History shows that rival countries decrease tension through bilateral trades among each others. Similarly Pakistan and India are the major rivals in south Asia since 1947. They have fought 3 wars since 1947. In order to stabilize the situation in the region both countries tries their best and Pakistan has finally decided to grant MFN status to India which was an important obligation under the treaty of world trade organization. While India has already granted that status to Pakistan in 1996, and they had demanding reciprocate from Pakistan side. Also World trade organization bound its members not to use discriminatory methods against other member countries for both tariff and non-tariff regulations. So this decision may be thought to follow the rules as a member of WTO. Information minister Firdos Ashiq Awan told in a press conference that this was a decision taken in the national interest and all stakeholders, including our military and defense institutions, were on board. While in response India trade secretary said it’s a very powerful step and a welcome step in the right direction.
The biggest factor behind this major decision by Pakistani government is the current economic condition. Pakistan has long been worried by fiscal problems, with its annual economic growth standing at 2.4 per cent in the 2010–11 fiscal year. Financial assistance from USA is expected to drastically drop when American forces withdraw from Afghanistan in 2014. The current relationship among USA and Pakistan is also like a loveless marriage which is sustained by mutual needs. Pakistan provides USA with a supply route to Afghanistan while they deliver economic aid in return. Granting MFN status to India might well be Pakistan’s attempt to compensate the expected drop in aid from USA.
Trade between India and Pakistan stood at US$1.4 billion in the 2010–11 fiscal year, although trade barriers between the two countries have generated smuggled goods trade whose total volume is estimated to be two or three times that of official trade. If this is properly incorporated into formal trade, Pakistan could increase its tariff revenues and, above all, stimulate its economy. Pakistan, whose GDP stands at US$0.16 trillion, would greatly benefit from increased trade with India as India is the world’s ninth-largest economy, boasts a GDP of US$1.73 trillion and an annual growth rate of around 7 per cent in 2010–11. Following Pakistan’s decision to grant India MFN status, the two countries have also agreed to work on a preferential trade agreement.
Industry on both sides is expected to benefit from this move. This would also help make the South Asian Free Trade Agreement (SAFTA) more relevant and applicable. The first impact of the MFN status for India would mean that the current indirect trade would now get converted into direct trade flows between the two countries. Further, it will provide a great momentum to trade since Pakistan will only have a negative list of imports from India. It will now be important to ensure that the negative list remains small and only covers products that are genuinely vulnerable. The other steps in confidence-building that have been taken by India include not opposing the entry of Pakistan as a non-permanent member of the Security Council and also allowing the European Union to provide duty-free access to Pakistan textiles, which has hit Indian exports to some extent. Mutual specialization can be developed in different sectors including textiles and clothing, chemicals, and processed food.
In Pakistan different companies in different sectors are facing negligible competition among themselves. With the MFN agreement companies will have to face strong competition and people of Pakistan will get quality product for fewer prices. As early, to cover the deficiency of any product, Pakistan imports that product at high cost where consumers have to pay high prices for that. Also with stressful energy crises and security issues, FDI decrease to lower level which lead to decrease in the revenue of the government. The revenue generated from MFN agreement will compensate for all the losses which generated from the above points.
Some of the economic stakeholders including Pakistan army as a major economic stakeholder in Pakistan are against of that agreement as they don’t want competition in their respective product market, and they believe that it will lead to destroy the domestic market. They negotiate with Government to include their product in the negative list in order to save themselves from Indian product competition. As I already said there should be competition so that people can buy quality product at cheap prices.
As of today, large firms in both countries are not really participating in the trade between two countries. For meaningful investment and trade, there should be involvement of mid-sized and large firm, so that both countries benefited with expertise of each other. However it is the fact that there is huge disparity in trade among two countries and for that India should look at sectoral and regional chambers in Pakistan to build the partnership, and also there should be institution that identifies the next step to build stronger partnerships.
While looking towards political side The Kashmir dispute and terrorist attacks in India have created major hurdles to closer relations between India and Pakistan. A bilateral relation got worse almost leads to war after a terrorist attack on the Indian parliament in 2001. But the two countries began a strategic dialogue in 2004 with the assistance of US mediation. USA wanted to direct Pakistan’s focus toward Afghanistan rather than India. But the 2008 Mumbai terrorist attacks, killing some 160 people, put in danger the efforts to improve relations. While of that, India blamed the Pakistani army particularly its main intelligence agency, the Inter-Services Intelligence (ISI) for assisting extremist groups, while Pakistan denied India’s allegation.
Fearing the growing power next door, Pakistan formerly tried to maintain the geopolitical balance by threatening India from the east and the west. After East Pakistan gained its independence as Bangladesh, the separation movement in the disputed region of Kashmir and extremist activities supporting the movement took over as the best counterbalance against India. The Pakistani armed forces have been promoting this balancing policy countering India is their major point and have maintained a strong influence on Pakistan’s India policy.
The Pakistani military will likely revert to its traditional counter-India policy when American forces withdraw from Afghanistan, which may see the establishment of a pro-Pakistani Taliban regime in Afghanistan. Civil–military relations are failing in Pakistan to the point where a military takeover could happen at any moment. If the military takes over Pakistan’s regime again, the prospects for improving relations with India will become even more uncertain.
That Pakistan granted India MFN status despite all this suggests the chief reason behind Islamabad’s recent move lies in Pakistan’s deteriorating economy, as already discussed. Initially, the military was reportedly reluctant to grant MFN status to India. Information and Broadcasting Minister Firdous Ashiq Awan emphasized the need to obtain the military’s agreement, telling reporters that ‘this was a decision taken in the national interest and all stakeholders, including our military and defense institutions, were on board’. The Most Favorite Nation agreement may mark a political development driven by economic conditions, a familiar phenomenon observed in many parts of the world as the case between USA and Vietnam. If economic relations between India and Pakistan expand, Pakistan’s business community may come to have a stronger say and demand that greater emphasis be placed on economic policies rather than politics, terrorism and the Kashmir dispute.
Given the mutual distrust between India and Pakistan which have fought three wars in the past six decades it is unlikely that granting MFN status will instantly improve bilateral relations. There will be a lot of twists and turns, but Pakistan’s decision might well have triggered a change of the bilateral relationship.
Conclusion:
It is concluded that, history reveals that prominent rivals in the world decrease their tension through mutual trade. Similarly when India and Pakistan start free trade between each other this will lead to dependency on each other and will be less chance to fight with each other, and their will be peace and prosperity in the region.
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