The real barrier

Trade and industry in India point to vested interests in Pakistan which do not want normalisation of relations with India.

in New Delhi

THE confusion over Pakistan's November 2 announcement of grant of most favoured nation (MFN) status to India following a meeting of the federal Cabinet headed by Prime Minister Yusuf Raza Gilani and the subsequent clarification by him to the contrary unambiguously points to the fact that Islamabad remains a prisoner of its delusions and its denial mode' of existence both in politics and in economics. Against the backdrop of the SAARC (South Asian Association for Regional Cooperation) summit being held in the Maldives, New Delhi is of the firm belief that the regional grouping can achieve greater cohesiveness and clarity if the simmering issues between its members are sorted out and also send a clear signal to the world that this region, home to some of the poorest people in the world, does matter in the global reckoning.

The term MFN, fashioned by the erstwhile General Agreement on Tariffs and Trade (GATT) and its latter-day version, the World Trade Organisation (WTO), is a veritable misnomer. For MFN means a non-discriminatory regime that more or less all countries have to extend to each other as members of the WTO. While India extended MFN status to Pakistan way back in 1995, the latter shilly-shallied, linking this basic right of trading partners to other issues, mostly political.

At the fifth round of talks between the Commerce Secretaries of the two countries on April 27-28 in Islamabad, Pakistan recognised that grant of MFN status to India would help in expanding the bilateral trade relations. The Pakistani side informed India that it would take immediate steps to ensure that a non-discriminatory trade regime was operationalised at the earliest and added that the consultative process in this regard has been set in motion and information from all stakeholders including business chambers and trade bodies is being collected to replace the present positive list' with a negative list'. It was agreed that this process would be completed by October 2011.

In fact, six months ago Islamabad had expressed its earnestness to move towards the grant of MFN status and that had raised hopes that it would do so at least this time. On November 2, Information Minister Firdous Ashiq Awan told a press conference that the Cabinet meeting had unanimously decided to grant India MFN status to improve trade relations between the two countries. An official source in New Delhi told Frontline the same night: We have been told that the foreign office is making a statement that the Pakistan government has decided for trade normalisation with India and to implement the decision of the Cabinet, and it is not clear what the decision of the Cabinet is. What this meant, the source said, was that what we do is we will normalise trade and it will culminate in the grant of MFN status to India. That culmination could be 10 or 15 years from now, the source added.

Trade policy analysts contend that confidence-building and composite dialogue will be shorn of any meaning if Islamabad is keener on posturing than on delivering mutually acceptable solutions for issues that continue to bedevil bilateral relations. In fact, the day after the confusion erupted over the issue, Dawn, the influential Pakistani daily, argued in an editorial that if implemented, it would have a far-reaching impact on Pakistan's security. But it did not explain how.

Trade and industry analysts in India said this only strengthened the impression that there are strong political and commercial vested interests in Pakistan which do not want normalisation of relations with India.

Interestingly, even as the final word on the grant of MFN status has not been said, Pakistan's Commerce Secretary, Zafar Mehmood, told a meeting of the Karachi Chamber of Commerce that another round of Secretary-level talks would be held in New Delhi on November 14. Indian officials believe that this meeting will help them understand the level of bilateral relations in the light of the MFN confusion. Even as Islamabad has harped on its complaint that the entire trade liberalisation process is linked with the removal of non-tariff barriers such as licensing for import and stricter compliance with standards and norms, the MFN regime can go a long way in arresting the substantial chunk of circular, or informal, trade that supervenes between the two using a third country as an intermediary. It would also do immense good to Indian and Pakistani traders to focus on quality and delivery schedules because importers from both the countries are bound to make value-for-money judgments using as benchmarks products from other countries.

While India's official trade with Bangladesh was close to $4 billion, its official trade with Pakistan stood at $2.65 billion in the last fiscal, up from $1.81 billion in 2008-09 and $1.84 billion in 2009-10. In fact, in India's commercial engagement with other SAARC countries, Pakistan takes the last position. However, the potential for trade between India and Pakistan can definitely be realised if Islamabad makes the move to grant MFN status to India, which will entail deeper engagement for mutual benefit over the long haul.