THE full scope of bilateral trade between Pakistan and India, including indirect and informal trade, once estimated at three billion dollars and recently at five billion is now estimated at ten billion dollars. That means that instead of trading through third countries like Dubai and Singapore and enduring outright smuggling, the two neighbours will be exchanging goods with each other directly.

Of course, there are political, economic and psychological barriers in full-scale trade between them but they are being removed by the unfolding of new realities and international compulsions. Pakistan’s complaint for long has been that the Indian import tariff is too high and that there are several non-tariff barriers as well. But Mr S.N. Menon, Indian commerce secretary, who led his country’s delegation to the joint study group meeting in Islamabad last week said that under pressure from the WTO India’s maximum tariff had been reduced to 12.5 per cent and soon the other tariff would come down to ten per cent. The WTO has been exerting pressure on India to liberalize its economy and lower its tariff rates.

The accord on Safta has been ratified by all the seven members of Saarc and will be coming into operation by the middle of the year. The small states in Saarc are exerting pressure on all its members to lower their tariff as agreed under Safta.

One of the roadblocks to full-scale trade between India and Pakistan has been the former’s demand for most-favoured-nation (MFN) treatment by the latter. While India has conceded that status to Pakistan, much bilateral trade between the two countries has not followed because of India’s non-tariff and tariff barriers. India did not take up this issue at the joint study group meeting in Islamabad as it deems it more expedient to tackle it at the Saarc meeting or the Safta forum, where it may have the support of other Saarc countries. The number of items, which India and Pakistan can trade with each other is increasing as the economies of the two countries are growing rapidly and they are producing more exportable items.

The businessmen on both sides are having increasing self-confidence in themselves and their export products. They have no fear of being swamped by the other side, particularly after a great many Chinese items have flooded the markets in both countries at low prices. So both countries are out to step up their exports and do not want to ignore their immediate neighbourhood. As a result of the realization of the tremendous trade possibilities and the pressure of the businessmen on both sides to increase the volume of their trade, the two secretaries did not confront any dispute during their three days of deliberations and, in fact, put off points of disagreement to be discussed at other forums or later. The effort was to keep the environment friendly and cooperative.

Transportation of goods between the two countries is to be conducted through a shipping service between Mumbai and Karachi and trains. The use of more trucks for carrying goods is also being contemplated. All that will increase the volume of trade between the two countries. The Khokrapar-Munabao route, though initially for human traffic is expected to lead to substantial trade between the two countries in the south. Sindh and Rajasthan would want to trade with each other increasingly.

In fact, the businessmen would want to extend their commercial relations to other sectors like mutual investment and the capital market. The memorandum of understanding on cooperation in the capital market has been conveyed by the Securities and Exchange Commission of Pakistan to its counterpart in India whose reaction may soon be received.

India is interested in participating in Pakistan’s privatisation programme. But Prime Minister Shaukat Aziz says that unless the political issues are settled or move towards solutions, Pakistan will not welcome Indian investment or its participation in the privatisation programme. The portfolio investment in Pakistan by India is also subject to the same terms. Commerce minister Humayun Akhtar says the opportunities for trade between India and Pakistan are very large but the region needs better politics.

A report from India says that draft agreements to settle the Siachen Glacier and the Sir Creek issues are ready for signature. If that comes through, that will be a happy turn in relations after a prolonged stalemate.

Meanwhile, the two governments have agreed to take steps for protecting the subcontinental identity of Basmati rice and to jointly patent it internationally. That will be a significant act of cooperation, which can prevent others from misusing the Basmati label on lesser quality rice. The first day of the three-day meeting began with an agreement on a roadmap for larger trade between the two countries. The sub-study groups were to deal with standards and conformance and sanitary and phyto-sanitary issues.

India presented a list of 286 products for inclusion in Pakistan’s positive list which during the last two years increased by 773 items with a total of 1059 items by now. Despite the large increase in the number of positive items, the bilateral trade has been small and fewer than one billion dollars and Pakistan now has an adverse balance of trade of $259 million. The total volume of trade between the two countries in 2004-2005 was $835 million and it increased from $436 million a year before. Pakistan exported to India in 2004-05 goods worth $288 million and its imports from India were $547 million.

A great deal of work went into the finalisation of Safta. An agreement on Safta was signed during the 12th Saarc summit in Islamabad on January 6, 2004. After that the committee of experts on Safta held twelve meetings to finalize the four outstanding issues — sensitive lists, rules of origin, mechanism for compensation of revenue loss to least developing countries and technical assistance to be provided to the LDCs.

There are demands from all sides to relax the visa restrictions. The two governments have agreed in principle to do that. Mr Menon says the government of India sent its proposal for amendments in the visa regime a year ago but the government of Pakistan has yet to respond to that. If that was done, embarrassments like the ones caused to the acting chief justice of Pakistan Rana Bhagwandas in India recently might not have taken place.

Pakistan has also agreed to allow the use of Wagah border for India’s trade with Afghanistan. A conference is proposed to be convened to cope with the situation on the Wagah-Attari border. A series of measures for promoting larger cooperation between India and Pakistan are set to follow in the coming months. They include a new shipping agreement to be signed in New Delhi soon. Talks on expanding the air services between the two countries and in respect of overflights are to be concluded soon.

Both the countries have agreed to allow the opening of branches of the banks of each other. The Central bank would process the application soon. Import of tea into Pakistan from India is to be explored. Both countries will encourage visits of tea delegations. The new shipping agreement would be very helpful to tea trade. For the import of goods by train, the talks are to continue and the relaxation of the visa regime is to be discussed by the relevant officials.

The fact is that many of the items of common use in short supply are available in the other country and can be quickly transported when they reach an agreement on the purchase. The transport and insurance cost too are very low. Import of items of common use at short notice can help the Pakistan government cope with the obduracy of its traders. The sugar crisis is being tackled by Pakistan with the help of sugar from India. Earlier, vegetables and live meat came in a large quantity from India. India has now offered to exchange its surplus sugar with the possible surplus wheat of Pakistan. The surplus wheat is estimated at 1.5 million tonnes by some officials who do not want over-stocking of wheat.

While India has its problems with Pakistan, it has negotiated a free trade agreement with the Gulf Cooperation Council, which is a major development. It is hoping for large scale expansion of trade between India and the Gulf countries through that agreement. Pakistan is seeking economic cooperation with India by stepping out of the Kashmir imbroglio to build the Iran-Pakistan-India gas pipeline. Whether such cooperation can extend to other areas within a reasonable time remains to be seen. Meanwhile the United States is putting pressure on India and Pakistan to cooperate in the economic sphere as much as possible.

THE publication of the blasphemous cartoons of Prophet Muhammad (PBUH) by the Danish paper Jyllands-Posten may have been due to the ignorance of the publishers of the deep respect Muslims have for their religion and the high veneration in which they hold religious figures, rather than a deliberate attempt to provoke them.

But the subsequent insistence on not regretting the mistake and reprinting those cartoons across Europe in the face of worldwide protests by Muslims was a deliberate provocation that can be attributed to the arrogant conviction that all western values are superior to other value systems. The other fctor that led to the reprinting of the cartoons was the belief that the frequently misused and selectively applied principle of unbridled freedom of expression could be flaunted as a justification for injuring religious beliefs. Historical enmity to Islam and the current demonisation of Muslims are, of course, other reasons in this new phase of western belligerency.

What started as low-level protests by Muslims in Denmark and some other European countries later turned into a wave of anger and resentment across the Muslim world because of the thoughtless and ill-advised defiance shown by western governments in defending their delinquent media, expressing unwillingness to prevent further mischief by citing freedom of expression as a sacrosanct principle.

They have not only failed to distinguish between freedom and license but also seem to be oblivious of the provisions of various international conventions and covenants to which they are signatories; such as the International Covenant on Civil and Political Rights (ICCPR), which defines the limits of freedom of expression, and the International Convention on Elimination of all forms of Racial Discrimination (ICERD) which places an obligation on states to punish those disseminating racial or religious hatred. The anti-racial and anti-Semitic hate-laws existing in many European countries can and should be extended to cover hate against Islam and Muslims.

The decision to include the controversial cartoons in Danish textbooks, the wearing of a T-shirt emblazoned with the cartoons by an Italian minister and the support extended by the European Parliament to the Danish stand on the issue are all mindless acts of defiance and provocation on the pretext of protecting freedom of expression. Western leaders do not realise that by such an insensitive defence of the provocation they are deeply antagonising the Muslim world.

In fact, this could be the beginning of the second phase of the clash of civilizations, which was initially postulated as a theory but has now turned into a reality, thanks to the role played by the irresponsible and ‘free’ western media in the post-9/11 world. While the first phase of the clash involved deionising all Muslims as extremists and terrorists, the second phase heralds attacks on their religious beliefs and values.

Before it is too late, the West should realise that it is treading on a dangerous ground. The escalation of the current conflict, which seems unavoidable due to western obduracy and insensitivity to Muslim sentiments, could rock the world order of mutual tolerance and peaceful coexistence. It will certainly boost the menace of terrorism that the world is currently facing.

Defending or asserting the right to freedom of expression is justified if it serves any public interest or promotes a noble cause or if that freedom is under threat. But the West should seriously ponder whether it is worthwhile asserting this right if its only objective or outcome is to humiliate and alienate one-fifth of humanity. Fortunately, some of the leaders in the West have seen the fallacy in justifying sacrilegious acts as manifestations freedom of expression and have criticized the publication of the cartoons.

The basic cause of the present conflict between the West and the Islamic world is the vast difference in their concepts of life and religion. Though Christian in name, the West is now largely irreligious or even anti-religion in the traditional sense. This is what explains their wide acceptance and legalisation of behaviour that was previously considered sinful and unacceptable in the Christian world, such as homosexuality, free sex, blasphemy and ridiculing of religious figures and scriptures.

The West has now adopted another religion whose fundamentals are secularism, democracy, freedom of expression and free enterprise. While no exception can be taken to the adoption of these laudable concepts if practised within the bounds of reason and moderation, the West has unfortunately adopted an extremist attitude of putting them in a confrontational position vis-a-vis religion. They have done this not only in their own societies but also want to impose their values on others.

On the other hand, the overwhelming majority of Muslims are highly religious, though some of their practices may be at variance with the original teachings of religion on account of misinterpretation or owing to the influence of local customs. In the words of Veteran journalist Robert Fisk the Muslims, “live their religion.” Islam is not merely a way of worship or rituals it is a way of life and a philosophy that governs every aspect of individual and collective lives of its adherents.

Muslims do not regard their Prophet (PBUH) as an ordinary human being who can be subjected to criticism or ridicule. To them, he is the chosen Messenger of God and beyond human flaw. They hold other biblical prophets in equally high regard. It is natural that anyone who attempts to ridicule the faith Prophet and the Quran should incur the wrath of the entire Muslim world.

Having said all this one must hasten to add that no provocation, howsoever serious justifies the large-scale violence and destruction by the protesters. And no sane Muslim will ever endorse it. This mindless violence must be condemned in the strongest possible terms by all opinion leaders in the Islamic world. By indulging in violence the protesters are not only damaging national and private properties belonging to them and other innocent people, they are causing irreparable damage to the image of Islam and projecting Muslims as uncivilised people. For protest to be effective it must be peaceful and morally strong. It is the duty of the political and intellectual leadership in Muslim countries to educate their masses to shun violence and extremism.

If the world is to be saved from the consequences of a escalating confrontation between the West and the Islamic world it is necessary for political leaders and intellectuals to urgently begin a serious dialogue for fostering better understanding of each other’s value systems and beliefs and to bridge the widening gulf between the two civilizations. Though Muslims are disorganised and confused at the moment it would be a serious mistake on the part of the West to think that they can physically eliminate or subjugate more than a billion people in the world or can enjoy a peaceful life by antagonising and alienating them.

Neither can have a peaceful existence in this globalised and interdependent world without understanding and cooperation. Organisations like the OIC, the UN and the European Parliament need to sit together to evolve a code of conduct that would balance the right to freedom of expression with the obligation to eliminate ethnic, racial and religious discrimination against Muslims. Failure to do this can have horrific consequences for world peace.

A PIECE of conventional wisdom about the world dear to economists is that the share of national income going to workers stays pretty stable. Karl Marx disagreed; he argued that labour-saving capital investment would limit demand for labour, while also bankrupting small-scale producers, in agriculture for example.

They would swell the labour supply, creating a permanent “reserve army of labour” that would prevent real wages growing as fast as labour productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists — a falling share for labour or a rising rate of exploitation, in Marx’s terminology.

Labour’s share of national income was indeed declining in Britain in the decades before the publication of Marx’s Capital in the 1860s. However, labour’s share lurched up during the two world wars, and this is often interpreted as reflecting a more even balance of power between capital and labour brought about by the growth of trade unions.

The later 60s and 70s saw a profits squeeze in many European economies, including the UK, reflecting a further decline in the power of private ownership. Subsequently, labour’s advances were beaten back through unemployment and the reassertion of “shareholder value”. Workers’ share of national income has fallen in much of Europe to more “normal” levels. As yet this is not the systematic downward trend predicted by Marx. But could that be about to change?

The Communist Manifesto proclaimed the inevitable spread of capitalism across the globe. This process was halted and even reversed during much of the 20th century by the isolation of the Soviet Union, eastern Europe and China from the world economy and the very slow pace of economic development in poor countries such as India. However, the extraordinary transformation of China’s and India’s economies promises to bring Marx and Engels’ prediction to completion. What might be the implications for workers in rich countries?

At first glance, the eruption of China into the world economy seems to be just the latest example of Asian countries catching up with the leading industrial powers. China’s export growth has been spectacular, but so was that of Japan and Korea in earlier decades.

What makes China (and India) fundamentally different, however, are their vast labour reserves. Total employment in China is estimated at around 750 million, or about one and a half times that of all the rich economies, and nearly 10 times the combined employment of Japan and Korea. About one half of China’s employment is still in agriculture; together with tens of millions of urban underemployed, they constitute a reserve army of labour of quite unprecedented magnitude.

The effect of this reserve army has been to hold down wages. After nearly 25 years of rapid economic growth, wages in China’s manufacturing sector are still only three per cent of the US level; after similar periods of rapid expansion in Japan and Korea, wages were some 10 times as high.

Much attention has naturally been devoted to the effects on industrialised countries of the flood of imports. But there is another, more ominous, possibility. What if there was a major drain of capital spending, from the rich countries to China and the rest of the south?

Investment in developing countries by multinational companies has been growing, but it is still only three to four per cent of their investment at home each year. Could the trickle turn into a flood? Television pictures of the machinery at the Longbridge car plant being packed up for shipment to China may be an extreme case.

However, with such low wage costs in China and growing numbers of skilled workers, why should northern producers continue investing to maintain their capital stock in the north, let alone extend it? If investment peters out, where would northern workers find jobs? When Longbridge closed, a government minister was ill-advised to suggest that the car workers could seek jobs at Tesco. Hardly a comforting response.

It is not too far-fetched to imagine a long period of investment stagnation in the industrialised countries, with “emerging markets” being so much more profitable. This could bring intense pressure on jobs and working conditions in Britain and elsewhere. Even sectors where relocation was not possible, like retailing or education, would be flooded with job seekers. The bargaining chips would be in the hands of capital to a degree not seen since the industrial revolution. Fluctuations in labour’s share being confined to the range of 65-75 per cent could disappear too, with Marx’s rising rate of exploitation re-emerging, a century and a half after he first predicted it.

Could the economy become ever more dependent on the luxury consumption of the wealthy, who receive a disproportionate share of the higher profits? Alternatively, would taxation of profits be increased to expand government services such as health and education? With recent trends in favour of the wealthy intensifying, the fundamental issue of who gets what could no longer be confined to hesitant debates about minor changes in the share of taxation in national income, or adjustments to the top rate of income tax. —Dawn/Guardian Service

The writer is an economics fellow at Corpus Christi College, Oxford, and author of “Capitalism Unleashed.”