Revitalising India-Pakistan Trade – UPSC GS2

Context: India and Pakistan have partially opened their land border recently.
After the Pulwama terror attack, bilateral trade between the two countries plummeted from around $2 billion in 2017-18 to $280 million in 2020-21 (April to February). (#Diagram Graph)
Developments in Past years:
  • Pakistan’s unilateral suspension of trade: 
    • After India’s decision to revoke Article 370, Pakistan suspended the trade with India.
    • This trade suspension by Pakistan is inconsistent with the General Agreement on Tariffs and Trade (GATT) and the South Asian Free Trade Area (SAFTA) agreement.
    • GATT, as part of WTO, allows countries to adopt trade-restraining measures on certain grounds such as public health, national security purposes (Article XXI). Similarly, Article 14 of SAFTA permits trade-restrictive measures for national security and other purposes. Neither the WTO nor SAFTA permits a country to suspend trade with another member country on grounds that it disapproves of domestic law.
  • Pakistan not granting MFN status to India: Pakistan is in breach of Article I of GATT towards India since the formation of the WTO in 1995. So, it is time that Pakistan grants the MFN status to India.
  • India revoked Pakistan’s MFN status: India has revoked the MFN status to Pakistan in the aftermath of the terror attacks in Pulwama and hiked the tariff rates on all Pakistani imports to an unfeasible rate of 200%.
How normalizing relations with Pakistan can benefit India?
  • The rise of China poses a greater threat to India. According to the Centre for Policy Research report, a continuing freeze in relations with Pakistan will “enhance India’s external vulnerability to other actors, in particular, China.”
  • So, normalizing and strengthening trade relations with Pakistan can help India to counter the threat that emerges with the rise of China.
  • Hence, effective management should be the main objective for fostering economic and trade relations with India and Pakistan.

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