The question of granting MFN status to India is perceived to be a long standing demand from India, whereas in reality it is an integral part of the commitments undertaken by both countries under the WTO agreements. Nevertheless, Pakistan has been citing certain exemptions under the WTO rules which allow it to not grant MFN status to India. Furthermore; "Strategic considerations" have been used to advocate to the business community of Pakistan for the denial of MFN to India.
Additionally, certain Pakistani manufacturers and businesses have also been preoccupied with the 'dooms day' scenario that; the granting of MFN status to India will 'flood' Pakistan's markets with Indian goods and that it would mean a complete obliteration of Pakistani industry.
The fact of the matter is that; under Art. I of General Agreement on Tariffs and Trade 1994 (GATT), all WTO members arc bound to grant Most favoured Nation (MFN) treatment to all the other members with respect to trade in goods. This makes it mandatory upon Pakistan to grant MFN status to India, as the non-compliance constitutes a violation of the WTO Agreement. Though, India has not taken the matter to the WTO Dispute Settlement Body and if Pakistan is waiting to respond when India does take the MFN matter to Geneva, then it seems that Pakistan is ill advised, as in all likelihood the decision would be against it. Additionally by not taking the MFN matter to Geneva, India has already scored a 'Moral victory' which is already tilting the global opinion in favour of India's trade policies.
The idea of protecting the domestic economy from the 'infiltration' of Indian products appears to be based on an assumption that all Indian goods arc more competitive than the domestically produced goods. However, if Pakistan is apprehensive of a possible infiltration of exports from India, it can take measures, under WTO provisions against such imports to protect the local industries Art. XIX of GATT provides that where, a country finds that a product is being imported "in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers" it can impose safeguard measures to restrict such imports for temporary periods. We have the example of US imposing safeguard measures against foreign imports in order to protect its domestic steel industry.
Furthermore; Opening the borders for trade does not suggest an unrestricted flow of Indian products. All the Indian imports into Pakistan will remain subject to the tariffs already in place. It can also be argued that if the Indian goods remain cheaper than their domestic counterparts even after paying the import duties, then why not allow them? Does it not auger well for the 'Consumer Protection' outlook for the people of Pakistan? Nevertheless; if on the other hand it is felt that the Indian imports into Pakistan are increasing due to unfair practices like; price undercutting etc, then Pakistan is free to again resort to restrict the imports of specific products by increasing tariffs under various provisions of the WTO e.g. Anti-dumping duties, Countervailing and Anti-subsidies etc.
The substitution of Pakistan's imports with cheaper Indian products should he more than welcome since this may benefit in two ways: first, the low cost of imports and secondly, lesser time involved. The findings of Trade Diversion theory on Indo-Pakistan Trade relations suggest that Pakistan can save valuable foreign exchange of S 1.5 billion to S 2.0 billion in case Pakistan diverts the imports of such items (Chemicals, Steel, machinery, industrial equipments, plastics etc;), which are not locally manufacture and have to be imported from far-flung markets like Brazil, Mexico, Australia, Germany, since these products are available from India at competitive prices and substantially cut-down the transaction time and cost.
Finally; the 'strategic consideration' argument of not granting MFN status to India should be revisited. It must be appreciated from the numerous examples around the globe that how economic cooperation and integration has transformed arch rivals into partners of growth and entwine them into a combined force against the menace of unemployment, poverty and hunger, which are the true enemies of human civilization.
Evidences from history and statistical data reveal that the changed global economic scenario has brought about radical changes in the socio-political relations of the nations, which have eventually been shaped into sound economic cohesion instead of pursuance of politically motivated policies. The volume of trade between India and China, which was only $ 1.0 billion in the 1990s, has increased to more than S 60 billion after conversion of friendly relations through signing of the Sino-Indian Bilateral Peace and Tranquility Accords.
Another example is; the 60 years old China-Taiwan fray, which eventually ended up with agreement on direct air, sea and postal links on 4th November 2008, was in fact as the result of vertical growth in trade, which witnessed tremendous increase from S 8.1 billion in 1991 to more than $ 100 billion in 2010. Similarly USA-Vietnam rivalry ended with US-Vietnam Bilateral Trade Agreement on December 10, 2001 helped increase in trade from less than 1.0 billion in 1990s, to $ 16 billion in 2010. USA is now the leading investor in Vietnam. The Germany - France example is of course an ideal situation, wherein two nations who have fought two world wars against each other are now not only completely economically integrated but are also the driving forces behind the reunification of the European region. These examples provide enough evidence as to how economic diplomacy serves as an effective tool to mitigate political tension and transform rivalry into friendship.
Source: Muhammad Iqbal Tabish Secretary General, SAARC CCI