Pakistan-India Trade:

Nisha Taneja
It is important to acknowledge that such estimates have their limitations.
First, all computations are based on only one year’s data (2010).
While using data for one year allows us to focus on the most recent
data, this approach excludes the items that were traded in previous years.
Second, these estimates do not take into account differences in the prices
of commodities being supplied by the partner country and by suppliers
from the rest of the world.
The eVoluTion of india-PaKisTan Trade:
froM PosiTiVe lisTs To Mfn
In the period following the partition of India and Pakistan until the formation
of the World Trade Organization (WTO), the two countries traded
in a limited number of items. In 1996, India accorded MFN status to
Pakistan. However, Pakistan continued to follow the positive list approach
for imports from India. Even with the commencement of the South Asian
Free Trade Area (SAFTA) in 2006, Pakistan did not grant MFN status to
India. The positive list approach was a clear violation of SAFTA, as it implied
discriminatory treatment vis-à-vis other member countries.
Trading under the positive list approach led to massive informal
trade flows, mostly in items excluded from the positive list. In 2004–
05, informal trade was estimated to be as large as formal trade (Taneja
2005), indicating the vast potential that exists between the two countries.
Almost 88 percent of informal trade is routed through third countries
(mostly Dubai). Here, goods enter into the Pakistani market after
passing through Iran and Afghanistan, or directly to Karachi by sea.
Even though an expansion of the positive list from 875 items in
2000 to 1,934 items in 2009 led to increased trade, the expansion was
concentrated in three sectors: chemicals, base metals, and machinery
and electronics—accounting for 59 percent of the total number of
items on the positive list in 2009. Also, the expansion was not based on
any economic criteria. In several sectors there was no expansion in the
positive list, as protectionist lobbies with vested interests did not allow
additional market access to Indian products. These included sectors
like footwear and other accessories, ceramic and glass products, and
gems and jewelry (Table 3).
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