Pakistan-India trade talks: ‘Denying India MFN is a non-tariff barrier’

Commerce secretary admits Islamabad is guilty of the same thing it accuses New Delhi of.

ISLAMABAD:

Not granting India ‘most favoured nation’ (MFN) status constitutes a non-tariff barrier to trade, admitted Pakistan’s Commerce Secretary Zafar Mahmood, during the first day of India-Pakistan trade talks that have resumed for the first time since the November 2008 attack on Mumbai. The admission comes on the heels of reports that Pakistan is willing to consider offering MFN status to India in exchange for a removal of non-tariff barriers to trade by New Delhi on goods to Pakistan. India’s commerce secretary, Rahul Khullar, is in Islamabad for trade talks between the two South Asian rivals.

Islamabad’s biggest historical complaint against India on matters of trade had been New Delhi’s excessive red tape on trade with Pakistan, which the government argues is the single biggest impediment to trade between the two countries. Pakistan’s commerce secretary has now publicly admitted that Pakistan may be guilty of something similar. However, he also said that both countries have agreed to remove non-tariff barriers to trade.

Bilateral trade between India and Pakistan is heavily skewed in India’s favour. Of the total $1.5 billion in trade between the two countries, nearly $1.2 billion are Indian exports to Pakistan, making Pakistan’s trade deficit with India close to $900 million a year. Informal trade, however, is estimated to be between $2 billion and $2.5 billion, leaving most economists to believe that trade between India and Pakistan would skyrocket upon the removal of trade barriers.

In retaliation for India’s non-tariff barriers to trade, Pakistan has refused to grant India MFN status, something that the country is required to do under its treaty obligations to the World Trade Organisation. India also restricts trade with Pakistan by imposing heavy tariffs on the imports of a list of 850 items.

MFN status, a widely misunderstood label, simple means treating every trading partner the same as one treats its “most favoured nation”, or in other words, not discriminating against any one trading partner. A non-tariff barrier to trade is one where a country imposes restrictions such as unreasonably high regulatory standards or lists of permissible items which constrict the free flow of trade between two nations.

The admission, however, comes after the Indian commerce secretary has been quoted by The Times of India as saying that the MFN status does not matter to India so long as Pakistan implements its treaty obligations to the South Asian Free Trade Association.

In an attempt to break at least some of the logjam on trade talks, both countries have agreed to pick up their negotiations where they were cut off. Two items that are closest to resolution are a framework for allowing banks from either country to open branches in the other country and enhancing cooperation between the quality control regulators in both countries.

Mahmood was particularly keen to resolve the issue of allowing banks to open branches in each other’s countries. “How can trade be enhanced between the two countries without opening bank branches?”

The Indian team is particularly keen to open up land routes between Kasur and Ferozpur on either side of the Wagah border to facilitate the cotton trade between the two countries. Pakistan does not produce enough cotton for its needs and imports one million bales annually from India, most of which comes through the slower, more expensive route of sea ports.

Mahmood said that the transit trade between India and Afghanistan is not part of the current round of negotiations.





Published in The Express Tribune, April 28^th, 2011.