By Niraj Patel
A cursory Google search using keywords “free trade,” “prevent,” and “war,” reveals a body of literature rich on academic studies and scholars attempting to understand the relationship between the level of economic integration between two countries and the likelihood that said countries will engage in armed conflict. Robert Cobden, a 19th century British liberal thinker, postulated that the “gains from trade” combined with the uncertainty involved with the costs of armed conflict incentivizes nations to uphold the peace. Simply put: trade pays more than war.
While the jury is still out on the merits of this argument, those who follow India-Pakistan relations have reason to root for Mr. Cobden.
A recent spate of high-level meetings between Pakistan and India has produced an impressive array of progress on the economic front, signaling a step forward in economic interaction between the South Asian neighbors. On September 7, India’s Foreign Minister S.M. Krishna met with his Pakistani counterpart, Hina Rabbani Khar. While security, terrorism, and border disputes were discussed, the real chatter revolved around a landmark visa agreement signed by both countries making it easier for businesspeople as well as those with relatives across the border to travel freely.
Adding to this, the Indian and Pakistani Commerce Secretaries met September 20-21 and upstaged their foreign ministry counterparts. Commerce Secretary S.R Rao and Munir Qureshi signed three agreements: a trade grievances agreement, a mutual recognition agreement and a customs cooperation agreement. They also attended an inauguration of an Integrated Check Post at Attari and discussed promoting trade through increased high-capacity railway traffic, opening additional land routes across the border (between Munabhao and Khokhrapar) and ways to encourage two-way investment. The Pakistani side reiterated its goal to grant MFN status to India by the end of 2012 and both nations vowed to further reduce the number of goods protected under the SAFTA sensitive list, scale down tariffs to maximum of 5%, and remove all non-tariff barriers by 2020.
Some analysts indicate that these recently-announced achievements and stated future goals—if pursued to completion—could boost bilateral trade four-fold, to $10 billion per year, potentially laying the foundation for further economic cooperation and even larger trade flows.
Is this a turning point in Indian-Pakistani relations? Will this scenario provide a data-point in support of Mr. Cobden’s hypothesis; that India and Pakistan are on the path towards increased economic integration and hence one step closer to stability and peace?
Unfortunately, such a conclusion is premature. There are many variables at play, some of which are outside of the control of either state that could derail progress. Autonomous jihadi elements in Pakistan could carry out terrorist attacks against either India or Pakistan. Either such event could result in a suspension or deterioration in economic ties (India suspended bus and train service to Pakistan following Prime Minister Benazir Bhutto’s assassination) or even an armed response from India.
Second, $10 billion in total bilateral trade is a small percentage of India’s total trade portfolio (1.3% compared to 14% for Pakistan), suggesting that India’s cost calculus may be different, where the gains from trade do not yet exceed those of conflict.
Finally, despite the thaw, both nations continue military modernization, serving as a reminder of the tenuous state of affairs on the subcontinent. For instance, between the successful meetings of the foreign and commerce ministers, Pakistan tested a nuclear-capable missile, only for India to respond a few days later, testing its own nuclear-capable Agni IV missile.
What India and Pakistan have achieved over the last few weeks is encouraging, especially given the tumultuous nature of their 60+ years of coexistence. If Mr. Cobden’s hypothesis is accurate, the two countries are still some distance from declaring that “trade pays more than war.” But if India and Pakistan can continue to build on the recent momentum created and rein in those threatening variables, there is reason to be optimistic.
Mr. Niraj Patel is a Research Intern with the Wadhwani Chair in U.S. – India Policy Studies at CSIS.