It's possible that after more than half a century of animosity, India and Pakistan could be on the path to lasting friendship. That path is strewn with obstacles, many of them of Kashmiri origin, but just as the cricket matches are uniting the people, so free trade, a concept also espoused at January's summit, could prove a further catalyst to lasting peace and prosperity.
Both India and Pakistan have long histories of economic introspection and protectionism. Over the past decade, India has begun to throw off the shackles of its socialist economic model, abandoning its discredited drive for self-sufficiency and embracing globalization, privatization and trade liberalization. The resulting economic boom has provided a burgeoning middle class with unprecedented prosperity. Pakistan's government would do well to learn from its neighbor's success.
India-Pakistan trade relations have been compounded both by the tendency of each nation to protectionism. Protectionism, for a long time the economic mantra, is cemented and further justified by enmity. Trade between the two neighbors is restricted to a limited number of items.
But this situation has been economically destructive and has completely failed. Indian goods supposedly banned by Pakistan are on sale openly in every corner of the country. Smugglers provide Pakistanis with everything, from items such as tea, betel nut, alcohol and cement, to the staples of industrial and commercial activity like iron ore, chemicals, machinery and agricultural products. Conversely, Pakistani food products and synthetic fibers can be bought in India.
Inefficient local producers, who are not subjected to the rigors of the competitive market, gain from the embargoes, as do smugglers and black marketeers. Corrupt law-enforcers can also access a stream of revenue from bribery and racketeering. The interests of a minority are served under the banner of localism, patriotism and nationalism, while the majority suffers.
In a recent article on India-Pakistan trade, Shahid Kardar, a leading Pakistani economist and former finance minister of Punjab province, put it this way: "Should we continue to protect inefficient industry at the consumer's cost? Is there any justification for continuing to punish him if industry in Pakistan somehow just does not (or refuses to) grow strong enough to survive competitive pressures?"
In trade, producers and consumers behave like the citizens of the same country. To them, the whole world is a market without borders. Producers will sell where they get the maximum price for goods; consumers will buy from where they find the lowest price. Tariffs and embargoes amount to government interference in the free flow of goods -- to be circumvented where feasible. Illegal trade between India and Pakistan is estimated to be worth $2 billion, much of which is routed through countries like Dubai and Afghanistan.
What Kardar, the son of the famous Pakistani cricket captain Abdul Hafeez Kardar and nephew of equally famous wicket-keeper and batsman Imtiaz Ahmed, is talking about here is good cricket -- a game played on a level playing field with agreed rules; a game in which the only way to improve is to compete.
The same goes for trade. Competing with rivals brings quality, low prices and technological advancement. Free trade with India won't hurt anybody in Pakistan. It will benefit Pakistan's consumers and sharpen the skills of Pakistani entrepreneurs. And it will mitigate old enmities and help along better relations between the two nations.
[This article was originally published in Wall Street Journal Asia http://online.wsj.com/ on April 15, 2004.]