TON Research Section

Bilateral trade relations between India and Pakistan has witnessed uneven history because of geopolitical tensions and downgraded diplomatic ties. After the partition of subcontinent, India and Pakistan trade relation saw a rapid downfall. In-between 1948 to 1960, about 11 India-Pakistan trade agreements were concluded. The bilateral trade declined to all time low in 1965-1966. After the war of 1965, there was a trade embargo between both countries that continued till 1974 however, in November 1974 trade protocol “Shimla Agreement” was signed to lift the trade ban. In 1981, Pakistan joined Delhi international trade fair after which there was progress in exchange of trade delegation between both countries. In 1986, both the countries became signatories to the final document of South Asian Association for Regional Cooperation (SAARC) whose aim is to promote economic growth within the region and is committed to promote the welfare of the people of South Asia. Trade between both countries boosted from 1981 to 1991. In 1995, South Asian Preferential Trading Arrangement (SAPTA) concluded which introduced integrative trading system in the region. In 1996, India gave most favoured National (MFN) status to Pakistan.

Restrictions or suspension of trade has always been the first action taken, whenever tensions have been escalated between both the countries. After India revoke special status of disputed territory of Jammu & Kashmir on August 5^th, 2019 and split the state in two union territories which faced major resistance in Muslim majority state of Jammu & Kashmir, the move escalated tensions between India and Pakistan. In retaliation to protest against the changes in Jammu and Kashmir, Pakistan unilaterally suspended trade ties with India on August 9, 2019. The trade suspension cause a monthly loss of USD $4.2 million and has affected 50,000 people to the bordering city of Amritsar, India. Imports from India to Pakistan fell from USD $865 million to USD $286.6 million in the first half of 2018-19. In February 2019, after the Pulwama attack India’s Prime Minister withdrew the most favoured Nation status (MFN) that was awarded to Pakistan in 1996 and imposed 200 percent custom duties on Pakistani goods.

On 31^st March, 2021, Pakistan's Economic Coordination Committee (ECC) gave a decision to restart the limited trade with its rival India. Pakistan Finance Minister Hammad Azhar announced to reopen trade with India starting from end-June this year. However, Pakistan's government reversed the decision announced by ECC because of the severe criticism from all around the country. ECC’s green light to bring in imports, could have ended the 20 months long trade suspensions but on the other side people of Jammu & Kashmir, which Pakistan says a “Jugular vein”, would have been left alone in their fight of self-determination. Pakistan's Federal cabinet deferred the ECC decision to allow the import of sugar, cotton and cotton yarn from India through land and sea routes until India restores Article 370 of its Constitution, which guarantees a semi-autonomous status for Indian illegally Occupied Jammu & Kashmir.

After the ECC’s decision Pakistan's Foreign Minister Shah Mehmood Qureshi said, “A perception was emerging that relations with India have moved towards normalisation and trade has been opened,” he said, “There was an exchange of thoughts on this and there was a unanimous opinion on this and it was the prime minister’s (opinion) as well that as long as India does not review the unilateral steps it took on August 5, 2019, normalising relations with India will not be possible.”

Worsening of diplomatic relations between both the countries has not been new. From the past few years the relations between both the countries are deteriorating and the trade between both the countries has been completely suspended. However, until 2019 Pakistan has been among the top buyers of cotton from India. Recently, according to media reports, the United Arab Emirates (UAE) brokered back-channel talks between India and Pakistan. Pakistani Foreign Minister Shah Mehmood Qureshi and Indian Foreign Minister Subrahmanyam Jaishankar visited the Gulf state at the same time. However, Pakistan’s Foreign Minister denied reports about the backdoor diplomacy with rival India.

He said, "I want to make it clear that there is no official back-channel diplomacy with India," and said that Pakistan is ready for talks if India reverses its August 2019 decision of scrapping the special status of the IIOJK. Nevertheless, it could not be denied that the coinciding visits of Pakistani and Indian Foreign minister to UAE has sparked speculations about a secret meeting between both the countries but both sides rebutted any scheduled interaction.

Undoubtedly, improvement in relations between both the countries are not only in the mutual interest of both the countries but also for greater peace in the region. However, side by side the issue of Kashmir must be resolved as trade should not be carried out on the cost of Kashmir. Pakistan’s stance on Jammu & Kashmir should remain categorical and Kashmiri’s should not be denied to their right of self-determination no matter what. If both the countries want peace, Kashmir dispute needs to be resolved first. Similarly, normal bilateral trade relations will also be established after the permanent solution of Kashmir dispute. Despite Pakistan's important strategic position and India’s booming market, both the countries have fractured trade relations and these relations cannot be improved unless and until Kashmir’s longstanding issue is resolved.