AN article on “ Threat to quit Safta (January 24, 2006) has been written with such obvious sense of deep conviction that it almost seems to be bad manners to attempt to write a note of dissent against it.

Nevertheless, I am going to take this liberty, with due apologies, to the writer Shahid Javed Burki.

Pakistan should have undertaken a more serious, thorough and open analytical exercise on long-term economic, social and political consequences of a South Asian Free Trade Area, before taking a plunge, largely based on the political consideration that it should not be seen to be out of line with what seemed to be the globally fashionable trend towards of regional trading blocs.

But let me first deal with the matter of WTO, which seems to weigh so heavily with Mr Burki, as with a lot of other Pakistani columnists, economic journalists, traders, - bureaucrats and politicians, who don’t seem to tire of reminding the nation to be prepared to face the challenges posed by “the new WTO regime.”

The WTO, which came into being in 1995, is largely based on, and has formally incorporated, the General Agreement on Tariffs and Trade (GATT), which had been in existence since 1948. The GATT remains fundamental law for international trade relations.

The WTO simply re-defined and tightened some of the existing rules and disciplines of the GATT ( such as practically deleting the old and well-established principle of differential and more favourable treatment of developing countries. It adopted some new international agreements on subjects which were not previously covered in international trade law, such as the agreement on investment measures, the agreement on intellectual property rights and, perhaps most important of all, the framework agreement on trade in services.

As far as fundamental law of international trade is concerned, such as the rule of MFN, nothing changed with the coming of the WTO. MFN has been one of the basic obligations of WTO members since 1948.

“Now that the WTO has come” many simply do not seem to know what they are talking about. One possible source of misunderstanding could be the WTO agreement on textiles that required that all quantitative restrictions (quotas) on international trade in textiles, made-ups and clothing should be progressively removed over a period of ten years, ending in 2006.

All such restrictions, which had stifled the development of textiles industry and exports of developing countries such as Pakistan since the beginning of the system, have come to an end. Some people seem to have mistakenly assumed that this marks the start of the “new WTO regime,” hence “now that the WTO has come.”

There is no question, of course, that granting of MFN treatment to trade of all other members is a basic obligation of WTO members. People who emphasise this however fail to recognize that GATT/WTO law also contains an escape clause that permits individual members to suspend the application of any of the provisions of the GATT/WTO law to particular members on specified grounds. The most important of these specified grounds is national security.

While in most other disputes, the aggrieved country or party is expected to lodge a formal complaint with the WTO and seek redress through it’s dispute settlement system. Recourse to the national security clause has always in practice been considered or treated as the sovereign unilateral right of a member.

To the best of my knowledge, this right has never been formally challenged or tested through the dispute settlement system of the GATT/WTO. The United States (the main party, behind the scenes, pushing Pakistan into embrace of India, its strategic partner of choice in this part of the world)has suspended the application of MFN and applied a rigorous trade embargo against Cuba, a founding member of GATT and of WTO, since the revolution overthrew Batista and brought to power a socialist regime under Castro, on grounds of national security.

And now to the question of threat of WTO sanctions as asserted by some writers. They do not seem to understand that the WTO is not the Security Council of international trade. WTO does not impose any sanctions. It does not have any powers to impose any sanctions. It is not structured on the principle of collective response to breaches of international discipline. It is in fact structured on the principle of reciprocity of rights and obligations.

If and when a member feels aggrieved against the action or behaviour of another member, and its complaint is found to be valid and justified in the dispute-settlement system of the WTO, the maximum relief that the WTO can provide is to authorize the aggrieved member to suspend or withdraw trade benefits of comparable value from the offending member.

In the instant case, what could be the worst outcome for Pakistan if India were to institute a formal complaint against it? India would be authorized to withdraw or suspend its MFN status for Pakistan. Should we fear and tremble at the prospect? India understands the scenario better than most of us seem to; that is why they have not made any hullabaloo over this question in the WTO.

It is not suggested that Pakistan should have no trade relations with India. But, it should be restricted to the extent that it is clearly to our mutual advantage. We could continue to import iron ore, coke, industrial chemicals, dyes, pharmaceuticals and other industrial raw materials from India, to the extent that we depend upon imports anyway and to the extent that they are available at lower prices from India, without sacrificing quality.

The import of consumer articles from India may be needed in emergency situations, if the price and freight advantage, and the advantage of early delivery is clear and apparent. Imports should be allowed in these situations globally, including India, and private sector buyers/importers (not bureaucrats or politicians) should be the judge of the comparative advantage.

Pakistan needs to maintain control levers of trade with India in its own hands, so that we can reasonably ensure, as far as possible, that this trade is mutually advantageous and reasonably balanced. If we grant India MFN status, we will lose all control, and the end result may be perpetual, massive and increasing trade imbalances in India’s favour year after year.

Opening the doors wide to a flood of Indian imports does not seem to me to be the most prudent course for dealing with these problems. India has a massive and diversified industrial base, compared to the smaller and narrower industrial base of Pakistan. They have a vast cost and price advantage. Their industries enjoy economies of scale.

India extends subsidies to its agriculture as well as industries in all sorts of subtle ways, that we can neither emulate nor afford. And India will not hesitate to employ dumping, if it can get away with it, to destroy our nascent industries and secure a dominant position in our market. Already some of our industries are reeling under the chill wind of cheaper Chinese imports.

Some sectors of our industry (such as light engineering goods, automobiles, pharmaceuticals, ceramic tiles and sanitary-ware) may be particularly vulnerable in the face of unrestricted and uncontrolled flood of cheaper imports from India.

As regards the prospects for our exports, as Mr Burki has himself noted, India already maintains an array of subtle non- tariff barriers on a global basis, and will not hesitate to employ some more specifically against Pakistan if the need arises. And it will be too late for us to complain.

I must confess that the logic of the argument escapes me — that by continuing to withhold the MFN status from India and through its lack of enthusiasm about Saarc and Safta, Pakistan has strengthened India’s hand in our bilateral relations, and that we must not use these levers (which evidently annoys India without hurting it) if we want forward movement on India’s part in resolving the long-standing problem of Kashmir.

How reassuring ! It is only our churlish behaviour which has stopped India from giving the Kashmiris their freedom.

I do not find much merit in the argument that India is pressing ahead with SAFTA and promoting yet another regional grouping, BIMSTEC (whatever it means),and Pakistan will lose out and stand isolated in the end if it does not (grant MFN status to India and) enthusiastically join in the frantic race for the completion of these regional relationships.

India has a predominant position in South Asia in all respects and there is no getting away from the reality that it is bound to dominate, manipulate and exploit any South Asian regional arrangement to it’s own advantage.

Our principal markets lie in the Middle East, Europe, North America and the Far East. That is where most of the potential for the growth of our trade lies and where we should concentrate our energies and efforts.

It should not be a revelation to anybody, however, that immediately behind the question of MFN status to India lies the even bigger question, in economic as well as geo-political terms, of the transit of India’s trade with Afghanistan and with the Central Asian countries through Pakistan. In the context of its regional and global ambitions as an emerging great power, India desperately needs this access.

And its patron saint equally needs to ensure that India should not be forced to seek a close economic and political relationship with Iran in the interest of acquiring a transit route to these countries (a costly and inconvenient second-best in contrast to transit through Pakistan).

If and when India succeeds in getting MFN status from Pakistan, it will employ all its economic, political and diplomatic resources to the utmost to obtain transit through Pakistan.

The total devastation of our road transport infrastructure as a result will be the minor part of the price we will have to pay if India were to succeed in its objective; the much bigger part will be not only a serious set-back to our developing trade relations with Afghanistan and countries of Central Asia.

In the context of Pakistan-India bilateral relations and the bilateral dialogue, India seems to hold most of the cards; the only cards that Pakistan hold are trade and transit. If we lose them, there will be nothing left to negotiate, no matter how many CBM’s are employed.