Pak MFN status to put economics before politics

Exporters of pharmaceuticals, gems and jewellery, engineering goods and even cars will soon have a new business opportunity as the Pakistani market opens up for them.

Exporters of pharmaceuticals, gems and jewellery, engineering goods and even cars will soon have a new business opportunity as the Pakistani market opens up for them. Once Islamabad fulfils its promise of giving India the most-favoured-nation (MFN) status in the realm of trade, political tensions won?t come in the way of the efforts to boost economic ties between the two countries.

MFN, contrary to what the term might imply, is no special treatment, but the assurance that the country won’t be discriminated against when it comes to giving market access to its goods. In practical terms, the title would allow India to export some 15,000 items to its neighbour. Currently, India can export over 1,900 items to Pakistan including farm goods such as grain, which are mostly not of export interest to the country. Given India’s enhanced manufacturing prowess and the fact that the Pakistani market for goods has grown substantially in the recent years (annual GDP growth was over 6% in 2004-07 and about 4% in 2008-10), Islamabad’s gesture would indeed stand Indian exporters in good stead.

As the trade between the two countries becomes full-fledged, they would be practically trading in all goods, except a few strategic/sensitive items. India gave Pakistan the MFN status in 1996. The current practice of Indian goods taking the indirect and hence costlier and restrictive route to Pakistan via Dubai or Sri Lanka would become redundant.

According to Carpet Export Promotion Council chairman OP Garg, there will be buoyant demand in Pakistan for Indian carpets, handicraft items, furniture and even textiles. ?Pakistanis have a taste for Indian goods,? he said.

Federation of Indian Export Organisations (FIEO) director-general Ajay Sahai agreed: ?Once Pakistan grants the MFN status to India, it will be a win-win situation for both the economies. Not just the two-way trade potential, but greater economic ties would have a salutary influence on the business dynamics of both the countries.?

While there could be a big and growing market for Indian drugs and gems in Pakistan, it is doubtful if Indian textile exporters could gain significantly as Pakistani manufacturers are equally competent in the area, said Sahai.

Direct access to Pakistan will reduce the transaction cost by 5%, according to Garg.

Analysts say the two countries will have to build infrastructure and logistics in order to facilitate a much stronger trade relationship. The ground reality is that apart from the trade restrictions, poor road and rail connectivity and border infrastructure hamper the trade. ?Infrastructure needs have to be augmented for which the governments from both the sides have to chip in,? said Garg.

In fact, India’s commerce minister Anand Sharma and his Pakistani counterpart Makhdoom Mohammad Amin Fahim had, during Indo-Pak Business Conclave in New Delhi in September, issued a joint statement, articulating their resolve to promote greater intra-regional connectivity through road, rail, shipping and air.

Deloitte, Haskin & Sells director Anis Chakravarty sought to allay the fears that cheaper Indian goods could hit the Pakistani industry. ?Rather, this (competition from India) would encourage Pakistani firms to shape up and be more competitive,? he said.

?In the short term, it might make the Pakistan business community work harder but in the longer run it will help the economy of the country,? added Chakravarty.

Currently, India-Pak bilateral trade stands at an unimpressive $2.7 billion. The aim is to grow the trade to $6 billion within three years.

Sahai said since industrialisation in Pakistan is still at a nascent stage, once India starts exporting, expertise will also be exchanged and this will help Pakistan economy grow.

Improved trade ties will inevitably give an impetus to investment flows between the two countries.

?Lack of secure environment is also a concern for the people here. The local business community is taking out its assets from the country and investing in more secure places. Under such insecure conditions, Pakistan cannot expect a large amount of foreign direct investment (FDI). This would be ideal time for India to tap the Pakistani market,? said a Pakistani official who participated in the recent bilateral trade talks.

In return, Pakistan has been vocal about its plans to replace the (restrictive) positive list with a (more accommodating) negative list. But now, the country has moved a step further and is planning to accord the MFN status. Recently, Pakistan’s foreign minister Hina Rabbani Khar announced in Parliament an in-principle resolve to grant the MFN status to India.

Currently, only half of the items on the positive list are actually exported by India to Pakistan. From Pakistan’s side, there is a demand for removing certain non-tariff barriers (NTBs) that impede export of goods to India. New Delhi has maintained that these NTBs are exclusive to Pakistan.

Mirza Ikhtiar Baig, chief executive officer of Pak Denim, a textile company, had described the recent visit by Pakistan commerce minister to India as path-breaking, adding, that regional trade had proved to be successful business model across the world and it was important for Saarc countries to emulate the same.

The Pakistani commerce minister’s India visit in September was also noted for the size of the delegation. As many as 80 leading industrialists, traders and high-ranking officials accompanied him.

?This is unprecedented and holds out significant promise not merely for the two countries, but also for the entire South Asian region and could have even wider implications for the political relationship between the two nations,? said Ficci secretary-general Rajiv Kumar.

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First published on: 22-10-2011 at 00:32 IST