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MFN status for India on the cards

January 28 2014




The PML-N government sprung a surprise at the recent trade talks with India by offering New Delhi the most-favoured nation (MFN) status from next month — with a condition. Pakistan sought access for 250-300 of its items at lowered duties.

After getting an assurance for market access, MFN status will be granted to India through the issuance of a statutory regulatory order (SRO), a high-ranking official in the ministry of commerce told Dawn. The MFN status means abolishing the negative list of 1,209 items.

In 2012, the PPP-led government opened up the Pakistani market for Indian products, but the deal could not be closed fully in view of the general elections scheduled for May last year. Now that India itself is going for elections in May, the PML-N government thinks it is a good time for closing a deal with the incumbent Congress-led government.

New Delhi may well opt for the deal because Islamabad has reduced the roadmap for granting of complete MFN status from three years to 45 days, a major political concession for the Congress party. Now, any progress depends on New Delhi’s response to Islamabad’s open offer by the end of the current month, the official added.

“Yes, we have agreed to give non-discriminatory market access (NDMA) to India next month,” federal Commerce Minister Khurram Dastagir Khan told Dawn.

The NDMA has been suggested as a new name for MFN in an attempt to reduce the political fallout.

But, Dastagir Khan said, this can only happen if India gives market access to products identified by Pakistan. These items have been listed in the sensitive list of South Asia Free Trade Area (Safta). Textiles and chemicals, which form the bulk of these products, are currently subject to higher duties by India.

Pakistan has handed over the list to the Indian government.

The change of heart in the PML-N government towards India came mostly because of domestic factors, especially the ‘Punjab factor’ (although there was also an IMF demand for opening of trade with India).

On the domestic side, Punjab Chief Minister Mian Shahbaz Sharif visited Indian Punjab and New Delhi in December to pave the way for the much-awaited trade deal. He was accompanied by Mr Khan, then minister of state for commerce.

During the visit, Indian Prime Minister Manmohan Singh agreed to Mr Sharif’s proposal of holding a special meeting for giving final shape to the suspended yet agreed-upon timeline for the opening of border trade.

The recent meeting held in New Delhi was not part of the composite dialogue because India categorically conveyed to Pakistan that there would be no new round on trade liberalisation.

It was a review meeting to implement the already agreed-upon timeline for trade liberalisation. Composite dialogue is still suspended in its true spirit.

The importance of the meeting was clear from the fact that Prime Minister Nawaz Sharif not only elevated Mr Khan to the status of federal minister on Jan 16, one day ahead of the meeting in Delhi, but also sent him to India on a special plane.

Mr Khan got a clear mandate from the prime minister before meeting his Indian counterpart Anand Sharma in New Delhi on Jan 17 to offer the granting of MFN status to India in a shorter time. This visit was a follow-up to that of the prime minister’s adviser on foreign affairs, Sartaj Aziz, who visited India in November.

Documents and interviews with relevant people reveal that the trade deal will only enhance Punjab-to-Punjab trade. The opening of the Wagah border 24/7 will divert trade from the seaport to the land route. Moreover, the government also agreed to allow the import of all products from India at the Wagah border, as opposed to the current 137 items. These two factors will mostly divert trade from Karachi to Punjab.

Commerce Minister Khurram Dastagir Khan said that the Wagah border will be declared a dry port by the end of next month. As a result, the containerisation of cargo will be started next month as well. “We are ready for container cargo at the Wagah border,” Mr Khan said.

On the other hand, the Sindh government has repeatedly asked the federal government to allow trade on Khokhrapar-Monabao border on the pattern of Wagah-Attari. However, the federal government is not willing to start development on the Pakistan side. The revival of the Khokhrapar-Monabao station for trade between Sindh and India’s Rajasthan is not visible in the near future.

But the commerce minister said that the government intends to set up land-port authorities at major exit points, including Khokhrapar-Monabao, for trade with India. Before 1965, Pakistan and India used 11 land routes for bilateral trade, eight in Punjab and three in Sindh.

The enhancement of trade at Wagah-Attari will certainly benefit land-owning elites that have invested in real estate. The price of land has started moving up on both sides, a person who deals in real estate in Lahore told Dawn.

To control and facilitate the flow of trade and people, both sides have agreed to enhance the number of gates at the border. Currently, there is one gate each for travellers and trade. It is being considered that the latter be increased to three with one additional gate for travellers.

The commerce minister said that the Indian government has agreed to allow a Pakistani bank to open a branch in India. He said banks will have to meet the criteria of the Reserve Bank of India.

A commerce ministry official said that the National Bank of Pakistan, United Bank and Muslim Commercial Bank got the green signal to open branches in India. However, three issues — including money-laundering — needed to be sorted out before licences for opening branches could be issued.

From the Indian side, the State Bank of India and the Bank of India will operate branches in Pakistan. The minister said that banks can file applications for opening branches in either country.

Until 1965, there were nine branches of six Indian banks in Pakistan, while Pakistan’s Habib Bank had one branch in Mumbai. Banks in both countries were seized as enemy properties.

But for the commerce minister, ease in obtaining visas, the allowing of mobile phone facility and television channels are equally important issues for achieving the true outcome of trade liberalisation.

Originally published by Dawn Pakistan 

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