Trade barriers or not, there's just no stopping Indian goods from going to Pakistan, reveals data

According to estimates from the Global Trade Research Initiative (GTRI), more than USD 10 billion worth of Indian products make their way to Pakistan through third-party trade routes. Following the brutal terror attacks in Pahalgam, which resulted in the loss of 26 lives, GTRI noted that businesses have started utilising ports in Dubai, Singapore, and Colombo to facilitate the movement of Indian goods to Pakistan, thereby circumventing trade restrictions.

The GTRI report highlighted that these routes enable Indian merchandise to enter Pakistan despite the existing trade barriers. "GTRI estimates that India exports goods valued at over USD 10 billion to Pakistan annually via this channel," the report said.

To elaborate on the innovative strategies employed by exporters, the GTRI explained that Indian companies ship their products to these intermediary ports. There, an independent company receives the shipments and stores the goods in bonded warehouses, which are facilities that allow for duty-free storage while the items are in transit.

Within these bonded warehouses, the labels and documentation are altered to reflect a different country of origin. For instance, products manufactured in India may be rebranded as "Made in UAE." Following this relabeling process, these items can then be shipped to Pakistan, where direct trade with India is prohibited.

This approach enables businesses to navigate around the trade restrictions between India and Pakistan and sell their products at elevated prices through the third-party route while avoiding scrutiny, as the trade appears to originate from other nations.

For example, a company may export auto parts from India to Dubai with a value of $100,000. After changing the labeling to indicate they are products from the UAE, these goods can then be sold in Pakistan for $130,000. The increased price accounts for storage costs, documentation fees, and the access to a market that is otherwise closed off.

"While this transshipment model isn't strictly illegal, it operates in a grey area of legality. It illustrates how businesses innovate to maintain trade flows—often outpacing government responses," the report noted.

In response to the attack in Pahalgam, the Indian government has implemented a series of diplomatic actions, including the closure of the Integrated Check Post (ICP) at Attari, suspending the SAARC Visa Exemption Scheme (SVES) for Pakistani nationals, which gave them a 40-hour window to return to their country, and reducing the number of personnel at the High Commissions for both nations.

The existing tensions are expected to have a significant and lasting effect on trade relations. In addition, India has also paused the Indus Waters Treaty, originally signed in 1960, in light of the events following the attack.