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Whither regional trade

May 27, 2013

THE incoming government of industrialist-turned-politician Nawaz Sharif is expected to grant Most Favoured Nation status to India.

This is likely to happen before the end of 2013 in order to provide an impetus to Pakistan’s regional trade before election fever grips the neighbouring country.

The trade prospects, however, do not appear to be same in the case of the country’s Western neighbours.

There is a possibility that relations with both Iran and Afghanistan may cool off with the exit of Pakistan Peoples Party from power. The next PML-N government would need to take some confidence-building measures and make tangible moves to forge closer trade ties with these countries.

China is too keen to let anything jeopardise closer economic cooperation with Pakistan. Last week’s visit of its premier just days after the elections and before installation of the new government and signing of multiple deals hold testimony to its stance.

Corporate Pakistan is optimistic, pinning hopes on the next government to cross over the psychological barrier (MFN) and pave the way for increased trade with India which would be beneficial to the economies of both countries.

They, however, are not sure about the future of the recently launched Pakistan-Iran oil pipeline project under PML-N government. The foreign office has, however, clarified that the project will not affected by a mere change of government.

The corporate sector is also not clear about the positioning of Pakistan to capitalise on the economic opportunities in post-2014 Afghanistan that requires quick readjustment in changing environment in the Western Asia.

The next parliamentary elections in India are scheduled in May 2014. Historically the governments on either side of Wagah boarder adopt tougher political stance towards their traditional rivals in the region, close to elections.

Elements in the establishments in both Pakistan and India are not yet convinced that closer economic relations are possible without compromising the strategic interests.

They oppose closer trade ties and are powerful enough to orchestrate politically costly public reaction by stoking nationalistic and religious sentiments in both countries. It explains, partially, why towards the end of their tenure the PPP government dragged its feet over trade ties with India. It let December 31, 2012 deadline for giving MFN status to India pass despite warnings from trade enthusiasts that it could rupture the wider peace process between the two countries.

“We knew our position was already weak and we avoided decisions that could further alienate the party close to elections”, a former PPP minister told Dawn in confidence when commenting on the government’s decision not to reciprocate to the Indian gesture of granting MFN status to Pakistan.

Pakistan accounts for less than 0.5 per cent of India’s trade and India accounts for a little over three per cent of Pakistan’s trade. Informal trade via third countries (such as UAE, specially Dubai) is estimated at more than three billion dollars annually.

This informal trade can be transacted at significantly lower cost, said an undated press release of Saarc Chamber e-mailed to Dawn from Saarc Chamber of Commerce and Industry (SCCI) President’s office in Dehli.

“There is pressing need to address non-tariff barriers including custom procedures, internal state taxes, subsidies, and sales taxes in totality together with other impediments such as inadequate connectivity issues, visas, physical infrastructure such as roads, border crossings etc.”, the press release concluded.

Padma Shri Vikramjit Sahney, President SCCI was quoted in the release reacting to political developments in Pakistan, “I hoped that this significant milestone would lead to better ties between India and Pakistan through peace, friendship and mutual cooperation”.

“Granting of MFN status to India would be the first positive step that Mr Nawaz Sharif can take to normalise ties”, he said.

Abdul Razzak Dawood, chairman Pakistan Business Council (PBC) said, “We businessmen are very optimistic also because the initial signals emanating from the leading team of the winning party are very encouraging. I see bright future for trade expansion in the region over the period ahead”. He was commenting on the subject talking to Dawn over the telephone.

Vice President of SCCI Iftikhar Ali Malik said from Lahore that interaction among private sector of Saarc members is expected to further strengthen under PML-N government.

CEO, PBC Kamran Mirza believed that there was a consensus amongst major political parties on the issue of the promotion of regional trade. He felt that the upcoming PML-N government will be well-positioned to advance the trade agenda. PML-N is much more direct and upfront about the issue”.

He, however, felt that Pakistan needs to better develop its negotiating position vis-a-vis India and come to the negotiating table better prepared. Many organisations have been researching the subject from different angles but no one has, so far, developed a position paper drawing on all researches available.

The skepticism of Afghanistan and Iran towards the PM-in-waiting Nawaz Sharif is stated to be rooted in the leader’s past. During his previous two governments Nawaz Sharif supported pro-Saudi Jihadi outfits. He recognised Taliban as the legitimate Afghan government in 1997. For Iran, Mr Nawaz Sharif’s closeness with Riyadh may be a cause of some concern.

“For all practical purposes, the progress in trade relations between Pakistan and India was stalled when Pakistan deferred the decision on the MFN status to India in DecemWber 2012,” says a trade expert.