1. Mohammad Fayzan Qadir
Student ID: 12U00649
Sec: D

2. Key Words
 Free Trade: Trade without “trade-distorting” policies such as
taxes, regulations, tariffs, quotas etc.
 Regionalism: States in a regional agreement to foster
cooperation e.g economical.
 SAFTA: South Asian Free Trade Agreement.
 Trade openness: Extent to which countries/economies allow
to have trade with each other.
 Financial Markets: Buyers and sellers participating in the
trade of assets such as equities, bonds, currencies.
 Border Skirmishes: The sporadic cross border exchange of
fires between the two neighbors.

3. Significance:
 Pakistan`s exports to India only 1% of global exports, India`s exports to
Pakistan constitute only 1% of its total exports, 5% of Pakistan`s imports from
India. Thus a huge prospective for each other if political tensions cut down.
 A strife torn market showing intent to rise. For example an estimated 77% of
India`s major exports have been excluded from access to Pakistani
market, despite this, Indian exports have shown growth from USD238 million
in 2001 to USD1734 million in 2010.
 Cotton, sugar, vegetables, chemicals, soya bean, tea among top imports from
India. Emergence of new exports to India like leather, cotton fabrics, medical
and surgical instruments.
 Free trade could yield negating of tariffs that enhance protectionism in sectors
which might possess a higher comparative advantage, for example
agriculture, textile.
 Standing tall as one, fight protectionist policies of greater markets and
negotiate with powers such as IMF convincingly.
 Free trade regions and cross border movement of goods yielding confidence
in each other bringing down animosity and cutting down defense expenditure.
 Solving of future water issues without going to wars.
 Limited NTBs allowing penetration of Indian exporters, could entice India to
reciprocate.

4. Macroeconomic Indicators.
 GDP: Pakistan`s GDP would increase by as much as 2%
per annum if trade is normalized which also entails to giving
Most Favorite Nation status to India.
 Inflation: Help trim inflation down since cheaper Indian
imports would be present in the market.
 Employment: The level would increase significantly and over
200,000 jobs would be created.
 Balance of Trade: Help with the negative trade balance.

5. Continued.
 Informal and Illegal trade: The informal trade stands at $1billion whilst illegal trade at
$1.5-2billion. With guesstimates both combined ranging from $2-8billion.
 Increase of Cost: The informal trade through a third country increases cost of products
from 17-35%.
 Bilateral Trade: By 2015, if trade normalizing continues the current $2.4billion figure
could soar up to $12billion.
 Cost of Military actions: From 2001-2010, war on terrorism cost s around
$43Billion, amounting to 6% of GDP.

6. SAFTA-A Prospective.
 Adopting a strategy for trade liberalization through tariff reduction.
 A preferential trade system i.e a preferential access to certain products.
 Signing FTAs and converting into free trade regions.
 Pakistan and India being Non-LDCs to scale down tariff rates to 20
percent during second time frame of five years starting from January 2009
under SAFTA road map.
 Opens gates to cheaper and wider variety of imports through reduction in
tariff and non-tariff barriers on product-by-product basis.
 The free movement of goods is a prospect for the establishment of South
Asian Economic Union.
 Standing tall as two, coming up with better bargains at economic forums
such as WTO.
 Collectively Pakistan and India can deal with protectionist policies of the
developed countries.
 Easily notch up the level of human skills, foreign direct investment, new
technology.
 Openness to have a positive impact on economic growth by yielding
higher investment.

7. Continued.
 Quick border crossings, rapid custom clearance, state of the art
port facilities, enhanced transport links simultaneously would
add to the volume of cross border trade.
 Allocating regional development funds by both countries so
institutions support the cause of economic regionalism.
 Factor mobility must be increased through developing transport
infrastructure which also increases trade in turn.
 Anti-trust laws to come into practice, commercial law, labor
relations, financial institutions should be harmonized.
 Financial markets could be increased so they promote cross-
border investment.
 Domestic tax, tariff and subsidy policies should be harmonized
so trade disputes aren't recurring .
 Use of anti dumping law.
 The never ending negative list must be cut down to increase
volume of trade.

8. Environment.
 Address Climatic Variability and Uncertainty: The current IWT does not cater
the change in climate and rising variation in river inflow thus asking for
better storage of water and trans-border water cooperation and sharing of
responsibility, much because of glacial melting. For example Sutlej River.
 Maintaining Ecosystems: The ecosystems around rivers, wetlands, costal
zones need to be maintained. An environmental clause must be added to
address to safeguarding the surroundings. For Example Mangroves
benefitting from the Indus.
 Population Factor: Increasing three folds for both countries from 485Million
in `61, to 1390Million in 2011. Greater need for irrigation and energy
projects yielding intra-basin water management sharing.
 Greater Scope of IWT: Must provide a framework for water sharing and
convert into a greater cooperative regime.
 Signed in 1960, Western Rivers of Indus, Jhelum, Chenab to
Pakistan, Eastern to India, Sutlej, Ravi, Beas.
 Total Permissible storage to Pakistan is 3.6 MAF.

9. Armed Conflicts.
 Pakistan and India have been in three major wars.
 1965, 1971 and 1999 Kargil War.
 Skirmishes off the LOC.
 Detaining of farmers who mistakenly cross borders being
held captive for unnecessary reasons.
 Attacks on trains and other transport facilities hampering
trade and a good business environment.
 The Kargil issue is never ending and both countries have to
pay a lot of price keeping watch at the glaciers in extreme
temperatures.
 Kashmir is an issue needing to be solved with due
pragmatism. It’s a hallmark of Indo-Pak rivalry that is an
impediment to elevated regionalism.

10. Rationale: Regionalism.
 Regional integration much on the pattern of European Union
through the already formed ASEAN.
 Under ASEAN, Pakistan and India need to enhance
regionalism from security and stability to economic
development and political cooperation.
 If ASEAN is more formally constructed, like European
Union, it would help India-Pakistan become stable.
 Trade normalization is the only solution to bring about
prosperity in both countries. For example a common market
for France and Germany for coal and steel. (ECSC)
 In the above stated example, Pakistan and India could
similarly do this to their cotton sector and agriculture.
 Political motives have one solution, through economic ties as
proved by the former two arch rivals of Europe Germany and
France.
 Mercosur, redefining trade between Argentina and Brazil.
Similarly US and Mexico through NAFTA.

11. Trade Liberalization.
 Implementing SAFTA would help increase the trade volume in
terms of expanding the positive list. For example it expanded
from 40 items in 1983 to 687 items in 2004/5, to 773 items in
2005/06 to1,075 items recently.
 Under the cloud of SAFTA, the trade volume would significantly
increase as seen in the past.
 Pakistan could further reduce its average-tariff because of trade
liberalization, nearing low tariff leaders in Asia.
 Address illegal trade because its cost-effective and could well
be converted into legal trade if measures such as tariff
reduction take place.
 Trade restrictive index of India, at 8/10, and Pakistan`s 5/10
shows that India need to cut on tariff and non-tariff barriers to
liberalize trade.
 Trading freely with each other rather than trading as they do
with the rest of the world under the MFN status.
 Implementing SAFTA could bring down the sensitive list.
 Saving the import bill, Pakistan saves from 400million to 900
million if it allows imports from India. For example
Tea, spices, auto parts etc.

12. Solutions To IWT
 The population of both countries has significantly increased
that asks for a pragmatic handling of Indus Water Treaty and
in turn keep a semblance of peace among the two.
 IWT has successfully continued to engage India-Pakistan
into a dialogue and only two projects have gone into third-
party hands.
 Lacks under UN Watercourses Convention`s Articles such as
5 and 6. It has to be more than an allotment treaty which
facilitates equitable and reasonable utilization of water.
 There is a dearth of transboundary environmental pacts that
point towards protection of rivers from pollution and the
environment around. For example Stockholm Declaration.

13. Armed Conflict Reduction.
 Germany and France much similarly like India and Pakistan
had a strife torn relationship but understood the need to
integrate on economic level to negate the political
differences and come together for the betterment of people.
 For example they were founding members of Treaty of Rome
that lead to the formation of European Union through a
common market for steel and coal.
 Pakistan and India need to solve Kashmir and Kargil issue
once and for all.
 The kargil war costs a soldier every four days, and two days
for Pakistan and India respectively.
 People injured through land mines and standing crops
damaged because of border skirmishes.

14. Findings
 The region could be converted into a free trade zone if agreements like SAFTA are
committed to.
 Trade liberalization would see 25% increase in gains on Pakistan`s end.
 Cutting on illegal trade and implementation of SAFTA combined increases trade by
60%
 Trade liberalization would in turn convert the illegal trade into legal trade and thus
growth of GDP.
 Protectionist policies are an impediment to trade volume increase.
 If Pakistan and India join hands they have a better chance to tackle down IMF and the
protectionist policies of the developed world
 Political tensions could only be minimized if greater trade takes place much the same
way in Europe after the World War II.
 Trade could jump from $2.4 billion to a promising $12 billion by 2015.
 Also letting go of protectionist policies would help Pakistan increase its trade openness
factor.

15. Continued.
 NTB and tariff barrier reduction could increase trade volume and its cost effective.
 Trade divergence would be seen in the region.
 Reduction in sensitive list of India and Pakistan. At 763 and 1183 products.
 IWT has some loopholes that need to be addressed for example ensuring water
utilization than apportionment.
 Under IWT there must be exchange of information on waters and study findings that
show the quarterly fluctuations.
 Kashmir Issue has to settled since it adds fuel to fire and is a constant source of
fostering animosity.
 Also, Kargil issue costs way too much to both countries expenditure and has to be
concluded through Composite Dialogue.

16. Pak-India Trade: Ramifications of Political Tensions.

17. References.
 Imran, Pasha.(September 2012).The Prospect for Indo-Pakistan Trade. The
Lahore Journal of Economics., 293-313/
 SAARC Database.(2010). Database of Macroeconomic and HRD Indicators
in SAARC.
 Sayeed, Asad.(December 2011). Gains from Trade and Structural
Impediments to India-Pakistan Trade.
 Abbasi, Arshad.(2012). Indus Water Treaty Between India and Pakistan.
 Indurthy, Ratnam.(2011). Kashmir Between India And Pakistan. And
Intractable Conflict 1947/
 From Surprise to Reckoning: The Kargil Review Committee Report, pp.
214–219.
 Arshad, Mohammad.(2012). Modeling Trade, Investment, Growth and
Liberalization: Case Study of Pakistan.
 Samina. Kazmi.(2007). Economic Effects of Recently Signed Pak-China
Free Trade Agreement.
 Trade Between Pakistan and SAARC Countries. SAARC Report.
 Mehta, Pardeep.(2010). Trade Relations Between India And Pakistan.
PILDAT/

18. Continued.
 Biilal, Sanoussi.(August 2005). Can EU Be A Model of Regional Integration.
 Chapter IV. World Economic and Social Survey. Economic Impact of
International Migration.
 Fatima.Phillip.(2007). The Challenges of Potential Pakistan India Trade.
World Bank Report.
 Noorani, Tasneem.(2012).MFN Status and Trade Between India Pakistan.
 Sarfraz, Hamid.(2012). Revisiting the 1960 Indus Waters Treaty.
 Hanif, Mohammad.(Unknown). Economic Integration in South Asia:
Pakistan's Perspective. Islamabad Policy Research Institute.
 Raihan, Salim.(2013). India-Pakistan Economic Cooperatio Implications for
Regional Integration in South Asia.
 Chapter 2. Trade Integration Between India And Pakistan.
 Tribune Blogs.(2013).Trade with India for a Better Pakistan. Available at:
http://blogs.tribune.com.pk/
 News Pakistan(2011). Trade Between India and Pakistan SDPI Seminar.
Available at: www.newspakistan.pk
 Academia(2010). Trade between India and Pakistan has the.. . Available at:
www.academia.edu

19. Continued.
 Pakistan Today(2013). MFN Status to India Could Raise Pakistan`s GDP.
Available at: http://www.pakistantoday.com.pk/2013/01/13/news/profit/mfn-status-
to-india-can-raise-pakistans-gdp-by-2-ipp-research/
 Academia. Informal and Formal Integration. Available at:
http://academia.edu/388617/_In_Formal_Regional_Integration_Is_European_Int
egration_Model_Applicable_to_ASEAN
 The Hindu(2002). The Cost of War.
http://www.hindu.com/2002/01/05/stories/2002010501261000.htm
 The Nation(2013). Pakistan India Ties to Pave way for S Asia Trade: Available at:
http://www.nation.com.pk/pakistan-news-newspaper-daily-english-
online/business/13-Jan-2013/pak-india-ties-to-pave-way-for-s-asia-free-trade-
zone
 SDPI Research and News Bulletin.(2005). Can Illegal Trade between Pakistan
and India be Eliminated. Available at :
http://www.sdpi.org/research_and_news_bulletin/Vol.%2012,%20No.%203%20(
May%20-%20June%202005)/can_illegal_trade%20.htm
 Zee News(2013). What Pakistan can Gain from Giving India MFN Status.
Available at: http://zeenews.india.com/news/south-asia/pakistan-will-gain-amply-
by-giving-mfn-status-to-india-says-expert_822875.html
 SDPI(Unknown). Pakistan and India Informal Trade. Available at:
http://www.sdpi.org/research_programme/researchproject-108-12-569.html