The Importance of India-Pakistan Cross-LoC Trade

In 2019, the New Delhi government suspended trade across the Line of Control – the barter exchange between the Indian and Pakistani parts of Kashmir. Therefore, while India and Pakistan continue to trade across their officially recognized border, trade across the disputed portion of the border, the Line of Control (LoC), is not permitted at this time.

This topic is one of the areas of expertise for Afaq Hussain, director and founding member of the New Delhi-based policy research institute, the Bureau of Research on Economic and Industrial Foundations (BRIEF). Hussain works in the field of international relations and business connectivity; His research interests include conflict, cross-border trade, and development studies. Hussain spoke with The Diplomat’s Krzysztof Iwanek about the importance of this trade across lines of control. This interview has been lightly edited for clarity.

In your 2017 Commentary for The Hinducalled cross-LoC trading “one of the most successful CBMS [Confidence Building Measures] between India and Pakistan. To an outside observer, this may be a surprising assessment. How important was this trade to Jammu and Kashmir, as well as to New Delhi’s relations with Islamabad?

The Cross-Line of Control (LoC) trade through Jammu and Kashmir was a revolutionary Confidence Building Measure (CBM) between India and Pakistan, helping to create a constituency of peace and to connect the divided families of Jammu and Kashmir through economic commitment. Started in 2008, this barter trade reached a cumulative value of over $1.2 billion, a significant amount considering the nature of Jammu and Kashmir’s border economies. The involvement of multiple stakeholders such as traders, workers, carriers, etc., in this trade created employment opportunities for people living in these areas. This trade generated about 170,000 days of work, or $12 million, for workers and freight of about $88 million. So, overall, trade across lines of control helped establish a strong economic dependency between politically turbulent neighbors India and Pakistan.

In addition to the economic and financial gains for stakeholders in this business ecosystem, the CBM emerged as a standard bearer for peace between India and Pakistan. The start of this trade helped bridge the trust gap 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 increase person-to-person contact and connectivity across Jammu and Kashmir, particularly for divided families, and resulted in trust building.

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What is noteworthy is that when Indo-Pakistani relations reached their nadir during the 26/11 attacks in Mumbai in 2008 and the Uri attack in 2016, trade across the Line of Control continued. It resulted in the creation of a group of peacemakers and brought together stakeholders from both sides of the line of control, as well as from New Delhi and Islamabad. It changed the mentality of the people in Jammu and Kashmir and the narrative of “blurred borders” could be observed.

Do you think that trade between LOC should and can be reactivated?

The suspension of trade across lines of control has had a profound impact on border economies, both in terms of social and economic impact. We must also keep in mind that this impact has only worsened due to the COVID-19 pandemic. The resumption of trade between the lines of contact will help these stakeholders to revive their livelihoods. The governments of India and Pakistan should revive this trade and ensure the continuation of the dividends that this trade had secured.

Of late, the Pakistani government has shown a penchant for a resumption of trade, which must bear fruit. The resumption of inter-LoC trade should also be part of the India-Pakistan talks. Governments would also need to restrategize the framework for this trade to improve security aspects and induce trust and transparency for this trade to flourish.

Cross-LoC connections can be used as an element to improve India-Pakistan relations. The economic priorities for the implementation of peace cannot be underestimated.

Would it be feasible to divert trade, rather than reactivate it through the LoC, to ensure it is better controlled? Can it take place across the official border between India and Pakistan? Or would logistics costs and competition from other traders make such diversion impossible?

Cross-LoC trade was started as a Jammu and Kashmir-focused confidence-building measure between India and Pakistan. Cross-LoC trade was a barter trade that focused on building economic connectivity and improving people-to-people contact through the two agreed routes in Jammu and Kashmir. It developed as an additional layer of economic engagement between the two countries on top of regular international trade.

International trade routes already exist between India and Pakistan by land and sea. The land route is active through Punjab and international trade is carried out through this route. It may not be feasible to move LoC cross trade routes from Jammu and Kashmir as it will dilute the base of this initiative.

In the reports of his group of experts, BRIEF, like those of 2017 and the 2021, also mentions concerns about this trade, including that it could lead to a growth in illicit trade. The Indian government gave as an official reason for suspending this trade in 2021 that trade across lines of control could be misused to smuggle arms or narcotics (therefore presumably also to strengthen terrorist groups). How justified are those concerns in your opinion?

Illicit trade is a serious and growing threat to our societies. It is not a national phenomenon, but an international one. Around the world, there are certain irregularities in the trading ecosystem, which abuses the trading system and the legal frameworks around it. However, the effort of the government and regulatory agencies has focused on strengthening supervision to curb such misuse.

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For a few years prior to the suspension of inter-LoC trade, he became notoriously notorious for facilitating illicit trade and other irregularities. We must remember that the negative narratives related to this trade also emanated from various operational and security concerns. Some of these concerns were linked to deficiencies at the infrastructure and policy levels. Given the barter nature of this trade, inter-LoC trade did not follow regular international trade practices and financial accounting protocols. This created room for irregularities in the trading system, which was also exploited. It can also be noted that there have been cases of narcotics and smuggling across other trade borders (eg ICP Attari between India and Pakistan). Regulatory and security agencies at these borders would strengthen the ecosystem to stop such instances in the future and not suspend trade as was done in the case of trade between LoCs.

This trade would not have survived political turmoil for a decade if trade across the contact lines had not created its own “emotional capital” through people-to-people connections and economic dividends in the border economies of Jammu and Kashmir. Trade volumes may be minimal in the overall economic spectrum of India and Pakistan, but they need to be viewed through the lens of the conflict and the benefits to the people living in these border areas. It is then that the results of this trade are magnified and the positive impact is appreciated.

As the governments of India and Pakistan decide to restart this trade, they must take into account security and political concerns that have been raised over the last decade. The revised protocols for this trade must address any loopholes that exist from the misuse of this trade. It will be necessary to implement the updating of the infrastructure, both physical and digital, to guarantee transparency and, at the same time, analyze the policy gaps in the areas of identification of products through HS codes, implementation of digital platforms, clarity of fiscal regulations and “rule of origin”. etc.

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