PAKISTAN has made welcome overtures to India over the past three years. Peace and stability in South Asia is an imperative both countries need to strive for. More open trade between the two neighbours, one that will eventually also lead to freer two-way movement of people, investment capital, technology, technical expertise, and collaboration in development, is an important channel for achieving better relations.

Promotion of freer trade between countries and regional blocs has been an important catalyst for growth and investment. However, a necessary condition under which this occurs is the operation of a rules-based trade regime which is applied in an uninterrupted, transparent, consistent and predictable manner.

A number of research studies published in 2012 and 2013, subsequent to Pakistan’s Ministry of Commerce signing up to the in-principle grant of Most Favoured Nation (MFN, now re-christened Non-Discriminatory Market Access, or NDMA, to make it domestically more palatable) status to India, have examined Pakistan’s trade agreements with India as well as India’s trade regime in greater detail, and have pointed out a number of areas warranting greater caution. According to these studies, Pakistan has been granted relatively more restricted access by India to its market than vice versa, as evidenced by:

• The higher proportion of overall tariff lines retained by India on its Sensitive List as compared to Pakistan (at the eight-digit HS code level);

• Indias exclusion of many of Pakistans competitive exports in agriculture and textiles from the ambit of trade liberalisation;

• The maintenance of a more trade-distortive and trade-restrictive regime by India, including the pervasive use of Non-Tariff Barriers, higher subsidies to its agriculture sector, and higher applied tariffs under MFN in most product categories relative to Pakistan;

• The potential undermining of greater market access to Pakistani textile exports in India by the latter’s preferential trade agreements with Bangladesh and Sri Lanka.

Many of the studies also indicate that Indias exports to Pakistan stand to gain more than Pakistans exports to India. In addition to the aforementioned reasons, this could also be due to a structural factor — the fact that India imports less of the types of goods that Pakistan exports, while Pakistan tends to import more of the type of goods that India exports.

(However, despite projections of Indias exports to Pakistan exceeding Pakistans exports to India under an NDMA/MFN regime by a substantial margin, Pakistans overall trade balance is not expected to worsen substantially. This is so since many, if not most, of Pakistans imports from India will be replacing its imports from other countries.)

Trade negotiations are a serious business. Jobs, incomes and livelihoods of millions depend on how much, how fast and with what quid pro quo a country decides to open up to its trading partners.

For this reason, trade negotiations between countries typically take years, with teams of top-notch lawyers specialising in international trade agreements, trade economists and career diplomats battling over commas and semi-colons, let alone entire trade ‘chapters’ and product categories. Also for this reason, the US and EU, otherwise bastions of advice on free trade, have routinely imposed restrictions on goods from a range of countries including Japan and China.

(Some economists in Pakistan have framed the debate on the benefits of more open trade with India purely in terms of ‘consumer welfare’ — i.e. the average consumer in Pakistan will be better off because of the availability of cheaper goods. Even on this narrow basis, which excludes the net welfare impact after taking into account the effect on jobs and incomes, the gains have been calculated as not very large.

According to the only Pakistani study which provides hard evidence — as opposed to platitudes — consumer welfare gains are projected at Rs389 per person (Institute of Public Policy, 2012). An earlier Indian study authored by Pradeep Mehta projects even lower consumer welfare gains for Pakistanis post-MFN to India.)

Armed with not a single research study, international trade lawyer or trade economist, or serious industry consultation, Pakistans Ministry of Commerce gave shape to the trade opening with India under MFN in 2011 and 2012. Dictated by political or geopolitical compulsions, its unbalanced trade agreements with India run the danger of not just sacrificing jobs while providing limited gains to exports, but of producing a domestic backlash later that could lead to rising trade friction.

Pakistan does not need to rush into a trade deal without homework or preparation — the same mistake it has made repeatedly in the past, as in the case of the FTA with China. The impending elections in India — and expected follow up research on the sector-wise impact of trade liberalisation with India — give Pakistan ample time to study the issues and close the gaps.

In the interim, Pakistan should rework the deal by ensuring greater market access to India for its competitive products, and build its institutional capacity to handle import surges, material injury to domestic industry (and agriculture), resolution of bilateral trade disputes, making referrals to WTO, and enforcing sanitary and phytosanitary measures.

In the longer run, if done right and with a level playing field, both Pakistan and India should stand to benefit from a more open flow of goods and services, investment as well as people.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.