VOA Access Point interviews South Asia Center Director Shuja Nawaz on what to expect from India’s incoming prime minister, Narendra Modi:

Radio Free Europe/Radio Liberty quotes South Asia Center Director Shuja Nawz on India’s new prime minister: 

But Modi does have a sweetener that could win over skeptics. His political rise in Gujarat was accompanied by economic growth even as India as a whole struggled, and with India using economic diplomacy as a springboard for better ties with Pakistan, analysts say there is room for business.

“One of the fastest ways of [reviving the economy] is by integrating India’s economy into that of the region,” says Shuja Nawaz, director of the South Asia Center at the Atlantic Council of the United States in Washington.

Radio Free Europe/Radio Liberty quotes South Asia Center Director Shuja Nawz on India’s new prime minister: 

But Modi does have a sweetener that could win over skeptics. His political rise in Gujarat was accompanied by economic growth even as India as a whole struggled, and with India using economic diplomacy as a springboard for better ties with Pakistan, analysts say there is room for business.

“One of the fastest ways of [reviving the economy] is by integrating India’s economy into that of the region,” says Shuja Nawaz, director of the South Asia Center at the Atlantic Council of the United States in Washington.

South Asia Center Director Shuja Nawaz is quoted by VICE News on the recent spike in charges of blasphemy in Pakistan and how those accused are facing persecution and intimidation:

“Extremist groups are trying to build their base among the disaffected youth,” Shuja Nawaz, director of the South Asia Center at the Atlantic Council, told VICE News. He noted that blasphemy cases are often used to highlight threats against Islam, and said that they have proved successful in both recruiting and fundraising.

Nawaz said that Pakistan’s government needs to reform and reshape blasphemy laws in order to rectify the situation, but it has been slow to do so. He wants to see the laws clarified and legislation passed that would criminalize false accusations. But the likelihood of swift action is slim.

“In the face of economic and security issues, it will be hard to tackle this issue in the short run,” Nawaz said. “This is going to be an uphill battle.”

Moderator: Shuja Nawaz, Director, South Asia Center, Atlantic Council

Speaker: Khurram Dastgir Khan, Federal Minister for Commerce and Textile, Government of Pakistan

Transcript by
DC Transcription 
Washington, D.C.

SHUJA NAWAZ: Good afternoon, everyone. Welcome to the Atlantic Council. I’m Shuja Nawaz, director of the South Asia Center. And on behalf of my colleagues at the center and our president, Fred Kempe, I want to welcome all of you.

And a very special and warm welcome to Mr. Khurram Dastgir Khan, the federal minister of commerce for the government of Pakistan, and a warm welcome to Ambassador Jalil Abbas Jilani, whom we hope to bring back for a separate session on some of the issues that we know that you want to cover and you want him to talk about.

But I’m delighted, particularly today, because we’re going to be talking about Pakistan’s bilateral and regional trade priorities. And for those of you that follow our work, this has been one of the major planks of the work of the South Asia Center. We always take a regional look at South Asia. And our definition of South Asia includes geographic South Asia, the Gulf States, Iran, Afghanistan, and Central Asia. So we have a much wider regional perspective. And the survey that we conducted of our 3,500 people that subscribe to our list indicated that this is what they think separates us from other think tanks – that we are taking a regional approach.

In addition, as I was telling the minister, we’re delighted that we have launched an India-Pakistan Trade and Business Forum. There is an officially sponsored India-Pakistan Business forum, but our trade and business forum is designed to have some crosspollination of ideas between those groups on both sides and between India and Pakistan. Indeed, in the next couple of weeks, the working groups – three working groups of that particular dialogue will be meeting in Katmandu to talk about the financial sector, IT and the automobile sector among other things. And then we’ll follow it with another working group and then a major conference next year.

So it’s a very opportune moment in the work that is being done in the region and between the U.S. and Pakistan. And we took advantage of Mr. Khurram Dastgir Khan’s visit to discuss officially the follow-up to the strategic dialogue that took place earlier this year when Minister Sartaj Aziz was here. And so it would be good to hear from him exactly where things stand on the U.S.-Pakistan trade relationship and also, of course, to put things in a regional context, giving (sic) the dynamic changes that are occurring in the region. And I’m sure that you all will help me in having a very useful conversation.

I’ve shared with you in the invite some background on the minister, but let me just say that he is a trained engineer from the California Institute of Technology and also has a degree in economics from Bowdoin College. So I think we have somebody who can understand what the issues are and can actually present them in a very knowledgeable manner. This is something that – is obviously something that the new civilian government should take pride in because this is such an important topic not just for U.S.-Pakistan relations, but for Pakistan’s relationships in the neighborhood. As we try and create a more integrated neighborhood, it will be very critical to have people at the helm directing traffic in a manner that can achieve results.

He is, of course, politically validated, elected member of parliament. He’s been a long-time member of the Pakistan Muslim League Nawaz group. Indeed, at the time that Prime Minister Nawaz Sharif’s government was removed by General Pervez Musharraf, he was a special assistant to the prime minister, so there’s a very long association. Despite his youth, I think he is like Lord Byron’s Childe Harold, grown old in deeds, not years.

So we are delighted to have you, Minister. And if you could give us a short opening comment, then we’ll begin our conversation. Thank you.
KHURRAM DASTGIR KHAN: Okay. Great. (Foreign phrase.) Asking politicians to be brief is quite (exotic ?), let’s just say at the least, because we love the sounds of our own voices and, of course, like to speak at length. But let me just say that I’m absolutely delighted to be here this afternoon.

This morning – we began this morning with a meeting of the Trade and Investment Framework Agreement that we have with the United States. And under that agreement, a TIFA Council exists, whose meeting was chaired – co-chaired by myself and the U.S. Trade Representative Michael Froman.

And, of course, I’m very pleased and honored and thanks to Mr. Shuja Nawaz, to that this opportunity to speak at this prestigious forum and to share with you my views on Pakistan’s bilateral and regional trade priorities.

But one way to be very brief would be to say that Pakistan’s bilateral and regional trade priorities are trade more. Two words on the subject and we are done.

But, of course, I come to you from what we in government fondly would like to believe and profess is a new Pakistan, a Pakistan that is slowly getting accustomed to democracy, to rule of law, to a constitution, which willy-nilly and with some difficulty we are learning to follow. And this is – the new Pakistan is one that has seen for the first time in its history last year – in fact, almost exactly a year ago, its first transition from one elected government to another elected government.

And, ladies and gentlemen, I cannot emphasize enough the importance of that transition. It is – it has never happened before. And to have an elected government and then to have an election whose validity was more or less accepted universally, and then to have a new government in place; and a new government which, again, I would like to emphasize, was elected largely on the expectation by the people of Pakistan that this government will provide a better governance and a government that was more able than the previous one to grapple with the profound challenges that face Pakistan – a government that wouldn’t be paralyzed, a government that wouldn’t sacrifice hard decisions on the altar of expediency. And that government, I’m delighted to say, is now in place and, of course, different opinions could be formed about it.

But, largely, the seriousness and focus that the people of Pakistan expect us to demonstrate has been in evidence, especially in tackling the principal crisis that faces Pakistan’s economy, which is shortage of energy. And we have been tackling it in many different ways.

And, of course, this period in which I am here and I speak to you is a difficult period in which we are undertaking reform and the difficulties are obvious each day, but the rewards are in the future. So it’s an in-between period, a period of stabilization and retrenchment and the difficult decisions that we have taken. One of them, perhaps the most difficult was to raise electricity tariff dramatically last autumn. Elected governments don’t like to raise tariffs or take decisions that consumers across Pakistan will feel each month banging at their door, but we took it because we felt that it was a necessary sacrifice of political capital in order to have Pakistan’s economy at a sustainable level and to reduce the subsidies that we are forced to give on that account.

But, of course, the subject of this afternoon’s talk is Pakistan’s trade priorities. And regional trade was identified very clearly in the manifesto with which we went to the Pakistani people last summer. And it’s been something that Prime Minister Nawaz Sharif has personally demonstrated statesmanship. He has been talking about trade with India especially since the last time he was prime minister, in the late ’90s. And some of you would recall prime minister – Indian Prime Minister Vajpayee’s visit to Pakistan in February ’99 and the good will that it generated with the hope, of course, that we will not only make some progress on resolving out longstanding differences, but also to start trading.

But, of course, it’s our profound belief that Pakistan’s economy cannot grow with the vigor that the Pakistani people expect from us if Pakistan’s economy is constrained within its borders. We must liberalize. We must open ourselves. And the first priority in liberalizing and opening ourselves is to our neighbors. And neighbors east, west, not – on the south, we have maritime neighbors, to open up on all sides.

So one part is, of course, increased trading. The second part is as we hope to achieve in a year’s or more time when Pakistan’s reforms that we are currently undertaking will gave taken root is that larger quantums (sp) of investment would start to flow.

But the third part on which we have started making progress already is the connectivity – the infrastructure connectivity. We hope to have banking connectivity, cell phone connectivity. These kind of connectivities are important for trade in the 21st century. Ease of travel between different countries is important.

And, on the infrastructure account, that’s where, if you will now see it in this framework, that the trade corridor that was (mooted ?) and work has begun from the southernmost southwest border of Gwadar, northeast to our border with China, which would practically traverse Pakistan diagonally from one end to the other is part of that infrastructure connectivity which we envision it first as a motorway, as a highway, but also eventually to be accompanied in parallel with a rail link.

We’re also working now on the CASA-1,000 Project, which will bring electricity from Tajikistan through Afghanistan to Pakistan because Tajikistan has excess capacity in summer months. And Pakistan, of course, has a shortage in the summer months. And we’re also now a part of the CAREC project, the Central Asia Regional Economic Connectivity, which is envisioning Central Asia to be linked to Pakistan through Afghanistan by road.

So connectivity is a major part of our strategy and also, as I said, with our northern neighbors, with our western neighbors. Prime Minister Nawaz Sharif was just two days ago in Iran; again, one of our western neighbors with which we – despite having a preferential trade agreement, practically have very little trade, mainly because of international sanctions and the difficulty of finding a proper payment mechanism – again, part of the connectivity issue. The prime minister is in Iran, was in Iran two days ago precisely to talk about these issues.

And a part of this connectivity also is, of course, energy connectivity. And for us to be able to resolve our energy shortages through regional trade and through regional linkages is important. So we are hoping that these connectivities will enhance our bilateral trade.

I’ll come to India in a minute, with which I had very extensive interaction and negotiation at the beginning of the year. And, of course, the normalization of trade with India was postponed until a new government is put in place by the people of India, which we hope will be shortly. But, of course, Pakistan and India have maintained very restrictive trade regimes with each other. And India, of course, granted Pakistan most favored nation status in 1996, when the WTO was established, but Pakistan has yet to reciprocate.

But in 2012, the previous elected government took a very important qualitative and quantitative step of shifting Pakistan from the positive to the negative list, and what this means is that the positive list was that – there was a list of items which only those items could be imported from India. Now, since – for the last 26 months, there’s a list which is a prohibited list and everything else is allowed. So this is a major shift that has happened. Whole sectors of Pakistan’s economy have been opened to India for the last 26 months, including agriculture.

So now the only thing that remains to be done is – in our estimate it’s about nearly 85 percent of all the goods that Pakistan trades in are now open to trade with India. So the issue is now the last 15 percent. And when that will place, we hope very shortly. And to go forward, a part of it of course will also be normalizing our land route at Wagah, through India. But once that route is normalized, we are hoping in the coming future, not too distant future, to open more crossing points for trade. We have a crossing point at Monavar-Krokavar (ph), for people, but no trade happens on that crossing. But, as I said, we hope to open many more crossing points.

And, in fact, a whole new legislation is now being pondered over. We just began work on it a month ago is to create a new land ports authority in Pakistan and to take seriously our crossing points – land crossing points from – on the Indian border, there’s Wagah but also with Afghanistan we have two very major crossing points at Torkham and Chaman. And, of course, we contemplate that in the coming years to – in the years to come, we’ll see another crossing point, maybe more than one crossing point with Iran. So that legislation, our government has started to draft, which when it goes through parliament, will create a new structure of managing our land ports.

And we also of course, in addition to trading goods, trade in services has become an important part of global commerce. Well, Pakistan and India, of course, are signatories to the South Asian Association for Regional Cooperation Agreement on Trade and Services. But the agreement is not yet operational as many SAARC members have yet to make their offers. But, of course, trade in services is part of our vision of trading with our neighbors.

As part of our strategy to normalize political and economic relations with our neighbors, Afghanistan is of course another top priority for us. Our trade relations have been growing and Afghanistan is now Pakistan’s third largest export destination. However, there are challenges to enhancing bilateral trade.

One, of course, is the infrastructure connectivity. The roads that connect us, the facilities at the crossing points, as I said, at Torkham and Chaman, leave much to be desired. And, of course, we’re also taking steps to simplify the visa regime. And we are hoping that these initiatives will remove many obstacles and also encourage a move from informal trade to formal trade.

And what we’d also open, as I said, not only just in the CASA-1,000 project, which is electricity project from Tajikistan to Pakistan, but also the CAREC project is that a larger connectivity of Pakistan to Central Asia through Afghanistan would require, of course, a peaceful and stable Afghanistan.

And this understanding and realization in the new elected government in Pakistan led by Prime Minister Nawaz Sharif has – I’m happy to say that a change in policy from previous years, in which I think for the first time in many, many years, Pakistan did not intervene in any way in Afghanistan’s presidential election. And Pakistan didn’t play favorites, didn’t intervene, and Prime Minister Nawaz Sharif very clearly enunciated that we will allow the people of Afghanistan to make their determination of who will rule them.

And part of that understanding, first, of course, is a respect for the sovereignty of Afghanistan is also that we require a peaceful, stable self-governing Afghanistan which would then facilitate our trade with Central Asia and our infrastructure connectivity with Central Asia.

And, of course, we are – not just with our neighbors. Pakistan has now embarked upon a major economic diplomacy effort, first part of which we were able to conclude successfully, which was to obtain market access for Pakistan from the European Union under the GSP-Plus Scheme, which was approved finally in mid-December.

And the GSP-Plus Scheme, which was approved by the European Union, is significant, again, in a historic way, is that these were the first trade concessions in market access that Pakistan achieved which was not given to us as quid pro quo for something else. Usually, that has been the case – that in our relations with some of the regional country on some other issues, and this would be – you know, trade access would be given as a temporary sweetener. This time, Pakistan went through the process.

Of course, the European Union published the legislation for GSP-Plus when Pakistan first filed the application. Pakistan then pursued the application, which was finally approved by the European Commission in August last year. And then, of course, Pakistan utilized its bilateral diplomatic relations with the EU members to obtain approval by majority in the European Council of Ministers in October. And then the state in which I was involved, which was – and when I personally went to Strasbourg and to many European countries in Eastern and Western Europe to lobby those governments in order to for their – and members of European Parliament to vote for Pakistan, which was required for us to – and I’m delighted to say that we were able to achieve more than a two-thirds majority on the 12th of December in Strasbourg (and ?) Pakistan.

So this GSP-Plus, ladies and gentlemen, has been – is in place for 10 years. It is a very long-term concession. And, of course, it will require Pakistan to comply with many U.N. conventions. It will require Pakistan to improve its governance. But that perhaps is the principal point is in which I impressed upon my colleagues in the European Parliament is that these trade concessions or preferences are an incentive for better governance. They are not a reward. And that incentive should remain there for Pakistan to keep improving its governance, to keep improving human rights, women’s rights, minority rights, health and safety regulations. But, of course, to judge immediately and a rush to judgment would not be advisable is to keep – to give that incentive to Pakistan to perform better.

And, of course, we are now looking very much to the United States to see whether the United States can emulate the European example and whether the legislature in the U.S. will see Pakistan through a different lens of giving us an incentive for better governance and not judging us on the past.

And also, of course, Pakistan has been a member of the GSP scheme in the U.S. But the GSP scheme in the U.S. is particular and different because it excludes more of the goods that compose Pakistan’s export strengths, which is principally textiles. And it covered only $195 million worth of goods in 2012.

Now, the interesting this is that when you look at Pakistan’s total exports to the U.S., they were just over $3 billion, and they make U.S. one of Pakistan’s biggest trading partners. But when you take that figure of just over $3 billion and compare it to the total U.S. annual imports, which are in excess of $3 trillion, Pakistan’s exports are, ladies and gentlemen, 0.0016 percent of U.S. imports. And, as some of my fellow engineers would say, this is a figure so small to be insignificant.

So even if – now, if you consider an ideal scenario and the United States Congress and the Senate in their infinite wisdom decide to give wholesale market access, preferential market access to Pakistan, it is doubtful that one zero will be removed afterward from 0.0016 percent. So it’s an issue, ladies and gentlemen, not really of any trade danger, of any trade injury due to trade preference has been given to Pakistan; it’s that there are some other issues which make Pakistan loom larger than it actually is in trade terms. But of course those issues are best left to seasoned diplomats like the ambassador to discuss, not for us trade negotiators to talk about this.

But, finally, I also want to report the very excellent meeting this morning at the United States trade representative and Ambassador Michael Froman and we discussed many of the issues. TIFA has been in place for 10 years, but today, the 13th of May, 2014, after 10 years, is the first time both countries agreed on an action plan. It took us 10 years. And, well, the truth is it didn’t take us 10 years. When there was will, it took us less than 10 weeks. So there is a will and seriousness in the government of Prime Minister Nawaz Sharif to take our trade relations forward. And once that seriousness was demonstrated, we have been able to make good progress with our U.S. counterparts.

Finally, I would like brief you on some trade reforms that we are undertaking unilaterally. And we do realize that unless we carry out serious domestic reforms, our economy will remain uncompetitive to the point where no preferential access can compensate for our inefficiencies.

And the government of Pakistan is reforming – in fact, we have been conducting this very intense exercise since the beginning of this year is to rationalize Pakistan’s customs tariff. We are also streamlining our concessionary regime, which we call the SRO regime. These are statutory orders giving concessions to different industries. And we are now – we hope to in fact legislative the process in two weeks’ time when the budget is announced and the finance bill comes into parliament, it will be part of it, this rationalization of our tariffs. And we are benchmarking our tariffs rates against our regional competitors so that our industries can become more competitive as a result of access to cheaper imports. And this will enable Pakistan to become a part of the global supply chain and to catch up for the trade practices of the 21st century. And as part of our efforts to modernize Pakistan’s trade rules and practices, we are looking at all WTO and international agreements and other best practices.

I would like to mention two agreements to which the United States has been a strong proponent: the WTO Agreement on Information Technology and also the WTO Agreement on Government Procurements. We are currently conducting feasibility studies in order to become contracting parties to the agreements.

We are also working on several initiatives to improve trade facilitation at our borders, as I said earlier, in order to reduce the cost of cross-border trade in goods. USAID’s also one of our partners in assisting us in achieving that aim. And we soon hope to implement single-window operations for customs processing at all our customs borders.

And the government of Pakistan is now seriously working towards full implementation of the December 2013 Bali agreement, the WTO Agreement on Trade Facilitation. We are also analyzing gaps in our existing practices with respect to the provisions of the new agreement so as to enable the agreement in its entirety.

The government of Pakistan’s current five-year plan has set a target to quadruple our exports. And we need your support and guidance to make this call a reality and to be able to realize this call with our regional trading partners and international trading partners. And if we can achieve this landmark growth in exports as a result of greater regional and global trade resulting from modernizing trade policies and improve infrastructure, we are hoping that Pakistan’s economic growth will not only reach a level that we are aiming for, which is at 7 percent, 8 percent by the end of the term of current Pakistani government, we will be in a position to sustain this growth rate without external concessions or assistance.

But, of course, ladies and gentlemen, the issue always remains is that there are economic challenges, as I said, and the energy shortages. But there is another E which bedevils us, which is extremism. And that challenge, too, requires some action in the economic realm because in order to fight extremism, guns are not the only weapons. Economic hope is also perhaps a more important weapon. In holding out that hope to young men and women across Pakistan, that more jobs, better quality jobs will be generated through more investment, local and international.

And also, of course, that you realize the credibility of democracy as a deliverer of better quality of life is also at stake. And one of our biggest challenges as an elected government is to be able to demonstrate to the people that elected governments don’t simply mean that elected representatives like me become ministers – that democracy brings actual dividends, economic dividends to the people.

And, of course, being in Washington it’s also for us to demonstrate to the Pakistani people that the West and the U.S. are our friends. And that lesson would only sink in if the people of Pakistan can see that this help and assistance is substantial, corporeal, visible, and they can sense it that the people of advanced Western economies, their governments are helping Pakistan on the road to prosperity.

And we hope that with, of course, your advice and your support, we will be able to achieve that aim and to be able to deliver economic growth to the people of Pakistan for which they have elected us.

Thank you very much. (Applause.)

MR. NAWAZ: Thank you very much, Minister. That, as advertised and promised, was a very rich speech. And I think you covered a wide range of topics. If I had all this time to myself, I’d probably have a dozen questions that I’d want to explore further with you. But I’m sure that this extremely well-informed and engaged audience is going to fill that gap for me.

So let me begin by asking you first on this action plan – you talked about the action plans – that’s the latest news coming out of your meetings. Can you shed a little more light on what are the features of the action plan under TIFA?

MR. KHAN: Well, we’ve just – before coming to Washington, we have been engaged in this exercise, over the last two months particularly, to see whether TIFA could be more than just a talking shop and whether we were able to do something real coming out of these discussions. As I said, TIFA has been in place for 10 years, but we conveyed to our U.S. counterparts that, you know, here’s a government that is serious and focused about economic reform and see what we can do about this and to not only widen but also deepen our economic relationship.

And also the fact that the relationship between U.S. and Pakistan has been so rocky and fraught with difficulty that we needed to bring in the economic and trade aspect much more strongly than it has ever come. So that’s what we were thinking.

So there were – of course, both sides had laundry lists of issues that they wanted to discuss, but we – through negotiation and discussion, we were able to sort of bring it down.

So one part of course is, for example, is the intellectual property rights issue that has been under discussion. And the other part is, of course, as I mentioned in my speech also, is that once Pakistan accedes through the WTO Agreement on Government Procurement is for us to be notified as a country for which from the U.S. government can procure goals; the issue, of course, also of cooperation in the field of information technology and trade in services — that’s the larger rubric – because that, too, has been neglected in our discussion.

And, of course, the meta-issue above all is, of course, to find a way to obtain a meaningful market access to the U.S. So the action plan wouldn’t mention market access, but the purpose of all these issues to be discussed is to get us to a point where we can do this.

There are issues – as I said, there are one – another subject of discussion of the action plan is how we can deepen our cooperation in agriculture, a subject on which we haven’t really even talked about cooperation. But there is immense potential in Pakistan of processing agricultural produce and to learning from U.S. agriculture with the very advanced practices that exist so to be able to bring the agriculture sectors together.

So these are the kinds of subjects that we have discussed and, in fact, we hope that a formal joint statement will be issued shortly for us to – for you to really ponder over where we’re going.

Another very important part was – although not part of the action plan, but a separate memorandum of understanding was signed on women empowerment and how both countries could join hands together to be able to deliver – you know, empowerment is a rather large word, but, you know, real benefits to Pakistani women, entrepreneurs who are willing to take economic risks and to bring Pakistani women into the economic mainstream.

But I’ll share with you the anecdote that I shared there is that perhaps the best way of creating a very large number of high-quality jobs for Pakistani women is for the U.S. to give much deeper market access to Pakistani garments because what you will find if you go to Pakistan is that the higher the value added in textiles, the more women are employed. And what you find is that at highest end of the value chain where garments are actually being stitched and produced, there are if not hundred at least tens of dozens of manufacturing units in Pakistan where all employees are women because the higher value addition in textiles get us to particular strengths and skills that women have. So one way of bringing this together of women empowerment also leads us to the market access issue.

MR. NAWAZ: One trend that seems to have emerged in recent years has been a shift of Pakistani trade away from the West towards Asia. And, obviously, the big potential for that, you mentioned in terms of regional trade potentially, say, with India, how do you explain that and how does that figure? I know we are sitting in Washington. I know you’re interested in access to the U.S. market. But the U.S. is thousands of miles away, whereas India is next door and Asia is closer than the U.S. So where does that figure in your strategy going forward?

MR. KHAN: It figures very prominently. And one of our aims for 2014 and ’15 is to start negotiation with ASEAN, start an FTA negotiation with ASEAN in order to be able to capitalize. ASEAN is going to become a free trade bloc beginning next year and for us to be able to take advantage of that. So we are in active negotiations. We’re also now hoping to begin negotiations on an FTA with the Gulf Cooperation Council, again, which are neighboring regions, which in fact have tremendous potential for Pakistani products.

But, as I mentioned, that’s the reason I mentioned in my speech, a larger challenge for us to also organize and nudge Pakistan’s domestic industry towards exports and to encourage them to comply with international standards and to be able to export more, the export phase.

MR. NAWAZ: Thank you. This audience is very familiar with my approach to these conversations. And they know that normally I ask just two questions.

MR. KHAN: Okay.

MR. NAWAZ: But I’m going to break with that tradition, if I may. (Laughter.) That’s what traditions are there for, to be broken.

MR. KHAN: Right. Right.

MR. NAWAZ: And my third question brings us much closer to a topic that I know you’ve been very involved in. And since you’ve been involved in, we’ve actually seen some movement, although there are people that will complain that the government has been in power for a year and it could have acted much sooner than it did on the India trade, even the renaming of MFN to NDMA could have been achieved much sooner. And an attempt could and should have been made to have the dialogue with domestic interested stakeholders, which wasn’t done until it was too late. And so it’s now been delayed.

The visa issue was issue number one at the very first dialogue that we arranged between India and Pakistan on trade and business. And it remains the biggest stumbling block for anyone attempting to organize conferences, meetings, discussions between businesses. Despite all the talk of freeing the visa regime, it hasn’t happened. Most recently, a major conference in Lahore was cancelled and the blame is being put –

MR. KHAN: Yes. I remember. I was invited to that. Yes.

MR. NAWAZ: The blame is being put on agencies. We have difficulty, when we invite Pakistani participants to go to India, to get visas for them because India has very strict rules about permissions from the MHA, the MEA so the home ministry and the foreign ministry. When is this going to be resolved, because without the traffic of people, you really can’t get things done?

MR. KHAN: It is a thorny issue. And India-Pakistan trade negotiations – when we talk about trade barriers and tariff barriers, one of the favorite topics is non-tariff barriers that exist. And when we – you know, sort of take on our Indian counterparts and say that in your country there’s too many non-tariff barriers and should bring them down, they say, well, the non-tariff barriers are for all countries, they’re not just for Pakistan.

But visa is a specific non-tariff barrier against Pakistan. And we have – well, the previous government concluded an agreement on visa facilitation, which has never been implemented. We tried to institute a visa system for businessmen that if there were verified and nominated by their respective chambers, there would be issued visas.

And, in fact, on the visa front, the direction has been away from liberalization towards more tightening of the regime in the – the SAARC countries agreed upon a certain number of business visas to be issued each year. That number of is also reduced over time. And the length for which visas were issued also reduced over time.

And so we talk about this, but it would require, it would appear to me, political will and determination. And let me share with you what I said in precisely these words to the honorable Indian prime minister when I saw him in December. I said, trade and commerce ministries can run only so far ahead of other ministries, but eventually others have to catch up.

So, yes, for us, in ministries of commerce, because we are, you know, concerned with tariff issues and bringing down tariffs and tariff lines and, you know, reduce tariffs this to this in this period of time, we sort of get caught up and go much farther and then we realize that, you know, the ministries of interior are not catching up with us when it comes to visas.

And visa is now, very much – after that agreement, is a matter of political will. We, Pakistanis, like to believe that we are comparatively more liberal in issuing visas but that is open to question. We get so many complaints from the other side also.

So yes, it’s an issue. And in the short term, we don’t see any immediate solution. But with the new government and the dialogue that we hope to initiate with it, visa will feature very prominently in this because the kind of gains – the mutual gains from trade that we expect will not happen until businessmen can actually travel to the other country and assess the economic opportunities firsthand.

And those that are able to travel, I’m happy to report, are finding very unexpected synergies and making money out of it. Recently, we’ve suddenly found – it started to appear in our trade figures is that the – from the Indian Punjab side, there’s a surge of imports of Pakistani chemicals. And why? Because the chemicals that it requires, the nearest Indian factory is 1,200 kilometers away. So if they could get it 100 kilometers away from across the border, they would do it. And they have found a way.

I mean, the joke if I might share, if we a couple of minutes. The joke is that Indian trade regulations require that when you – on the land border is that the goods being imported into India must touch Indian soil. That’s exactly how the regulation is written, okay. So that is why, as you know, goods are offloaded. They touch Indian soil. They are carried on backs of porters, and then, you know, so they will go –reloading them.

But when it comes to chemical imports, the issue was – you know, they wanted to import molasses. They wanted to import soda ash. And, of course, you know, there’s no way for the chemical to touch the soil. And some way had to be found for these chemicals to be transported, you know, without touching the soil. And the issue went all the way to New Delhi. And it took many, many months, but it was resolved. And now chemicals are being transported across the border without touching the soil. So yes.

So I wanted to give this a good story. It’s not just bad news on this. It’s that people – entrepreneurs are finding their own ways of dealing with this. We are finding that a furniture company – a Pakistani furniture company, has found such ready partners across the border and now they’re in a joint venture and opening, you know, showrooms in India. So despite the restrictions, commerce finds its way.

MR. NAWAZ: As they say in South Asia, the competent authority must do the needful.

MR. KHAN: Yes, absolutely.

MR. NAWAZ: And I think that is the key.

MR. KHAN: It has to be persuaded in many curricular and extracurricular ways to do the needful.

MR. NAWAZ: I have a question there. This is again a reminder. It’s on the record. So we need you to please identify yourself and ask a brief question so others can get a chance to get their questions in.

Q: Thank you, Shuja. It’s Dana Marshall with the Transnational Strategy Group. And, Mr. Minister, welcome to Washington. Your first time here as minister, it sounds like from that action plan report that you accomplished quite a bit after a long time with TIFA being there, we have some movement. Obviously, both sides want a move – continue to move ahead.

My question for you though is sort of stepping outside a bit of the government to government. We know that a lot of trade, once we have the kind of facilitation and reduction of tariffs and this sort of thing, is really in the hands of private businesses.

And the development of supply chains – Shuja mentioned that the United States is very far from Pakistan. Well, the United States is also very far from China, whose exports to the U.S. in textiles, of course, also dwarf Pakistan’s exports with the same structure of tariffs against both countries’ export.

So my question is what can you do as minister and what can, let’s say, the commerce department here, your opposite number on that side, do to help encourage the development of the supply chains to increase commerce?

MR. KHAN: Well, this brings me to another point in our action plan. This is unprecedented in our trade discussion is that a part of the action plan is that the U.S. government and Department of Commerce and trade representative will facilitate Pakistan’s government interaction on commerce and trade related issues with states in the United States, and to put them – put us in touch directly with the states, some of whom have very large import bills, like $61 billion, you know, tens of billions of dollars that states import from other countries. So we are now hoping with, of course, the assistance of the Department of Commerce to reach out to regions in the U.S.

And also – but the challenge principally is that governments find it convenient to arrange B2B meetings and we are going to do that much more intensively than we have done. But, of course, it’s for us in the ministry of commerce in Pakistan really to give an international and export orientation to our producers and manufacturers. Those who have invested in technology and those who have invested in skills are making huge amounts of profit. Some of textile manufacturers in Pakistan, it might be news to some of you, are now importing ever larger quantities of U.S. cotton to export back to them, so they’re importing U.S. cotton in ever larger numbers and exporting it back to the U.S. as garments. So that is there, but, of course, much more needs to be done to be able to – for Pakistani manufacturers to take advantage of the opportunities that exist in the U.S.

MR. NAWAZ: Thank you.

Q: Bharath Gopalaswamy from the Atlantic Council. I’m really glad you touched on this word, “connectivity,” and the other word, “infrastructure.” South Asia is one of the most populous regions in the world, but it’s also the least integrated region in terms of economy –

MR. KHAN: Indeed.

Q: And infrastructure. And, at the council, we’re dealing with some specific issues and some specific problems. And I wanted to hear your thoughts on – so, for example, you said if a Pakistani businessman wants to travel from Karachi to Nepal, there is only flight that takes him a week to Nepal.

MR. KHAN: Not only Nepal. Even New Delhi.

Q: New Delhi, there’s only one flight. Do you think this is an investment problem? Do your counterparts also echo the same view – your South Asian counterparts also echo the same view? Where do you think – so where do you think we start from?

MR. KHAN: Absolutely. Not enough people have the visa to populate a flight. That’s the question.

Q: But, Nepal, you don’t need a visa.

MR. KHAN: It’s an issue for us to work on. And that’s why I said, you know, we have done to coin a very attractive acronym, TIC, trade, investment, connectivity. This is what we have to do simultaneously on all three – in all three parts for us to be able to really reap dividends. And that’s why connectivity is specifically a talking point in Prime Minister Nawaz Sharif’s government and our trade negotiations.

And, of course, prime minister’s personal predilection of creating infrastructure, is very keep on creating roads and bridges and ports is – this fits right into his desire to connect Pakistan. And for us to go to Nepal or Bhutan, even Bangladesh, is an issue, not enough flights even where visa doesn’t exist, the visa issue is not there. It’s for us to seriously think about investing in these things to pay attention, and which this government is finally doing.

MR. NAWAZ: Just so you know, Minister, when we organize our India-Pakistan Business Forum, we’re quite elated and gratified that the people we invite go to great lengths to get to the point of the meeting.

MR. KHAN: Right.

MR. NAWAZ: And we don’t pay them anything. They’re doing this on a voluntary basis. And it’s quite gratifying to see that they’re willing to go to Dubai and then, from Dubai to Bombay or to Katmandu in order to spend three days with their colleagues from India, sit down and talk about these issues. So there may be hope from the private sector.

MR. KHAN: No. What I found in my travels to India, in the previous parliament, I chaired the National Assembly’s Standing Committee on Commerce, and I was part of a parliamentarians’ dialogue with India. And we travelled to each other’s country four times. I went twice to New Delhi and our Indian counterparts came to Islamabad. And so I’ve been now to Delhi a number of times.

And there’s a palpable desire in both the peoples to travel and to go and see. There’s a palpable desire because to – of course, for religious pilgrimage because there are sacred sites scattered that people would like to go to on a regular basis, in very large numbers. I’m certain if there was any visa liberalization, Ajmer Sharif would be swamped by Pakistanis.

MR. NAWAZ: And Lahore –

MR. KHAN: And Lahore by –

MR. NAWAZ: – by Indian Sikhs.

MR. KHAN: And, you know, there are some way – some of the – probably the most sacred religious sites for Sikhs inside Pakistan. I mean, there’s one site on the Narowal border in Pakistan, which is in Pakistan, and there’s a very large number of Sikhs who just come and stand across the border to say their prayers.

So one of the schemes which seems quite exotic at the moment, but perhaps one day it will become reality is for us to do sort of say, you know, maybe we should create a fenced-in free travel area so when you go in, your surrender your passport and you – you know, around that shrine, and you go in and, you know, you pray and you come back and you get your passport back and that’s it. So we’ve been considering things like that to facilitate so we –

MR. NAWAZ: But you’ll have to take it out of the hands of the bureaucrats because they will make a dog’s breakfast out of it. I can assure you of that.

MR. KHAN: That’s one legacy that bedevils us. I mean, we contemplate the same thing for businessmen at Wagha border and maybe we can have sort of a negotiation zone where people want to conduct come and –

MR. NAWAZ: Or have straight roads that go straight to the shrines and back again.

MR. KHAN: Well, there are different ideas that –

MR. NAWAZ: I think we’re getting somewhere.

MR. KHAN: Right.

MR. NAWAZ: The next question is over here, so please wait for the mic.

Q: Teresita Schaffer from Brookings and McLarty Associates. Welcome, Mr. Minister. I wanted to ask you where – as you look in the longer term, what thought is being given to diversifying Pakistan’s exports and ultimately its economy? I mean, for the moment, you’ve got a hugely cotton dependent economy and that’s obviously what’s on your plate, but in the longer term one hopes that Pakistan will have a broader array of things to offer both internally and externally. And I wonder what is happening that might contribute to this process.

MR. KHAN: Well, we identified – first, as I’ve mentioned I think more than once now already, agro food processing. And even fresh food; there is a ready market in the gulf region for Pakistani food, for Pakistan’s poultry, vegetables. We are discussing things that are running a fast boat from Karachi to the – (inaudible) – Qatar, Bahrain, which would – which theoretically can brings fresh vegetables twice a day from Karachi to these Gulf regions, bring fresh fruit. So agro food is – and agro processing is – and packaging, which would facilitate such an export, is very much our priority.

The second sector in which we see a great potential, in which we have seen some movement in the U.S. also is gems and jewelry, and there’s tremendous gains to be made there, provided we have – we have already introduced technology. We hope to introduce more of it. We also now have for the first time design institutes for gems and jewelry which are now facilitating – the graduates are facilitating export of these products. We just had a substantial increase in exports of our jewelry to the U.S. for some reason. Very gratifying. But gems and jewelry is the second.

The third is not for the U.S. but for many other countries it’s pharmaceuticals. Again, tremendous potential there and, if properly structured, can be a force for diversification of Pakistan’s economy.

So these three are the major what we call relatively low-hanging fruit in diversification. But, of course, even in the textile and cotton sector, there is a tremendous scope for value addition which is yet to be realized. A lot of our cotton is going out as cotton, ojan (ph), which is not much value addition. It doesn’t really help Pakistan’s economy. So we are hoping to – by designing an incentive structure to ensure that more value addition happens, not just in textiles, although it would be sort of, again, the easiest thing to do, but also other sectors where a lot of our production is going west.

Q: I am Dr. Nisar Chaudry with the Pakistan American League. Mr. Minister, it was wonderful to listen to such a balanced really presentation where you gave hope, at the same time you identified challenges, and then came up with an action plan, too.

You just mentioned – you suggested an observation – that women empowerment thing. I think every happily married man in Pakistan lives like a slave king and still you want to empower women more than before. That is a great thing. I think – and we all know – ask our ambassador also. We are all good slave kings and we are happily married. My question is that –

MR. KHAN: That is the secret to being happily married. (Laughter.) The slavery is the secret.

Q: Trade secret. My question is that you talked and focused mainly on trade, and at the same time we are running around the world asking for aid. What do you anticipate a timeframe on an action plan where Pakistan can really become a self-reliant state? We put our house in such an order. And then you talked of Central Asia, reaching to Central Asia out to China. Do you also have Russia in mind when you talk of trade up to Central Asia? Thank you.

MR. KHAN: Well, first of all, as I try to illustrate through the GSP example is that we are not seeking aid or grants as a matter of policy. This government is not seeking any aid or grants from any country. And what we sought from the EU were trade concessions. And this was, in fact, one of the strong talking points when I went to Strasbourg to speak to the European Union. I said, I’m not seeking any money from the European Union, not seeking any support, nor grant; just an opportunity for Pakistan’s business to access EU markets.

And interestingly, the reason is that our direct competitors, which are regional competitors, have had access – preferential access under the rubric of LDCs or some other arrangements have had preferential access to these markets. So all we said, it was, you know, please give us a leveled playing field with our competitors. Allow us to compete. We don’t seek any money from you.

Again, the same thing, if you remember when Prime Minister Nawaz Sharif was here in October, he did not seek any aid. So we are not seeking aid from anyone as a matter of policy. What we are seeking is market access. What we are seeking is more trade.

And, as I said – you know, I’m glad you brought up Russia. Our trade with Russia has interestingly been held up by a private dispute with some Pakistani companies, with – when the Soviet Union shifted to Russia and has been pending all these years. And we have now, in the last 11 months, paid tremendous amounts of attention to it. There are some litigation issues involved in Pakistan also. And we are hoping that sometime this year, we’ll be able to – with active involvement of the Ministry of Commerce, we’ll be able to resolve those litigation issues with the Pakistani companies that they have against Russia. And we’ll be able to resume trading with Russia actively in a normal manner.

So that is our priority, to trade with the world. In fact, with the U.S. also, when we say that we want market access, but at the same time I said to my counterpart that the preference of the elected government led by Prime Minister Nawaz Sharif is to come out of this concession-seeking business. We want to – we want long-term, stable, normal trading relationships across the world. That is our priority in the long term. Yes, in the short term, while we’re coming out, our economy is severely, say, damaged and destroyed by the extremist challenge that we have faced. There are issues, as I said, of energy.

So perhaps in the short term, in the next three or three to five years, we will be seeking market access on concessionary terms or preferential terms. But that is not our priority. Our longer term priority is to have a normal trading relationship across the world.

MR. NAWAZ: Thank you. We have a question at the back.

Q: Salam Alaikum, Mr. Khan. My name is Ahma Chima (ph) and I’m in a master’s in cybersecurity from George Mason. And, at the same time, I also hold a degree in textile engineering from Manawala Faisalabad – (inaudible) – Textile Institute, National Textile University.

So you just mentioned about establishing the infrastructure and those connectivity points to boost the trade, but those are helpful as long as we have both a competitive and innovative product.

So, just for example, you just mentioned that Pakistan is importing more U.S. upland cotton, which is primarily famous for its extra long staple length, around 30 millimeter as compared to Pakistan 26 millimeters. So for only those extra four millimeters, we have to travel all the way to the U.S. to import that cotton. So we have a tremendous (weather ?) in Pakistan, but what we lack is the investment in research to produce that quality of cotton.

And the other thing I would like to ask you about are the nonwoven and technical textile products, and those are both still unturned stones in Pakistan. So is your government working also to establish more textile institutes which will train people in both textile and nonwoven products? Thank you.

MR. KHAN: Thank you for pointing out issues that keep me awake at night. Yes, there are serious underfunding of research not only in cotton, but also in one of our other major exports, which is rice – massive issues of research and to be able to gain, say, a stable funding mechanism for our research institutes and to ensure that these are populated by actual researchers and not by bureaucrats. That’s a challenge. And this is part of the reorganization of domestic commerce that I talked about. Very profound issues, I agree.

MR. NAWAZ: You didn’t talk much about China and the imbalance in that trade relationship. Where do you see that going? Is this going to persist? Is Pakistan simply going to be used as a staging or a manufacturing base for Chinese exports? Or is there going to be a shift taking advantage of Pakistan’s lower labor costs by Chinese enterprises to export to China or to other parts of the world? What’s the angle?

MR. KHAN: Interestingly, this is already happening.

MR. NAWAZ: Yes.

MR. KHAN: We recently had a most interesting transaction in which one of the – now, again, the vagaries of globalization – one of the textile manufacturers which imports U.S. cotton and re-exports to the U.S., was recently bought out by a Chinese textile company. It was the first such transaction in Pakistan’s history. They bought out 52 percent of their shares and have now control and they’re going to invest in the next three years they’ll tell us anywhere from $150 to $300 million in raising the capacity.

So yes, because textile manufacturing in China is becoming uncompetitive so already they are looking at Pakistan. One outcome of Prime Minister Nawaz Sharif’s visit to Beijing in July was it was for the first time Chinese Textile and Apparel Council has now an MOU with the Ministry of Textiles in Pakistan in which they are now actively supporting each other. And Chinese, in fact, Textile and Apparel Council is encouraging Chinese textile companies to come to Pakistan and to explore the prospects that are there. So, yes, that is happening.

But as I said, the challenge is domestic, and if I may just repeat what Prime Minister Nawaz Sharif said when he came out of his meeting with President Obama is we have to fix our own house, put our own house in order in that aspect also.

MR. NAWAZ: Speaking of fixing the house in order, when you talk to the U.S. counterparts about allowing greater access or giving at least Pakistan at least the same level of access that European countries have that are much more advanced than Pakistan, in the past, the excuse was that there were political reasons and that cotton producing states particularly in the South, a couple of them, were the main stumbling block and nobody was willing to take them on. We have a Democratic president. He’s been – he’s now in his second term. And those states have never voted Democratic. So what is the latest excuse that you hearing from the American side?

MR. KHAN: The latest excuse is the U.S. legislature in general. They said, you know, we have to find a way, a mechanism which doesn’t need to be referred to the legislature and could be managed by the executive branch. And they said that would be much more doable in the timeframe that we hope.

But with Ambassador Jilani here and his deep experience in diplomacy, we are hoping to have a more positive profile on the Hill. And if we do need to go to the legislature, we hope to have positive results out of it. I’m quite optimistic. And, of course, I’m always willing to come to the Hill to lobby personally on Pakistan’s behalf.

MR. NAWAZ: Well, I think we’ve given Ambassador Jilani a long list of things that he has to prepare. (Laughter.)

MR. KHAN: Yes, a cripplingly long list.

MR. NAWAZ: I’m sure he’ll be looking forward to your next visit as will the rest of us. And we would welcome you. And then, maybe what we can do is arrange a closed-door session with members of Congress.

MR. KHAN: Certainly, certainly.

MR. NAWAZ: And their senior staff. So maybe you can talk directly with them. But I’m very grateful and honored that you took this much time to spend with us in a very short visit and a very busy schedule. And we’re delighted to establish this direct contact with you and hope that we will be able to keep you abreast of our work on the India-Pakistan Trade and Business Forum so that we –

MR. KHAN: Look forward to it.

MR. NAWAZ: – play some kind of a supporting role in that regard. Please join me in thanking Minister Dastgir. (Laughter, applause.)

(END)

Join the Atlantic Council on May 8 from 9:30 to 11:00 a.m. for a discussion on Pakistan’s Federally Administered Tribal Regions (FATA). Faiysal AliKhan, Carnegie fellow, New America Foundation, will look beyond the military solution at practical approaches to change the economic and social landscape of the volatile border region.
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Heavy defense spending and economic non-cooperation between India and Pakistan are detrimental to the welfare of the citizens of the two neighboring countries, argues a report released by the Atlantic Council’s South Asia Center on Thursday.

At a briefing and launch of the report, India and Pakistan: The Opportunity Cost of Conflict, Authors Shuja Nawaz, director, South Asia Center, Atlantic Council and Mohan Guruswamy, nonresident senior fellow, South Asia Center, Atlantic Council, lamented that South Asia is the least economically integrated region in the world, mainly due to lingering territorial and political conflicts between India and Pakistan. This conflict has not only posed huge military expenditures on both countries, but has also significantly hampered economic cooperation. Guruswamy, speaking from New Delhi via Skype, maintained that the cost of economic non-cooperation was far greater than the military expenditure born by the historical rivalry.

Guruswamy mentioned examples of China and Japan, India and China, Russia and the United States, and other countries who maintained trade and economic relations despite territorial conflicts and political differences. The volume of indirect trade between India and Pakistan was around $18 billion, while direct trade remained at just $2 billion. Guruswamy argued, economic cooperation will lead towards increased direct trade, which will in turn benefit the two countries and save them from freight and transportation costs.

Citing research studies conducted by two eminent economists, Pervez Hassan and Shahid Javed Burki, Nawaz stated that had Pakistan reduced defense expenditures between 1970 to 2010, it could have added 2-2.5% yearly growth to its Gross Domestic Product (GDP). India could have seen a similar rate of growth had it opted to decreased defense spending, Nawaz maintained.

Highlighting potential areas of trade between the two countries, Guruswamy said that New Delhi alone could import 300 trucks of fruits and vegetables from Pakistan on daily basis, and India can replace a number of electronic items at half the price that Pakistan was spending on imports from distant countries.

Moreover, India and Pakistan can take several steps to build confidence and trust on both sides of the border that will lay the foundation for greater economic cooperation. Both countries should increase the distance between land forces deployed on their respective borders. More channels should be provided to strengthen people to people relations, and militaries on both the sides should engage in direct communications, such as through exchange visits. The two countries should jointly invest in energy, water, and export industries, and borders should be opened for trade. Nawaz maintained that opening the border for trade will eventually lead to greater ease in tourism visits.

“Economically intertwined and mutually beneficial economic systems in both countries will create a huge peace and development constituency that will not only be good for the two nations, but also for the region and the entire world.”

A report released today by the Atlantic Council’s South Asia Center argues that heavy military spending in India and Pakistan has in fact been detrimental to the citizens of both countries in terms of security and economic growth, and calls on leaders to reinvest in trade and confidence building.

In India and Pakistan: The Opportunity Cost of Conflict, Atlantic Council South Asia Center Director Shuja Nawaz and Nonresident Senior Fellow Mohan Guruswamy explain how high defense spending and low economic integration into South Asia’s regional economy have come at the expense of those living in poverty. Although many now favor rapprochement, Nawaz and Guruswamy argue that unless both sides begin a dialogue on economic and military relations, these issues will only worsen.

Read the Report (PDF)

In addition to military spending, a lack of strong bilateral trade relations between India and Pakistan has also exacerbated South Asia’s socioeconomic challenges. From GDP to job losses to investment, the non-fulfillment of trading potential is a cost that “neither of the two countries can afford to ignore.”

Nawaz and Guruswamy provide a set of actions both countries can take to decrease military spending and promote confidence building:

• Increase the distance between land forces by withdrawing from border areas
• Engage in direct communications between militaries, including exchange visits
• Invest jointly in energy, water, and export industries
• Open borders for trade and eventually tourism

Such measures will have a lasting impact beyond India and Pakistan, as the authors note: “economically intertwined and mutually beneficial economic systems in both countries will create a huge peace constituency that will not only be good for the two nations, but also for the region and the entire world.”

FOR IMMEDIATE RELEASE
April 24, 2014

A report released today by the Atlantic Council’s South Asia Center argues that heavy military spending in India and Pakistan has in fact been detrimental to the citizens of both countries in terms of security and economic growth, and calls on leaders to reinvest in trade and confidence building.

In India and Pakistan: The Opportunity Cost of Conflict, Atlantic Council South Asia Center Director Shuja Nawaz and Nonresident Senior Fellow Mohan Guruswamy explain how high defense spending and low economic integration into South Asia’s regional economy have come at the expense of those living in poverty. Although many now favor rapprochement, Nawaz and Guruswamy argue that unless both sides begin a dialogue on economic and military relations, these issues will only worsen.

In addition to military spending, a lack of strong bilateral trade relations between India and Pakistan has also exacerbated South Asia’s socioeconomic challenges. From GDP to job losses to investment, the non-fulfillment of trading potential is a cost that “neither of the two countries can afford to ignore.”

Nawaz and Guruswamy provide a set of actions both countries can take to decrease military spending and promote confidence building:

• Increase the distance between land forces by withdrawing from border areas
• Engage in direct communications between militaries, including exchange visits
• Invest jointly in energy, water, and export industries
• Open borders for trade and eventually tourism

Such measures will have a lasting impact beyond India and Pakistan, as the authors note: “economically intertwined and mutually beneficial economic systems in both countries will create a huge peace constituency that will not only be good for the two nations, but also for the region and the entire world.”  

Read the full report here.

The Atlantic Council is a nonpartisan organization that promotes constructive US leadership and engagement in international affairs based on the central role of the Atlantic community in meeting today’s global challenges. For more information, please visit AtlanticCouncil.org and follow us on Twitter @AtlanticCouncil.

Political Islamists, as they currently operate in Pakistan, are “likely to divide our society, break it apart, and cause more violence,” warned Former Pakistan Ambassador of Pakistan to the United States Husain Haqqani. He contended that political Islamists have replaced anthropological and sociological explanations of Islam with “a puritanical formation of Islam, which is essentially totalitarian, inherently violent, and very intolerant.” Haqqani, speaking at an Atlantic Council South Asia Center event urged for a more honest evaluation of Pakistan’s own history, suggesting that as it is interpreted now, Pakistan’s history is “totally mired in myths.”

Also speaking at the event, Haroon Ullah, member of US Secretary of State John Kerry’s Policy Planning Staff, directed attention to three such myths about political Islam, each preventing better governance in Pakistan and a stronger relationship with the United States. Firstly, violence is strategic. Political Islamists utilize violence as “very powerful signaling mechanism” to instill fear and meet their goals, which include securing votes. Secondly, democratization does not necessarily lead to moderation. The winner-take-all system in Pakistan’s elections enable smaller parties to hold a disproportionate sway in the country’s politics, as they often serve as the swing vote between major parties. In fact, Ullah argued, Islamic parties “stay stronger by staying smaller.” Islamists recognize and exercise this role—they are driven by pragmatism, rather than ideology alone. Lastly, poverty does not drive militancy. Instead, Ullah urged policymakers to pay attention to the thin middle class, often a target recruitment constituency, consisting of relatively urban, educated individuals.

Haqqani contended that “while political Islamists can be a part of the political landscape of any Muslim country and probably will be,” the nature in which Pakistan’s organizations have dominated the national political discourse is problematic to the future of the country. Islamists are “veto-wielders” who “hold a sway in Pakistan totally disproportionate to their numbers.” However, this is not a new phenomenon, Haqqani argued, but rather at the core of the country’s origins. At its formation, Islamists demanded provisions in the country’s constitution, defining what it means to be an Islamic state. This role was further defined through the establishment of Islamic laws, and now, Islamists vehemently oppose overturning these laws even by a parliamentary majority. The Islamists have “usurped the Pakistani national discourse,” said Haqqani, meaning a “rational political argument is no longer possible.”

Despite Haqqani’s grim outlook, Ullah remained optimistic that clarity can provide progress—though both agreed that the change must come from within Pakistan. “This is a critically misunderstood phenomenon in a critical relationship.” Working to understand Pakistan’s political Islamic parties will facilitate necessary engagement, diplomatically and otherwise, and “provide the perfect crucible to look at religious political parties [worldwide] that use ideologies and religious symbolism to mobilize.”