Ties with India: Industries ministry suggests gradual opening up of trade

Says negative trade list should be phased out over a period of five years.

ISLAMABAD:

After fierce resistance from farmers’ lobbies and the textile ministry, the Ministry of Industries is also gearing up to slow down moves to open up trade with India, believing it will hurt the infant domestic industry and has proposed a gradual phase-out of negative trade list over a period of five years.

Pakistan is planning to grant most-favoured nation (MFN) status to India by the end of December and start free trade in January. The Ministry of Textile and farmers’ lobbies like the Farmers Associates Pakistan are opposing free trade with India on fears that it will swallow up Pakistan’s economy.

According to officials, the Ministry of Industries has recommended to the government to link the opening up of trade with reciprocal measures by India to ease the non-tariff barriers that stand in the way of Pakistan’s exporters. In case, it says, India stops removing the barriers during a period of time, the phase-out of negative trade list should be stopped by Pakistan for the same period.

The ministry says the commerce ministry has identified 636 items for trade with India after consultation with the industry and a study conducted by IBA Karachi. But generally there is little to rely on predictability.

The traditional measure used is the Revealed Comparative Advantage (RCA) index, ratio of a product’s share in a country’s exports to its share in world trade, it says. “As such, the RCA index simply records a country’s current trade pattern and it cannot be used to say whether or not it will make sense to support a particular sector or tariff lines for inclusion or otherwise in the proposed negative list.”

The ministry notes the RCA index misses the loss and setback suffered by the manufacturing industry. The industry feels while trade liberalisation is welcome, it will only benefit both sides if undertaken in a structured manner, providing space to the industry in the backdrop of the energy crunch, floods, law and order situation and high interest rates. The rising unemployment also cannot be ignored, it says.



According to the South Asia Free Trade Area (Safta) accord, except for the items placed in the sensitive list, the rest of the tariff lines will come down to 0-5% by January next year.

“This will not only allow a huge quantum of tariff lines to be opened up for trade, the tariff will also be reduced drastically, for example, from as high as 35% to 5% in January 2013, which may have a huge cost impact on the local industry faced with a plethora of domestic supply-side constraints,” the ministry says.

It argues it is absolutely necessary to mitigate to some extent the effects of a sudden transition that will entail huge economic implications for the industry. The Safta impact should also be factored in while assessing the actual economic impact.

The ministry suggests that the negative list should be phased out over a period of five years and the phase-out should start after three years. The exercise should be in consonance with sensitivity levels of tariff lines in order of ‘least’ to ‘highly sensitive’.

The ministry suggests a year-wise tariff reduction plan, starting with 25% in the third year, 25% in the fourth year and remaining 50% in the fifth year. However, the tariff reduction should be linked with proportionate measures taken by India for easing non-tariff barriers.

Published in The Express Tribune, November 28^th, 2012.