MFN status for India

FINALLY some good news: India and Pakistan appear to be putting decades of acrimony behind them by taking a few baby steps to liberalise trade and business ties.

The news has been greeted with subdued applause in Europe. There are hopes — high hopes — that Delhi and Islamabad may be able to keep their promise and slowly but steadily tear down outdated and enormously costly trade barriers. But as with all previous India-Pakistan ‘breakthroughs’ South Asia-watchers are being careful not to embark on premature celebrations.

Much could still go wrong. The deal is clearly not popular with anti-Indian lobbies inside Pakistan, including probably some in the army who balk at any thought of cooperating with India. Past truces between the two countries have been derailed by militants on both sides. Also, of course, the unresolved dispute over Kashmir has a tendency to flare up when Delhi and

Islamabad engage in any rapprochement.

However, let’s take the trade deal at face value for a moment. If both sides are really serious about boosting bilateral trade and business, the results will be positive for both India and Pakistan. But Pakistan, being the laggard, will benefit more. Official trade between the two countries is modest but has great potential for growth. Recent studies show that bilateral trade could

grow to $11bn from the current $1.8bn if India and Pakistan get serious about improving trade relations.

Replacing cross-border smuggling with direct trade ties with India will boost Pakistan’s revenues. As more products become available, consumers will have more choice of goods, prices will go down. Certainly there will be more competition for Pakistan’s industrialists — but as the world speeds ahead, it is time they too faced the winds of competition, becoming leaner and meaner, as well as better and more efficient, as the years go on. It’s not just bilateral India-Pakistan relations that will improve. With India and Pakistan at peace — at least on the economic front — all of South Asia could become a better place.

Certainly the region deserves a break. Fine, India’s economic transformation and rising economic clout may mesmerise the world but the country, for all its assets, cannot prosper and grow in a sustained manner, if it is surrounded by poor, unstable and unhappy nations. And Pakistan, for all its chest-beating nationalistic rhetoric, would be well-advised to stop the self-denial and try and capture some of India’s economic magic — or at least try and benefit from the wealth, expertise and know-how of India’s top, globalised companies.

Indian business leaders I speak to never fail to signal their interest in the Pakistani market and in investing in Pakistan. Given the dire straits the Pakistan economy is in, such investments and interest should be encouraged, not shunned. And there is no real reason why competitive Pakistani companies cannot make inroads into India.

Whether South Asians like it or not, regional integration — or at least regional cooperation — is the only way that countries can flourish and grow in today’s globalised world. Small, fragmented markets do not attract investors; large, regional ones do.

The European Union may be struggling to save the euro but one of Europe’s most significant successes is the creation of the frontier-free single market where goods, services and people can circulate untrammelled by border restrictions.

The Association of Southeast Asian Nations (Asean) is following the EU lead by working hard to build a common market.

Asean is in fact at the core of a ‘noodle soup’ of regional initiatives including region-wide free-trade agreements which bring together an array of countries, including China and Japan. South Asia can learn from these examples. One of the reasons for the warming up of India-Pakistan trade relations appears to have been Islamabad’s long-overdue decision to grant Most Favoured Nation (MFN) status to India.

Writing earlier this summer, I argued in favour of such a move, arguing that unless Pakistan did this, it could forget about any Indian go-ahead to an EU agreement to give special tariff concessions to Pakistani textile exports. India has now in fact said that it is ready to be “constructive and supportive” on the EU initiative. The EU proposal dates back to September last year, when EU member states agreed in principle to help Pakistan’s post-flood economic reconstruction by temporarily removing tariffs on key Pakistani exports.

They said this should be done on a non-MFN basis so that other WTO members would not benefit from the move. The European Commission came up with a list of 75 tariff lines to receive the preferential access. India, Bangladesh, Brazil, Mexico, Peru and even Turkey have so far refused to give their go-ahead to the EU move, arguing that the proposal will not really help Pakistan cope with the fallout from last year’s floods.

With India now ready to acquiesce, the other countries may also decide to follow suit. Discussions within the WTO are expected on Nov 7. If all goes according to schedule, Pakistani exports could have special access to the EU market as of January 2012. Meanwhile, new EU proposals for GSP Plus are also expected to include Pakistan as a beneficiary country.

So who cares if the Americans are breathing down Islamabad’s neck over its support for the Haqqani network? If Pakistan can be friends with India, and other neighbours, it may one day be able to stop relying on its dubious military ‘assets’, abandon the array of militant groups to their fate, and instead join the club of modern states which focus on the economy, exports and investments to become strong, prosperous and secure.