While a positive list limits commerce by barring trade in all items except those named in the list, a negative list does the opposite enhances commerce by allowing trade in every item except the few named in the list.
Sources told FE that last weeks Indian delegation to Pakistan, led by commerce minister Anand Sharma, pushed for expanding the positive list of 1,963 items by including items like gold, auto components and two-wheelers. India is simultaneously planning to amend its Foreign Exchange Management Act (Fema) to let Pakistani firms invest in India, which is currently prohibited due to security reasons.
Islamabad had recently said a negative list with India could come only after more deliberations, indicating an expanded positive list might be in place by the year-end.
If Pakistan accepts two-wheelers from India, companies like Bajaj Auto, TVS Motors and Hero MotoCorp can ship their products with minor or no modifications across the border. A senior executive in a two-wheeler company said: If we are allowed to export, it will be a big advantage. According to this executive, two-wheeler makers are already exporting to Sri Lanka, Bangladesh and Nepal. If Pakistan is added to this list, it will become the most attractive export destination in the South Asian Free Trade Area (Safta), he added. He, however, cautioned that if additional import are levied, the whole purpose would be defeated.
Housing India, Bangladesh, Nepal, Maldives, Afghanistan, Sri Lanka, Bhutan, Pakistan and India, Safta was set up in 2004 with the aim of gradually removing tariffs and making it a free trade zone. However, limited trading between Pakistan and India has stymied free trade within the zone.
Though Pakistan does have some indigenous two-wheeler makers, the market is dominated by Japanese companies. Honda has a joint venture with Pakistans Atlas and Yamaha bikes are assembled by DYL Motorcycles while Suzuki, besides manufacturing cars, builds 150cc and sub-150cc motorcycles as well. With their ability for cost-effective manufacturing, Indian companies, if allowed entry, could make a serious dent in the Pakistani two-wheeler market.
Indias overall two-wheeler exports grew 35% in 2010-11 at 15.39 lakh units against 11.40 lakh units in the previous financial year. Bajaj Auto, the countrys largest exporter, sold 12.32 lakh units abroad during April-December, up 33%. Hero, after parting with Honda, is now free to expand its export basket. The company is considering Latin America and Africa as its first export destinations.
Former commerce secretary Dipak Chatterjee said: Pakistan not giving India the most-favoured nation tag is difficult to fathom. It is contrary to World Trade Organisation principles. Chatterjee said items like gold are exported from India to places like Dubai, which are then re-routed into Pakistan. It would be much easier if we export directly, he said.
A government source told FE: It is imperative that Pakistan expands its positive list. Trade is the best way forward to forge strong relations. The Pakistani government is also keen to expand trade. Lets see how it unfolds. The source added India is also keen to liberalise trade with Safta by removing duties on imports from the least developed countries in the region. The commerce ministry is expected to issue a Cabinet note on the matter.