The importance of India-Pakistan cross-trade – The diplomat

In 2019, the New Delhi government suspended cross-border trade – the barter exchange between the Indian and Pakistani sides of Kashmir. Therefore, while India and Pakistan continue to trade across their officially recognized border, trade across the disputed part of the border, the Line of Control (LoC), is currently not permitted.

This topic is one of the areas of expertise of Afaq Hussain, director and founding member of the New Delhi-based political research institute, the Bureau of Research on Industry and Economic Fundamentals (BRIEF). Hussain works in the field of international relations and commercial connectivity; his research interests include conflict, cross-border trade and development studies. Hussain spoke to Krzysztof Iwanek of The Diplomat about the significance of this exchange between LoCs. This interview has been slightly edited for clarity.

In you 2017 commentary for The Hinduyou have called the cross-LoC trade β€œone of the most successful CBMSs [Confidence Building Measures] between India and Pakistan “. To an outside observer, this might be a surprising assessment. How important was this trade to Jammu and Kashmir, as well as New Delhi’s relations with Islamabad?

Cross-Line of Control (LoC) trade through Jammu and Kashmir was a groundbreaking trust-building (CBM) measure between India and Pakistan, which helped create a constituency of peace and connect the divided families of Jammu and Kashmir through economic commitment. Launched in 2008, this barter trade has reached a cumulative value of more than $ 1.2 billion, a significant amount considering the nature of the border economies in Jammu and Kashmir. The involvement of multiple stakeholders such as traders, workers, transporters, etc., in this trade has created job opportunities for the people living in these areas. This trade generated approximately 170,000 days of labor, or $ 12 million, for workers and approximately $ 88 million in goods. So all in all, the trade between LoCs has helped establish a strong economic dependence between the otherwise politically turbulent neighbors, India and Pakistan.

Aside from the economic and financial benefits for stakeholders in this trading ecosystem, CBM has emerged as the standard bearer of peace between India and Pakistan. The initiation of this trade has helped to bridge the trust gap between the governments of India and Pakistan, as well as between the New Delhi government and the people of Jammu and Kashmir. This trade has helped to increase interpersonal contact and connectivity across Jammu and Kashmir, particularly for broken families, and has led to building trust.

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What is noteworthy is that when Indo-Pakistani relations reached their lowest level during the 11/26 attacks on Mumbai in 2008 and the Uri attack in 2016, trade across the line of control continued. It led to the creation of a constituency of peacemakers and brought together stakeholders from both sides of the line of control as well as New Delhi and Islamabad. It changed the mindset of the people in Jammu and Kashmir and the narrative of “blurred borders” could be observed.

Do you think cross-LOC trade should and can be resumed?

The suspension of cross-LoC trade has had a profound impact on border economies, both in terms of social and economic impact. We should also note that this impact has only worsened due to the COVID-19 pandemic. The resumption of trade between LoCs will help these stakeholders to boost their livelihoods. The governments of India and Pakistan should revive this trade and ensure the continuity of the dividends that this trade had secured.

Recently, the government of Pakistan has shown an inclination to resume trade, which must be fruitful. The resumption of cross-LoC trade should also be part of the conversations between India and Pakistan. Governments should also reorganize the framework for this trade to improve security aspects and induce trust and transparency for this trade to flourish.

Connections between LoCs can be used as an element to improve India-Pakistan relations. The economic priorities for the implementation of peace cannot be underestimated.

Would it be possible to redirect the trade, instead of re-launching it through the LoC, to ensure that it is better monitored? Can it take place across the official India-Pakistan border? Or would logistics costs and competition from other merchants make such redirection impossible?

Cross-LoC trade was initiated as a confidence-building measure focused on Jammu and Kashmir between India and Pakistan. Cross-LoC trade was a barter trade focused on building economic connectivity and improving people-to-people contacts across the two agreed routes in Jammu and Kashmir. It developed as an additional layer of economic engagement between the two countries beyond regular international trade.

International trade routes already exist between India and Pakistan by land and sea. The land route is active through the Punjab and international trade takes place through this route. It may not be feasible to shift trade routes between LoCs from Jammu and Kashmir as it will dilute the foundations of this initiative.

In the reports of your expert group, SHORT, such as those of 2017 and the 2021, also mention concerns about this trade, including the fact that it could lead to a growth in illicit trade. The fact that the trade between LoCs could be misused to smuggle weapons or narcotics (thus presumably also by strengthening terrorist groups) has been cited as an official reason by the Indian government to suspend this trade in 2021. In your opinion, how justified are these concerns?

Illicit trade is a serious and growing threat to our societies. It is not a national phenomenon, but an international one. Around the world, there are some irregularities in the trading ecosystem, which abuses the trading system and the legal structures around it. However, the effort of the government and regulatory agencies has focused on strengthening oversight to curb such misuse.

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For a few years prior to the suspension of trade between LoCs, he became famously known for facilitating illicit trade and other irregularities. We must remember that the negative narratives relating to this trade also stemmed from various operational and security concerns. Some of these concerns were related to infrastructural and political deficiencies. Given the bartering nature of this trade, trade between LoCs did not follow normal international business practices and financial accounting protocols. This resulted in the possibility of irregularities in the trading system, which was also exploited. It can also be noted that there have been cases of narcotics and smuggling to other trade borders as well (e.g. ICP Attari between India and Pakistan). Regulatory and security agencies at these borders would strengthen the ecosystem to stop such cases in the future and not suspend trade as has been done in the case of trade between LoCs.

This trade would not have survived political disruption for a decade if trade between LoCs had not created its own “emotional capital” through interpersonal connections and economic dividends on the border economies of Jammu and Kashmir. Trade volumes may be minimal across the entire economic spectrum of India and Pakistan, but they need to be looked at through the lens of conflict and benefits for the people living in these border areas. This is when the results of this trade are amplified and the positive impact is appreciated.

When and when the governments of India and Pakistan decide to restart this trade, they must keep in mind the security and policy concerns that have been raised over the past decade. The revised protocols for this trade should address any existing loopholes for the misuse of this trade. It will be necessary to implement the modernization of infrastructures, both physical and digital, to ensure transparency, also observing the political gaps in the areas of identification of products through HS codes, implementation of digital platforms, clarity of tax regulations and the “rule of origin “, etc.