The grant of Most Favoured Nation (MFN) status to India by Pakistan is the latest episode in the improving relations between the two nuclear-armed neighbours, and the step is in the right direction on the path, which the two states have treaded since the tragic incident of Mumbai attacks in 2008. Pakistan's decision is an important leap towards normalization of trade ties between the two countries and majority of people on both sides of the border and across the globe has welcomed the step.
Pakistan and India are both the members of the World Trade Organisation (WTO) and also of the South Asia Free Trade Agreement (SAFTA). The WTO agreement requires each member state to grant Most Favoured Nation status to other member states to facilitate smooth trade flows. SAFTA takes up closer economic cooperation among all member states of South Asian Association for Regional Cooperation (SAARC). Unfortunately, in the case of Pakistan and India there have been several bottlenecks in achieving a harmonious trade relationship in spite of both the agreements.
The intra-regional trade in South Asia has been relatively low, owing much to the geo-economic dynamics as well as other factors, and not merely the existing tariff regimes. Some of the impediments to low regional trade include high transaction costs, limited port and transport infrastructure, andcruciallythe lack of political will. The intra-regional exports in South Asia stand at an estimated $9.3 billion as compared to a huge $296 billion of intra-European Union exports and $193.8 billion of intra-ASEAN exports.
India granted Pakistan the Most Favoured Nation (MFN) status way back in 1996 when the World Trade Organisation (WTO) was formed and both Pakistan and India became its founder members. Pakistan took 15 years to decide on conferring India the same status.
In a recent study on costs of economic non-cooperation in South Asia by SDPI, Islamabad, CUTS, Jaipur, and other partners, supported by The Asia Foundation, it was found that annual welfare gains to Indian consumers by importing certain products from Pakistan would be around $4 billion and similarly importing certain products from India would benefit Pakistani consumers by $280 million. Considering the population of Pakistan at 178 million, this would translate to $15.73 per person, and for the 1.2 billion people in India it would mean a gain of $3.30 per person, annually. The big figures apart, the gain to Pakistan would be nearly five times that of India.
The study clearly stated that the gains could come from areas such as pharmaceuticals, automobile spare parts and farm goods. For instance, India enjoys such advantages in coffee, tea, spices, man-made fibres cotton, textiles and vegetable products. This will also help in increasing the level of inter-industry trade between the two countries, which stands at a low level despite geographical proximity and cultural affinity.
We can't say that each and everybody across Pakistan has welcomed the prospect of granting MFN status to India as there has been some criticism from certain quarters against this decision. Opposition parties, especially the PML (N), is dissatisfied as its leaders were not taken on board; heavily protected and highly influential automobile industry is concerned about the possibility of import of competitive Indian automobiles that may challenge their monopoly; pharmaceutical industry is upset as Indian generic medicines are much cheaper (even at the existing exchange rate where Indian rupee is almost double in value than Pakistani rupee against the US dollar).
Pakistani politicians like Imran Khan have hailed this decision of the governments of Pakistan and India as according to Imran the status will bring economic stability in the region, which Pakistan in prevailing crisis situation needs the most. Azad Jammu and Kashmir President Sardar Muhammad Yaqoob Khan made it clear that his government has no objection to giving this special status to India if Pakistan's business community approves it. While talking to the media after meeting representatives of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in Karachi on November 24, 2011, he said, MFN and Kashmir cause are two different things.
So, basically what does MFN stands for a common man and how would it change the bilateral relations between Islamabad and New Delhi are the questions which need to be understood. First things first; MFN is a fundamental principle of WTO, which means treating other nations equally. Under the WTO agreements, countries cannot normally discriminate between their trading partners grant a country a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT). MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4).
MFN, however, also does allow some exceptions. For instance, Pakistan can negotiate a free trade agreement or regional trade agreements (such as the Pak-China Free Trade Agreement or South Asia Free Trade Agreement). The tariff set for such trading arrangements would only apply to goods traded within the group, discriminating against goods from outside or Pakistan can give least developed countries special access (reduced tariff) to its market or it can raise barriers (anti-dumping duties and provision of sensitive lists in certain cases etc) against products that are considered to be traded unfairly from specific countries.
The governments of Pakistan and India should not remain content just with the MFN status and set aside other important regional issues. By granting MFN status, Islamabad has shown the world that the people in Pakistan are not narrow-minded and want to move forward without compromising their interests. The fact of the matter is that economic prosperity of Pakistan is vital for the people of Kashmir and is directly linked to the Kashmir cause.
Yet, enhanced economic ties would not solve all the bilateral issues between Pakistan and India. We still need to resolve the issues of Kashmir and allegations of terrorism.
And the trade agreements between Pakistan and India should not put Kashmir on the backburner, as the destiny of a nation is more important than fun, fare, and shopping. Nonetheless normalisation of trade would definitely help in building the trust level between the two neighbours. This process would definitely play the role of a catalyst in initiation of any meaningful dialogue to resolve these issues amicably.
As William Shakespeare (1564-1616) in his famous play 'Hamlet' wrote, “It is never too late to give up our prejudices.”
The peace must be given a chance without any prejudice. By living as friendly neighbours, both the countries will be able to divert a substantial portion of their defence budgets on social sector, health, energy, education, infrastructure and poverty eradication and creating job opportunities.
There is no courage or any extra courage that we know of to find out the right thing to do. Now, it is not only necessary to do the right thing, but to do it in the right way and the only problem we have is what is the right thing to do and what is the right way to do it. That is the problem. But this economy of ours is not so simple that it obeys to the opinion of bias or the pronouncements of any particular individual. This is an economy that is made up of population 178 million (Pakistan), and 1.2 billion people (India) and it reflects their desires, they are ready to buy, they are ready to spend, it is a thing that is too complex and too big to be affected adversely or advantageously just by a few words or any particular status.
Giving MFN status to India is a welcome step, however the government should also utilize all means to bring New Delhi across the table to resolve the water issue and at the same time initiate a dialogue on the Kashmir dispute. Similarly, a strong diplomatic delegation be dispatched to Washington to convince the US government that if New Delhi remained in the denial mode of talking about vital issues like Kashmir and water, it would not be possible for Islamabad to go along with India's one-sided expectations.
(The author is a Sub-editor at the Kashmir Media Service.)
