Abstract
With the ongoing trade normalisation process between India and Pakistan, opportunities to integrate have opened up between both countries. The pharmaceutical sector is crucial to health issues in developing economies and would be an ideal segment to focus on in improving trade relations between the two countries. Here, an empirical and theoretical analysis of India–Pakistan trade using some statistical indicators reveals low levels of current trade but huge trade potential. Since China has virtually dominated the trade scene in nearly all manufacturing sectors, this study also looks at the tripartite dynamics of trade in pharmaceutical items among India, Pakistan and China. An analysis of the China–Pakistan and the South Asia Free Trade Area Agreements reveals that while Pakistan does not give any favourable treatment to China in items on Pakistan’s negative/sensitive list for India, there is some indication that the favourable tariff treatment to China in general may have affected India’s low trade in pharmaceutical products with Pakistan. The study further argues that the opening up of the Pakistan pharmaceutical market to India would lead to an increase in consumer surplus, given the advantages of competition. Since many items are already imported from China, the argument that India’s imports would stifle domestic producers seems misplaced. Hence, non-discriminatory access to Indian products seems reasonable. A positive start could be the phasing out of Pakistan’s negative list. The incorporation of trigger mechanisms would help appease the apprehensions of the pharmaceutical industry in Pakistan about an influx of pharmaceutical items from India. Discussions with some major Pakistan pharmaceutical producers indicated that normalising trade would also provide external economies in areas like R&D and standards. In some areas, the benefits could flow to Indian producers. In this context, it seems necessary to establish a process for establishing mutual recognition agreements (MRAs), which would improve product quality in both countries. Finally, since FDI is just another way of doing trade, it seems necessary to explore the possibilities here at least to boost future trade prospects. Some harmonisation of FDI policies may be warranted.
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Notes
- 1.
In a meeting between Commerce ministers of India and Pakistan in January 2014, it was decided to change the WTO acronym—MFN to NDMA (non-discriminatory market access). The change in terminology will help in achieving the goal of increasing trade and investment between the countries. (BS Reporter, Its official now: No MFN between India, Pakistan. Business Standard. January 18, 2014).
- 2.
All figures on shares of countries in India’s and Pakistan’s exports and imports are the authors’ calculations using data from UN COMTRADE.
- 3.
Under the mail box facility, mail box applications were not examined until 2004 and exclusive marketing rights could be granted to those mail box applications for which a patent had been granted in at least one member nation and the application was not rejected in the member nation where the patent protect was sought by the applicant for the reason of invention being not patentable. (TRIPS Agreement: An Overview, IPpro Services (India) P. Ltd., 2008).
- 4.
HS 15 includes animal or vegetable fats and oils and their cleavage products, HS 17 includes sugars and sugar confectionery, hs 19 includes preparations of cereals, flour, starch or milk, hs 23 includes residues and waste from the food industries, hs 27 includes mineral fuels, mineral oils and products of their distillation, HS 28 includes inorganic chemicals, HS 29 includes organic chemicals and HS 30 includes pharmaceutical items.
- 5.
SAARC was founded by seven countries viz., Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
- 6.
Ministry of Commerce and Industries, Republic of Afghanistan.
- 7.
The number of items in the negative and sensitive lists is according to the classification of pharmaceutical items used in the paper.
- 8.
This exercise has been carried out using data at the HS 6-digit level from UN COMTRADE rather than at HS 8-digit level to facilitate comparison and make the results discernible. Hence, wherever applicable, we talk about categories and not specific items.
- 9.
While brownfield investment implies purchase or sale of existing investment, Greenfield investments refer to altogether new investments. (OECD Benchmark Definition of Foreign Direct Investment, Fourth Edition 2009).
- 10.
Effective rate of protection = (T f − T i )/VAint where T f is the total tariff theoretically or actually paid on the final product, T i is the total tariffs paid on importable inputs and VAint is the international value added.
- 11.
Stakeholders in Karachi claimed having only 2 FDA approved laboratories for testing in Pakistan—one in Islamabad and another in Karachi.
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Acknowledgments
This paper has been written as part of Research Studies conducted under the project “Strengthening Research and Promoting Multi-level Dialogue for Trade normalization between India and Pakistan” led by Dr. Nisha Taneja. We are thankful to Dr. B.N Goldar, Dr. Aparna Sawhney, Dr. Aradhna Agarwal and Dr. Vaqar Ahmed for comments.
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Appendices
Annexure 1
1.1 Elimination of Import Customs Duties under the China–Pakistan Free Trade Agreement
The categories which are applicable to imports into Pakistan from China are the following:
-
1.
“Category I”: Import customs duties shall be removed in four stages beginning on the date this Agreement enters into force, and such goods shall be duty-free, effective January 1st of year three. Each year’s Margin of Preference (MOP) is as follows:
Category | Entry into force | 01.01.08 | 01.01.09 | 01.01.10 |
|---|---|---|---|---|
I | 25 % | 50 % | 75 % | 100 % |
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2.
“Category II”: Import customs duties shall be reduced to or below 5 % in five years after entry into force of this Agreement. The MOP is as follows:
Category | Entry into force | 01.01.08 | 01.01.09 | 01.01.10 | 01.01.11 | 01.01.12 |
|---|---|---|---|---|---|---|
II | (X − 5) 6X | 2(X − 5) 6X | 3(X − 5) 6X | 4(X − 5) 6X | 5(X − 5) 6X | 6(X − 5) 6X |
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3.
“Category III”: Import customs duties shall be reduced by the margin of preference of 50 % within five years of entry into force of this Agreement. Each year’s MOP is as follows:
Category | Entry into force | 01.01.08 | 01.01.09 | 01.01.10 | 01.01.11 | 01.01.12 |
|---|---|---|---|---|---|---|
III | 8 % | 16 % | 25 % | 33 % | 41 % | 50 % |
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4.
“Category IV”: Import customs duties shall be reduced by the margin of preference of 20 % within five years of entry into force of this Agreement. Each year’s MOP is as follows:
Category | Entry into force | 01.01.08 | 01.01.09 | 01.01.10 | 01.01.11 | 01.01.12 |
|---|---|---|---|---|---|---|
IV | 3 % | 6 % | 10 % | 13 % | 16 % | 20 % |
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5.
“Category V”: No concession.
Annexure 2
See Tables 5, 6, 7, 8, 9, 10 and 11.
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Pant, M., Pande, D. (2017). India–Pakistan Trade: An Analysis of the Pharmaceutical Sector. In: Taneja, N., Dayal, I. (eds) India-Pakistan Trade Normalisation. Springer, Singapore. https://doi.org/10.1007/978-981-10-2215-9_6
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