VZCZCXRO6812
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2532/01 2631246
ZNR UUUUU ZZH
R 191246Z SEP 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3476
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 NEW DELHI 002532 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR CLILIENFELD/AADLER/CHINCKLEY 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON ECPS EFIN EINV ENRG EPET ETRD BEXP
KIPR, KWMN, PHUM, SENV, IN, PK 
 
SUBJECT: INDIA RECEPTIVE TO NEW PAKISTAN TRADE POLICY 
 
¶1. (SBU) Summary: India's Ministry of Commerce and Industry has 
responded appreciatively to the expanded positive list of 
permissible trade with India that Pakistan announced in July, while 
Indian industry has also indicated receptivity to new trade 
opportunities, seeing a "new breed" of Pakistani businessmen with 
whom to trade.  The gap between potential and actual Indo-Pakistani 
trade is not about to close tomorrow, but India's response to 
Pakistani overtures suggests slow but steady trade expansion is in 
the works.  End Summary. 
 
PAKISTAN'S NEW TRADE POLICY 
--------------------------- 
 
¶2. (U) Pakistan Commerce Minister Chaudhry Ahmed Mukhtar announced a 
new trade policy on July 18.  In his speech, reported in Indian 
press, he explained the number of items that can be traded with 
India was expanded to take advantage of cheaper raw materials 
sourced from India. "India is becoming an important economic 
partner, and trade with it will be in the interest of Pakistan," he 
was quoted as saying.  The trade expansion was modest -- adding just 
136 items to the positive list (explicitly permitted tradable 
items), bringing the total to 1,938 goods.  India-Pakistan trade is 
heavily tilted to India's advantage - it sold roughly $1.8 billion 
to Pakistan in 2007 compared to buying just $350 million from its 
neighbor.  The expanded trade is likely to widen the trade gap, but 
with cheaper inputs, that could make Pakistani goods more 
competitive.  The trade policy also invites Indian investment for 
the first time. 
 
Ministry of Commerce Welcomes Enhanced Trade 
--------------------------------------------- 
 
¶3.  (SBU) Econoff met with Indian Ministry of Commerce and Industry 
Joint Secretary (Regional Trade) Rajiv Kher to discuss regional 
trade.  Kher began by observing that trade within South Asia was the 
lowest sub-regional economic integration anywhere in the world, with 
most South Asian countries conducting only 5% of their total trade 
with their regional neighbors.  Kher then conceded that recent 
Indian export restrictions on food, cement, and steel products were 
affecting Nepal.  Once this was brought to the Indian government's 
attention, Kher stated, the government moved to exempt Nepal from 
export constraints, such as in cement.  The Ministry of Commerce 
also engaged the Ministry of Finance to exempt Nepal from the steel 
export duty.  The Joint Secretary added that his Ministry had 
proposed to other ministries that all country members of SAFTA 
(South Asia Free Trade Agreement) be automatically exempt from 
Indian export bans.  However, he explained, there were concerns that 
such a blanket exemption would allow the proliferation of 
third-country shipment from countries outside SAFTA abusing the 
duty-free status given to SAFTA members.  The final government 
decision was to require SAFTA member countries to ask the GOI for an 
exemption, which would be granted once requested. 
 
¶4.  (SBU) Turning to Pakistan, Kher noted that India was hearing 
"positive sounds" from Pakistan, pointing to the new Trade Policy 
and Trade Policy Speech.  He welcomed the Pakistan Commerce 
Minister's statements that India was a good trade partner for 
Pakistan.  Kher pointed to a rise in Indian imports of cement from 
Pakistan that would "substantially" raise Pakistan exports to India. 
 Although Kher appreciated that 136 items were added to Pakistan's 
posiive trade list with India, he indicated that the amount was 
disappointing to his office, because they had been led to believe 
that the expansion would be even larger.  Kher singled out high 
speed diesel among the new tradable items as holding the potential 
to noticeably increase bilateral trade.  He noted press reports 
estimating that Pakistan could buy $4 billion in diesel from India, 
but he was unsure that India had that much more available to export. 
 Kher estimated that India exports $12 billion in diesel to the 
region right now and thought that if India were to meet all of 
Pakistan's diesel needs, India would have to lower its exports 
elsewhere. 
 
¶5.  (SBU) Kher ended on a positive note, declaring that bilateral 
trade between India and Pakistan was going well and reiterating that 
Pakistan was making "the right noises."  He also noted efforts to 
improve the "operationalization" of trade.  Kher stated that most 
Indo-Pak trade went through the sea route, since in railways there 
 
NEW DELHI 00002532  002 OF 002 
 
 
is insufficient compatibility of technology, especially in wagon 
weight capacity.  Kher also identified the goods shed in Lahore as 
undercapacity.  He acknowledged that investments were needed on 
infrastructure in both sides, but that there were huge prospects for 
improvement and enhanced trade. 
 
Indian Businesses Welcome Enhanced Trade Potential 
--------------------------------------------- ----- 
 
¶6.  (SBU) In a meeting late last month with Assistant Secretary of 
State for South and Central Asia Richard Boucher, members of the 
Confederation of Indian Industry (CII) voiced support for the 
positive trade signals coming from the Pakistani government.  Dhruv 
Sawhney, Chairman and Managing Director of Triveni Engineering and 
Industries, noted that Former Pakistan PM Nawaz Sharif's son had 
recently visited him at his office to inquire about trade 
possibilities. [Note: Sawhney's family is from Pakistan's Northwest 
Frontier Province. End note.]  Sawhney opined that the younger 
Sharif was part of a new "different breed" in Pakistan who was very 
interested in trading with India.  Sharif had approached Sawhney 
about the possiiblity of buying turbine machinery used in sugar 
processing.  Sawhney noted positively that Sharif had not suggested 
circumventing trade and customs requirements by going through Dubai. 
 (Note: Analysts estimate that circumvented trade between India and 
Pakistan through Dubai amounts to as much as $4 billion a year, 
compared with roughly $2 billion in legal, declared bilateral trade. 
 End note.) 
 
¶7.  (SBU) The industry leaders agreed that the new set of leaders in 
Pakistan appear to be more forwarding leaning on expanding bilateral 
trade without waiting for political breakthroughs.  Ranbaxy Chairman 
Harpal Singh welcomed the new attitude, noting the mutual benefits 
of trading with neighbors rather than from buying farther afield. 
For example, he noted that for construction projects in Amritsar, 
Punjab, which borders Pakistan, it is cheaper to import cement from 
Pakistan than to buy it from within India. 
 
Comment 
------- 
 
¶8.  (SBU) With restrictions on tradable goods, trade routes, and 
visas, there are more barriers to trade between India and Pakistan 
than there are bridges.  Even so, trade between the two countries 
has been growing at more than 50% for the last few years. 
Pakistan's newest signals on expanding trade should help sustain 
that trend.  It appears that both India and Pakistan are recognizing 
that, in a world of rising input costs and more expensive transport 
costs, it pays to source closer to home.  If both countries were to 
improve their shared infrastructure of roads and rail for more trade 
volume, the benefits would be even higher. 
 
MULFORD