india pakistan trade: changing trends & emerging scenarios

India Pakistan TradeChanging Trends and Emerging Scenarios

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28th March 2013

• Overview of India Pakistan Trade

• Sector-specific Non-Tariff Barriers (Perspective from Pakistani

Exporters)

• Informal Trade between India and Pakistan

• Investment Cooperation between India and Pakistan

• Way Forward

• Open Discussion

Outline

Research

Sector-specific non-tariff barriers and role of subsidies

FDI Prospects for India and Pakistan

Informal trade: Gainers Vs. Losers

Advocacy

Participatory approach to

address non-tariff barriers

Participatory approaches to

South Asian regional integration

Cost of non-cooperation to

South Asian Consumers

Capacity Building

Trade diplomacy at Ministry of

Commerce and Foreign Affairs

Liberalizing Visa Policy with in-built

Safeguards at Ministry of Interior

Automatic Route Investment led by

Chambers and Board of

Investment

Steps in Enhancing India-Pakistan Business Engagement

Current State of Non-Tariff Barriers

Customs Valuation

Rejection of transaction value

Re-classification

Arbitrariness, delays, non-transparency

BIS Standards

Currently, BIS has 18,592 standards for various product categories, only 84% are equivalent to International Standards

No data available on how many are actually enforced

Usually, ISO standards are sufficient but in case of imports from Pakistan, discretionary powers are used

General Non-tariff Barriers

Import Licensing

Tightly regulated

Easily available for export-oriented industries (example of leather)

Not easily available for value-added products

Financial Measures

Indian banks do not honor L/Cs opened by Pakistani banks beyond $10,000. Thus, shipments released in parts

Indian banks usually request for an extension in maturity date of L/C up to 60 days

Absence of direct courier service

General Non-tariff Barriers

Sector-specific NTBs

Textile & Clothing Sector

• Non-value added products imported• Importers need to submit shipment samples in public sector

labs to ensure that dyes and colors used are not hazardous• Automatically generated invoices by manufacturers are

unacceptable, have to be reformatted.• Specifications and standards certified by company labs are

unacceptable• Certificates of international standards and other international

certifications such as SJS are unacceptable• Sampling takes up to 3 months

Textile & Clothing Sector

• Pre-shipment inspection used to determine use of hazardous dyes

• PSI certificate is required from a textile testing lab accredited by the National Accreditation Agency of Pakistan. There is no such facility in Pakistan

• Thus all Pakistani samples are tested and certificates for these are granted by Indian agencies

• Over 25% of samples are drawn for testing, and the report is only valid for 6 months

• Hefty testing fees complex procedures impede imports of high quality apparel & those imported in small quantities

Fruits & Vegetable Sectors

• Agricultural sector heavily subsidized in India, making imported goods uncompetitive

• Total subsidies in 2010 $28.9bn (2.2% of GDP)• Minimum support prices, credit and insurance schemes,

fertilizers, irrigation water, electricity, diesel at subsidized rates

• All agricultural products require import license, SPS certificate and import permission from Plant Quarantine Authorities

• Challenges in completing SPS requirements: SPS & Bill of Lading required by issuing bank to initiate L/C

Fruits & Vegetable Sectors

• All food products are tested by Port Health Authority. Officials absent at times and samples sent to other labs

• Consignments with pending reports are sent to warehouses, not equipped to store perishable items

• Results of lab authorities cannot be challenged

• Certificates from Pakistani labs not accepted, those from other international labs are accepted

Leather Sector

• Demand in India due to footwear industry picking up since last 5 years

• Thus, NTBs in this sector are minimal• Import licenses are easily available since leather is required by

Indian export industries selling value added products• Leather footwear is on Indian negative list• Other finished goods of leather are subject to extensive

sampling procedures• Exporters complained about packaging being destroyed while

inspection and sampling procedures

Recent Developments

• BIS – PSQCA• Relaxed Visa Regime: executive order issues but not

implemented• Wagah-Attari: Integrated check post available, but has already

reached full capacity

Need for:• Trucking Agreement• More land routes need to be opened• Containerization via railways• Direct courier services

Trade – Despite of NTBs

• This was Pakistani exporter’s perspective• Indian claim: these are same for all exporting to

India• Two replies from Pakistan

– Pakistan should adapt– While rules same for all – they are applied more

strictly on Pakistan • What about the consumers?

– Trade with India continues – case of informal trade

Informal Trade

• Land routes• Product categories• Quantification

Methodology for Identification of Sectors

• Some available literature e.g. Shaheen Rafi Khan et al. (2005)

• Expanding inquiry in line with products mentioned on negative list as of Dec-2012

• Creating inventory of products identified by informal traders in various hubs of informal exchange

• Validating the above mentioned inventory with wholesalers, retailers and custom clearing agents

Selected Identified during Survey

Fruits and vegetables Textile Automobile

parts Jewelry

Cosmetics Medicine Tobacco Herbal products

Spices and Herbs

Paper and paper

productsCrockery

Respondents in Informal Trade Survey

• Importers/Exporters (19)

• Retail whole sellers (67)

• Transporters (10)

• Custom clearing agents (2)

• Government Officials (5)

• Kheepas, Frequent family travelers (9)

Markets & Cities in Survey

Sector Primary Market City Primary Market

City Primary Market

City

Textile Bolten Market Karachi Shaalam Market

Lahore - -

Tobacco Nanakwara

Kharadar

Karachi Paan Mandi (Anarkali)

Lahore - -

Livestock Yazman, Rohi BahawalpurMultan

- - - -

Autoparts Ranchor lineAl-Noor market

Karachi Badami Bagh

Lahore Perwadhi Rawalpindi

Pharmaceutical Peshawar Shahalam Market

Lahore - -

Cosmetics Bolten Market Karachi Anarkali lahore - -

Jewelry Bolten Market Karachi Anarkali Lahore - -

Spices Jodiah Bazar Karachi Shaalam market

Lahore - -

Informal Trade Routes

• Major routes – India Dubai Iran (Bander Abbas) Afghanistan (Kandhar) Chaman

Karachi

– India Dubai Iran (Bander Abbas) Afghanistan (Kabul) Torkhum/Bara Lahore and Rawalpindi

– India Iran (Bander Abbas) Torkham/Bara Lahore and Rawalpindi

– India Karachi Afghanistan Peshawar (Afghan Transit Trade)

• Minor Routes– Kashmir-Chakoti border– Regions adjoining Bahawalpur

• Work in Progress– Qusai Fromal trade (Singapore and Dubai)

Fruits and Vegetables

• At the time of survey team’s visit (February 2013) Kinoos and plums where being exchanged through Kashmir-Chakoti border

• The volume of informal exchange was around 20-30 trucks per week and value of exchange amounted to PKR 540 million

• There is anecdotal evidence for other minor crops

Textile and Clothing Sector

• Sarees, Bridal dresses and other fancy suiting is being exchanged through:

• Route:– Gordaspur Karachi channel– Kheepas & frequent family travelers– via Dubai (Qausi formal)

• The inward value of exchange is valued at PKR 370 billion

Auto Parts and Light Engineering

• The spare parts being exchanged include gears, differentials, windscreens, pumps, and nozzles

• The Tyres being exchanged included Indian brands such as Apollo, JK, MRF

• Route:– Dubai-Iran-Afghanistan-Chamman/Torkham– Afghan Transit Trade– Iran-Balochistan-Karachi

• Market share in local market: – Spare parts: 30% – Tyre: 70% (include majority refurbished tyre)

• Monetary worth: – PKR 26.8 billion

Jewelry and Related Products

• The informal exchange includes high grade artificial jewelry, bridal sets, bangles and lockets

• The mode of exchange is through Keepas, family travellers, Afghan transit and Quasi formal trade via Dubai


Cosmetic Products

• Informally exchanged items include soaps, beauty creams, makeup kits.

• The well know brands available include Godrej, Garnier and Liril products made in India

• Routes– India Afghanistan(Kandhar) Chamman Karachi– India Afghanistan (Kabul) Peshawar

(Bara/Thaurkhum) Lahore and Rawalpindi – Kheepas, Family visits


Medicinal Products

• Informally exchanged medicines include Aspirin, Amoxilin, Ampicillin, Cemetidine, Laxotanil, Co-trimaxazole, famotidine, Ciprofloxine, Rentidin

• Route:– India Afghanistan Peshawar– India Afghanistan Peshawar Lahore– India to Afghanistan (Formal)

• Monetary worth:– PKR 5.9 billion

Tobacco Items

• Informally exchanged items include Betel leaf (available in Pan mandi, Lahore)and ghutka (available in Nanakwara and Kharader, Karachi)

• Route – Betel leaf coming through indirect channel

• Kerala Mumbai Dubai Lahore

– Kheepas and informal sea routes• Monetary worth:

– PKR 4.4 billion

Herbal Products

• Informally exchanged items include creams and hair oils

• Route: – Kepaas and family travellers– Via Dubai (Qusai formal)

• Monetary worth: – PKR 110.4 million

Spices & Herbs

• Informally exchanged items include Black tea, Cardamom, Cinnamon, Jaiphal, Javitri

• Route:– India Afghanistan(Kandhar) Chamman Karachi– India Afghanistan (Kabul) Peshawar

(Bara/Thaurkhum) Lahore and Rawalpindi – Sri Lanka’s tea also available through Kashmir route

• Monetary worth:– PKR 960 million

Estimated Informal Trade

SectorsPKR

MillionFruit and Vegetables 540Pharmaceutical 5940Textile 370840Spices (inculdes tea and spices) 960Tobacco items 4440Automobile 26840Cosmetic items 4800Herbal medicine 110Jewelry 8796Paper and paper products ?Crocery ?Total (Rs million) 423266

Total US $million 4232Total US $billion 4.2

FDI in India: Prospects for Pakistan

• Pakistan to UAE: USD 670 million (FY 2012)– Annual Increase stands around 33 percent– Includes investment through routed channel

• Pakistan to Afghanistan: <USD 700 million (FY 2011-12)

• Pakistan to Malaysia: <USD 600 million

• Pakistan to Bangladesh: <USD 30 million (since 2008-09)

• Pakistan to Sri Lanka : >USD 0.15 million (July-Jan FY13)

Pakistan’s Outward Investment Flows

Sector Amount (Million US $) Percentage

Textile 1,209 48

Cement 327 13

Hotel and Restaurant Services

276 11

Auto Sector 202 8

Sugar & Wheat Products 151 6

Banking and Insurance 102 4

Others 253 10

Total 2,520 100

Potential Pakistani Investment in India

Trade-Investment Nexus

• Investment creating trade

– What Pakistan learnt from Investment in Bangladesh?

• Trade creating investment

– What Pakistan learnt from Trade with Sri Lanka?

Top 5 FDI Recipient Cities FY 2011-12

Mumbai New Delhi Bangalore Chennai Ahmadabad

9,553

7,983

1,533 1,422 1,001

US $ Million

Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India

FDI Flows to Neighboring Regions of Pakistan FY 2011-12

Chandigarh Rajasthan0

20

40

60

80

100

120

140 130

33

US $ Million

Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India

Sector-specific Observations

• Leather Sector• Hand-made products require specific labour• Pakistan can introduce technology• Capacity building of current leather units in India • Joint venture in tannery sub-sector


• Engineering (and Auto Sector)• Pakistan has import demand of raw material from India

• Can increase margins if subsidiaries in India are initiated

• Pakistani producers if in India should be able to access local subsidies

• Ease the screening process through mutual recognition of standards

• Due to the large sunk costs involved Pakistani producers want to access local finance (particularly for working capital)

• Anecdotal evidence of Mittal episode• Civil interrogation of several types (excessive red tape)


• Surgical and Sports Goods• Need for a strengthening of competition policies on both sides

for preventing imperfectly competitive practices• In international market Pakistan selling soccer balls for USD 2.50 versus

India at USD 2.48

• Pakistan also supplies to China however did not physically invest due to Intellectually Property specific local technology used in the production process


• Food Processing Sector• Containerization through railways

• Demand continuously outpaced supply• Integrated check post reaching full capacity

• For import of raw material need for enhanced presence of plant departments on both sides

• City specific restrictions will curtail supply chain


• Social Services Sectors• Education

• Visa policy for faculty and students• How many Pakistani faculty members in South Asia University, New

Delhi?• Difficulty for Pakistani students to open bank accounts

• Registration with national and local education authorities• Opening up of cellular services, online conferencing and e-

commerce• Direct courier services missing

• Health• Expedient visas needed for patients• Need permission for special private flights • Secure direct video conferencing protocols

Framing of Recommendations

Need to open investment through

automatic route

Privilege visa regime for investors

Investment-specific Dispute resolution

mechanism

Labour mobility and work visas

Integrating transport and warehousing infrastructure

Access to finance

Legal cover in the event of political

upheaval/sovereign Guarantee

Double taxation issue Currency Swap

How have both countries performed on Bilateral Investment Treaties?

Layers of Policy Dialogue

• Board/Ministry of Investment automatic route of investment

• Ministry of Industries Advanced recognition of standards/inputs and production processes

• Ministry of Interior synchronizing visa policy with flow of merchandise

• Ministry of Foreign Office ensure compliance of above mentioned

Way Forward

Trade in Services

– Potential• Over half of both economies are led by services sector• Youth bulge will require new services in education, IT and

health sectors• Growth domestic commerce will fuel demand for transport,

communication and finance

– Issues• Double Taxation Issue• Visa Regime

Trade in Energy

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– Power Sector• Transmission lines through Wagah-Attari border• Surplus pockets in Indian Punjab (and downwards)• Pending negotiations on tariff

– Gas Sector• Longer term vision required• Gas pipelines will require security and order in the region• Pending negotiations on tariff

Commitment at SAARC-level

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• Joint techno-economic evaluation of opportunities and determination of pre-requisites

• Establish financially sustainable energy entities, promote competition and ensure cost-reflective pricing of energy goods and services

• Develop project-specific legal/institutional arrangements

• Seek advice and support from multilateral institutions particularly in drawing experiences from Southern Africa Power Pool, Nordel/Nord Pool and electricity trade in Europe

SAARC Energy Supply Chain

Petroleum products

Trade in power

Infrastructure development

Decentralized

electricity

solutions

Efficient energy

markets

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