India-Pakistan Trade

Case of Agriculture Sector in Pakistan

June 2013

Contents1. Background..........................................................................................................................................2

2. Overall Bilateral Trade (2008-2012).....................................................................................................3

3. Bilateral Trade in Agriculture Items (2007-2012).................................................................................5

4. Non-Tariff Barriers (NTBs) in India: Case of Agriculture.......................................................................8

5. Agriculture Trade: SAARC’s Perspective..............................................................................................9

6. Food Security through Agriculture Trade...........................................................................................10

1

1. Background

Despite of substantial liberalization in sensitive lists of India and Pakistan, the decision to grant India, Most Favorite Nation (MFN) status by Pakistan has still not been put into effect.1 While several of the previously constrained tariff lines have been opened, however the tariffs applied on Indian imports still remain above that applied to imports from MFN countries.

Both countries, fortunately though, have been moving in the right direction as far as bilateral trade is concerned. Recent agreements signed between India and Pakistan saw the abolishing of the Positive List by Pakistan, and New Delhi allowing Foreign Direct Investment into India. India also committed to a reduction of 30% of the SAFTA Sensitive List that applies to Pakistan, and both countries committed to reduce their Sensitive Lists to 100 items only. Three agreements were also signed to address the issue of non-tariff barriers. Furthermore, Pakistan also committed to phase out the restricted list of imports at Wagah, and India inaugurated its Integrated Check Post (ICP) at the Wagah-Attari border to boost the flow of goods that can pass through the particular land route. Finally, a Visa Liberalization agreement was also implemented as scheduled, despite skirmishes on the Line of Control in Kashmir. During the recent past, these above mentioned achievements have been implemented in a stop-go cycle.

One of the key hurdles in the way of Pakistan granting MFN to India has been the concerns of farmers lobby in Pakistan. While this lobby feels that they will benefit from the import of agricultural machinery from India, however in case of import of final product the view is that Pakistan may not be able to compete as India subsidizes it agricultural inputs relatively more than Pakistan2.

Contrary to the above the agricultural trader’s lobby has been advocating greater gains from grant of MFN to India in terms of competitiveness and consumer surplus. All Pakistan Fruit and Vegetable Exporters Importers and Merchant Association was of the view that increased trade with India will help raise competitiveness of Pakistani farmers and force them to adopt modern production techniques.

1 This discussion brief was presented by Dr. Abid Q. Suleri and Dr. Vaqar Ahmed at the Canadian High Commission in June 2013. Saad Rajput at SDPI provided data support. Email for feedback: vaqar@sdpi.org 2 Farmers Association of Pakistan is reported to have been saying in December 2012 that liberalized trade in agriculture (with India) may be possible only under two conditions. Either federal government should provide subsidy of PKR 12,000 per acre to growers on various inputs or PKR 400 per 40 kilogram regulatory duty may be imposed on Indian imports

2

Similarly various consumer associations and civil society organizations have been of the view that grant of MFN to India could result in bringing down food inflation via two channels namely: i) relatively cheaper agricultural machinery, raw material and related inputs, and ii) time and cost effective import of staple items from India in times of shortages in Pakistan.

In the next section we look at the bilateral trade trends between India and Pakistan across 5 year period (2008-12). This is followed by an analysis of agriculture specific trade between both countries. Section 3 then analyses general and agriculture specific non tariff barriers in India. Finally we briefly comment on concerns of those quarters who are still skeptic about Pakistan’s grant of MFN status to India.

2. Overall Bilateral Trade (2008-2012)

Since 2008 Pakistan’s exports of fruits have been a leading item of export to India (Table 1). Pakistan’s high quality of food has strong demand with Indian consumers. Since 2008 the exports of fruits to India has grown by 89.7 percent. Key products include dates, mangoes and guavas. This is followed by cotton whose exports to India have grown by 446 percent during 2008-12. Cement which was the leading item in 2008 was at third position in 2012. However the demand for Pakistan’s cement in India is expected to growth once construction sector in regions neighboring Pakistan fully realizes its potential. These items were followed by strong demand for Pakistan’s copper, gypsum, woven cotton fabrics, and electro-medical equipment.

3

Table 1: Top 10 Pakistan’s Exports to India (USD Thousands)

Product code

Product labelPakistan's exports to India

2008 2009 2010 2011 2012

All products35463

723532

32749

8327286

43479

94

'0804 Dates, figs, pineapples, mangoes, avocadoes, guavas 35384 446384416

5 471866712

9

'5201 Cotton, not carded or combed 11664 6182 0 20546371

3

'2523 Cements, Portland, aluminous, slag, supersulfate 64511 308593048

4 395063409

2

'7404 Copper waste and scrap 1096 2692 4259 88111863

3

'2520 Gypsum; anhydrite; plasters 0 0 184 63871579

7

'7204Ferrous waste and scrap; remelting scrap ingots or iron or steel 1461 14 2494 6382

11526

'5209Woven cotton fabrics, 85% or more cotton,weight over 200 g/m2 18019 15189

13831 8721

10431

'9018Electro-medical apparatus (electro-cardiographs, infra-red ray app, sy 3037 2817 4345 6709 8283

'7801 Unwrought lead 1062 3400 8746 9129 7665

'4107Leather of other animals, o/t leather of hd no 41.08/41.09 4093 4571 9621 9051 7499

Source: UNCOMTRADE Database

Table 2 below shows India’s top ten exports to Pakistan. One can readily notice the potential opportunity these items present for value addition sectors in Pakistan. Substantial increase has been seen in items such as yarn, staple fibers, dried vegetables and soya bean. The only non-agricultural item that appears to be in the top 10 list is rubber tires (which in fact also have a backward linkage with agriculture sector). The possibility of getting relatively more economical agricultural inputs from India can substantially boost Pakistan’s food processing sector.

4

Table 2: Top 10 India’s Exports to Pakistan (USD Thousands)

Product code

Product labelIndia's exports to Pakistan

2008 2009 2010 2011 2012

All products 1772775 1455772 2235788 1678131 1633348

'5201 Cotton, not carded or combed 299043 128907 300325 272797 205441

'2304 Soya-bean oil-cake and other solid residues 102886 82611 75520 168320 175257

'2902 Cyclic hydrocarbons 355323 216790 177729 180556 172587

'5407Woven fabrics of synth. filam yarn (incl. hd no 54.04) 108446 413199 299095 66399 99273

'0713 Dried vegetables, shelled 20412 17238 58397 41809 52715

'3204Synthetic organic coloring matter & preperations 27401 27921 32373 35610 40457

'0902 Tea 16011 15598 23419 37664 38971

'4011 New pneumatic tires, of rubber 35707 24113 36876 52827 38294

'5504 Artificial staple fibres, not carded 2525 4175 12809 25424 34770

'5205Cotton yarn (not sewing thread) 85% or more cotton, not retail 4565 3532 15887 13012 33618

Source: UNCOMTRADE Database

5

3. Bilateral Trade in Agriculture Items (2007-2012)

Apart from the above mentioned Pakistan has strong demand for Indian tomatoes, nuts, and seeds (Table 3). However some types of rice have also now been available in Pakistani markets. The import of rice by Pakistan (from India) has grown from USD 0.7 to 6.4 million between 2008-2012. During the same period the imports of onions and garlics doubled. Items which have seen a decrease during this period include maize and oats. We will see in the next section that both countries are losing on their agricultural exports potential due to distortive usage of negative list.

Table 3: India’s Agricultural Exports to Pakistan (USD Thousands)

Product code

Product labelIndia’s Exports to Pakistan

2008 2009 2010 2011 2012

'5201 Cotton, not carded or combed29904

312890

73003

2527279

72054

41

'0713 Dried vegetables, shelled 20412 172385839

7 418095271

5

'0902 Tea 16011 155982341

9 376643897

1

'0702 Tomatoes 29953 24225 758 652113092

9

'0904 Pepper, peppers and capsicum 32424 5832552

0 355482168

2

'0801 Brazil nuts, cashew nuts & coconuts 376 1010 3933 136682122

9

'1209 Seeds, fruit and spores, for sowing 6196 75091283

2 146621541

5

'1202 Ground-nuts, not roasted 1761 105821815

6 152641325

3

'0703 Onions, garlic and leeks, fresh or chilled 4599 517051511

3 12894 9154

'1006 Rice 722 1 1878 584 6395

'1008 Buckwheat, millet and canary seed 1755 3283 3548 9471 3668

'1206 Sunflower seeds, whether or not broken 587 336 224 1282 3121

'1302 Vegetable saps & extracts 451 1166 3458 2413 3100

'1404 Vegetable products, nes 2595 1608 2377 2323 3076

'0810 Fruits nes, fresh 20 68 13 4014 2032

'0803 Bananas and plantains, fresh or dried 0 0 0 0 1945

'0709 Vegetables nes, fresh or chilled 515 586 108 3913 1881

'1005 Maize (corn) 29303 4950 1485 1645 1817

'0910 Ginger,saffron,turmeric, thyme, bay leaves & curry 982 1120 1544 2202 1322

6

'0806 Grapes, fresh or dried 0 23 0 0 752

'0813 Dried fruit 26 33 51 6223 715

'1003 Barley 0 0 0 0 409

'1004 Oats 565 0 0 0 342

'1104 Cereal grain, worked post hulling, excluding rice 0 0 93 15 280

'1106 Flour and meal of vegetables, roots and tubers or fruits 9 22 6 14 244Source: UNComtrade Database

Items which are on Pakistan’s negative list may be seen at Annex-I. It can be observed in Figure 1 that according to (TDAP 2013), Agriculture sector comprises 23 percent of India’s sensitive list while the same number for Pakistan is only 6 percent. If Pakistan is to engage in trade dialogue with India, the liberalization of India’s agricultural trade should be a foremost agenda point. Pakistan along with other SAARC member countries should remind India that South Asia as a region carries immense vertical and horizontal supply chain and trade opportunities if India slashes number of agricultural lines on the sensitive list. Countries such as Pakistan have already liberalized these lines substantially.

Figure 1: Sectoral Share in Sensitive Lists of India and Pakistan (%)

Source: Trade Development Authority of Pakistan (2013)

7

Table 4 below shows Pakistan’s key agricultural exports to India. Apart from those mentioned in Table 1, Pakistan’s exports have grown for items such as oil seeds, cane or beet sugar, vegetable saps, leguminous vegetables, ginger, saffron, and various seeds for fruits and vegetables. Items that show some decline during this period include medicinal plants and dried fruits. While Pakistan needs to negotiate a more liberalized negative list (for agricultural items) with India, however an equal emphasis should be laid on Pakistan’s own supply side constraints. In a recent study by Sustainable Development Policy Institute, it was revealed by traders in Amritsar that they wanted to increase the import orders of dates, mangoes, cotton and vegetables from Pakistan, however on several occasions exporters in Pakistan regretted to meet this demand.

Table 4: Pakistan’s Agricultural Exports to India (USD Thousands)

Product code

Product labelPakistan’s Exports to India

2008 2009 2010 2011 2012

'0804Dates, figs, pineapples, mangoes, avocadoes, guavas 35384 44638 44165 47186

67129

'5201 Cotton, not carded or combed 11664 6182 0 20546371

3'1207 Oil seeds 141 4430 209 223 4086

'1211 Medicinal plants 3303 4082 3720 3319 2703

'1701Cane or beet sugar and chemically pure sucrose, in solid form 0 0 0 0 1505

'1302 Vegetable saps & extracts 5 1 15 66 1057

'0708Leguminous vegetables, shelled or unshelled, fresh or chilled 0 0 0 0 730

'0910 Ginger,saffron,turmeric, thyme, bay leaves & curry 341 252 449 744 442

'0713 Dried vegetables, shelled 0 0 0 0 157

'0813 Dried fruit 899 77 469 481 51

'0909Seeds of anise, badian, fennel,coriander, cumin, etc. 386 1103 645 554 45

'1209 Seeds, fruit and spores, for sowing 156 1011 223 333 26

'1206 Sunflower seeds, whether or not broken 0 0 0 0 16

'0810 Fruits nes, fresh 0 0 11 21 4Source: UNComtrade database

8

4. Non-Tariff Barriers (NTBs) in India: Case of Agriculture

In a recent study by SDPI, Pakistani exporters revealed that there are four general barriers they face while exporting to India, namely: customs valuation, standards applied by Bureau of Indian Standards (BIS), import licencing regime in India, and Pakistan-specific financial measures.

While Indian government remains of the view that customs valuation and standards by BIS remain the same for all exporting countries to India, however the argument of Pakistani exporters has been that these valuation measures and standards are applied more strictly on Pakistani consignments. Pakistani exporters have faced arbitrariness in valuation and extraordinary delays.

In the case of product standards, BIS has 18,592 standards for various product categories, however substantial number of them are not equivalent to international standards. It is difficult for exporters to find recent data on which standards are currently enforced. Usually, ISO standards are sufficient but in case of imports from Pakistan, discretionary powers are used.

Under trade preventing financial measures, Indian banks do not honor L/Cs opened by Pakistani banks beyond $10,000. Thus, shipments is released in parts resulting in extraordinary delays. Furthermore Indian banks usually request for an extension in maturity date of L/C up to 60 days. The absence of direct courier services between the two countries is another cause of delayed shipments.

We can also discuss some agriculture-specific NTBs in India. Agricultural sector is heavily subsidized in India, making imported goods uncompetitive. Total subsidies in 2010 amounted to $28.9bn (2.2% of GDP). The minimum support prices, credit and insurance schemes, fertilizers, irrigation water, electricity, diesel are also allowed at subsidized rates. All foreign agricultural products require import license, SPS certificate and import permission from Plant Quarantine Authorities. Challenges have also been faced in completing SPS requirements. The SPS and Bill of Lading are required by issuing bank to initiate L/C.

All food products are tested by Port Health Authority. Officials are absent at times and samples are sent to other labs. Consignments with pending reports are sent to warehouses, not equipped to store perishable items. The results of lab authorities cannot be challenged. The certificates from Pakistani labs are also not accepted and those from other international labs are accepted.

9

Trade over the land route e.g. Wagah-Attari border is nearing its full capacity and the existing integrated check post is not sufficient to meet growing demand for bilateral trade. Therefore if supply is to meet demand the next step should be containerization via railways, trucking agreement, opening up of other 9 land routes between India and Pakistan.

5. Agriculture Trade: SAARC’s Perspective

The SAARC Initiatives for Agriculture Cooperation include establishment of regional food bank and a project on ‘Control of Trans-boundary Animal Diseases’. Currently, SAARC Agriculture Centre is preparing the SAARC Agricultural Vision 2020. Further work needs to be done for ensuring food security in the region and promoting commercial agriculture and building competitiveness.

Regional trade in agriculture will still require further lowering of tariffs in the region. According to a study by Sapkota (2011) average tariff on agricultural goods was 29 per cent in South Asia compared to 9 per cent in ASEAN region. A substantial share of the sensitive list items in South Asia are agricultural products. Even the India-Sri Lanka and Pakistan-Sri Lanka FTAs include very few agricultural products.3

The regional trade in agriculture across South Asia can build on country-specific comparative advantages. For example, Afghanistan and Bhutan have export concentration in edible fruits, Maldives exports fish crustaceans, Sri Lanka exports coffee, tea and spices and Pakistan and India have export concentration in cereals.

Trade arrangements for food security: Restrictions over agriculture exports in South Asian countries are unjustified in a time of high inflation and large domestic demand. National policies can still be structured in such a way that restriction/ban would have marginal impact on neighbouring importing countries. Further development towards the food bank in the region will require expanded analysis on various aspects related to national level preparedness. Research on developing new varieties of crops resilient to climate change needs to be expedited. For sustained agriculture sector growth, a common strategy for water use at the regional level is required. Regional agricultural projects will also require a South Asian Agriculture Bank to finance future initiatives.

Building Competitiveness: The starting point may be pruning the agricultural products that are in the SAFTA sensitive list (short and medium term approach). This may be supplemented with raising input use efficiency in the region, supplying quality seed (development of competitive and deregulated seed industry), changing and upgrading quality and standard of agricultural products, strengthening research-extension-farmer linkages, better technologies and efficient ways of managing water and modern farm inputs, and exchanging of technology and knowledge between

3 In case of India 23% products in India's sensitive list for NLDCs are agricultural. For LDCs 25 products are in India's sensitive list. While all these are agricultural, they are non-merit products such as alcohol and tobacco.

10

South Asian countries, contract farming, encouraging MNCs to invest in the bio-technology, FDI in fertilizers, agro-chemicals etc., development of regional value chain, identification of products, creation of ‘regional hub’ for using scale of economies to export in the global market (e.g. Bangladesh could be a ‘hub’ for exporting agricultural products produced in the Eastern part of India, Bhutan and Nepal).

SAARC Initiatives: SAARC secretariat has undertaken initiative to prepare ‘SAARC Vision on Agriculture 2020’. Main objective of the vision document as set: joint response to menace, challenges and opportunities and global shocks, based on existing realities of SAARC countries. A number of issues related to challenges of agriculture development in South Asia have been discussed. These include: slow growth rate of agriculture, increasing gap between agriculture and non-agriculture’s growth; scope for bio-tech crops: drought-tolerant varieties, consumption of less inputs and water; rapid development of Information & Communication Technology (ICT) and Telecommunication Network; scope of dissemination of new agricultural technology, products and marketing of products; investment in infrastructure, Research & Development (R&D); and institutional approach to facilitate the process needs to be cleared out. The private sector representatives and bodies such as the SAARC Chamber of Commerce should press national governments for forward looking policies so that agricultural trade can benefit the region and ensure food security.

6. Food Security through Agriculture Trade

Several collective regional actions are required for ensuring food security in South Asia. Currently, SAFTA does not mention any collective measure for food security. However, an agreement on establishing SAARC Food Bank was signed in 2007 with the objective of: acting as a regional food security reserve for the SAARC member countries, providing regional support to national food security efforts, fostering inter-country partnerships and regional integration and tackling regional food shortages through collective action. Several proposals (mentioned below) were offered at the 5th South Asia Economic Summit in order to strengthen the above-mentioned intent.

The current practice under SAFTA should factor in food and agriculture products which dominate the sensitive lists of SAARC member countries

The operational requirements of the SAARC Food Bank need to be rationalized so that conditions for its use may be simplified. Its activities need to be broadened so as to take up more active monitoring of climate and crops in order to avoid panic stocking and speculative trading. The ASEAN initiatives in this regard are worth noting.

11

The existing stock levels need to be augmented taking account of each countries’ production and export capability.

Efforts also need to be expedited towards formation of SAARC Seed Bank, which could ensure vital seed supplies to the member countries in crisis periods following natural disasters. Ensuring supply of quality seeds should be an agenda of top priority at the SAARC Agriculture Centre. This in turn could help ensure food security as well as increase productivity.

12

Annex-I: Agriculture Items on India’s Sensitive List

070110 Potatoes Seeds070190 Others070200 Tomatoes, fresh or dried070310 Onions (Fresh)070320 Garlic070410 Cauliflowers and headed broccoli070420 Brussels sprouts070490 Others070511 Cabbage Lettuce070519 Others070610 Carrots and trumips070690 Others070700 Cucumbers and Gherkins, fresh or chilled070810 Peas070820 Beans (Vigna spp., Phaseolus spp.)070890 Other reguminous vegetables070930 Aubergines070960 Fruits of the Genus Capsicum070970 Spinach070990 Other Spinach071010 Potatoes071021 Peas071022 Beans (Vigna spp., Phaseolus spp.)071029 Other071030 New Zealand Spinach and orache spinach071040 Sweet Corn071080 Other Vegetables071090 Mixtures of Vegetables071120 Preserved Olives071130 Preserved Capers071140 Cucumbers and Gherkins071151 Mushrooms071220 Dried Onions071231 Dried Mushrooms071290 Dried Vegetables071310 Peas (Pisum Sativum)071320 Chick Peas Beans071332 Small Red Beans071333 Kidney Beans071340 Lentils071350 Broad Beans and Horse Beans080119 Coconuts

13

080120 Brazil Nuts080132 Cashew Nuts080231 Walnuts in shell080300 Bananas, fresh or dried080430 Pineapples080440 Avocadoes080450 Fresh Mangoes080510 Oranges080520 Mandarins, Clementines, Wikings and similar citrus hybrids080540 Grape Fruits080550 Lemons080590 Other citrus fruit fresh or dried080610 Fresh Grapes080620 Dry Grapes080711 Water Melon080720 Papayas080810 Apples080820 Pears080930 Peaches080940 Plums and sloes081210 Cherries081310 Appricots081320 Prunes081330 Apples081340 Tamarind090410 Pepper090420 Chilly090500 Vanilla090610 Cinnamon Bark090700 Clove090810 Nutmeg090830 Cadamom090920 Seeds of coriander090930 Cumin090940 Seeds of Carrway091010 Ginger091020 Saffron091030 Tumeric091040 Thyme; bay leaves091091 Mixture of spices091099 Poppy100110 Durum Wheat100190 Wheat100510 Maize Seeds

14

100610 Rice in husk100620 Husked rice (brown)100630 Semi-milled or wholly-milled rice; Basmati rice100640 Broken rice100700 Grain Sorghum100820 Millet100890 Other Cereals110210 Rye Flour110220 Maize Flour110230 Rice Flour110320 Pellets110412 Of oatsSource: ICRIER, IndiaPakistanTrade.org

15