He recent warming in relationships between India and Pakistan has renewed hope for bilateral relations, particularly when former Pakistani Prime Minister Shehbaz Sharif expressed his willingness to resume bilateral dialogue with India. Pakistan also allowed its men’s cricket team to travel to India for the Cricket World Cup scheduled for later this year. Following a drop in ties since the 2019 Pulwama/Balakot crisis, these developments present a welcome change for those living along the disputed India-Pakistan border.
While international trade and commerce along the Line of Control increased in the decade leading up to 2019, a complete suspension of trade since then has severely impacted stakeholders, particularly border communities. With a cross-border economic potential evaluated in 37 billion dollarsIndia and Pakistan should take advantage of recent rapprochements to restore economic ties, including international trade and trade along the Line of Control (LoC).
Cross-border economic links (2003-2019)
Over decades, bilateral economic and political engagements between India and Pakistan resulted in a three-tier trade agreement that includes direct international trade, trade across the Line of Control (LoC) through Jammu and Kashmir , and indirect trade through third countries such as the United Arab Emirates. Emirates. As a result, the business communities in India and Pakistan have created a network for these economic commitments while navigating political tensions and legal changes.
The periods of political rapprochement that produced the Lahore Declaration in 1999 and the Agra Summit in 2001 were attempts to revive peace and normalize bilateral relations and economic ties. Cross-border people-to-people ties gained momentum following the 2003 ceasefire agreement between India and Pakistan, which introduced 72 Confidence-building measures (CBM) and allowed greater trade and travel across the Line of Control. Two bus routes via Srinagar-Muzaffarabad and Poonch-Rawalakote, inaugurated on April 7, 2005 and June 20, 2006, respectively, further facilitated movement across the Line of Control. The bus service allowed divided families on both sides of the Line of Control to reunite and reconnect after being separated for decades.
The decline in trade relations between India and Pakistan, further exacerbated by the COVID-19 outbreak, added to the woes of the stakeholders involved, especially the border communities.
The composite dialogue between India and Pakistan from 2004 to 2008, which focused on normalization of relations, was significant in initiating confidence-building measures such as travel and trade across lines of control. During a meeting in May 2008, the foreign ministers of both countries agreed to increase the frequency of bus service on both routes to increase people-to-people contact on the Line of Control and further enable trade and truck services. inside Kashmir. The India-Pakistan Joint Working Group, which met in July 2008, showed political will towards cooperation on Kashmir-focused initiatives, streamlining the issuance of travel permits, increasing the frequency of buses on the Srinagar-Muzaffarabad route and determining the list of marketable items for truck service.
Subsequently, in September 2008, India and Pakistan finalized agreements on procedures for movement of trucks, permits of drivers, code of conduct for drivers, safety aspects and timings for truck services. Finally, on October 21, 2008, inter-LoC trade was started via Srinagar-Muzaffarabad and Poonch-Rawalkote routes. The trade began on the basis of standard operating procedures (SOPs) agreed between India and Pakistan, which laid down the modalities of trade. Allowed duty-free passage of 21 items from each side without any financial transaction, as this trade was “barter” in nature. Trading would take place four days a week with limits on the number of truckloads of goods that could be exchanged daily and returned empty on the same day.
Impact on cross-border communities
The Pulwama attack in February 2019 severely strained economic ties. After the attack, India revoked Pakistan’s Most Favored Nation (MFN) status and subsequently imposed a high customs duty of 200 percent on all Pakistani products. In response to the Jammu and Kashmir Reorganization Bill, Pakistan bilateral trade suspended with India in August 2019, effectively ending economic engagement between the two nations. The decline in trade relations between India and Pakistan, further exacerbated by the COVID-19 outbreak, added to the woes of the stakeholders involved, especially the border communities.
In retrospect, trade between credit lines is still considered one of the most important confidence-building measures adopted by the two countries in recent history. The term LoC is also known as Trade Line and even a Line of Cooperation by local communities in the border areas, as it served as a source of livelihood for families along the Line of Control. During the decade of its operation from 2008 to 2019, inter-LoC trade showed increasing trends. However, the new approach was not without operational challenges. Without communication channels, a banking system and regulated processes for trading, traders were forced to operate primarily on the basis of “trust”, without communication mechanisms for dispute resolution. These challenges limited the economic potential of the trade. However, trade between LoC expanded from US$300,000 in 2008-09 to more than US$1.2 billion of accumulated trade in ten years to 2019.
In the years leading up to 2019, People living along the LoC have expressed enthusiasm for this trade. since it offered economic opportunities in border areas. Inter-LoC trade emerged as a major source of employment, generating more than 170,000 work days between 2008 and 2019. benefiting local families in these border areas. This business ecosystem not only provided livelihood opportunities to the business community but also extended to various stakeholders including transportation sector, restaurants, workshops, etc.
Inter-LoC trade also helped improve connectivity of the otherwise isolated border areas of Poonch and Baramulla districts. based on investigation conducted by the Bureau of Research on Industrial and Economic Fundamentals (BRIEF), over the last ten years, the increase in cross-border trade generated freight revenues of around USD 8.5 million for transporters in Jammu and Kashmir, due to 111,113 trucks exchanged and around USD $12 million paid to workers. The trade value and volumes may not be significant to the overall trade ecosystem of India, but the value of this CBM must be seen from the perspective of positive economic impact on the border economies and its ability to enhance peacebuilding in the region.
The investigation also highlighted the impact on stakeholders after the suspension of inter-LoC trade in April 2019 due to developments following the Pulwama attack in 2019. According to the report, the suspension of trade at two trade points (Uri-Muzaffarabad and Poonch-Rawalakot) affected 4,229 families who were directly involved in daily trade operations at the two trade points. These families were left without any means of livelihood and the impact of COVID-19 further exasperated the impact on these families. Confidence-building measures, such as trade across lines of control, also play a role in maintaining social and security aspects in otherwise volatile border areas.
Renewal of financial commitments
While resumption of economic engagement in the form of international trade and cross-LoC trade between India and Pakistan remains uncertain, the business community remains hopeful. He recent approach of former Pakistani Prime Minister Shahbaz Sharif and support from the US Department of State. towards dialogue between India and Pakistan offers hope to the business community. The economic engagement could open avenues to address other issues between the two countries, such as political disputes.
A comprehensive approach to transparency must be applied across the entire cross-line of control trading ecosystem.
The re-engagement process could begin with the resumption of bilateral dialogue, which should also focus on economic re-engagement in the form of international trade and trade across lines of control and the revival of fully functioning diplomatic missions, in addition to discussions on other political issues. . Any economic revival process at the government level also requires addressing critical issues at the policy level in trading between credit lines to instil confidence among stakeholders.
Trade has faced negative publicity in recent years due to concerns about illicit trade, narcotics, smuggling and tax evasion. A comprehensive approach to transparency must be applied across the entire cross-line of control trading ecosystem. This includes reviewing standard operating procedures (SOPs), billing practices, clear GST and interstate tax rules to prevent tax evasion, and merchant registration processes. Clarity in Harmonized System (HS) codes is essential to avoid misrepresentation of commodities, and strong rules of origin must be established to prevent the influx of products from third countries. Improving infrastructure, including security-related measures such as truck scanners, and implementing a robust trader registration policy will ensure that credible traders engage in trading, further enhancing its legitimacy and making it resistant to negative narratives. .
Recent signs for renewed dialogue and people-to-people initiatives provide optimism for the region. Restarting confidence-building measures such as trade across lines of control can demonstrate hope for reconciliation and commitment to peaceful coexistence. There is precedent for cross-LoC trade to continue during tumultuous events such as the Mumbai attacks in November 2008, which occurred just a month after cross-LoC trade began, and the Uri attacks in 2016. These Precedents give hope that India and Pakistan can move forward and restart economic ties for the livelihood of stakeholders in the border economies.
Also read: India and Pakistan must negotiate nuclear responsibilities.
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Image 1: Facilitating cross-border transport through Flickr.
Image 2: India-Pakistan LoC via Wikimedia Commons.
