Breaking the trade barrier
The landmark approval by Pakistan's federal cabinet on 23 February to phase out the negative list of tradable commodities by December of this year is no small development. The country's current 'negative list' prohibits the import of certain food items, agricultural inputs, ceramics, chemicals and domestic appliances in order to protect sectors of Pakistani production that officials worry would not be able to compete against Indian goods. Currently, Pakistan maintains a positive list of only 1963 items that it allows India to export into its territory. Now, however, the cabinet has done away with the existence of a positive list entirely; instead, the country will move to a negative list of only 1200 items covering sectors such as textiles, pharmaceuticals and automotive transport – and even this list will be phased out by year's end. Under the revised provisions, Indian traders will soon be able to sell more than 6800 items to Pakistan. Taken as a whole, it's a major step by Pakistan towards granting Most Favoured Nation (MFN) status to India almost 16 years after India did so for Pakistan.
In 2010-11, Pakistan's imports from India stood at USD 2.33 billion, while its exports to India were just USD 332 million. Bilateral trade is now expected to grow threefold, if government hurdles are removed. Indeed, the volume of informal trade between India and Pakistan via third countries already far overshadows the volume of formal trade. Once this aspect of the relationship normalises, many are hoping that the informal trade will also be formalised, resulting in lower transportation costs and higher revenues for both sides.
Though both Islamabad and New Delhi are currently celebrating this latest move, Pakistani businesses are not entirely convinced that the deal will prove fruitful. They believe India, which has a huge market and a massive economy of scale, holds a significant cost advantage over its neighbours. Pakistan's business community does support the enhancement of regional trade but wants the process to be beneficial to both countries. Some sectors of the Pakistani economy – including the automotive, steel, textile, pharmaceutical and agricultural industries – fear tough competition from Indian imports, and oppose the new deal on the pretext of safeguarding local industry and jobs. Pakistani industrialists complain that they have not benefited much from the MFN status enjoyed by Pakistan. They also allege that non-tariff barriers (NTBs) imposed by India are so tough that MFN status threatens to become meaningless.
As India now seeks access to the Pakistani market for its own finished products, critics say, it must ensure equal access and opportunity for Pakistani goods and businesses in the Indian market. Such worries have been exacerbated by Pakistan's experience of trade malpractice with China; as such, many local industries are not convinced by Islamabad's assurances of improved customs procedures, valuation and standards.
Trade and trust
Protest is also expected from some religious groups and political parties, which have linked MFN approval with the Kashmir conflict and other grievances against India. For example, Ejaz Chaudhry, a senior leader of the Pakistan Tehreek-e-Insaf (PTI) party headed by former cricketer Imran Khan, believes the time is not yet ripe to go ahead with the plan. 'PTI believes that local industry is not developed enough to compete with cheap Indian goods flooding Pakistan's markets,' he says, 'and therefore suggests that the plan be put off for a couple of years.' Such opinions show that significant work is still required to raise public support for the MFN initiative.
Imtiaz Mirza, a member of the internal committee on MFN formed by the Ministry of Commerce, says that efforts to promote the initiative have already begun. Mirza says that the committee is meeting with local industrialists to convince them that several safeguards are available under the World Trade Organisation (WTO) regime to protect domestic industries threatened by liberalised trade. The phrase 'Most Favoured Nation', he says, has disturbed some Pakistanis who continue to see India as a rival and an enemy. Mirza hopes that stakeholders will soon understand that India's huge consumer market offers tremendous opportunities for Pakistani businesses, including access to cheaper Indian raw materials that can cut Pakistan's production costs. However, he too urges India to ease the entry of Pakistani products, which are currently subjected to extraordinarily strict customs checks. 'We must not oppose trade with India on grounds that both countries haven't enjoyed cordial relations,' Mirza adds.
Abdul Basit, former head of the Pakistan Poultry Association, suggests that Pakistan first replicate Indian agricultural policy before pitching Pakistani farmers against their Indian counterparts. Basit makes the point that Indian farmers enjoy state patronage and considerable government subsidies – around USD 30 billion per annum – whereas Pakistani farmers are left to the mercy of market forces. How, Basit wonders, can they compete with India under unequal domestic conditions? He shares a telling example: a bag of urea in India costs INR 280 – equivalent to about PKR 500 – whereas the same bag in Pakistan is priced at PKR 1800. Similarly, the Indian government charges farmers no more than INR 1700 per month for electricity used to pump water from tube-wells, whereas in Pakistan there is no upper limit on such bills.
Even 16 years after joining the WTO, Pakistani industry still fears competing with Indian industry, says Muhammad Anum Saleem, a lecturer at the Lahore University of Management Studies (LUMS) and a lawyer who specialises in the WTO. Saleem says Pakistan is still shying away from its commitments to India under WTO membership. Even the term 'Most Favoured Nation' is a misnomer, he suggests, as within the WTO every trading partner should be treated equally and concessions offered to one WTO member must also be offered to all others.