PAKISTAN’S trade with India has special restrictive features. As WTO members, both are required to give each other the ‘most favoured nation status’. India has given MFN status to Pakistan, while Islamabad, taking advantage of a special clause of the WTO legal framework, has not reciprocated.

The MFN, due to its nomenclature, is often misunderstood. MFN does not mean any preferential market access; it means that there will be no negative or positive list of importable items. All items will be importable under normal import tariffs applicable on all WTO members.

Till March 2012, Pakistan used to issue a list of items importable from India, but this policy was substituted by a negative list of non-importable items. This list, of course, was shorter than the positive list. It contains 1,100 items at eight-digit PCT code level. The purpose of this article is to analyse whether the policy of restricted trade regime has any significant impact.

Trade with India: Over the last five years, Pakistan’s import from India constituted 3.4-4.3pc of its total imports. The value of the import increased from $1.08bn in 2009 to $1.87bn in 2013. On the other hand, Pakistan’s exports to India are much lower than its imports. Data shows that Pakistan’s imports are over five times higher than its exports despite the restricted import regime for India.

The top 50 import products in the negative list items for India constituted 12.6pc of Pakistan’s total imports in 2013. If the negative list is abolished, no significant impact is expected, at least for the stated items

Items in negative list: In 2013, Pakistan’s total import of negative list items from the world was $7.74bn, or 17.7pc of total imports (see Table-2). This shows the significance of the negative list. In 2013, the total import of top 50 products of the negative list was $5.53bn, which was 71.4pc of the import of negative items and 12.6pc of the total imports.

Among these top 50 items, India exports 26 of them to the international market. Fifteen out of these 26 items are of the automobile sector, which is a highly protected sector in Pakistan. As for the rest of the 24 items, India either imports more or exports nothing.

In this analysis, we consider only those items of which India is a net exporter. However, all items in the negative list can be imported from India under the Duty and Tax Remission for Exports (DTRE) scheme. We have analysed the import of groups of products of the top 50 import items.

• Chemicals and pharmaceuticals: There were three items, among which two items — heterocyclic compound and antibiotics — were imported by the pharmaceutical industry as raw material. China was the largest supplier, while India was the second big supplier under the DTRE scheme. Another pharma product was imported from China and other countries. In the international market, China’s export unit price of these items is significantly lower than that in India. Pakistan has given preferential market access to China under the PCFTA.

• Paper and paperboard: India is the net exporter of these products. Pakistan’s main suppliers of these products are Indonesia, Thailand and China. International trade data shows that the per-unit price of Indian products is much higher than those of these countries. Pakistan also imports these items from Europe and even from Brazil, where the freight cost is much higher than that from Indonesia and Thailand.

Therefore, it is very tough for India to compete with these countries in the Pakistani market.

• Textile yarn: Pakistan’s major import partners of these products are China, Malaysia, South Korea, Indonesia and Vietnam. One the items — textured polyester yarn — is also imported from India under the DTRE scheme. International trade data shows that India has the lowest unit price as compared to Pakistan’s major suppliers. Pakistan has given preferential market access to China and Malaysia under the FTA, which has off-set the comparative price advantage of India. However, India has no price advantage in other synthetic and filament yarn specifications. China offers the lowest prices, while other East Asian economies, including South Korea, offers lower prices than India.

• Flat-rolled, coated with zinc iron: Pakistan imports this item from Germany, South Africa, Korea, China and other European countries. Although India is the seventh largest supplier of this product, the export unit price of China and European suppliers is lower than India.

• Automobile: This is Pakistan’s most protected industrial sector through high tariffs and various non-tariff barriers. However, the Indian auto industry is comparatively more protected than Pakistan’s. Import duty in Pakistan ranges from 50pc to 60pc, while in India it is over 100pc, in addition to a ban on import of cars with engine capacity from 1,000cc to 2,500cc.

The top 50 import products amongst the negative list items for India constituted 12.6pc of Pakistan’s total imports in 2013. Among these items, only three are imported from India under the DTRE scheme. India has no extra advantage in international export markets for these 50 items. It is noticed that ‘synthetic textured yarn’ is the only product where India has a price advantage over China and other East Asian countries. If the negative list is abolished, no significant impact is expected, at least for the stated items.

The article reflects the writer’s

personal views

Published in Dawn, Economic & Business, September 22nd, 2014