Pak-India Economic Cooperation Framework

No need to reinvent the wheel, just learn from the success of other cooperating nations

In spite of the difficulties involved and amidst some uncalled for preceding negative journalistic propaganda, the meeting of Nawaz Sharif and Manmohan Singh took place on last Sunday in New York. A good omen and certainly a positive step forward in an endeavour to enhance trade and economic linkages between the two neighbours.

However, the road ahead is not going to be easy. With elections just round the corner in India any political leadership there would not like to be seen as warming up too easily to Pakistan. And over here in Pakistan with nothing concrete being offered by India any significant economic initiatives would be rather difficult to sell to the Pakistani power shareholders.

The respective national stances on the long-standing thorny issue of Kashmir that were once again made quite clear (hours before the meeting) by the two prime ministers, didn’t help matters either. The Pakistani prime minister reiterating that without solving the Kashmir dispute it will not be possible to normalize relations with India and his Indian counterpart saying the exact opposite by stating that India under no circumstance will let go of its occupation of Kashmir. Amidst such a politically charged environment, the real challenge that confronts these peace overtures is that our historic rhetoric aside, is there really any way by which economic cooperation can truly be enhanced in the near-term between these two countries?

And provided that there indeed such a possibility exists to independently kick-start economic cooperation before solving existing political/territorial disputes, then what should be the framework for such cooperation?

As for the first question the inspiration should be taken from China on how it conducted itself in its different neighbourly disputes in the East China Sea with Japan and in the South China Sea with the the Philippines. Under Deng Xiaoping, when China truly began to emerge as a global economic power, the policy on territorial disputes was to set them aside and where required, to also work with the opposing party to exploit mutual resources and potential. Sovereignty could be dealt with later.

Back in 1978 Deng said that the Diaoyu/Senkaku (with Japan) tangle could be unravelled by “a future generation”. And this indeed is being done today – to China’s wishes – since today they have worked their way up to being the biggest boy in the neighbourhood!

In fact, so confident are the Chinese today of their ability to secure their rightful boundaries that in spite of knowing fully well that it is they who are calling the shots, their current leader, Xi Jinping after assuming power has once again reaffirmed Deng’s approach. Jinping maintains that today’s transformed China gives as much weight to maintaining stability in the region as to safeguarding China’s rights.

So if countries around us can cast aside territorial disputes (at least in the short term) to address poverty and lack of development at home, so why can’t Pakistan and India?

On the second question, on what should be the framework of our mutual cooperation, there are again lessons to be learned from successful examples of regional trade, Free Trade Areas (FTAs) and common currency zones. We must remember that at the heart of the linkage/integration benefits are the tremendous synergies that exist among these two countries with distributed and diverse strengths in manufacturing, resource development, and trading and related services.

The underlying benefits of integrating markets with large populations – especially the ones that in addition are also quickly climbing the wealth ladder – become visible over longer term in the shape of emergence of optimized and highly competitive regional supply chains. On the other hand, so are the challenges of integrating such markets and supply chains, and these challenges mainly come down to the sheer willingness and ability of nations to balance national interests with the benefits of bilateral economic linkages.

The three key issues that thus emerge from this are: 1) Identification of the existing frameworks of regional, sub-regional and bilateral cooperation, 2) Reflections on the path-making. Here, China-Japan-Republic of Korea (ROK) Free Trade Talks (FTT) can be used as a model, and 3) Implications of Pakistan-India economic linkages and an invitation for new thinking on the SAARC integration.

Discussing points one and two, a detailed paper written in 2012, by Steve Howard, secretary general of The Global Foundation, provides a good insight into these aspects. He argues, that unlike other countries across the globe, exports of both India and Pakistan were less affected during the time of the financial crisis. And it is with this positive in mind that the leading multinational corporations (MNCs) should be lured to invest by expanding their operations in the sub-continent – thereby treating it as a single market. For this it will be necessary to put in place the right and common systems in the areas of technology and research and development (R&D).

And to do this he recommends a ‘job-specific’ study group to ensure implementation. Further, the history and role of the Trilateral Cooperation Secretariats: A North-East Asian inter-governmental organization comprising China, Japan and ROK, where participating countries agreed to establish a permanent organization to systemize and institutionalize cooperation between the three countries, can also be replicated by Pakistan and India. The other similar frameworks in Asia include: Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RECP).

He emphasizes that there is no need for Pakistan and India to reinvent the wheel and to just learn from the success of other cooperating countries. History is full of examples, which tell us that despite diversity in market-size, openness, expectations and strategies of each country, a larger common market-size by itself boosts each member country’s international trade and investment. Further, benefits of economic linkages are not just limited to economic aspects, but also tend to promote institutional development and the global leverage of every cooperating country. In essence economic integration or enhanced economic linkages should always be viewed as a long-term solution to build mutual trust.

Finally, the Pak-India framework should jointly look at and work on food security and water solutions, since given the high population growth rate in both countries this will in years to come become the biggest common issue. Howard also talks about the need for reorganization in cooperation (both between Pakistan and India and also within the SAARC) to determine how to grow, distribute and consume food in the coming years.

The true challenge according to him is for the economic cooperation to create investment driven relations within the ambit of a liberalized trade environment. Such a linkage would in fact imply that bilateral cooperation would not just remain limited to regional boundaries, but if properly leveraged can also be directed to incorporate a global view that in-turn can yield positive global dividends for the entire South Asian region.

All said and done, the litmus test though will be to agree and “draft” a comprehensive economic framework, which ensures that the nature of respective national regulations directly affect the ability of the two countries to cooperate and build sustainable economic linkages. Regulations are invariably national in nature, whereas, large scale activities in both real and financial economies are increasingly transnational.

As a result, the nature of national regulations bears directly on the ability to work synergistically. In the end it will all boil down to our (Pak-India) willingness and courage to come up with a framework that is a) implementable and b) allows efficient flow and use of capital on both sides of the border.

The writer can be contacted at: [email protected]