Analysis: MFN status to India - ‘In principle’ is a negotiating tactic

The government wants serious trade concessions from New Delhi this time around.

Farooq Tirmizi November 07, 2011


When the government adds “in principle” to the description of its decision to grant Most Favoured Nation status to India, it is not backtracking, nor is it buckling under military pressure. The language it is using is very precisely calibrated as a negotiating tactic in the lead up to the next round of trade talks with India later this month.

In essence, what the government has done with this decision is to say to the Indians: “Our negotiators have been empowered to go all the way in terms of reducing barriers to trade. Now the ball is in your court. You give us enough of what we want and we are prepared to meet you half-way.”

Why use this tactic? Because in 1996, India granted MFN status to Pakistan and, in essence, kept nearly all of its barriers to trade, from tariffs, quotas and outright bans to more subtle encumbrances such as regulatory burdens that even European firms have a hard time meeting.

This time, the government of Pakistan wants a more meaningful negotiation process, where when both sides say they will not discriminate against each other in trade, they will actually mean it.

For its part, the Indian side also seems far more serious about opening up to trade and making the region more economically integrated. Far from denying the problem of non-tariff barriers to trade, New Delhi actually initiated a dialogue between its regulators and Pakistani businessmen on how to streamline processes and make the flow of goods and services easier.

Most people involved in the trade talks in Mumbai last month, as well as those who expect to be involved in the next round beginning on November 14, say they are expecting a significant breakthrough. On the agenda are items such as allowing trade in more items and making visas easier for the citizens – particularly the businessmen – of both countries.

It is understandable why the media was so confused. Information Minister Firdous Ashiq Awan, in her first press conference after the decision was made at a cabinet meeting on Wednesday used far more unequivocal language: “The federal cabinet has unanimously approved India as the most favoured nation,” she said.

Later on, Commerce Secretary Zafar Mahmood and even Awan herself used more circumspect language, which many journalists interpreted as pressure – either from the opposition or from the military – to backtrack on the decision. Since most journalists do not understand economic issues, they were desperate to insert a political angle and make it the central issue.

On Friday, however, Prime Minister Yousaf Raza Gilani used far more blunt language, essentially saying that trade policy was none of the military’s business. That strong wording was also meant to be a signal, again not to the domestic audience but rather to New Delhi.

This time, it was meant to say: “We know you always assume that real decisions in Pakistan are made by the army. We want you to know that this time, we won’t be running to GHQ for approval. So you can negotiate in good faith and know that we will keep our end of the bargain.

Just to make sure that the point was driven home, the government made Foreign Minister Hina Rabbani Khar – head of the ministry thought to be most closely controlled by the military – come out and say that the cabinet’s word on the matter was final.

It is not yet clear what the military’s actual stance on trade is. It is absolutely certain, however, that many military-owned businesses – particularly Fauji Cement and the military-owned farms – will stand to benefit from more liberalised trade with India.

Maybe the military’s own economic interests finally helped them realise the futility of resisting regional economic integration. Or maybe, just maybe, the government decided that it can make economic policy without having to worry about the generals looking over its shoulders. Here’s hoping it is the latter.

Published in The Express Tribune, November 7th,  2011.


Babloo | 9 years ago | Reply

If this is a negotiating ploy, India should break off negotiations , as Pakistan is already 15 year late in reciprocating India's gesture. Do not engage Pakistan .

k. Salim Jahangir | 9 years ago | Reply

There has to be quid-pro-quo vis-a- vis long standing issues with Bharat,before settling down with MFN.

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