billion by 2010. Among other important decisions taken were allowing specified banks of the two countries to open branches in each other’s territory, expanding the trade basket, improving transportation links, reducing tariffs and mutual technical assistance in capacity building.

10.Thus,it is obvious that even while continuing to stick to the stand that there cannot be a normalisation of trade relations till the Kashmir issue is resolved, Musharraf has been quietly allowing a movement towards a de facto normalisation. De jure restrictions, but de facto normalisation, seem to be the direction in which the bilateral economic relations are moving.

11.Welcoming this, the “Post”, the Pakistani daily newspaper, said in an editorial on August 4,2007:”Besides innumerable other benefits of cross-border trade, one major gain for both India and Pakistan would be that the two countries that have often been on the brink of war would be better placed to work out their differences and serious problems in the backdrop of strong economic, trade and business relationships. China and the US are prime examples in this regard.Given their strong business ties in recent years, whenever a point of conflict arose between the two countries, the trade and investors’lobby mediated with suggestions in order to save their mutual interests.For Pakistan and India in particular,such initiatives can be a gateway to mutually work out their long pending issues.It is in the best interest of both the countries to have strong economic ties. This would not only stabilise the region,but also allow both countries to grow beyond their differences and contribute to their economic development. The new promise between the two countries is, therefore,to be welcomed.”

12.This is what India has been saying for many years and what Mr.Jiang told the Pakistanis in December,1996.

(The writer, Mr B.Raman,is Additional Secretary (retd), Cabinet Secretariat, Govt.ofIndia,New Delhi,and,presently,Director,Institute For Topical Studies,Chennai.He is also associated with the Chennai Centre For China Studies.E-mail: seventyone2@gmail.com )

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