Analysis: Dispelling the fears and myths

This will not only bolster economic ties but also help promote regional trade, paving the way for South Asian Free Trade Area (Safta) to be implemented in letter and spirit.

While Pakistan and India are embarking on a new era of cooperation, unknown fears are still lurking in our minds owing to the troubled political history of both countries. Let us examine some of them.

Is there a wide-based support for MFN?

Since commerce secretaries of the two countries met in April this year, there have been a series of meetings between government officials and business communities to broach the future of trade relations. On MFN status, all stakeholders in Pakistan, including the federal government, business community and the establishment are on the same page for improving trade relations with its neighbouring countries (especially India). This can be the vital impetus required to sustain economic growth in a region where nearly half of the world’s poor live.

Even industries that have expressed apprehension about being unduly exposed to competition from India have not opposed granting of MFN status, as long as there is a protection mechanism in place (negative list) that will safeguard their interests.

With MFN do we lose our position with regards to other bilateral issues with India?

Normalising trade relations is not a zero-sum game that nullifies or dilutes a country’s stand on some of the contentious issues that it may have with its neighbors. Like in the case of China and Taiwan or India and China, where despite prevailing border disputes, trade relations have continued to prosper in the last decade. If anything, such initiatives improve the soured atmosphere, change public perceptions, reduce the trust deficit, and create vested interest for peace that lobby for closer ties.

Although granting of MFN is an executive decision, the government is taking all political parties on board in the assembly for a unanimous stance on trade ties with India, which could potentially become the turning point in the future for improving the overall relationship between the two countries.

Has Pakistan government backtracked on its decision to grant the MFN status?


The process to normalise trade between the two neighbors was already agreed upon when the two countries’ commerce secretaries met in Islamabad seven months ago. It was concluded in a joint statement that Pakistan would in principle grant India the MFN status, while India would remove its non-tariff barriers (NTBs) against Pakistani goods. Subsequent meetings at the joint secretary level and a ministerial visit further discussed and reinforced this process over months. This week, the federal cabinet gave a unanimous approval for this initiative to the commerce ministry and directed them to peruse this to its logical conclusion.  This unfortunately was misconstrued as an approval to immediately grant the MFN status to India which was never the case and hence in its clarification an impression was created that the government was backtracking on its decision. This is quite unfortunate, given the historical significance of this decision.

Is MFN enough to boost trade?

Granting of MFN status to India is only a part of the bigger understanding to normalise trade relations between the two countries. Despite Pakistan being granted the MFN status by India over a decade ago, trade is disproportionately skewed in favour of India. Liberalisation of visas, logistic constraints, simplifying trade procedures, removal of quotas and specific duties etc, are some of the NTBs being faced by the business community of Pakistan. Removal of these hindrances is a part and parcel of the understanding that has been reached with India during the recent rounds of negotiations; if these barriers are removed then, theoretically, Pakistan stands to gain more than India. It will, however, depend on how these negotiations proceed and how rigorously they are implemented. There is a need to move forward optimistically and wisely and in a step-by-step agreed process to unwind our 60 years of baggage and discord.

How will trade with India help our economy?

By opening up trade with India, our consumers could get cheaper products, while our manufacturers could import cheaper machineries and raw materials to be more competitive internationally. We will also get a market of over a billion people whose purchasing power is growing by the day. To allow cross-border investments could be the next logical step. Joint ventures in the IT sector, where India has a huge advantage in terms of export volumes (over $60 billion and growing in double digits annually), and Pakistan has a large pool of educated youngsters that are more competitive than their Indian counterparts, could be the perfect combination for a prosperous business partnership. Similarly some of Pakistan’s IT companies with world class products could find ready opportunities in India for sales and further development of their businesses.

India also provides a large domestic market for Pakistani home textile products and coarse count fabrics where it has an inherent advantage in terms of price and quality. This billion-dollar-plus potential market unfortunately has been closed to-date due to NTBs. By mutually opening up of each other’s markets, both countries stand to gain in this sector as well.

There are also tremendous possibilities of collaboration in education and health sectors where we have similar population challenges and opportunities. India is also an energy-deficient country and at some point would need to build links with the energy-rich Central Asia for which we are the natural transit country. Pakistan can become a transit route, especially for oil and gas pipelines for China and India, and not only meet its own energy needs in the process but also earn substantial transit fees and support its allied services sector.

Win-win situation

Pakistan needs to improve its international image and broaden its reach with its neighbors – and there is no better way than trade.  Recent lessons have shown that nations cannot always confront global issues in isolation, but require close cooperation with their neighbors and friends, where interests, expertise, and resources are aligned to face some of these common challenges. The Saarc region is no exception where the two elephants in the room need to sort their issues for the region to move forward with the rest of the world.

Changing monsoon patterns, melting glaciers, rising sea levels, increasing floods, reducing per capita availability of water, building of dams, growing populations, etc are just a few recent reminders for this need. Strong trade links and the interdependencies that it creates will help absorb some of the future shocks that have the chances of disturbing the fragile relations between the countries.

The writer is the president of Pakistan-India CEO’s business forum.

Published in The Express Tribune, November 6^th, 2011.