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From Line of Control to Line of Commerce

Trade resumed across the Line of Control in divided Jammu and Kashmir in October 2008 after 61 years. Despite its implications for the wider region, there has been surprisingly little research to determine the nature and impact of this trade. A recent study attempted to gauge progress over the last few years and the response of traders to the new trade dispensation.

COMMENTARY

From Line of Control discussed bet ween India and Pakistan, it is the cross-LoC trade that has had the maxi
to Line of Commerce Altaf Hussain Kira mum impact. The authorities must recognise that trade volumes have increased despite trade being on barter terms, and despite a lack of proper communication channels, absence of a banking system, dearth of legal

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Trade resumed across the Line of Control in divided Jammu and Kashmir in October 2008 after 61 years. Despite its implications for the wider region, there has been surprisingly little research to determine the nature and impact of this trade. A recent study attempted to gauge progress over the last few years and the response of traders to the new trade dispensation.

Altaf Hussain Kira (altaf@igidr.ac.in) is at the Indira Gandhi Institute of Development Research.

I
n April 2005, a bus service across divided Kashmir took off and facilitated the union of separated families, a breakthrough achieved after 58 long years. This was followed by the opening of trade routes, an initiative that has been tried in various conflict regions across the globe. The start of the cross-Line of Control (LoC) trade across divided Jammu and Kashmir (J&K) in October 2008 signalled the beginning of a new era. It was 61 years ago, in 1947 that trade across the LoC had stopped. Today, trade takes place on Tuesday and Wednesday every week along two routes: Salamabad-Muzaffarabad and Chakan-daBagh-Rawalakot. Salamabad is in Uri sector of Kashmir while Chakan-da-Bagh is in the Poonch area of Jammu. Muzaffarabad and Rawalakot fall in Pakistan-administered Kashmir (PaK). Contrary to the predictions of many sceptics, trade along the two routes has grown over the last more than two years. Till December 2010, exports worth Rs 311.87 crore and imports of Rs 499.12 crore (Pakistan currency) have taken place. Among all the confidence-building measures (CBM)

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enforcement of contracts and the limited number of trade days and tradable goods.

Experiences across Frontiers

In experimenting with trade as a trustgenerating step that might lead to final settlement of issues, experience from Ireland serves as a point of reference. The crossborder cooperation between North and South Ireland, which have witnessed a long-drawn mutual conflict, has led to the development of mutually beneficial projects through policy experiments like the Special Support Programme for Peace and Reconciliation. Political agreements have also been reinforced by specifically targeted institutional developments, such as the cross-border institutions and bodies created by the Good Friday or Belfast Agreement, that aim to encourage cross-border cooperation and integration (Meehan 2000).

The method of packaging trade and peace has also been tried in the Israeli-Palestine conflict. The Gaza-Jericho Agreement signed between the Israeli government and the Palestine Liberation Organisation in May 1994 incorporated the Protocol on Economic

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COMMENTARY

Relations. The agreement sought to establish an economic base that would eventually lead to the settlement of the issue (Cobham 2001; Arnon and Weinblatt 2001; Kanafani 2001). Cross-border trade between Southern Sudan and Uganda is another example of trade making a significant contribution to socio-economic recovery in both regions. Economic exchange has helped improve food security and meet critical gaps in the market, like that of skilled labour in Southern Sudan (Carrington 2009).

Instances like these help argue for trade to serve as peace conduit. For J&K, this is all the more pertinent, given the economic, social and cultural links that existed in the past between the divided parts of J&K. Establishing permanent and sufficiently resourced trade links through cross-LoC trade thus assumes significance.

One of the peculiarities of the terms of exchange in cross-LoC trade is that it is not international trade. Exports are called “traded-out” and imports are called “tradedin” goods. The standard operating procedure (SOP) signed between India and Pakistan serves as the basic document for undertaking trade. Trade facilitation centres (TFCs) have been set up in Salamabad and Chakanda-Bagh to smoothen the progress of trade across the LoC. As per agreed modalities, cargo passes LoC points at Kaman Post in Salamabad and Chakan-da-Bagh in Poonch after being cleared by the respective TFCs. The movement of vehicles carrying goods on the two routes is allowed on Tuesday and Wednesday between 9 am and 4 pm. The drivers of these vehicles wear bright yellow and pink jackets or vests, with “Driver Chakoti/Rawalakot” or “Driver Salamabad/ Chakan-da-Bagh” inscribed on them, depending on which side they belong to.

Very little research has been done to determine the nature and impact of cross-LoC trade. This is a surprising neglect, because the short- and long-term impact of trade across divided J&K has implications for the larger region. This was the context within which the following questions were posed: first, how has trade moved forward for more than two years in the presence of limited structure? Second, what has been the response of traders to the new trade dispensation?

A study was undertaken in March 2011 at the transit points of Salamabad and

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Chakan-da-Bagh to evaluate cross-LoC trade in the light of above questions. A questionnaire was developed that covered business leaders involved in the trade as well as officials overseeing cross-LoC trade – TFC personnel, custodians, quarantine officials and security personnel. Trade bodies in Srinagar and Jammu were also interviewed to elicit their opinions. In selecting traders and business leaders, an effort was made to obtain a wide representation across geographical distribution, commodity and goods traded. A total of 89 traders were interviewed on the basis of the questionnaires supplied. Personal interviews were used to collect primary data from traders who trade along the Salamabad (Uri)-Chakoti (Muzaffarabad) and Chakan-da-Bagh (Poonch)-Rawalakot routes.

Study Findings

The growth of cross-LoC trade within a short period of less than three years demonstrates the importance of the trade. A total of 300 traders are currently registered with the custodian at Salamabad TFC. Out of these, 107 belong to the frontier district of Baramulla, 98 are from Srinagar, and the rest from other districts of the state. There are 128 traders who trade along the Chakan-da-Bagh-Rawalakot route; 96 are from Poonch, 25 from Jammu and seven from the rest of the areas of J&K. Traders involved in cross-LoC trade are widely spread across J&K and the majority of traders belong to areas that are close to the LoC.

A high percentage of respondents – nearly 54% – revealed that they have been involved in cross-LoC trade for more than two years. The trade has led to additions in the workforce employed by firms; the survey reveals that business entities have augmented their workforce by 54% since the opening of the trade. Over 800 labourers, including truck drivers, mostly belonging to the border areas have benefited directly because trade has opened an alternative labour market for people residing in the peripheral areas of the state. The survey reveals that most of the traders (62%) are educated up to the 10+2 level and 36% are graduates and above. Some 68% of the trading community in Uri and Poonch are wholesalers and producers of various commodities (mostly fruit growers). Few manufacturers are part of the trade, partly because

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manufactured items do not figure in the list of items currently traded across the LoC.

When perceptions were elicited from the interviewed traders about the ease of doing cross-LoC trade, 89% agreed that it was easy. About interaction between traders across the divide, 30% said they had never participated in trade dialogue with their counterparts in PaK. Despite a provision in the SOP for trade dialogue between traders’ representatives across the LoC, traders in Uri revealed that only one such trade dialogue was held between the two sides at the zero line. In contrast, traders in Poonch reported regular participation in trade dialogue held every three months as stipulated in the SOP.

Due to security restrictions and checks, it takes around two hours for trucks from Salamabad to reach the crossing point at Kaman Post. In Poonch, vehicles cross in less than 30 minutes as the distance is only around two kilometres. The respondents indicated that an expenditure of Rs 1,200 to Rs 2,000 had to be incurred on labour for uploading goods again at the TFCs. The overall turnover suggests that robust trade takes place on both days, with violence or closure of markets having no effect on its conduct. Respondents indicated that primary goods exports generated an average sale of Rs 15.87 lakh for firms every month. Business firms reported a minimum sale of Rs 5 lakh and a maximum of Rs 80 lakh per month during the period of two years.

However, traders from Poonch as well as Uri felt that the phytosanitary requirements were more political than scientific though there was consensus on using scientific measures in import health standards procedures for inspecting fruits, vegetables and plant material that comes from Chakoti or Chakan-da-Bagh. An official of the Plant Quarantine Organisation of India inspects all the traded-in fruits, vegetables and plants. Till December 2010, traders reported that more than eight commodities were banned for trading including pulses like moong (green gram), ginger, garlic, ajwain (carom seeds), dates and coconut.

The traders also procure locally produced commodities like apples, fresh fruits and vegetables, saffron, honey, walnuts, almonds and various types of handicrafts from markets located in J&K for export. A few commodities like coconut and cardamom are

COMMENTARY

procured from outside markets for onward shipment to Muzaffarabad and Rawalakot, which means that country-of-origin rules are not being followed by business enterprises in some commodities. This is primarily because of the generalised specification of the list of items that are allowed for trade.

Almost all the traders were aware that 21 goods are traded across the LoC. Depending on the demand for a particular good, the traders acted both as exporters and importers. On an average, a trader imported or exported two to three items. The respondents revealed that given the limited nature of trade across the border, they ran other businesses as well. Only 22% of the respondents said that they were wholly dependent on LoC trade for their livelihood. On the question of acting as proxy traders on behalf of non-J&K residents, only 4% admitted to acting as commission agents for traders from outside the state.

Future of the Trade

An overwhelming percentage of traders responded that the economics of cooperation will help in resolution of the Kashmir conflict. The traders were doubtful about the role of trade bodies in improving trade. None of the traders reported having received any assistance from the established trade bodies of the region in either J&K division. A common border (52%), a common language (33%) and short distances (15%) ranked as the important factors that, according to respondents, could make the crossing points of Uri and Poonch in the LoC areas important in the future.

Traders were asked about the factors inhibiting conduct and progress of the trade. More than 48% respondents at the trading points of both Uri and Poonch thought that increasing the list and number of days was important for improving trade. This was the only factor that received high favourable ratings by traders from both Uri and Poonch. Allowing use of mobile phones was ranked as the first priority by more than 25% of the respondents, given that the traders from J&K are not able to contact their counterparts in PaK directly through mobile phones. This has led to a communication gap among business entities on either side.

Formalising the banking system across both the regions for facilitation of payment was ranked as the third-most important factor overall by traders. Legal arrangements that provide for enforcement of contracts were ranked as the fourth most important issue by participants in the survey. This may reflect the fact that trust among the traders has grown over the period trade has occurred; there were only 20 complaints pending for redress before the custodian from Kashmir traders. The president of the cross-LoC trade association of Poonch reported that there were 25 disputes pending from both sides which, in the absence of dispute redress in SOP, were solved through mutual consultation and peer pressure.

On barter exchange in trade, business firms’ perceptions were measured on a scale ranging from strongly disagree (1) to strongly agree (5). The highest perceived difficulty in barter trade was product quality not conforming to specifications promised during negotiations; 86% of the respondents agreed or strongly agreed with this statement, 3% were neutral while 10% disagreed or strongly disagreed. Factors like fluctuating value of goods (73%) and diminished working capital flow (77%) were other ranked difficulties in carrying out barter exchange. Problems redeeming accumulated trade credits within the stipulated time period and the difficulty of inspecting the quality of goods offered in barter were ranked as other significant barriers by traders. Barter trade also hits the financial side of business as working capital funds are squeezed due to the export of goods across the LoC. Goods are valued in dollar terms by the traders as the currencies of both the countries are pegged to the dollar. The value of the Indian and Pakistani rupee is set by traders after they meet every fortnight at zero line. This is reviewed after every meet.

Regarding export trends observed during these years, apple exports dropped significantly from 71.23 metric tonnes in November 2008 to 0.48 metric tonnes in October 2010 along the Uri route. Walnut kernel, one of the principal exports of J&K to other parts of the world, is not actively traded across the LoC. More than 5,401.59 metric tonnes were exported during the year 2008-09 from J&K to the rest of the world (Government of J&K 2009: 148) but

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a total of only 27.84 metric tonnes were traded from Uri to Muzaffarabad in PaK during the years under study.

One of the major expectations from trade was that it would boost the local handicrafts of the state. The expectation remained unmet as exports of these goods have only shown marginal growth over the years. Wall-hangings, papier-mâché, crewel work, cushions and rugs have witnessed abysmally low trade compared to their export potential. Handicrafts like rugs, pillows, carpets, papier-mâché, and wooden furniture have not entered the trade cycle during the third year as well. Imports of carpets has steadily grown over the period and other merchandise like jayanamaz or prayer mats, Peshawari leather chappals, shoes, carpets, stoles/ shawl/scarfs/dupattas, wall-hanging, embroidery suits/jacket, bed sheets/cover, foam mats and cushions are imported in very limited quantities. Products such as blankets, bags, fabric, chairs and papiermâché have not been imported since the opening of trade.

Trade has braved difficulties, but has also had a positive impact and generated sizeable economic activity across the LoC. As a CBM, it has received encouraging feedback from all stakeholders. More such initiatives need to be put in place. Removing current bottlenecks and developing the right institutional framework for the integration of two economies across an LoC that has remained impermeable since 1947 does seem to be achievable and promising.

References

Arnon, A and J Weinblatt (2001): “Sovereignty and Economic Development: The Case of Israel and Palestine”, The Economic Journal, 111(472): F291-F308.

Carrington, Graham (2009): “Cross-border Trade: Fuelling Conflict or Building Peace? An Exploration of Cross-border Trade between Sudan and Uganda and the Implications for Peace Building”, Conciliation Resources, London.

Cobham, David (2001): “Economic Aspects of the Israeli-Palestinian Conflict: Introduction”, The Economic Journal, 111(472): F249-53.

Government of J&K (2009): Jammu and Kashmir Economic Survey 2009-10, Directorate of Economics and Statistics, Planning and Development Department, Srinagar and Jammu.

Kanafani, Nu’man (2001): “Trade-A Catalyst for Peace”, The Economic Journal, 111(472): F276-90.

Meehan, E (2000): “‘Britain’s Irish Question: Britain’s European Question?’ British-Irish Relations in the Context of the European Union and the Belfast Agreement”, Review of International Studies, 26(1): 83-97.

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