The liberal class and the Indophiles in Pakistan are the most vocal champions of the liberalisation of trade with India, irrespective of its consequences for Pakistan’s economy. On the other extreme are those who oppose this process because apparently they consider it a favour by Pakistan to India and, therefore, would link it to the resolution of the outstanding Pakistan-India disputes. Pakistan’s best interests are not served by either of these two extremes.

There is, of course, a strong case for trade with India on a mutually beneficial basis in accordance with the principle of comparative advantage. Such an approach would require the liberalisation of trade with India on a level playing field with due safeguards for protecting the health of our economy and ensuring that it does not capture the commanding heights of our economy.

Trade with India on these lines would be in the interest of both Pakistan and India, and not a favour to India. It defies logic, therefore, to make such trade conditional upon the prior resolution of the outstanding disputes between the two countries. This is not to deny, however, that progress towards the resolution of the bilateral disputes would help create a propitious political climate for the promotion of Pakistan-India trade and economic links.

Conversely, India’s intransigent attitude on the peaceful settlement of the Pakistan-India disputes would act as a serious obstacle in exploiting the full potential of bilateral trade on a mutually beneficial basis.

From purely economic point of view, the promotion of external trade helps accelerate economic growth in the trading partners through a more efficient allocation of resources, economies of scale and the beneficial effects of increased competition.

It also works to the advantage of consumers and producers by making the finished goods and raw materials available at lower prices. Of course, the increase in external trade invariably involves the cost and the inconvenience of the adjustment process through which the resources are diverted from less efficient to more efficient sectors in the trading partners.

In particular, this factor may have serious implications for the employment situation in the countries engaged in external trade, thereby providing political support to protectionist policies. It is not surprising, therefore, to see the governments of even the most developed countries bending over backwards to protect those industries whose existence is threatened by foreign competition. A better approach is to facilitate the adjustment process through appropriate fiscal and monetary policies and to make it less painful through appropriate educational and training programmes.

There is also the risk that infant industries in which a country may have a long-term advantage may not be able to compete in the short term with the corresponding highly developed industries in the trading partners. Such infant industries would need a measure of protection in the short term to enable them to grow and gain strength so as to stand on their own feet. The infant industry argument, however, should not be used to protect inefficient industries or industries in which a country does not enjoy comparative advantage. For instance, the infant industry argument should not be applied to our textile sector, which has received enough feather-bedding in the past and now should be able to face the competition from India because of our comparative advantage in this sector.

The question arises: whether our Ministry of Commerce and its affiliated agencies have carried out studies with the help of economists specialising in international trade to identify the likely effects of the liberalisation of trade with India on the overall health and growth of our economy as well as on different economic sectors?

At a recent panel discussion arranged by the Lahore Council for World Affairs on trade with India, I was shocked to hear from a senior representative of the Ministry of Commerce that no such study had been conducted while carrying out the process of liberalisation of trade with India. If this information is true and I believe it is, it reflects a serious dereliction of its responsibilities by the Ministry of Commerce.

Even now, perhaps, it is not too late for our government to commission the required studies to assess the likely effects of the process of liberalisation of trade with India on our economy and its different sectors. More specifically, these studies should focus on the following aspects of this process:

i Its likely effects on Pakistan’s GDP and its growth as well as on employment in the country;

i The trade diversion and trade creation effects of the liberalisation of trade with India;

i  The likely effects of a liberalised trade regime with India on different components of our industrial and agricultural sectors;

i  A comparative study of the tariff and non-tariff barriers in Pakistan and India to ensure that our producers and exporters are assured of a level playing field in trade with India.

The government should formulate policies relating to trade with India in the light of the findings and conclusions of these studies after consulting our leaders in industrial, agricultural and commercial sectors.

Pakistan already faces a huge deficit in its balance of trade. It is not in our interest to allow the trade with India to be conducted in such a manner as to increase this deficit substantially. Therefore, we must study carefully the manner in which the Indian government provides open and hidden subsidies to the agricultural and industrial sectors. Keeping in view the findings of those studies, our government should adopt the necessary fiscal and monetary policies to ensure that our producers and exporters are not at a disadvantage in competing with India.

Our Indophiles would like us to ignore security considerations in conducting our economic and commercial relations with India. This is not an advisable approach. Even developed countries, like the US and Canada, take into account security considerations in taking decisions on major economic and commercial issues relating to foreign trade and investment. For instance, it has been widely reported by the international media that the governments of the USA and Canada have not allowed Chinese companies to buy local firms, which in the view of those governments had some strategic value. Pakistan and India, unfortunately, have had a history of difficult relations marked by wars and conflicts. There is still a great deal of mutual suspicion and mistrust between them.

Further, Pakistan is unlikely to acquiesce in India’s quest for hegemony in South Asia. These realities cannot be ignored in the management of Pakistan-India economic and commercial relations. The demand of security considerations, therefore, is that under no circumstances we should allow Indian firms and entities to capture the commanding heights of Pakistan’s economy. Similarly, we should not become dependent on India for the import of goods of strategic value.

In dealing with the issue of liberalisation of trade with India, we should adopt a balanced approach. Trade with India would be in our interest if it is conducted in such a manner as to safeguard our economic, commercial and security interests. This would require that the subject of trade with India is studied from different angles and the policy framework for Pakistan-India trade is devised in the light of the conclusions of these studies. We should open the doors of trade with India, keeping in view all the likely effects of this step on the current condition and the future prospects of our economy as well as our national security.

The writer is a retired ambassador and the president of the Lahore Council for World Affairs. Email: