New Delhi: The Narendra Modi government is preparing to ask Pakistan to accord India the most-favoured nation (MFN) status for smoother trade ahead of a meeting of foreign secretaries in Islamabad on 25 August.
As India did not hesitate in granting the status to Pakistan in 1996, Pakistan should not have a problem with this, said a commerce ministry official.
Pakistan is in the process of granting India non-discriminatory market access, which is less controversial. The previous United Progressive Alliance government did not have a problem with this nomenclature.
The tough stand by the new government comes days after it hardened its position at the World Trade Organization (WTO) on food security, setting the stage for a bitter blame game between developed and developing countries for unravelling a trade pact agreed to in December.
What could have also irked India is Islamabad’s stance at the WTO not to back the proposal on food security moved by the India-led G-33 group of countries of which Pakistan is a member.
The translation of most-favoured nation into Urdu (sabse pasandida mulk), Pakistan’s official language, is also said to be a problem.
“If Urdu (meaning) is important to them, then for us Hindi is also important,” the commerce ministry official said, requesting anonymity.
Although Pakistan had agreed to grant MFN status during a secretary-level agreement in September 2012, it has since missed many deadlines.
It has, however, moved from a so-called positive list trade regime to a negative list-based regime with India under which it does not allow imports of 1,209 items from India.
MFN status will mean abolishing the negative list altogether while maintaining a list of prohibited items that cannot be imported.
Both countries have a preferential trading arrangement under the South Asia Free Trade Area (Safta) process. However, Pakistan has blocked some of these benefits to India through the negative list. It further restricts imports from India by allowing only 137 items through the land route via the Wagah-Attari border.
Although Pakistan may call it non-discriminatory market access at the bilateral level, when it notifies the status at the WTO, it needs to call it MFN since there is nothing like the former nomenclature at the multilateral trade body, said Ram Upendra Das, a professor at Research and Information System for Developing Countries.
“While Pakistan has to ensure non-discrimination of Indian items to be imported under most-favoured nation route, it also has to give India preferential access to its market under Safta, which it has not done,” Das said.
In the recent meeting between the prime ministers of the two countries at the swearing-in ceremony of Prime Minister Modi on 27 May, “it was stated that the two countries could move immediately towards full trade normalization on the basis of the September 2012 roadmap worked out between the commerce secretaries of both countries”, trade minister Nirmala Sitharaman said in a statement in the Rajya Sabha on Friday.
Sitharaman said that at present most of the trade between India and Pakistan is routed through either the United Arab Emirates or Singapore to the tune of $3 billion because of trade restrictions put by Pakistan.
If Pakistan grants MFN status to India, it will open up unhindered direct trade between the two countries and trade will take place at a significantly lower cost, which will also restore Pakistan’s international commitment under the WTO of reciprocity in similar trading status, Sitharaman said.
Total trade between the two countries stood at $2.7 billion in 2013-14. “Experts believe total bilateral trade can rise to the level of $10-12 billion in the years to come,” Sitharaman said.
India and Pakistan resumed talks, derailed by the 2008 Mumbai terrorist attack, in 2011 and trade was seen as the main driver of the dialogue, with both countries announcing a series of measures to improve economic ties, including exchanges of trade delegations, India allowing Pakistan to invest in India, and signing a pact on liberalizing visa norms.
However, stepping up the pressure on Pakistan in the wake of the killing of Indian soldiers along the line of control border in Jammu and Kashmir by Pakistani troops last year, India put on hold the implementation of a liberalized visa pact.
Pakistan has shown an inclination to return to a composite dialogue, including the contentious issues of Kashmir as well as a liberalized trade regime. Pakistan trade minister Khurram Dastgir Khan, during his visit to India earlier this year, said normalization of trade with India would require a commitment from its government to maintain a stable and predictable relationship with Pakistan.
“The India-Pakistan composite dialogue is suspended even now,” Khan had said. “Yes, we don’t have to make the two conditional to each other, but ultimately these are parallel rails on which this train has to run. Occasionally, as of today, the trade part is running a little bit ahead of the political part, but eventually both have to progress together.”