Trade as a confidence building measure at Line of Control (India and Pakistan)

Altaf Hussain Kira of IGIDR writes this superb paperon the topic. He nicely titles the paper as “Cross-LoC trade in Kashmir: From Line of Control to Line of Commerce”.

He points how the trade ties between India and Pakistan at Line of Control had stopped in 1947. They were resumed in Oct-08 as a confidence building measure. The paper attempts to find two things:

  • How has the trade in LoC developed since Oct-08? What are the obstacles etc.
  • As a follow-up to first, Does trade serve as a way to alleviate political pressures? Is it a useful confidence building measure (CBM)?
Basically two trade routes were opened (it is still a barter system):
  • Uri-Muzaffarabad
  • Poonch-Rawalakote
It was initially for two days in a week and has been extended to 4 days from Jul-11. The trade has grown over the years and stands at Rs 800 Cr recently. The goods exported and imported are different across the two routes. Read the paper for more details. He actually offers a lot of detail in terms of the process of trade between the two countries including inspections etc.
What is more interesting is the second q. Has trade worked as a CBM? In other conflict areas trade did work as a CBM:
An understanding from around the world serves as reference as how trade and peace have been used to help generate trust in conflict situations. The initiation of trade between North and South Ireland has been instrumental in building confidence in Ireland. In policy terms, the Irish border has been the focus of EU measures (such as INTEREG) alongside more specific and unique policy experiments (such as the Special Support Programme for Peace and Reconciliation). In constitutional terms, political agreements have also been reinforced by specifically targeted institutional developments (such as the cross-border “institutions” and “bodies” created by the Good Friday or Belfast Agreement) aimed to encourage cross-border cooperation and integration (Meehan, 2000).

Cross-border trade between Southern Sudan and Uganda is another reference point that is making a significant contribution to socio-economic recovery in both Southern Sudan and northern Uganda. The main economic benefits for producers and sellers are currently felt in Uganda but the inflow of goods and services into Southern Sudan has helped improve food security and is helping meet critical gaps in the market, including in skilled labor (Carrington 2009).

The one between Israel and Palestine was not done in the right spirit:

The novel method of packaging trade and peace has also been experimented in Israeli-Palestine conflict, where the ‘Gaza-Jericho Agreement’ signed between Israeli government and Palestine Liberation Organization in May 1994 incorporated the Protocol on Economic Relations. The Economic Protocol viewed economic domain as one of the cornerstones in mutual relations for achieving just, lasting and comprehensive peace. However, it did not lead to the envisaged economic evolution in the area between the periods when Oslo Accord of 1993 was signed till the crisis of 2000.

The poor economic performance of the West Bank and Gaza Strip (WBGS) in this period was an important part of the background to the crisis which erupted in September 2000, but the problems in the economic interactions between Israel and the Palestinians also constituted a microcosm of the wider difficulties between them (Cobham 2001).

The arrangement thus proved a disaster because of many reasons, the primary ones being – it was an interim, half-hearted economic arrangement without any sincere followup, absence of enforcement mechanism, trade regime being complex in its structure and no smooth flow of trade on borders (Kafani 2001). It has resulted in a renewed backlash in the region where things have taken a new turn now. 

We see the same in the limited time period in LoC as well. Trade has grown amidst limited grievances:

The trade as of now lacks grievances redress system and the same does not find any place in the SOP. Relatively, fewer Uri participants rated legal arrangements as a top-priority. This may reflect the fact that trust among the traders has grown over the period the trade has progressed, as there were only 20 complaints pending for redress before the Custodian from Kashmir traders. President, Cross-LoC trade Association Poonch reported that there were 25 disputes pending from both the sides, which in absence of dispute redress in SOP were solved through mutual consultation and peer pressure. The low dispute rate between traders along both the sides of the divide indicates trust between traders across both the regions and crossing points.

However, the volumes remain low. Only older generation of traders knew the trade route well and there are few of them living currently and are too old. The younger ones were interested to reconnect with old ties etc. But high trade barriers and difficult geography has kept the overall volumes low.

The author conducted a survey of things that could improve trade links. The traders identified following:

  • The first item to improve trade was increasing the list of items and days for Cross-LoC trade
  • The permission to allow use of mobile phone was ranked second as it allowed people to remain in touch and monitor trades.
  • Better development of infra, banking facilities, border restrictions etc follow.
In the end the author says:
Confidence building measures play an important role in conflict resolution and Cross-LoC trade has acted as a starting point. Free flow of trade and transit across LoC will help the communities on both sides of Jammu and Kashmir become key stakeholders in the peace process. The trade has had a spillover effect particularly among communities living along the Line of Control as laborers, drivers and civic actors have benefitted from the employment opportunities it has offered. Good institutions and policies, together with free interface across the Line of Control are the key factors for taking the peace process forward. A positive initiative in the form of Cross- LoC trade, suggests that more sustainable measures are within reach including removing the current bottlenecks and developing right institutional framework for integration of two economies across the Line of Control that has remained impermeable since 1947.
Superb paper. It has this amazing history of trade in Kashmir and how it has developed over the years…
Must read paper…

I was reminded of this nice paper on trade between NKorea and China. Though, not in the same context the overall message is the same. Trade does help poor regions and is a classic case of comparative advantage working. Both regions are poor but by focusing on their specialisation, both can gain. And yes, having proper institutions is the key. To imagine trade/markers can work on their own is a major fallacy. You need proper set of rules and institutions to let it prosper…


One Response to “Trade as a confidence building measure at Line of Control (India and Pakistan)”

  1. Building inspection Says:

    Its amazing…… Really thankful to you for starting this.

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