Pakistan is a unique case as it resents normal diplomatic terms with its best business partners as well as neighbors. The US and Afghanistan collectively account for one-forth for Pakistan’s total exports and Pakistan is fast deteriorating its terms with these countries. With granting of MFN status to India, a silver lining is now seen on the horizon of an otherwise anti-business foreign and security policy. While trade implications of this reciprocal policy gesture towards Pakistan’s arch rival are disputed, its political consequences can be predicted more precisely.
Pakistan will pay around $6 billion this year as opportunity cost of an India-centric national security apparatus, which has now been equally engaged towards the western fronts.
Eventually, under the WTO regime, the MFN status should be seen as a more or less a statutory obligation, rather than a purely economic decision. The real flow and direction of Indo-Pak trade will depend on business dynamics, in the light of the ancient supply and demand curves together with relative prices.
The economic calculus of formal Indo-Pak trade is trivial, at least for India. With total formal Indo-Pak trade of around $2 billion, this translates into 0.27% of India’s foreign trade basket. For Pakistan, it means more, with around 3% of its external trade. In comparison, Pakistan transacts 10.83% of its international trade with China, 10.65% with UAE, 8.41% with USA and 7.26% with Saudi Arabia.
It is noteworthy that except for the US, in these selected countries sample, Pakistan runs significant trade deficits with its otherwise ‘brotherly’ countries. Very few people realise that after the US, Afghanistan has become Pakistan’s most favorite destination, which accounts for close to 10% of our exports, whereas the US accounts for 16%. With Pak-USA diplomatic terms at far from their best and with Afghanistan now always in an aggressive tone towards Pakistan, we are fast losing our business partners. It is ironic that our foreign policy and trade trends seem to be working at odds.
It is obvious that with India’s relatively very low dependence on its trade with Pakistan, this should not appear very high on the Indian policy horizon. But for Pakistan, it does matter more. Probably more than the trade size, normalisation of trade with India will bring, in the long run, a paradigm shift in our national security understanding. With the prospects of India being viewed as business partner, our India-centric national security discourse, which in any case is losing legitimacy due to internal challenges, will undergo significant change.
In the short run, normalisation of Indo-Pak trade relations will mean more peace, if not more trade. In the long run, this will release significant burden from our public finance. Pakistan allocated around $5.88 billion this year for its defence budget. It is mere coincidence that this is also the size of our total trade with the US.
By all accounts, granting MFN status to India is a significant development. It does enjoy political consensus as all major political parties have signed a document called National Economic Agenda, orchestrated by the Pakistan Business Council. Probably their leaders would do well by looking at their publicly announced commitment before criticising MFN status to India.
It is clear that the policy of opening up trade with India will create winners and losers. Forces whose interest will lie in more commerce and more inclusive culture will favour normalisation. We must remember: if goods do not cross borders, armies will.
The writer is a principal consultant at Development Pool.
Published in The Express Tribune, December 26th, 2011.
COMMENTS (11)
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worth reading article!
The writer has very rightly said if goods do not cross borders armies will so its upto the saner elements in both the countries to see that conducive policies both political and economic are placed in field to help reduce tension between these two nuclear states and that more interaction and trade is facilitated amongst these two countries.Yes there are anti MFN forces in Pakistan but so are anti Pakistan Trade forces in operation in India. The thing to remember is that they are in absolute minority in both the countries. Should minority view prevail over majority ? who are in favour of total normalisation of relations in both political and economic spheres.The people of both the countries have peacefully co-existed in the past,there is no reason why they cannot do so know.The spoilers will always be there, its we who have to decide and move forward.
Enhanced trade with India is obviously in the interest of the citizens of both countries. Whether it suits those in the domain of national security is another matter altogether.
It is very distressing to read about the anti-MFN slogans on the Islamabad-Lahore road. I have not seen a single such slogan in India.
@vasan: I did not miss out military at all in this equation. If you read again, I have analyzed implications for our defence and security policies. If the economic and political/diplomatic relations are not working, then the military action is almost a certain residual. While it is not pragmatic to talk about a unilateral reduction in the military establishment, it is certainly possible to grow and increase trade with India. In the short run, this will build up as a CBM among the foes and in the long run, it will make a security centric economic/diplomatic policy totally illegitimate. @Tony: I am not optimistic about Hafiz Saeed and his ilk reading and understanding. When I travel from Lahore to Islamabad on the historical Grand Trunk Road (GT Road), I see anti-MFN, anti-India slogans every where as wall chalking. It is also very depressing to see similar slogans in India. So while there are Hafiz Saeeds on both sides of the borders, we should try to build closer and better relations while circumventing them. In due time, these forces of the past will become irrelevant, but not without an effort.
People trade with each other when it is profitable to do so. No special favours either way!
If India will stop sabotaging Pakistan, then, trade with India will make sense. Otherwise, until then, Pakistan can benefit through trade with other genuine countries. Pakistan should give India time-out to provide Pakistan its real intentions about old pressing issues rather than throw those under the rug and hoping time will erase them. Pakistan should avoid being pushed around.
Hope Hafiz Saeed and his ilk read and most importantly understand what trade is all about.
The Ghairatmands in Pakistan should really try eating grass for a day. Once they know why it was created for cattle maybe they'll realise their folly.
future isnt abt trading troops, but trading commodities...i blv the new generation of india and pak are large hearted and see each other as friends and not foes...(notwithstanding the common history and common culture that we share)
The most important factor is missed out,. The military also should be in the same page.