A Favoured Option

By Amir Zia
The News On Sunday
May 15, 2011

The overwhelming response of business leaders remains in favour of boosting trade ties which they see as beneficial for both nations, dispelling the impression that Pakistan, being smaller in size, won’t be able to compete with its giant neighbour

Given the bitter history of hostility and distrust, Pakistan-India talks are mostly a tense affair. But this time around when the commerce secretaries of the two countries met in Islamabad on April 27-28 after a gap of more than two years, they managed to break the inertia that had marred the trade relations of the two South Asian nations for decades.

The two-day talks managed to generate optimism regarding an early resolution of some of the key matters, including granting the most-favoured nation (MFN) status to India by Islamabad and addressing the issue of non-tariff barriers (NTBs), which choke Pakistani exports to India.

“It was a huge 20-point agenda,” said Zafar Mahmood, Pakistani commerce secretary. Compared with the last four rounds of trade talks -- held prior to the 2008 Mumbai attack -- the two sides now managed to go beyond a mere articulation of good intentions and actually put in place a mechanism to implement decisions, he said.
The enthusiasm of the Pakistani business community regarding enhancement of trade ties with India encouraged the government to move confidently into these talks. Mahmood had held detailed interactive sessions with business and corporate leaders ahead of talks with his Indian counterpart Rahul Khullar.

The overwhelming response of business leaders remains in favour of boosting trade ties which they see as beneficial for both nations, dispelling the impression that Pakistan, being smaller in size, won’t be able to compete with its giant neighbour.

Wajid Jawad, a leading businessman and former chairman Export Promotion Bureau, says China enjoys a special status in trade with Pakistan, but the local businesses have managed not just to stay competitive but also to benefit from this relationship.

“Because of proximity, Indian imports will be cheaper and benefit Pakistani consumers,” he adds. “Pakistani goods will also get an access to a billion-plus market, which will result in capacity utilisation and trigger growth.”

However, the two sides need to cover a lot of ground and will have to walk through a political and bureaucratic minefield to realise the dream of enhanced trade and reap its benefits.

According to Mahmood, Islamabad’s decision to move from the positive list of around 2,000 items -- allowed to be imported from India -- to the negative list, which blocks certain items, is a huge step forward. It should lead to granting the MFN status to India by October.

Islamabad has already extended the MFN status to more than 150 countries. Pakistani officials say it is a misperception that the local markets will be flooded with Indian goods if India is given the same status.

“MFN only provides equal and non-discriminatory treatment. It does not offer any sort of tariff concessions to a specific country,” says Naeem Anwar, a leading international trade economist. “Pakistan’s refusal to extend MFN to India is based on the fact that our products are denied market access through the NTBs, which means the benefits of MFN granted by India are being circumvented. We seek removal of these NTBs for granting MFN.”

Pakistani businessmen are of the view that any Indian product, having a demand in the Pakistani market, reaches here anyway by a formal channel or a third country. By granting MFN, Pakistan will not expose any new industry to competition but only divert the third-country trade to the formal channel, they say.

Anwar says that Pakistan has always been saying New Delhi denied market access to Pakistani goods by installing the NTBs, which nullifies the benefits of MFN granted by India.

In a joint statement issued after the talks, India for the first time agreed to look into the NTBs which, according to Anwar, implies that the Pakistani concern was genuine. “These NTBs are not traceable to one source or document,” he insists. “They include administrative procedures, policy restrictions, personal conduct of customs officers, quality and standard regulations, security formalities and hidden subsidies.”

He also underlines the importance of a comprehensive study in order to list these NTBs as well as to point out those which are Pakistan-specific.

The Commerce Ministry sources say the two countries agreed to set up a Working Group to investigate, examine and analyse the NTBs and recommend measures to remove or minimise them at the earliest.

“The Commerce Secretaries will review the progress of this Group and take appropriate decisions in their October 2011 meeting,” says one official, requesting anonymity.

Pakistani business leaders say the biggest hurdle to the market access in India is their visa regime.

Amin Hashwani, a leading businessman, says the delays in visas remains the biggest discouragement for Pakistani exporters. “After the Mumbai terrorist attack, applicants have to wait sometimes up to two months to get their visas.”

Pakistani officials estimate more than 80 percent visa applications of Pakistani businesspeople were rejected without assigning any reason, in 2010, compared with 8 percent rejection by Pakistan during the same year.

“The remaining 20 percent Pakistanis are discouraged by city restrictions, police reporting requirement and less-than-necessary days of stay in their visas,” says an official of Pakistan High Commission, New Delhi.

“Next, the businessmen have to seek hotel accommodation in India which means going through an entire documentation requirements and facing the inconsiderate authorities all of which makes sure they don’t come back again,” he says.

Under such circumstances, says Anwar, it is not just difficult but almost impossible to strike business deals. “It’s ironical that on the one hand you grant the MFN status to Pakistan and on the other you deny us entry what with your visa policy!”

Pakistani officials also claim visa processing at Pakistan High Commission in New Delhi is criteria-based, non-discriminatory and evenly applicable.

As Hashwani puts it, Pakistani exports to India suffer because of a lengthy clearance procedure by the Indian authorities. “A pre-inspection certificate should be enough, but the Indian authorities have a lengthy process for clearing goods, which involves inspection and laboratory tests on arrival.”

Then there are specific duties on certain goods which usually hurt Pakistan, he adds. On paper, these duties range between 20 to 25 percent, but practically they are between 50 to 60 percent due to specific or minimum import duties.

No wonder, the trade balance between the two countries remains hugely in India’s favour. Indian exports to Pakistan are 300 to 400 percent higher than Pakistani exports to India.

However, Pakistani products have a great potential in the Indian market. “We remain competitive in terms of price, quality and other commercial parametres,” says Anwar. “Our home textiles, woven fabric, ladies’ garments, footwear, surgical instruments, sports goods, inorganic chemicals, fruits, marble and onyx, and gypsum have a huge market if the NTBs are removed.”

Given the peculiar dynamics of Pakistan-India relations, trade and economic interests can go a long way in easing tensions and creating powerful lobbies, having stakes in peace between the two countries. If economy takes the centrestage, it will work as a catalyst in the resolution of long-standing disputes and issues.