Liberalising Pakistan-India Trade

Liberalising Pakistan-India Trade

April 11, 2012
By: Dr Kamal Monnoo

The debate on or whether or not to grant the MFN status to India still continues to occupy the Pakistani minds, both in the government circles and the private sector. As things stand today, we already enjoy a MFN status with India and now granting a MFN status in return to India basically implies further opening up of our economy to the Indian products. In theory, opening up of an economy is mostly considered to be beneficial as it promotes growth and, in this context, the most frequently quoted example is that of Singapore, which successfully resurrected its faltering growth by undertaking a new set of revolutionary economic reforms back in 2005 that further liberalised the Singaporean economy. However, as we know that as markets/economies open, competition stiffens and the fresh challenge comes in successfully managing the evolving situation through good governance cum sound economic management – something that cannot be counted as Pakistan’s forte!

There still exists some confusion about clear linkages between trade and growth, and then between growth and poverty reduction or with growth’s correlation to the real life benefits for the poor. Ironically, the new person nominated by the US to head the World Bank, Mr Jim Yong Kim, also belongs to the school of thought, which believes growth does little to help the poor and Mr Kim also published a book in 2000, arguing this case. However, given a sort of prevailing global consensus on the positives of growth, one feels that there is no need for our government to suddenly wake up at this stage to start debating clarity on growth and its linkage with enhanced trade, but instead it simply needs to ponder upon the traditional weaknesses and reasons for why it is taking us so long to get our act together and stamp our rightful mark on trade at all levels, regional and global?

A lot of studies at present are also being conducted by academics at home on the merits and demerits of a MFN status to India and on what sort of trade potential actually exists if the trading regime between Pakistan and India is well and truly liberalised. Personally, while these exercises may provide good material for a classroom discussion but, in practical terms, they serve scant little than just stating the obvious. The point being that it does not require any rocket science to determine that trade, if conducted fairly, is a win-win for all stakeholders and also it is of little practical consequence whether the potential is gauged at $6 billion or $10 billion (Chambers of Commerce and Industry by the way have floated a figure in excess of $20 billion), because when figuring out our future trading strategy with India what we should really be concerned about are the following factors:

a) Trends of mutual trade.

b) Pakistan’s repeated failure to strategise and convert sectoral comparative advantages into tangible performance.

c) India’s role in sabotaging Pakistan’s trade growth within SAARC (even after SAFTA). On a per capita basis, Pakistan is the least traded country in SAARC.

d) Pakistan’s continued weakness in intelligently thinking through and then professionally drafting agreements that going forward are, i) Implementable and ii) Can be successfully monitored.

e) Water issues.

f) The drafting and oversight mechanism relating to the three proposed agreements:

i) The Customs Cooperation Agreement, to avoid arbitrary stoppages of goods at each other’s ports,

ii) Mutual Recognition Agreement, for acceptance of certificates of internationally accredited laboratories, and

iii) Redress of Grievances Agreement, for resolving matters in case of any disagreements.

g) Critical DNA difference between a Pakistani and an Indian – we relish imports, while the subconscious Indian mindset is still anti-imports!

What is even more worrying is that, in spite of being granted the MFN status by India way back in 1996, our share of exports in the total bilateral trade has consistently declined. In fact, there have been periods where our value of exports per se has simply registered a decline; whereas, Indian exports to Pakistan since 1996 have never posted a decrease in value terms! Obviously, something somewhere is not right and now once the MFN to India is also granted, we will need to be extra careful, because if we are yet again not able to prudently address the underlying anomalies (whatever they might be, e.g. NTB’s, political, tariffs, infrastructure, travel restrictions, communication, security/terror, etc) the balance of trade will tilt further in India’s favour. In my humble opinion, what the Government of Pakistan needs is a good team based on an amalgam of private-public human resource that has the competence, capacity and the authority (mandate) to work out the details and seek bottle tight guarantees on how trade will be fairly conducted between the two South Asian giants in future. Now how this dream team can be assembled remains a puzzle, since the government in its appointments continues to display a total disregard for merit or professionalism and almost all private sector bodies (Chambers, Federation of Chambers, Export Associations, etc) appear to be hijacked by interest groups – in recent memory, I can’t recall a single international quality research paper being released/published by any of the private sector trade or industrial associations!

Having just returned from the Entrepreneurial Conference at the sidelines of the BRICS in Delhi and the Boao Forum for Asia in Boao, China, let me confirm that more and more countries (and especially India) are trying to model themselves after China, meaning “The shift of ‘National Economic Vision’ from playing a support role for policy realisation to instead becoming the principal guiding force behind all national policy formation.” Also, the current focus by almost all emerging economies is on growth and employment generation, and there seems to be broad agreement between them that these can primarily be achieved through three things: business, trade and innovation; with China, as always, taking the lead and moving a step ahead by further linking its growth with ‘Green’ (meaning environmentally friendly) and ‘Sustainability’, in its just released 12th economic plan.

China which earlier fixed its growth rate at 7.50 percent is now endeavouring to cross 8 percent and India from 6.70 percent is now working on crossing the 7 percent mark by pre-announcing or rather pre-allocating in their 2012-13 budget the public sector spending priorities that will be funded through higher taxation and transparently directed mainly to areas, sectors and people that fit into the overall vision of Indian growth generation, albeit a growth that also caters to the Indian priority on poverty reduction through equitable distribution.

To conclude, given our WTO commitments and the sane resolve to remain an integral part of the global economic community, for me the debate is not about granting a MFN status to India or otherwise, but about our future game plan to compete with a country that is single-mindedly focused on taking its economic management to the so-called ‘next’ level, while we struggle with a complete absence of governance at home?

-The Nation