New Delhi: For the first time in 61 years, India and Pakistan will allow daily commerce across the de facto border dividing Kashmir from Tuesday, moving to boost mutual confidence, promote economic dialogue and open a trade outlet for people of the Himalayan region.
The trading, one of the key so-called confidence building measures (CBMs) agreed to at a meeting between Prime Minister Manmohan Singh and Pakistan President Asif Ali Zardari in New York on 25 September, begins two days after India announced elections in the state of Jammu and Kashmir.
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Trade across the Line of Control (LoC) will initially be restricted to 21 items: fresh and dry fruit, masalas, honey, Peshawari leather slippers, walnut-wood furniture, wall hangings, embroidery items, tamarind, green gram, carpets, shawls, black mushrooms, pillows and pillow covers, medicinal plants, rice, blankets, rugs, woollen garments, saffron and a popular vegetable known as kadam.
The trade will be duty-free and in either currency — the Pakistani or Indian rupee. Some analysts suggest this is an economic union of sorts between the two parts of Kashmir controlled by the two neighbours. To others, the move is an attempt by New Delhi and Islamabad to further trade ties, following a July initiative by Pakistan to allow more imports from India.
LoC trade, as it is being called, will be operational at two points — from Srinagar to Muzaffarabad and from Poonch to Rawalakot (to be formally opened on 28 October) — even while the two countries continue to observe the line as the de facto border. A commerce ministry official, who spoke on condition of anonymity, said LoC trade is “not really an international trade”.
“Conceptually you are trading within the territory of the same country. There will be no concept of customs duty,” this official said. “The moment you charge import and export duty you are recognizing bilateral trade, which would imply the recognition of the disputed Pakistan-occupied Kashmir as part of Pakistan.”
In their New York meeting, Singh and Zardari agreed on several measures that would enable a closer economic dialogue between the two countries that have fought three formal wars — including two over Kashmir — since Pakistan was carved out of India in 1947.
LoC trade is also designed to dent the isolationist approach adopted by separatist groups in Indian Kashmir and call the bluff of Hindu groups in Jammu that had blockaded Srinagar during the civil unrest that roiled the region this summer, by opening up an alternative trade route.
Given the topographical construct of the region, the only road route into mainland India from Srinagar is through Jammu. “A section of the valley feels psychologically suffocated as the only link to the rest of the world is through the Jawahar tunnel (on the Srinagar-Jammu highway),” said D. Suba Chandran, assistant director of the New Delhi-based think tank Institute of Peace and Conflict Studies (IPCS).
“There is a feeling that New Delhi deliberately wants to keep Kashmiris completely dependent on India,” he added. “Allowing cross-LoC trade will alleviate that feeling.”
The analyst added that Pakistan had been initially reluctant to open up LoC trade to avoid giving rise to a perception “of de facto unification of both Kashmirs”.
Both countries have set up trade facilitation centres that will inspect goods meant for trading and also provide a telecommunication link with the other side.
Initially, they have also decided against quantitative restrictions on trade, though it has been made clear that the goods being traded are not meant for rerouting to other parts of either country.
“Right now, a lot of things are being left open deliberately as we have not done this sort of a thing in the past,” said the Indian commerce ministry official.
“There is a provision to review this every three months; we will see how things happen and take it from there. There has been no assessment on what will happen. As of now, there is no quantitative restriction, no definite currency for trading, etc,” the official said.
Officials at the Pakistan embassy in New Delhi declined to comment.
Trade between the two countries has historically been a sensitive subject. Under the South Asian Free Trade Area (Safta) agreement that came into effect in July 2006, free trade is permissible in all commodities, except those in a “negative list”.
But this arrangement was only partially implemented because Pakistan created a “positive” list of items that could be traded. In addition, trade by road is restricted to the Wagah-Attari border across Punjab and to 17 items from India.
India permits trade in all 5,400 items allowed under Safta, but has 1,120 items on a negative list and concessional duties are not applicable on these.
As a result, there are instances, according to commerce ministry officials, of India-manufactured products including automobiles being rerouted to Pakistan through Sharjah in the United Arab Emirates with a “Made in Sharjah” label.
Over the past few years, Pakistan has been adding to the positive list, which was gradually increased to 1,938 items as of August this year. This process received a boost with a change of government in Pakistan and growing economic concerns within that country over the impact of the global financial crisis.
“India is our neighbour and we are gradually liberalizing our bilateral trade,” Pakistan federal minister of commerce Ahmad Mukhtar said while presenting Pakistan’s trade policy in July. He allowed 136 more items to be traded, both by road and rail.
“Cheaper raw material sourced from India would make our exports more competitive in international markets,” Mukhtar said. “Although the list is being issued separately, I may mention that we are allowing import of diesel and fuel oil from India, because it will be cheaper due to the difference in transportation cost. This will also help us to address our global trade deficit.”
According to the Indian commerce ministry official, this would provide an opportunity for India, which exports $12 billion (Rs58,560 crore) of petroleum products annually. “The annual demand by Pakistan is $4 billion (of petroleum products). All of this can be met by India theoretically.”
Bilateral commerce between the countries has grown in recent years, with two-way trade amounting to $2.231 billion in 2007-08 — or 0.54% of India’s total trade turnover — from $344.59 million in 2003-04.
The cross-LoC trade pact is to be followed up with the two countries adding another road route in Punjab and allowing trade through a rail link between Khokrapar in Sind and Munabao in Rajasthan; in addition,
Pakistan is likely to lift the restrictions on commodities traded at the Wagah-Attari border.
Internal Kashmiri politics are intertwined with the decision to permit LoC trade. According to Suba Chandran, Kashmiri separatist leader Syed Ali Shah Geelani, who was at the forefront of the recent protests, and various militant groups in the valley, are against cross-LoC interaction.
“These groups have a hold over civil society in Kashmir and trade will reduce the hold of extremist elements,” he said.
Although a working group on cross-LoC interaction had earlier suggested the need for such trade as a legitimate aspiration of the Kashmiris and minister of state for commerce and industry Jairam Ramesh had promised in March this year to allow it within 90 days, implementation had stalled until the recent spate of protests.
The argument that trans-LoC trade could dilute the Kashmir issue is fallacious, said Islamabad-based political analyst Ershad Mahmud.
“The argument...is similar to arguments made by leaders in the Pakistan part of Kashmir between 1950 and 1970 that a democratic government in the region would dilute the issue,” he said.
“Instead, democracy has only ensured public participation in state affairs and kept the issue alive. Similarly trade will transform the conflict from armed struggle into a political movement for lasting settlement,” he said.
Graphics by Ahmed Riza Khan / Mint