Posts Tagged ‘ MFN ’

India, Pakistan Try ‘Trade Diplomacy’

As Reported by AFP

India and Pakistan, still at loggerheads on Kashmir and no closer to a full peace deal, are channeling their efforts into increasing trade in the hope that business can bring them together.

31-year-old Karachi food trader Kashif Gul Memom is among those eager to seize the opportunities offered by easier links between the estranged neighbours, which have fought three wars since independence in 1947.

“This is a change for the good. It’s an exciting time,” said Memom, one of the generation born after the painful partition of the subcontinent that gave birth to India and the Islamic republic of Pakistan.

“My generation of business people is putting the past behind us. We’re looking to the future, India is such a huge market for us,” Memom told AFP while at the largest ever Pakistani trade fair held in India.

The improved relations between the nuclear-armed rivals stem from Pakistan’s decision to grant India “Most Favoured Nation (MFN)” status by year end, meaning Indian exports will be treated the same as those from other nations.

In further progress, the neighbours opened a second trading gate in April along their heavily militarised border, boosting the number of trucks able to cross daily to 600 from 150.

India now also says it is ready to end a ban on investment from Pakistan and the countries are planning to allow multiple-entry business visas to spur exchanges — a key demand by company executives.

The warming commercial ties underline the new relevance of the private sector in the peace process, with prospects still low for any swift settlement of the “core issue” of the nations’ competing claims to Kashmir. The divided Himalayan territory has been the trigger of two of their three wars since independence.

Indian and Pakistani officials have been looking at the so-called “China option” as a model, with deepening economic engagement seen by experts as crucial to establishing lasting peace in the troubled region.

Beijing and New Delhi have been pursuing stronger economic ties while resolving outstanding political issues, such as a festering border dispute that erupted into a brief, bloody war in the 1960s.

“There is no other option but economic partnership between India and Pakistan — this leads on to other partnerships,” Indian Commerce Minister Anand Sharma said at the April trade fair in Delhi, a follow-on to a similar venture in Lahore earlier in the year.

“We have to recognise our true trade potential and leave our children with a legacy that ensures prosperity, harmony and peace.”
Some Pakistani businesses have protested against the trade opening, fearing they may be swamped by cheaper Indian goods, especially in drugs, auto parts and consumer goods. But others eye the possibilities India’s market offers.

“India with 1.2 billion people gives us great potential,” Mian Ahad, one of Pakistan’s leading furniture designers, told AFP.
Indian businessmen are equally enthusiastic, saying there is an opportunity for trade in areas from agriculture, information technology, pharmaceuticals, and engineering to chemicals.

Official bilateral trade between India and Pakistan is just $2.7 billion and heavily tilted in New Delhi’s favour.
But Indian business chamber Assocham estimates up to $10 billion worth of goods are routed illicitly — carried by donkeys through Afghanistan or shipped by container from Singapore and the Gulf.

Indian commerce secretary Rahul Khullar told AFP that Pakistan’s decision to grant India MFN status by the end of the year was “the game-changer.”
MFN status will mean India can export 6,800 items to Pakistan, up from around 2,000 at present, and the countries aim to boost bilateral trade to $6 billion within three years.

“I’m cautiously optimistic. Commerce is an excellent way to bring countries together,” Indian strategic analyst Uday Bhaskar told AFP.
“Once you institutionalise trade, it becomes hard to slow the momentum for cross-border exchanges. People say if there are onions or cement or sugar available next door, why can’t I have them? And why can’t I travel there too?”

Pakistan’s Move on Trade With India Can Help in Wider Normalization of Ties

As Reported by The Economic Times

The reported move by the Pakistan government to phase out major restrictions on trade with India by switching to the negative list, and doing away with that too by the end of the year, is wholly welcome. Normalising trade relations with India will help establish a template of wider normalization of mutual ties.

An indication of deep-rooted animosities and suspicions which have stymied that goal can be seen in the opposition from quarters within Pakistan to Islamabad’s declared – and logical – aim of granting India the World Trade Organization-compliant Most Favoured Nation status next year.

But the arrangement to separate commerce from thornier issues like Kashmir and Pakistan’s actions against those accused of terror attacks against India can lay a foundation for minimising mutual distrust. For New Delhi, this would be in keeping with the idea of engaging various power centres in Pakistan, given the fractured power structure in that country.

While being perfectly aware that policy on India, like in other areas deemed to be ‘strategic’ by the military, is mostly determined by the latter, the aim should be to defang and isolate hardline elements by positing the real and tangible benefits enhanced mutual trade can offer Pakistan.

And there certainly is ample scope to do that: direct Indo-Pak trade is less than 1% of their global trade; annual mutual trade was around $2.7 billion through March 2011, which, despite being up 50% from the previous year is still measly compared to, say, India’s $60 billion annual trade with China or the potential.

But a beginning has been made with Pakistani industry backing the new move, which, in turn, can help allay fears that Indian goods will swamp Pakistani markets. What will happen is the ending of trade routed through third countries (mostly Dubai).

Legitimate mutual trade can lead to both countries envisaging cooperation in a wider trading entity comprising Afghanistan and Central Asia, with obvious benefits for regional stability. This might sound utopian for now, but mutually-beneficial commerce does have a way of tempering hostilities.

Made in India’ Show in Pakistan as Both Talk to Boost Trade

By Surojit Gupta for The Times of India

Trade ties between India and Pakistan are expected to get a boost as New Delhi reaches out to the business community across the border, starting Monday to assure them about the positive impact of normal trade ties. Commerce minister Anand Sharma will undertake a rare journey to Pakistan, leading a large delegation of senior officials and top businessmen as the two hostile neighbours take baby steps to normalise trade and economic relations.

The private sector led by industry chambers has put up an “India show”, in Lahore and Karachi – the first ever trade exhibitions from India where over 100 exhibitors are participating. Firms representing pharmaceuticals, textile, gems and jewellery, chemicals and petro-chemicals are showcasing products.

The move is a follow up to the efforts to normalise trade ties. The Pakistan government announced granting of Most Favoured Nation (MFN) status to India in November last year. But, criticism from a section of industry in Pakistan has forced Islamabad to take measured steps on the issue. But, officials said they were optimistic that by the end of 2012, the transition to full MFN status would be complete.

Officials said they will launch outreach programme to assure businessmen in Pakistan that Indian goods will not swamp the Pakistan market if trade is normalised. “We will tell them that there are enough trade safeguards measures to ensure that Indian goods do not flood the Pakistani market. Let us first liberalise trade and see the impact,” said a senior government official.

Pakistan allows exports to India but has a positive list of 1,938 items which are officially allowed to be imported from India. Latest data shows that formal trade between India and Pakistan rose to $2.7 billion in 2010-11 from $144 million in 2001, while informal trade including third country trade is estimated at $10 billion, according to a Ficci status paper. “I have no doubt in my mind that bilateral trade, which currently stands at $3 billion, can be raised to $10 billion if trade through third countries (Dubai, Singapore and Central Asian countries) is channelised into direct exchange between the two countries,” said R V Kanoria, president, Ficci.

The government has undertaken a series of measures to increase bilateral trade. There is a move to open a second gate at the Attari-Wagah border, which is expected to increase the number of trucks crossing the border to 500-600 daily from 150-200 at present. Pakistan has agreed to remove restrictions on the number of commodities traded by the land route once the infrastructure in Wagah is ready, while both countries have agreed to avoid arbitrary stoppage of goods at ports. Suggestions have been made for opening up of an additional land route at Monabao-Khokhara Par on the Sindh border for faster movement of goods.

“We are taking significant steps to improve the border infrastructure. India has invested nearly Rs 150 crore to develop infrastructure at the Integrated Check post near Attari,” said a senior government official. He said the visa regime for business travel is also expected to be liberalised soon with multiple entry visas for 10 Indian cities, along with exemptions for police reporting. The formal announcement is expected to be made soon. Talks to expand trade in petroleum products are progressing, while efforts are also on to start negotiations for trade in electricity between the two nuclear-armed neighbours. Both sides have agreed on grid-connectivity between Amritsar and Lahore, which would pave the way for trade of up to 500 MW of power.

Trade experts said they were optimistic about the latest moves and said the effort will go a long way in helping faster regional integration. “The positive spin off for normalisation of trade is enormous. Pakistan has given signals and India now needs to take the initiative. Normalisation of bilateral trade relations will help in putting much of the political bickering on the backburner,” said Biswajit Dhar, director-general at Research and Information System for Developing Countries, an economic and trade thinktank. Experts said there was huge potential for forging joint ventures between Indian and Pakistani companies in sectors such as information technology, fish-processing, drugs and pharmaceuticals, agro chemicals, chemicals, automobile ancillary and light engineering.

Pakistanis for Peace Editor’s Note- The best chance of peace between India and Pakistan can only be achieved through trade and normalization of ties. The India Show at the Lahore International Expo Centre Feb 11-13 will go a long ways to bridging the gap and move us closer to achieving peace one day, which is the best scenario for both nations long term.

Pakistan, India take Another Cautious Step Forward

By Alex Rodriguez and Mark Magnier for The Los Angeles Times

 

In cautious increments, nuclear archrivals Pakistan and Indiahave been easing the pall of tension that has overshadowed the two nations in recent years, as Islamabad increasingly worries about another neighbor: volatile Afghanistan.

The latest move toward rapprochement came last week, when the Pakistani Cabinet announced it would normalize trade relations with India by granting its longtime foe “most favored nation” status.

The designation has practical ramifications, including the elimination of discriminatory pricing and mutual imposition of lower tariffs and high import quotas. More important, however, it marks the latest in a series of decisions and events that signals a warming in relations between two countries that have fought three wars since their independence after the 1947 partition of British India.

Driving the move toward improved relations with India is Pakistan’s belief that strained ties with traditional allies such as the U.S. and Afghanistan are leaving it increasingly isolated, analysts say. India and Afghanistan signed a strategic partnership pact last month that included the training of Afghan troops by Indian forces — a move that rankled Islamabad.

The steps between the two South Asian neighbors have been small yet striking.

After an Indian military helicopter flying in bad weather strayed into Pakistani-controlled territory Oct. 23, Pakistani troops promptly released the aircraft and its crew and returned them to India, averting a crisis. Earlier this year, the two countries also resumed peace talks scuttled by the 2008 attacks in Mumbai that killed 166 people. Pakistani militants carried out the attacks, and India has accused Pakistan’s ISI spy agency of involvement in the assault.

Both countries are also discussing a deal that would allow Pakistan to import electricity from India to relieve massive power shortages crippling the Muslim nation’s economy. In addition, India didn’t oppose Pakistan’s nonpermanent seat on the United Nations Security Council last month, which passed by a single vote. And, earlier this year, New Delhi didn’t fight a European Union bid to allow duty-free imports of Pakistani textiles, even though it would cost competing Indian textile makers an estimated $1 billion a year in lost sales.

Experts warn that major roadblocks still loom. At the top of that list is the divided Himalayan region of Kashmir, claimed by both countries and the cause of two wars since 1947. A dispute over water rights remains unresolved, and New Delhi continues to accuse the ISI of backing militant groups that target India.

Still, bolstering trade relations between the two countries, said Zafar Hilaly, a former Pakistani ambassador to the U.S., “is a good first step. It shows a genuine feeling within Pakistan that the relationship should be normalized.”

Particularly significant is the Pakistani military’s decision to endorse granting MFN status to India. Foreign policy remains the purview of Pakistan’s security establishment, especially when it comes to the country historically regarded by the military as its chief enemy.

“All the stakeholders, including the military … are on board,” Pakistani Information Minister Firdous Ashiq Awan said in announcing the decision. “Such a big step could not be taken alone.”

The military’s backing of MFN status for India, Hilaly said, likely represents a realization that an easing of tensions with New Delhi may now be in Pakistan’s best interests, particularly at a time when relations with Washington and Kabul have soured. Both the U.S. and Afghanistan assert that their efforts to battle Afghan Taliban insurgents have been hampered by Pakistan’s backing of the insurgency there, a charge that Islamabad denies.

“What has happened is that, with respect to issues that the military faces, the priorities have changed,” Hilaly said. “India is still the main culprit as far as security is concerned, but the eastern front is much less active than the one developing in Afghanistan.”

Officials in Washington have been encouraged by the movement toward trade normalization between Islamabad and New Delhi, especially because economic interdependence is seen as an ideal path toward stability in South Asia. Testifying before the House Foreign Affairs Committee last month, Secretary of State Hillary Rodham Clinton called the Pakistan-India relationship “the real game-changer in the region.”

“We have in Pakistan today a leadership, both civilian and military, that wants to see progress with India, and we have the same on the Indian side,” Clinton told lawmakers. “I firmly believe greater regional economic integration would revolutionize the economy in Pakistan.”

Though India extended MFN status to Pakistan in 1996, Pakistan had not reciprocated until now. Observers in India wondered why it took Islamabad so long to see the value in the move. “Not allowing MFN status hurt Pakistan more than India and was shortsighted,” said Satish Chandra, an analyst and former Indian ambassador to Pakistan. “It was an exercise in cutting your nose to spite your face.”

With trade normalization, experts estimate two-way trade could triple to $8 billion within five years. Official trade flows currently run nearly 7 to 1 in New Delhi’s favor, with Indian exports to Pakistan totaling about $2.33 billion versus $332 million in the other direction.

“When trade picks up, there’s more and more confidence to ease political and other differences,” said Shaqeel Qalander, a furniture maker and former president of a business group on the Indian-held portion of Kashmir. “It’s a very good decision.”

Pakistan Takes Giant Step With Trade Move

By James Lamont for The Financial Times

The move to grant Most Favoured Nation status to India by Pakistan marks a small step for the world trading system. But it is a giant step for Pakistan.

For decades, these two nuclear-armed rivals have strangled trade along what in centuries past was a commercial highway between the subcontinent and central Asia. Today bilateral trade totals a paltry $2.7bn – a fraction of its potential.

The obstacle is ideology. Pakistan’s leadership insisted that trade ties were conditional on progress in resolving a bitter dispute over the territory of Kashmir, a Muslim majority region claimed by both countries after the end of British rule in 1947.

India’s leadership was obligingly intransigent.

The “in principle” granting of MFN and easing of business visas, responding to Indian signals of goodwill, are courageous moves by Pakistan’s civilian and military leaders.

They have immediately attracted criticism from domestic industrial sectors which fear greater competition. Executives in Pakistan’s pharmaceuticals industry were quick to warn that their companies would be hurt by market access for India’s generic drugs companies.

Other sceptics hold up the example of India’s Bollywood film industry, already swamping the Pakistani entertainment market, as a sign of worse to come.

More menacingly, Kashmiri groups have condemned the decision as a betrayal. The United Jihad Council called trade liberalisation a “direct contravention” of Islamabad’s fight for Kashmir. It threatened “grave consequences” of going soft on Hindu-majority India.

Many fear that militant attacks on India will ensue in a bid to sap Delhi’s confidence in peace with Pakistan, and derail negotiations. Such attacks already rain down almost daily across Pakistan.

Most of all, the move reflects a mighty shift in opinion in Rawalpindi, the headquarters of the powerful Pakistani army, at a time when the local economy is weakening.

A section of the army’s leadership is deeply worried about a mismanaged economy and anxious to put Pakistan, growing at 3 per cent, on a higher trajectory similar to the economies of India and China. With good reason. Railway workers go unpaid, industrialists are starved of power for their factories, and foreign investors, alongside Pakistani talent, are being frightened away by security risks.

More long term, some generals view the hostile position against India as unsustainable, and see incentives to normalise ties. They also say that Pakistan’s long-term military expenditure, supported by assistance from the US, cannot be borne by a broken economy.

Many of Pakistan’s most powerful industrialists are encouraging this change of heart. They see opportunity for cement, agriculture, banking and engineering in more access to the Indian market. More broadly, they say that the benefits of opening up more to China will only bear fruit when India too can compete in the local market.

From their offices in Karachi and Lahore, they dream of Pakistan forming a regional trade grouping with fast-growing China and India akin to that formed between Canada, Mexico and the US by the North American Free Trade Agreement.

That is of course a long way off thanks to one of the most intractable of world conflicts.

Some diplomats in Islamabad are highly sceptical of regional integration so long as the disputes fester over Kashmir and a security menace pours out of the border regions with Afghanistan.

They say that security still dominates the strategic debate in Pakistan. Any bilateral relationship is hamstrung by failure to find agreement on Kashmir.

Earthmovers are already busy at the Wagha border, the principal land crossing between the two countries, preparing a new freight handling facility for rising commerce.

The current limitations are plain to see. A delegation of Pakistani traders crossed the post on Tuesday on their way to a fair in Chandigarh, the capital of India’s Punjab state. The existing facilities, usually catering to about 20 foot passengers a day, were entirely overwhelmed.

Both sides need to capitalise on what are baby steps towards more open markets. The first thing they can do is improve the infrastructure linking the two countries. The second is to ease other obstacles like quantitative restrictions, customs procedures and formidable non-tariff barriers.

The far bigger task is to resist efforts to blow up reconciliation through commercial ties, and to proceed equally purposefully on some of the thornier issues that make the region one of the world’s most dangerous.

Growing Hope for Trade Ties Between India and Pakistan

By Shahzeb Jillani

Business leaders from India and Pakistan say there’s new optimism about the efforts their governments are making to improve trade ties. But critics warn that overcoming decades of mistrust may not be that easy.

For the first time in 35 years, a Pakistani commerce minister led a business delegation to India last week. The entourage included nearly 80 leading industrialists, traders and high-ranking officials.

Peace talks between the two nuclear-armed neighbours broke down in 2008 after the attacks in the Indian city of Mumbai, which India blamed on Pakistan-based militants.

Nearly three years on, as if to emphasise a sense of normalcy, the Pakistani Commerce Minister, Makhdoom Amin Fahim, stayed at the city’s Taj Mahal Hotel – which was one of the main targets of the 2008 attacks.

There, leading Pakistani traders got a chance to mingle with their equally eager-for-business Indian counterparts.

Between them, they spoke not just of the profits their individual businesses could make if their governments removed the long standing hurdles in their way. But also of how much the people of their two countries, and indeed the wider region, stand to benefit from freer movement of goods, money and commodities.

The only way I see realisation of trade potential between our two countries is for India to remove its non-tariff trade barriers and for Pakistan to reciprocate by granting the MFN status to India”

Vijay Kalantri, president of All India Association of Industries, said traders on both sides feel business between India and Pakistan is a win-win situation for everyone.

“Why are Indians and Pakistanis forced to trade unofficially via third countries like Dubai or Sri Lanka?” he tells the BBC from Mumbai.

“All we are asking is, let there be direct business-to-business contact between us.”

After the talks in Delhi, ministers from the two sides announced their agreement to boost their annual bilateral trade from current $2.7bn (£1.7bn) to $6bn by 2015.

They also pledged to ease business travel and promote bilateral trade through the land route.

For Pakistan, a significant announcement was a pledge by India to drop its opposition to the European Union’s plan to grant Pakistan tariff waiver on select commodities to help it recover from the devastation of 2010 floods.

There was hope that Pakistan might reciprocate and grant India the Most Favoured Nation status (India granted Pakistan MFN status way back in the 1990s).

Even though no such announcement came, Pakistan committed itself to a road map to implement preferential trade ties with India, as prescribed under the South Asia Free Trade Agreement (Safta).

Trade barriers
There are a number of explanations why Pakistan has so far withheld the MFN status from India.

At present there are a number of barriers to prevent trade between Indian and Pakistan
First is political. Pakistani leaders have often linked it to the resolution of the core issue of Kashmir.

It’s a stance which has long been propagated for mainly domestic consumption.

But there is a sense in Pakistan that while the country should continue to push for a negotiated settlement of the Kashmir issue, trade and commerce should not be held hostage to resolution of political disputes.

The second is protectionism. For years, domestic industry in Pakistan has feared it would be swamped by imports from India. But even there, the mood appears to have shifted.

Senator Haji Ghulam Ali, president of Federation of Pakistan Chambers of Commerce and Industry, says there’s a consensus that Pakistan should open up to Indian business.

“Everyone now recognises it will be beneficial for both sides. It’s just a matter of time before it’s done,” he tells the BBC from Delhi.

Business leaders say that less trade barriers would benefit firms in both countries, However, the last, and more plausible, obstacle is the issue of non-tariff barriers.

“In my experience, India has one of the most restrictive trade regimes in the region,” asserts Dr Ashfaq Hasan Khan, a former advisor to Pakistan’s Ministry of Finance. His view matters, given has decades of dealings with South Asian governments on trade liberalization.

He explains that despite granting Pakistan the MFN status, India has a variety of non-tariff barriers in place – such as, stringent certification codes, customs rules, security clearances and movement restrictions – which make it virtually impossible for Pakistani traders to do business in India.

“The only way I see realisation of trade potential between our two countries is for India to remove its non-tariff trade barriers and for Pakistan to reciprocate by granting the MFN status to India,” says Mr Khan.

He adds: “Unless there’s political will to do that, everything else is just talk and photo op.”

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