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Afraid Of Trade?

The MFN then, even if its name has been watered down to Non-Discriminatory Market Access to remove the misimpression that India will be treated better than any other country we trade with, is something we need to pursue.

[This article first appeared in The News on March27, 2014. The writer is a journalist based in Karachi.]

At The Hague, Nawaz Sharif said in all seriousness that he doesn’t want to make the difficult decision of granting free trade status to a neighbour because he thinks his involvement might influence the elections in that country.

Nawaz Sharif was either fooling us or himself when he said that Pakistan wouldn’t give Most-Favoured Nation (MFN) trading status to India because he didn’t want to give a leg up to any party in the run-up to general elections in that country. If any agreement we reach with the government of the day in that virulently anti-Pakistan country would impact the polls it would surely be in favour of the opposing party.

The prime minister was slightly more honest when he said that another reason for the delay was the lack of consensus on the issue at home, which is true enough if consensus is defined as receiving a seal of approval from the military.

The way things have been, opposition of the military to a policy may usually be good enough to convince all right-thinking people that the said policy is worth pursuing but when it comes to the MFN status we should pause for a bit and weigh all the costs and benefits. Most analysis of greater trade with India has tended to concentrate on the political benefits we may accrue. And it is true that when it comes to our eastern neighbour any breakthroughs in the political realm should be taken seriously.

Ever since the Mumbai attacks of 2008, India has been suspicious of our actions and intent to an extent that cooperation has become all but impossible. Breaking the vicious cycle of mistrust is a worthwhile end in and of itself. How we should go about remedying past mistakes, however, should be a matter for debate that does not lead to us simply agreeing to every proposal that appears on the horizon and misjudging how much value it will have in breaking the political stalemate.

Giving India MFN status has the potential to eventually lead to greater economic benefits for both countries but it is not the instant panacea it has been made out to be by optimists of cross-border peace. Any free trade agreement will be purely theoretical until the hard work is done to build the infrastructure to turn this trade into reality.

The border crossings at Wagah right now cannot handle the volume of trade that we expect should MFN become a reality and, on top of that, there are significant regulatory hurdles that hinder the movement of goods and services. A lack of banking services, poor infrastructure at the Wagah border and other such issues will mean that even a promise on paper to increase trade may not actually amount to much on the ground.

Trade between the two countries right now is anaemic both in absolute and relative terms. For India trade with Pakistan amounts to less than half of one percent of its total trade; for us the figure is only about five percent. There is no doubt that these figures need to be improved upon and that the MFN is the best way to do that but until physical improvements are made at and near the border, an agreement on its own will be worth very little and our exports to India will see a negligible increase

Significant opposition to the MFN exists at home because, as with all free trade pacts, it will have both winners and losers. In Pakistan the losers will be those industries which, for whatever reason, have not yet developed to the stage where they can compete with cheap imports. Our fledgling auto industry is the most obvious example, where even the ability to import spare parts at a cheaper price than they would get from a current trading partner like China will not be a benefit strong enough to withstand the competition of cheap imported cars from India.

The overall impact on our balance of payments should still be positive, especially if both countries take trade facilitation measures like allowing for easier movement across the borders and developing an electronic payment system. Our exports in cement, fruits and sporting goods among other things to India should increase manifold and the money we get from these exports, if put to good use, can help the general welfare of the country.

The MFN then, even if its name has been watered down to Non-Discriminatory Market Access to remove the misimpression that India will be treated better than any other country we trade with, is something we need to pursue. The only snag is that expectations that the agreement will bring immediate economic benefits need to be tamped down for being as unrealistic as the voices of doom that warn against trade with India.

Going through with it, however, depends on whether Nawaz Sharif has the courage to make decisions that pit him against the powers-that-be.