A push to open up trade along the India-Pakistan border

IN LAHORE, PAKISTAN In India, where it is made, Fair and Handsome men's skin lightening cream sells for $1.25 a tube.

But by the time it hits the shelf at Sajid Khan's shop in this city's old marketplace, it has traversed 2,000 miles of sea and land, been smuggled over the Hindu Kush and marked up 25 percent.

Pakistan and India share language, culture, history and an 1,800-mile border; they are South Asia's largest economies. What they barely share is trade - officially, at least, because of a quasi-blockade that dates from partition in 1947 and all but chokes off commerce under a dizzying web of rules.

The hurdles have spurred off-the-books trade, much of it shipped through third parties in such places as Dubai, where products are relabeled as imports from other lands - journeys that result in markups of 40 to 70 percent. Only recently did Pakistan make its first export to India by truck: a load of gypsum rock.

But economists, business groups and U.S. officials are pushing to loosen at least the most maddening restrictions, and they are hopeful that the two nations' decision two weeks ago to resume peace talks might help. Free trade, they say, would benefit both India and Pakistan and might help to ease tensions whose gravity is reflected in rival nuclear arsenals.

"Economics 101 dictates that countries' major trading partners should be their neighbors," said Shuja Nawaz, director of the South Asia Center at the Washington-based Atlantic Council. "To change the dialogue from a zero-sum game to a positive, win-win outcome for both India and Pakistan, you need to start with the low-hanging fruit of opening trade and tourism."

For a Pakistani economy in tatters, experts say, a freer flow of goods from India would allow cheaper access to products and raw materials, and could open up India, with its enormous population, to exports of Pakistan products such as cement.

Some research indicates that bilateral trade - now at about $2 billion a year, less than 1 percent of each country's total trade - could swell to 20 to 50 times that under more liberal policies. Estimates of illicit trade range from $2 billion to $10 billion a year.

But for now, progress creeps. India admits all Pakistani products, but Pakistani firms complain that stringent standards and paperwork make many exports unviable. Pakistan allows a slowly expanding list of Indian products that now includes artificial kidneys, camphor, parachutes and 1,931 other items - but not Fair and Handsome cream, which is instead legally exported from Kolkata to landlocked Afghanistan, via the Pakistani port of Karachi, then smuggled back into Pakistan.

Travel restrictions are another barrier. Businessmen in both countries say they wait months for visas that allow travel only within major cities in the other country. That prevents visits to rural factories or farms, and business travelers are often tailed by intelligence agents.

Then there is the logistic muddle of land trade at the one border crossing, midway between Lahore and the Indian city of Amritsar. The twice daily cargo train involves an engine switch: A train carrying Pakistani exports, for example, must stop mere miles into India for the Pakistani engine and conductors to be replaced by Indian ones before continuing inland. With so few trains, exporters wait months for cargo space.

Trucks have only eight hours each day to cross, because each afternoon the two-lane road is overtaken by Indian and Pakistani border guards' theatrical gate-closing ceremony. Even then, trucks must stop just past the frontier, where porters transfer the goods to local trucks. That is an advancement: Before 2007, trucks were barred from crossing at all, and laborers lugged cargo across the boundary on their heads.

The little existing trade often falls victim to what look like political whims. In December, cargo trains sat idle for three weeks while Indian conductors awaited the visas that allow them to park just inside Pakistan.

That same month, spiraling onion prices prompted India to drop import tariffs and standards for the staple, triggering a surge in Pakistani onion exports. But Pakistan abruptly halted overland sales amid concerns about a domestic shortage.

"I had 400 trucks stuck on the other side," said trader Rajdeep Uppal, vice president of the Amritsar Exporters Council. "For a week these onions were standing there, and eventually they had to be sold within Pakistan for half the price. Who loses? Both the countries."

Tensions aside, scenes of goodwill abound along the border. Pakistani and Indian train conductors sip tea and gripe about red tape together. Satanam Singh, a turbaned Indian driver - wearing a regulation yellow vest stamped "Indian Driver" - beamed as laborers unloaded his ginger on the Pakistani side. Coming to Pakistan, he gushed, was delightful compared with Mumbai, where the language is different and people hostile.

"It is a strange feeling, like I am going to a strange land," said a smiling Mohammed Zafar, a Pakistani whose vibrantly painted truck, brimming with dates, was about to make its virgin voyage across the Indian frontier. "I am very happy."

Here in Lahore, just 20 miles from the Indian border, Khan's shop was the pioneer in a winding lane of stores now crammed with Indian silk and cosmetics - all smuggled into Pakistan illegally.

He said he would welcome friendlier business relations, even if they lessened the luxury value of his stock. Even his Afghan smuggler, who stopped by on a recent evening, agreed, on grounds that it would lessen the need to bribe border officials.

Among some merchants, skepticism about trade prospects remains, with Pakistanis fearing that open trade would lead to a glut of cheap Indian imports. S.M. Akhter, a top Indian customs official at the border, said national security concerns must trump market demands.

But despite the tangle of rules, some trade is quietly rising. Tahir Habib Cheema, the top Pakistani customs official at the border, said he realized last year that truck exports from Pakistan were allowed, but that "status quo" and "fear" had prevented them. He decided to change that - without notifying his bosses.

A comedy of errors ensued. By Oct. 7, Cheema had found one willing exporter and one importer. After hiccups on each side, a meeting at the frontline was arranged.

All parties agreed, Cheema said - and then the truck would not start. Someone proposed pushing it into India, an idea that was nixed by border guards who said the pushers would need visas. Finally, another vehicle nudged the truck over the line.

"This was something for the national cause,'' Cheema said proudly. Since then, he added, Pakistani trucks have exported $2.5 million worth of products to India. He expects that to escalate this spring, when the two nations open a dedicated truck passage.

Correspondent Rama Lakshmi contributed to this report from New Delhi.

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