Assessing the Role of Trade in Promoting Peace

Pakistan and India in Perspective

Submitted by

SAIMA GUL

(PhD Scholar)

DEPARTMENT OF INTERNATIONAL RELATIONS

UNIVERSITY OF PESHAWAR

Session 2006-2007

APPROVAL CERTIFICATE

―Assessing the Role of Trade in Promoting Peace Pakistan and India in Perspective

Dissertation Presented

By

Saima Gul

To the Department of International Relations

University of Peshawar

In Partial Fulfillment of the Requirements of PhD in International Relations

10th

October 2017

We the undersigned have examined the thesis entitled ldquoAssessing the Role of Trade in

Promoting Peace Pakistan and India in Perspectiverdquo written by Saima Gul PhD

Scholar at the Department of International Relations University of Peshawar and do

hereby approve it for the award of PhD Degree

Approved By

Supervisor

DR MUHAMMAD AYUB JAN

Department of Political Science

University of Peshawar

External Examiner

DR FAIZA BASHIR

Department of Political Science

Islamia College University Peshawar

Chairman

PROF DR HUSSAIN SHAHEED SOHARWARDI

Department of International Relations

University of Peshawar

Dean

PROF DR TAJ MUHARRAM KHAN

Dean Faculty of Social Sciences

University of Peshawar

Dedication

I dedicate this thesis to my mother Mrs Almas and my husband Mr Ibrahim Baig my

sisters and brothers for their constant moral support Their encouragement made me to

achieve my aim to complete this research work

i

Declaration

I hereby declare that this dissertation is not submitted to any other institution university

and organization for the purpose of grant of degree Moreover this research work is the

outcome of my sole research work

Saima Gul

ii

Acknowledgements

All praise to Allah Almighty the most merciful and beneficent and salutations on the

Holy Prophet Hazrat Muhammad (Peace Be upon Him) a composite source of

knowledge for humanity

First I would like to express my sincere gratitude to my supervisor Dr Muhammad Ayub

Jan Department of Political Science University of Peshawar for his continuous support

patience motivation and valuable insights His guidance assisted me during the entire

duration of my PhD It has been an honor to work under his supervision I appreciate all

his contributions of time and ideas to make my PhD experience productive and

stimulating

I am also immensely appreciative to Dr Nasreen Ghufran Chairperson Department of

International Relations University of Peshawar especially for sharing her expertise so

willingly for her valuable advice and guidance in connection with developing the initial

idea of my thesis Similar profound gratitude goes to Dr Adnan Sarwar Khan former

Dean Faculty of Social Sciences University of Peshawar who guided me throughout my

studies

Special mention and thanks goes to my teachers colleagues and faculty members of

Department of International Relation including Dr Ijaz khan Dr Noor Shah Jahan Dr

Hussain Shaheed Soherwardi Dr Shahid Khattak (late) Dr Minhas Majeed Mr

Khurshid Ahmad and Mr Zia Ur Rehman who shared their views and encouraged me to

accomplish the task of completing my research work

I owe a great debt to Inam Afridi Islamic University Islamabad Noman Sattar Quaid-e-

Azam University Islamabad and Col Tariq Qureshi (late) for their support in collection

of research material

I am indebted to my friends including Shumaila Farooqi Aysha Umair Sohail Ahmad

Amir Raza who encouraged me and prayed for the completion of my PhD

I would like to thank my family for all their love and encouragement for my parents who

raised me with their absolute love for education They backed me in all my academic and

iii

professional pursuits Finally and most importantly I am grateful to my supportive

encouraging and patient husband without his support this thesis would not have been

possible

iv

Abstract

The relationship between trade and peace has been debated by the policy makers

academicians and general public Such deliberations often end in contesting conclusions

For some trade is a potential tool to mold relationship and make peace between states

for others trade may become a source of conflict Yet others would see no substantial

relationship between trade and peace These disparate perspectives exhibit that

relationship between trade and peace is complex and can be explained in different ways

This study thoroughly discusses the above predicament and the varying explanations

concerning the issue Moreover the study investigates the complex relationship between

trade and peace through the example of Pakistan and India relations This research

explores whether trade can be an instrument of peace between these two important South

Asian States Both the countries are nuclear states and their relationship has remained

volatile since their inception in 1947 It is a commonly established view that political and

military tactics have always been active in deciding the nature of dealings between

Pakistan and India They have always gauged capacities of one another in terms of

balance of power which further poses a conventional as well as nuclear threat to the

South Asian region In this scenario it is important to explore viable options such as

trade for brining positive change in bilateral relations between two adversaries This

study is an effort in the same direction It examines the role of trade as an economic tool

to create a lasting peace between Pakistan and India The study underpins its argument

through data collected using qualitative methods such as interviews Besides published

reports and documents the views and opinions of traders academicians and activists have

been used to generate discussion about the issue

This research endeavor elaborates the diverse theoretical perspectives about the

relationship between trade and peace ie Liberal perspective Realist perspective and

Marxist perspective It argues that the liberal perspective provides better explanation of

this relationship if one looks at different historical examples from around the world The

study also takes insights from the historical trade relationship between Pakistan and India

to investigate the economic potential of trade The study is directed to explore whether

v

there is a possibility for an expansion of trade relations between Pakistan and India The

study finds out that since there is an ever growing demand for quality goods and

services at a reasonable price in both the developing countries with their subsequent

conventional and populated economies aspiring for prosperity through commerce there is

a need for not only trade beyond continental borders but also within ie mutual trading

relationship Moreover trade will play a complimenting role and even better if the

economies of both countries are experiencing development prosperity and growth The

analysis verifies the subsequent argument put forward under three schools of thought and

concludes that trade possess the capacity to play an active role in mollifying strained

relations between Pakistan and India and begin an era of peace and harmony in the

region

vi

Acronyms and Abbreviations

NTBs Non-Tariff Barriers

MFN Most Favored Nation

ASEAN Association of South East Asian Nations

NDMA Non-Discriminatory Market Access

RTAs Regional Trade Associations

EU European Union

SIFT South Asia Free Trade Area

G8 Group of 8 Industrialized Nations

WTO World Trade Organization

SAARC South Asian Association for Regional Cooperation

MERCOSUR South American Common Market

GCC Gulf Cooperation Council

FDI Foreign Direct Investment

SDPI Sustainable Development Policy Institute

IMF International Monetary Fund

IBRD International Bank of Reconstruction and

Development

PILDAT Pakistan Institute of Legislative Development and

Transparency

SEATO Southeast Asia Treaty Organization

CENTO Central Treaty Organization

SAPTA South Asian Preferential Trading Arrangements

ICRIER Indian Council for research on International Economic

Relations

UN United Nations

FICCI Federation of Indian Chambers of Commerce and

Industry

IDSA Institute for Defence Studies and Analyses

SADC Southern African Development Community

PTAs Preferential Trading Arrangements

BOP Balance of Payments

FDA Foods and Drugs Authority

vii

Contents

Declaration i

Acknowledgements ii

Abstract iv

Acronyms and Abbreviations vi

Chapter 1 1

Introduction 1

11 Trading for peace and prosperity 2

12 Pakistan India Trade 6

13Statement of the problem 9

14 Significance of the study 10

15 Objectives of study 10

16 Research Questions 10

17 Theoretical Framework 11

a) Tradelsquos Positive Relation with Peace Liberallsquos Perspective 11

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives 12

c) Tradeis irrelevant to peace making Realist Perspective 13

18Research Methodology 15

19 Outline of the study 17

Chapter 2 20

The Complex Relationship between Trade and Peace Theoretical Perspectives 20

21 Introduction 20

22 Trade promotes peace The Liberal Perspective 22

23 Trade promotes conflict Realistlsquos and Marxistlsquos Perspectives 35

24 Void Theory of Trade and Peace Relation Realistlsquos Perspective 41

25 Conclusion 44

Chapter 3 46

Historical Perspective of Pakistan India Trade 46

31 Introduction 46

32 Changing Conceptual Trends about Pakistan India Trade Relationship 48

viii

33 Pakistan India Trade Relations Historical Overview 49

a) Earlier Phase of Building Ties 49

b) The Cessation of Trade 55

c) The Revival of Trade 56

d) Era of Regionalism 57

e) 21st century Ups and Downs in Trade 61

34 Conclusion 65

Chapter 4 68

Trade Potential between Pakistan and India 68

41 Introduction 68

42 Nature of Formal Trade between Pakistan and India 71

43 Nature of Informal Trade 73

44 Pakistan and India Trade is Competitive or Complementary 75

45 Potential Areas of Collaboration between Pakistan and India 77

a) Services Sectors 78

b) Agriculture Sector 79

c)Energy sector 81

d)Industry of Chemicals and Pharmaceuticals 82

e)Textiles and Clothing 84

f)Automobiles 86

g)Other Emerging Potential Areas for Trade 88

46 Conclusion 91

Chapter 5 94

Pakistan and India Trade A Vision for Peace 94

51 Introduction 94

52 New Thinking about Pakistan and India relations in New Era 95

53 Trade as a vehicle of Peace between Pakistan and India 97

531 Liberal School and Trade between Pakistan and India 98

532 Contesting Arguments Trade and Conflicts Problematic Relationshiplsquo 113

533 Contesting Arguments Trade is Irrelevant to Peacelsquo 119

54 Findings Trade an important tool for Peace between Pakistan and India 120

ix

Chapter 6 128

Conclusion 128

Bibliography 145

Appendix-A 173

Appendix- C 177

Appendix-D 178

Appendix-E 179

Appendix-F 180

Appendix-G 200

Appendix-H 201

Fig 1 202

Fig2 203

Fig3 204

Fig 4 205

Fig 5 206

1

Chapter 1

Introduction

Trade as an activity of buying and selling goods and services has long been used by

human beings as an economic tool in their mutual relationship However over a period of

time trade became more then just a tool of economic relations The scope of trade

surpassed the economic domain and has reached to the political realm In this realm it

has significantly altered relations among modern states 21st century is evident of the fact

that trade has often been used as political instrument to bring states together on political

matters

Trade therefore is seen as a potential instrument to bring peace and prosperity among

states There has been an academic debate to investigate relationship between trade and

peace during the last few decades A large number of studies discuss various political

externalities arising out of trade relations At the core of this academic debate is the

question that whether trade promotes peace Disagreement persists regarding the

question particularly whether trade is productive or an unproductive activity when it

comes to relations between two or more traditionally rival states This study attempts to

ponder over this question in the context of relations between two traditional rivals of

South Asia ie Pakistan and India

Academic circles debate whether increased trade contacts between the states reduces

chances of war as trade improves communication reduces misunderstandings and

consequently makes peaceful resolution of issues possible (Hegre 2000) Trade as a

peace strategy brings greater efficiency and development that may persuade states to

select trade as a tool instead of military strategy (Rosecrance 1986) Growth in trade

relations enjoys public support because ordinary citizens are aware of the dreadful cost of

war between rivals Therefore trade creates shared interests between dyads (Oneal amp

Russett 1997) and it acts as a deterrence to war

2

The subsequent section shows that rivals around the world have tried to give trade a

chance to bring peace thus trade proved to be a useful instrument

11 Trading for peace and prosperity

The current era can best be explained through the classic trade theory which highlights

that trading relations between states has a mollifying impact Interdependence is a driver

for the provision of harmony and resolution of conflicts through more peaceful methods

Economic incentives result in outstanding improvement in conflict situations both at

international and regional level

In the modern world there is an excess of illustrations that economic understanding and

socio -cultural changes among political adversaries encourage political settlements in the

long run The world is full of examples demonstrating political issues are overcome by

interdependence and cultural exchanges The two rivals of cold war USSR and US

followed a path of economic cooperation Similarly a case study of South East Asia and

the West also demonstrates the same phenomenon of tradelsquos pacifying role

Another best example is the European Union which was formed to set aside the harsh

memories of World War II and unite Europe for future generations The economic

activities of EU encouraged the rest of Europe to tie them in a string of cooperation

There persisted significant differences in the policies and economic interests of member

states but a crucial decision of cooperationlsquo was taken at that time (Young 2002) EU

worked well to reduce enmity not only between the two rival states of the region ie

France and Germany but from one corner to the other corner of Europe The bitter history

of Nazism (particularly in Poland Holland and Russia) successfully decreased to an

insignificant level is no minor an accomplishment Being a generator of peace EU

impressively has overcome the historic hatred and hostilities It proved itself as an

effective instrument to unite the divided and devastated Europe Formation of EU

experience demonstrates an example of historical reconciliation developed out of political

will for collaboration and finally integration (Cameron 2010)

3

The history of relations among Southeast Asian states remained however more complex

It was difficult for them to trust each other Geographical factors and the political and

security atmosphere of 1960 to 1980 demanded to cooperate for peace and security (Chai

2013) It was the Association of Southeast Asian nations (ASEAN) that played an

important part in changing antagonistic relationship into collaborative one The

objectives of ASEAN were both economic as well as political Economic

interdependence started an era of amazing development and prosperity in this region

Argentina and Brazil share same geographic location in South America (Wrobel nd)

History of relationship between Argentina and Brazil is full of hostility mistrust and

hatred They remained antagonistic towards each other for the leadership of Southern

American region (Koschut amp Oelsner 2014) This competition continued since colonial

period when Spain was controlling Argentina and Brazil was under Portugal authority

Even after their freedom ie in 1816 Argentina and in 1822 Brazil independence contest

sustained (Oelsner 2005)

The case study of Argentina and Brazil can be quoted for Pakistan and India case though

one essential contrast must be considered They remained competitors for the control of

South America but not the enemies (Wrobel nd) In 1828 Uruguay was born as a buffer

state as a result of a war between them three years ago since then relationship

transformed into cooperation and contest After a long era of unstable affairs they

realized the importance of peace and cooperation They proceeded towards an effort to

end controversies and become a part of economic world where conflicts are sided and

collaboration is encouraged

Eventually the two states with the alliance of Paraguay and Uruguay were framed with

the name of Mercosur (South American Common Market) in 1991 (Wrobel nd) In 1996

and 1997 Chile and Bolivia respectively joined this economic bloc A dream behind the

formation of this common marketbloc was to enhance the cooperation among regional

states and eradicate misconceptions It was envisioned that trade and investment would

facilitate closer linkages and prosperity

4

The African region also experienced RTAs (regional trade agreements)1 that tackled the

issues related to the management of resources like water issues and etc (Yang amp Gupta

2005) It was observed that such RTAs have played an instrumental role in minimizing

the military conflicts Even RTAs originated for other matters like racial issue included

the task of generating economic activities in their agenda In 1980s the Southern African

Development Community (SADC) was established to work against apartheid in South

Africa that later on facilitated the formation of free trade zone SADC has encouraged

intraregional exports and imports by two and a half time and enthusiastically busy in

areas of resolutions of disputes and conflicts in addition to the liberalization of trade

(Yang and Gupta 2005)

The economic relation between China and Japan reflects that differences can be handled

with the assistance of prudent economic policies and dealings The level of trade between

China and Japan never saw a decline due to political factors to a great extent After

China becoming part of world trade system and accession to the global trading body

World Trade Organization (WTO) in 2001 it is reflected that political tensions with

Japan not ended rather dominated by the trading relations between them Initially in

1978 this level of economic relationship was low but gradually such as from 2007 the

trade relations reached to the rank of third largest in terms of merchandized trade

connection in the world (including exports and imports together) despite their

relationship had remained complicated historically and politically (Armstrong nd)

Trade continued despite sensitive and unresolved issues as well as regional competition

In cases where politics play a dominant role trade relations are also affected that leads to

the cessation of economic linkages In recent times Pakistan India provides the case for

in depth analysis For some states politics might have affected trade but for China and

Japan their economics have dominated the issue of politics As a matter of fact both

states attached true commitment to continue and abide by the international trade rules

defined by WTO which resulted in continued economic progress and uplift

1―Regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more

partners They include free trade agreements and customs unionshttpswwwwtoorg

5

Similarly China and India entered into the phase of economic collaboration and

friendship recently Trade and economic exchanges have served as an agent of

rapprochement through productive economic linkages Both have the aim to raise the

political trust level and work for development of economic collaboration (Lin amp Fujian

2013) Though their main focus is economic relationship their interest to improve

cooperation in other areas such as security issues political perceptions and boundary

negotiations is also evident (Lin amp Fujian 2013) There is no doubt that constraints

exists but the two countries are making use of common interest ie complementarities in

their economic structures Both have regional and international interests such as China is

a manufacturing power while India is known to be in the list of service industries

worldwide (Lin amp Fujian 2013) If they cannot manage relationship with one another

they will not be able to create friendly security environment which is important for

achieving their domestic regional and international aims China and India have realized

the fact that international threatening issues like terrorism piracy and cross- border

crimes etc can be resolved by devising mutual strategies Moreover global trade and

finance institutions need reforms that both states can bring in with help of each other to

benefit their national interests

The industrialized world is making regional blocs for trade In Asia China and India have

made concerted efforts to cooperate so to protect themselves from a negative impact of

these blocs Both states have initiated collective military cooperation keeping aside their

real regional debates which has contributed to an overall harmony and regional peace If

there is peace inside the region South Asia will be in better position to negotiate with

other regional blocs like ASEAN EU NAFTA etc regarding trade matters Moreover

making SAARC a forum to protect economies of the region and bring improvement in

the specialization of different industries of South Asia

The above examples reveal that contentions can be controlled by trade arrangements It

gives inspiration to the South Asian Free Trade Agreement (SAFTA) to work for the

improvement of relationship between Pakistan and India as SIFT having great potential

for it Dorussen and Ward (2010) argue that Pakistan and India attitude towards world

6

trade is encouraging There is general trend of openness to world trade giving hope for

conflict resolution through economic factor at regional and bilateral level

If a rationalized trade policy is initiated by Pakistan and India and trade hurdles

vanished all other issues between them will eventually get resolved through an enduring

and collaborating effort Pakistan and India can learn from the examples prevailing in

world where belligerent regional states started efforts for peace and collaboration to

curtail hatred competition and warfare However both countries are coming closer at a

very low pace Even a snail speed will one day lead to an ultimate peace However there

are occasional hurdles that need to be addressed These hurdles are mostly political in

nature Trade activities can avert attentions from trouble some issues and speed- up trade

cooperation between them to reduce tensions and conflicts which arises from time to

time SAFTA (see Appendix-F) in this regard can play a central role to relax bilateral

tensions Peace and tranquility between Pakistan and India will be considered as the great

payoff of SAFTA (Suleri 2005)

12 Pakistan India Trade

The chronological review of trade relations between Pakistan and India shows that

because of geographic similarities and identical history both states remained dependent

on each other (Choudhury 1968) However during the process of division of Indian Sub-

Continent economic factor and integrated system of trade relations was completely

ignored The consequence was that it badly vivisected trade relations between the two

states of the region and the unified economic system of the region got divided Trade

relations although retained since independence suffered badly due to occasional

disruptions

Mutual conflicts such as ―battle of currency in 1940s and Most Favored Nations (MFN)

status (see Appendix- E) and wars of 1948 1965 1971 1999 nuclear arm race and

occasional skirmishes on Line of Control (LOC) etc always disturbed trade contacts

between Pakistan and India But parallel efforts such as cricket diplomacy and Non

Discriminatory Market Access (NDMA) also persisted to improve trade relations In

2015 according to Federal Commerce Minister Ghulam Dastigir introduced hopes for

7

the grant of NDMA by Pakistan to India (Ahmad M 2016) Again tension on the LOC in

September 2016 created uncertainty India refused to participate in the SAARC summit

that was decided to be held in Pakistan It has caused anxiety in business community

According to M Sabir Shaikh if the situation of conflict continues it will harm Indian

economy more than Pakistanlsquos economy because of huge and diverse trading and

industrial set up (Khan A S 2016)

Business community encourages trade between Pakistan and India as they foresee greater

economic prosperity through this forum however reasons of low level of trade owe to

inward looking strategies2 unstable political situation and border disputes Lack of full-

scale formal trade resulted in giving boost to informal trade activities The informal trade

is following trade routes such as Dubai Afghanistan and Iran (Naqvi 2009) Moreover

besides transit trade there are possibilities of trade cooperation in services health fields

IT expertlsquos exchanges tourism and entertainment fields (The Hindu 2012)

A good number of studies have reflected on the issue of trade between Pakistan and

India A cursory view of this literature endorses the argument presented in this study that

trade between Pakistan and India has been problematic due to complex political issues

and oblivious behavior of political leadership in both state Cohen (2013) has discussed

the relationship of Pakistan and India as complex and distant He states ― the relation

between them are often summarized as ―up or ―down ―better or ―worse or invoking

a climatic metaphor ―cooler or ―warmer(p17) Cohen argues this region is least

connected economically and lagging behind the world Only integration can improve the

relations Similarly Alam (2006) elaborates that South Asian region is facing inadequate

trade facilitation mechanism contributing to an unrealized potential of intra-regional trade

in certain areas The reasons include weak communication political conflicts and

restrictive trade policies

There are opposite views presented by the scholars who present lack of optimism over

improvement of Pakistan - India bilateral trade According to Dixit (2002) there are

psychological issues on part of Pakistan that create hurdles in bilateral relations For him

2 The concept usually practices for import substitution in trade exchanges

8

Pakistanlsquos ultimate aim is to become regional power and destabilize India Jenkins

(2003) argued that India is an important player of region Indialsquos aim is to become an

economic power To this end it has to balance the interaction between the imported ideas

of liberal market system and the traditional political concepts Jenkins examines that

Indian market is facing economic nationalism domestically Such tendencies must be

dealt with to become a successful partner at global as well as regional level Similarly

Ganguly (2002) presents the same view that both Pakistan and India states have

contradictory nationalist views ie Indian nationalist (secular) and Pakistan nationalist

(Islamic) in India and Pakistan respectively that utilizes their conflict on Kashmir for

their respective interests He is not optimistic about future dealings of both states

especially after acquisition of nuclear capabilities history of ideological religious and

political clashes

Sardar (2011) has shed a light on theme of Pakistan and India relations He discusses that

their relations are transformed since 1998 ―nuclear tests because their way of traditional

reaction has changed He further stresses for transformation in non-security areas Actors

of both states rules and regulations and structures needs transformation Ghuman (1986)

also opined that mutual cooperation is very important for the building up of relationship

between Pakistan and India To ease the crisis Pakistan and India could play their role by

increasing interdependence in economic spheres Siddiqui (2007) also discusses about the

real transformation which can result from SAFTA Economic arrangements like SAFTA

would make this resourceful region (of around 13 billion population) a nucleus of

economic uplift and development Transformation would lead to constructive

engagements and peaceful resolution of conflicts

The world is shifting from conflict to cooperation as Bhatia (1990) argues economic

relations unite nations while politics divides Even in an era of interdependence both

states tried to be independent of one another in economic matters According to Bhatia

the world system is changing from confrontationist strategies in favor of development

policies The same concept has been forwarded by Taneja amp Pohit (2015) that Pakistan

and India must encourage the multi-level dialogue between Pakistan and India The

authors stressed that South Asian states have proved unsuccessful in regional integration

9

process because of political issues that are tagged with economic matters as a result

create disturbance in bilateral trade According to this study there are huge levels of

opportunities for trade between them

Travis (1997) encourages both countries for cooperation in security as well as economic

sectors in a unipolar world as developing states such as Pakistan and India must

cooperate in changing international system for their respective gains Durrani (2001) also

persuades both states for peace measures and negotiations to avoid any military power

race and involvement He stresses for track II diplomacy and effective role of SAARC

Kux (2006) has also discussed about the role of negotiations between Pakistan and India

for peace He argues that negotiations have continued since independence but for

peaceful relations trade collaboration cultural cooperation both are required to pursue

tough and difficult negotiations

13Statement of the problem

Slow trade has remained very a crucial issue between Pakistan and India since their

inception Rivalry and political conflict are one of the main factors responsible for

uncertainty in economic relations Pakistan and India though continued trading relations

but they never got improved Occasionally thorny relations interrupted trade contacts

which further widened gap between the two The lingering issues side- tracked the

chances of better trade relations Trade is often set aside by Pakistan and India because it

can only be revived when unresolved political disputes are resolved Tensions and

conflicts between them created obstacles in regional integration prosperity and peace

among the regional neighbouring countries This myopic policy has affected their

respective economies and prohibited trade to function as a peace tool Economic ties have

suffered serious blowbacks due to distinguished political structures besides hostile

political and security atmosphere In these unfortunate and unfavorable circumstances

both countries were unable to mend economic knots potentially despite having economic

potential The political ideology and security dynamics have mostly over shadowed

economic relations Therefore it is the political aspect of trade which remained the barrier

towards better economic relations However trade can be an effective technique in this

10

particular case to influence Pakistan and India and serve as confidence building measure

In the long run trade can facilitate peace between these traditional rivals of South Asia

14 Significance of the study

There is lack of coherent and consistent academic work in the area of Role of Trade in

Peace between Pakistan and India Although sporadic research work on the South Asia

trade does exist a systematic study analyzing the role of trade in promoting peace in

South Asia is specifically unavailable The role of trade in peace between the countries is

therefore holds unique niche in the national and academic arena Keeping Indialsquos ever

growing economy there is a general understanding that Pakistan cannot and should not

be ignored with the former Other important factor is the geographical contiguity of

Pakistan and India which can result in greater progress provided they utilize markets for

their benefits Moreover this study locates its argument in the broader theoretical debate

about the relationship of trade and peace Therefore seeks to contribute to the broader

literature on trade and peace

15 Objectives of study

This study examines the role of trade in peace with particular focus on Pakistan and

Indialsquos trade relations and its effectuated impact in terms of peace generally in the

region and particularly Pakistan and India with following objectives

1 To review and examine the history Pakistan ndashIndia trade pattern

2 To highlight potential complementarities and competitiveness in the economies of

Pakistan and India

3 To review literature based on liberal theory to establish a criteria or benchmarks

to be applied for examining the role of trade in promoting peace between Pakistan

and India

4 To focus on the impact of trade on Pakistan-India relations

16 Research Questions

1 What was the nature of trade relations between Pakistan and India historically

2 Is there any potential for enhanced trade between Pakistan and India

11

3 Is there any relationship between trade and peace in the context of Pakistan India

relations

17 Theoretical Framework

The research at hand compares theories on trade and peace to reach to the outcome that

trade is an active tool for peace It also analyzes whether Pakistan and India trade can

become a source of peace or conflict It is therefore imperative to thoroughly understand

different perspectives This section elaborate view points of three theoretical schools of

thought related to the role of trade

a) Trade‟s Positive Relation with Peace Liberal‟s Perspective

It is believed that trade has a gigantic power to control the negative emotions in

international relations According to Pasha (interview 2015) Pakistan and India being

neighbors share a common historical past and socio economic similarities They are

natural partners Development of trade between them is natural and vital to maintain

historical legacy stability as well as cultivation of progress and growth in South Asia

Liberal school of thought believes that the opening out of inter-state connection in

particular sections (trade and commerce) stimulates collaboration generally in other

sectors also (Barbieri 1996) Acknowledging conflict as an element of international

structure Liberals admit that conflict is present in world and plays important part in

international relations They likewise endorse the notion of tranquility through economic

interdependence and integration in the world According to Travis (1997) liberal theory

explains two significant notions of world system ie complex interdependence and

integration He defined complex interdependence as ―the intertwining of interests and

needs among two or more actors in a particular dimension so that these actors become

mutually sensitive reactive and vulnerable and need to cooperate to fulfill their goal

(p23) He described integration as ―the building by two or more actors of an

international regime or a supranational institution to regulate behavior in a given

dimension and the development of attitudinal responsiveness characterized by mutual

trust predictability and indulgence (p23) Complex Interdependence and Integration

12

have brought states very close to each other and made dependent equally It regulates the

attitudes of states towards prosperity and peace by building trust among them Liberals

propose that trade sustains harmony irrespective of the nature of relationship between

states and always operate as a deterrent to conflict (Barbieri 1996)

Trade may not completely boost economies of Pakistan and India but there are various

positive externalities which can grow from the opening of trade ―Liberals recognize that

gains from trade and the potential costs accompanying interdependence are not always

equal they argue that ties imply net positive benefits for both states (Barbieri 2005

p27) Thus illustrating the phenomenon of not only economic uplift rather a wide-

ranging affects on individualslsquo society and as a whole on the interactions between states

Trade among neighbors has more chances for complementariness to emerge because of

low costs of transportation as well as cultural adaptability and same taste for trading

goods3 In case of Pakistan and India there is abundance of products that can be

exchanged for benefits to both economies of region (Jain 1999 Malhotra

2009)Varshney and Kumar (1989) argue that growth of internal markets of Pakistan and

India is more likely as an output of trade relations It will support their industrial sector

and make it strengthened

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives

Marxist-Leninists have given a different approach that trade may increase conflict rather

then peace among states (Barbieri 2005) The reason of conflict sprouts from this fact

that weak states have always been subjugated by powerful states It can explain the same

issue in the context of Pakistan and India as it may try to exploit Pakistan to maximize

benefits of trade for her interests The pessimistic point of view of opponents of trade and

peace theorists see interdependence as a tool for a strong state such as India to control

the inadequate resources of relatively weaker state like Pakistan and its markets for

goods Because of resemblance in products they can very easily spoil each others

3 ―Pair of goods for which consumption is interdependent (eg cars and petrol or cups and saucers) are

known as complements or complementary goods and change in the demand for one will have a

complementary effect upon the demand for the other (Bannock Baxteramp Davis 2004)

13

industries and markets of goods and services Evidences exist that Pakistan and India

trade relationship remained uneven with an added advantage to India in comparison to

Pakistan (Khan 2008) ―Pakistan had a huge trade deficit with India equaling US $

102554 million in 2006 -07 which in fact increased further to US $ 165718 million in

2007-08(Sustainable Development Policy Institute 2010 p 222) The statistic shows

that trade balance is still very lopsided in Indialsquos favor (Sustainable Development Policy

Institute 2010 p222)

There is a sense of fear in Pakistan about India thatlsquos why it has not reciprocated to

Indialsquos initiative to be granted the MFN status Moreover Pakistan justifies that from

Indian side there is discriminatory tariff barriers and disturbing sufficient inflow of

Pakistan goods into India markets (Dawn 2004) The dumping tactic by a strong state ie

India create reservations in weak state- Pakistan that strong market would adversely

affect its economy as a whole leading to extreme situation of unemployment (Dawn

2004)4 If economic and employment state of affairs get worsen further Pakistan fears

that the repercussions would be drastically deteriorating (Dawn 2004)

c) Trade is irrelevant to peace making Realist Perspective

The role of trade in the promotion of peace is examined with more severity in academic

circles It is argued that trade is irrelevant to the promotion of peace (Barbieri 2005)

This school of thought believe that trade is not strong a tool that can change the dynamics

of relationship between Pakistan and India History is evident about the role of military

option more successful and impressive in deciding issues between Pakistan and India

rather an effective tool to maintain peace between two arch rivals Trade can merely be a

transitory arrangement between Pakistan and India to work out short term national

interests It did result in smoothening of relations occasionally but whenever conflict

have blew up and security situation required trade associations were straightforwardly

ended or halted Thus trade cannot be considered as main variable for bringing in peace

4 ―Dumping means the sale of a commodity on a foreign market at a price below marginal cost An

exporting country may support the short run losses of this policy in order to eliminate competition and

thereby gain a monopoly in the foreign market (Bannock Baxter amp Davis 2004)

14

among two rivals Lack of trust and past history would never allow trade to be an

effective technique of peace permanently between Pakistan and India

Analyses of aforementioned perceptions concerning peace promotion through trade

between two belligerents -Pakistan and India concludes that trade is not an insignificant

tool It has changed relationships between fighting nations and is an important foreign

policy instrument The narrow stand point given by some school of thoughts fails to

understand the reality of trade in deciding the nature of dealings in present scenario This

study is attempted to justify trade as an effective mean to bring two states closer and

avoid expensive instruments effecting way of life of people in the region It is a liberal

school of thought that guides the theoretical framework of this study It fits well in the

context of Pakistan - India trade linkages It is an optimistic phenomenon that believes in

the economic development for two besides attaining peace and saving this region from

nuclear threats

Although the conceptual framework of this research study is based on liberal school of

thought the study takes valuable insights from the dissenting theoretical positions such as

Marxists and Realists A significant point raised by Mansfield (1994) that international

trade and power bears a great influence on the occurrence of war Moreover power and

war also impact trade A study calls for the integration of international economics with

international politics and international political economics and international studies of

war In addition Mansfield and Pollins (2003) also argued that the role of trade is

dependent on existing internal and external situation and accordingly leads to peace and

conflict Likewise Kant concept that war is too costly a job for the interdependent and

trading partners has been highlighted with the example of Nixonlsquos and Kissingerlsquos

policies during cold war era Trade was used as a tool for relaxation of tension

Furthermore opinions discussed by different theorists related to the relationship of peace

with trade and its diverse impacts on state to state contacts has been discussed by Barbieri

(2005)

15

18 Research Methodology

This study is conducted by using secondary and primary data Secondary data is scattered

and therefore gathered from different sources ie 1) Research work of experts in the

same field from Pakistan and India namely Ishrath Hussain Ijaz Nabi Shahid Javed

Burki Zareen Fatima Naqvi Rasul Bakhsh Rais Syed Akbar Zaidi Shaheen Rafi Khan

Nisha Tanej Anit Mukherjee ESridharan Mahendra Lama Siddhartha Mitra NC

Pahariya Pradeep SMehta Pia Malhotra etc Pakistani and Indian Newspapers The

Hindustan Times Dawn (Pak) The News The Nation Express Tribune The Hindu

Times of India etc Research work of armed forces personnel ie Mahmud Ali Durrani

(Rt army officer) and Jasjit Singh (Air Commodore)

Other significant briefing papers and studies produced by renowned associations and

think tanks including South Asian Studies produced by Ministry of Finance Govt of

Pakistan Strategic Studies Institute US Army War College South Asia Free Media

Association (SAFMA) Status Papers of Federation of Indian Chambers of Commerce

and Industry on Pakistan India economic relations Working Papers of PILDAT

Cooperative Monitoring Centre Occasional Paper US Department of Energy Pakistan

Economic Survey research work of Indian Council for Research on International

Economic Relations( ICRIER) Studies of Research and Economic Development Cell

Chamber of Commerce and Industry Karachi Studies by Government of Pakistan

Ministry of Commerce Research work of the Centre for Strategic and International

Studies (CSIS) Washington DC South Asia Watch on Trade Economics and

Environment (SAWTEE) World Bank development indicators and the studies supported

by Woodrow Wilson centre Washington DC are also included The purpose of study of

research data is to examine whether trade can strengthen relations and consequently

promote peace

Through secondary data historical content is explored in this study to show that trade

relations between Pakistan - India have never been smooth and consistent After drawing

this context an investigation is made into potential of trade through building a strong

case for mutually beneficial trade between the two

16

For final analysis of the study primary data was collected from diverse sections of

Pakistan and India such as Ishtiaq Ahmad Quaid-i-Azam Fellow at St Antonylsquos College

and Research Associate at Centre for International Studies University of Oxford

Shamshad Ahmad former foreign secretary played an important role during

extraordinary period (overt nuclearization kargil crisis and General Musharaflsquos coup) in

India and Pakistan peace process resumption Sohail Ahmad Director TMOAG

Company Whose business is related to the Oil and Gas products from Central Asia

Moonis Ahmar Dean Faculty of Arts University of Karachi with expertise in conflict

Resolution and Confidence-building measures with particular reference to South Asia

Qadar Baloch who presented a paper titled ―Pakistan granting MFN status to India

Merits and Demerits for Pakistan at conference held at Islamia College University of

Peshawar Mohammad Ilyas Ghauri Chief Executive Officer Punjab Board of

Investment and Trade Government of the Punjab Shoaib Ahmed Khan Ghulam

Faruque Group Resident Director Cherat Cement co Ltd Aziz Ahmad Khan Amb

(Rtd) Hon Vice President Jinnah Institute served as Pakistanlsquos high commissioner to

India from 2003 to 2006 At International conference ―Narratives of National Security

attended at Institute of Strategic Studies Islamabad Mahendra P Lama Professor of

South Asian Economies School of International Studies JNU amp Founding Vice

Chancellor Central University of Sikkim amp Former Member National Security Advisory

Board Government of India worked and published articles in the area of cooperation and

integration in South Asia Anatol Lieven Orwell Prize winning journalist and policy

analyst worked with The Times London covering Pakistan and wrote from India as

freelancer Partha S Ghosh Editor India Quarterly Indian Council of World Affairs

ICSSR National Fellow Institute for Defence Studies and Analyses New Delhi

extensively focused on South Asia Conflict and Cooperation Bilal Khan Pasha Deputy

Secretary Ministry of Commerce Khalid Mehmood Raja Chairman Maknom Group of

Companies with areas of business activities in Central Asia and South Asia Adnan

Sarwar Khan (2015) Dean Faculty of Social Sciences University of Peshawar Mehmood

Shah Paper presented titled ―A Trade Creation and Gravity Model Approach at

conference attended at Islamia College University of Peshawar Nitesh Ravi Srivastav

founder member of Aaghaz-e- Dosti (Indo Pakistan friendship initiative) executive

APPROVAL CERTIFICATE

―Assessing the Role of Trade in Promoting Peace Pakistan and India in Perspective

Dissertation Presented

By

Saima Gul

To the Department of International Relations

University of Peshawar

In Partial Fulfillment of the Requirements of PhD in International Relations

10th

October 2017

We the undersigned have examined the thesis entitled ldquoAssessing the Role of Trade in

Promoting Peace Pakistan and India in Perspectiverdquo written by Saima Gul PhD

Scholar at the Department of International Relations University of Peshawar and do

hereby approve it for the award of PhD Degree

Approved By

Supervisor

DR MUHAMMAD AYUB JAN

Department of Political Science

University of Peshawar

External Examiner

DR FAIZA BASHIR

Department of Political Science

Islamia College University Peshawar

Chairman

PROF DR HUSSAIN SHAHEED SOHARWARDI

Department of International Relations

University of Peshawar

Dean

PROF DR TAJ MUHARRAM KHAN

Dean Faculty of Social Sciences

University of Peshawar

Dedication

I dedicate this thesis to my mother Mrs Almas and my husband Mr Ibrahim Baig my

sisters and brothers for their constant moral support Their encouragement made me to

achieve my aim to complete this research work

i

Declaration

I hereby declare that this dissertation is not submitted to any other institution university

and organization for the purpose of grant of degree Moreover this research work is the

outcome of my sole research work

Saima Gul

ii

Acknowledgements

All praise to Allah Almighty the most merciful and beneficent and salutations on the

Holy Prophet Hazrat Muhammad (Peace Be upon Him) a composite source of

knowledge for humanity

First I would like to express my sincere gratitude to my supervisor Dr Muhammad Ayub

Jan Department of Political Science University of Peshawar for his continuous support

patience motivation and valuable insights His guidance assisted me during the entire

duration of my PhD It has been an honor to work under his supervision I appreciate all

his contributions of time and ideas to make my PhD experience productive and

stimulating

I am also immensely appreciative to Dr Nasreen Ghufran Chairperson Department of

International Relations University of Peshawar especially for sharing her expertise so

willingly for her valuable advice and guidance in connection with developing the initial

idea of my thesis Similar profound gratitude goes to Dr Adnan Sarwar Khan former

Dean Faculty of Social Sciences University of Peshawar who guided me throughout my

studies

Special mention and thanks goes to my teachers colleagues and faculty members of

Department of International Relation including Dr Ijaz khan Dr Noor Shah Jahan Dr

Hussain Shaheed Soherwardi Dr Shahid Khattak (late) Dr Minhas Majeed Mr

Khurshid Ahmad and Mr Zia Ur Rehman who shared their views and encouraged me to

accomplish the task of completing my research work

I owe a great debt to Inam Afridi Islamic University Islamabad Noman Sattar Quaid-e-

Azam University Islamabad and Col Tariq Qureshi (late) for their support in collection

of research material

I am indebted to my friends including Shumaila Farooqi Aysha Umair Sohail Ahmad

Amir Raza who encouraged me and prayed for the completion of my PhD

I would like to thank my family for all their love and encouragement for my parents who

raised me with their absolute love for education They backed me in all my academic and

iii

professional pursuits Finally and most importantly I am grateful to my supportive

encouraging and patient husband without his support this thesis would not have been

possible

iv

Abstract

The relationship between trade and peace has been debated by the policy makers

academicians and general public Such deliberations often end in contesting conclusions

For some trade is a potential tool to mold relationship and make peace between states

for others trade may become a source of conflict Yet others would see no substantial

relationship between trade and peace These disparate perspectives exhibit that

relationship between trade and peace is complex and can be explained in different ways

This study thoroughly discusses the above predicament and the varying explanations

concerning the issue Moreover the study investigates the complex relationship between

trade and peace through the example of Pakistan and India relations This research

explores whether trade can be an instrument of peace between these two important South

Asian States Both the countries are nuclear states and their relationship has remained

volatile since their inception in 1947 It is a commonly established view that political and

military tactics have always been active in deciding the nature of dealings between

Pakistan and India They have always gauged capacities of one another in terms of

balance of power which further poses a conventional as well as nuclear threat to the

South Asian region In this scenario it is important to explore viable options such as

trade for brining positive change in bilateral relations between two adversaries This

study is an effort in the same direction It examines the role of trade as an economic tool

to create a lasting peace between Pakistan and India The study underpins its argument

through data collected using qualitative methods such as interviews Besides published

reports and documents the views and opinions of traders academicians and activists have

been used to generate discussion about the issue

This research endeavor elaborates the diverse theoretical perspectives about the

relationship between trade and peace ie Liberal perspective Realist perspective and

Marxist perspective It argues that the liberal perspective provides better explanation of

this relationship if one looks at different historical examples from around the world The

study also takes insights from the historical trade relationship between Pakistan and India

to investigate the economic potential of trade The study is directed to explore whether

v

there is a possibility for an expansion of trade relations between Pakistan and India The

study finds out that since there is an ever growing demand for quality goods and

services at a reasonable price in both the developing countries with their subsequent

conventional and populated economies aspiring for prosperity through commerce there is

a need for not only trade beyond continental borders but also within ie mutual trading

relationship Moreover trade will play a complimenting role and even better if the

economies of both countries are experiencing development prosperity and growth The

analysis verifies the subsequent argument put forward under three schools of thought and

concludes that trade possess the capacity to play an active role in mollifying strained

relations between Pakistan and India and begin an era of peace and harmony in the

region

vi

Acronyms and Abbreviations

NTBs Non-Tariff Barriers

MFN Most Favored Nation

ASEAN Association of South East Asian Nations

NDMA Non-Discriminatory Market Access

RTAs Regional Trade Associations

EU European Union

SIFT South Asia Free Trade Area

G8 Group of 8 Industrialized Nations

WTO World Trade Organization

SAARC South Asian Association for Regional Cooperation

MERCOSUR South American Common Market

GCC Gulf Cooperation Council

FDI Foreign Direct Investment

SDPI Sustainable Development Policy Institute

IMF International Monetary Fund

IBRD International Bank of Reconstruction and

Development

PILDAT Pakistan Institute of Legislative Development and

Transparency

SEATO Southeast Asia Treaty Organization

CENTO Central Treaty Organization

SAPTA South Asian Preferential Trading Arrangements

ICRIER Indian Council for research on International Economic

Relations

UN United Nations

FICCI Federation of Indian Chambers of Commerce and

Industry

IDSA Institute for Defence Studies and Analyses

SADC Southern African Development Community

PTAs Preferential Trading Arrangements

BOP Balance of Payments

FDA Foods and Drugs Authority

vii

Contents

Declaration i

Acknowledgements ii

Abstract iv

Acronyms and Abbreviations vi

Chapter 1 1

Introduction 1

11 Trading for peace and prosperity 2

12 Pakistan India Trade 6

13Statement of the problem 9

14 Significance of the study 10

15 Objectives of study 10

16 Research Questions 10

17 Theoretical Framework 11

a) Tradelsquos Positive Relation with Peace Liberallsquos Perspective 11

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives 12

c) Tradeis irrelevant to peace making Realist Perspective 13

18Research Methodology 15

19 Outline of the study 17

Chapter 2 20

The Complex Relationship between Trade and Peace Theoretical Perspectives 20

21 Introduction 20

22 Trade promotes peace The Liberal Perspective 22

23 Trade promotes conflict Realistlsquos and Marxistlsquos Perspectives 35

24 Void Theory of Trade and Peace Relation Realistlsquos Perspective 41

25 Conclusion 44

Chapter 3 46

Historical Perspective of Pakistan India Trade 46

31 Introduction 46

32 Changing Conceptual Trends about Pakistan India Trade Relationship 48

viii

33 Pakistan India Trade Relations Historical Overview 49

a) Earlier Phase of Building Ties 49

b) The Cessation of Trade 55

c) The Revival of Trade 56

d) Era of Regionalism 57

e) 21st century Ups and Downs in Trade 61

34 Conclusion 65

Chapter 4 68

Trade Potential between Pakistan and India 68

41 Introduction 68

42 Nature of Formal Trade between Pakistan and India 71

43 Nature of Informal Trade 73

44 Pakistan and India Trade is Competitive or Complementary 75

45 Potential Areas of Collaboration between Pakistan and India 77

a) Services Sectors 78

b) Agriculture Sector 79

c)Energy sector 81

d)Industry of Chemicals and Pharmaceuticals 82

e)Textiles and Clothing 84

f)Automobiles 86

g)Other Emerging Potential Areas for Trade 88

46 Conclusion 91

Chapter 5 94

Pakistan and India Trade A Vision for Peace 94

51 Introduction 94

52 New Thinking about Pakistan and India relations in New Era 95

53 Trade as a vehicle of Peace between Pakistan and India 97

531 Liberal School and Trade between Pakistan and India 98

532 Contesting Arguments Trade and Conflicts Problematic Relationshiplsquo 113

533 Contesting Arguments Trade is Irrelevant to Peacelsquo 119

54 Findings Trade an important tool for Peace between Pakistan and India 120

ix

Chapter 6 128

Conclusion 128

Bibliography 145

Appendix-A 173

Appendix- C 177

Appendix-D 178

Appendix-E 179

Appendix-F 180

Appendix-G 200

Appendix-H 201

Fig 1 202

Fig2 203

Fig3 204

Fig 4 205

Fig 5 206

1

Chapter 1

Introduction

Trade as an activity of buying and selling goods and services has long been used by

human beings as an economic tool in their mutual relationship However over a period of

time trade became more then just a tool of economic relations The scope of trade

surpassed the economic domain and has reached to the political realm In this realm it

has significantly altered relations among modern states 21st century is evident of the fact

that trade has often been used as political instrument to bring states together on political

matters

Trade therefore is seen as a potential instrument to bring peace and prosperity among

states There has been an academic debate to investigate relationship between trade and

peace during the last few decades A large number of studies discuss various political

externalities arising out of trade relations At the core of this academic debate is the

question that whether trade promotes peace Disagreement persists regarding the

question particularly whether trade is productive or an unproductive activity when it

comes to relations between two or more traditionally rival states This study attempts to

ponder over this question in the context of relations between two traditional rivals of

South Asia ie Pakistan and India

Academic circles debate whether increased trade contacts between the states reduces

chances of war as trade improves communication reduces misunderstandings and

consequently makes peaceful resolution of issues possible (Hegre 2000) Trade as a

peace strategy brings greater efficiency and development that may persuade states to

select trade as a tool instead of military strategy (Rosecrance 1986) Growth in trade

relations enjoys public support because ordinary citizens are aware of the dreadful cost of

war between rivals Therefore trade creates shared interests between dyads (Oneal amp

Russett 1997) and it acts as a deterrence to war

2

The subsequent section shows that rivals around the world have tried to give trade a

chance to bring peace thus trade proved to be a useful instrument

11 Trading for peace and prosperity

The current era can best be explained through the classic trade theory which highlights

that trading relations between states has a mollifying impact Interdependence is a driver

for the provision of harmony and resolution of conflicts through more peaceful methods

Economic incentives result in outstanding improvement in conflict situations both at

international and regional level

In the modern world there is an excess of illustrations that economic understanding and

socio -cultural changes among political adversaries encourage political settlements in the

long run The world is full of examples demonstrating political issues are overcome by

interdependence and cultural exchanges The two rivals of cold war USSR and US

followed a path of economic cooperation Similarly a case study of South East Asia and

the West also demonstrates the same phenomenon of tradelsquos pacifying role

Another best example is the European Union which was formed to set aside the harsh

memories of World War II and unite Europe for future generations The economic

activities of EU encouraged the rest of Europe to tie them in a string of cooperation

There persisted significant differences in the policies and economic interests of member

states but a crucial decision of cooperationlsquo was taken at that time (Young 2002) EU

worked well to reduce enmity not only between the two rival states of the region ie

France and Germany but from one corner to the other corner of Europe The bitter history

of Nazism (particularly in Poland Holland and Russia) successfully decreased to an

insignificant level is no minor an accomplishment Being a generator of peace EU

impressively has overcome the historic hatred and hostilities It proved itself as an

effective instrument to unite the divided and devastated Europe Formation of EU

experience demonstrates an example of historical reconciliation developed out of political

will for collaboration and finally integration (Cameron 2010)

3

The history of relations among Southeast Asian states remained however more complex

It was difficult for them to trust each other Geographical factors and the political and

security atmosphere of 1960 to 1980 demanded to cooperate for peace and security (Chai

2013) It was the Association of Southeast Asian nations (ASEAN) that played an

important part in changing antagonistic relationship into collaborative one The

objectives of ASEAN were both economic as well as political Economic

interdependence started an era of amazing development and prosperity in this region

Argentina and Brazil share same geographic location in South America (Wrobel nd)

History of relationship between Argentina and Brazil is full of hostility mistrust and

hatred They remained antagonistic towards each other for the leadership of Southern

American region (Koschut amp Oelsner 2014) This competition continued since colonial

period when Spain was controlling Argentina and Brazil was under Portugal authority

Even after their freedom ie in 1816 Argentina and in 1822 Brazil independence contest

sustained (Oelsner 2005)

The case study of Argentina and Brazil can be quoted for Pakistan and India case though

one essential contrast must be considered They remained competitors for the control of

South America but not the enemies (Wrobel nd) In 1828 Uruguay was born as a buffer

state as a result of a war between them three years ago since then relationship

transformed into cooperation and contest After a long era of unstable affairs they

realized the importance of peace and cooperation They proceeded towards an effort to

end controversies and become a part of economic world where conflicts are sided and

collaboration is encouraged

Eventually the two states with the alliance of Paraguay and Uruguay were framed with

the name of Mercosur (South American Common Market) in 1991 (Wrobel nd) In 1996

and 1997 Chile and Bolivia respectively joined this economic bloc A dream behind the

formation of this common marketbloc was to enhance the cooperation among regional

states and eradicate misconceptions It was envisioned that trade and investment would

facilitate closer linkages and prosperity

4

The African region also experienced RTAs (regional trade agreements)1 that tackled the

issues related to the management of resources like water issues and etc (Yang amp Gupta

2005) It was observed that such RTAs have played an instrumental role in minimizing

the military conflicts Even RTAs originated for other matters like racial issue included

the task of generating economic activities in their agenda In 1980s the Southern African

Development Community (SADC) was established to work against apartheid in South

Africa that later on facilitated the formation of free trade zone SADC has encouraged

intraregional exports and imports by two and a half time and enthusiastically busy in

areas of resolutions of disputes and conflicts in addition to the liberalization of trade

(Yang and Gupta 2005)

The economic relation between China and Japan reflects that differences can be handled

with the assistance of prudent economic policies and dealings The level of trade between

China and Japan never saw a decline due to political factors to a great extent After

China becoming part of world trade system and accession to the global trading body

World Trade Organization (WTO) in 2001 it is reflected that political tensions with

Japan not ended rather dominated by the trading relations between them Initially in

1978 this level of economic relationship was low but gradually such as from 2007 the

trade relations reached to the rank of third largest in terms of merchandized trade

connection in the world (including exports and imports together) despite their

relationship had remained complicated historically and politically (Armstrong nd)

Trade continued despite sensitive and unresolved issues as well as regional competition

In cases where politics play a dominant role trade relations are also affected that leads to

the cessation of economic linkages In recent times Pakistan India provides the case for

in depth analysis For some states politics might have affected trade but for China and

Japan their economics have dominated the issue of politics As a matter of fact both

states attached true commitment to continue and abide by the international trade rules

defined by WTO which resulted in continued economic progress and uplift

1―Regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more

partners They include free trade agreements and customs unionshttpswwwwtoorg

5

Similarly China and India entered into the phase of economic collaboration and

friendship recently Trade and economic exchanges have served as an agent of

rapprochement through productive economic linkages Both have the aim to raise the

political trust level and work for development of economic collaboration (Lin amp Fujian

2013) Though their main focus is economic relationship their interest to improve

cooperation in other areas such as security issues political perceptions and boundary

negotiations is also evident (Lin amp Fujian 2013) There is no doubt that constraints

exists but the two countries are making use of common interest ie complementarities in

their economic structures Both have regional and international interests such as China is

a manufacturing power while India is known to be in the list of service industries

worldwide (Lin amp Fujian 2013) If they cannot manage relationship with one another

they will not be able to create friendly security environment which is important for

achieving their domestic regional and international aims China and India have realized

the fact that international threatening issues like terrorism piracy and cross- border

crimes etc can be resolved by devising mutual strategies Moreover global trade and

finance institutions need reforms that both states can bring in with help of each other to

benefit their national interests

The industrialized world is making regional blocs for trade In Asia China and India have

made concerted efforts to cooperate so to protect themselves from a negative impact of

these blocs Both states have initiated collective military cooperation keeping aside their

real regional debates which has contributed to an overall harmony and regional peace If

there is peace inside the region South Asia will be in better position to negotiate with

other regional blocs like ASEAN EU NAFTA etc regarding trade matters Moreover

making SAARC a forum to protect economies of the region and bring improvement in

the specialization of different industries of South Asia

The above examples reveal that contentions can be controlled by trade arrangements It

gives inspiration to the South Asian Free Trade Agreement (SAFTA) to work for the

improvement of relationship between Pakistan and India as SIFT having great potential

for it Dorussen and Ward (2010) argue that Pakistan and India attitude towards world

6

trade is encouraging There is general trend of openness to world trade giving hope for

conflict resolution through economic factor at regional and bilateral level

If a rationalized trade policy is initiated by Pakistan and India and trade hurdles

vanished all other issues between them will eventually get resolved through an enduring

and collaborating effort Pakistan and India can learn from the examples prevailing in

world where belligerent regional states started efforts for peace and collaboration to

curtail hatred competition and warfare However both countries are coming closer at a

very low pace Even a snail speed will one day lead to an ultimate peace However there

are occasional hurdles that need to be addressed These hurdles are mostly political in

nature Trade activities can avert attentions from trouble some issues and speed- up trade

cooperation between them to reduce tensions and conflicts which arises from time to

time SAFTA (see Appendix-F) in this regard can play a central role to relax bilateral

tensions Peace and tranquility between Pakistan and India will be considered as the great

payoff of SAFTA (Suleri 2005)

12 Pakistan India Trade

The chronological review of trade relations between Pakistan and India shows that

because of geographic similarities and identical history both states remained dependent

on each other (Choudhury 1968) However during the process of division of Indian Sub-

Continent economic factor and integrated system of trade relations was completely

ignored The consequence was that it badly vivisected trade relations between the two

states of the region and the unified economic system of the region got divided Trade

relations although retained since independence suffered badly due to occasional

disruptions

Mutual conflicts such as ―battle of currency in 1940s and Most Favored Nations (MFN)

status (see Appendix- E) and wars of 1948 1965 1971 1999 nuclear arm race and

occasional skirmishes on Line of Control (LOC) etc always disturbed trade contacts

between Pakistan and India But parallel efforts such as cricket diplomacy and Non

Discriminatory Market Access (NDMA) also persisted to improve trade relations In

2015 according to Federal Commerce Minister Ghulam Dastigir introduced hopes for

7

the grant of NDMA by Pakistan to India (Ahmad M 2016) Again tension on the LOC in

September 2016 created uncertainty India refused to participate in the SAARC summit

that was decided to be held in Pakistan It has caused anxiety in business community

According to M Sabir Shaikh if the situation of conflict continues it will harm Indian

economy more than Pakistanlsquos economy because of huge and diverse trading and

industrial set up (Khan A S 2016)

Business community encourages trade between Pakistan and India as they foresee greater

economic prosperity through this forum however reasons of low level of trade owe to

inward looking strategies2 unstable political situation and border disputes Lack of full-

scale formal trade resulted in giving boost to informal trade activities The informal trade

is following trade routes such as Dubai Afghanistan and Iran (Naqvi 2009) Moreover

besides transit trade there are possibilities of trade cooperation in services health fields

IT expertlsquos exchanges tourism and entertainment fields (The Hindu 2012)

A good number of studies have reflected on the issue of trade between Pakistan and

India A cursory view of this literature endorses the argument presented in this study that

trade between Pakistan and India has been problematic due to complex political issues

and oblivious behavior of political leadership in both state Cohen (2013) has discussed

the relationship of Pakistan and India as complex and distant He states ― the relation

between them are often summarized as ―up or ―down ―better or ―worse or invoking

a climatic metaphor ―cooler or ―warmer(p17) Cohen argues this region is least

connected economically and lagging behind the world Only integration can improve the

relations Similarly Alam (2006) elaborates that South Asian region is facing inadequate

trade facilitation mechanism contributing to an unrealized potential of intra-regional trade

in certain areas The reasons include weak communication political conflicts and

restrictive trade policies

There are opposite views presented by the scholars who present lack of optimism over

improvement of Pakistan - India bilateral trade According to Dixit (2002) there are

psychological issues on part of Pakistan that create hurdles in bilateral relations For him

2 The concept usually practices for import substitution in trade exchanges

8

Pakistanlsquos ultimate aim is to become regional power and destabilize India Jenkins

(2003) argued that India is an important player of region Indialsquos aim is to become an

economic power To this end it has to balance the interaction between the imported ideas

of liberal market system and the traditional political concepts Jenkins examines that

Indian market is facing economic nationalism domestically Such tendencies must be

dealt with to become a successful partner at global as well as regional level Similarly

Ganguly (2002) presents the same view that both Pakistan and India states have

contradictory nationalist views ie Indian nationalist (secular) and Pakistan nationalist

(Islamic) in India and Pakistan respectively that utilizes their conflict on Kashmir for

their respective interests He is not optimistic about future dealings of both states

especially after acquisition of nuclear capabilities history of ideological religious and

political clashes

Sardar (2011) has shed a light on theme of Pakistan and India relations He discusses that

their relations are transformed since 1998 ―nuclear tests because their way of traditional

reaction has changed He further stresses for transformation in non-security areas Actors

of both states rules and regulations and structures needs transformation Ghuman (1986)

also opined that mutual cooperation is very important for the building up of relationship

between Pakistan and India To ease the crisis Pakistan and India could play their role by

increasing interdependence in economic spheres Siddiqui (2007) also discusses about the

real transformation which can result from SAFTA Economic arrangements like SAFTA

would make this resourceful region (of around 13 billion population) a nucleus of

economic uplift and development Transformation would lead to constructive

engagements and peaceful resolution of conflicts

The world is shifting from conflict to cooperation as Bhatia (1990) argues economic

relations unite nations while politics divides Even in an era of interdependence both

states tried to be independent of one another in economic matters According to Bhatia

the world system is changing from confrontationist strategies in favor of development

policies The same concept has been forwarded by Taneja amp Pohit (2015) that Pakistan

and India must encourage the multi-level dialogue between Pakistan and India The

authors stressed that South Asian states have proved unsuccessful in regional integration

9

process because of political issues that are tagged with economic matters as a result

create disturbance in bilateral trade According to this study there are huge levels of

opportunities for trade between them

Travis (1997) encourages both countries for cooperation in security as well as economic

sectors in a unipolar world as developing states such as Pakistan and India must

cooperate in changing international system for their respective gains Durrani (2001) also

persuades both states for peace measures and negotiations to avoid any military power

race and involvement He stresses for track II diplomacy and effective role of SAARC

Kux (2006) has also discussed about the role of negotiations between Pakistan and India

for peace He argues that negotiations have continued since independence but for

peaceful relations trade collaboration cultural cooperation both are required to pursue

tough and difficult negotiations

13Statement of the problem

Slow trade has remained very a crucial issue between Pakistan and India since their

inception Rivalry and political conflict are one of the main factors responsible for

uncertainty in economic relations Pakistan and India though continued trading relations

but they never got improved Occasionally thorny relations interrupted trade contacts

which further widened gap between the two The lingering issues side- tracked the

chances of better trade relations Trade is often set aside by Pakistan and India because it

can only be revived when unresolved political disputes are resolved Tensions and

conflicts between them created obstacles in regional integration prosperity and peace

among the regional neighbouring countries This myopic policy has affected their

respective economies and prohibited trade to function as a peace tool Economic ties have

suffered serious blowbacks due to distinguished political structures besides hostile

political and security atmosphere In these unfortunate and unfavorable circumstances

both countries were unable to mend economic knots potentially despite having economic

potential The political ideology and security dynamics have mostly over shadowed

economic relations Therefore it is the political aspect of trade which remained the barrier

towards better economic relations However trade can be an effective technique in this

10

particular case to influence Pakistan and India and serve as confidence building measure

In the long run trade can facilitate peace between these traditional rivals of South Asia

14 Significance of the study

There is lack of coherent and consistent academic work in the area of Role of Trade in

Peace between Pakistan and India Although sporadic research work on the South Asia

trade does exist a systematic study analyzing the role of trade in promoting peace in

South Asia is specifically unavailable The role of trade in peace between the countries is

therefore holds unique niche in the national and academic arena Keeping Indialsquos ever

growing economy there is a general understanding that Pakistan cannot and should not

be ignored with the former Other important factor is the geographical contiguity of

Pakistan and India which can result in greater progress provided they utilize markets for

their benefits Moreover this study locates its argument in the broader theoretical debate

about the relationship of trade and peace Therefore seeks to contribute to the broader

literature on trade and peace

15 Objectives of study

This study examines the role of trade in peace with particular focus on Pakistan and

Indialsquos trade relations and its effectuated impact in terms of peace generally in the

region and particularly Pakistan and India with following objectives

1 To review and examine the history Pakistan ndashIndia trade pattern

2 To highlight potential complementarities and competitiveness in the economies of

Pakistan and India

3 To review literature based on liberal theory to establish a criteria or benchmarks

to be applied for examining the role of trade in promoting peace between Pakistan

and India

4 To focus on the impact of trade on Pakistan-India relations

16 Research Questions

1 What was the nature of trade relations between Pakistan and India historically

2 Is there any potential for enhanced trade between Pakistan and India

11

3 Is there any relationship between trade and peace in the context of Pakistan India

relations

17 Theoretical Framework

The research at hand compares theories on trade and peace to reach to the outcome that

trade is an active tool for peace It also analyzes whether Pakistan and India trade can

become a source of peace or conflict It is therefore imperative to thoroughly understand

different perspectives This section elaborate view points of three theoretical schools of

thought related to the role of trade

a) Trade‟s Positive Relation with Peace Liberal‟s Perspective

It is believed that trade has a gigantic power to control the negative emotions in

international relations According to Pasha (interview 2015) Pakistan and India being

neighbors share a common historical past and socio economic similarities They are

natural partners Development of trade between them is natural and vital to maintain

historical legacy stability as well as cultivation of progress and growth in South Asia

Liberal school of thought believes that the opening out of inter-state connection in

particular sections (trade and commerce) stimulates collaboration generally in other

sectors also (Barbieri 1996) Acknowledging conflict as an element of international

structure Liberals admit that conflict is present in world and plays important part in

international relations They likewise endorse the notion of tranquility through economic

interdependence and integration in the world According to Travis (1997) liberal theory

explains two significant notions of world system ie complex interdependence and

integration He defined complex interdependence as ―the intertwining of interests and

needs among two or more actors in a particular dimension so that these actors become

mutually sensitive reactive and vulnerable and need to cooperate to fulfill their goal

(p23) He described integration as ―the building by two or more actors of an

international regime or a supranational institution to regulate behavior in a given

dimension and the development of attitudinal responsiveness characterized by mutual

trust predictability and indulgence (p23) Complex Interdependence and Integration

12

have brought states very close to each other and made dependent equally It regulates the

attitudes of states towards prosperity and peace by building trust among them Liberals

propose that trade sustains harmony irrespective of the nature of relationship between

states and always operate as a deterrent to conflict (Barbieri 1996)

Trade may not completely boost economies of Pakistan and India but there are various

positive externalities which can grow from the opening of trade ―Liberals recognize that

gains from trade and the potential costs accompanying interdependence are not always

equal they argue that ties imply net positive benefits for both states (Barbieri 2005

p27) Thus illustrating the phenomenon of not only economic uplift rather a wide-

ranging affects on individualslsquo society and as a whole on the interactions between states

Trade among neighbors has more chances for complementariness to emerge because of

low costs of transportation as well as cultural adaptability and same taste for trading

goods3 In case of Pakistan and India there is abundance of products that can be

exchanged for benefits to both economies of region (Jain 1999 Malhotra

2009)Varshney and Kumar (1989) argue that growth of internal markets of Pakistan and

India is more likely as an output of trade relations It will support their industrial sector

and make it strengthened

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives

Marxist-Leninists have given a different approach that trade may increase conflict rather

then peace among states (Barbieri 2005) The reason of conflict sprouts from this fact

that weak states have always been subjugated by powerful states It can explain the same

issue in the context of Pakistan and India as it may try to exploit Pakistan to maximize

benefits of trade for her interests The pessimistic point of view of opponents of trade and

peace theorists see interdependence as a tool for a strong state such as India to control

the inadequate resources of relatively weaker state like Pakistan and its markets for

goods Because of resemblance in products they can very easily spoil each others

3 ―Pair of goods for which consumption is interdependent (eg cars and petrol or cups and saucers) are

known as complements or complementary goods and change in the demand for one will have a

complementary effect upon the demand for the other (Bannock Baxteramp Davis 2004)

13

industries and markets of goods and services Evidences exist that Pakistan and India

trade relationship remained uneven with an added advantage to India in comparison to

Pakistan (Khan 2008) ―Pakistan had a huge trade deficit with India equaling US $

102554 million in 2006 -07 which in fact increased further to US $ 165718 million in

2007-08(Sustainable Development Policy Institute 2010 p 222) The statistic shows

that trade balance is still very lopsided in Indialsquos favor (Sustainable Development Policy

Institute 2010 p222)

There is a sense of fear in Pakistan about India thatlsquos why it has not reciprocated to

Indialsquos initiative to be granted the MFN status Moreover Pakistan justifies that from

Indian side there is discriminatory tariff barriers and disturbing sufficient inflow of

Pakistan goods into India markets (Dawn 2004) The dumping tactic by a strong state ie

India create reservations in weak state- Pakistan that strong market would adversely

affect its economy as a whole leading to extreme situation of unemployment (Dawn

2004)4 If economic and employment state of affairs get worsen further Pakistan fears

that the repercussions would be drastically deteriorating (Dawn 2004)

c) Trade is irrelevant to peace making Realist Perspective

The role of trade in the promotion of peace is examined with more severity in academic

circles It is argued that trade is irrelevant to the promotion of peace (Barbieri 2005)

This school of thought believe that trade is not strong a tool that can change the dynamics

of relationship between Pakistan and India History is evident about the role of military

option more successful and impressive in deciding issues between Pakistan and India

rather an effective tool to maintain peace between two arch rivals Trade can merely be a

transitory arrangement between Pakistan and India to work out short term national

interests It did result in smoothening of relations occasionally but whenever conflict

have blew up and security situation required trade associations were straightforwardly

ended or halted Thus trade cannot be considered as main variable for bringing in peace

4 ―Dumping means the sale of a commodity on a foreign market at a price below marginal cost An

exporting country may support the short run losses of this policy in order to eliminate competition and

thereby gain a monopoly in the foreign market (Bannock Baxter amp Davis 2004)

14

among two rivals Lack of trust and past history would never allow trade to be an

effective technique of peace permanently between Pakistan and India

Analyses of aforementioned perceptions concerning peace promotion through trade

between two belligerents -Pakistan and India concludes that trade is not an insignificant

tool It has changed relationships between fighting nations and is an important foreign

policy instrument The narrow stand point given by some school of thoughts fails to

understand the reality of trade in deciding the nature of dealings in present scenario This

study is attempted to justify trade as an effective mean to bring two states closer and

avoid expensive instruments effecting way of life of people in the region It is a liberal

school of thought that guides the theoretical framework of this study It fits well in the

context of Pakistan - India trade linkages It is an optimistic phenomenon that believes in

the economic development for two besides attaining peace and saving this region from

nuclear threats

Although the conceptual framework of this research study is based on liberal school of

thought the study takes valuable insights from the dissenting theoretical positions such as

Marxists and Realists A significant point raised by Mansfield (1994) that international

trade and power bears a great influence on the occurrence of war Moreover power and

war also impact trade A study calls for the integration of international economics with

international politics and international political economics and international studies of

war In addition Mansfield and Pollins (2003) also argued that the role of trade is

dependent on existing internal and external situation and accordingly leads to peace and

conflict Likewise Kant concept that war is too costly a job for the interdependent and

trading partners has been highlighted with the example of Nixonlsquos and Kissingerlsquos

policies during cold war era Trade was used as a tool for relaxation of tension

Furthermore opinions discussed by different theorists related to the relationship of peace

with trade and its diverse impacts on state to state contacts has been discussed by Barbieri

(2005)

15

18 Research Methodology

This study is conducted by using secondary and primary data Secondary data is scattered

and therefore gathered from different sources ie 1) Research work of experts in the

same field from Pakistan and India namely Ishrath Hussain Ijaz Nabi Shahid Javed

Burki Zareen Fatima Naqvi Rasul Bakhsh Rais Syed Akbar Zaidi Shaheen Rafi Khan

Nisha Tanej Anit Mukherjee ESridharan Mahendra Lama Siddhartha Mitra NC

Pahariya Pradeep SMehta Pia Malhotra etc Pakistani and Indian Newspapers The

Hindustan Times Dawn (Pak) The News The Nation Express Tribune The Hindu

Times of India etc Research work of armed forces personnel ie Mahmud Ali Durrani

(Rt army officer) and Jasjit Singh (Air Commodore)

Other significant briefing papers and studies produced by renowned associations and

think tanks including South Asian Studies produced by Ministry of Finance Govt of

Pakistan Strategic Studies Institute US Army War College South Asia Free Media

Association (SAFMA) Status Papers of Federation of Indian Chambers of Commerce

and Industry on Pakistan India economic relations Working Papers of PILDAT

Cooperative Monitoring Centre Occasional Paper US Department of Energy Pakistan

Economic Survey research work of Indian Council for Research on International

Economic Relations( ICRIER) Studies of Research and Economic Development Cell

Chamber of Commerce and Industry Karachi Studies by Government of Pakistan

Ministry of Commerce Research work of the Centre for Strategic and International

Studies (CSIS) Washington DC South Asia Watch on Trade Economics and

Environment (SAWTEE) World Bank development indicators and the studies supported

by Woodrow Wilson centre Washington DC are also included The purpose of study of

research data is to examine whether trade can strengthen relations and consequently

promote peace

Through secondary data historical content is explored in this study to show that trade

relations between Pakistan - India have never been smooth and consistent After drawing

this context an investigation is made into potential of trade through building a strong

case for mutually beneficial trade between the two

16

For final analysis of the study primary data was collected from diverse sections of

Pakistan and India such as Ishtiaq Ahmad Quaid-i-Azam Fellow at St Antonylsquos College

and Research Associate at Centre for International Studies University of Oxford

Shamshad Ahmad former foreign secretary played an important role during

extraordinary period (overt nuclearization kargil crisis and General Musharaflsquos coup) in

India and Pakistan peace process resumption Sohail Ahmad Director TMOAG

Company Whose business is related to the Oil and Gas products from Central Asia

Moonis Ahmar Dean Faculty of Arts University of Karachi with expertise in conflict

Resolution and Confidence-building measures with particular reference to South Asia

Qadar Baloch who presented a paper titled ―Pakistan granting MFN status to India

Merits and Demerits for Pakistan at conference held at Islamia College University of

Peshawar Mohammad Ilyas Ghauri Chief Executive Officer Punjab Board of

Investment and Trade Government of the Punjab Shoaib Ahmed Khan Ghulam

Faruque Group Resident Director Cherat Cement co Ltd Aziz Ahmad Khan Amb

(Rtd) Hon Vice President Jinnah Institute served as Pakistanlsquos high commissioner to

India from 2003 to 2006 At International conference ―Narratives of National Security

attended at Institute of Strategic Studies Islamabad Mahendra P Lama Professor of

South Asian Economies School of International Studies JNU amp Founding Vice

Chancellor Central University of Sikkim amp Former Member National Security Advisory

Board Government of India worked and published articles in the area of cooperation and

integration in South Asia Anatol Lieven Orwell Prize winning journalist and policy

analyst worked with The Times London covering Pakistan and wrote from India as

freelancer Partha S Ghosh Editor India Quarterly Indian Council of World Affairs

ICSSR National Fellow Institute for Defence Studies and Analyses New Delhi

extensively focused on South Asia Conflict and Cooperation Bilal Khan Pasha Deputy

Secretary Ministry of Commerce Khalid Mehmood Raja Chairman Maknom Group of

Companies with areas of business activities in Central Asia and South Asia Adnan

Sarwar Khan (2015) Dean Faculty of Social Sciences University of Peshawar Mehmood

Shah Paper presented titled ―A Trade Creation and Gravity Model Approach at

conference attended at Islamia College University of Peshawar Nitesh Ravi Srivastav

founder member of Aaghaz-e- Dosti (Indo Pakistan friendship initiative) executive

Dedication

I dedicate this thesis to my mother Mrs Almas and my husband Mr Ibrahim Baig my

sisters and brothers for their constant moral support Their encouragement made me to

achieve my aim to complete this research work

i

Declaration

I hereby declare that this dissertation is not submitted to any other institution university

and organization for the purpose of grant of degree Moreover this research work is the

outcome of my sole research work

Saima Gul

ii

Acknowledgements

All praise to Allah Almighty the most merciful and beneficent and salutations on the

Holy Prophet Hazrat Muhammad (Peace Be upon Him) a composite source of

knowledge for humanity

First I would like to express my sincere gratitude to my supervisor Dr Muhammad Ayub

Jan Department of Political Science University of Peshawar for his continuous support

patience motivation and valuable insights His guidance assisted me during the entire

duration of my PhD It has been an honor to work under his supervision I appreciate all

his contributions of time and ideas to make my PhD experience productive and

stimulating

I am also immensely appreciative to Dr Nasreen Ghufran Chairperson Department of

International Relations University of Peshawar especially for sharing her expertise so

willingly for her valuable advice and guidance in connection with developing the initial

idea of my thesis Similar profound gratitude goes to Dr Adnan Sarwar Khan former

Dean Faculty of Social Sciences University of Peshawar who guided me throughout my

studies

Special mention and thanks goes to my teachers colleagues and faculty members of

Department of International Relation including Dr Ijaz khan Dr Noor Shah Jahan Dr

Hussain Shaheed Soherwardi Dr Shahid Khattak (late) Dr Minhas Majeed Mr

Khurshid Ahmad and Mr Zia Ur Rehman who shared their views and encouraged me to

accomplish the task of completing my research work

I owe a great debt to Inam Afridi Islamic University Islamabad Noman Sattar Quaid-e-

Azam University Islamabad and Col Tariq Qureshi (late) for their support in collection

of research material

I am indebted to my friends including Shumaila Farooqi Aysha Umair Sohail Ahmad

Amir Raza who encouraged me and prayed for the completion of my PhD

I would like to thank my family for all their love and encouragement for my parents who

raised me with their absolute love for education They backed me in all my academic and

iii

professional pursuits Finally and most importantly I am grateful to my supportive

encouraging and patient husband without his support this thesis would not have been

possible

iv

Abstract

The relationship between trade and peace has been debated by the policy makers

academicians and general public Such deliberations often end in contesting conclusions

For some trade is a potential tool to mold relationship and make peace between states

for others trade may become a source of conflict Yet others would see no substantial

relationship between trade and peace These disparate perspectives exhibit that

relationship between trade and peace is complex and can be explained in different ways

This study thoroughly discusses the above predicament and the varying explanations

concerning the issue Moreover the study investigates the complex relationship between

trade and peace through the example of Pakistan and India relations This research

explores whether trade can be an instrument of peace between these two important South

Asian States Both the countries are nuclear states and their relationship has remained

volatile since their inception in 1947 It is a commonly established view that political and

military tactics have always been active in deciding the nature of dealings between

Pakistan and India They have always gauged capacities of one another in terms of

balance of power which further poses a conventional as well as nuclear threat to the

South Asian region In this scenario it is important to explore viable options such as

trade for brining positive change in bilateral relations between two adversaries This

study is an effort in the same direction It examines the role of trade as an economic tool

to create a lasting peace between Pakistan and India The study underpins its argument

through data collected using qualitative methods such as interviews Besides published

reports and documents the views and opinions of traders academicians and activists have

been used to generate discussion about the issue

This research endeavor elaborates the diverse theoretical perspectives about the

relationship between trade and peace ie Liberal perspective Realist perspective and

Marxist perspective It argues that the liberal perspective provides better explanation of

this relationship if one looks at different historical examples from around the world The

study also takes insights from the historical trade relationship between Pakistan and India

to investigate the economic potential of trade The study is directed to explore whether

v

there is a possibility for an expansion of trade relations between Pakistan and India The

study finds out that since there is an ever growing demand for quality goods and

services at a reasonable price in both the developing countries with their subsequent

conventional and populated economies aspiring for prosperity through commerce there is

a need for not only trade beyond continental borders but also within ie mutual trading

relationship Moreover trade will play a complimenting role and even better if the

economies of both countries are experiencing development prosperity and growth The

analysis verifies the subsequent argument put forward under three schools of thought and

concludes that trade possess the capacity to play an active role in mollifying strained

relations between Pakistan and India and begin an era of peace and harmony in the

region

vi

Acronyms and Abbreviations

NTBs Non-Tariff Barriers

MFN Most Favored Nation

ASEAN Association of South East Asian Nations

NDMA Non-Discriminatory Market Access

RTAs Regional Trade Associations

EU European Union

SIFT South Asia Free Trade Area

G8 Group of 8 Industrialized Nations

WTO World Trade Organization

SAARC South Asian Association for Regional Cooperation

MERCOSUR South American Common Market

GCC Gulf Cooperation Council

FDI Foreign Direct Investment

SDPI Sustainable Development Policy Institute

IMF International Monetary Fund

IBRD International Bank of Reconstruction and

Development

PILDAT Pakistan Institute of Legislative Development and

Transparency

SEATO Southeast Asia Treaty Organization

CENTO Central Treaty Organization

SAPTA South Asian Preferential Trading Arrangements

ICRIER Indian Council for research on International Economic

Relations

UN United Nations

FICCI Federation of Indian Chambers of Commerce and

Industry

IDSA Institute for Defence Studies and Analyses

SADC Southern African Development Community

PTAs Preferential Trading Arrangements

BOP Balance of Payments

FDA Foods and Drugs Authority

vii

Contents

Declaration i

Acknowledgements ii

Abstract iv

Acronyms and Abbreviations vi

Chapter 1 1

Introduction 1

11 Trading for peace and prosperity 2

12 Pakistan India Trade 6

13Statement of the problem 9

14 Significance of the study 10

15 Objectives of study 10

16 Research Questions 10

17 Theoretical Framework 11

a) Tradelsquos Positive Relation with Peace Liberallsquos Perspective 11

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives 12

c) Tradeis irrelevant to peace making Realist Perspective 13

18Research Methodology 15

19 Outline of the study 17

Chapter 2 20

The Complex Relationship between Trade and Peace Theoretical Perspectives 20

21 Introduction 20

22 Trade promotes peace The Liberal Perspective 22

23 Trade promotes conflict Realistlsquos and Marxistlsquos Perspectives 35

24 Void Theory of Trade and Peace Relation Realistlsquos Perspective 41

25 Conclusion 44

Chapter 3 46

Historical Perspective of Pakistan India Trade 46

31 Introduction 46

32 Changing Conceptual Trends about Pakistan India Trade Relationship 48

viii

33 Pakistan India Trade Relations Historical Overview 49

a) Earlier Phase of Building Ties 49

b) The Cessation of Trade 55

c) The Revival of Trade 56

d) Era of Regionalism 57

e) 21st century Ups and Downs in Trade 61

34 Conclusion 65

Chapter 4 68

Trade Potential between Pakistan and India 68

41 Introduction 68

42 Nature of Formal Trade between Pakistan and India 71

43 Nature of Informal Trade 73

44 Pakistan and India Trade is Competitive or Complementary 75

45 Potential Areas of Collaboration between Pakistan and India 77

a) Services Sectors 78

b) Agriculture Sector 79

c)Energy sector 81

d)Industry of Chemicals and Pharmaceuticals 82

e)Textiles and Clothing 84

f)Automobiles 86

g)Other Emerging Potential Areas for Trade 88

46 Conclusion 91

Chapter 5 94

Pakistan and India Trade A Vision for Peace 94

51 Introduction 94

52 New Thinking about Pakistan and India relations in New Era 95

53 Trade as a vehicle of Peace between Pakistan and India 97

531 Liberal School and Trade between Pakistan and India 98

532 Contesting Arguments Trade and Conflicts Problematic Relationshiplsquo 113

533 Contesting Arguments Trade is Irrelevant to Peacelsquo 119

54 Findings Trade an important tool for Peace between Pakistan and India 120

ix

Chapter 6 128

Conclusion 128

Bibliography 145

Appendix-A 173

Appendix- C 177

Appendix-D 178

Appendix-E 179

Appendix-F 180

Appendix-G 200

Appendix-H 201

Fig 1 202

Fig2 203

Fig3 204

Fig 4 205

Fig 5 206

1

Chapter 1

Introduction

Trade as an activity of buying and selling goods and services has long been used by

human beings as an economic tool in their mutual relationship However over a period of

time trade became more then just a tool of economic relations The scope of trade

surpassed the economic domain and has reached to the political realm In this realm it

has significantly altered relations among modern states 21st century is evident of the fact

that trade has often been used as political instrument to bring states together on political

matters

Trade therefore is seen as a potential instrument to bring peace and prosperity among

states There has been an academic debate to investigate relationship between trade and

peace during the last few decades A large number of studies discuss various political

externalities arising out of trade relations At the core of this academic debate is the

question that whether trade promotes peace Disagreement persists regarding the

question particularly whether trade is productive or an unproductive activity when it

comes to relations between two or more traditionally rival states This study attempts to

ponder over this question in the context of relations between two traditional rivals of

South Asia ie Pakistan and India

Academic circles debate whether increased trade contacts between the states reduces

chances of war as trade improves communication reduces misunderstandings and

consequently makes peaceful resolution of issues possible (Hegre 2000) Trade as a

peace strategy brings greater efficiency and development that may persuade states to

select trade as a tool instead of military strategy (Rosecrance 1986) Growth in trade

relations enjoys public support because ordinary citizens are aware of the dreadful cost of

war between rivals Therefore trade creates shared interests between dyads (Oneal amp

Russett 1997) and it acts as a deterrence to war

2

The subsequent section shows that rivals around the world have tried to give trade a

chance to bring peace thus trade proved to be a useful instrument

11 Trading for peace and prosperity

The current era can best be explained through the classic trade theory which highlights

that trading relations between states has a mollifying impact Interdependence is a driver

for the provision of harmony and resolution of conflicts through more peaceful methods

Economic incentives result in outstanding improvement in conflict situations both at

international and regional level

In the modern world there is an excess of illustrations that economic understanding and

socio -cultural changes among political adversaries encourage political settlements in the

long run The world is full of examples demonstrating political issues are overcome by

interdependence and cultural exchanges The two rivals of cold war USSR and US

followed a path of economic cooperation Similarly a case study of South East Asia and

the West also demonstrates the same phenomenon of tradelsquos pacifying role

Another best example is the European Union which was formed to set aside the harsh

memories of World War II and unite Europe for future generations The economic

activities of EU encouraged the rest of Europe to tie them in a string of cooperation

There persisted significant differences in the policies and economic interests of member

states but a crucial decision of cooperationlsquo was taken at that time (Young 2002) EU

worked well to reduce enmity not only between the two rival states of the region ie

France and Germany but from one corner to the other corner of Europe The bitter history

of Nazism (particularly in Poland Holland and Russia) successfully decreased to an

insignificant level is no minor an accomplishment Being a generator of peace EU

impressively has overcome the historic hatred and hostilities It proved itself as an

effective instrument to unite the divided and devastated Europe Formation of EU

experience demonstrates an example of historical reconciliation developed out of political

will for collaboration and finally integration (Cameron 2010)

3

The history of relations among Southeast Asian states remained however more complex

It was difficult for them to trust each other Geographical factors and the political and

security atmosphere of 1960 to 1980 demanded to cooperate for peace and security (Chai

2013) It was the Association of Southeast Asian nations (ASEAN) that played an

important part in changing antagonistic relationship into collaborative one The

objectives of ASEAN were both economic as well as political Economic

interdependence started an era of amazing development and prosperity in this region

Argentina and Brazil share same geographic location in South America (Wrobel nd)

History of relationship between Argentina and Brazil is full of hostility mistrust and

hatred They remained antagonistic towards each other for the leadership of Southern

American region (Koschut amp Oelsner 2014) This competition continued since colonial

period when Spain was controlling Argentina and Brazil was under Portugal authority

Even after their freedom ie in 1816 Argentina and in 1822 Brazil independence contest

sustained (Oelsner 2005)

The case study of Argentina and Brazil can be quoted for Pakistan and India case though

one essential contrast must be considered They remained competitors for the control of

South America but not the enemies (Wrobel nd) In 1828 Uruguay was born as a buffer

state as a result of a war between them three years ago since then relationship

transformed into cooperation and contest After a long era of unstable affairs they

realized the importance of peace and cooperation They proceeded towards an effort to

end controversies and become a part of economic world where conflicts are sided and

collaboration is encouraged

Eventually the two states with the alliance of Paraguay and Uruguay were framed with

the name of Mercosur (South American Common Market) in 1991 (Wrobel nd) In 1996

and 1997 Chile and Bolivia respectively joined this economic bloc A dream behind the

formation of this common marketbloc was to enhance the cooperation among regional

states and eradicate misconceptions It was envisioned that trade and investment would

facilitate closer linkages and prosperity

4

The African region also experienced RTAs (regional trade agreements)1 that tackled the

issues related to the management of resources like water issues and etc (Yang amp Gupta

2005) It was observed that such RTAs have played an instrumental role in minimizing

the military conflicts Even RTAs originated for other matters like racial issue included

the task of generating economic activities in their agenda In 1980s the Southern African

Development Community (SADC) was established to work against apartheid in South

Africa that later on facilitated the formation of free trade zone SADC has encouraged

intraregional exports and imports by two and a half time and enthusiastically busy in

areas of resolutions of disputes and conflicts in addition to the liberalization of trade

(Yang and Gupta 2005)

The economic relation between China and Japan reflects that differences can be handled

with the assistance of prudent economic policies and dealings The level of trade between

China and Japan never saw a decline due to political factors to a great extent After

China becoming part of world trade system and accession to the global trading body

World Trade Organization (WTO) in 2001 it is reflected that political tensions with

Japan not ended rather dominated by the trading relations between them Initially in

1978 this level of economic relationship was low but gradually such as from 2007 the

trade relations reached to the rank of third largest in terms of merchandized trade

connection in the world (including exports and imports together) despite their

relationship had remained complicated historically and politically (Armstrong nd)

Trade continued despite sensitive and unresolved issues as well as regional competition

In cases where politics play a dominant role trade relations are also affected that leads to

the cessation of economic linkages In recent times Pakistan India provides the case for

in depth analysis For some states politics might have affected trade but for China and

Japan their economics have dominated the issue of politics As a matter of fact both

states attached true commitment to continue and abide by the international trade rules

defined by WTO which resulted in continued economic progress and uplift

1―Regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more

partners They include free trade agreements and customs unionshttpswwwwtoorg

5

Similarly China and India entered into the phase of economic collaboration and

friendship recently Trade and economic exchanges have served as an agent of

rapprochement through productive economic linkages Both have the aim to raise the

political trust level and work for development of economic collaboration (Lin amp Fujian

2013) Though their main focus is economic relationship their interest to improve

cooperation in other areas such as security issues political perceptions and boundary

negotiations is also evident (Lin amp Fujian 2013) There is no doubt that constraints

exists but the two countries are making use of common interest ie complementarities in

their economic structures Both have regional and international interests such as China is

a manufacturing power while India is known to be in the list of service industries

worldwide (Lin amp Fujian 2013) If they cannot manage relationship with one another

they will not be able to create friendly security environment which is important for

achieving their domestic regional and international aims China and India have realized

the fact that international threatening issues like terrorism piracy and cross- border

crimes etc can be resolved by devising mutual strategies Moreover global trade and

finance institutions need reforms that both states can bring in with help of each other to

benefit their national interests

The industrialized world is making regional blocs for trade In Asia China and India have

made concerted efforts to cooperate so to protect themselves from a negative impact of

these blocs Both states have initiated collective military cooperation keeping aside their

real regional debates which has contributed to an overall harmony and regional peace If

there is peace inside the region South Asia will be in better position to negotiate with

other regional blocs like ASEAN EU NAFTA etc regarding trade matters Moreover

making SAARC a forum to protect economies of the region and bring improvement in

the specialization of different industries of South Asia

The above examples reveal that contentions can be controlled by trade arrangements It

gives inspiration to the South Asian Free Trade Agreement (SAFTA) to work for the

improvement of relationship between Pakistan and India as SIFT having great potential

for it Dorussen and Ward (2010) argue that Pakistan and India attitude towards world

6

trade is encouraging There is general trend of openness to world trade giving hope for

conflict resolution through economic factor at regional and bilateral level

If a rationalized trade policy is initiated by Pakistan and India and trade hurdles

vanished all other issues between them will eventually get resolved through an enduring

and collaborating effort Pakistan and India can learn from the examples prevailing in

world where belligerent regional states started efforts for peace and collaboration to

curtail hatred competition and warfare However both countries are coming closer at a

very low pace Even a snail speed will one day lead to an ultimate peace However there

are occasional hurdles that need to be addressed These hurdles are mostly political in

nature Trade activities can avert attentions from trouble some issues and speed- up trade

cooperation between them to reduce tensions and conflicts which arises from time to

time SAFTA (see Appendix-F) in this regard can play a central role to relax bilateral

tensions Peace and tranquility between Pakistan and India will be considered as the great

payoff of SAFTA (Suleri 2005)

12 Pakistan India Trade

The chronological review of trade relations between Pakistan and India shows that

because of geographic similarities and identical history both states remained dependent

on each other (Choudhury 1968) However during the process of division of Indian Sub-

Continent economic factor and integrated system of trade relations was completely

ignored The consequence was that it badly vivisected trade relations between the two

states of the region and the unified economic system of the region got divided Trade

relations although retained since independence suffered badly due to occasional

disruptions

Mutual conflicts such as ―battle of currency in 1940s and Most Favored Nations (MFN)

status (see Appendix- E) and wars of 1948 1965 1971 1999 nuclear arm race and

occasional skirmishes on Line of Control (LOC) etc always disturbed trade contacts

between Pakistan and India But parallel efforts such as cricket diplomacy and Non

Discriminatory Market Access (NDMA) also persisted to improve trade relations In

2015 according to Federal Commerce Minister Ghulam Dastigir introduced hopes for

7

the grant of NDMA by Pakistan to India (Ahmad M 2016) Again tension on the LOC in

September 2016 created uncertainty India refused to participate in the SAARC summit

that was decided to be held in Pakistan It has caused anxiety in business community

According to M Sabir Shaikh if the situation of conflict continues it will harm Indian

economy more than Pakistanlsquos economy because of huge and diverse trading and

industrial set up (Khan A S 2016)

Business community encourages trade between Pakistan and India as they foresee greater

economic prosperity through this forum however reasons of low level of trade owe to

inward looking strategies2 unstable political situation and border disputes Lack of full-

scale formal trade resulted in giving boost to informal trade activities The informal trade

is following trade routes such as Dubai Afghanistan and Iran (Naqvi 2009) Moreover

besides transit trade there are possibilities of trade cooperation in services health fields

IT expertlsquos exchanges tourism and entertainment fields (The Hindu 2012)

A good number of studies have reflected on the issue of trade between Pakistan and

India A cursory view of this literature endorses the argument presented in this study that

trade between Pakistan and India has been problematic due to complex political issues

and oblivious behavior of political leadership in both state Cohen (2013) has discussed

the relationship of Pakistan and India as complex and distant He states ― the relation

between them are often summarized as ―up or ―down ―better or ―worse or invoking

a climatic metaphor ―cooler or ―warmer(p17) Cohen argues this region is least

connected economically and lagging behind the world Only integration can improve the

relations Similarly Alam (2006) elaborates that South Asian region is facing inadequate

trade facilitation mechanism contributing to an unrealized potential of intra-regional trade

in certain areas The reasons include weak communication political conflicts and

restrictive trade policies

There are opposite views presented by the scholars who present lack of optimism over

improvement of Pakistan - India bilateral trade According to Dixit (2002) there are

psychological issues on part of Pakistan that create hurdles in bilateral relations For him

2 The concept usually practices for import substitution in trade exchanges

8

Pakistanlsquos ultimate aim is to become regional power and destabilize India Jenkins

(2003) argued that India is an important player of region Indialsquos aim is to become an

economic power To this end it has to balance the interaction between the imported ideas

of liberal market system and the traditional political concepts Jenkins examines that

Indian market is facing economic nationalism domestically Such tendencies must be

dealt with to become a successful partner at global as well as regional level Similarly

Ganguly (2002) presents the same view that both Pakistan and India states have

contradictory nationalist views ie Indian nationalist (secular) and Pakistan nationalist

(Islamic) in India and Pakistan respectively that utilizes their conflict on Kashmir for

their respective interests He is not optimistic about future dealings of both states

especially after acquisition of nuclear capabilities history of ideological religious and

political clashes

Sardar (2011) has shed a light on theme of Pakistan and India relations He discusses that

their relations are transformed since 1998 ―nuclear tests because their way of traditional

reaction has changed He further stresses for transformation in non-security areas Actors

of both states rules and regulations and structures needs transformation Ghuman (1986)

also opined that mutual cooperation is very important for the building up of relationship

between Pakistan and India To ease the crisis Pakistan and India could play their role by

increasing interdependence in economic spheres Siddiqui (2007) also discusses about the

real transformation which can result from SAFTA Economic arrangements like SAFTA

would make this resourceful region (of around 13 billion population) a nucleus of

economic uplift and development Transformation would lead to constructive

engagements and peaceful resolution of conflicts

The world is shifting from conflict to cooperation as Bhatia (1990) argues economic

relations unite nations while politics divides Even in an era of interdependence both

states tried to be independent of one another in economic matters According to Bhatia

the world system is changing from confrontationist strategies in favor of development

policies The same concept has been forwarded by Taneja amp Pohit (2015) that Pakistan

and India must encourage the multi-level dialogue between Pakistan and India The

authors stressed that South Asian states have proved unsuccessful in regional integration

9

process because of political issues that are tagged with economic matters as a result

create disturbance in bilateral trade According to this study there are huge levels of

opportunities for trade between them

Travis (1997) encourages both countries for cooperation in security as well as economic

sectors in a unipolar world as developing states such as Pakistan and India must

cooperate in changing international system for their respective gains Durrani (2001) also

persuades both states for peace measures and negotiations to avoid any military power

race and involvement He stresses for track II diplomacy and effective role of SAARC

Kux (2006) has also discussed about the role of negotiations between Pakistan and India

for peace He argues that negotiations have continued since independence but for

peaceful relations trade collaboration cultural cooperation both are required to pursue

tough and difficult negotiations

13Statement of the problem

Slow trade has remained very a crucial issue between Pakistan and India since their

inception Rivalry and political conflict are one of the main factors responsible for

uncertainty in economic relations Pakistan and India though continued trading relations

but they never got improved Occasionally thorny relations interrupted trade contacts

which further widened gap between the two The lingering issues side- tracked the

chances of better trade relations Trade is often set aside by Pakistan and India because it

can only be revived when unresolved political disputes are resolved Tensions and

conflicts between them created obstacles in regional integration prosperity and peace

among the regional neighbouring countries This myopic policy has affected their

respective economies and prohibited trade to function as a peace tool Economic ties have

suffered serious blowbacks due to distinguished political structures besides hostile

political and security atmosphere In these unfortunate and unfavorable circumstances

both countries were unable to mend economic knots potentially despite having economic

potential The political ideology and security dynamics have mostly over shadowed

economic relations Therefore it is the political aspect of trade which remained the barrier

towards better economic relations However trade can be an effective technique in this

10

particular case to influence Pakistan and India and serve as confidence building measure

In the long run trade can facilitate peace between these traditional rivals of South Asia

14 Significance of the study

There is lack of coherent and consistent academic work in the area of Role of Trade in

Peace between Pakistan and India Although sporadic research work on the South Asia

trade does exist a systematic study analyzing the role of trade in promoting peace in

South Asia is specifically unavailable The role of trade in peace between the countries is

therefore holds unique niche in the national and academic arena Keeping Indialsquos ever

growing economy there is a general understanding that Pakistan cannot and should not

be ignored with the former Other important factor is the geographical contiguity of

Pakistan and India which can result in greater progress provided they utilize markets for

their benefits Moreover this study locates its argument in the broader theoretical debate

about the relationship of trade and peace Therefore seeks to contribute to the broader

literature on trade and peace

15 Objectives of study

This study examines the role of trade in peace with particular focus on Pakistan and

Indialsquos trade relations and its effectuated impact in terms of peace generally in the

region and particularly Pakistan and India with following objectives

1 To review and examine the history Pakistan ndashIndia trade pattern

2 To highlight potential complementarities and competitiveness in the economies of

Pakistan and India

3 To review literature based on liberal theory to establish a criteria or benchmarks

to be applied for examining the role of trade in promoting peace between Pakistan

and India

4 To focus on the impact of trade on Pakistan-India relations

16 Research Questions

1 What was the nature of trade relations between Pakistan and India historically

2 Is there any potential for enhanced trade between Pakistan and India

11

3 Is there any relationship between trade and peace in the context of Pakistan India

relations

17 Theoretical Framework

The research at hand compares theories on trade and peace to reach to the outcome that

trade is an active tool for peace It also analyzes whether Pakistan and India trade can

become a source of peace or conflict It is therefore imperative to thoroughly understand

different perspectives This section elaborate view points of three theoretical schools of

thought related to the role of trade

a) Trade‟s Positive Relation with Peace Liberal‟s Perspective

It is believed that trade has a gigantic power to control the negative emotions in

international relations According to Pasha (interview 2015) Pakistan and India being

neighbors share a common historical past and socio economic similarities They are

natural partners Development of trade between them is natural and vital to maintain

historical legacy stability as well as cultivation of progress and growth in South Asia

Liberal school of thought believes that the opening out of inter-state connection in

particular sections (trade and commerce) stimulates collaboration generally in other

sectors also (Barbieri 1996) Acknowledging conflict as an element of international

structure Liberals admit that conflict is present in world and plays important part in

international relations They likewise endorse the notion of tranquility through economic

interdependence and integration in the world According to Travis (1997) liberal theory

explains two significant notions of world system ie complex interdependence and

integration He defined complex interdependence as ―the intertwining of interests and

needs among two or more actors in a particular dimension so that these actors become

mutually sensitive reactive and vulnerable and need to cooperate to fulfill their goal

(p23) He described integration as ―the building by two or more actors of an

international regime or a supranational institution to regulate behavior in a given

dimension and the development of attitudinal responsiveness characterized by mutual

trust predictability and indulgence (p23) Complex Interdependence and Integration

12

have brought states very close to each other and made dependent equally It regulates the

attitudes of states towards prosperity and peace by building trust among them Liberals

propose that trade sustains harmony irrespective of the nature of relationship between

states and always operate as a deterrent to conflict (Barbieri 1996)

Trade may not completely boost economies of Pakistan and India but there are various

positive externalities which can grow from the opening of trade ―Liberals recognize that

gains from trade and the potential costs accompanying interdependence are not always

equal they argue that ties imply net positive benefits for both states (Barbieri 2005

p27) Thus illustrating the phenomenon of not only economic uplift rather a wide-

ranging affects on individualslsquo society and as a whole on the interactions between states

Trade among neighbors has more chances for complementariness to emerge because of

low costs of transportation as well as cultural adaptability and same taste for trading

goods3 In case of Pakistan and India there is abundance of products that can be

exchanged for benefits to both economies of region (Jain 1999 Malhotra

2009)Varshney and Kumar (1989) argue that growth of internal markets of Pakistan and

India is more likely as an output of trade relations It will support their industrial sector

and make it strengthened

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives

Marxist-Leninists have given a different approach that trade may increase conflict rather

then peace among states (Barbieri 2005) The reason of conflict sprouts from this fact

that weak states have always been subjugated by powerful states It can explain the same

issue in the context of Pakistan and India as it may try to exploit Pakistan to maximize

benefits of trade for her interests The pessimistic point of view of opponents of trade and

peace theorists see interdependence as a tool for a strong state such as India to control

the inadequate resources of relatively weaker state like Pakistan and its markets for

goods Because of resemblance in products they can very easily spoil each others

3 ―Pair of goods for which consumption is interdependent (eg cars and petrol or cups and saucers) are

known as complements or complementary goods and change in the demand for one will have a

complementary effect upon the demand for the other (Bannock Baxteramp Davis 2004)

13

industries and markets of goods and services Evidences exist that Pakistan and India

trade relationship remained uneven with an added advantage to India in comparison to

Pakistan (Khan 2008) ―Pakistan had a huge trade deficit with India equaling US $

102554 million in 2006 -07 which in fact increased further to US $ 165718 million in

2007-08(Sustainable Development Policy Institute 2010 p 222) The statistic shows

that trade balance is still very lopsided in Indialsquos favor (Sustainable Development Policy

Institute 2010 p222)

There is a sense of fear in Pakistan about India thatlsquos why it has not reciprocated to

Indialsquos initiative to be granted the MFN status Moreover Pakistan justifies that from

Indian side there is discriminatory tariff barriers and disturbing sufficient inflow of

Pakistan goods into India markets (Dawn 2004) The dumping tactic by a strong state ie

India create reservations in weak state- Pakistan that strong market would adversely

affect its economy as a whole leading to extreme situation of unemployment (Dawn

2004)4 If economic and employment state of affairs get worsen further Pakistan fears

that the repercussions would be drastically deteriorating (Dawn 2004)

c) Trade is irrelevant to peace making Realist Perspective

The role of trade in the promotion of peace is examined with more severity in academic

circles It is argued that trade is irrelevant to the promotion of peace (Barbieri 2005)

This school of thought believe that trade is not strong a tool that can change the dynamics

of relationship between Pakistan and India History is evident about the role of military

option more successful and impressive in deciding issues between Pakistan and India

rather an effective tool to maintain peace between two arch rivals Trade can merely be a

transitory arrangement between Pakistan and India to work out short term national

interests It did result in smoothening of relations occasionally but whenever conflict

have blew up and security situation required trade associations were straightforwardly

ended or halted Thus trade cannot be considered as main variable for bringing in peace

4 ―Dumping means the sale of a commodity on a foreign market at a price below marginal cost An

exporting country may support the short run losses of this policy in order to eliminate competition and

thereby gain a monopoly in the foreign market (Bannock Baxter amp Davis 2004)

14

among two rivals Lack of trust and past history would never allow trade to be an

effective technique of peace permanently between Pakistan and India

Analyses of aforementioned perceptions concerning peace promotion through trade

between two belligerents -Pakistan and India concludes that trade is not an insignificant

tool It has changed relationships between fighting nations and is an important foreign

policy instrument The narrow stand point given by some school of thoughts fails to

understand the reality of trade in deciding the nature of dealings in present scenario This

study is attempted to justify trade as an effective mean to bring two states closer and

avoid expensive instruments effecting way of life of people in the region It is a liberal

school of thought that guides the theoretical framework of this study It fits well in the

context of Pakistan - India trade linkages It is an optimistic phenomenon that believes in

the economic development for two besides attaining peace and saving this region from

nuclear threats

Although the conceptual framework of this research study is based on liberal school of

thought the study takes valuable insights from the dissenting theoretical positions such as

Marxists and Realists A significant point raised by Mansfield (1994) that international

trade and power bears a great influence on the occurrence of war Moreover power and

war also impact trade A study calls for the integration of international economics with

international politics and international political economics and international studies of

war In addition Mansfield and Pollins (2003) also argued that the role of trade is

dependent on existing internal and external situation and accordingly leads to peace and

conflict Likewise Kant concept that war is too costly a job for the interdependent and

trading partners has been highlighted with the example of Nixonlsquos and Kissingerlsquos

policies during cold war era Trade was used as a tool for relaxation of tension

Furthermore opinions discussed by different theorists related to the relationship of peace

with trade and its diverse impacts on state to state contacts has been discussed by Barbieri

(2005)

15

18 Research Methodology

This study is conducted by using secondary and primary data Secondary data is scattered

and therefore gathered from different sources ie 1) Research work of experts in the

same field from Pakistan and India namely Ishrath Hussain Ijaz Nabi Shahid Javed

Burki Zareen Fatima Naqvi Rasul Bakhsh Rais Syed Akbar Zaidi Shaheen Rafi Khan

Nisha Tanej Anit Mukherjee ESridharan Mahendra Lama Siddhartha Mitra NC

Pahariya Pradeep SMehta Pia Malhotra etc Pakistani and Indian Newspapers The

Hindustan Times Dawn (Pak) The News The Nation Express Tribune The Hindu

Times of India etc Research work of armed forces personnel ie Mahmud Ali Durrani

(Rt army officer) and Jasjit Singh (Air Commodore)

Other significant briefing papers and studies produced by renowned associations and

think tanks including South Asian Studies produced by Ministry of Finance Govt of

Pakistan Strategic Studies Institute US Army War College South Asia Free Media

Association (SAFMA) Status Papers of Federation of Indian Chambers of Commerce

and Industry on Pakistan India economic relations Working Papers of PILDAT

Cooperative Monitoring Centre Occasional Paper US Department of Energy Pakistan

Economic Survey research work of Indian Council for Research on International

Economic Relations( ICRIER) Studies of Research and Economic Development Cell

Chamber of Commerce and Industry Karachi Studies by Government of Pakistan

Ministry of Commerce Research work of the Centre for Strategic and International

Studies (CSIS) Washington DC South Asia Watch on Trade Economics and

Environment (SAWTEE) World Bank development indicators and the studies supported

by Woodrow Wilson centre Washington DC are also included The purpose of study of

research data is to examine whether trade can strengthen relations and consequently

promote peace

Through secondary data historical content is explored in this study to show that trade

relations between Pakistan - India have never been smooth and consistent After drawing

this context an investigation is made into potential of trade through building a strong

case for mutually beneficial trade between the two

16

For final analysis of the study primary data was collected from diverse sections of

Pakistan and India such as Ishtiaq Ahmad Quaid-i-Azam Fellow at St Antonylsquos College

and Research Associate at Centre for International Studies University of Oxford

Shamshad Ahmad former foreign secretary played an important role during

extraordinary period (overt nuclearization kargil crisis and General Musharaflsquos coup) in

India and Pakistan peace process resumption Sohail Ahmad Director TMOAG

Company Whose business is related to the Oil and Gas products from Central Asia

Moonis Ahmar Dean Faculty of Arts University of Karachi with expertise in conflict

Resolution and Confidence-building measures with particular reference to South Asia

Qadar Baloch who presented a paper titled ―Pakistan granting MFN status to India

Merits and Demerits for Pakistan at conference held at Islamia College University of

Peshawar Mohammad Ilyas Ghauri Chief Executive Officer Punjab Board of

Investment and Trade Government of the Punjab Shoaib Ahmed Khan Ghulam

Faruque Group Resident Director Cherat Cement co Ltd Aziz Ahmad Khan Amb

(Rtd) Hon Vice President Jinnah Institute served as Pakistanlsquos high commissioner to

India from 2003 to 2006 At International conference ―Narratives of National Security

attended at Institute of Strategic Studies Islamabad Mahendra P Lama Professor of

South Asian Economies School of International Studies JNU amp Founding Vice

Chancellor Central University of Sikkim amp Former Member National Security Advisory

Board Government of India worked and published articles in the area of cooperation and

integration in South Asia Anatol Lieven Orwell Prize winning journalist and policy

analyst worked with The Times London covering Pakistan and wrote from India as

freelancer Partha S Ghosh Editor India Quarterly Indian Council of World Affairs

ICSSR National Fellow Institute for Defence Studies and Analyses New Delhi

extensively focused on South Asia Conflict and Cooperation Bilal Khan Pasha Deputy

Secretary Ministry of Commerce Khalid Mehmood Raja Chairman Maknom Group of

Companies with areas of business activities in Central Asia and South Asia Adnan

Sarwar Khan (2015) Dean Faculty of Social Sciences University of Peshawar Mehmood

Shah Paper presented titled ―A Trade Creation and Gravity Model Approach at

conference attended at Islamia College University of Peshawar Nitesh Ravi Srivastav

founder member of Aaghaz-e- Dosti (Indo Pakistan friendship initiative) executive

i

Declaration

I hereby declare that this dissertation is not submitted to any other institution university

and organization for the purpose of grant of degree Moreover this research work is the

outcome of my sole research work

Saima Gul

ii

Acknowledgements

All praise to Allah Almighty the most merciful and beneficent and salutations on the

Holy Prophet Hazrat Muhammad (Peace Be upon Him) a composite source of

knowledge for humanity

First I would like to express my sincere gratitude to my supervisor Dr Muhammad Ayub

Jan Department of Political Science University of Peshawar for his continuous support

patience motivation and valuable insights His guidance assisted me during the entire

duration of my PhD It has been an honor to work under his supervision I appreciate all

his contributions of time and ideas to make my PhD experience productive and

stimulating

I am also immensely appreciative to Dr Nasreen Ghufran Chairperson Department of

International Relations University of Peshawar especially for sharing her expertise so

willingly for her valuable advice and guidance in connection with developing the initial

idea of my thesis Similar profound gratitude goes to Dr Adnan Sarwar Khan former

Dean Faculty of Social Sciences University of Peshawar who guided me throughout my

studies

Special mention and thanks goes to my teachers colleagues and faculty members of

Department of International Relation including Dr Ijaz khan Dr Noor Shah Jahan Dr

Hussain Shaheed Soherwardi Dr Shahid Khattak (late) Dr Minhas Majeed Mr

Khurshid Ahmad and Mr Zia Ur Rehman who shared their views and encouraged me to

accomplish the task of completing my research work

I owe a great debt to Inam Afridi Islamic University Islamabad Noman Sattar Quaid-e-

Azam University Islamabad and Col Tariq Qureshi (late) for their support in collection

of research material

I am indebted to my friends including Shumaila Farooqi Aysha Umair Sohail Ahmad

Amir Raza who encouraged me and prayed for the completion of my PhD

I would like to thank my family for all their love and encouragement for my parents who

raised me with their absolute love for education They backed me in all my academic and

iii

professional pursuits Finally and most importantly I am grateful to my supportive

encouraging and patient husband without his support this thesis would not have been

possible

iv

Abstract

The relationship between trade and peace has been debated by the policy makers

academicians and general public Such deliberations often end in contesting conclusions

For some trade is a potential tool to mold relationship and make peace between states

for others trade may become a source of conflict Yet others would see no substantial

relationship between trade and peace These disparate perspectives exhibit that

relationship between trade and peace is complex and can be explained in different ways

This study thoroughly discusses the above predicament and the varying explanations

concerning the issue Moreover the study investigates the complex relationship between

trade and peace through the example of Pakistan and India relations This research

explores whether trade can be an instrument of peace between these two important South

Asian States Both the countries are nuclear states and their relationship has remained

volatile since their inception in 1947 It is a commonly established view that political and

military tactics have always been active in deciding the nature of dealings between

Pakistan and India They have always gauged capacities of one another in terms of

balance of power which further poses a conventional as well as nuclear threat to the

South Asian region In this scenario it is important to explore viable options such as

trade for brining positive change in bilateral relations between two adversaries This

study is an effort in the same direction It examines the role of trade as an economic tool

to create a lasting peace between Pakistan and India The study underpins its argument

through data collected using qualitative methods such as interviews Besides published

reports and documents the views and opinions of traders academicians and activists have

been used to generate discussion about the issue

This research endeavor elaborates the diverse theoretical perspectives about the

relationship between trade and peace ie Liberal perspective Realist perspective and

Marxist perspective It argues that the liberal perspective provides better explanation of

this relationship if one looks at different historical examples from around the world The

study also takes insights from the historical trade relationship between Pakistan and India

to investigate the economic potential of trade The study is directed to explore whether

v

there is a possibility for an expansion of trade relations between Pakistan and India The

study finds out that since there is an ever growing demand for quality goods and

services at a reasonable price in both the developing countries with their subsequent

conventional and populated economies aspiring for prosperity through commerce there is

a need for not only trade beyond continental borders but also within ie mutual trading

relationship Moreover trade will play a complimenting role and even better if the

economies of both countries are experiencing development prosperity and growth The

analysis verifies the subsequent argument put forward under three schools of thought and

concludes that trade possess the capacity to play an active role in mollifying strained

relations between Pakistan and India and begin an era of peace and harmony in the

region

vi

Acronyms and Abbreviations

NTBs Non-Tariff Barriers

MFN Most Favored Nation

ASEAN Association of South East Asian Nations

NDMA Non-Discriminatory Market Access

RTAs Regional Trade Associations

EU European Union

SIFT South Asia Free Trade Area

G8 Group of 8 Industrialized Nations

WTO World Trade Organization

SAARC South Asian Association for Regional Cooperation

MERCOSUR South American Common Market

GCC Gulf Cooperation Council

FDI Foreign Direct Investment

SDPI Sustainable Development Policy Institute

IMF International Monetary Fund

IBRD International Bank of Reconstruction and

Development

PILDAT Pakistan Institute of Legislative Development and

Transparency

SEATO Southeast Asia Treaty Organization

CENTO Central Treaty Organization

SAPTA South Asian Preferential Trading Arrangements

ICRIER Indian Council for research on International Economic

Relations

UN United Nations

FICCI Federation of Indian Chambers of Commerce and

Industry

IDSA Institute for Defence Studies and Analyses

SADC Southern African Development Community

PTAs Preferential Trading Arrangements

BOP Balance of Payments

FDA Foods and Drugs Authority

vii

Contents

Declaration i

Acknowledgements ii

Abstract iv

Acronyms and Abbreviations vi

Chapter 1 1

Introduction 1

11 Trading for peace and prosperity 2

12 Pakistan India Trade 6

13Statement of the problem 9

14 Significance of the study 10

15 Objectives of study 10

16 Research Questions 10

17 Theoretical Framework 11

a) Tradelsquos Positive Relation with Peace Liberallsquos Perspective 11

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives 12

c) Tradeis irrelevant to peace making Realist Perspective 13

18Research Methodology 15

19 Outline of the study 17

Chapter 2 20

The Complex Relationship between Trade and Peace Theoretical Perspectives 20

21 Introduction 20

22 Trade promotes peace The Liberal Perspective 22

23 Trade promotes conflict Realistlsquos and Marxistlsquos Perspectives 35

24 Void Theory of Trade and Peace Relation Realistlsquos Perspective 41

25 Conclusion 44

Chapter 3 46

Historical Perspective of Pakistan India Trade 46

31 Introduction 46

32 Changing Conceptual Trends about Pakistan India Trade Relationship 48

viii

33 Pakistan India Trade Relations Historical Overview 49

a) Earlier Phase of Building Ties 49

b) The Cessation of Trade 55

c) The Revival of Trade 56

d) Era of Regionalism 57

e) 21st century Ups and Downs in Trade 61

34 Conclusion 65

Chapter 4 68

Trade Potential between Pakistan and India 68

41 Introduction 68

42 Nature of Formal Trade between Pakistan and India 71

43 Nature of Informal Trade 73

44 Pakistan and India Trade is Competitive or Complementary 75

45 Potential Areas of Collaboration between Pakistan and India 77

a) Services Sectors 78

b) Agriculture Sector 79

c)Energy sector 81

d)Industry of Chemicals and Pharmaceuticals 82

e)Textiles and Clothing 84

f)Automobiles 86

g)Other Emerging Potential Areas for Trade 88

46 Conclusion 91

Chapter 5 94

Pakistan and India Trade A Vision for Peace 94

51 Introduction 94

52 New Thinking about Pakistan and India relations in New Era 95

53 Trade as a vehicle of Peace between Pakistan and India 97

531 Liberal School and Trade between Pakistan and India 98

532 Contesting Arguments Trade and Conflicts Problematic Relationshiplsquo 113

533 Contesting Arguments Trade is Irrelevant to Peacelsquo 119

54 Findings Trade an important tool for Peace between Pakistan and India 120

ix

Chapter 6 128

Conclusion 128

Bibliography 145

Appendix-A 173

Appendix- C 177

Appendix-D 178

Appendix-E 179

Appendix-F 180

Appendix-G 200

Appendix-H 201

Fig 1 202

Fig2 203

Fig3 204

Fig 4 205

Fig 5 206

1

Chapter 1

Introduction

Trade as an activity of buying and selling goods and services has long been used by

human beings as an economic tool in their mutual relationship However over a period of

time trade became more then just a tool of economic relations The scope of trade

surpassed the economic domain and has reached to the political realm In this realm it

has significantly altered relations among modern states 21st century is evident of the fact

that trade has often been used as political instrument to bring states together on political

matters

Trade therefore is seen as a potential instrument to bring peace and prosperity among

states There has been an academic debate to investigate relationship between trade and

peace during the last few decades A large number of studies discuss various political

externalities arising out of trade relations At the core of this academic debate is the

question that whether trade promotes peace Disagreement persists regarding the

question particularly whether trade is productive or an unproductive activity when it

comes to relations between two or more traditionally rival states This study attempts to

ponder over this question in the context of relations between two traditional rivals of

South Asia ie Pakistan and India

Academic circles debate whether increased trade contacts between the states reduces

chances of war as trade improves communication reduces misunderstandings and

consequently makes peaceful resolution of issues possible (Hegre 2000) Trade as a

peace strategy brings greater efficiency and development that may persuade states to

select trade as a tool instead of military strategy (Rosecrance 1986) Growth in trade

relations enjoys public support because ordinary citizens are aware of the dreadful cost of

war between rivals Therefore trade creates shared interests between dyads (Oneal amp

Russett 1997) and it acts as a deterrence to war

2

The subsequent section shows that rivals around the world have tried to give trade a

chance to bring peace thus trade proved to be a useful instrument

11 Trading for peace and prosperity

The current era can best be explained through the classic trade theory which highlights

that trading relations between states has a mollifying impact Interdependence is a driver

for the provision of harmony and resolution of conflicts through more peaceful methods

Economic incentives result in outstanding improvement in conflict situations both at

international and regional level

In the modern world there is an excess of illustrations that economic understanding and

socio -cultural changes among political adversaries encourage political settlements in the

long run The world is full of examples demonstrating political issues are overcome by

interdependence and cultural exchanges The two rivals of cold war USSR and US

followed a path of economic cooperation Similarly a case study of South East Asia and

the West also demonstrates the same phenomenon of tradelsquos pacifying role

Another best example is the European Union which was formed to set aside the harsh

memories of World War II and unite Europe for future generations The economic

activities of EU encouraged the rest of Europe to tie them in a string of cooperation

There persisted significant differences in the policies and economic interests of member

states but a crucial decision of cooperationlsquo was taken at that time (Young 2002) EU

worked well to reduce enmity not only between the two rival states of the region ie

France and Germany but from one corner to the other corner of Europe The bitter history

of Nazism (particularly in Poland Holland and Russia) successfully decreased to an

insignificant level is no minor an accomplishment Being a generator of peace EU

impressively has overcome the historic hatred and hostilities It proved itself as an

effective instrument to unite the divided and devastated Europe Formation of EU

experience demonstrates an example of historical reconciliation developed out of political

will for collaboration and finally integration (Cameron 2010)

3

The history of relations among Southeast Asian states remained however more complex

It was difficult for them to trust each other Geographical factors and the political and

security atmosphere of 1960 to 1980 demanded to cooperate for peace and security (Chai

2013) It was the Association of Southeast Asian nations (ASEAN) that played an

important part in changing antagonistic relationship into collaborative one The

objectives of ASEAN were both economic as well as political Economic

interdependence started an era of amazing development and prosperity in this region

Argentina and Brazil share same geographic location in South America (Wrobel nd)

History of relationship between Argentina and Brazil is full of hostility mistrust and

hatred They remained antagonistic towards each other for the leadership of Southern

American region (Koschut amp Oelsner 2014) This competition continued since colonial

period when Spain was controlling Argentina and Brazil was under Portugal authority

Even after their freedom ie in 1816 Argentina and in 1822 Brazil independence contest

sustained (Oelsner 2005)

The case study of Argentina and Brazil can be quoted for Pakistan and India case though

one essential contrast must be considered They remained competitors for the control of

South America but not the enemies (Wrobel nd) In 1828 Uruguay was born as a buffer

state as a result of a war between them three years ago since then relationship

transformed into cooperation and contest After a long era of unstable affairs they

realized the importance of peace and cooperation They proceeded towards an effort to

end controversies and become a part of economic world where conflicts are sided and

collaboration is encouraged

Eventually the two states with the alliance of Paraguay and Uruguay were framed with

the name of Mercosur (South American Common Market) in 1991 (Wrobel nd) In 1996

and 1997 Chile and Bolivia respectively joined this economic bloc A dream behind the

formation of this common marketbloc was to enhance the cooperation among regional

states and eradicate misconceptions It was envisioned that trade and investment would

facilitate closer linkages and prosperity

4

The African region also experienced RTAs (regional trade agreements)1 that tackled the

issues related to the management of resources like water issues and etc (Yang amp Gupta

2005) It was observed that such RTAs have played an instrumental role in minimizing

the military conflicts Even RTAs originated for other matters like racial issue included

the task of generating economic activities in their agenda In 1980s the Southern African

Development Community (SADC) was established to work against apartheid in South

Africa that later on facilitated the formation of free trade zone SADC has encouraged

intraregional exports and imports by two and a half time and enthusiastically busy in

areas of resolutions of disputes and conflicts in addition to the liberalization of trade

(Yang and Gupta 2005)

The economic relation between China and Japan reflects that differences can be handled

with the assistance of prudent economic policies and dealings The level of trade between

China and Japan never saw a decline due to political factors to a great extent After

China becoming part of world trade system and accession to the global trading body

World Trade Organization (WTO) in 2001 it is reflected that political tensions with

Japan not ended rather dominated by the trading relations between them Initially in

1978 this level of economic relationship was low but gradually such as from 2007 the

trade relations reached to the rank of third largest in terms of merchandized trade

connection in the world (including exports and imports together) despite their

relationship had remained complicated historically and politically (Armstrong nd)

Trade continued despite sensitive and unresolved issues as well as regional competition

In cases where politics play a dominant role trade relations are also affected that leads to

the cessation of economic linkages In recent times Pakistan India provides the case for

in depth analysis For some states politics might have affected trade but for China and

Japan their economics have dominated the issue of politics As a matter of fact both

states attached true commitment to continue and abide by the international trade rules

defined by WTO which resulted in continued economic progress and uplift

1―Regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more

partners They include free trade agreements and customs unionshttpswwwwtoorg

5

Similarly China and India entered into the phase of economic collaboration and

friendship recently Trade and economic exchanges have served as an agent of

rapprochement through productive economic linkages Both have the aim to raise the

political trust level and work for development of economic collaboration (Lin amp Fujian

2013) Though their main focus is economic relationship their interest to improve

cooperation in other areas such as security issues political perceptions and boundary

negotiations is also evident (Lin amp Fujian 2013) There is no doubt that constraints

exists but the two countries are making use of common interest ie complementarities in

their economic structures Both have regional and international interests such as China is

a manufacturing power while India is known to be in the list of service industries

worldwide (Lin amp Fujian 2013) If they cannot manage relationship with one another

they will not be able to create friendly security environment which is important for

achieving their domestic regional and international aims China and India have realized

the fact that international threatening issues like terrorism piracy and cross- border

crimes etc can be resolved by devising mutual strategies Moreover global trade and

finance institutions need reforms that both states can bring in with help of each other to

benefit their national interests

The industrialized world is making regional blocs for trade In Asia China and India have

made concerted efforts to cooperate so to protect themselves from a negative impact of

these blocs Both states have initiated collective military cooperation keeping aside their

real regional debates which has contributed to an overall harmony and regional peace If

there is peace inside the region South Asia will be in better position to negotiate with

other regional blocs like ASEAN EU NAFTA etc regarding trade matters Moreover

making SAARC a forum to protect economies of the region and bring improvement in

the specialization of different industries of South Asia

The above examples reveal that contentions can be controlled by trade arrangements It

gives inspiration to the South Asian Free Trade Agreement (SAFTA) to work for the

improvement of relationship between Pakistan and India as SIFT having great potential

for it Dorussen and Ward (2010) argue that Pakistan and India attitude towards world

6

trade is encouraging There is general trend of openness to world trade giving hope for

conflict resolution through economic factor at regional and bilateral level

If a rationalized trade policy is initiated by Pakistan and India and trade hurdles

vanished all other issues between them will eventually get resolved through an enduring

and collaborating effort Pakistan and India can learn from the examples prevailing in

world where belligerent regional states started efforts for peace and collaboration to

curtail hatred competition and warfare However both countries are coming closer at a

very low pace Even a snail speed will one day lead to an ultimate peace However there

are occasional hurdles that need to be addressed These hurdles are mostly political in

nature Trade activities can avert attentions from trouble some issues and speed- up trade

cooperation between them to reduce tensions and conflicts which arises from time to

time SAFTA (see Appendix-F) in this regard can play a central role to relax bilateral

tensions Peace and tranquility between Pakistan and India will be considered as the great

payoff of SAFTA (Suleri 2005)

12 Pakistan India Trade

The chronological review of trade relations between Pakistan and India shows that

because of geographic similarities and identical history both states remained dependent

on each other (Choudhury 1968) However during the process of division of Indian Sub-

Continent economic factor and integrated system of trade relations was completely

ignored The consequence was that it badly vivisected trade relations between the two

states of the region and the unified economic system of the region got divided Trade

relations although retained since independence suffered badly due to occasional

disruptions

Mutual conflicts such as ―battle of currency in 1940s and Most Favored Nations (MFN)

status (see Appendix- E) and wars of 1948 1965 1971 1999 nuclear arm race and

occasional skirmishes on Line of Control (LOC) etc always disturbed trade contacts

between Pakistan and India But parallel efforts such as cricket diplomacy and Non

Discriminatory Market Access (NDMA) also persisted to improve trade relations In

2015 according to Federal Commerce Minister Ghulam Dastigir introduced hopes for

7

the grant of NDMA by Pakistan to India (Ahmad M 2016) Again tension on the LOC in

September 2016 created uncertainty India refused to participate in the SAARC summit

that was decided to be held in Pakistan It has caused anxiety in business community

According to M Sabir Shaikh if the situation of conflict continues it will harm Indian

economy more than Pakistanlsquos economy because of huge and diverse trading and

industrial set up (Khan A S 2016)

Business community encourages trade between Pakistan and India as they foresee greater

economic prosperity through this forum however reasons of low level of trade owe to

inward looking strategies2 unstable political situation and border disputes Lack of full-

scale formal trade resulted in giving boost to informal trade activities The informal trade

is following trade routes such as Dubai Afghanistan and Iran (Naqvi 2009) Moreover

besides transit trade there are possibilities of trade cooperation in services health fields

IT expertlsquos exchanges tourism and entertainment fields (The Hindu 2012)

A good number of studies have reflected on the issue of trade between Pakistan and

India A cursory view of this literature endorses the argument presented in this study that

trade between Pakistan and India has been problematic due to complex political issues

and oblivious behavior of political leadership in both state Cohen (2013) has discussed

the relationship of Pakistan and India as complex and distant He states ― the relation

between them are often summarized as ―up or ―down ―better or ―worse or invoking

a climatic metaphor ―cooler or ―warmer(p17) Cohen argues this region is least

connected economically and lagging behind the world Only integration can improve the

relations Similarly Alam (2006) elaborates that South Asian region is facing inadequate

trade facilitation mechanism contributing to an unrealized potential of intra-regional trade

in certain areas The reasons include weak communication political conflicts and

restrictive trade policies

There are opposite views presented by the scholars who present lack of optimism over

improvement of Pakistan - India bilateral trade According to Dixit (2002) there are

psychological issues on part of Pakistan that create hurdles in bilateral relations For him

2 The concept usually practices for import substitution in trade exchanges

8

Pakistanlsquos ultimate aim is to become regional power and destabilize India Jenkins

(2003) argued that India is an important player of region Indialsquos aim is to become an

economic power To this end it has to balance the interaction between the imported ideas

of liberal market system and the traditional political concepts Jenkins examines that

Indian market is facing economic nationalism domestically Such tendencies must be

dealt with to become a successful partner at global as well as regional level Similarly

Ganguly (2002) presents the same view that both Pakistan and India states have

contradictory nationalist views ie Indian nationalist (secular) and Pakistan nationalist

(Islamic) in India and Pakistan respectively that utilizes their conflict on Kashmir for

their respective interests He is not optimistic about future dealings of both states

especially after acquisition of nuclear capabilities history of ideological religious and

political clashes

Sardar (2011) has shed a light on theme of Pakistan and India relations He discusses that

their relations are transformed since 1998 ―nuclear tests because their way of traditional

reaction has changed He further stresses for transformation in non-security areas Actors

of both states rules and regulations and structures needs transformation Ghuman (1986)

also opined that mutual cooperation is very important for the building up of relationship

between Pakistan and India To ease the crisis Pakistan and India could play their role by

increasing interdependence in economic spheres Siddiqui (2007) also discusses about the

real transformation which can result from SAFTA Economic arrangements like SAFTA

would make this resourceful region (of around 13 billion population) a nucleus of

economic uplift and development Transformation would lead to constructive

engagements and peaceful resolution of conflicts

The world is shifting from conflict to cooperation as Bhatia (1990) argues economic

relations unite nations while politics divides Even in an era of interdependence both

states tried to be independent of one another in economic matters According to Bhatia

the world system is changing from confrontationist strategies in favor of development

policies The same concept has been forwarded by Taneja amp Pohit (2015) that Pakistan

and India must encourage the multi-level dialogue between Pakistan and India The

authors stressed that South Asian states have proved unsuccessful in regional integration

9

process because of political issues that are tagged with economic matters as a result

create disturbance in bilateral trade According to this study there are huge levels of

opportunities for trade between them

Travis (1997) encourages both countries for cooperation in security as well as economic

sectors in a unipolar world as developing states such as Pakistan and India must

cooperate in changing international system for their respective gains Durrani (2001) also

persuades both states for peace measures and negotiations to avoid any military power

race and involvement He stresses for track II diplomacy and effective role of SAARC

Kux (2006) has also discussed about the role of negotiations between Pakistan and India

for peace He argues that negotiations have continued since independence but for

peaceful relations trade collaboration cultural cooperation both are required to pursue

tough and difficult negotiations

13Statement of the problem

Slow trade has remained very a crucial issue between Pakistan and India since their

inception Rivalry and political conflict are one of the main factors responsible for

uncertainty in economic relations Pakistan and India though continued trading relations

but they never got improved Occasionally thorny relations interrupted trade contacts

which further widened gap between the two The lingering issues side- tracked the

chances of better trade relations Trade is often set aside by Pakistan and India because it

can only be revived when unresolved political disputes are resolved Tensions and

conflicts between them created obstacles in regional integration prosperity and peace

among the regional neighbouring countries This myopic policy has affected their

respective economies and prohibited trade to function as a peace tool Economic ties have

suffered serious blowbacks due to distinguished political structures besides hostile

political and security atmosphere In these unfortunate and unfavorable circumstances

both countries were unable to mend economic knots potentially despite having economic

potential The political ideology and security dynamics have mostly over shadowed

economic relations Therefore it is the political aspect of trade which remained the barrier

towards better economic relations However trade can be an effective technique in this

10

particular case to influence Pakistan and India and serve as confidence building measure

In the long run trade can facilitate peace between these traditional rivals of South Asia

14 Significance of the study

There is lack of coherent and consistent academic work in the area of Role of Trade in

Peace between Pakistan and India Although sporadic research work on the South Asia

trade does exist a systematic study analyzing the role of trade in promoting peace in

South Asia is specifically unavailable The role of trade in peace between the countries is

therefore holds unique niche in the national and academic arena Keeping Indialsquos ever

growing economy there is a general understanding that Pakistan cannot and should not

be ignored with the former Other important factor is the geographical contiguity of

Pakistan and India which can result in greater progress provided they utilize markets for

their benefits Moreover this study locates its argument in the broader theoretical debate

about the relationship of trade and peace Therefore seeks to contribute to the broader

literature on trade and peace

15 Objectives of study

This study examines the role of trade in peace with particular focus on Pakistan and

Indialsquos trade relations and its effectuated impact in terms of peace generally in the

region and particularly Pakistan and India with following objectives

1 To review and examine the history Pakistan ndashIndia trade pattern

2 To highlight potential complementarities and competitiveness in the economies of

Pakistan and India

3 To review literature based on liberal theory to establish a criteria or benchmarks

to be applied for examining the role of trade in promoting peace between Pakistan

and India

4 To focus on the impact of trade on Pakistan-India relations

16 Research Questions

1 What was the nature of trade relations between Pakistan and India historically

2 Is there any potential for enhanced trade between Pakistan and India

11

3 Is there any relationship between trade and peace in the context of Pakistan India

relations

17 Theoretical Framework

The research at hand compares theories on trade and peace to reach to the outcome that

trade is an active tool for peace It also analyzes whether Pakistan and India trade can

become a source of peace or conflict It is therefore imperative to thoroughly understand

different perspectives This section elaborate view points of three theoretical schools of

thought related to the role of trade

a) Trade‟s Positive Relation with Peace Liberal‟s Perspective

It is believed that trade has a gigantic power to control the negative emotions in

international relations According to Pasha (interview 2015) Pakistan and India being

neighbors share a common historical past and socio economic similarities They are

natural partners Development of trade between them is natural and vital to maintain

historical legacy stability as well as cultivation of progress and growth in South Asia

Liberal school of thought believes that the opening out of inter-state connection in

particular sections (trade and commerce) stimulates collaboration generally in other

sectors also (Barbieri 1996) Acknowledging conflict as an element of international

structure Liberals admit that conflict is present in world and plays important part in

international relations They likewise endorse the notion of tranquility through economic

interdependence and integration in the world According to Travis (1997) liberal theory

explains two significant notions of world system ie complex interdependence and

integration He defined complex interdependence as ―the intertwining of interests and

needs among two or more actors in a particular dimension so that these actors become

mutually sensitive reactive and vulnerable and need to cooperate to fulfill their goal

(p23) He described integration as ―the building by two or more actors of an

international regime or a supranational institution to regulate behavior in a given

dimension and the development of attitudinal responsiveness characterized by mutual

trust predictability and indulgence (p23) Complex Interdependence and Integration

12

have brought states very close to each other and made dependent equally It regulates the

attitudes of states towards prosperity and peace by building trust among them Liberals

propose that trade sustains harmony irrespective of the nature of relationship between

states and always operate as a deterrent to conflict (Barbieri 1996)

Trade may not completely boost economies of Pakistan and India but there are various

positive externalities which can grow from the opening of trade ―Liberals recognize that

gains from trade and the potential costs accompanying interdependence are not always

equal they argue that ties imply net positive benefits for both states (Barbieri 2005

p27) Thus illustrating the phenomenon of not only economic uplift rather a wide-

ranging affects on individualslsquo society and as a whole on the interactions between states

Trade among neighbors has more chances for complementariness to emerge because of

low costs of transportation as well as cultural adaptability and same taste for trading

goods3 In case of Pakistan and India there is abundance of products that can be

exchanged for benefits to both economies of region (Jain 1999 Malhotra

2009)Varshney and Kumar (1989) argue that growth of internal markets of Pakistan and

India is more likely as an output of trade relations It will support their industrial sector

and make it strengthened

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives

Marxist-Leninists have given a different approach that trade may increase conflict rather

then peace among states (Barbieri 2005) The reason of conflict sprouts from this fact

that weak states have always been subjugated by powerful states It can explain the same

issue in the context of Pakistan and India as it may try to exploit Pakistan to maximize

benefits of trade for her interests The pessimistic point of view of opponents of trade and

peace theorists see interdependence as a tool for a strong state such as India to control

the inadequate resources of relatively weaker state like Pakistan and its markets for

goods Because of resemblance in products they can very easily spoil each others

3 ―Pair of goods for which consumption is interdependent (eg cars and petrol or cups and saucers) are

known as complements or complementary goods and change in the demand for one will have a

complementary effect upon the demand for the other (Bannock Baxteramp Davis 2004)

13

industries and markets of goods and services Evidences exist that Pakistan and India

trade relationship remained uneven with an added advantage to India in comparison to

Pakistan (Khan 2008) ―Pakistan had a huge trade deficit with India equaling US $

102554 million in 2006 -07 which in fact increased further to US $ 165718 million in

2007-08(Sustainable Development Policy Institute 2010 p 222) The statistic shows

that trade balance is still very lopsided in Indialsquos favor (Sustainable Development Policy

Institute 2010 p222)

There is a sense of fear in Pakistan about India thatlsquos why it has not reciprocated to

Indialsquos initiative to be granted the MFN status Moreover Pakistan justifies that from

Indian side there is discriminatory tariff barriers and disturbing sufficient inflow of

Pakistan goods into India markets (Dawn 2004) The dumping tactic by a strong state ie

India create reservations in weak state- Pakistan that strong market would adversely

affect its economy as a whole leading to extreme situation of unemployment (Dawn

2004)4 If economic and employment state of affairs get worsen further Pakistan fears

that the repercussions would be drastically deteriorating (Dawn 2004)

c) Trade is irrelevant to peace making Realist Perspective

The role of trade in the promotion of peace is examined with more severity in academic

circles It is argued that trade is irrelevant to the promotion of peace (Barbieri 2005)

This school of thought believe that trade is not strong a tool that can change the dynamics

of relationship between Pakistan and India History is evident about the role of military

option more successful and impressive in deciding issues between Pakistan and India

rather an effective tool to maintain peace between two arch rivals Trade can merely be a

transitory arrangement between Pakistan and India to work out short term national

interests It did result in smoothening of relations occasionally but whenever conflict

have blew up and security situation required trade associations were straightforwardly

ended or halted Thus trade cannot be considered as main variable for bringing in peace

4 ―Dumping means the sale of a commodity on a foreign market at a price below marginal cost An

exporting country may support the short run losses of this policy in order to eliminate competition and

thereby gain a monopoly in the foreign market (Bannock Baxter amp Davis 2004)

14

among two rivals Lack of trust and past history would never allow trade to be an

effective technique of peace permanently between Pakistan and India

Analyses of aforementioned perceptions concerning peace promotion through trade

between two belligerents -Pakistan and India concludes that trade is not an insignificant

tool It has changed relationships between fighting nations and is an important foreign

policy instrument The narrow stand point given by some school of thoughts fails to

understand the reality of trade in deciding the nature of dealings in present scenario This

study is attempted to justify trade as an effective mean to bring two states closer and

avoid expensive instruments effecting way of life of people in the region It is a liberal

school of thought that guides the theoretical framework of this study It fits well in the

context of Pakistan - India trade linkages It is an optimistic phenomenon that believes in

the economic development for two besides attaining peace and saving this region from

nuclear threats

Although the conceptual framework of this research study is based on liberal school of

thought the study takes valuable insights from the dissenting theoretical positions such as

Marxists and Realists A significant point raised by Mansfield (1994) that international

trade and power bears a great influence on the occurrence of war Moreover power and

war also impact trade A study calls for the integration of international economics with

international politics and international political economics and international studies of

war In addition Mansfield and Pollins (2003) also argued that the role of trade is

dependent on existing internal and external situation and accordingly leads to peace and

conflict Likewise Kant concept that war is too costly a job for the interdependent and

trading partners has been highlighted with the example of Nixonlsquos and Kissingerlsquos

policies during cold war era Trade was used as a tool for relaxation of tension

Furthermore opinions discussed by different theorists related to the relationship of peace

with trade and its diverse impacts on state to state contacts has been discussed by Barbieri

(2005)

15

18 Research Methodology

This study is conducted by using secondary and primary data Secondary data is scattered

and therefore gathered from different sources ie 1) Research work of experts in the

same field from Pakistan and India namely Ishrath Hussain Ijaz Nabi Shahid Javed

Burki Zareen Fatima Naqvi Rasul Bakhsh Rais Syed Akbar Zaidi Shaheen Rafi Khan

Nisha Tanej Anit Mukherjee ESridharan Mahendra Lama Siddhartha Mitra NC

Pahariya Pradeep SMehta Pia Malhotra etc Pakistani and Indian Newspapers The

Hindustan Times Dawn (Pak) The News The Nation Express Tribune The Hindu

Times of India etc Research work of armed forces personnel ie Mahmud Ali Durrani

(Rt army officer) and Jasjit Singh (Air Commodore)

Other significant briefing papers and studies produced by renowned associations and

think tanks including South Asian Studies produced by Ministry of Finance Govt of

Pakistan Strategic Studies Institute US Army War College South Asia Free Media

Association (SAFMA) Status Papers of Federation of Indian Chambers of Commerce

and Industry on Pakistan India economic relations Working Papers of PILDAT

Cooperative Monitoring Centre Occasional Paper US Department of Energy Pakistan

Economic Survey research work of Indian Council for Research on International

Economic Relations( ICRIER) Studies of Research and Economic Development Cell

Chamber of Commerce and Industry Karachi Studies by Government of Pakistan

Ministry of Commerce Research work of the Centre for Strategic and International

Studies (CSIS) Washington DC South Asia Watch on Trade Economics and

Environment (SAWTEE) World Bank development indicators and the studies supported

by Woodrow Wilson centre Washington DC are also included The purpose of study of

research data is to examine whether trade can strengthen relations and consequently

promote peace

Through secondary data historical content is explored in this study to show that trade

relations between Pakistan - India have never been smooth and consistent After drawing

this context an investigation is made into potential of trade through building a strong

case for mutually beneficial trade between the two

16

For final analysis of the study primary data was collected from diverse sections of

Pakistan and India such as Ishtiaq Ahmad Quaid-i-Azam Fellow at St Antonylsquos College

and Research Associate at Centre for International Studies University of Oxford

Shamshad Ahmad former foreign secretary played an important role during

extraordinary period (overt nuclearization kargil crisis and General Musharaflsquos coup) in

India and Pakistan peace process resumption Sohail Ahmad Director TMOAG

Company Whose business is related to the Oil and Gas products from Central Asia

Moonis Ahmar Dean Faculty of Arts University of Karachi with expertise in conflict

Resolution and Confidence-building measures with particular reference to South Asia

Qadar Baloch who presented a paper titled ―Pakistan granting MFN status to India

Merits and Demerits for Pakistan at conference held at Islamia College University of

Peshawar Mohammad Ilyas Ghauri Chief Executive Officer Punjab Board of

Investment and Trade Government of the Punjab Shoaib Ahmed Khan Ghulam

Faruque Group Resident Director Cherat Cement co Ltd Aziz Ahmad Khan Amb

(Rtd) Hon Vice President Jinnah Institute served as Pakistanlsquos high commissioner to

India from 2003 to 2006 At International conference ―Narratives of National Security

attended at Institute of Strategic Studies Islamabad Mahendra P Lama Professor of

South Asian Economies School of International Studies JNU amp Founding Vice

Chancellor Central University of Sikkim amp Former Member National Security Advisory

Board Government of India worked and published articles in the area of cooperation and

integration in South Asia Anatol Lieven Orwell Prize winning journalist and policy

analyst worked with The Times London covering Pakistan and wrote from India as

freelancer Partha S Ghosh Editor India Quarterly Indian Council of World Affairs

ICSSR National Fellow Institute for Defence Studies and Analyses New Delhi

extensively focused on South Asia Conflict and Cooperation Bilal Khan Pasha Deputy

Secretary Ministry of Commerce Khalid Mehmood Raja Chairman Maknom Group of

Companies with areas of business activities in Central Asia and South Asia Adnan

Sarwar Khan (2015) Dean Faculty of Social Sciences University of Peshawar Mehmood

Shah Paper presented titled ―A Trade Creation and Gravity Model Approach at

conference attended at Islamia College University of Peshawar Nitesh Ravi Srivastav

founder member of Aaghaz-e- Dosti (Indo Pakistan friendship initiative) executive

ii

Acknowledgements

All praise to Allah Almighty the most merciful and beneficent and salutations on the

Holy Prophet Hazrat Muhammad (Peace Be upon Him) a composite source of

knowledge for humanity

First I would like to express my sincere gratitude to my supervisor Dr Muhammad Ayub

Jan Department of Political Science University of Peshawar for his continuous support

patience motivation and valuable insights His guidance assisted me during the entire

duration of my PhD It has been an honor to work under his supervision I appreciate all

his contributions of time and ideas to make my PhD experience productive and

stimulating

I am also immensely appreciative to Dr Nasreen Ghufran Chairperson Department of

International Relations University of Peshawar especially for sharing her expertise so

willingly for her valuable advice and guidance in connection with developing the initial

idea of my thesis Similar profound gratitude goes to Dr Adnan Sarwar Khan former

Dean Faculty of Social Sciences University of Peshawar who guided me throughout my

studies

Special mention and thanks goes to my teachers colleagues and faculty members of

Department of International Relation including Dr Ijaz khan Dr Noor Shah Jahan Dr

Hussain Shaheed Soherwardi Dr Shahid Khattak (late) Dr Minhas Majeed Mr

Khurshid Ahmad and Mr Zia Ur Rehman who shared their views and encouraged me to

accomplish the task of completing my research work

I owe a great debt to Inam Afridi Islamic University Islamabad Noman Sattar Quaid-e-

Azam University Islamabad and Col Tariq Qureshi (late) for their support in collection

of research material

I am indebted to my friends including Shumaila Farooqi Aysha Umair Sohail Ahmad

Amir Raza who encouraged me and prayed for the completion of my PhD

I would like to thank my family for all their love and encouragement for my parents who

raised me with their absolute love for education They backed me in all my academic and

iii

professional pursuits Finally and most importantly I am grateful to my supportive

encouraging and patient husband without his support this thesis would not have been

possible

iv

Abstract

The relationship between trade and peace has been debated by the policy makers

academicians and general public Such deliberations often end in contesting conclusions

For some trade is a potential tool to mold relationship and make peace between states

for others trade may become a source of conflict Yet others would see no substantial

relationship between trade and peace These disparate perspectives exhibit that

relationship between trade and peace is complex and can be explained in different ways

This study thoroughly discusses the above predicament and the varying explanations

concerning the issue Moreover the study investigates the complex relationship between

trade and peace through the example of Pakistan and India relations This research

explores whether trade can be an instrument of peace between these two important South

Asian States Both the countries are nuclear states and their relationship has remained

volatile since their inception in 1947 It is a commonly established view that political and

military tactics have always been active in deciding the nature of dealings between

Pakistan and India They have always gauged capacities of one another in terms of

balance of power which further poses a conventional as well as nuclear threat to the

South Asian region In this scenario it is important to explore viable options such as

trade for brining positive change in bilateral relations between two adversaries This

study is an effort in the same direction It examines the role of trade as an economic tool

to create a lasting peace between Pakistan and India The study underpins its argument

through data collected using qualitative methods such as interviews Besides published

reports and documents the views and opinions of traders academicians and activists have

been used to generate discussion about the issue

This research endeavor elaborates the diverse theoretical perspectives about the

relationship between trade and peace ie Liberal perspective Realist perspective and

Marxist perspective It argues that the liberal perspective provides better explanation of

this relationship if one looks at different historical examples from around the world The

study also takes insights from the historical trade relationship between Pakistan and India

to investigate the economic potential of trade The study is directed to explore whether

v

there is a possibility for an expansion of trade relations between Pakistan and India The

study finds out that since there is an ever growing demand for quality goods and

services at a reasonable price in both the developing countries with their subsequent

conventional and populated economies aspiring for prosperity through commerce there is

a need for not only trade beyond continental borders but also within ie mutual trading

relationship Moreover trade will play a complimenting role and even better if the

economies of both countries are experiencing development prosperity and growth The

analysis verifies the subsequent argument put forward under three schools of thought and

concludes that trade possess the capacity to play an active role in mollifying strained

relations between Pakistan and India and begin an era of peace and harmony in the

region

vi

Acronyms and Abbreviations

NTBs Non-Tariff Barriers

MFN Most Favored Nation

ASEAN Association of South East Asian Nations

NDMA Non-Discriminatory Market Access

RTAs Regional Trade Associations

EU European Union

SIFT South Asia Free Trade Area

G8 Group of 8 Industrialized Nations

WTO World Trade Organization

SAARC South Asian Association for Regional Cooperation

MERCOSUR South American Common Market

GCC Gulf Cooperation Council

FDI Foreign Direct Investment

SDPI Sustainable Development Policy Institute

IMF International Monetary Fund

IBRD International Bank of Reconstruction and

Development

PILDAT Pakistan Institute of Legislative Development and

Transparency

SEATO Southeast Asia Treaty Organization

CENTO Central Treaty Organization

SAPTA South Asian Preferential Trading Arrangements

ICRIER Indian Council for research on International Economic

Relations

UN United Nations

FICCI Federation of Indian Chambers of Commerce and

Industry

IDSA Institute for Defence Studies and Analyses

SADC Southern African Development Community

PTAs Preferential Trading Arrangements

BOP Balance of Payments

FDA Foods and Drugs Authority

vii

Contents

Declaration i

Acknowledgements ii

Abstract iv

Acronyms and Abbreviations vi

Chapter 1 1

Introduction 1

11 Trading for peace and prosperity 2

12 Pakistan India Trade 6

13Statement of the problem 9

14 Significance of the study 10

15 Objectives of study 10

16 Research Questions 10

17 Theoretical Framework 11

a) Tradelsquos Positive Relation with Peace Liberallsquos Perspective 11

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives 12

c) Tradeis irrelevant to peace making Realist Perspective 13

18Research Methodology 15

19 Outline of the study 17

Chapter 2 20

The Complex Relationship between Trade and Peace Theoretical Perspectives 20

21 Introduction 20

22 Trade promotes peace The Liberal Perspective 22

23 Trade promotes conflict Realistlsquos and Marxistlsquos Perspectives 35

24 Void Theory of Trade and Peace Relation Realistlsquos Perspective 41

25 Conclusion 44

Chapter 3 46

Historical Perspective of Pakistan India Trade 46

31 Introduction 46

32 Changing Conceptual Trends about Pakistan India Trade Relationship 48

viii

33 Pakistan India Trade Relations Historical Overview 49

a) Earlier Phase of Building Ties 49

b) The Cessation of Trade 55

c) The Revival of Trade 56

d) Era of Regionalism 57

e) 21st century Ups and Downs in Trade 61

34 Conclusion 65

Chapter 4 68

Trade Potential between Pakistan and India 68

41 Introduction 68

42 Nature of Formal Trade between Pakistan and India 71

43 Nature of Informal Trade 73

44 Pakistan and India Trade is Competitive or Complementary 75

45 Potential Areas of Collaboration between Pakistan and India 77

a) Services Sectors 78

b) Agriculture Sector 79

c)Energy sector 81

d)Industry of Chemicals and Pharmaceuticals 82

e)Textiles and Clothing 84

f)Automobiles 86

g)Other Emerging Potential Areas for Trade 88

46 Conclusion 91

Chapter 5 94

Pakistan and India Trade A Vision for Peace 94

51 Introduction 94

52 New Thinking about Pakistan and India relations in New Era 95

53 Trade as a vehicle of Peace between Pakistan and India 97

531 Liberal School and Trade between Pakistan and India 98

532 Contesting Arguments Trade and Conflicts Problematic Relationshiplsquo 113

533 Contesting Arguments Trade is Irrelevant to Peacelsquo 119

54 Findings Trade an important tool for Peace between Pakistan and India 120

ix

Chapter 6 128

Conclusion 128

Bibliography 145

Appendix-A 173

Appendix- C 177

Appendix-D 178

Appendix-E 179

Appendix-F 180

Appendix-G 200

Appendix-H 201

Fig 1 202

Fig2 203

Fig3 204

Fig 4 205

Fig 5 206

1

Chapter 1

Introduction

Trade as an activity of buying and selling goods and services has long been used by

human beings as an economic tool in their mutual relationship However over a period of

time trade became more then just a tool of economic relations The scope of trade

surpassed the economic domain and has reached to the political realm In this realm it

has significantly altered relations among modern states 21st century is evident of the fact

that trade has often been used as political instrument to bring states together on political

matters

Trade therefore is seen as a potential instrument to bring peace and prosperity among

states There has been an academic debate to investigate relationship between trade and

peace during the last few decades A large number of studies discuss various political

externalities arising out of trade relations At the core of this academic debate is the

question that whether trade promotes peace Disagreement persists regarding the

question particularly whether trade is productive or an unproductive activity when it

comes to relations between two or more traditionally rival states This study attempts to

ponder over this question in the context of relations between two traditional rivals of

South Asia ie Pakistan and India

Academic circles debate whether increased trade contacts between the states reduces

chances of war as trade improves communication reduces misunderstandings and

consequently makes peaceful resolution of issues possible (Hegre 2000) Trade as a

peace strategy brings greater efficiency and development that may persuade states to

select trade as a tool instead of military strategy (Rosecrance 1986) Growth in trade

relations enjoys public support because ordinary citizens are aware of the dreadful cost of

war between rivals Therefore trade creates shared interests between dyads (Oneal amp

Russett 1997) and it acts as a deterrence to war

2

The subsequent section shows that rivals around the world have tried to give trade a

chance to bring peace thus trade proved to be a useful instrument

11 Trading for peace and prosperity

The current era can best be explained through the classic trade theory which highlights

that trading relations between states has a mollifying impact Interdependence is a driver

for the provision of harmony and resolution of conflicts through more peaceful methods

Economic incentives result in outstanding improvement in conflict situations both at

international and regional level

In the modern world there is an excess of illustrations that economic understanding and

socio -cultural changes among political adversaries encourage political settlements in the

long run The world is full of examples demonstrating political issues are overcome by

interdependence and cultural exchanges The two rivals of cold war USSR and US

followed a path of economic cooperation Similarly a case study of South East Asia and

the West also demonstrates the same phenomenon of tradelsquos pacifying role

Another best example is the European Union which was formed to set aside the harsh

memories of World War II and unite Europe for future generations The economic

activities of EU encouraged the rest of Europe to tie them in a string of cooperation

There persisted significant differences in the policies and economic interests of member

states but a crucial decision of cooperationlsquo was taken at that time (Young 2002) EU

worked well to reduce enmity not only between the two rival states of the region ie

France and Germany but from one corner to the other corner of Europe The bitter history

of Nazism (particularly in Poland Holland and Russia) successfully decreased to an

insignificant level is no minor an accomplishment Being a generator of peace EU

impressively has overcome the historic hatred and hostilities It proved itself as an

effective instrument to unite the divided and devastated Europe Formation of EU

experience demonstrates an example of historical reconciliation developed out of political

will for collaboration and finally integration (Cameron 2010)

3

The history of relations among Southeast Asian states remained however more complex

It was difficult for them to trust each other Geographical factors and the political and

security atmosphere of 1960 to 1980 demanded to cooperate for peace and security (Chai

2013) It was the Association of Southeast Asian nations (ASEAN) that played an

important part in changing antagonistic relationship into collaborative one The

objectives of ASEAN were both economic as well as political Economic

interdependence started an era of amazing development and prosperity in this region

Argentina and Brazil share same geographic location in South America (Wrobel nd)

History of relationship between Argentina and Brazil is full of hostility mistrust and

hatred They remained antagonistic towards each other for the leadership of Southern

American region (Koschut amp Oelsner 2014) This competition continued since colonial

period when Spain was controlling Argentina and Brazil was under Portugal authority

Even after their freedom ie in 1816 Argentina and in 1822 Brazil independence contest

sustained (Oelsner 2005)

The case study of Argentina and Brazil can be quoted for Pakistan and India case though

one essential contrast must be considered They remained competitors for the control of

South America but not the enemies (Wrobel nd) In 1828 Uruguay was born as a buffer

state as a result of a war between them three years ago since then relationship

transformed into cooperation and contest After a long era of unstable affairs they

realized the importance of peace and cooperation They proceeded towards an effort to

end controversies and become a part of economic world where conflicts are sided and

collaboration is encouraged

Eventually the two states with the alliance of Paraguay and Uruguay were framed with

the name of Mercosur (South American Common Market) in 1991 (Wrobel nd) In 1996

and 1997 Chile and Bolivia respectively joined this economic bloc A dream behind the

formation of this common marketbloc was to enhance the cooperation among regional

states and eradicate misconceptions It was envisioned that trade and investment would

facilitate closer linkages and prosperity

4

The African region also experienced RTAs (regional trade agreements)1 that tackled the

issues related to the management of resources like water issues and etc (Yang amp Gupta

2005) It was observed that such RTAs have played an instrumental role in minimizing

the military conflicts Even RTAs originated for other matters like racial issue included

the task of generating economic activities in their agenda In 1980s the Southern African

Development Community (SADC) was established to work against apartheid in South

Africa that later on facilitated the formation of free trade zone SADC has encouraged

intraregional exports and imports by two and a half time and enthusiastically busy in

areas of resolutions of disputes and conflicts in addition to the liberalization of trade

(Yang and Gupta 2005)

The economic relation between China and Japan reflects that differences can be handled

with the assistance of prudent economic policies and dealings The level of trade between

China and Japan never saw a decline due to political factors to a great extent After

China becoming part of world trade system and accession to the global trading body

World Trade Organization (WTO) in 2001 it is reflected that political tensions with

Japan not ended rather dominated by the trading relations between them Initially in

1978 this level of economic relationship was low but gradually such as from 2007 the

trade relations reached to the rank of third largest in terms of merchandized trade

connection in the world (including exports and imports together) despite their

relationship had remained complicated historically and politically (Armstrong nd)

Trade continued despite sensitive and unresolved issues as well as regional competition

In cases where politics play a dominant role trade relations are also affected that leads to

the cessation of economic linkages In recent times Pakistan India provides the case for

in depth analysis For some states politics might have affected trade but for China and

Japan their economics have dominated the issue of politics As a matter of fact both

states attached true commitment to continue and abide by the international trade rules

defined by WTO which resulted in continued economic progress and uplift

1―Regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more

partners They include free trade agreements and customs unionshttpswwwwtoorg

5

Similarly China and India entered into the phase of economic collaboration and

friendship recently Trade and economic exchanges have served as an agent of

rapprochement through productive economic linkages Both have the aim to raise the

political trust level and work for development of economic collaboration (Lin amp Fujian

2013) Though their main focus is economic relationship their interest to improve

cooperation in other areas such as security issues political perceptions and boundary

negotiations is also evident (Lin amp Fujian 2013) There is no doubt that constraints

exists but the two countries are making use of common interest ie complementarities in

their economic structures Both have regional and international interests such as China is

a manufacturing power while India is known to be in the list of service industries

worldwide (Lin amp Fujian 2013) If they cannot manage relationship with one another

they will not be able to create friendly security environment which is important for

achieving their domestic regional and international aims China and India have realized

the fact that international threatening issues like terrorism piracy and cross- border

crimes etc can be resolved by devising mutual strategies Moreover global trade and

finance institutions need reforms that both states can bring in with help of each other to

benefit their national interests

The industrialized world is making regional blocs for trade In Asia China and India have

made concerted efforts to cooperate so to protect themselves from a negative impact of

these blocs Both states have initiated collective military cooperation keeping aside their

real regional debates which has contributed to an overall harmony and regional peace If

there is peace inside the region South Asia will be in better position to negotiate with

other regional blocs like ASEAN EU NAFTA etc regarding trade matters Moreover

making SAARC a forum to protect economies of the region and bring improvement in

the specialization of different industries of South Asia

The above examples reveal that contentions can be controlled by trade arrangements It

gives inspiration to the South Asian Free Trade Agreement (SAFTA) to work for the

improvement of relationship between Pakistan and India as SIFT having great potential

for it Dorussen and Ward (2010) argue that Pakistan and India attitude towards world

6

trade is encouraging There is general trend of openness to world trade giving hope for

conflict resolution through economic factor at regional and bilateral level

If a rationalized trade policy is initiated by Pakistan and India and trade hurdles

vanished all other issues between them will eventually get resolved through an enduring

and collaborating effort Pakistan and India can learn from the examples prevailing in

world where belligerent regional states started efforts for peace and collaboration to

curtail hatred competition and warfare However both countries are coming closer at a

very low pace Even a snail speed will one day lead to an ultimate peace However there

are occasional hurdles that need to be addressed These hurdles are mostly political in

nature Trade activities can avert attentions from trouble some issues and speed- up trade

cooperation between them to reduce tensions and conflicts which arises from time to

time SAFTA (see Appendix-F) in this regard can play a central role to relax bilateral

tensions Peace and tranquility between Pakistan and India will be considered as the great

payoff of SAFTA (Suleri 2005)

12 Pakistan India Trade

The chronological review of trade relations between Pakistan and India shows that

because of geographic similarities and identical history both states remained dependent

on each other (Choudhury 1968) However during the process of division of Indian Sub-

Continent economic factor and integrated system of trade relations was completely

ignored The consequence was that it badly vivisected trade relations between the two

states of the region and the unified economic system of the region got divided Trade

relations although retained since independence suffered badly due to occasional

disruptions

Mutual conflicts such as ―battle of currency in 1940s and Most Favored Nations (MFN)

status (see Appendix- E) and wars of 1948 1965 1971 1999 nuclear arm race and

occasional skirmishes on Line of Control (LOC) etc always disturbed trade contacts

between Pakistan and India But parallel efforts such as cricket diplomacy and Non

Discriminatory Market Access (NDMA) also persisted to improve trade relations In

2015 according to Federal Commerce Minister Ghulam Dastigir introduced hopes for

7

the grant of NDMA by Pakistan to India (Ahmad M 2016) Again tension on the LOC in

September 2016 created uncertainty India refused to participate in the SAARC summit

that was decided to be held in Pakistan It has caused anxiety in business community

According to M Sabir Shaikh if the situation of conflict continues it will harm Indian

economy more than Pakistanlsquos economy because of huge and diverse trading and

industrial set up (Khan A S 2016)

Business community encourages trade between Pakistan and India as they foresee greater

economic prosperity through this forum however reasons of low level of trade owe to

inward looking strategies2 unstable political situation and border disputes Lack of full-

scale formal trade resulted in giving boost to informal trade activities The informal trade

is following trade routes such as Dubai Afghanistan and Iran (Naqvi 2009) Moreover

besides transit trade there are possibilities of trade cooperation in services health fields

IT expertlsquos exchanges tourism and entertainment fields (The Hindu 2012)

A good number of studies have reflected on the issue of trade between Pakistan and

India A cursory view of this literature endorses the argument presented in this study that

trade between Pakistan and India has been problematic due to complex political issues

and oblivious behavior of political leadership in both state Cohen (2013) has discussed

the relationship of Pakistan and India as complex and distant He states ― the relation

between them are often summarized as ―up or ―down ―better or ―worse or invoking

a climatic metaphor ―cooler or ―warmer(p17) Cohen argues this region is least

connected economically and lagging behind the world Only integration can improve the

relations Similarly Alam (2006) elaborates that South Asian region is facing inadequate

trade facilitation mechanism contributing to an unrealized potential of intra-regional trade

in certain areas The reasons include weak communication political conflicts and

restrictive trade policies

There are opposite views presented by the scholars who present lack of optimism over

improvement of Pakistan - India bilateral trade According to Dixit (2002) there are

psychological issues on part of Pakistan that create hurdles in bilateral relations For him

2 The concept usually practices for import substitution in trade exchanges

8

Pakistanlsquos ultimate aim is to become regional power and destabilize India Jenkins

(2003) argued that India is an important player of region Indialsquos aim is to become an

economic power To this end it has to balance the interaction between the imported ideas

of liberal market system and the traditional political concepts Jenkins examines that

Indian market is facing economic nationalism domestically Such tendencies must be

dealt with to become a successful partner at global as well as regional level Similarly

Ganguly (2002) presents the same view that both Pakistan and India states have

contradictory nationalist views ie Indian nationalist (secular) and Pakistan nationalist

(Islamic) in India and Pakistan respectively that utilizes their conflict on Kashmir for

their respective interests He is not optimistic about future dealings of both states

especially after acquisition of nuclear capabilities history of ideological religious and

political clashes

Sardar (2011) has shed a light on theme of Pakistan and India relations He discusses that

their relations are transformed since 1998 ―nuclear tests because their way of traditional

reaction has changed He further stresses for transformation in non-security areas Actors

of both states rules and regulations and structures needs transformation Ghuman (1986)

also opined that mutual cooperation is very important for the building up of relationship

between Pakistan and India To ease the crisis Pakistan and India could play their role by

increasing interdependence in economic spheres Siddiqui (2007) also discusses about the

real transformation which can result from SAFTA Economic arrangements like SAFTA

would make this resourceful region (of around 13 billion population) a nucleus of

economic uplift and development Transformation would lead to constructive

engagements and peaceful resolution of conflicts

The world is shifting from conflict to cooperation as Bhatia (1990) argues economic

relations unite nations while politics divides Even in an era of interdependence both

states tried to be independent of one another in economic matters According to Bhatia

the world system is changing from confrontationist strategies in favor of development

policies The same concept has been forwarded by Taneja amp Pohit (2015) that Pakistan

and India must encourage the multi-level dialogue between Pakistan and India The

authors stressed that South Asian states have proved unsuccessful in regional integration

9

process because of political issues that are tagged with economic matters as a result

create disturbance in bilateral trade According to this study there are huge levels of

opportunities for trade between them

Travis (1997) encourages both countries for cooperation in security as well as economic

sectors in a unipolar world as developing states such as Pakistan and India must

cooperate in changing international system for their respective gains Durrani (2001) also

persuades both states for peace measures and negotiations to avoid any military power

race and involvement He stresses for track II diplomacy and effective role of SAARC

Kux (2006) has also discussed about the role of negotiations between Pakistan and India

for peace He argues that negotiations have continued since independence but for

peaceful relations trade collaboration cultural cooperation both are required to pursue

tough and difficult negotiations

13Statement of the problem

Slow trade has remained very a crucial issue between Pakistan and India since their

inception Rivalry and political conflict are one of the main factors responsible for

uncertainty in economic relations Pakistan and India though continued trading relations

but they never got improved Occasionally thorny relations interrupted trade contacts

which further widened gap between the two The lingering issues side- tracked the

chances of better trade relations Trade is often set aside by Pakistan and India because it

can only be revived when unresolved political disputes are resolved Tensions and

conflicts between them created obstacles in regional integration prosperity and peace

among the regional neighbouring countries This myopic policy has affected their

respective economies and prohibited trade to function as a peace tool Economic ties have

suffered serious blowbacks due to distinguished political structures besides hostile

political and security atmosphere In these unfortunate and unfavorable circumstances

both countries were unable to mend economic knots potentially despite having economic

potential The political ideology and security dynamics have mostly over shadowed

economic relations Therefore it is the political aspect of trade which remained the barrier

towards better economic relations However trade can be an effective technique in this

10

particular case to influence Pakistan and India and serve as confidence building measure

In the long run trade can facilitate peace between these traditional rivals of South Asia

14 Significance of the study

There is lack of coherent and consistent academic work in the area of Role of Trade in

Peace between Pakistan and India Although sporadic research work on the South Asia

trade does exist a systematic study analyzing the role of trade in promoting peace in

South Asia is specifically unavailable The role of trade in peace between the countries is

therefore holds unique niche in the national and academic arena Keeping Indialsquos ever

growing economy there is a general understanding that Pakistan cannot and should not

be ignored with the former Other important factor is the geographical contiguity of

Pakistan and India which can result in greater progress provided they utilize markets for

their benefits Moreover this study locates its argument in the broader theoretical debate

about the relationship of trade and peace Therefore seeks to contribute to the broader

literature on trade and peace

15 Objectives of study

This study examines the role of trade in peace with particular focus on Pakistan and

Indialsquos trade relations and its effectuated impact in terms of peace generally in the

region and particularly Pakistan and India with following objectives

1 To review and examine the history Pakistan ndashIndia trade pattern

2 To highlight potential complementarities and competitiveness in the economies of

Pakistan and India

3 To review literature based on liberal theory to establish a criteria or benchmarks

to be applied for examining the role of trade in promoting peace between Pakistan

and India

4 To focus on the impact of trade on Pakistan-India relations

16 Research Questions

1 What was the nature of trade relations between Pakistan and India historically

2 Is there any potential for enhanced trade between Pakistan and India

11

3 Is there any relationship between trade and peace in the context of Pakistan India

relations

17 Theoretical Framework

The research at hand compares theories on trade and peace to reach to the outcome that

trade is an active tool for peace It also analyzes whether Pakistan and India trade can

become a source of peace or conflict It is therefore imperative to thoroughly understand

different perspectives This section elaborate view points of three theoretical schools of

thought related to the role of trade

a) Trade‟s Positive Relation with Peace Liberal‟s Perspective

It is believed that trade has a gigantic power to control the negative emotions in

international relations According to Pasha (interview 2015) Pakistan and India being

neighbors share a common historical past and socio economic similarities They are

natural partners Development of trade between them is natural and vital to maintain

historical legacy stability as well as cultivation of progress and growth in South Asia

Liberal school of thought believes that the opening out of inter-state connection in

particular sections (trade and commerce) stimulates collaboration generally in other

sectors also (Barbieri 1996) Acknowledging conflict as an element of international

structure Liberals admit that conflict is present in world and plays important part in

international relations They likewise endorse the notion of tranquility through economic

interdependence and integration in the world According to Travis (1997) liberal theory

explains two significant notions of world system ie complex interdependence and

integration He defined complex interdependence as ―the intertwining of interests and

needs among two or more actors in a particular dimension so that these actors become

mutually sensitive reactive and vulnerable and need to cooperate to fulfill their goal

(p23) He described integration as ―the building by two or more actors of an

international regime or a supranational institution to regulate behavior in a given

dimension and the development of attitudinal responsiveness characterized by mutual

trust predictability and indulgence (p23) Complex Interdependence and Integration

12

have brought states very close to each other and made dependent equally It regulates the

attitudes of states towards prosperity and peace by building trust among them Liberals

propose that trade sustains harmony irrespective of the nature of relationship between

states and always operate as a deterrent to conflict (Barbieri 1996)

Trade may not completely boost economies of Pakistan and India but there are various

positive externalities which can grow from the opening of trade ―Liberals recognize that

gains from trade and the potential costs accompanying interdependence are not always

equal they argue that ties imply net positive benefits for both states (Barbieri 2005

p27) Thus illustrating the phenomenon of not only economic uplift rather a wide-

ranging affects on individualslsquo society and as a whole on the interactions between states

Trade among neighbors has more chances for complementariness to emerge because of

low costs of transportation as well as cultural adaptability and same taste for trading

goods3 In case of Pakistan and India there is abundance of products that can be

exchanged for benefits to both economies of region (Jain 1999 Malhotra

2009)Varshney and Kumar (1989) argue that growth of internal markets of Pakistan and

India is more likely as an output of trade relations It will support their industrial sector

and make it strengthened

b) Trade may increase conflict between Pakistan and India Marxists and Realists

Perspectives

Marxist-Leninists have given a different approach that trade may increase conflict rather

then peace among states (Barbieri 2005) The reason of conflict sprouts from this fact

that weak states have always been subjugated by powerful states It can explain the same

issue in the context of Pakistan and India as it may try to exploit Pakistan to maximize

benefits of trade for her interests The pessimistic point of view of opponents of trade and

peace theorists see interdependence as a tool for a strong state such as India to control

the inadequate resources of relatively weaker state like Pakistan and its markets for

goods Because of resemblance in products they can very easily spoil each others

3 ―Pair of goods for which consumption is interdependent (eg cars and petrol or cups and saucers) are

known as complements or complementary goods and change in the demand for one will have a

complementary effect upon the demand for the other (Bannock Baxteramp Davis 2004)

13

industries and markets of goods and services Evidences exist that Pakistan and India

trade relationship remained uneven with an added advantage to India in comparison to

Pakistan (Khan 2008) ―Pakistan had a huge trade deficit with India equaling US $

102554 million in 2006 -07 which in fact increased further to US $ 165718 million in

2007-08(Sustainable Development Policy Institute 2010 p 222) The statistic shows

that trade balance is still very lopsided in Indialsquos favor (Sustainable Development Policy

Institute 2010 p222)

There is a sense of fear in Pakistan about India thatlsquos why it has not reciprocated to

Indialsquos initiative to be granted the MFN status Moreover Pakistan justifies that from

Indian side there is discriminatory tariff barriers and disturbing sufficient inflow of

Pakistan goods into India markets (Dawn 2004) The dumping tactic by a strong state ie

India create reservations in weak state- Pakistan that strong market would adversely

affect its economy as a whole leading to extreme situation of unemployment (Dawn

2004)4 If economic and employment state of affairs get worsen further Pakistan fears

that the repercussions would be drastically deteriorating (Dawn 2004)

c) Trade is irrelevant to peace making Realist Perspective

The role of trade in the promotion of peace is examined with more severity in academic

circles It is argued that trade is irrelevant to the promotion of peace (Barbieri 2005)

This school of thought believe that trade is not strong a tool that can change the dynamics

of relationship between Pakistan and India History is evident about the role of military

option more successful and impressive in deciding issues between Pakistan and India

rather an effective tool to maintain peace between two arch rivals Trade can merely be a

transitory arrangement between Pakistan and India to work out short term national

interests It did result in smoothening of relations occasionally but whenever conflict

have blew up and security situation required trade associations were straightforwardly

ended or halted Thus trade cannot be considered as main variable for bringing in peace

4 ―Dumping means the sale of a commodity on a foreign market at a price below marginal cost An

exporting country may support the short run losses of this policy in order to eliminate competition and

thereby gain a monopoly in the foreign market (Bannock Baxter amp Davis 2004)

14

among two rivals Lack of trust and past history would never allow trade to be an

effective technique of peace permanently between Pakistan and India

Analyses of aforementioned perceptions concerning peace promotion through trade

between two belligerents -Pakistan and India concludes that trade is not an insignificant

tool It has changed relationships between fighting nations and is an important foreign

policy instrument The narrow stand point given by some school of thoughts fails to

understand the reality of trade in deciding the nature of dealings in present scenario This

study is attempted to justify trade as an effective mean to bring two states closer and

avoid expensive instruments effecting way of life of people in the region It is a liberal

school of thought that guides the theoretical framework of this study It fits well in the

context of Pakistan - India trade linkages It is an optimistic phenomenon that believes in

the economic development for two besides attaining peace and saving this region from

nuclear threats

Although the conceptual framework of this research study is based on liberal school of

thought the study takes valuable insights from the dissenting theoretical positions such as

Marxists and Realists A significant point raised by Mansfield (1994) that international

trade and power bears a great influence on the occurrence of war Moreover power and

war also impact trade A study calls for the integration of international economics with

international politics and international political economics and international studies of

war In addition Mansfield and Pollins (2003) also argued that the role of trade is

dependent on existing internal and external situation and accordingly leads to peace and

conflict Likewise Kant concept that war is too costly a job for the interdependent and

trading partners has been highlighted with the example of Nixonlsquos and Kissingerlsquos

policies during cold war era Trade was used as a tool for relaxation of tension

Furthermore opinions discussed by different theorists related to the relationship of peace

with trade and its diverse impacts on state to state contacts has been discussed by Barbieri

(2005)

15

18 Research Methodology

This study is conducted by using secondary and primary data Secondary data is scattered

and therefore gathered from different sources ie 1) Research work of experts in the

same field from Pakistan and India namely Ishrath Hussain Ijaz Nabi Shahid Javed

Burki Zareen Fatima Naqvi Rasul Bakhsh Rais Syed Akbar Zaidi Shaheen Rafi Khan

Nisha Tanej Anit Mukherjee ESridharan Mahendra Lama Siddhartha Mitra NC

Pahariya Pradeep SMehta Pia Malhotra etc Pakistani and Indian Newspapers The

Hindustan Times Dawn (Pak) The News The Nation Express Tribune The Hindu

Times of India etc Research work of armed forces personnel ie Mahmud Ali Durrani

(Rt army officer) and Jasjit Singh (Air Commodore)

Other significant briefing papers and studies produced by renowned associations and

think tanks including South Asian Studies produced by Ministry of Finance Govt of

Pakistan Strategic Studies Institute US Army War College South Asia Free Media

Association (SAFMA) Status Papers of Federation of Indian Chambers of Commerce

and Industry on Pakistan India economic relations Working Papers of PILDAT

Cooperative Monitoring Centre Occasional Paper US Department of Energy Pakistan

Economic Survey research work of Indian Council for Research on International

Economic Relations( ICRIER) Studies of Research and Economic Development Cell

Chamber of Commerce and Industry Karachi Studies by Government of Pakistan

Ministry of Commerce Research work of the Centre for Strategic and International

Studies (CSIS) Washington DC South Asia Watch on Trade Economics and

Environment (SAWTEE) World Bank development indicators and the studies supported

by Woodrow Wilson centre Washington DC are also included The purpose of study of

research data is to examine whether trade can strengthen relations and consequently

promote peace

Through secondary data historical content is explored in this study to show that trade

relations between Pakistan - India have never been smooth and consistent After drawing

this context an investigation is made into potential of trade through building a strong

case for mutually beneficial trade between the two

16

For final analysis of the study primary data was collected from diverse sections of

Pakistan and India such as Ishtiaq Ahmad Quaid-i-Azam Fellow at St Antonylsquos College

and Research Associate at Centre for International Studies University of Oxford

Shamshad Ahmad former foreign secretary played an important role during

extraordinary period (overt nuclearization kargil crisis and General Musharaflsquos coup) in

India and Pakistan peace process resumption Sohail Ahmad Director TMOAG

Company Whose business is related to the Oil and Gas products from Central Asia

Moonis Ahmar Dean Faculty of Arts University of Karachi with expertise in conflict

Resolution and Confidence-building measures with particular reference to South Asia

Qadar Baloch who presented a paper titled ―Pakistan granting MFN status to India

Merits and Demerits for Pakistan at conference held at Islamia College University of

Peshawar Mohammad Ilyas Ghauri Chief Executive Officer Punjab Board of

Investment and Trade Government of the Punjab Shoaib Ahmed Khan Ghulam

Faruque Group Resident Director Cherat Cement co Ltd Aziz Ahmad Khan Amb

(Rtd) Hon Vice President Jinnah Institute served as Pakistanlsquos high commissioner to

India from 2003 to 2006 At International conference ―Narratives of National Security

attended at Institute of Strategic Studies Islamabad Mahendra P Lama Professor of

South Asian Economies School of International Studies JNU amp Founding Vice

Chancellor Central University of Sikkim amp Former Member National Security Advisory

Board Government of India worked and published articles in the area of cooperation and

integration in South Asia Anatol Lieven Orwell Prize winning journalist and policy

analyst worked with The Times London covering Pakistan and wrote from India as

freelancer Partha S Ghosh Editor India Quarterly Indian Council of World Affairs

ICSSR National Fellow Institute for Defence Studies and Analyses New Delhi

extensively focused on South Asia Conflict and Cooperation Bilal Khan Pasha Deputy

Secretary Ministry of Commerce Khalid Mehmood Raja Chairman Maknom Group of

Companies with areas of business activities in Central Asia and South Asia Adnan

Sarwar Khan (2015) Dean Faculty of Social Sciences University of Peshawar Mehmood

Shah Paper presented titled ―A Trade Creation and Gravity Model Approach at

conference attended at Islamia College University of Peshawar Nitesh Ravi Srivastav

founder member of Aaghaz-e- Dosti (Indo Pakistan friendship initiative) executive