Open Forum

New Delhi, 12 October 2011

Pak Gives MFN Status

A NEW RAY OF HOPE?

By Dr PK Vasudeva

 (author WTO, Implications on Indian Economy)

Finally, a ray of hope in the now-on-now-off India-Pakistan relations. After 16 long years of vacillating after New Delhi accorded Islamabad the Most Favoured Nation (MFN) status in 1995, Pakistan agreed to reciprocate in matters of trade and commerce. Notwithstanding, the contentious ‘core’ issue of Kashmir and terrorism emitting from across the border.

Recall, India and Pakistan resumed formal peace talks again in February three years after New Delhi broke off ties post the 2008 Mumbai attacks under pressure from the US. This was followed by announcement of resuming cricket ties in April. This is part of India’s two-pronged strategy: Give no quarter on terror and simultaneously continue to undertake confidence building measure (CBM) 

Importantly, Pakistan’s about-turn in granting India MFN status stems from the realisation that it would be a gainer in doing so. Two factors are believed to have influenced the Pakistani thinking on the issue. 

One, Islamabad’s relations with Washington has been under tremendous strain after the Taliban attack on the US Embassy in Kabul in which US sees the hand of Inter Services Intelligence (ISI). In fact, Admiral Mike Mullen minced no words when he accused Islamabad of being hand in glove with the Haqqani network. Faced with Washington’s tirade, the Jamiat-ul-Ulema’s Maulana Fazlur Rehman advocated that it was imperative Islamabad soften its attitude vis-à-vis New Delhi in view of the changing regional and global reality.

Two, Pakistan’s business community has made a strong recommendation for MFN status to India, as it was confident of competing with Indian business houses in the changed scenario. This new-found confidence could be noticed during the current Indo-Pak trade talks at various forums.

The Pakistani decision would most probably be announced next month when Commerce and Industry Minister Anand Sharma visit’s Islamabad to hold talks with his Pakistani counterpart. If this materialises the annual bilateral trade would increase from the present $2.7 billion to $6 billion by 2014. Efforts are on-going to work out the modalities for trade in new areas like the energy sector.

Besides, Pakistani businessmen are happy that India has not opposed Islamabad’s efforts for tariff concessions from some European Union (EU) members. A new climate is emerging in South Asia in which India and Pakistan appear to be heading towards a liberal business visa regime also.

Pertinently, since the World Trade Organisation’s (WTO) inception on 1 January 1995, members according MFN status to each other has been the corner-stone of WTO trade law. Whereby, nations allow for preferential treatment of developing countries, regional free trade areas and customs unions.

The clause stipulates: respect to custom duties and charges of any kind imposed on, or in connection with, importation or exportation, or imposed on the international transfer of payments for import or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with the importation and exportation, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in, or destined for, any other country shall be accorded immediately and conditionally to the like product originating in, or destined for, the territories for all contracting parties.”

India as a goodwill measure gave Pakistan MFN status, but Islamabad refused stating that unless the Kashmir problem was settled it would not reciprocate. Moreover, New Delhi declined to file a complaint against Islamabad for not granting MFN status to New Delhi in the WTO’s Dispute Settlement Body because granting of MFN status to member countries was the major condition under the WTO agreement.  The reason being that India wanted Pakistan to do so without any “external pressure.”

Indeed, this 15 years old controversy over MFN status to India has generated intense debate in many sections of Pakistan society. Those opposed to granting MFN status have not only voiced religious, parochial, ethnic and emotional arguments. Worse, by doing so it would tantamount to cuddling with the enemy. 

The anti-MFN lobby is of the belief that liberalization of trade with India would open a flood-gate of cheap Indian goods and that non-tariff products would play havoc with the local industrial scene. They fear that the local industry would be gradually eliminated if Indian goods are available in abundance. They also subscribe to the theory that more trade means less emphasis on Kashmir.  

Remember, former Prime Minister set the ball rolling in creating bonhomie by undertaking a bus ride from Amritsar to Lahore on 20 February 1999. He was received at the Wagah border by his Pakistani counterpart Nawaz Sharif, along-with thousands of excited and cheering country-men. The India Prime Minister was stepping on Pakistan soil after 21 years.

In a historic speech, Vajpayee asserted: “I bring the goodwill and hopes of my fellow Indians, who seek abiding peace and harmony with Pakistan. I am conscious that, this is a defining moment in South Asian history, and I hope we will be able to rise to the challenge.” Emphasised Sharif: “I have a vision for South Asia. I believe that countries, small and large, can live in harmony and work together for their mutual prosperity.”

Further, in a joint statement issued at the end of the historic visit in which the Lahore Declaration and a Memorandum of Understanding were signed, the two leaders agreed, inter alia, “the two sides shall undertake consultations on WTO related issues with a view to coordinating their respective positions.”

In the ultimate analysis against the backdrop of Islamabad granting MFN status, India and Pakistan can now develop greater stake in economic growth. Furthermore, South Asian Association for Regional Cooperation (SAARC) would also be in a better position to realise its dream of growing into a grouping like the EU. The two countries have wasted their energy considerably on issues like Kashmir.

Clearly, the time has come for focussing on economic issues. People in South Asia, home to a vast majority of the world’s poor, need the availability of employment opportunities more than anything else. This is essential so that no one takes interest in destructive activities like terrorism. Better trade relations between India and Pakistan can also help the cause of peace in the region. ---- INFA

(Copyright, India News and Feature Alliance)