ISLAMABAD: Pakistan is unlikely to normalise trade with India if the latter does not provide a level-playing field to Pakistani exports in its own market, reveals official documents exclusively made available to Business Recorder. "The Commerce Ministry has sought conditional permission on the negative list as we will bring the case for complete normalisation of trade relations with India to Cabinet after further negotiations with India," the documents disclosed.
The Commerce Ministry has been allowed in principle to make appropriate changes in the defence trade laws in consultation with the stakeholders to allay apprehensions of the industrial sector for using these laws more effectively against any unfair practices or injury to local industry by Indian imports, the sources continued.
The Federal Board of Revenue maintains that Pakistan would face revenue loss of Rs 3 billion per annum after normalisation of trade with Indian especially when South Asian Free Trade Area (Safta) tariffs become operative from January 2013, official sources told Business Recorder.
The Commerce Ministry whose officials exchanged hot words with the officials of Ministry of Textile Industry in the presence of a number of federal ministers over the negative list, argues that WTO trading arrangements are based on the principle of MFN, which implies non-discriminatory treatment among the member countries in terms of tariff as well as the number of tariff lines traded between the countries. Pakistan being the signatory to WTO is obliged to observe this principle. However, the trading arrangements with India remain discriminatory. Although the tariff applied on imports from India is the same as for any other WTO member state but Pakistan has India specific goods restriction in terms to the Import Policy Order 2010-12 (positive list of items) thus allowing import of only 1963 tariff lines from India.
On a briefing given by the Ministry of Commerce, the Cabinet in its meeting held on November 2, 2011 "endorsed the efforts of the Ministry of Commerce for full normalisation of trade relations with India and directed the ministry to complete the process of trade normalisation for grant of Most Favoured Nation (MFN) status to India." During the sixth round of commerce secretary level talks held from November 14-16, 2011 at New Delhi it was agreed between India and Pakistan that move to full normalisation of trade relations will be sequenced. First, the negative list would be announced by February, 2012 and then it would be phased out after approval by the Cabinet.
The process to formulate negative list was initiated in April 2011. An extensive consultation process was carried out by the Ministry of Commerce both with public and private sectors of Pakistan. The ministry requested all the stakeholders including industry, chambers of commerce and trade associations of Pakistan to recommend items with justification to be included in the negative list. The Secretary Commerce held meetings with the chambers of commerce and trade associations across the country to get their input. Sector specific meetings were organised to provide opportunity to the stakeholders to express their views and concerns.
Although the cut-off date for recommending items for the negative list was October 15, 2011, the stakeholders kept on sending items for inclusion in the negative list till January 26, 2012 culminating in 1,335 tariff lines in total. For the sake of academic neutrality and transparency, Institute of Business Administration (IBA) Karachi, a premier academic institution of Pakistan, was assigned the task to examine the wish list/tariff lines recommended by the stakeholders and propose a final negative list of items for India after critical examination of all tariff lines.
IBA examined the wish list given by the stakeholders, held extensive discussions with them and did not recommend the inclusion of 699 tariff lines at 8-digit on the basis of following justification: (i) tariff lines already allowed in the positive list; (ii) tariff lines not exported by India globally; (iii) tariff lines not imported by Pakistan; (iv) tariff lines in which Pakistan is more competitive than India; (v) tariff lines having applied tariff for India is higher by 5% as compared to tariff for other regional countries; and (vi) tariff lines with Pakistan's global exports of more than $25 million.
The summary was submitted to the Cabinet for consideration on February 14, 2012. Cabinet decided that "all relevant stakeholders had not been consulted on the issue of formulation of the negative list" and directed that they should be taken on board and summary be resubmitted to the Cabinet for approval after carrying out the consultation.
In compliance with decision of the Cabinet, a series of meetings were held with the four relevant ministries ie ministry of industries, ministry of textile industry, ministry of production and ministry of national food security. Keeping in view their demand a final list of 1209 tariff lines is now proposed. It accommodates the concerns of all stakeholders.
The Federal Board of Revenue has pointed out that there has been a loss of revenue of Rs 17.395 million in 2010-11 and Rs 17.389 million in the first six months of the current fiscal year. The FBR argues that normalisation of trade with India would lead to a revenue loss estimated to be more than Rs 3.0 billion per annum especially when Safta tariff would become operative after December 31, 2012.
For normalisation of trade, the proposed negative list must be ultimately phased out. The justification for this proposal is as follows: Pakistan signed the agreement on Safta under the SAARC in 2004 which became operational in 2006. Under this arrangement all member states are allowed concessions except those items included in their respective sensitive lists. Gradual reduction of these lists is underway and would ultimately be phased out by all member countries through mutual agreement. India specific negative list would be violation of article 17 of the SAFTA agreement which clearly restricts countries from adopting any measures that diminishes or nullifies any concessions already agreed.
Under the WTO law, Pakistan is obliged to adopt a non-discriminatory approach towards all WTO members. There is no legal provision in WTO laws that allow a member country to use any such measure. Therefore, Indian specific negative list is a violation of the WTO obligations.
The WTO trading arrangement provides for trade defence measures in case of unfair trade practices or any threat to local industry. Unfortunately, Pakistan has all these trade defence laws in place ie National Tariff Commission Act, 1990, Antidumping Duties Ordinance 2000, Countervailing Duties Ordinance, 2001 and Safeguard Measures Ordinance, 2002 for provision of protection to domestic industry in case of injury due to dumping, subsidies and surge in imports of certain products. The Ministry of Commerce in co-ordination with NTC is already conducting seminars and workshops to specifically educate stakeholders on the trade defence measures available. As Pakistan has the WTO compliant legal instruments available to counter possible threat from India imports, there is no justification for adopting a measure (India-specific negative list) which makes us non-compliant to the global trading arrangements.
There is, however, a difference of opinion among the ministries regarding the phase-out period of the negative list. The Ministry of Commerce considers it appropriate that the process of trade normalisation be completed by the end of 2012 because even if there is only one item on the India specific negative list this would technically negate the MFN basis of trade. Trade normalisation would open up $369.769 billion Indian market for our exports and we should be looking to take advantage of that.