Context

The recent partial opening of land borders between India and Pakistan signals a thaw in the troubled relations between the two South Asian neighbours.

How normalising relations with Pakistan help India?

• Reduce India’s vulnerability to China: From the Indian standpoint, as a Centre for Policy Research report argues, a continuing freeze in relations with Pakistan will “enhance India’s external vulnerability to other actors, in particular, China”.
• Impact on bilateral trade: After the Pulwama terror attack, bilateral trade between the two countries plummeted from around $2 billion in 2017-18 to a paltry $280 million in 2020-21 (April to February).

Steps to normalise relations

1] Pakistan needs to revoke suspension of trade with India

• Pakistan needs to revoke the unilateral suspension of trade with India undertaken in August 2019 due to India’s decision to dilute Article 370.
• Suspension against GATT and SAFTA: The trade suspension by Pakistan is inconsistent with the General Agreement on Tariffs and Trade (GATT) and the South Asian Free Trade Area (SAFTA) agreement — the two international law instruments that regulate trade between India and Pakistan.
• GATT, as part of the World Trade Organisation (WTO), allows countries to adopt trade-restraining measures on certain grounds such as public health and conservation of exhaustible natural resources (Article XX) and for national security purposes (Article XXI).
• Neither the WTO nor SAFTA permits a country to suspend trade with another member country on grounds that it disapproves a domestic law enacted by the latter.

2] Pakistan needs to confer MFN status on India

• Pakistan needs to reverse its practice of not according the most favoured nation (MFN) status to India.
• MFN is a principle of non-discrimination in trade given in Article I of GATT.
• Breach of GATT: Pakistan is in breach of Article I of GATT towards India since the formation of the WTO in 1995.

3] India should restore Pakistan’s MFN status

• India should restore Pakistan’s MFN status that it revoked after the Pulwama terror attack by hiking the tariff rates on all Pakistani imports to an unfeasible rate of 200 per cent.
• Such a move by India will put the ball in Pakistan’s court.
• If Pakistan fails to reciprocate, India should exert pressure on Islamabad by mounting a legal challenge.

4] Explore the special trading arrangement under GATT

• Article XXIV.11 allows India and Pakistan to enter into any special trading arrangement without fully complying with GATT conditions that typically apply to countries signing free trade agreements.
• This merciful rule that only India and Pakistan enjoy, out of 160 odd WTO members, was incorporated in GATT to enable the two sides to overcome the economic hardships caused by Partition.

Consider the question “How normalising trade relations will India and Pakistan? Suggest the steps both the countries need to take in this regard.” 

Conclusion

India should appreciate that the rise of China, not Pakistan, poses the graver threat. Strengthening bilateral trade can be an important lever towards establishing a working relationship with Pakistan.

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