With no economic decisions on the cards from the caretaker government, the local entrepreneurs have got two months relief on the issue of granting MFN status to India that the last government approved in its cabinet meeting but did not officially notifiy.

Meanwhile, the industrialists continue to be skeptical about MFN status to India, pointing out that besides a most restrictive Indian import regime and its various non-tariff and technical barriers, Pakistan's policy of facilitating imports and increasing production costs of local industries, favors imported products. They want the next government to revisit the issue threadbare before taking a final decision.

Chairman, All Pakistan Business Forum, Nabeel Hashmi said that free trade is beneficial for all economies but only if the rules of the game are equally applied on both trading partners. When the World Trade Organization was formed, its founding fathers took it for granted that all members would operate fairly and would not twist the rule to deny genuine benefit to the other party. He said that unfortunately most of the member countries tried to take undue advantage of the WTO regime.

He said that under the WTO regime, when a country is granted MFN status, then it has the right to export its goods to the country that conferred this status on it at the general import tariff of that country. He said this law was misused by both developed countries and some over clever developing economies. He said that the developed economies in their general tariff imposed high duties on textiles manufactured in the developing economies. This was done to protect jobs at home.

The developed economies added, produced apparel and fabric at high cost because of 30 to 40 times higher wages than in developing economies. Influx of cheap apparel would have made millions of their workers jobless, he added. This is the reason that against their average import tariff of 6-9 per cent, the tariff on textiles and clothing in these countries varies from 19-27 per cent. He said to accommadate some friends, these economies allowed zero-rated import of textiles and clothing from countries like Bangladesh and Africa. Even this, he added, had adverse effect on neighbouring developing economies like Pakistan, as jobs from their textiles and clothing sector were transferred to low cost countries.

Hashmi said that Pakistani planners acted in haste and reduced their tariff according to the actual spirit of the WTO. Indian planners, on the other hand, acted cleverly. They knew that they would be facing competition on low-cost products from their neighbours, so they designed their tariffs in a way that all products, including textile and clothing, light engineering and home appliances are subjected to prohibitive tariffs. This was done in a technical way such as in the case of fabric, the import duty is only 10 per cent, but with the condition that the minimum duty would be Rs. 150 or 10 per cent, whichever is higher. He said the average cost of Pakistani fabric is $3 per square meter and at 10 per cent the duty should be 30 US cents. But Indian condition of minimum Rs. 150 duty means that the importer of Pakistani fabric would have to pay $3 or 100 per cent duty as 50 Indian rupees are equivalent to one US dollar.

Vice-Chairman, Pakistan Association of Auto Parts and Accessories Manufacturers, Usman Malik, said that the issue of Indian NTBs and restricted Indian import regime is now well known to the government. He said that this awareness was created by the Pakistani exporters, who pointed out the difficulties they face in exporting to India, that they do not face in other export markets.

He said that many government functionaries assured that Indians would be asked to remove these barriers before granting it MFN status. He regretted that the cabinet approved granting this status to India without any step taken by the Indians to remove trade barriers or soften the restrictive import regime.

Chairman, All Pakistan Textile Mills Association, Ahsan Bashir, said that there is no duty on import of cotton and blended yarn in Pakistan. Under the MFN tariff, the import duty on yarn in India is 10 per cent. He said Indians thus enjoy advantage over Pakistani industries. Another factor worth noting is that there is a 7.5 per cent duty on import of polyester fiber that is the basic raw material for producing blended yarn. The local polyester manufacturers adjust the prices of their yarn, taking into account the duty on imported yarn.
Bashir said that this means that the polyester yarn and blended yarn in Pakistan is produced after incurring 7.5 per cent extra cost, while the import of polyester or blended yarn is allowed at zero duty. He said this is a rare example where the home government is providing advantage to the foreign manufacturers. Such anomalies hurt the local industries, irrespective of the fact whether we grant MFN status to India or not.

A motorcycle manufacturer said that this brings in to question the domestic industrial policies that provide advantage to imports and penalize local industries. Elaborating his point, he said that in case of motorcycles, the Indian government allows import of motorcycle components at 10 per cent duty irrespective of the fact whether these components are produced or not in India. In Pakistan this duty is 57.5 per cent for parts that are produced in the country and 32.5 per cent for parts that are not produced in Pakistan.

He said this provides advantage to the Indian industry that produces the motorcycles at low cost even if it uses imported parts. Pakistani industry, he added, produces bikes at higher cost even when importing those parts that are not produced in the country.

India produces 15.7 million bikes per year, China 33 million and Pakistan 1.8 million motorcycles per annum. Logically, the import duty on bikes should be lower in India and China than Pakistan because of the economies of scale. "It is the other way around, as the import duty on motorcycles in India is 90 per cent, China 90 per cent and Pakistan 57.5 per cent. He said with this duty structure, the imports in Pakistan would be easier than in India or China.

Auto vendor Syed Mansoor Abbas said that very few people are aware that a leading car manufacturer established its car plant in Pakistan in the mid-90's with the aim of exporting its brand to India which had indicated to grant MFN status to Pakistan. He said the Japanese that established the plant, were extremely disappointed when they were unable to export a single car for almost a decade before they decided to establish another plant in India.

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