Summary of Factors Hindering Pakistan's Trade with India

FPCCI – Research & DevelopmentFactors Hindering Pakistan’s Trade with IndiaApril 20, 2011A. Problems faced by Pakistani ExportersI. Land Trade Facilitation1. Rail Routea. There are several bottlenecks on the rail route, such as the unavailability ofnecessary equipment such as rail wagons, rakes, etc, and insufficientinfrastructure, such as customs house agents, sheds, and weighing and X-raymachines.b. No cargo trains are allowed through the Sindh route, even though aconsiderable amount was spent on widening the gauge of tracks. Openingthis route will save a huge amount of freight now being paid as ocean freightto shipping lines, which take almost ten days for loading and unloading. Onthe other hand, trains would allow cargo to reach dry ports within a period of24 hours at lower handling cost.2. Road Routea. Only a limited number of items are allowed to be traded via the road route.There is no warehousing facility on either side of the border. There is no coldstorage facility available at the border, even though perishables are oftentraded. Trade takes place only from 8:00 a.m. to 4:00 p.m., after which thegate is shut. There is no warehouse-to-warehouse transportation facility.b. A cross-truck Transportation Agreement was signed in August/September2007, allowing 100 trucks daily from each side of the Wagah/Attari checkpost. Approximately 100 Indian trucks enter Pakistan daily with Indianproducts since 2007. But regretfully, the Indian side does not allow Pakistanitrucks to cross into India to date.Suggestions:1. Trading of all items through land routes (Sindh and Punjab) should be taken up moreseriously, and the process should be smoothened.2. As there is insufficient space on trains, it is necessary to allow recognized andregistered transport companies’ trucks to transfer goods from warehouse-towarehouse.This will save us extra handling charges on logistics and goods can bedelivered to dry ports, or customs bonded houses.2

FPCCI – Research & DevelopmentApril 20, 2011II.Technical barriers to trade1. Indian certification requirements, especially by the Bureau of Indian Standards(BIS), have affected the export of our products, such as textiles, fresh fruits,vegetables and cement, to India. Many commodities cannot enter without qualitycertification by the BIS.2. There are 24 Indian standard setting bodies, both at the centre and state level,unlike Pakistan, where there is a single authority. Foreign exporters are oftenconfused about what the national standard is.3. There is also a multiplicity of rules and regulations, multiple certifying bodies, andseveral agencies involved in enforcement of standards. This creates confusionamong exporters about who the certifying agencies are, and what law/regulationshould be applicable from amongst the multiple laws for the same purpose.4. India has enforced mandatory certification for 109 products, down from over 150products some time back. The mandatory quality certification covers a wide rangeof products: e.g. food items, food colours, cement, gas cylinders and valves,electrical appliances and accessories, multipurpose dry batteries, X-ray equipment,feeding bottles, mineral water and clinical thermometers etc. Imports of theseitems are allowed only after Bureau of Indian Standards certification andpermission to use the BIS mark.5. For certification of these 109 items, detailed requirements have been issued under 7different acts. It is a general complaint that there is no single official publicationthat covers all information on tariffs, fees and tax rates as well as the legislationsunder which certain formalities are to be completed. All these are given in differentacts and all acts have detailed rules. Most of the requirements emanate from theserules. This makes the whole system very cumbersome, time consuming andopaque. Hence, there is total lack of transparency. The standards specified are inmany cases stricter than even the international standards e.g. standards for bottledwater are stricter than the internationally accepted Codex Alimentarius and thoseadopted by EU.6. According to Indian legislation, applicants for BIS licences have to pay applicationfees, processing charges, and expenses of the inspection visits from India toPakistan or wherever the applicant’s manufacturing facilities are located. Testingcosts, annual marking fees for the licences and licence fees have to be paidseparately. The foreign manufacturer is also required to set up a liaison or branchoffice located in India with the permission of Reserve Bank of India. The branchoffice itself is also required to meet all requirements with respect to BIS acts, rulesand regulations for the purposes of BIS license and the rules/regulations of theReserve Bank of India.7. A license issued for any product is valid for one year only and has to be renewedannually. Before the renewal, new inspections and testing of samples are required.3

FPCCI – Research & DevelopmentApril 20, 2011All the costs, as well as renewal fees must again be borne by the applicant firms,year after year. Licensing fees include the cost of the initial inspector’s visit andtests, an annual fee of approximately $2,000. The marking fee is 1% of the value ofcertified goods imported into India. This is virtually a 1% Customs Duty collectedon the entire imports.8. A system now exists by which foreign companies can receive direct certification forproducts made outside India, provided BIS has first inspected the productionfacility (at the manufacturer’s expense). This system is however not withoutproblems and all the above requirements have to be fulfilled.9. In the case of labelling and marking requirements the importers also face difficultieswith the controls carried out by accredited laboratories. The results of thelaboratory tests cannot be challenged. There is no maximum time limit for the tests.Sometimes, the accredited laboratory wrongly classifies and analyses the productunder different standards, thus creating uncertainty and confusion. In many of thecases, the importer is burdened with heavy storage charges and the products arenot always stored in adequate conditions.10. Specific Technical Barriersa. Textilesi. Pakistan is in a position to market its textiles in India but the strict conditionslaid down under the Textiles (Consumer Protection) Regulation of 1988,are a major barrier.ii. Pakistani fabric exporters are required to obtain a pre-shipment certificatefrom a textile testing laboratory in Pakistan certifying non-use ofhazardous dyes. In some cases even the EU accredited labs have beenrejected by Indian customs making zero rate exports impossible.b. Cementi. Cement imports into India are subject to registration by the BIS. Beforegetting BIS certificates, many formalities have to be met, includingphysical inspection of the manufacturing units by a BIS team andexamination of samples drawn for laboratory tests.ii. Cement exports to India from Pakistan have decreased from 60,000 tonesmonthly average to a mere 15,000 tones mainly due to the delay inrenewal of quality certification by BIS. Our exporters’ BIS certificates hadexpired in August 2010. Exporters are waiting for BIS certificates for last5-6 months (they had applied in June 2010)4

FPCCI – Research & DevelopmentApril 20, 2011c. Food itemsi. The rules and regulations regarding food items are very complicated anddetailed, and provide enormous powers to the customs authorities, todetain and even completely stop imports, for minor infringements ofrules and procedures.ii. Rule 32 of the Prevention of Adulteration of Food Rules, 1955 framed underthe powers derived from the Act of the same name, is a classic example.Rule 32 deals with the packing and labeling of foods. This rule alone has30 provisos and provisos within provisos. In addition, there are also crossreferences to other rules. These rules prescribe the contents to bespecified on the label, the size of the label, the design of the label, theareas specified for display panels, details of colours and flavours, tradename or description of food contained in the package, names ofingredients used in the product by weight and volume etc.iii. In the case of artificial flavouring substances the label may not declare thechemical names of the flavour. In the case of natural flavouringsubstances or natural identical flavouring substances, the common nameof flavours has to be used.iv. If gelatin is used as an ingredient the word “gelatin – animal origin” is to beinscribed. If any article of food contains whole or part of any animalincluding birds, fresh water or marine animals or eggs or products of anyanimal origin (but not including milk or milk products) a declaration is tobe made by symbols and colour code to indicate that the product is nonvegetarian food.v. A declaration is also to be given wherever any article of food contains eggs asthe only non-vegetarian ingredient. In the case of any bottle containingliquid milk or soft drink having milk, carbonated water etc., fulldeclaration about fruit pulp and fruit juice and other contents has to beprovided. A separate but similar declaration is also to be made in respectof returnable bottles which are recycled for refilling.vi. Packages of confectionary weighing 20 grams or less are however exemptfrom the declaration of the ingredients and from the declaration of animalorigin.vii. A 100% check is normally done on food products before customs clearance.The laboratories are meant to conduct the control of compliance, with thePrevention of Food Adulteration Rules, Standards and Measures Rulesand other requirements (such as control of the mark of certification forthe products subject to compulsory certification or the requirements onnon vegetarian symbols or vegetarian symbols and any requirementunder other acts such as Meat Food Product Order, 1973, Plants, Fruits5

FPCCI – Research & DevelopmentApril 20, 2011and Seeds Order, 1989; the Livestock Act etc). This means that theproduct composition, the size of packaging as well as the labels arethoroughly checked.Suggestions:The cumulative effect of all these requirements is so discouraging, that exporters shy awayfrom the Indian market, despite its enormous potential. The existing system appears to bedesigned solely to discourage exports to India, and protect the local industry in the garb ofstandards to protect the consumers or users. This is surely the responsibility of everyGovernment, but in this case, the responsibility has been turned into a TBT (TechnicalBarrier to Trade) as well as a Tariff Barrier. Therefore, BIS certification should bestreamlined in order to protect both countries’ interests.III.Problems in Conducting the Trade of Cotton1. In the year 2000, the Government of India imposed a ban on import of raw cottonfrom Pakistan on the grounds that it contains exotic strains of destructive bacterial,viral and fungal disease which is virulent under Indian climate conditions.2. The Government of India has imposed a duty on cotton export to discourage theexport of cotton from India, and has withdrawn some incentives for exporters ofIndian cotton hoping to curb the soaring price of cotton.3. In April, 2010, the Indian Government placed a ban on the export of raw Indiancotton to Pakistan and suspended all export sales contracts that were alreadyregistered. However, due to the pressure of Indian farmers and exporters, theIndian government decided at a later stage to allow the export of cotton until theallocated quota of 5.5 million bales (of 170 kg) for shipment gets exhausted. Due tothe unfair move of Indian Government, the buyers of Indian cotton/textile millsfaced a lot of difficulties in meeting their urgent requirement of raw cotton andfulfilling their contractual obligations in the international market.IV.Problems in Conducting the Trade of Automobiles1. A new imported vehicle is defined in India as a vehicle that has not beenmanufactured or assembled in India; neither been sold, leased or loaned prior toimportation into India, nor been registered for use in any country, prior to importinto India. New vehicles can only be imported from the country of manufacture andtheir import is permissible only through three Customs ports at Nhava Sheva,Calcutta and Chennai. None of the Land Customs ports issued licenses for the same.Such special licences are only delivered to local joint venture automotivemanufacturers who have signed a Memorandum of Understanding (MoU) with theDirectorate General of Foreign Trade.6

FPCCI – Research & DevelopmentApril 20, 20112. The certification of road safety tests, emission standards tests and the“Homologation Certificate”, generally require at least six months, of very strenuousand detailed tests. At the end of all these tests however, nobody is 100% sure ofgetting certified.V. Problems in Conducting the Trade of Marble1. Import of “Marble and Travertine – Crude or roughly trimmed, merely cut, bysawing or otherwise, into blocks or slabs of a rectangular (including square) shape& other calcareous stone” is restricted and subject to import licensing procedures.Applications for such licences are considered by a facilitation committee (an interministerialcommittee comprising of representatives from variousministries/departments).2. The facilitation committee considers applications for import for the subjectproducts in the following manner:a. Eligibility: Entitlement would be restricted to those applicants who have setup manufacturing/processing units in the country and have made imports ofthese items in the preceding years.b. Floor Price: Grant of licences is subject to floor prices which are endorsedon all licences.VI.Problems in Conducting the Trade of Woolen Textiles1. Import of all woollen textiles and woollen blended textiles are governed by thenotification dated 7 th March, 1988 read with The Textile (Development andRegulation) Order, 2001 and The Essential Commodities Act, 1955.2. Imports are subject to the conditions that all imports of woollen textiles andwoollen blended fabrics are required to display markings indicating thecomposition of fibre blends. All consignments are also required to be accompaniedby a pre-shipment inspection certificates from a textile testing laboratory of thecountry of origin certifying the composition of the woollen textile and blends.3. Consignments not accompanied by a pre-shipment inspection certificate are notallowed to be cleared till the samples of the imported consignment are tested andcertified from any one of the agencies mentioned in Public Notice No.12 dated 3 rdMay, 2001. This can take anywhere from one week to three months, with all theconsequential costs.4. A certificate of origin is also required for all woollen textile products, even if noconcessions are being claimed. In addition, a certificate from brand ownerscertifying that the product is genuine and the exporters and/or manufacturers havethe authority to use the brand name, must accompany the consignment. This is7

FPCCI – Research & DevelopmentApril 20, 2011required for each and every consignment separately, ostensibly to protect thebrand name and the consumers from spurious products. One all embracingcertificate is however not accepted by the customs authorities and this process hasto be repeated each time an import is affected, for every consignment.VII. Para-tariff measures1. India imposes a countervailing duty of 16.3% on most items, a specialcountervailing duty of 4% and an education cess of 2%.2. Exporters in Pakistan have to mention the minimum retail price (MRP) on packagedfoods, but they are unable to so because they do not always have information ondistribution costs that would be incurred in India.3. Traders in Pakistan find the costs of their exports prohibitive on account of interstatetaxes imposed on movement of goods in India.VIII. Visa difficulties1. Due to the lengthy procedure of issuance of business visas for India, Pakistanitraders are facing great problems in obtaining business visas and proceeding toIndia in a timely fashion to meet their counterparts to finalize their business deals.2. Consulates in both countries exercise tremendous discretionary powers in grantingvisas and waiving visa requirements that include exemption from scrutiny by theMinistry of Home Affairs in India/Ministry of Interior in Pakistan, extending thelength of stay, exemption from police reporting and number of cities to be visited.Selected traders who are beneficiaries of such largesse make repeated visits andhave access to trade related information.3. Lack of transparency, market imperfections and information asymmetries of thiskind raise transaction costs and restrict market access for several other aspiringtraders.Suggestions:The easing of business visa restrictions, with removal of the exempted police report (EPR)requirement, is one the main issues which must be addressed. Businessmen recommendedby FPCCI and FICCI should be allowed travel without limited restrictions and number ofcities.IX.Inconsistent policiesInconsistent policies of the Indian government especially with regards to cotton andYarn exports from India whereby all of sudden a registration/restriction is imposedprovide the Indian suppliers a legitimate excuse to back out of their contractualobligations.8

FPCCI – Research & DevelopmentApril 20, 2011Suggestions:Any change of policy should protect existing contracts and be applicable to new contractsX. Unhelpful Customs Procedures1. Customs procedures are unhelpful for Pakistani traders. Excessive checks are oftencarried out for consignments imported from Pakistan on security grounds. As aresult, goods may be held up for several days before they are cleared.2. Electronic goods declarations filing (EDI) is not available at the land-border tradingpoints in both countries, even though it has been introduced otherwise.3. Commodities not on the negative list can benefit from SAFTA concessions, providedtraders submit a “rules of origin” certificate. Due to lack of integration between thecustoms and the issuing authorities, this is separate from customs documentation,and adds to transactions cost.4. The Customs Department also makes general but detailed checks as under:a. The condition of the hold in which the products were transported, in order tosee whether or not it meets the requirements of storage and does not causedeterioration or contamination of the products.b. The physical/visual appearance of goods in terms of possible damage is alsochecked (whether the product is swollen or bulged in appearance orcontaminated by rodents or insects, presence of filth, dirt, etc.)c. The products meet the detailed labeling requirements under the Preventionof Food Adulteration Rules, 1955 and the Packaged Commodities Rules,1995.5. All consignments of imported food products have to be referred to the Port HealthOfficer (PHO) for testing. At the customs clearance points where PHOs are notavailable, the Customs are required to draw the samples and get them tested fromthe nearest Central Food Laboratory or a Laboratory authorised by the DirectorateGeneral of Health Services. Clearance is allowed only after receipt of the test report.If the products fail the test, the goods have to be re-exported out of the country ordestroyed. Delays in such testing are endemic.6. Both Indian importers, and EU and other country exporters of food products havecomplained that they face growing difficulties with customs clearance of foodproducts. Earlier, Indian authorities used to release packed food products, on thebasis of health certificates issued by the countries of origin. This has now beenstopped completely. The long period of time taken to issue the test certificates, aswell as the limited number of designated labs available are major sources ofdistress for the exporters of food items. The goods have to be detained for a longtime in the customs warehouses leading to heavy damages, as well as port anddemurrage charges.9

FPCCI – Research & DevelopmentApril 20, 20117. Moreover, the temperatures in the customs warehouses are not conducive to thepreservation of perishable goods. The lengthy procedures and tests are often selfdefeating,as food items which are by nature perishable, can deteriorate during thiswait in customs warehouses, where temperatures are not controlled. However,these are very effective as an NTB.XI.SubsidiesIndia provides significant subsidies to producers and consumers, mainly inagriculture. Pakistan provides few subsidies, except in urea fertilizer production andelectricity supply to households. However, Pakistani wheat and cotton aresubsidized through support prices.XII.Financial Barriers1. Some Indian banks do not recognize Letters of Credit (L/Cs) from all Pakistanibanks, and confirmation of L/Cs can take up to a month.2. Sometimes, there is a default in payment. There is no formal mechanism for thesettlement of trade disputes.3. Payments related to bilateral trade are made through the Asian Clearing Union(ACU). However, traders in both countries have complained about the inefficiencyof the ACU system, particularly in terms of the time taken to settle transactions.4. Currently, Indian banks are not allowed to have branches in Pakistan, whilePakistani banks are not allowed to operate in India as well.XIII. Miscellaneous barriers/issues1. Due to the strong Indian Rupee vis-à-vis US Dollar, many chemicals i.e., soda ash etc.from Pakistan are competitive, resulting in their export to India. Indian authoritiesare using tactics like fixing higher Import trade price (ITP) to evaluate customsimport duty, making the landed cost expansive to discourage imports fromPakistan. This matter should also be addressed.2. Pakistan jute mills can be very competitive in exporting jute products to India,especially the Indian Punjab, but Indian Government tenders are restricted to localmanufacturers.3. Many industrial items need special containers for trade, such as chlorine gas,sulphuric acid and caustic soda. If easy and open access to empty cylinders can bearranged, this would greatly benefit our exports to India. Both governments allowpassage for gas cylinders for refilling and for free onward delivery to India. Thisopportunity should be availed.10

FPCCI – Research & DevelopmentApril 20, 20114. There is a problem of very lukewarm enthusiasm on the Pakistan side: we need toidentify evolve and promote specifically viable products exclusively for Indiathrough an in-depth study of the Indian market.5. There appears to be a sense of somewhat cold apathy on the Indian side; we need tostimulate Indian markets through our repeated visits and perhaps keep it onesidedfor some time. Include private trade initiatives, students, journalists,diplomats; business communities, women’s group and so on.6. Ineffective deliverance by TDAP and our trade Missions in India; if we at the India-Pakistan Chambers are really committed, we need to work with missionary zealand institute a task force assigned to make it happen.7. Ignorance of common interests; there can be a lot of products and services whereIndia and Pakistan can pool resources for better global access and higher values,through cooperation instead of competition.8. There is a problem of disconnect with media which is working to improve Indo-Pakrelations; we need to establish a strategic networking with Amn ki Aasha toeffectively include the business agenda in this currently intellectual and socioculturalvoice.9. There is no trade in energy with Pakistan, while trade in services and IT is heavilyrestricted. The Iran-Pakistan-India gas pipeline project would reduce transport andcommunication costs.10. There are virtually no foreign direct investment (FDI) flows between the twocountries.XIV. Import duty1. Import duty on woven fabric containing 85% cotton or more by weight was 10% orRs.150, whichever was higher. The average unit export price of Pakistani fabric inOctober 2010 was $1.26 per square meter, equivalent to Pak Rs.108.36 and IndianRs.57.10. 10% duty on Pakistani fabric would be only Rs.5.71 per square meter, butthe higher duty of Rs.150 was imposed, which means a duty of more than 2500%.2. The lowering of tariff rates is not of much consequence in the textiles sector becausethe revised tariff also lays down specific duties @ per meter or per kg with theproviso “whichever is higher” on major textile items. This obviously nullifies theimpression that ad-valorem duties on these products have come down from 30% to10% over the last five years.3. This in fact is no more than a smokescreen. These specific rates generally work outto more than 30% ad valorem even on high value products. On cheaper goods thead valorem percentage is obviously much higher. These specific rates seriouslydiscourage cheaper imports and directly protect domestic textile products.11

FPCCI – Research & DevelopmentApril 20, 2011Suggestions:1. Technically the duties levied were not discriminatory, but the duty structure definitelydiscourages low-cost fabric import. Pakistan should lobby to have the Indian governmentremove import surcharge on polyester fabric, polyester/viscose (blended), home textilesand cotton shirting, which plastic items for industrial and home kitchen usage should begiven duty tariff concessions by Pakistan.2. Pakistan’s readymade garments like ladies’ suits (shalwar qameez), denim jeans andsportswear have a high demand in India. To encourage readymade garments properly,import duties on the same should be eradicated, in this way Pakistan can gain a substantialmarket share in India. If Pakistan is successful in convincing Government of India to reducethese duties, we can expect earning an additional US$ 1 billion for our nation.B. Problems faced by Indian Exporters while trading with PakistanI. Inclusion of Sulphur and Polypropylene in the Land RouteThe biggest impediment to cross border land movement is the restrictive truckmovement and limited number of train bogeys. Furthermore, the carriage of bulkyitems such as sulphur and polypropylene by train is infeasible.1. Sulphur (HS Code 2503.0000)Sulphur is produced locally in Pakistan, but domestic production does not satisfy thedemand of 225,000 tons completely. In 2010, local refineries produced 55,000 tonsof sulphur, whereas 168,000 tons were imported via sea. A large part of this demandcould be met by imports from Indian refineries located near the Wagah border.2. Polypropylene (HS Code 3902.1000)Polypropylene is not produced locally, and 100% of the demand of 260,000 tons (in2010) is met through imports. Small quantities enter Pakistan from India via theland route, but due to the impediments of freight trains mentioned above, largeparcels cannot be imported.Suggestion:Considerable savings in freight could be achieved if imports of sulphur and polypropyleneare allowed via trucks. The shorter delivery periods would ensure lower inventory costsand hence even greater savings. Since sulphur is mainly used in the manufacture ofphosphate fertilizers, therefore, the savings would ultimately benefit consumers in theshape of lower fertilizer prices. Similarly, addition of polypropylene to the trucking listwould increase importable quantities substantially and ensure greater savings for localindustry. Since polypropylene is mostly used in the manufacture of PP bags for packing12

FPCCI – Research & DevelopmentApril 20, 2011commodities such as cement, sugar, fertilizers, and household goods, consumers wouldshare in the benefit.II. Raw jute import restricted by road as per 3B (iii) of SRO 766(I) 2009dated 04-9-10Import of goods from India or Indian origin is restricted to the items in Appendix-Gwhich doesn’t cover jute.Suggestion:Road transit of raw jute should be allowed in order to get timely and cheaper deliveryIII.Barriers in Exporting of Rice Bran OilRBO “Rice Bran Oil” (hydro Carbon Free) cannot be exported in bulk quantity asthere is a ban on its packaging above 5 litre packing of RBO in India.Suggestion:Its bulk quantity for jute processing should be allowed for import to Pakistan.IV.Export of Machinery or Parts to PakistanFollowing machinery and parts thereof be included in the list of exportable items.1. Machinery not Exportable8445.2000- Spinning Frames8445.4020- Cone/Bobbin winding machines8445.4030- Reeling machine8446.1000-Weaving Machines for weaving fabrics of a width not exceeding 30 CM8446.2000-Weaving Machines for weaving fabrics of a width exceeding 30 CMshuttle Type.8446.2100-Power Looms2. Parts etc. not Exportable1516.2020-Vegetable Oils and their fractions (RBO)2710.1991-Mineral Oil (JBO)4010.0000-Belting for Machinery7319.0000-Steel Pins8448.3900-Other (Parts for carding/drawing/spinning /twisting and weavinglooms)13