Pakistanon 2 November 2011 decided to accord most favoured nation (MFN) status to India.The decision amidst the turbulent relations between the two countries certainly added a new dynamism to the relations with a plethora of advantages for bilateral trade and commerce, as well as for building confidence between the two countries towards resolving various contentious issues. Pakistan’s Information Minister, Firdous Ashiq Awan called the decision as taken in the ‘national interest,’ while India’s Commerce Minister, Anand Sharma called the change in Pakistan’s approach to this long pending issue as a ‘paradigm shift’ with wider implications for South Asia.
Under the rules of World Trade Organization the members need to accord MFN status to each other towards facilitating smooth flow of trade between the member countries. India had granted MFN status to Pakistan in 1996, and demanded the same status from Pakistan. Under the new arrangements, Pakistan will allow trade in more items by shifting to a system of negative list that restricts import of items mentioned in the list. So far, Pakistan uses a system of positive list that permits trade only in a handful of products, which are routed through third countries. For instance, in case of India-Pakistan trade, Pakistan allowed about 1933 items to be imported from India, while it allowed about 6000 items to be imported from other countries. Without going into technicalities, it needs emphasis that Indo-Pak trade are mostly shaped by the negatives in relations, which are mostly governed by political considerations; while the positives in the relations in terms of economic complementarities, socio-cultural connections, etc. are largely sidestepped. The recent move by Pakistan will no doubt add a new impetus to bilateral relations.
The political bracketing of relations has negatively impacted the two countries in various ways. From an economic point of view, the bilateral relations stand at a meager $2.7 billion. The restrictions made the trade prospects and free flow of goods and commodities suffocated. For example, the restrictions made the transport route of bilateral trade long and circuitous, and the goods and commodities were to travel through third countries. The tragedy is that despite both the countries are neighbours with dozens of cross-border routes which can be used for trade; these routes lie unused or used below capacity. Second, both the countries enjoy complementarities: while India can provide energy, pharmaceutical products, engineering goods, plastic goods, etc. to Pakistan; Pakistan can provide cement, textiles and surgical instruments, etc. to India. Under the South Asian Free Trade Agreement (SAFTA) which further complements MFN in the region, the South Asian countries including India and Pakistan need to provide preferential trade arrangements for bilateral trade by gradual pruning of the negative list. But, due to bilateral mistrust and animosity, these agreements have not been effective, while India has similar arrangements with Sri Lanka, Bangladesh, and other South Asian countries except Pakistan.
The jubilation among the peace activists as well as advocates of economic diplomacy is expectedly high. Pakistan’s Readymade Garments Manufacturers & Exporters Association (PRGMEA) stated, “Granting MFN to India is an economic issue by virtue of which we can gain a foothold into one of the fastest growing markets in the world. This step can bring millions of rupees to the exchequer in terms of additional export revenues and bring about job opportunities to thousands of unemployed youth of Pakistan.” President of the Federation of Indian Trade Organization, Ramu Deora stated, “It is a historic development. This will also have an impact on efforts to solve the political problems.” Similarly the Federation of Indian Chambers of Commerce and Industry (FICCI) issued a statement expressing hope that the new situation will help strengthen economic ties between the two countries. India’s Commerce Minister has expressed hope that the decision by Pakistan will certainly dawn a new era in bilateral relations. He stated, “It will be beneficial for both countries. It opens up new pathways of elevating our economic engagement to a much higher level. We are clear that economic engagements, removing barriers to trade and also facilitating land transportation will help the region. Eventually, economic activity and industrial activity will bring in prosperity and stability. It will generate jobs.” This sentiment was echoed by Pakistani Information Minister, who said, “We cannot live in regional isolation.”
The idea of giving economic diplomacy an upper hand over political differences was materialized gradually.In May last year, the meetings of business delegations from both the countries argued that the grant of MFN status by Pakistan will boost bilateral economic relations. In September 2011, during meeting of Commerce Secretaries of both countries, India and Pakistan agreed to boost bilateral trade to the level of $6billion in coming three years. This month foreign secretaries will meet to discuss in detail the modalities to govern the newly emerging economic relationship. Some of the issues which are likely to be discussed in forthcoming negotiations at various levels include: making flexible visa rules, provision of multiple entry visas to businessmen, easing of transportation facilities between the two countries, etc. Both the countries have already started cross-border trade in the region of Kashmir since 2008 as a peace measure, but the results have not become satisfactory. The lack of mutual trust plays the role of devil in this context.
The results of free flow of trade between India and Pakistan will be numerous as it will nullify many of the negatives in the relations. First, it will help in building confidence between the two countries. The detractors argue that unless the contentious political issues like Kashmir are resolved, it may not be wise enough to commence trade in full measure as it will belittle the controversial issues. Such arguments in the post-cold war era, in the globalized world where borders crumble or become flexible, land in sheer oddities and are no longer tenable. Rather, the reverse argument can be put forward that economic development can strengthen peace constituency, and goad political leaders towards amicable resolution of conflicts. Second, the new arrangement will help both the countries to meet many of their economic necessities in a complementary framework. It may give a push to larger plans like Iran-Pakistan-India and Turkmenistan-Afghanistan-Pakistan-India pipelines, and bring other countries of South Asia towards larger economic integration under the rubric South Asian Free Trade Area. It will also be economically convenient for both the countries to trade directly than to route goods and commodities through third countries. Third, it may help foster peace, stability and economic development in Afghanistan, as all the countries – India, Pakistan and Afghanistan – are well connected through land routes. Both the countries can cooperate with each other without much external interference towards developing and executing joint projects for reconstruction of Afghanistan, including reviving silk route trade in the wider Eurasian region. Obviously, one does not expect these ambitious ideas to be executed in a span of days or weeks. The most important thing which needs commendation is that the paradigm shift in relations will move the Indian subcontinent towards peace and development at least by few steps.