MFN status for India

Should Pakistan and India not capitalise on their geographical proximity? Is it not better to remove stumbling blocks to trade than not to trade freely? Should trade remain hostage to considerations of political economy? Should we remain prisoners of the past? Should we keep on adding to the intra-sector and inter-sector distortions and inefficiencies by trading only in the items which generate rents to very few industrialists and businesses? Should the common man and consumer keep on suffering due to weak trade relations between the two neighbouring countries? By granting an MFN status to India we will simply be treating Indian goods at par with similar goods from other countries for tariff/tax purposes. The goods which now enter Pakistan via Dubai and Afghanistan (through informal channels) will become importable through legal channels. Consequently, not only the cost of imported goods will go down but the government will also gain from enhanced revenues from such goods.

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INDO-PAK RELATIONS: THAWING SETS IN!

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by Jamil Nasir

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Pakistan-India trade relations are beginning to thaw with Pakistan showing its intension to grant the most-favoured-nation (MFN) status to India. At the same time, there are reports that India will not oppose the generalised system of preferences (GSP) facility to Pakistan by the European Union.

Pakistan trades with India on the basis of a positive list, meaning that only those goods can be imported from India which are specifically mentioned as importable from that country in the import policy order. Imports of all other items are banned. However, the positive list has registered a progressive and gradual increase in recent years and currently 1,946 items are importable from India. During 2004, only 687 items were tradable and only 328 in 1995.

Even if the MFN status is not in place, the expansion of the positive list at least reflects a strong desire for the enhancement of trade with India. However, the fact remains that trade with India on the basis of the positive list is a deviation from the principles of a multilateral trading system. In this context, Pakistan’s intension to grant the MFN status to India is a welcome step. But why are we opposed to trading with India on the MFN principle?

The case against the grant of the MFN status to India is made out on several grounds. For example, it is argued that Pakistan will not gain in terms of overall trade balance as this country has failed to capture a reasonable market share in India due to high non-tariff barriers, despite the point that India granted the MFN status to Pakistan in 1995.

Strategic considerations are also used as an argument against an MFN status to India. The argument runs that political and historical differences are too deep-rooted between the two countries, and that our opening up of our markets to India will increase our dependence on it.

Another argument is that as long as a lasting solution to the Kashmir dispute is not achieved, bilateral trade relations will remain vulnerable and could be broken by the slightest degree of strain. It is also argued that the manufacturing sector of India is more diversified than Pakistan’s, for which reason Indian goods will flood the Pakistani market and that would have serious implications for the domestic manufacturing sector and employment.

All these arguments, except the one relating to Kashmir dispute, are traditional arguments generally forwarded by protectionists against trade liberalisation. The argument that the Kashmir dispute may jeopardise trade relations certainly carries weight. But the need is for a search for an early resolution of the Kashmir dispute, not protectionism.

Trucks are returning back to India through Bab-e-Azadi in Wagha Border as trade between Pakistan and India is likely to boost after Pakistan declared India as favorable state for trade. Online

Should Pakistan and India not capitalise on their geographical proximity? Is it not better to remove stumbling blocks to trade than not to trade freely? Should trade remain hostage to considerations of political economy? Should we remain prisoners of the past? Should we keep on adding to the intra-sector and inter-sector distortions and inefficiencies by trading only in the items which generate rents to very few industrialists and businesses?

Should the common man and consumer keep on suffering due to weak trade relations between the two neighbouring countries?

By granting an MFN status to India we will simply be treating Indian goods at par with similar goods from other countries for tariff/tax purposes. The goods which now enter Pakistan via Dubai and Afghanistan (through informal channels) will become importable through legal channels. Consequently, not only the cost of imported goods will go down but the government will also gain from enhanced revenues from such goods.

But it must be remembered that trading with India on the MFN basis will not automatically translate into a quantum jump in trade unless other stumbling blocks are removed. For example, India needs to take concrete steps to allay the fears of Pakistani businessmen that non-tariff barriers imposed by India are big hurdles to market access in India. The non-tariff barriers that the Pakistani businessmen generally face in India fall into three main categories.

The first relates to packaging, labelling, certification and other testing requirements. What we need is harmonisation of certification and testing procedures. We may identify such requirements in each sector and accredited labs and institutions should be notified with mutual consultation between the two countries. The certification/testing by such institutions should be acceptable to both sides.

Similarly, letters of credit opened by the banks of one country should be acceptable to the other side. A large number of import items in India require import licenses, which also act as non-tariff barrier. According to a study, a one-day delay in granting of an import license in middle-income countries could be equivalent to a considerable tariff, such as 0.4 percent in textiles.

The second category of Indian non-tariff barriers relate to transparency issues. For example, information on tariffs, additional duties and taxes, and concessionary notifications is scattered in various publications. The third category which is of particular concern for Pakistan relates to the subsidies given by India to its farmers. Fat subsidies to the agriculture sector in India may render our farmers uncompetitive in the market.

Non-tariff barriers are actually a manifestation of the mercantilist attitude that simply means that exports are good and imports are bad. In order to capitalise on their geographical proximity, the two countries need to shun the mercantilist approach to trade, since gains from mutual trade will not just be restricted to economic gains. Good trade relations will also create stakeholders for peace and stability in the region.

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The writer is a graduate from Columbia University with a degree in economic policy management. Email: jamilnasir1969@ gmail.com

Related Posts:

1. PAKISTAN TO GRANT INDIA THE MOST FAVOURED NATION STATUS
 2. Moving the India-Pakistan Relationship Forward [1 of 2] 3. Moving the India-Pakistan Relationship Forward [2 of 2]
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One CommentLeave a comment

  1. Trust in trade is a must. Free trade zone cannot be realized till Pakistan accepts WTO in Toto. Fair trade among mmembers of SAARC is taking its roots, but in case of Pakistan some contentious issues have to be sorted out before expecting any change on the ground.


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