The Importance of India-Pakistan Cross-LoC Trade

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The Importance of India-Pakistan Cross-LoC Trade

The barter trade across the disputed border “helped in creating a peace constituency and connecting the divided families of Jammu and Kashmir through economic engagement.”

The Importance of India-Pakistan Cross-LoC Trade

Indian trucks drivers wait for the reopening of the Line of Control (LoC) trade center at the Chakan Da Bagh, in Poonch, 245 kilometers (152 miles) northwest of Jammu, India, Monday, Jan. 14, 2013.

Credit: AP Photo/Channi Anand

In 2019, the New Delhi government suspended cross-Line of Control trade: the barter exchange between the Indian and Pakistani parts of Kashmir. Thus, while India and Pakistan continue to trade through their officially recognized border, trade through the disputed part of the border, the Line of Control (LoC), is not allowed at the moment.

This subject is one of the areas of expertise of Afaq Hussain, the director and a founding member of the New Delhi-based policy research institute, the Bureau of Research on Industry and Economic Fundamentals (BRIEF). Hussain works in the field of international relations and trade connectivity; his research interests include conflicts, cross-border trade, and development studies. Hussain spoke to The Diplomat’s Krzysztof Iwanek about the significance of this cross-LoC trade. This interview has been lightly edited for clarity.

In your 2017 commentary for The Hindu, you called the cross-LoC trade “one of the most successful CBMS [Confidence Building Measures] between India and Pakistan.” For an external observer, this may be a surprising assessment. How important was this trade for Jammu and Kashmir, as well as New Delhi’s relations with Islamabad?

Cross-Line of Control (LoC) trade through Jammu and Kashmir was a breakthrough Confidence Building Measure (CBM) between India and Pakistan, which helped in creating a peace constituency and connecting the divided families of Jammu and Kashmir through economic engagement. Initiated in 2008, this barter trade achieved a cumulative value of over $1.2 Billion which is a significant amount considering the nature of border economies in Jammu and Kashmir. The engagement of multiple stakeholders like traders, laborers, transporters, etc., in this trade created employment opportunities for the people living in these areas. This trade generated around 170,000 labor days, or $12 million, for laborers and freight of around $88 million. So, all in all, cross-LoC trade helped establish a strong economic dependency between the otherwise politically turbulent neighbors, India and Pakistan.

Apart from the economic and financial gains for the stakeholders in this trade ecosystem, the CBM emerged as a flagbearer of peace between India and Pakistan. The initiation of this trade helped in bridging the trust deficit between the governments of India and Pakistan as well as between the government in New Delhi and the people of Jammu and Kashmir. This trade helped in increasing people-to-people contact and connectivity through Jammu and Kashmir, particularly for the divided families, and resulted in building trust.

What is noteworthy is that when Indo-Pak relations hit its lowest ebb-during the 26/11 attacks in Mumbai in 2008 and Uri attack in 2016, trade across the Line of Control continued. It resulted in creating a constituency of peacemakers and brought together the stakeholders from both sides of the line of control as well as New Delhi and Islamabad. It changed the mindsets of the people in Jammu and Kashmir and the narrative of “blurring borders” could be observed.

Do you think the cross-LOC trade should, and can, be revived?

The suspension of cross-LoC trade has had a profound impact on the border economies, both in terms of social and economic impact. We must also note that this impact has only gotten worse due to the COVID-19 pandemic. Resumption of cross-LoC trade will help these stakeholders to revive their livelihoods. The governments of India and Pakistan should revive this trade and ensure the continuity of the dividends this trade had ensured.

Of late, the government of Pakistan has shown inclination toward resumption of trade, which needs to be fructified. Resumption of cross-LoC trade should also be part of the conversations between India and Pakistan. The governments would also need to re-strategize the framework of this trade to enhance security aspects and induce trust and transparency for this trade to flourish.

Cross-LoC connections can be used as an element of improving India-Pakistan relations. The economic priorities for peace implementation cannot be understated.

Would it be feasible to reroute trade, instead of reviving it through the LoC, to ensure it is monitored better? Can it take place through the India-Pakistan official border? Or would the logistical costs and competition from other traders make such rerouting impossible?

Cross-LoC trade was initiated as a Jammu and Kashmir-centric Confidence Building Measure between India and Pakistan. Cross-LoC trade was a barter trade that was focused on building economic connectivity and enhancing people-to-people contact through the two agreed routes in Jammu and Kashmir. It developed itself as an additional layer of economic engagement between the two countries apart from the regular international trade.

There already exist international trade routes between India and Pakistan through land and sea. The land route is active through Punjab and international trade takes place through this route. It may not be feasible to move the cross-LoC trade routes from Jammu and Kashmir as it will dilute the basis of this initiative.

In the reports of your think tank, BRIEF, such as ones from 2017 and the 2021, you also mention concerns about this trade – including that it could lead to a growth of illicit trade. That the cross-LoC trade could be misused to smuggle weapons or narcotics (thus presumably also strengthening terrorist groups) was given as the official reason by the Indian government to suspend this trade in 2021. How justified are those concerns in your opinion?

Illicit trade is a severe and growing threat to our societies. It is not a national phenomenon, but an international one. Across the world, certain irregularities do exist in the trade ecosystem, which abuses the trading system and legal frameworks around the same. However, the endeavor of the government and the regulatory agencies has been focused on strengthening oversight to curb on such misuse.

For a few years prior to the suspension of cross-LoC trade, it became notoriously known for facilitating illicit trading and other irregularities. We must remember that negative narratives pertaining to this trade also emanated from various security and operational concerns. Some of these concerns were linked to the infrastructural and policy level deficiencies. Given the barter nature of this trade, cross-LoC trade did not follow regular international trade practices and financial accounting protocols. This resulted in scope for irregularities in the trade system, which was exploited as well. It may also be noted that there have been instances of narcotics and smuggling at other trade borders as well (for example, ICP Attari between India and Pakistan). The regulatory and security agencies at these borders would strengthen the ecosystem to stop such instances in future and not suspend the trade as was done in the case of cross-LoC trade.

This trade would not have survived the political disruptions for a decade if the cross-LoC trade had not created its own “emotional capital” through people-to-people connections and economic dividends on the border economies in Jammu and Kashmir. The trade volumes may be minimal in the overall economic spectrum of India and Pakistan, but it needs to be looked at through the lens of the conflict and the benefits to the people living in these border areas. That is when the result of this trade are magnified and one appreciates the positive impact.

As and when the governments of India and Pakistan decide to re-initiate this trade, they need to keep in mind the security and policy concerns that have been raised over the last decade. The revised protocols for this trade should address any loophole that exists for misuse of this trade. Infrastructure upgradation, both physical and digital, will need to be put in place to ensure transparency while also looking at policy gaps in the areas of product identification through HS codes, implementation of digital platforms, clarity of tax regulations and “rule of origin,” etc.