MFN - right or wrong?
In 1996, India granted Pakistan the status of Most Favored Nation ( MFN). Subsequently, Pakistan experienced problems regarding the standard of Indian products, strict licence inspection and the rigid customs rules.
Now Pakistan has granted India MFN status to liberalise trade between the neighbours. Trade between India and Pakistan has always been interwoven with politics, which has hampered economic benefits from being exploited to the full potential. Many believe that new trade ties between the two countries will not only facilitate trade but will also diminish the trust deficit, bringing the region closer to a more peaceful environment.
It is illogical to do trade with countries that are geographically at a distance while ignoring our neighbours who can supply the same materials at a lower cost. According to a study undertaken by the State Bank of Pakistan, the removal of non- tariff barriers, would allow the bilateral trade between India and Pakistan to increase fivefold.
Some Pakistani businessmen feel that the time has also come to relax the strict visa regime. The two way MFN status would lead to smoother trade and Pakistan can set its sights on the wider global market through establishing their industries in India.
While Karachi is the largest industrial base in Pakistan, with its on- going problems, it does not compete with the highly stable and global Indian market. Keeping a strictly business perspective in view, setting up industries in India rather than continuing to suffer under the prevalent law and order conditions, would be a logical and practical approach for Pakistani businessmen.
While many would view such an initiative in a positive light, there are many who would disagree. The rate of unemployment in Pakistan almost doubled from 7.4 percent in 2008 to 14 percent in 2009 and continues to rise ever since. It is, therefore, important to create greater job opportunities for Pakistani workers. By setting up industries in India our businessmen would be employing Indian workers while the rate of unemployment in Pakistan would continue to rise. Such an eventuality would, therefore aggravate the problems stemming from unemployment.
Another common fear associated with the decision of granting MFN status to India, is that Indian goods would take over the domestic Pakistani market. The idea is said to be slightly exaggerated because if Indian goods damage the sales of domestic producers, then Pakistan can evoke Trade Defence Laws to negate those effects. These laws include Anti- Dumping Duties Ordinance, Countervailing Duties Ordinance and Safeguards Ordinance.
What is required is a sharp focus on the ways to speed up the process of smoother trade between the two countries. Since one of the main advantages of having cordial relations with neighbours is increased trade at a lower transportation cost, we need to upgrade our ageing and inadequate infrastructure, focusing specifically on improving road, rail and train services, along with air links.