Trade relations between India and Pakistan appear set to improve significantly with Pakistan likely to grant India Most Favored Nation (MFN) status. The potential gains from easier trading relations are considerable for both countries. In 2009-10, official trade between the two stood at $2 billion. Studies suggest this volume could be much higher, absent formal and informal barriers. For instance, a recent SAARC report estimates trade potential to be $12 billion.

What exactly does MFN status mean?


All WTO members are bound to grant MFN treatment to member countries with respect to trade in goods. India granted Pakistan MFN status in 1996, but Pakistan held back, citing strategic considerations. Despite granting Pakistan MFN status, India continued to impose high tariffs on goods of interest to Pakistan—textiles and leather. Thus, merely according MFN status does not imply easier trade. So, does Pakistan’s offer matter? Yes, it does. It signals enthusiasm, goodwill, and a keenness to build peaceful and productive economic and political relations in the region.


Where will the gains come from?


The gains are likely to come from existing markets as well as new ones. The former includes informal (illegal) trade, conducted through cross border smuggling and personal baggage — and according to some estimates, worth $13 billion. It also includes trade to the tune of $3-3.5 billion conducted through third-parties, such as Dubai, since direct trade is difficult. The potential for new markets is tremendous. For instance, a Government College University study suggests expanding Pakistan’s light engineering sector. The same study suggests that India has a relative advantage in bicycle production, which it could export to Pakistan. Additionally, as FICCI secretary–general, Rajiv Kumar notes, if Indian goods are permitted to transit through Pakistan and access Central Asian markets, then traders in Haryana, Punjab, Himachal Pradesh and North Rajasthan stand to gain substantially.


Two common misconceptions

• Indian goods will flood Pakistani markets and ruin local producers: WTO provisions allow members to impose safeguards restricting imports (for temporary periods) should such imports unfairly or seriously injure domestic producers.


• India and Pakistan’s political tensions will defeat smooth trade efforts: History suggests old enmities can be overcome by trade. Consider the end of the China-Taiwan fray, and the concomitant increase in trade from $8.1 billion in 1991 to $100 billion in 2010, as well as the US-Vietnam bilateral trade agreement in 2001, resulting in the US being the leading investor in Vietnam today.


What needs to be done now?


• Liberalize the visa regime for businessmen: Currently, business visas granted by India to Pakistani nationals are city specific, single entry and short duration. This limits what can be accomplished in one business trip. In this context, the recent report that India is considering moving towards a Preferential Trade Agreement with Pakistan and that a liberalized visa regime would be one of the first steps is particularly encouraging.


• Improve infrastructure, including warehousing facilities for perishables, better rail and cargo train services, and air links.


• Ease restrictions, such as the number of hours or the day of week when official trade across borders can occur.




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Pakistan and India are neighbours, as well as two important members of the South Asian Association for Regional Cooperation (SAARC). There are immense potentials of cooperation in the sectors of trade, industry, research, technical cooperation, education and healthcare, but, unfortunately, have been neither availed nor explored. Instead of benefiting from geographical proximity, time was wasted on efforts for airing the differences. It did not help in co-sharing prosperity; rather precious resources were wasted on wars. Pakistan was disintegrated into two parts in 1971.

The SAARC Chamber of Commerce and Industry from its inception had realised that the differences created on political basis were damaging the potentials of regional cooperation. Therefore, it accepted the challenge and after making efforts of bridging the differences of the private sector on both sides succeeded in persuading the Indian and Pakistani governments to sit on the table and discuss how economic cooperation can be given a practical shape pending the political issues. Subsequently, meetings among the Commerce Sectaries of both countries were held where a framework was agreed upon to normalise trade relations and sort out procedural bottlenecks.

A brief of the framework finalised at the 5th round of the India-Pakistan talks on commercial and economic cooperation held on April 27-28, 2011, in Islamabad is given below for information:

i Both sides agreed that increase in trade and economic engagement would help not only in the mutual quest for national development, but also contribute to building trust between the two countries.

i To build confidence, dispel misunderstandings and allay any misapprehensions, it is essential that governments in both countries support the business communities in the promotion of bilateral trade.

i To promote trade, both tariff and non-tariff barriers (NTBs) need to be reduced or removed.

i Both sides agreed to expand trade through the Wagah-Attari border by: (a) increasing trading hours taking advantage of the new infrastructure; (b) expeditious clearance of cargo; and (c) facilitating movement of large vehicles and containerised traffic. It was noted that an informal and effective customs liaison arrangement is already operating at the Wagah-Attari border.

i It was decided to undertake a new initiative to enable trade of electricity between both countries.

i Both sides also agreed to work out how to initiate and substantially expand trade in all types of petroleum products.

i A new initiative to promote bilateral trade in BT Cotton Seeds was identified.

i Cooperation in the Information Technology (IT) sector would be encouraged through the private sector route.

i Pakistan recognised that grant of the Most Favoured Nation (MFN) status to India would help in expanding the bilateral trade relations. Both sides agreed to remove the NTBs and all other restrictive practices that hampered bilateral trade.

i Both sides agreed that facilitating grant of business visas was essential to expansion of trade.

i While appreciating the need for business-to-business contact, both sides desired to create an enabling environment and encourage the Chambers of Commerce and Industry on both sides to form officially recognised Joint Chambers at the apex and regional levels.

i On opening of bank branches in each other’s countries, both sides agreed that banking channels are important and the process needs to be fast tracked.

Similarly, a number of conferences were held in various SAARC member countries to come out with the viewpoint of stakeholders. After 15 years, the ice melted and Pakistan agreed to grant the MFN status to India. It may be noted that while signing the SAFTA agreement on June 6, 2004, Pakistan agreed granting MFN status to liberalise trade, being a requirement of the World Trade Organisation (WTO) framework of softening trade policies.

Anyway, the fears being raised in the country on granting MFN status to India is not based on facts. Prior to granting this status, the Government of Pakistan invited suggestions from the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), regional chambers and other trade bodies acknowledging trade and industry as the major stakeholders. Later on, various trade sectors, like textile and automobile industry, leather manufacturers, garments manufacturers, pharmaceutical manufacturers, etc, will be involved while selecting items for concessionary tariff and ‘negative list’ to save the domestic industry from any damage.

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Written by Dr. Raja Muhammad Khan

Whereas, according to Foreign Minister Hina Rabbani Khar, Pakistan “has decided in principle to grant the Most Favoured Nation (MFN) status to India,” the question arises, would there be some concession from Indian side in reciprocation.

Though India has already granted Pakistan MFN status in 1996, but events followed thereafter and particularly after 9/11, were against the spirit of bilateralism or even good neighbourly relationship. The incumbent FM said in her statement in National assembly that this is being done owing to a number of “achievements” at the bilateral level. However, these achievements are imperceptible as yet.

The honourable Minister reminded the legislatures that India agreed to resume the dialogue process after a pause of two years, therefore; perhaps such a step would be essential to further this process. She said that, “We want progress on not just one but a number of issues with India on permanent basis besides normalization of overall bilateral relations.”

Earlier Makhdoom Amin Fahim, the Commerce Minister has expressed similar sentiments during his Mumbai tour in September 2011. Amin Fahim even stated in Mumbai that, “there was a strong opinion in his country that India should be given the Most Favoured Nation status,” indeed quite contrary to national sentiments.

It is unclear as yet that, whether this is a unanimous decision of the parliament or incumbent Government or individual choices of these two ministers, after they got appreciation either for their outlook or liberalistic views for their host, however, such decisions should not be taken in haste. After all, those who ruled Pakistan since 1996, must had some logic for not granting such a status to India.

It is submitted for the kind considerations and information of these honourable ministers that, the Composite Dialogue Process between India and Pakistan started in 1997. The Nawaz Sharif Government had exceptional relationship with India from 1997 to 1999, except for the bad patch of Kargil conflict.

So much so, during this tenure then Indian Prime Minister Atal Bihari Vajpayee visited Pakistan by road and made a very strong Indian commitment for a better bilateral relationship between India and Pakistan. But, even being a businessman Pakistani Prime Minister having 2/3rd majority in the Parliament, Nawaz sharif did not grant MFN status to India.

Indeed, India came closer to Pakistan for the first time during that period. What were the considerations and logics behind for not giving India the status of MFN must be known to that Government. However, then Government was all out to enhance trade and business with India. Even India was ready to purchase electricity from Pakistan, which was surplus to our needs then.

In the subsequent tenure, during the Military Government of President Pervaiz Musharraf, there have been a number of occasions where, India and Pakistan came closer to each other, where Pakistan could have offered such a concession in lieu of Indian willingness to resume the composite dialogue process particularly after the 12th SAARC Summit on January 6, 2004.

Upon successful conclusion of this Summit in Islamabad, President Musharraf and Indian Premier AB Vajpayee agreed to resume the long suspended composite dialogue processes. These dialogues were to address all issues including the core issue of Jammu and Kashmir.

In fact, from 2004 to 2007, there have been lot of CBMs between India and Pakistan and real developments were made on some of the issues. A number of working groups were established in order to find out the solutions of some of the complicated issues like Kashmir, Siachin and Sir Creek, in fact a real progress.

However, the grant of MFN status was neither demanded nor became a hurdle in the Indo-Pak dialogue process. Unfortunately, sequel to Constitutional Crisis in Pakistan in March 2007, the process of composite dialogue and progress made on them met inordinate delay and retarded thereafter, until suspended following the Mumbai terror attacks in November 2008.

Compared to these two periods; 1997-1999 and 2004-2007, what new and special concessions India has offered to Pakistan, which became compelling factors for our abovementioned ministers to fight Indian case for the grant of MFN to India. Has India stopped human rights violations in its occupied portion of Jammu and Kashmir or decided to do away with the construction of over 100 dams and reservoirs, intended to stop the Pakistani water from three Western rivers, whose water is totally dedicated for Pakistan.

Besides, has India promised to stop supporting the Baloch Sub-nationalists and so-called Islamic terrorists in FATA and other parts of Pakistan? What about the Siachin and Sir Creek issues. If some of these are security issues, but have definite linkages with economy of Pakistan. Indeed, all are having economic repercussions.

Perhaps, MFN status has something to do with the economy and industrial development of Pakistan. Compared to India, Pakistani economy has weak foundation. Its industry is already sick and facing worst crisis of its history. It has fallen prey to domestic instability, law and order situation and insecure from the investment point of view.

Besides, owing to the power shortages and lack of secure environment, the local business class is taking out its assets for investment elsewhere especially in secure countries. Under such insecure conditions, Pakistan cannot expect foreign direct investment (FDI). This would be ideal time for India to flood our markets with Indian goods, after the grant of MFN.

I would not say that over the period of time such a favourable environment has been deliberately created for India to destroy Pakistani economy and industry for ever. But surely, given such a status (MFN) under the prevailing circumstances, where Pakistani industry and economy is highly vulnerable and fragile one can expect even more than this hypothesis.

After such a status, there would be dumping of so-called cheap Indian goods in Pakistani markets. For those unaware of its implication, “Dumping means dropping goods below cost so that the industry of the local country can be destroyed. Then the foreign entity can have a monopoly for decades to come.”

Are we really geared up for such an eventuality? If yes, then be ready for loosing our identity too. After all we are already under the grip of Indian cultural invasion in Pakistan. Thereafter, India can sell us cheap food items, compared to the costlier Pakistani ones. For this purpose, tomorrow we may be asked by India to surrender the remaining portion of waters, currently irrigating our fertile lands. We must understand that one after other we are giving-in a lot and no one realizes that.

The need of hour is that on such issues of national interests, there should be establishment of working groups of technical experts and academicians and national think tanks, whose recommendations should be debated in the Parliament for a consensus decision. Since a formal decision has yet to be made, therefore, let us do it even now, before, personal relations prevail over national interests.

The writer is an analyst of International relations.

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China lauds Pakistan's 'Most Favoured Nation' status to India.

Beijing, Nov 3 : China today welcomed the Pakistan government's decision to grant 'Most Favored Nation' (MFN) status to India.

"As a neighbor and friend of India and Pakistan, China will continue to support the two sides to improve relations through dialogue and cooperation and accomplish collaborative development," Xinhua quoted Chinese Foreign Ministry spokesman Hong Lei, as saying.

"Both India and Pakistan are important countries in south Asia. Their improving bilateral relations are vital for the area's peace, stability, and development," he added.

Earlier, on Wednesday, Pakistan's Cabinet unanimously decided to grant India the trade status, a major breakthrough that could bolster efforts to improve relations between the nuclear-armed rivals.

The MFN status for India comes in return for lifting non-tariff restrictions on imports from Pakistan.

The MFN status provides trade equality among partners by ensuring that an importing country will not discriminate against another country''s goods in favour of those from a third.


Religious parties oppose MFN status for India.

ISLAMABAD: The leadership of leading national religious parties denouncing the government's likely decision to award Most Favoured Nation (MFN) status to India stated that it would damage the ongoing Kashmir liberation movement.

Talking to our sources Sahibzada Haji Fazle Karim, president Jamiat Ulama-e-Pakistan expressed his resentment over the issue stated that granting MFN status to India without solution of Kashmir dispute would be tantamount to betray with 90,000 martyred Kashmiris who shed their blood for liberation of the valley. "We are not against developing bilateral trade ties with India, however, it should not be started before resolving the core issue of Kashmir as well as other long standing issues between the two neighboring rivals," he maintained.

Ameer Jamaat-e-Islami Syed Munawar Hassan said the government is conferring MFN status to India following the order of USA. Terming it as a historic blunder, he said it is not only against the strategic interests of Pakistan but would be betrayal with sacrifices of Kashmiris. "India has not only been involved in massacring the Kashmiris, struggling for the right of self-determination but also engaged in hatching conspiracies in Afghanistan and Balochistan to destabilize Pakistan", he lamented. He further said the government should take the leadership of Kashmir on the board; otherwise, the unilateral decision would make Kashmiris believe that Pakistan has left them in the lurch.

Markazi Jamiat Ahle Hadith (MJAH) President Senator Sajid Mir in an anguish tone put a question to the government, "what favour New Delhi has given to the government that Islamabad was so keen for granting it the MFN status." "India has been involved in subverting Pakistan and distorting its image at international level, while, the PPP government in a sheer contrast to this fact, looks impatient to declare India most favourite nation for trade", he added.

He asked the foreign minister to explain the circumstance forcing Islamabad to go for the decision even without solving Kashmir issue, water dilemma and other long-standing disputes with India. The decision would have serious implications on Kashmir freedom movement, he added.
Yahya Mujahid, spokesman of Jamaatud dawa said possible decision would convey a negative message to the Kashmiris fighting for accomplishing the unfinished agenda of creation of Pakistan (seeking accession of the valley to Pakistan).

Maulana Amjad of Jamiat-e-Ulema Islam (JUI-F) said it would push the Kashmir issue to the backburner. He urged the government to take all the stakeholders, especially the Kashmiris into confidence before taking such a major decision. He opined India had always cheated Pakistan and in this situation the rulers were taking decisions against the public opinion. He said the party would have no objection provided India accepts Kashmiri people right to self-determination and resolve the long-standing issue in accordance with the UN resolutions.

Nawaz Kharal, Information Secretary Sunni Ittehad Council terming the decision as most imprudent said even military dictators in the past could not go that far. The decision of an elected government, he said, was tantamount to sabotaging the freedom struggle of Kashmiris. MFN status to India should be a pre-condition for resolution of Kashmir issue, he urged.


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MFN status for India: decision may help improve Pakistan ranking in international trade.


Pakistan Society Watch (PSW) on Sunday said MFN with India may help improve ranking of some cities in terms of trading across borders.

Some industrial cities are ranked lower in the World Bank's Doing Business report due to distance from ports, which may improve after enhance trade through land routes, said President of the PSW Syed Makhdoom Abbas in a statement.Welcoming the expansion in positive list by Islamabad, he said that reduced import protections will help both nations.He said that importing or exporting a container from Lahore or Peshawar through port required 9 documents and 20-22 days; the same processes need 7 documents and 14 days in Malaysia and while in Singapore all it take is 4 documents and 5 days.No wonder Pakistan ranked 73rd in the quality of port infrastructure while Sri Lanka ranked 43rd, Syed Makhdoom Abbas informed.

He said that automating clearance operations can check decline in exports facilitation and improve country's ranking in Global Competitiveness as well as Logistic Cost reports.

It will save money and time for the businesspersons and hike tax collections, he added.

He underlined the importance of reduce delivery time of goods through infrastructure upgradation, improved transportation, additional border stations, testing and warehousing facilities, simple procedures and reduced paperwork.Trade is the only way to reduce political tensions, which will improve living standards of majority of world's poor living in the region, observed Abbas.Some circles believe that a MFN status to India, if properly reciprocated, can reduce our dependence on the west and contribute towards strengthening democracy in Pakistan, he said.


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MFN status to India: Pakistan links implementation to removal of NTBs.


Pakistan has linked implementation of the Most Favoured Nation (MFN) status to India's removal of tariff and non-tariff barriers (NTBs), official sources told Business Recorder.

"Federal Cabinet has just given a green signal to ink MFN status with India without any timeframe.

However, Pakistan will not move forward in this direction until India takes satisfactory measures to remove NTBs," sources added.Indian High Commissioner to Pakistan, Sharat Sabharal, who was enthusiastic over Pakistani cabinet's decision regarding MFN status to his country, met Senior Commerce Minister, Makhdoom Amin Fahim in his chamber in the Parliament House and thanked the Minister for this bold and much needed step.

According to sources, Pakistan also wants to sign Mutual Recognition Agreement (MRA) with India, which would bind the two countries to accept certification of each other's agency.

"Such an arrangement will minimise the possibility of use of NTBs," the sources maintained.According to sources major non-tariff barriers are as follows: (i) visa and travel restrictions; (ii) inter-provincial movement of goods; (iii) limited number of ports and inland custom posts for imports; (iv) customs clearance and customs valuation; (v) state trading enterprises (STEs); (vi) excessive use of trade defence measures; (vii) tariff rate quotas (TRQS); (viii) technical standards and regulations; and (ix) import regulations.

The para-tariff/non-tariff barriers in India enhance red-tapism for their application in a trade restrictive manner and deny market access in India to a considerable extent.India maintains very high tariff on agriculture commodities (average tariff 90 percent) and at the same time composite duties (ad valorem+ specific duty) on textile manufactures, which in some cases exceed 100 percent.

Indian Prime Minister, Dr Manmohan Singh, at a meeting with the Pakistani Commerce Minister in New Delhi expressed his government's willingness to normalise bilateral relations on a fast track basis.

Commerce Ministry has already initiated consultation with other stakeholders on merits and de-merits of switching over from positive to negative list of importable items from India."Singh had emphasised that instead of delaying grant of MFN status both sides may discuss and address genuine issues and remove apprehensions for normalisation of trade and commerce relations," the sources added.

Both sides will jointly work towards enhancing bilateral trade within three years, from current levels of $2.7 billion per annum to about $6 billion.According to sources Indian Prime Minister argues that Pakistan's apprehensions that MFN status to India would lead to adverse affects on Pakistan's indigenous industry is not correct.

He assured Pakistani Commerce Minister that India does not want any adverse affect on Pakistan's economy or industry.

Commerce Secretary, Zafar Mahmoood, sources said is expected to leave for New Delhi to lead inter-ministerial delegation which will participate in 6th round of talks on economic and commercial co-operation.

Indian team will be led by Secretary Commerce Anand Sharma.Pakistan and India held 5th round of talks on economic and commercial co-operation at the level of Commerce Secretaries on April 27-28, 2011 in Islamabad in continuation of the negotiations initiated under the composite dialogue in 2004.

During this round, both sides agreed to liberalise trade and create an enabling environment for the private sector.

The business community of both countries has welcomed the decision of the Pakistani Cabinet.


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MFN status: Don’t expect too much.

Despite the Pakistani information minister excitedly announcing the decision to grant ‘Most Favoured Nation’ status to India last week, a degree of confusion still persists.


Even though the Pakistan foreign office spokesperson, while refuting the allegations of a second thought, categorically stated that ‘Pakistan is not backtracking’, evidently there is a shift in Pakistan’s present position.
The latest statement of the Pakistan Prime Minister that the “cabinet’s decision was in effect about normalisation of trade ties between the two countries which would eventually culminate in granting the MFN status to India” in comparison to the earlier straightforward statement of “granting MFN status to India” has only added to the confusion.


Irrespective of the ambiguities, it’s expected that eventually good sense will prevail and the two neighbours may be able to restore their normal trading ties, in near suspended animation since 1965. This is long overdue. Prime Minister Monmohan Singh rightly pointed out that, “I think it is nearly 17 years ago when India gave the most favoured nation status to Pakistan unilaterally and Pakistan has taken so much time.”


In fact, the Pakistan People’s Party government ever since assuming power in 2008 was favourably inclined to improve relations with India. If President Asif Zardari had had his way, he would have announced this decision way back in 2008. However, the civilian government in Pakistan traditionally has very little say in matters related to security and foreign affairs; the army sets the agenda particularly vis-a-vis Pakistan’s relations with India.


For this reason, while announcing the decision Pakistan’s information minister had to pointedly mention that all ‘stakeholders’ — read the army — are onboard. Pakistan still looks to be dragging its feet; it’s only due to the internal bickering. Not only the army, but the manufacturing industry in Pakistan is also apprehensive that the local industry in Pakistan cannot compete with India’s relatively advance industry: with Pakistan granting MFN status to India, Pakistani markets will be flooded with cheap exports from India.


On the contrary, traders and especially consumers in Pakistan are elated with the prospects of benefiting immensely with the free movement of goods. The potential of trade between India and Pakistan is approximately $6 billion to $8 billion a year. While India and Pakistan were and are still arguing over the issue, the illegal trade primarily routed through Dubai is estimated to be $3bn-$4bn a year.


There is many a slip between the cup and the lip; such is the nature of Indo-Pak relations. Unless an agreement is not clearly inked on paper rather engraved on stone, a simple media announcement does not carry any conviction.


Moreover, expectations built around the notion that free trade will ultimately transform Indo-Pak relations radically, is also much hyped.Presently China is India’s second largest trading partner; during 2010-11, the two Asian giants traded goods worth $60 billion. And both are aiming to achieve an annual target of $100 billion trade in few years time. Yet the increasing Indo-China trade has not been able to put brakes to the ever growing arms race in the region.


Just last week, China is reported to have deployed ‘four new nuclear capable ballistic missiles, including one that can be launched from submarines (SLBM).’ China’s militarily overreach has practically forced India to expand its military muscle that may eventually cost it tens of thousands of crores.


Ideally, free movement of goods and people should integrate the region, ultimately leading to dilution if conflicts, if not fully resolving the conflict. The growing fears of getting isolated in the region due to the increasing tensions with America may have pushed Pakistan for a trade detente with India. The emerging Great Game in Afghanistan may dramatically alter the geopolitics of this region.


If peace in Afghanistan was the real motive, it would have been easier for all the regional powers including India and China along with America to join hands. This is not the case; in a bitter power struggle Afghanistan has been turned into a battle ground. On the one hand, the US wants greater integration of South Asia with India playing a pivotal role to ward China’s growing influence.


Conversely, Pakistan and China are keen for America to leave the region. China wants to preserve its regional hegemony; Pakistan is sacred due to the growing status of India. In the evolving new Great Game the risk of regional tensions flaring up has increased manifold.



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Another great piece of work
Thank you so much

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