Benjamin Franklin once said: “No nation was ever ruined by trade, even seemingly the most disadvantageous.” As benefits of free trade have become more widely established over the years, practical impediments to unrestricted commerce have only become more complex.
Take the trade potential of health sector commodities between India and Pakistan, for example. Pakistani surgical goods manufacturing industry has enjoyed extensive growth during past several years. Despite its export-orientation, the sector trades only two percent of its annual export with the eastern neighbour. A similar story is found when one looks at the break up of medicinal exports of India; world’s largest producer of generic drugs exports a dismal $60 million worth pharmaceutical items to its western neighbour, that too through informal trade channels.
Contrary to conventional wisdom, it is the technical barriers to trade and not political considerations that hold the pharma sectors in two countries from realising the full potential of cross-border trade. On surface, Pakistani pharma industry remains opposed to lowering of tariff barriers and phasing out of negative list items, but there is more than that meets the eye.
Industry participants claim while prices of sixty percent of products are cheaper on the western side of the border, there are no gains to be made from bilateral trade anytime soon. For one, the cheaper product prices are not by free choice: Pakistani pharma remains heavily regulated which keeps prices artificially low.
One consequence of price regulation is low margins for the industry which in turn has held back investment-–to date, the country has no FDA approved local manufacturing plant, which means restrictions on export to India (or any other country) due to questionable product quality.
On the other hand, several local drug manufacturers of India not only have FDA approved manufacturing facilities but also enjoy strict policy check on standards maintenance and plant monitoring. In sharp contrast, the broken Drug Regulatory Authority of Pakistan has thus far failed to devise a pricing mechanism, much less bring in quality control procedures.
Thus, quality of generic drugs manufactured in India is demonstrably superior. This raises fears among Pakistani manufacturers if gates are thrown open to Indian exporters, the fractured regulatory environment on this side of the border may put them out of business.
But surely, not all cross-border exchange can be bad. According to UN Comtrade, Pakistan enjoys a strong comparative advantage in surgical goods manufacturing, and the market next door is waiting to be tapped. Similarly, there is thriving demand for unani and ayurvedic alternate medicines in both India and Pakistan, and yet trade is mainly conducted through informal channels. Furthermore, researchers have pointed out that the livestock and veterinary medicines’ demand in India, a segment in which Pakistani manufacturers specialise also remains largely unexplored.
And then there is the intra-industry trade. While Pakistani manufacturers remain largely fearful of finished goods trade with India, importing raw material and intermediate goods can only serve to their advantage. For so long as the price controls remain in place, local manufacturers are focused on minimizing their input costs in order to maximize profits.
And what better place to look for cheaper trade than the world’s third largest producer by volume, who incidentally also shares a 2,900-km long border with us. If only the regulator in two countries could sit together and harmonize their product formulations. Hey, there is no tax on dreaming!