Carefully treading trade with India

Present situation would harm Pakistan if liberal policies are adopted.

KARACHI: With talks of liberalising trade with India doing the rounds, it would be timely to review the present situation.

India gave Pakistan the Most Favoured Nation (MFN) status in 1996. Yet Pakistan’s exports to India have been pitiful, around $300 million, while Indian exports have been 5 times higher, clocking in at $1.6 billion. This has happened despite Pakistan not giving India the MFN status.

Now we want to give Non-Discriminatory Market Access (NDMA) to India and yet say that exports would rise. Not at least till India removes the non-tarrif and technical barriers to trade.

Let’s be clear that Pakistan is clearing the road for Indian imports and not, in the true sense, bilateral trade. Why should Pakistan want that? Why should the country offer its markets without having the ability to gain an entry into India’s? In the 80s and even early 90s, it would have made eminent sense as Pakistan’s per capita income was higher than India’s while per capita production was at par.

Now India is miles ahead and moving further, while Pakistan is floundering. UNCTAD’s 2008 survey states that India has a track record of being the most prolific user of anti-dumping remedies. Their overall Trade Restrictive Index is 46.7, while Pakistan’s is 22.2.

Let’s talk about the automotive industry, which has a profound impact on economy because of its backward and forward linkages, employment capability and technical prowess. India has protected it well as they, proudly, announced during a recent conference I attended. Their custom levy on new built-up vehicles is higher than Pakistan’s and even higher on used vehicles. Malaysia has included the automotive industry in its manufacturing ++ industries. It has been called the mother industry as well as the “Industry of Industries” by no less a person than Peter Drukker, the famous management guru.

India has done well to understand this and protected it in all the Free Trade Agreements signed, even the latest one with the EU. No built-up, new or used vehicles, are allowed easy access to its market.

The transport engineering department of India has 1,085 standards of which 554 pertain to auto and parts — we have none. They have a process of testing before allowing anything in, which is time consuming and is called homologation. Pakistan does not have any facilities with the Pakistan Standards and Quality Control Authority (PSQSA) to carry out any homologation in the country. India also has a robust licencing arrangement for allowing vehicle import.

They have emission standards, Bharat 3 & 4, which are unique and more challenging than Euro 3 & 4. Pakistan is still at Euro 2 only in petrol and zero in diesel. Hence, access to their market is obviously denied unless Pakistan improves its standards.

Why we are at such a low level is because our fuel is not good enough for higher levels. The refineries must invest to deliver better fuel. It is obvious that Pakistan needs to have better standards, testing equipment and regulation before we allow access to our automotive market — both National Tariff Commission & PSQSA’s capability has to be substantially enhanced. India is a member of the UN WP29 Agreement of 1998 which does not compel it to accept a third country’s testing as the Agreement of 1958 did, of which India is not a member. India, thus, does not allow mutual recognition. Their standards are unique and they would like Pakistan to adopt their standards. India has dexterously done its homework.

To top it all, Pakistan is considering opening the Wagah border for all items. Currently, only 137 products can come through. This will make Pakistan and India one market and foreign direct investment would naturally flow into India because Pakistan is besieged with insecurity. What a loss that it will be? Under invoicing, mis-declaration and dumping will be carried out abundantly, especially if import is through Wagah. Wagah must not be opened up. It will be disastrous.

The way forward

Let the automotive associations in both countries talk to each other and finalise the modality of business, leading to managed trade along the lines of Mercusor Agreement on automotive trade between Argentina and Brazil or the agreement between US and Canada.

To make ourselves competitive, raw materials, machinery, tooling and technology may be made available from India as the first step. To improve competitiveness, joint ventures in Pakistan or investment by Indian firms in Pakistan may also be allowed. With the low value of Pakistani currency and labour cost, they may make products cheaper in Pakistan.

Let India play the role of the big brother and give more leeway to Pakistan like reducing the Pakistan sensitive list to 300 for the time being, while India reduces it to 100. Allow Pakistan time to get more competitive and then remove lines progressively.

The writer is Paapam’s first  chairman and is closely  associated to the auto industry

Published in The Express Tribune, March 10^th, 2014.

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