When the current government led by Mr. Nawaz Sharif came
into power, there was talk about improving bilateral trade relations with
India. Despite tensions rising along the Line of Control, cross-border track-II
meetings led by the business community on both sides continued, indicating the substantial
interest of stakeholders in the trade and peace agenda. It is also interesting
to note that the flow of bilateral trade between India and Pakistan has not
been affected by recent skirmishes, which might indicate that businesses continue
to see prospective markets across both sides of the border.
There have already been numerous studies on the gains from enhanced
bilateral trade between India and Pakistan. Yet trade figures continue to be
far from encouraging. Moreover, the lack of sectoral analyses has limited the
scope for policy advocacy in favor of increased trade. In what follows, we present
initial findings from our case study on the prospects of bilateral trade in the
pharmaceutical sector.
While geographical proximity provides for a strong case for
trade with India, it is also interesting to note that India has now emerged as
a global leader in the pharmaceutical sector, gaining from lower costs, higher
sophistication in technology, and advanced research capabilities. Our analysis suggests
that geographical proximity supplements industrial comparative advantages in
the pharmaceutical sector for both India and Pakistan.
Official statistics suggest that Pakistani manufacturers are
unable to meet domestic pharmaceutical demands. There is a need to enhance both
the quality and quantity of pharmaceutical products. Further, locally manufactured
pharmaceutical products are often highly priced (unless available from
government hospitals, where the poor are usually clamoring to get hold of
medicines), making access to cheaper medicines even more difficult for the
vulnerable.
Pakistan can cut down its cost of producing pharmaceuticals
if more economical intermediate inputs are imported from India. The idea is
certainly not new and there are examples from South Asia where such trade in
pharmaceutical inputs is underway.
Currently, a number of pharmaceutical products are in the
negative list of Pakistan, which has so far constricted trading options in this
sector. Pakistan has been providing protection to its pharmaceutical industry
and has prevented import of several high-demand products from India.
Previously, under the positive list regime, pharmaceuticals were also not part
of the positive list.
In order to boost bilateral trade, Pakistan replaced the
positive list with a short negative list comprising of 1,209 items in 2012. Of
these, 49 items were from the pharmaceutical sector. The negative list was to
be completely phased out by December 2012. However, that decision did not materialize.
In 2012-13, India-Pakistan trade in pharmaceutical products
(chapter 30 of the Harmonized System of Classification) was recorded at US$17
million. The figure below shows Pakistan’s pharmaceutical imports from India in
15 categories of chapter 30. However, not every product from these groups is
being traded, thereby leaving significant room for exploring cost-effective
trading options.
While policy deliberations are currently underway to improve
India-Pakistan bilateral trade, the following options, specific to the pharmaceutical
sector, can be explored.
Various studies have shown that a substantial amount of
Indian pharmaceutical items find their way into Pakistan through informal
channels. Indian medicines are easily available across the four provinces. In a
city like Peshawar, doctors are seen giving prescriptions of Indian medicine to
their patients. It is important for the Pakistani government to recognize the domestic
availability of Indian medicine and gradually allow exit of these items from
the negative list.
However, keeping in view the apprehensions of the Pakistani
pharmaceutical manufacturers, one can also look into the potential for formal
trading options in the pharmaceutical sector with the current negative list in
place. There are prospects in products from currently under-traded categories,
if sector-specific non-tariff barriers (NTBs) in the pharmaceutical sector are
removed. There is enough evidence on both sides to suggest that many such
barriers are specific to the neighbor.
For India, the trade potential in terms of exporting
pharmaceutical products (not included in the negative list) to Pakistan
is currently estimated around US$350 million (only for
chapter 30 of HS classification). The current flow of informally traded pharmaceutical
items from India is valued at around US$60 million annually. Thus, even with
the negative list in place, the volume of bilateral trade in this sector can be
substantially increased.
On the other hand, Pakistan has a lucrative opportunity for
the export of alternative medicines to India. These products from Pakistan are
highly sought by both the Indian and Pakistani Diaspora. The Indian
pharmaceutical sector has expressed interest in the various formulae developed
at the HEJ Research Institute of Chemistry located in Karachi, Pakistan. The institute
has done renowned work in the pharmacology of herbal medicines and plant
biotechnology.
The research as well as development in livestock and
veterinary medicines in India has so far been low. On the other hand, Pakistan specializes
in these products and can export to India. Moreover, the surgical industry (in
Pakistan), having a close interface with pharmaceuticals, has achieved global
accreditation and the products are amongst the most sought after in Western
markets.
Now that both governments have allowed foreign direct
investment, Indian and Pakistani manufacturers can also consider cross-border
options in their production processes. As trade theory suggests, intra-industry
trade and vertical specialization can minimize cost and enhance product quality
with each country focusing on the product/service in which it has a comparative
advantage. In this regard, one can look at numerous examples globally where
industrial joint-ventures have benefitted both trading partners.
Indian investment in Pakistan can take the shape of
horizontal as well as vertical FDI. Vertical FDI may be introduced at the South
Asian level to develop an integrated trade supply chain in the pharmaceutical
sector. The time is ripe for conceiving such ideas given that such
collaboration is already being thought out across Indian and Pakistani Punjab,
particularly in sectors such as milk processing, cement, leather and fertilizer.
Mutual gains can also be reaped in technology, knowledge and
skills transfer by forming industrial research
and development (R&D) alliances. For example, Pakistan can extend its
research facilities, such as the International Centre for Chemical and Biological
Sciences (ICCB), for joint projects with the pharmaceutical sector. Both the
countries have similar demographics and a similar consumer base, allowing
research from one country to be replicated in the industry of the other.
Going forward, both countries should also explore innovative
research in pharmaceuticals such as process intensification technologies,
nano-technology, alternative medicine, green manufacturing etc. Designing of
plants and related systems can be done by seeking technical consultancy from
the much-advanced diaspora in the pharmaceutical sector.
Lastly, the track-II meetings between pharmaceutical
manufacturers, service providers and traders must take place to specifically
identify areas of comparative advantage. This will help each country to focus
on specialised products and services, while importing those in which it is not
competitive. This will also give confidence to Pakistan’s pharmaceutical sector
that is, at present, wary of India being given MFN status.
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