Pakistan's opportunity: a free-trade deal with rival India

Trade is not a cure-all for grinding poverty, but a free-trade deal between Pakistan and India would help foster economic growth and regional peace. And the political timing has never been better. Pakistan's new prime minister, Nawaz Sharif, should seize the moment.

Opinion

Pakistan's new prime minister, Nawaz Sharif, confronts no shortage of challenges: an economy at risk of collapse, a woefully inadequate electrical supply that causes rolling blackouts across the country, rising ethnic and sectarian tensions, and the threat of internal terrorism.

Yet Mr. Sharif also has a significant economic and political opportunity, and he should seize it. Pakistan is due to normalize trade relations with India this year by granting its neighbor and strategic rival most-favored-nation trade status. Sharif should go further and pursue a full-blown India-Pakistan free-trade agreement, much like the North American Free Trade Agreement.

The longstanding animosity in India-Pakistan relations has left South Asia as one of the world's least-integrated regions. Since the two countries were created in the 1947 partition of British India, they have fought four wars.

As a result, intraregional trade in South Asia accounts for only 5 percent of the region's total trade, a proportion dwarfed even by Africa's 10 percent of intraregional trade (not to mention East Asia's 53 percent). Existing organizations such as the South Asian Association for Regional Cooperation have been unable to promote anything more than cosmetic integration.

The Pakistan-India border is 1,800 miles long, but trade flows only through one official crossing. Elaborate customs procedures, difficult visa regimes, and restrictions on foreign investment make trade between the neighbors difficult at best. Clearing away these obstacles could boost trade to $40 billion a year, analysts estimate, compared with less than $3 billion last year.

Trade is not a cure-all for stunted development and grinding poverty, but it would help foster growth in two countries whose lack of openness to each other hinders their economic advancement. A free-trade agreement would lead to increased investment and tourism for both countries, reduced prices for consumers, greater revenues for businesses, and a newly diverse and more innovative group of suppliers for both countries' people.

And, as the US National Intelligence Council has warned, improved trade may be the only way to keep South Asia peaceful – no small concern considering the countries' nuclear arsenals.

For Pakistan and India, moreover, the timing may never be better. Sharif has nearly unprecedented support for a Pakistani civilian leader. He has no viable rivals. As a result of his party's strong election performance in May, he does not even require a coalition to govern.

Sharif also draws the bulk of his support from the Punjab Province, the most economically prosperous and industrialized region, and thus the one best-positioned to benefit from a deal.

Sharif's Indian counterpart, Manmohan Singh, has seen his long premiership weakened by scandals and unruly coalition partners. His Congress Party desperately needs a win to increase voter enthusiasm ahead of next year's general election. The Indian public is disenchanted with internal security problems, anemic economic growth, and the bland performance of Mr. Singh's heir apparent, Rahul Gandhi.

For Singh, like Sharif, a trade deal could provide an economic and political boost. The influential Indian business community would reap major benefits from a trade deal with the 180 million consumers next door. And Singh, who was born in what is now Pakistan, originally made his name as an economic reformer, launching India's economic liberalization as finance minister in 1991.

To be sure, securing a trade agreement would not be easy. The Pakistani military is reflexively suspicious of India and scuttled an attempted opening of relations in 1999 during Sharif's prior premiership. Singh's coalition partners remain troublesome. Both groups would have to be appeased to allow a trade deal to go forward. And both countries will need to keep their territorial dispute over Kashmir as a separate issue.

Still, nothing is ever easy in South Asia, and this opportunity is better than most. Nawaz Sharif should take it.

Jesse Kaplan, a former Babar Ali fellow at Lahore University of Management Sciences, is a student at Yale Law School.