United States Should Remove Barriers to Trade With Pakistan, India

Author: Daniel Markey, Senior Fellow for India, Pakistan, and South Asia June 6, 2013 Nawaz Sharif has become prime minister of Pakistan for an unprecedented third term, and official Washington is greeting his return to power with cautious optimism. There is an overriding sense that it is in the United States' interest for Sharif to succeed, even if his government will be less "pro-American" than its predecessor. The looming question is whether Sharif has learned from the past: Have the experiences of collapsed governments and lengthy exile turned him into a committed democrat and statesman, or will his authoritarian, crony-capitalist tendencies resurface? The stakes are high. If Sharif's government can stabilize Pakistan's economy, improve domestic security and normalize relations with neighboring India and Afghanistan, there will be reason for hope that his nuclear-armed country of nearly 200 million people can, in time, remove itself from lists of "failing states" and follow a path to growth, stability and sustainable democracy. To make Sharif's success more likely, U.S. officials also must learn from the past. The next six months would be a good time for a thorough reassessment of the U.S.-Pakistan relationship, from counterterrorism cooperation and nuclear issues to aid and regional diplomacy. The question at the top of Washington's agenda, however, should be how to support two of Sharif's priorities: economic stabilization and improved relations with India. Quick wins in these areas could give Sharif the political momentum he needs to tackle other difficult challenges, such as confronting violent extremism and managing relations with the Pakistani military. By helping Sharif achieve his goals, Washington would also improve prospects for bilateral cooperation in other areas, including security. Unfortunately, most U.S. efforts to stoke Pakistan's economic development or engender better IndiaPakistan relations have come up short. In an era of tight budgets and bipartisan frustration with Pakistan, Congress is hardly in the mood to endorse costly new initiatives. Some creativity will be necessary. One policy option: a phased reduction of U.S. tariffs on textiles and apparel for Pakistan and India, conditioned on improvements in Indian-Pakistani trade. Simply put, the United States would make it cheaper for India and Pakistan to sell their goods here as long as the two South Asian neighbors knock down existing barriers to trade between their countries. In exchange for its cooperation with U.S. efforts after the Sept. 11, 2001, attacks, Pakistan sought reductions in textile tariffs. Privileged access to the U.S. market is likely to have a greater positive effect on Pakistani profits, jobs and state revenue than any direct U.S. assistance scheme. Yet political barriers on Capitol Hill, primarily from a handful of textile-producing states, have stymied such initiatives for years.

The reality is that neither U.S. producers nor consumers would be hurt by Pakistani imports. These goods are not currently made in the United States; if anything, the deal would shift some production away from China. Unfortunately, those facts have never been enough to grease the political skids in Washington and secure a Pakistan-only trade deal. That's where India comes in. Indian manufacturers would also benefit from this proposal. Unlike Pakistan, India is quite popular among U.S. members of Congress. A trade deal backed by pro-India, proPakistan and pro-Indo-Pakistani peace groups would have a far better chance of overcoming legislative hurdles in Washington. Reducing barriers to trade is a low-cost option, especially considering that U.S. nonmilitary assistance to Pakistan is as much as $1.5 billion annually. Some of those funds could continue to be allocated for effective education and energy projects in Pakistan. Some could be used to promote trade between India and Pakistan (for instance, by improving roads and ports). And some could be returned to U.S. taxpayers. The mantra of "trade, not aid" has great political appeal in Pakistan as well. Many Pakistanis, including prominent members of Sharif's party, have bemoaned the culture of dependency that U.S. aid can foster. They perceive trade as less patronizing and far more likely to reward entrepreneurial spirit and hard work. Moreover, a U.S. trade deal conditioned on progress between India and Pakistan offers a futureoriented incentive for Islamabad and New Delhi to continue taking precisely the steps they claim to favor and ones that reduce the likelihood of another war between those nuclear powers. The added incentive of access to U.S. markets could help overcome lingering concerns among certain business interests in India and Pakistan that fear competition from the other side of the border. All told, a deal of this sort would have positive repercussions for U.S., Pakistani and Indian interests. It would show that Washington has learned from the past, and it would improve the chances that Sharif can make the most of his third time at bat.