Mohsin Raza / Courtesy Reuters A Pakistani Ranger and an Indian Border Security Force officer shake hands at the Pakistan-India joint check-post on the outskirts of Lahore, March 15, 2010.

Partners in Crime

How Smugglers Unite India and Pakistan

Smuggling is typically thought of as a vice, but in the context of India-Pakistan relations, it has become a virtue. Since their partition in 1947, the two countries have had tense ties. Each state has a long history of trying to suppress trade with the other through tariffs and other legal barriers. And those barriers have generally proven effective: India and Pakistan have rarely conducted more than 2 percent of their total trade with one another. Politicians from each country have occasionally broached the subject of a normalized trade relationship, but trade talks have tended to be interrupted by diplomatic and military hostilities, including the 1998 Kargil War, the 2003 Indian Parliament attack, and 2008 Mumbai terror attacks.

But if the governments of India and Pakistan have had trouble establishing a productive relationship, businesses on both sides of the border have not. Unable to rely on policymakers to smooth the way for trade, they now routinely conduct business with their counterparts through Dubai. Under most readings of Pakistani and Indian law, smuggling operations of this sort are illegal. But if Pakistan and India ever manage to overcome their enmity, these smugglers will deserve a great deal of the credit.

The volume of illicit smuggling between India and Pakistan is estimated to be anywhere from $2 billion to $10 billion per year. Commodities smuggled from Pakistan to India include bed sheets, embroidered cottons, and dry fruits; silk, pharmaceuticals, cosmetics, costume jewelry, spices, and tires are among the commodities routinely smuggled in the opposite direction. “There is some realization that stopping trade is not really working for us,” Loknath Acharya, assistant director of the Federation of Indian Chambers of Commerce and Industry (FICCI), told me. One leading Pakistani entrepreneur admitted to me that there is an “undocumented parallel economy” between Pakistan and India.

Indian and Pakistani businesses typically arrange these exchanges in small countries with liberal banking regulations, including Hong Kong and Singapore. But Dubai plays an especially important role. In part, that is for historical reasons. Dubai-based smuggling dates

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