7 PM | Suspension of Cross-LoC Trade | 23 April, 2019

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Context

India has suspended cross LoC trade between Jammu & Kashmir and Pakistan-Occupied-Kashmir (PoK) with effect from April 19

Reason for suspension of cross-LoC trade

The orders for suspending LoC trade have been issued by the Home Ministry. Reasons listed by MHA are

1. Used by terrorist and separatist: In few cases NIA found that a significant number of trading concerns engaged in LoC trade are being operated by persons closely associated with banned terrorist organizations involved in fuelling terrorism/separatism.
2. Used for drugs: Cross-LoC trade is also being used as a regular channel of funnelling of drugs such as cocaine, brown sugar and heroin into the Valley, adversely impacting the youth
3. Under Invoicing and Infiltration of third-party goods: It is being argued that the zero-tariff barter arrangement is being violated through under-invoicing and the exchange of third-party items such as U.S.-origin California almonds.
4. Illegal weapons and fake currency: Route are allegedly used for supply of arms and fake currency notes to the Valley 

Importance of LoC trade

1. Benefits to the local economies: It is estimated that since the barter trade commenced along two routes across the LoC in October 2008 the volume of trade over the decade has crossed ₹6,000 crore.
2. Employment: Trade has acted as a source of employment for the local traders, for the unemployed and vulnerable youth of the border areas.
3. Symbolic and political value of cross-LoC trade: Economic integration across the Line of Control remains central to the conflict resolution process. It is considered very important for generating interest from people on both the sides of LoC.
4. Bottom-up approach to peace-building: Trade has attracted divided families and some former combatants and provided a non-violent and alternative vision for change and conflict transformation
5. Spin effect: The LoC passes not only through the regions of Jammu and Kashmir but also the Ladakh region. The success of Cross LoC trade in Kashmir region will enable opening of Kargil-Skardu route.

Issues with cross-LoC trade

1. Regional imbalance in the trade relations: It is mainly on the Jammu side that trade is sustained. On the Kashmir side, it is a picture of dismal trade.
2. The security concerns: There is overwhelming popular demand for expanding the cross-LoC, trade but it remains confined due to security concerns.
3. Infrastructure: The infrastructural constraints allow only 1.5 metric ton per truckload. The small consignment offsets the profits due to handling, fuel, and other costs.
4. Barter Trade: The duty-free trade still follows the medieval barter system. Even in Barter trade there is no guarantee of equal return and recovery of differential amounts from counterparts across the LOC.
5. GST: Post GST, traders have to pay double taxation i.e. on goods exported to PoK and imported from Muzaffarabad.

Steps to be taken

Government of India has said that a stricter regulatory & enforcement mechanism is being worked out and will be put in place in consultation with various agencies. Central and State governments must take the necessary steps towards reforming trade and ensuring capacity building of traders. Steps that should be considered are

• Install scanners for scrutiny of vehicles carrying commodities across the LoC to contain smuggling
• Traders should be registered and license to trade should be forwarded only after intelligence report
• Government must assure traders security measure is meant for safety rather than to harass the traders.

Conclusion

Suspension of trade across LoC would further deteriorate relation with Pakistan as decision has been taken in the backdrop of the Pulwama terror attack and withdrawal of the most favoured nation (MFN) status.

The government must revisit regulatory framework sooner and start the trade. Along with this government must took necessary infrastructure and regulatory measure to expand the LoC trade.

Expansion of trade would help to build confidence between two nations and people across the border. The two governments need to lay down a clear road map for formalizing LoC trade and bringing it within the ambit of SAFTA. A clear direction would perhaps reduce the pain of adjustment and in the long term, lead to peaceful and prosperous economic relations between the two Kashmirs.