Breakthrough in Mumbai: India, Pakistan agree to trade concessions

"The meetings were very productive and useful": India's Trade Minister told reporters.

NEW DELHI/KARACHI: The commerce ministers of India and Pakistan appear to have made significant breakthroughs in easing restrictions on trade between the two countries, with New Delhi expected to withdraw its objections to European Union trade concessions to Pakistan and Islamabad expected to reduce tariffs on imports of Indian goods.

The two sides did not sign a formal agreement during this most recent round of negotiations that concluded in Mumbai on Wednesday, issuing a vaguely-worded joint statement instead. Yet officials on both sides presented a highly optimistic account of the talks and said that the two countries would likely finalise a slew of agreements in the coming two months.

(Read: Pakistan and India talk trade to boost ties)

Most significant from the Pakistani perspective is India’s decision to drop its objections at the World Trade Organisation against trade concessions that the EU had promised Islamabad as part of an assistance package to help Pakistani recover from the devastation of the 2010 floods.

A member of the Pakistani delegation said that India had agreed to withdraw its objections at a November 7 meeting of the WTO General Council. Indian Commerce Minister Anand Sharma appeared to confirm this when he said that India would be “supportive and constructive” of the EU’s concessions.

The European Union had originally sought to reduce tariffs on 75 goods for a period of three years, including 67 on which it would be reduced to zero. Pakistan currently exports approximately $1.2 billion worth of those goods, a number that the EU expects to increase by about $136 million, or 11.1%, as a result of those concessions.

However, that package was quickly stalled after India raised objections at the WTO. The EU has already signalled that, after the withdrawal of India’s objections, it would restart the process of internal legislation and seeking WTO approval.

Easier visas

New Delhi’s other concessions include an agreement to end the restrictions on the number of cities that Pakistani businessmen can visit when they go to India. Pakistani entrepreneurs will now be able to get one-year multiple visit visas with no restrictions on where they can travel.

(Read: India mulls lifting visa curbs for Pakistani business)

“We have constructively engaged towards a liberalized business visa regime. We expect this matter to be expeditiously concluded before November,” said the Indian commerce minister after meeting with his Pakistani counterpart, Makhdoom Amin Fahim.

Fahim is the first Pakistani commerce minister to visit India in 35 years. He is leading a delegation of over 50 Pakistani businessmen, the largest ever to India. Members of the Pakistani delegation said the negotiations were conducted in a highly positive atmosphere.

“We have had an extremely encouraging response in India,” said Tariq Iqbalpuri, the chief executive of the Trade Development Authority of Pakistan.

Commerce Secretary Zafar Mehmood and his Indian counterpart, Rahul Khullar, are scheduled to meet in November to move the dialogue forward.

Possible MFN status

Iqbalpuri also claimed that Pakistan had agreed to grant Most Favoured Nation (MFN) status to India – one of New Delhi’s longest standing demands – but sources on the Indian side did not confirm this account.

(Read: Pakistan to grant MFN status to India ... eventually)

MFN is a terminology used by the WTO to state simply that a country will not discriminate against any one of its trading partners. Under its treaty obligations to the WTO, Pakistan is required to grant MFN status to India, which has already done so for Pakistan.

New Delhi has been trying to get Pakistan to reduce its tariffs on Indian goods, but Islamabad says that India must simultaneously remove its non-tariffs barriers to trade before it will do so.

Pakistan currently only allows Indian imports that are part of a “positive list” of 1,948 items. Another 12,000 items are on the “negative list”, meaning banned for import.

India, for its part, has agreed to examine its non-tariff barriers. A meeting of several Indian government departments is expected to take place on September 29 (today) to discuss ways to reduce regulatory barriers to imports from Pakistan.

India has also agreed to begin exporting BT cotton seeds to Pakistan, which is expected to increase Pakistan’s agricultural productivity.

(Read: Major issues between old rivals India and Pakistan)

Banking ties

Iqbalpuri also said that a delegation from the Reserve Bank of India will visit Pakistan in mid October to discuss establishing formal banking links between the two countries.

The Pakistani commerce minister met with RBI officials in Mumbai and invited them to meet with State Bank of Pakistan officials in Karachi.

The lack of banking ties between the two countries is a significant hindrance to trade, since all trade transactions are conducted and financed through banks. Currently, companies from both countries use Western banks, which charge higher fees. If Indian and Pakistani banks begin to do business directly, it is likely to reduce transaction costs for the average trader in both countries.

The Indian commerce minister said that India is also contemplating removing its blanket ban on capital inflows from Pakistan (Islamabad has no such ban on Indian investment).

Published in The Express Tribune, September 29^th,  2011.