MFN is our right under WTO'

Interview with Union Commerce Secretary Rahul Khullar.

COMMERCE Secretary Rahul Khullar is the chief negotiator with trading partners, at the official level. We should be able to move forward, he told Frontline in this interview following the confusion over Pakistan granting MFN status to India. Excerpts:

Can you explain the MFN issue and why India could not get this from Pakistan when it had granted the same to Pakistan in 1995?

MFN is a right available to us from the WTO principle of non-discrimination in trade. Currently Pakistan uses a positive list approach, which means only so many goods can be exported, and this is clearly in breach of the principle of MFN enshrined in the WTO.

We have been arguing with them that what is India's natural right under WTO laws should be given to us. The loss to India and to Pakistan is twofold. From our perspective, the very fact that we are not allowed to export certain goods goes against the principle of non-discrimination in trade and almost singles India out for discriminatory action. Equally, it is not that trade does not take place it takes place through a third country, which means it goes to the Gulf [countries] or wherever [and] from there to Pakistan. In the end, Pakistan ends up paying higher prices for the goods because there is no direct transaction. How can that possibly do any good to Pakistan?

The moment you do this sort of trade through an intermediary you add on transport cost, which is otherwise unnecessary. For instance, it is cheaper to ship the same goods from here to Karachi instead of going via Dubai, or it is easier to send goods through the Wagah border rather than to ship or airfreight them to Dubai and from there to Karachi. This means the consumer in Pakistan ends up paying higher transport cost and the intermediary profit margin.

What is the official and informal bilateral trade flow? How does the MFN status make any difference?

The formal bilateral trade is $2.5 to 3 billion, while informal trade is at least twice that amount. The latter is legitimate trade going from here to an entrepot centre and from there being routed to Pakistan. So, combining official trade and the trade routed through Dubai, the bilateral trade now stands at $8 billion.

When you are an MFN, the $5 billion is not going to go through Dubai but directly to Pakistan. In a sense, official trade to Dubai will go less by $5 billion. So there is no difference. But the real gain will come from the fact that many people who are not able to export because of the positive list approach will be able to do now, and that will benefit them.

Is Pakistan's carping on non-tariff barriers (NTB) by India genuine? How will MFN status help solve this irritant on both sides?

I think it is more a perceptional issue. I suspect that their main concern is not NTBs but tariff barriers. For instance, Pakistan would like to export textiles to India. There are no NTBs but there are tariff barriers preventing textile exports. These tariffs are fixed in terms of specific rates and they tend to be high. So what they are seeking is concession on these tariffs.

The real point is that Pakistan needs to move in two different stages. First, it must accept the principle that MFN is the right of all WTO members and if it gives the benefits to all WTO members, why not to India? In the MFN system there is no such positive/negative list and all items are tradable. The tariffs at which they are traded are MFN tariffs.

The second stage is the derogations from MFN, which are legitimate under the WTO's regional trading arrangements (RTAs). Here you can make trade even freer and more open than the MFN trade by entering into a bilateral agreement where you offer tariff concessions. Should Pakistan be willing to do that at a later stage, it will be possible for us to consider bilaterally. If Pakistan wants to join SAFTA [SAARC preferential trading arrangement] and honour its commitments under SAFTA, then it can consider availing [itself] of the concessions we give to other members of the grouping.

So Pakistan should grant MFN status to India and then seek concessions on tariffs. Just as we extended to Bangladesh zero-tariff concessions on textile items recently, at some point of time these matters can get sorted out through negotiations. I don't think these are NTBs. There was some concern about licensing and standards for export of cement from Pakistan, but many of those issues have been sorted out. I told my counterpart in Pakistan that if they gave lists of sector-specific NTBs they wanted us to address, we would gladly address them.