MFN: A MISNOMER
Nov 7 - 20, 2011
Pakistan's policy makers have again proven the fact that the golden rule of 'think before you act' is a proverb of past and now they act first and think and plan later with regard to granting most favored nation (MFN) status to India.
Economic experts are stunned over the haste shown by the federal government in granting the MFN status to India.
Two of the government's most strong bureaucratic representatives secretary commerce, Zafar Mahmood, and chairman trade development authority of Pakistan (TDAP), Tariq Puri, during Pakistan Expo 2011, announced that no MFN status was considered for India. Chairman TDAP mentioned preferential trade agreement (PTA) and commerce secretary mentioned swapping positive-items list with negative-items list.
Granting MFN to India means allowing trade with India in similar pattern and with tariff rates as allowed to other nations of the world by Pakistan.
Since birth, Pakistan has restricted trade with India through limiting 'Positive Lists' in Trade Policy Order. Currently 1,946 items as defined in Appendix G of Trade Policy Order of 2009 are allowed to be importable from India, whereas there is no restriction to Pakistan for exporting to India. However, our trade balance shows that Pakistan exports to India during 2008-09 and 2009-10 were USD370 million and USD276 million respectively, whereas Indian exports to Pakistan amounted to USD1,439 million and USD1,573 million respectively during the same periods.
It is an eye opener that Pakistan's share of exports to India has been reducing since the grant of MFN by India. Surely, MFN does not mean market access; it is just the fulfillment of an WTO obligation.
Pakistan and India are signatory to general agreement for trade & tariff (GATT) in 1948. GATT gradually progressed to world trade organization (WTO) in April 1994 during Marrakesh Round. The objective of the entire exercise is to ensure a relatively liberalize movement of goods across the globe with a transparent, non-discriminatory and comparatively, tension and dispute free trading. It is obligatory to the signing countries (to date 153 nations) to allow MFN status to each other. India, therefore, granted MFN status to Pakistan in 1996 whereas Pakistan being the signatory of WTO not yet allowed MFN to India.
India has restricted World's products, including Pakistan's, through Non-Tariff & Para Tariff Barriers. Recently, a delegation led by commerce minister visited India and met with various Indian officials to seek ways to open trade with India. Sources from one of the leading Japanese car manufacturers and leading tractor manufacturers among the delegates of Pakistan informed that India has not imposed any Pakistan specific non-tariff barriers. Yet, Pakistan is unable to sell World's finest quality cement, textiles and agricultural products to India. That means Pakistan has got MFN status but not the market access.
There are specific instances of India restricting trade mentioned in annual report of United States Trade Representative (USTR) on significant foreign trade barriers for year 2006 and similar trade barriers are also notified in the working paper No. 200 of Indian Council for Research on International Economic Relations. It is to be noted that even the United States of America also felt the heat of the quantitative Indian restrictions. Some of the examples of Indian NTBs are as follows:
Textiles products require pre-shipment certificate from a textile testing laboratory accredited to the national agency in the country of origin, certifying about the non-use of hazardous dyes. There are instances wherein EU accredited labs were rejected by the Indian customs;
Leather and Melamine products require that the samples of export consignments are sent to testing laboratories which are located far away from the port of entry in India, which is not only time consuming but also acts as a deterrent for the exporters of the world;
Pharmaceutical products require registration of the drugs with the Central Organization in India;
Processed Foods under the Prevention of Food Adulteration Act, 1954 (of India), require that a product has to have a shelf life of at least 60 per cent of the original shelf life at the time of entering into India;
Pre-packaged products are required to name the importer with his address and also to specify the maximum sale price at which a product will be sold to the end-consumers, which has to include all the taxes (local and otherwise), the freight and transport charges, commission to be paid to the dealers and all other charges towards advertising, delivery, packaging, forwarding and the like which, at times, becomes impossible for international exporters to provide; and
Agricultural Products are required to get a phytosanitary certificate and the consignment has to go through various other testing requirements. It is required to note that plant quarantine facilities are available at Amritsar airport only and not at Amritsar rail cargo station or at Wahga border. There is always a possibility that the cargo is held up and delayed during weekends and other holidays, thus exposed to other hazards.
Granting MFN to Pakistan by India wrapped with non-tariff barriers (NTB) & para tariff barriers (PTB) signifies an enchanting trap for Pakistan wherein there is no commitment of market access to India. Therefore, the exaggerated claim of huge Indian market of 1,800 million people for Pakistani exporters is not justified.
Nepal is one of the neighboring states of India, wherein almost 80 per cent of trade, 45 per cent of total investments, majority banking industry and manufacturing concerns are dominated by Indians i.e. Nepal's Economy is a hostage to India.
Government of Pakistan has always treated automobile as the mother of all industries considering the fact that the industry contributes five per cent of total FBR collection;†1.4 million Pakistanis are earning their livelihood through the industry; automobile industry constitutes 15 per cent of large scale industry and has second largest investment after energy sector in Pakistan, according to the Economic Survey of Pakistan 2010-11. Therefore, GoP always restricted automobile imports in all their international agreements and commitments: it is included in Negative List of Afghan Transit Trade Agreement of 1965; included in Appendix G for restricting trade of such items from India; and it is also considered while preparing 'Sensitive List' for South Asian Free Trade Area (Safta). Sensitive List under Safta means allowable imports with 'No Tariff Concession'.
During 2010-11, India manufactured 2.50 million cars, 12.671 million motorcycles, 0.548 million tractors, 0.799 million rickshaws, 0.548 million tractors, 0.408 million light commercial vehicles, 0.318 million multi utility vehicles, 0.344 million buses & trucks.
Pakistan is producing just 20 per cent of current automobile in India. Furthermore, India is kitted out with all world renowned automotive players as compared to just four car manufacturers in Pakistan. Major automotive raw materials of the industry like steel, copper, technical assistance agreements backed with trained human resource are already available in India.
Pakistan's automotive players having strong base in India like Maruti and Hyundai are in favor of allowing imports from India whereas others fear that the giant India will wipe out small industrial base of Pakistan.
Nabeel Hashmi, Chairman Papaam said, "In the first phase the trade with India should be initiated with the import of raw materials, machinery and equipments, moulds and dies etc. Then, transfer of technology through joint venture and technical assistance agreements follows." He also suggested 'automotive non-tariff barriers' like Pakistan's Vehicle Safety Standards, Pakistan's Vehicle Quality Standards and Pakistan's Vehicle Logistics and Trade Standards etc. However, this can only be possible through capacity building including human resource development and availability of vehicle testing equipments of GoP agencies like ministry of science & technology, engineering development board and ministry of industries & production.
In the absence of non-tariff barriers, are we allowing Indian traders full market access to Pakistan, whereas our traders are still unable to get market access of India despite having an emblem of MFN.
Advisably, MFN without NTBs will be self destructive for Pakistan's fledgling industries.