MFN status to India stalled

Published Jan 06, 2013 09:02pm

PAKISTAN missed the deadline it set for itself for granting MFN status to India by abolishing its negative list of 1209 items for trade, owing to reservations of certain industries.

The December 31 deadline was, no doubt, awaited particularly in India which would have been the main beneficiary, while Pakistan would have benefited from cheaper imports. In fact, much spadework has already been done to create conditions for liberalised trade between the two sides by undertaking facilitation measures such as agreements on visa, removal of trade barriers including those relating to certification, licencing, lab testing, mutual recognition of standards and customs cooperation.

Although commerce minister Makhdoom Amin Fahim has blamed ‘procedural hiccups’ for failure to meet the deadline, it is India’s slow process of implementing agreements and removing non-tariff barriers which also appears to be a major cause of the delay.

The delay, it is stated, will be of a short period and the targeted objective will be achieved once the reservations of certain industries about protection of markets of their local products are removed. The commerce minister took the decision after discussing the matter with his Indian counterpart who agreed to the delay.

If the concerns of Pakistani industries such as textiles, auto parts, pharmaceuticals and the farmers are not satisfied in a shorter time, there is every likelihood of the whole process being put off for a longer period due to the forthcoming elections.

Only five days before the deadline, The Times of India had reported that Pakistan is likely to miss the December 31 deadline to grant full MFN status to India due to some ‘internal compulsions’ but Indian officials, it said, are hopeful that Islamabad will stick to its promise.

What matters for Indians is the ultimate prize – grant of MFN status, even if it comes after some delay. Similarly, the Pakistan Foreign Office spokesman in his weekly briefing on December 28 gave an indication of delay by saying that “as far as the MFN status is concerned, the government has already decided to grant this status to India. In fact, we had initiated the process and currently we are going through some internal processes and, hopefully, these will be completed soon.”

A month ago, the commerce minister was confident of meeting the deadline and saw ‘no hurdles from any side’ in liberalisation of trade with India. This was quite surprising because some sectors of the industry such as the automotive parts and accessories manufactures have been quite vocal in their protest seeking protection of their interests which they find threatened if India does not abolish non-tariff barriers. Freer trade with India, they fear, will flood their smaller and fragile markets with India’s superior and cheaper products and ruin their industry already suffering from the government’s inconsistent policies as well as energy crisis.

Their leaders claim that Islamabad had given them its word that if India failed to remove trade barriers, the negative list would not be abolished. Makhdoom Amin Fahim had told a National Assembly panel on commerce on November 8 that whenever the negative list was abolished, the government would still be ‘putting in place safety valves’ to safeguard its industries.

But more vocal and aggressive in the last days of December have been the farmers, mostly landowners, in seeking a level-playing field in trade of agricultural products. Their representatives say that either the government should give Rs12,000 per acre subsidy to growers on various inputs, or agricultural imports from India should be subjected to duty to the tune of subsidies being given by the Indian government to its farmers.

They want the ministries of commerce and foreign affairs to hold consultations with all farmer organisations before entering into any arrangement with India, to ensure that their interests were not harmed.

The farmers’ lobby in Punjab represented by Farmers Associates Pakistan (FAP) is reportedly backed by anti-India political elements and would go to any length to resist grant of MFN status to the neighbouring country. However, the fact remains that India has developed a highly protective regime for its agriculture sector, which is why Pakistan’s exports to India in the last 17 years had remained insignificant.

On December 14, two leading trade bodies of Pakistan and India, namely, Lahore Chamber of Commerce and Industry (LCCI) and the Confederation of Indian Industries (CII) formed a committee to identify non-tariff barriers hurting the bilateral trade. The timing of the significant move was too late, only a fortnight before the December 31 deadline. It shows that by the time the recommendations of the committee are declared the deadline would have passed and the two sides must have been aware of this fact.

The 10-member committee consisting of five members each from Pakistan and India also decided to exert their influence on their respective governments for an early removal of hurdles in the two-way trade. There are no two opinions about the fact that the size of Indian economy, once freer trade begins, would pose a big challenge to Pakistan’s industry. As far as the cost of doing business, duty structures, economies of scale are concerned, there are significant differences between the two countries.

It was on November 3, 2011 that Pakistan decided to go ahead with normalisation of trade with India and give it the MFN status which it had granted to Pakistan in 1996. But there was much confusion over what actually had been decided.

While the information minister told a press conference that the federal cabinet had unanimously approved a proposal to give India the MFN status, the statements issued by the government soon after contradicted it saying the cabinet had ‘cleared a proposal’ for ‘normalisation of trade relations’.

Two days later, Prime Minister Yousuf Raza Gilani clarified that Pakistan has not granted the MFN status to India, saying the commerce ministry has only been tasked to move forward on the issue in bilateral negotiations. The cabinet had only given its approval ‘in principle’ to move forward on the MFN issue and permitted the commerce ministry to hold talks with India on trade-related issues, Gilani told reporters.

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