Fate of talks on economic issues hangs in the balance

By Sushma Ramachandran

NEW DELHI, JULY 10. Even as rhetoric on Kashmir accelerates in the run-up to the Indo-Pakistan summit, the fate of talks on critical economic issues hangs in the balance. With Pakistan deciding to eliminate its Commerce Minister from the delegation, the prospects of Most Favoured Nation (MFN) status being granted to India are bleak. Thus despite pleas from the business community of both the countries, the existing minimal bilateral trade and investment looks set to reach a plateau.

The only economic issue over which serious interest has been evinced by Pakistan is the multi-million dollar Indo- Iran gas pipeline project where it stands to benefit from transit fees. Reports from Islamabad indicate that the project may be on the agenda since both sides have finally agreed to a feasibility study. The Indian side is still worried over the security aspect but much depends on the kind of assurances given by Pakistan during the summit.

As for trade and investment, the first step has to be taken by Pakistan since India has already given MFN status as per the World Trade Organisation (WTO) guidelines. Successive Commerce Ministers here have threatened to lodge protests with the dispute settlement mechanism of the WTO since Pakistan is defying the basic norms of the multilateral trade body. But it is abundantly clear that grant of MFN status is tied to improved political relations between the two countries and any resolution through the DSM is not likely to have much impact on Pakistan. India has thus wisely decided not to open another front at the WTO and instead relied on bilateral negotiations to resolve this nagging irritant.

Industry sources point out that bilateral trade has been bogged down for decades by the fact that Pakistan fixed a list of only 573 items for import from India. This was raised to 600 in the second round of SAPTA negotiations. The decision to limit trade to a restricted list of imports has greatly hampered bilateral trade through the official route. In contrast, as is well known, Pakistan imports every year as much as $one billion roughly of Indian goods via West Asia. This is as much as five times the official trade of about $200 million annually.

Industry representatives say by limiting trade in this manner, Pakistan has lost a huge amount of revenue which could have been mobilised by levying tariffs on direct imports from India. Even Pakistan industry is aware of the benefits that could flow by enhancing trade ties with its larger neighbour. In fact, a study on freer trade in India prepared by the Karachi Chamber of Commerce and Industry in 1997 says that extending MFN status to India will be highly beneficial to Pakistan's economy. Imports of iron ore, machinery and steel products, chemicals and dyes will meet Pakistan industries' requirements for capital goods, raw material and other manufacturing inputs at lowest possible resource cost. It will also benefit from import of wheat, spices, tea and other agricultural products at competitive prices. Besides, it can export products like cotton yarn and textiles, leather products, surgical instruments, electrical fans, water coolers, paper, vegetables and fruits.

The opening up of the economy to India would help Pakistan's industries modernise and meet the challenge posed by rapid globalisation. Instead of facing the pressures of competition from multinationals, industry could streamline operations with assistance from Indian companies.

None of this is possible, however, without Pakistan taking the basic step of extending MFN status to India or discussing prospects to increase bilateral trade even in a gradual manner. With the focus being exclusively on Kashmir, it looks as if these crucial economic questions may be raised only peripherally though logically these should be basic areas for discussion among countries in the subcontinent. Analysts have for long been arguing that India and Pakistan can take a tip from France and Germany.

These two ancient enemies buried their longstanding animosity by entering into a coal and steel economic agreement after World War II, which metamorphosed into the European Economic Community (EEC) and ultimately became the present European Union (EU).

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